Attached files
file | filename |
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EX-31.1 - EX-31.1 - Caribou Coffee Company, Inc. | c54419exv31w1.htm |
EX-32.2 - EX-32.2 - Caribou Coffee Company, Inc. | c54419exv32w2.htm |
EX-31.2 - EX-31.2 - Caribou Coffee Company, Inc. | c54419exv31w2.htm |
EX-32.1 - EX-32.1 - Caribou Coffee Company, Inc. | c54419exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 27, 2009.
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 000-51535
CARIBOU COFFEE COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota | 41-1731219 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
3900 Lakebreeze Avenue North | 55429 | |
Brooklyn Center, Minnesota | (Zip Code) | |
(Address of principal executive offices) |
Registrants Telephone Number, Including Area Code: (763) 592-2200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
On November 5, 2009, 19,813,027 shares of Registrants $0.01 par value common stock were
outstanding.
CARIBOU COFFEE COMPANY, INC.
FORM 10-Q
For the Thirteen Week Period Ended September 27, 2009
Table of Contents
See accompanying notes.
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 27, | September 28, | September 27, | September 28, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands, except for per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Coffeehouse sales |
$ | 54,479 | $ | 54,731 | $ | 162,637 | $ | 168,618 | ||||||||
Commercial and franchise sales |
8,260 | 6,179 | 23,436 | 17,232 | ||||||||||||
Total net sales |
62,739 | 60,910 | 186,073 | 185,850 | ||||||||||||
Cost of sales and related occupancy costs |
27,849 | 26,992 | 81,438 | 80,209 | ||||||||||||
Operating expenses |
24,297 | 24,571 | 71,485 | 75,785 | ||||||||||||
Opening expenses |
6 | 62 | 20 | 198 | ||||||||||||
Depreciation and amortization |
3,465 | 10,208 | 10,776 | 20,771 | ||||||||||||
General and administrative expenses |
6,313 | 7,115 | 19,708 | 21,183 | ||||||||||||
Closing expense and disposal of assets |
123 | 646 | 179 | 4,524 | ||||||||||||
Operating income (loss) |
686 | (8,684 | ) | 2,467 | (16,820 | ) | ||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
10 | 2 | 17 | 23 | ||||||||||||
Interest expense |
(68 | ) | (81 | ) | (189 | ) | (714 | ) | ||||||||
Income (loss) before provision for income taxes |
628 | (8,763 | ) | 2,295 | (17,511 | ) | ||||||||||
(Benefit from) provision for income taxes |
(140 | ) | (36 | ) | (182 | ) | 14 | |||||||||
Net income (loss) |
768 | (8,727 | ) | 2,477 | (17,525 | ) | ||||||||||
Less: Net income attributable to
noncontrolling interest |
114 | 39 | 309 | 79 | ||||||||||||
Net Income (loss) attributable to Caribou
Coffee Company, Inc. |
$ | 654 | $ | (8,766 | ) | $ | 2,168 | $ | (17,604 | ) | ||||||
Basic net income (loss) attributable to
Caribou Coffee Company, Inc. common
shareholders per share |
$ | 0.03 | $ | (0.45 | ) | $ | 0.11 | $ | (0.91 | ) | ||||||
Diluted net income (loss) attributable to
Caribou Coffee Company, Inc. common
shareholders per share |
$ | 0.03 | $ | (0.45 | ) | $ | 0.11 | $ | (0.91 | ) | ||||||
Basic weighted average number of shares
outstanding |
19,470 | 19,371 | 19,418 | 19,371 | ||||||||||||
Diluted weighted average number of shares
outstanding |
20,169 | 19,371 | 19,830 | 19,371 | ||||||||||||
See accompanying notes.
3
Table of Contents
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 27, | December 28, | |||||||
2009 | 2008 | |||||||
In thousands, except per share amounts | ||||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 19,086 | $ | 11,060 | ||||
Accounts receivable (net of allowance for doubtful accounts of $27 and
$72 at September 27, 2009 and December 28, 2008, respectively) |
5,381 | 5,311 | ||||||
Other receivables (net of allowance for doubtful accounts of $81 and
$76 at September 27, 2009 and December 28, 2008, respectively) |
1,297 | 916 | ||||||
Income tax receivable |
78 | 60 | ||||||
Inventories |
12,458 | 10,218 | ||||||
Prepaid expenses and other current assets |
714 | 881 | ||||||
Total current assets |
39,014 | 28,446 | ||||||
Property and equipment, net of accumulated depreciation and amortization |
48,944 | 60,312 | ||||||
Restricted cash |
327 | 327 | ||||||
Other assets |
345 | 487 | ||||||
Total assets |
$ | 88,630 | $ | 89,572 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 9,774 | $ | 8,229 | ||||
Accrued compensation |
6,057 | 6,241 | ||||||
Accrued expenses |
7,344 | 8,317 | ||||||
Deferred revenue |
5,763 | 9,473 | ||||||
Total current liabilities |
28,938 | 32,260 | ||||||
Asset retirement liability |
1,099 | 1,035 | ||||||
Deferred rent liability |
8,653 | 9,245 | ||||||
Deferred revenue |
2,330 | 2,538 | ||||||
Income tax liability |
213 | 486 | ||||||
Total long term liabilities |
12,295 | 13,304 | ||||||
Equity: |
||||||||
Caribou Coffee Company, Inc. Shareholders equity: |
||||||||
Preferred stock, par value $.01, 20,000 shares authorized; no shares
issued and outstanding |
| | ||||||
Common stock, par value $.01, 200,000 shares authorized; 19,813 and
19,371 shares issued and outstanding at September 27, 2009 and
December 28, 2008, respectively |
198 | 194 | ||||||
Additional paid-in capital |
126,381 | 125,222 | ||||||
Accumulated comprehensive loss |
(36 | ) | | |||||
Accumulated deficit |
(79,311 | ) | (81,479 | ) | ||||
Total Caribou Coffee Company, Inc. shareholders equity |
47,232 | 43,937 | ||||||
Noncontrolling interest |
165 | 71 | ||||||
Total equity |
47,397 | 44,008 | ||||||
Total liabilities and equity |
$ | 88,630 | $ | 89,572 | ||||
See accompanying notes.
4
Table of Contents
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited)
(in thousands)
(unaudited)
(in thousands)
Common Stock | Additional | Accumulated | ||||||||||||||||||||||||||
Number of | Paid-In | Noncontrolling | Other | Accumulated | ||||||||||||||||||||||||
Shares | Amount | Capital | Interest | Comprehensive Loss | Deficit | Equity | ||||||||||||||||||||||
Balance, December 28, 2008 |
$ | 19,371 | 194 | $ | 125,222 | $ | 71 | $ | | $ | (81,479 | ) | $ | 44,008 | ||||||||||||||
Net income |
| | | 309 | | 2,168 | 2,477 | |||||||||||||||||||||
Changes in fair value of
derivative financial
instruments |
| | | | (36 | ) | | (36 | ) | |||||||||||||||||||
Comprehensive income |
$ | 2,441 | ||||||||||||||||||||||||||
Share based compensation |
| | 664 | | | | 664 | |||||||||||||||||||||
Options exercised |
104 | 1 | 583 | | | | 584 | |||||||||||||||||||||
Restricted shares issued |
338 | 3 | (3 | ) | | | | | ||||||||||||||||||||
Distribution of noncontrolling
interest |
| | | (195 | ) | | | (195 | ) | |||||||||||||||||||
Purchase of noncontrolling
interest |
| | (85 | ) | (20 | ) | | | (105 | ) | ||||||||||||||||||
Balance, September 27, 2009 |
19,813 | $ | 198 | $ | 126,381 | $ | 165 | $ | (36 | ) | $ | (79,311 | ) | $ | 47,397 | |||||||||||||
See accompanying notes.
5
Table of Contents
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-Nine Weeks Ended | ||||||||
September 27, | September 28, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Operating activities |
||||||||
Net income (loss) attributable to Caribou Coffee Company, Inc. |
$ | 2,168 | $ | (17,604 | ) | |||
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: |
||||||||
Depreciation and amortization |
12,360 | 22,387 | ||||||
Amortization of deferred financing fees |
99 | 431 | ||||||
Noncontrolling interest |
309 | 79 | ||||||
Provision for closing expense and asset disposals |
9 | 553 | ||||||
Share-based compensation |
664 | 420 | ||||||
Non cash accretion expense |
64 | 28 | ||||||
Shareholder contribution |
| 237 | ||||||
Changes in operating assets and liabilities: |
||||||||
Restricted cash |
| 399 | ||||||
Accounts receivable and other receivables |
(469 | ) | (240 | ) | ||||
Inventories |
(2,240 | ) | (1,133 | ) | ||||
Prepaid expenses and other assets |
241 | 908 | ||||||
Accounts payable |
1,545 | 2,716 | ||||||
Accrued expenses and other liabilities |
(2,250 | ) | (5,644 | ) | ||||
Deferred revenue |
(3,918 | ) | (3,909 | ) | ||||
Net cash provided (used) by operating activities |
8,582 | (372 | ) | |||||
Investing activities |
||||||||
Payments for property and equipment |
(845 | ) | (5,461 | ) | ||||
Proceeds from the disposal of property |
36 | | ||||||
Net cash used in investing activities |
(809 | ) | (5,461 | ) | ||||
Financing activities |
||||||||
Borrowings under revolving credit facility |
| 3,000 | ||||||
Payment of debt financing fees |
(31 | ) | | |||||
Issuance of common stock |
584 | | ||||||
Purchase of noncontrolling interest |
(105 | ) | | |||||
Distribution of noncontrolling interest |
(195 | ) | (115 | ) | ||||
Net cash provided by financing activities |
253 | 2,885 | ||||||
Increase (decrease) in cash and cash equivalents |
8,026 | (2,948 | ) | |||||
Cash and cash equivalents at beginning of period |
11,060 | 9,886 | ||||||
Cash and cash equivalents at end of period |
$ | 19,086 | $ | 6,938 | ||||
See accompanying notes.
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Table of Contents
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. Basis of Presentation
The Company and Caribou refer to Caribou Coffee Company, Inc. and its affiliates,
collectively.
The unaudited condensed consolidated financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles for interim financial information and
with the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly,
they do not include all information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management, these statements
include all adjustments considered necessary for the fair presentation of all interim periods
reported herein. All adjustments are of a normal recurring nature unless otherwise disclosed.
Management believes that the disclosures made are adequate for a fair presentation of the Companys
results of operations, financial position and cash flows. These consolidated financial statements
should be read in conjunction with the year-end consolidated financial statements and accompanying
notes included in the Companys Annual Report on Form 10-K (File No. 000-51535).
Principles of Consolidation
The Companys consolidated financial statements include the accounts of Caribou Coffee
Company, Inc., affiliates that it controls and a third party finance company (which exists for
purposes of the Companys revolving credit facility, as described in the Companys Annual Report on
Form 10-K) where the Company is the primary beneficiary in a variable interest entity. The
affiliates are Caribou MSP Airport, a partnership in which the Company owns a 49% interest and that
operates six coffeehouses, and Caribou Coffee Development Company, Inc., a licensor of Caribou
Coffee branded coffeehouses. The Company controls the daily operations of Caribou Coffee
Development Company, Inc. and accordingly consolidates their results of operations. The Company
provided a loan to its partner in Caribou MSP Airport for all of the partners equity contribution
to the venture. Consequently, the Company bears all the risk of loss but does not control all
decisions that may have a significant effect on the success of the venture. Therefore, the Company
consolidates the Caribou MSP Airport, as it is the primary beneficiary in this variable interest
entity. Prior to December 31, 2008, the Company owned a 50% interest in Caribou Ventures, L.L.C
(Ventures), a partnership that operated one coffeehouse. On December 31, 2008, the Company
purchased the outstanding 50% interest in Ventures for $0.1 million. Prior to December 31, 2008,
because the Company controlled the daily operations of Ventures, the results of operations were
consolidated. All material intercompany balances and transactions between Caribou Coffee Company,
Inc. and Caribou Ventures, L.L.C., Caribou MSP Airport, Caribou Coffee Development Company, Inc.
and the third party finance company have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the U.S. (GAAP) requires management to make estimates and assumptions that affect the
amounts reported in the accompanying consolidated financial statements. Actual results may differ
from those estimates, and such differences may be material to the consolidated financial
statements.
Fiscal Year End
The Companys fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year
consists of four 13-week quarters in a 52-week year and three 13-week quarters and one 14-week
fourth quarter in a 53-week year. Fiscal year 2009 will include 53 weeks. Each fiscal quarter
reported herein consists of two four-week months and one five-week month.
7
Table of Contents
The Companys sales are somewhat seasonal, with the fourth quarter accounting for the highest
sales volumes. Operating results for the thirteen week and thirty-nine week periods ended September
27, 2009 are not necessarily indicative of future results that may be expected for the year ending
January 3, 2010.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes retail coffeehouse revenue (coffeehouse sales) when payment is tendered
at the point of sale. Sales tax collected from customers is presented net of amounts expected to be
remitted to various tax jurisdictions. Accordingly, sales taxes have no effect on the Companys
reported net sales in the accompanying statements of operations. Additionally, revenues are
recognized net of any discounts, returns, allowances and sales incentives, including coupon
redemptions and rebates.
Revenue from the sale of products to commercial, franchise or on-line customers (other sales)
is recognized when ownership and price risk of the products are legally transferred to the
customer, which is generally upon the shipment of goods. Revenues include any applicable shipping
and handling costs invoiced to the customer, and the expense of such shipping and handling costs is
included in cost of sales.
The Company sells stored value cards of various denominations. Cash receipts related to stored
value card sales are deferred when initially received and revenue is recognized when the card is
redeemed and the related products are delivered to the customer. Such amounts are classified as a
current liability on the Companys consolidated balance sheets. The Company will honor all stored
value cards presented for payment, however, the Company has determined that the likelihood of
redemption is remote for certain card balances due to long periods of inactivity. In these
circumstances, to the extent management determines there is no requirement for remitting balances
to government agencies under unclaimed property laws, card and certificate balances may be
recognized in the consolidated statements of operations. The Company uses the redemption
recognition method and recognizes the estimated value of abandoned cards as a percentage of every
stored value card redeemed and includes the amount in Coffeehouse sales. Such amounts represent the
Companys experience regarding unused balances related to stored value cards redeemed. The Company
excludes stored value card balances sold in jurisdictions which require remittance of unused
balances to government agencies under unclaimed property laws.
Territory development fees and initial franchise fees are recognized upon substantial
performance of services for a new territory or coffeehouse, which is generally upon the opening of
a new coffeehouse. Royalties based upon a percentage of reported sales are recognized on a monthly
basis when earned. Cash payments received in advance for territory development fees or initial
franchise fees are recorded as deferred revenue until earned.
Operating Leases and Rent Expense
Certain of the Companys lease agreements provide for scheduled rent increases during the
lease term or for rental payments commencing at a date other than the date of initial occupancy.
Rent expense is recorded on a straight-line basis over the initial lease term and renewal periods
that are reasonably assured. The difference between rent expense and rent paid is recorded as
deferred rent and is included in accrued expenses and deferred rent liability in the
consolidated balance sheets. Contingent rents, including those based on a percentage of retail
sales over stated levels, and rental payment increases based on a contingent future event are
accrued over the respective contingency periods when the achievement of such targets or events are
deemed to be probable by the Company.
3. Recent Accounting Pronouncements
Effective July 1, 2009, the Financial Accounting Standards Boards (FASB) Accounting
Standards Codification (ASC) became the single official source of authoritative, nongovernmental
generally accepted accounting principles (GAAP) in the United States. The historical GAAP
hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than
guidance issued by the Securities and Exchange Commission. Our accounting policies were not
affected by the conversion to ASC. However, references to specific accounting standards in the
footnotes to our consolidated financial statements have been changed to refer to the appropriate
section of ASC.
8
Table of Contents
In September 2006, the FASB issued accounting guidance, which defines fair value, provides
guidance for measuring fair value in GAAP and expands disclosures about fair value measurements. On
December 31, 2007, the Company adopted these accounting rules for financial assets and liabilities.
The Company adopted the the provisions related to non-financial assets and liabilities on December
29, 2008. The adoption of these accounting rules did not have a material impact on the Companys
consolidated statement of operations, cash flows or financial position.
In December 2007, the FASB issued guidance establishing new standards that govern the
accounting for and reporting of noncontrolling interests in partially owned subsidiaries. The
Company adopted these accounting rules on December 29, 2008 and has accordingly retroactively
applied the presentation and disclosure requirements for the existing noncontrolling interest for
all periods presented.
In March 2008, the FASB issued revised guidance requiring enhanced disclosures about an
entitys derivative instruments and hedging activities. The Company adopted these accounting rules
on December 29, 2008. See Note 5 for the new disclosures.
In May 2009, the FASB issued guidance intended to establish general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. Specifically, this standard sets forth the
period after the balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date. This
new accounting rule is effective for fiscal years and interim periods ended after June 15, 2009.
The Company adopted this standard effective June 28, 2009 and has evaluated any subsequent events
through November 5, 2009. There are no material subsequent events which would require recording or
further disclosure.
In June 2009, the FASB issued guidance which amends certain ASC concepts related to
consolidation of variable interest entities. Among other accounting and disclosure requirements,
this guidance replaces the quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity with an approach
focused on identifying which enterprise has the power to direct the activities of a variable
interest entity and the obligation to absorb losses of the entity or the right to receive benefits
from the entity. The Company will adopt this guidance in its first annual and interim reporting
periods beginning after November 15, 2009. The Company has not determined the impact that this
guidance may have on its financial statements.
4. Impairments, Coffeehouse Closings, Asset Disposals and Severance
The Company reviews individual coffeehouses for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Recoverability is measured
by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected
to be generated. There were no impairment charges recorded during the thirteen or thirty-nine week
periods ended September 27, 2009. During the thirteen and thirty-nine week periods ended September
28, 2008, the Company recorded depreciation expense of $5.7 million and $7.5 million, respectively,
for the impairment of coffeehouses in its retail segment. The Company recognizes lease exit costs
and other expenses when a coffeehouse closes.
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Charges related to coffeehouse closures and disposal charges consist of the following (in
thousands, except coffeehouse closures):
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 27, | September 28, | September 27, | September 28, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Coffeehouse closures |
1 | 2 | 1 | 24 | ||||||||||||
Amount charged to
operations for closed
coffeehouses: |
||||||||||||||||
Lease reserve non-cash |
$ | 40 | $ | (857 | ) | $ | (52 | ) | $ | (272 | ) | |||||
Lease costs associated
with lease
termination-cash |
73 | 1,286 | 220 | 3,971 | ||||||||||||
Net book value of closed
coffeehouse property and
equipment |
| 217 | | 825 | ||||||||||||
Amount charged to
operations for other
property and equipment write-offs |
10 | | 11 | | ||||||||||||
Coffeehouse closing
expense and disposal of
assets |
$ | 123 | $ | 646 | $ | 179 | $ | 4,524 | ||||||||
A summary of the activity in the lease exit accrual and management severance accrual is as
follows (in thousands):
Balance at | Additions | Deductions | ||||||||||||||
Beginning of | Charged to | from | Balance at | |||||||||||||
Thirteen Weeks Ended: | Quarter | Expense | reserves | End of Quarter | ||||||||||||
September 27, 2009 |
||||||||||||||||
Exit costs |
$ | 212 | $ | 83 | $ | 73 | $ | 222 | ||||||||
Severance |
234 | | 141 | 93 | ||||||||||||
Total |
$ | 446 | $ | 83 | $ | 214 | $ | 315 | ||||||||
Balance at | Additions | Deductions | ||||||||||||||
Beginning of | Charged to | from | Balance at | |||||||||||||
Thirteen Weeks Ended: | Quarter | Expense | reserves | End of Quarter | ||||||||||||
September 28, 2008 |
||||||||||||||||
Exit costs |
$ | 1,069 | $ | 441 | $ | 1,286 | $ | 224 | ||||||||
Severance |
1,928 | 586 | 1,895 | 619 | ||||||||||||
Total |
$ | 2,997 | $ | 1,027 | $ | 3,181 | $ | 843 | ||||||||
Balance at | Additions | Deductions | ||||||||||||||
Beginning of | Charged to | from | Balance at | |||||||||||||
Thirty-Nine Weeks Ended: | Year | Expense | reserves | End of Quarter | ||||||||||||
September 27, 2009 |
||||||||||||||||
Exit costs |
$ | 222 | $ | 220 | $ | 220 | $ | 222 | ||||||||
Severance |
716 | 63 | 686 | 93 | ||||||||||||
Total |
$ | 938 | $ | 283 | $ | 906 | $ | 315 | ||||||||
Balance at | Additions | Deductions | ||||||||||||||
Beginning of | Charged to | from | Balance at | |||||||||||||
Thirty-Nine Weeks Ended: | Year | Expense | reserves | End of Quarter | ||||||||||||
September 28, 2008 |
||||||||||||||||
Exit costs |
$ | 467 | $ | 3,728 | $ | 3,971 | $ | 224 | ||||||||
Severance |
1,353 | 1,341 | 2,075 | 619 | ||||||||||||
Total |
$ | 1,820 | $ | 5,069 | $ | 6,046 | $ | 843 | ||||||||
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In the thirty-nine week period ended September 27, 2009, the Company recorded severance costs
of $0.1 million related to severance provided to the Companys Senior Vice President of Store
Operations. During the thirty-nine weeks ended September 28, 2008, the Company accrued severance
costs related to the Chief Financial Officers resignation and other eliminated positions in the
amount of $1.3 million and included the amount in accrued compensation and general and
administrative expense.
The remaining amounts of severance accruals will be paid in the 4th quarter of the
2009 fiscal year.
5. Derivative Financial Instruments
The Company evaluates various strategies in managing its exposure to market-based risks, such
as entering into hedging transactions to manage its exposure to fluctuating dairy commodity prices.
The Company records all derivatives on the condensed consolidated balance sheets at fair
value. For those cash flow hedges that have been designated and qualify as an effective accounting
hedge, the effective portion of the derivatives gain or loss is initially reported as a component
of other comprehensive income (OCI) and subsequently reclassified into net earnings when the
hedged exposure affects net income. For those cash flow hedges that are not designated or do not
qualify as an effective accounting hedge, the entire derivative gain or loss is recorded in
earnings as incurred.
As of September 27, 2009, the Company had accumulated net derivative losses of less than $0.1
million in other comprehensive income, all of which pertains to hedging instruments that will be
realized within 12 months and will also continue to experience fair value changes before affecting
earnings. Based on notional amounts, as of September 27, 2009 the Company had dairy commodity
futures contracts representing approximately six hundred thousand gallons. The Companys cash flow
derivative instruments contain credit-risk-related contingent features. At September 27, 2009, the
Company, in the normal course of business, has posted collateral of less than $0.1 million related
to these contingent features.
The following table presents the fair values of derivative instruments on the condensed
consolidated balance sheets as of September 27, 2009 and December 28, 2008 (in thousands):
Fair Value | ||||||||||
Fair Value | December 28, | |||||||||
Contract Type | Balance sheet Location | September 27, 2009 | 2008 | |||||||
Derivatives designated as hedging instruments |
||||||||||
Cash flow commodity hedges |
Accrued expenses | $ | 36 | $ | | |||||
Derivatives not designated as hedging instruments |
||||||||||
Cash flow commodity hedges |
Accrued expenses | 30 | 303 | |||||||
Total derivatives |
$ | 66 | $ | 303 | ||||||
The following table presents the effect of derivative instruments on the condensed
consolidated financial statements for the thirteen week and thirty-nine week periods ended
September 27, 2009 and September 28, 2008 (in thousands):
Gain/ (Loss) recognized in OCI | ||||||||||||
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||
September 27, | September 28, | September 27, | September 28, | |||||||||
Contract type | 2009 | 2008 | 2009 | 2008 | ||||||||
Cash flow commodity hedges(1)
|
$ | 56 | $ | $ | (36 | ) | $ |
(1) | There was no material ineffectiveness during the periods presented |
During the thirteen and thirty-nine week periods ended September 27, 2009, the Company
recognized less than $0.1 million in gains and $0.2 million in losses, respectively, related to
commodity hedges not designated as hedging
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instruments. During the thirteen and thirty-nine week periods ended September 27, 2009, the
Company recognized less than $0.1 million in losses related to commodity hedges designated as
hedging instruments. These losses are recorded in the condensed consolidated statements of
operations as costs of goods sold and related occupancy expenses.
6. Fair Value Measurements
Generally Accepted Accounting Principles define fair value, establish a framework for
measuring fair value, and establish a fair value hierarchy that prioritizes the inputs used to
measure fair value:
| Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. | ||
| Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. | ||
| Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in managements best estimate of fair value. |
The following table presents the financial assets and liabilities measured at fair value on a
recurring basis as of September 27, 2009 (in thousands):
Total | ||||||||||||||||
September 27, | ||||||||||||||||
2009 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 19,086 | $ | 19,086 | $ | | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivatives |
$ | 66 | $ | 66 | $ | | $ | |
Cash and cash equivalents include cash held at FDIC-insured financial institutions and highly
liquid money market funds. The fair value of cash equivalents is determined using quoted market
prices in active markets for identical assets, thus they are considered to be Level 1 instruments.
Derivative assets consist of commodity futures contracts. Where applicable, the Company uses
quoted prices in an active market for identical derivative assets and liabilities that are traded
in exchanges. These derivative assets are included in Level 1.
7. Inventories
Inventories consist of the following (in thousands):
September 27, | December 28, | |||||||
2009 | 2008 | |||||||
Coffee |
$ | 5,914 | $ | 4,652 | ||||
Other merchandise held for sale |
3,317 | 2,843 | ||||||
Supplies |
3,227 | 2,723 | ||||||
$ | 12,458 | $ | 10,218 | |||||
At September 27, 2009 and December 28, 2008, the Company had committed to fixed price purchase
contracts, primarily for green coffee, aggregating approximately $13.3 million and $16.3 million,
respectively. These fixed price contracts are through December 2010.
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8. Share-Based Compensation and Equity
Stock-based Compensation
The Company maintains stock compensation plans, which provide for the granting of
non-qualified stock options and restricted stock to officers and key employees and certain
non-employees. Stock options have been granted at prices equal to the fair market values as of the
dates of grant. Options and restricted stock generally vest over four years and options generally
expire ten years from the grant date. Stock-based compensation expense for the thirteen weeks ended
September 27, 2009 and September 28, 2008 was approximately $0.2 million and $0.1 million,
respectively, and for the thirty-nine weeks ended September 27, 2009 and September 28, 2008
totaled approximately $0.7 million and $0.4 million, respectively, and is included in general and
administrative expenses in the condensed consolidated statements of operations.
Stock option activity during the period indicated is as follows (in thousands, except per share and
life data):
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Number of | Average | Contract | ||||||||||
Shares | Exercise Price | Life | ||||||||||
Outstanding, December 28, 2008 |
2,452 | $ | 5.16 | 7.89 Yrs | ||||||||
Granted |
| $ | | |||||||||
Exercised |
| $ | | |||||||||
Forfeited |
(402 | ) | $ | 6.93 | ||||||||
Outstanding, March 29, 2009 |
2,050 | $ | 4.82 | 7.65 Yrs | ||||||||
Granted |
10 | $ | 2.22 | |||||||||
Exercised |
| $ | | |||||||||
Forfeited |
(213 | ) | $ | 8.51 | ||||||||
Outstanding, June 28, 2009 |
1,847 | $ | 4.37 | 7.32 Yrs | ||||||||
Granted |
| $ | | |||||||||
Exercised |
(104 | ) | $ | 5.60 | ||||||||
Forfeited |
(13 | ) | $ | 6.75 | ||||||||
Outstanding, September 27, 2009 |
1,730 | $ | 4.28 | 7.80 Yrs | ||||||||
Options vested at September 27, 2009 |
724 | $ | 6.18 | 6.53 Yrs | ||||||||
Restricted Stock activity during the period indicated is as follows (in thousands, except per
share and life data):
Weighted | Weighted | |||||||||||
Average Grant | Average | |||||||||||
Number of | Date | Contract | ||||||||||
Shares | Fair Value | Life | ||||||||||
Outstanding, December 28, 2008 |
| $ | | |||||||||
Granted |
338 | $ | 5.50 | |||||||||
Vested |
(38 | ) | $ | 2.86 | ||||||||
Forfeited |
| $ | | |||||||||
Outstanding, September 27, 2009 |
300 | $ | 5.83 | 3.49 Yrs |
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Comprehensive Income
Comprehensive income was as follows (in thousands):
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
27, 2009 | 28, 2008 | 27, 2009 | 28, 2008 | |||||||||||||
Net income (loss) |
$ | 768 | $ | (8,727 | ) | $ | 2,477 | $ | (17,525 | ) | ||||||
Unrealized holding gains
(losses) on cash flow hedging
instruments |
56 | | (36 | ) | | |||||||||||
Total comprehensive income (loss) |
$ | 824 | $ | (8,727 | ) | $ | 2,441 | $ | (17,525 | ) | ||||||
9. Income Taxes
During the thirteen and thirty-nine weeks ended September 27, 2009, the Company recognized a
tax benefit of $0.1 million and $0.2 million, respectively. During the thirteen and thirty-nine
weeks ended September 28, 2008, the Company recognized a tax benefit of $36 thousand and tax
expense $14 thousand, respectively. After consideration of all evidence, both positive and
negative, management has recorded a valuation allowance against its deferred income tax assets at
September 27, 2009 due to the uncertainty of realizing such deferred income tax assets.
10. Net Income (Loss) Per Share
Basic and diluted net income (loss) attributable to Caribou Coffee Company, Inc. common
shareholders per share for the thirteen and thirty-nine week periods ended September 27, 2009 and
September 28, 2008, were as follows (in thousands, except per share data):
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 27, | September 28, | September 27, | September 28, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income (loss) attributable to
Caribou Coffee Company, Inc. |
$ | 654 | $ | (8,766 | ) | $ | 2,168 | $ | (17,604 | ) | ||||||
Weighted average common shares outstanding
basic |
19,470 | 19,371 | 19,418 | 19,371 | ||||||||||||
Dilutive impact of stock-based compensation |
699 | | 412 | | ||||||||||||
Weighted average common shares outstanding
dilutive |
20,169 | 19,371 | 19,830 | 19,371 | ||||||||||||
Basic net income (loss) per share |
$ | 0.03 | $ | (0.45 | ) | $ | 0.11 | $ | (0.91 | ) | ||||||
Diluted net income (loss) per share |
$ | 0.03 | $ | (0.45 | ) | $ | 0.11 | $ | (0.91 | ) |
For the thirteen week periods ended September 27, 2009 and September 28, 2008, 0.4 million and
2.3 million stock options, respectively, and for the thirty-nine week periods ended September 27,
2009 and September 28, 2008, 0.6 million and 2.3 million stock options, respectively, were excluded
from the calculation of shares applicable to diluted net income (loss) per share because their
inclusion would have been anti-dilutive.
11. Master Franchise Agreement
In November 2004, the Company entered into a Master Franchise Agreement with a franchisee. The
agreement provides the franchisee the right to develop, subfranchise or operate 250 Caribou Coffee
coffeehouses in 12 Middle Eastern countries. The Agreement expires in November 2012 and provides
for certain renewal options.
In connection with the agreement, the franchisee paid the Company a nonrefundable deposit
aggregating $3.3 million. In addition to the deposit, the franchisee is obligated to pay the
Company $20 thousand per franchised/subfranchised coffeehouse (initial franchise fee) opened for
the first 100 Caribou Coffee Coffeehouses and $15 thousand for each additional
franchised/subfranchised coffeehouse opened (after the first 100). The agreement provides for $5
thousand of the initial deposit received by the Company to be applied against the initial
14
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franchise fee as discussed herein. Monthly royalty payments ranging from 3%-5% of gross sales
are also due to the Company.
The Company included $2.2 million of the deposit in long term liabilities as deferred revenue
and $0.3 million in current liabilities as deferred revenue on its balance sheet as of September
27, 2009 and December 28, 2008. The initial deposit will be amortized into income on a pro rata
basis along with the initial franchise fee payments received in connection with the execution of
the franchise or subfranchise agreements at the time of the coffeehouse opening. The current
portion of deferred revenue represents the franchise fees for the coffeehouses estimated to be
opened during the subsequent twelve months per the development schedule in the Master Franchise
Agreement. At September 27, 2009, there were 60 coffeehouses operating under this Agreement. The
franchisee and certain owners of the franchisee also own indirect interests in Caribou Holding
Company Limited.
12. Revolving Credit Facility
On December 27, 2000, the Company entered into a sale leaseback arrangement with a third party
finance company whereby from time to time the Company sells equipment to the finance company and
immediately following the sale, it leases back all of the equipment it sold to such third party.
The finance company funds its obligations under the lease financing arrangement through a revolving
credit facility that it entered into with a commercial lender. The terms of the revolving credit
facility are economically equivalent to the lease financing arrangement such that the amount of
rent payments and unpaid acquisition costs under the lease financing arrangement are at all times
equal to the interest and principal under the revolving credit facility. The Company consolidates
the third party finance company, as the Company is the primary beneficiary in a variable interest
entity due to the terms and provisions of the lease financing arrangement. Accordingly, the
Companys consolidated balance sheets include all assets and liabilities of the third party finance
company under the captions property and equipment and revolving credit facility, respectively. The
Companys consolidated statements of operations include all the operations of the finance company
including all interest expense related to the revolving credit facility. Notwithstanding this
presentation, the Companys obligations are limited to its obligations under the lease financing
arrangement and the Company has no direct obligations under the revolving credit facility other
than its obligations to the third party finance company. The third partying finance company was
established solely for the purpose of facilitating the Companys sale-leaseback arrangement. The
finance company does not have any other assets or liabilities or income and expense other than
those associated with the revolving credit facility. The lease financing arrangement has been
structured to be consistent with Shariah principles.
In February 2008, the Company amended the sale leaseback arrangement, reducing the maximum
amount available to $20 million from $60 million and modified certain of the arrangements
financial covenants. In connection with the amendment, the Company wrote-off $0.3 million, which
is a portion of the costs associated with the acquisition of the sale leaseback arrangement, which
is included in interest expense on the Companys statement of operations. In November 2008, the
Company amended the sale-leaseback arrangement to extend it to June 29, 2010, reduce the maximum
available to $9 million and modify certain of the arrangements financial covenants. As of
September 27, 2009 and December 28, 2008, the Company had no equipment leased under this
arrangement.
13. Commitments and Contingencies
On July 26, 2005, three of the Companys former employees filed a lawsuit against us in the
State of Minnesota District Court for Hennepin County seeking monetary and equitable relief from us
under the Minnesota Fair Labor Standards Act, or the Minnesota FLSA, the federal FLSA and state
common law. The suit primarily alleged that the Company misclassified its retail coffeehouse
managers as exempt from the overtime provisions of the Minnesota FLSA and the federal FLSA and that
these managers are therefore entitled to overtime compensation for each week in which they worked
more than 40 hours from May 2002 to the present with respect to the claims under the federal FLSA
and for weeks in which they worked more than 48 hours from May 2003 to the present with respect to
the claims under the Minnesota FLSA. Plaintiffs sought payment of allegedly owed and unpaid
overtime compensation, liquidated damages, interest and among other things, attorneys fees and
costs.
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On February 1, 2008, the Company entered into a Stipulation of Settlement (the Stipulation)
to settle the lawsuit. The Stipulation provides for a gross settlement payment of $2.7 million,
plus the employers share of payroll taxes. A partial settlement payment of $1.8 million was made
in the first quarter of 2008 and the final settlement payment of $1.0 million was made in the first
quarter of 2009.
In addition, from time to time, the Company becomes involved in certain legal proceedings in
the ordinary course of business. The Company does not believe that any such ordinary course legal
proceedings to which it is currently a party will have a material adverse effect on its financial
position or results of operations.
14. Segment Reporting
Segment information is prepared on the same basis that the Companys management reviews
financial information for decision making purposes. The Company has three reportable operating
segments: retail coffeehouses, commercial and franchise. Unallocated corporate includes expenses
pertaining to corporate administrative functions that support the operating segments but are not
specifically attributable to or managed by any segment and are not included in the reported
financial results of the operating segments. All of the segment sales are from external customers.
Retail Coffeehouses
The Companys retail segment operated 413 company-owned coffeehouses located in 16 states and
the District of Columbia, as of September 27, 2009. The coffeehouses offer customers high-quality
gourmet coffee and espresso-based beverages, specialty teas, baked goods, whole bean coffee,
branded merchandise and related products.
Commercial
The commercial segment sells high-quality gourmet whole and ground coffee to grocery stores,
mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues,
college campuses and on-line customers.
Franchise
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of September 27, 2009, there were 112 franchised
coffeehouses in U.S. and international markets.
The tables below present information by operating segment for the thirteen and thirty-nine
weeks ended September 27, 2009 and September 28, 2008 (in thousands):
Thirteen weeks ended September 27, 2009
Retail | Unallocated | |||||||||||||||||||
Coffeehouses | Commercial | Franchise | Corporate | Total | ||||||||||||||||
Total net sales |
$ | 54,479 | $ | 6,557 | $ | 1,703 | $ | | $ | 62,739 | ||||||||||
Costs of sales and related occupancy costs |
22,644 | 4,232 | 973 | | 27,849 | |||||||||||||||
Operating expenses |
23,004 | 1,010 | 283 | | 24,297 | |||||||||||||||
Opening expenses |
| | 6 | | 6 | |||||||||||||||
Depreciation and amortization |
3,454 | 10 | 1 | | 3,465 | |||||||||||||||
General and administrative expenses |
1,742 | | | 4,571 | 6,313 | |||||||||||||||
Closing expense and disposal of assets |
123 | | | | 123 | |||||||||||||||
Operating income (loss) |
$ | 3,512 | $ | 1,305 | $ | 440 | $ | (4,571 | ) | $ | 686 | |||||||||
Identifiable assets |
$ | 40,896 | $ | 107 | $ | 9 | $ | 7,932 | $ | 48,944 |
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Thirteen weeks ended September 28, 2008
Retail | Unallocated | |||||||||||||||||||
Coffeehouses | Commercial | Franchise | Corporate | Total | ||||||||||||||||
Total net sales |
$ | 54,731 | $ | 4,467 | $ | 1,712 | $ | | $ | 60,910 | ||||||||||
Costs of sales and related occupancy costs |
23,080 | 2,858 | 1,054 | | 26,992 | |||||||||||||||
Operating expenses |
23,727 | 568 | 276 | | 24,571 | |||||||||||||||
Opening expenses |
56 | | 6 | | 62 | |||||||||||||||
Depreciation and amortization |
10,199 | 9 | | | 10,208 | |||||||||||||||
General and administrative expenses |
2,195 | | | 4,920 | 7,115 | |||||||||||||||
Closing expense and disposal of assets |
646 | | | | 646 | |||||||||||||||
Operating (loss) income |
$ | (5,172 | ) | $ | 1,032 | $ | 376 | $ | (4,920 | ) | $ | (8,684 | ) | |||||||
Identifiable assets |
$ | 55,097 | $ | 141 | $ | 13 | $ | 9,551 | $ | 64,802 | ||||||||||
Net impairment |
$ | 5,743 | $ | | $ | | $ | | $ | 5,743 |
Thirty-nine weeks ended September 27, 2009
Retail | Unallocated | |||||||||||||||||||
Coffeehouses | Commercial | Franchise | Corporate | Total | ||||||||||||||||
Total net sales |
$ | 162,637 | $ | 17,996 | $ | 5,440 | $ | | $ | 186,073 | ||||||||||
Costs of sales and related occupancy costs |
66,827 | 11,529 | 3,082 | | 81,438 | |||||||||||||||
Operating expenses |
68,023 | 2,582 | 880 | | 71,485 | |||||||||||||||
Opening expenses |
| | 20 | | 20 | |||||||||||||||
Depreciation and amortization |
10,741 | 32 | 3 | | 10,776 | |||||||||||||||
General and administrative expenses |
5,591 | | | 14,117 | 19,708 | |||||||||||||||
Closing expense and disposal of assets |
196 | | | (17 | ) | 179 | ||||||||||||||
Operating (loss) income |
$ | 11,259 | $ | 3,853 | $ | 1,455 | $ | (14,100 | ) | $ | 2,467 | |||||||||
Identifiable assets |
$ | 40,896 | $ | 107 | $ | 9 | $ | 7,932 | $ | 48,944 |
Thirty-nine weeks ended September 28, 2008
Retail | Unallocated | |||||||||||||||||||
Coffeehouses | Commercial | Franchise | Corporate | Total | ||||||||||||||||
Total net sales |
$ | 168,618 | $ | 12,502 | $ | 4,730 | $ | | $ | 185,850 | ||||||||||
Costs of sales and related occupancy costs |
69,799 | 7,771 | 2,639 | | 80,209 | |||||||||||||||
Operating expenses |
73,149 | 1,548 | 1,088 | | 75,785 | |||||||||||||||
Opening expenses |
167 | | 31 | | 198 | |||||||||||||||
Depreciation and amortization |
20,749 | 22 | | | 20,771 | |||||||||||||||
General and administrative expenses |
6,976 | | | 14,207 | 21,183 | |||||||||||||||
Closing expense and disposal of assets |
4,412 | | | 112 | 4,524 | |||||||||||||||
Operating (loss) income |
$ | (6,634 | ) | $ | 3,161 | $ | 972 | $ | (14,319 | ) | $ | (16,820 | ) | |||||||
Identifiable assets |
$ | 55,097 | $ | 141 | $ | 13 | $ | 9,551 | $ | 64,802 | ||||||||||
Net impairment |
$ | 7,460 | $ | | $ | | $ | | $ | 7,460 |
All of the Companys assets are located in the United States, and approximately 1% of the
Companys consolidated sales come from outside the United States. No customer accounts for 10% or
more of the Companys sales.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The information in this Managements Discussion and Analysis section should be read in
conjunction with the unaudited condensed consolidated financial statements and the notes included
in Item 1 of Part I of this Form 10-Q and the audited consolidated financial statements and notes,
and Managements Discussion and Analysis of Financial Condition and Results of Operations for the
fiscal year ended December 28, 2008 contained in the our Form 10-K (File No. [000-51535]).
FORWARD-LOOKING STATEMENTS
Certain statements in this report and other written or oral statements made by or on behalf of
Caribou Coffee are forward-looking statements within the meaning of the federal securities laws.
Statements regarding future events and developments and our future performance, as well as
managements current expectations, beliefs, plans, estimates or projections relating to the future,
are forward-looking statements within the meaning of these laws. These forward-looking statements
are subject to a number of risks and uncertainties. Among the important factors that could cause
actual results to differ materially from those indicated by such forward-looking statements are:
fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of
management focusing on implementation of a growth strategy, failure to develop and maintain the
Caribou Coffee brand and other factors disclosed in the our filings with the Securities and
Exchange Commission. We undertake no obligation to update any forward-looking statements in order
to reflect events or circumstances that may arise after the date of this report.
Overview
We are the second largest company-owned gourmet coffeehouse operator in the United States
based on the number of coffeehouses. As of September 27, 2009, we had 525 retail locations,
including 112 franchised. Our coffeehouses are located in 19 states, the District of Columbia and
international markets. We focus on offering our customers high-quality gourmet coffee and
espresso-based beverages, as well as specialty teas baked goods, whole bean coffee, branded
merchandise and related products. Additionally, we sell our high-quality whole bean and ground
coffee to grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and
entertainment venues, college campuses and on-line customers. We focus on creating a unique
experience for customers through a combination of high-quality products, a comfortable and
welcoming coffeehouse environment and customer service.
We will continue our efforts to increase comparable coffeehouse sales, including increasing
brand awareness through marketing efforts and introducing new products and promotions. As our
comparable coffeehouse sales increase, we expect our operating margins at those coffeehouses to
improve as we expect to have greater ability to leverage our fixed expense.
During the thirteen and thirty-nine weeks ended September 27, 2009, our commercial segment
experienced sales growth of 47% and 44% versus the thirteen and thirty-nine weeks ended September
28, 2008, respectively. Our growth strategy for the commercial segment is to continue to build our
existing relationships with grocery stores and national office coffee providers and add new points
of distribution for our gourmet whole bean and ground coffee.
We intend to strategically expand our coffeehouse locations in our existing markets. During
the three quarters of 2009, we opened 18 new coffeehouses. Our goal is to expand our concept into
a nationally recognized brand in the United States by opening new company-operated coffeehouses and
partnering with qualified developers to open franchised coffeehouses while adding select
international locations through franchising.
Critical Accounting Policies
The preparation of our financial statements requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during
the periods presented. Our Annual Report on Form 10-K for the fiscal year ended December 28, 2008,
(File No. [000-51535]) includes a summary of the critical accounting policies we believe are the
most important to aid in understanding our financial condition and results of operations. We
believe those critical accounting policies are significant or involve additional management
judgment due to the sensitivity of the methods, assumptions, and estimates necessary in determining
the related asset and liability amounts.
18
Table of Contents
Fiscal Periods
Our fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year consists
of four 13-week quarters in a 52-week year and three 13-week quarters and one 14-week fourth
quarter in a 53-week year. Fiscal year 2009 will include 53 weeks. Each fiscal quarter reported
herein consists of two four-week months and one five-week month.
Our sales are somewhat seasonal, with the fourth quarter accounting for the highest sales
volumes. Operating results for the thirteen week period ended September 27, 2009 are not
necessarily indicative of future results that may be expected for the year ending January 3, 2010.
Thirteen Weeks Ended September 27, 2009 vs. Thirteen Weeks Ended September 28, 2008
Results of Operations
The following table presents the consolidated statements of operations as well as the
percentage relationship to total net sales of items included in our consolidated statement of
operations:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of total net sales | |||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Net sales: |
||||||||||||||||||||
Coffeehouse |
$ | 54,479 | $ | 54,731 | (0.5 | )% | 86.8 | % | 89.9 | % | ||||||||||
Commercial and franchise |
8,260 | 6,179 | 33.7 | % | 13.2 | % | 10.1 | % | ||||||||||||
Total net sales |
62,739 | 60,910 | 3.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of sales and related occupancy costs |
27,849 | 26,992 | 3.2 | % | 44.4 | % | 44.3 | % | ||||||||||||
Operating expenses |
24,297 | 24,571 | (1.1 | )% | 38.7 | % | 40.3 | % | ||||||||||||
Opening expenses |
6 | 62 | (90.3 | )% | | % | 0.1 | % | ||||||||||||
Depreciation and amortization |
3,465 | 10,208 | (66.1 | )% | 5.5 | % | 16.8 | % | ||||||||||||
General and administrative expenses |
6,313 | 7,115 | (11.3 | )% | 10.1 | % | 11.7 | % | ||||||||||||
Closing expense and disposal of assets |
123 | 646 | (81.0 | )% | 0.2 | % | 1.1 | % | ||||||||||||
Operating income (loss) |
686 | (8,684 | ) | (107.9 | )% | 1.1 | % | (14.3 | )% | |||||||||||
Other income (expense): |
||||||||||||||||||||
Interest income |
10 | 2 | 400.0 | % | | % | | % | ||||||||||||
Interest expense |
(68 | ) | (81 | ) | (16.0 | )% | (0.1 | )% | (0.1 | )% | ||||||||||
Income (loss) before provision for
income taxes and noncontrolling interest |
628 | (8,763 | ) | (107.2 | )% | 1.0 | % | (14.4 | )% | |||||||||||
Benefit from income taxes |
(140 | ) | (36 | ) | 288.9 | % | (0.2 | )% | (0.1 | )% | ||||||||||
Net income (loss) |
768 | (8,727 | ) | (108.8 | )% | 1.2 | % | (14.3 | )% | |||||||||||
Less: Net income attributable to
noncontrolling interest |
114 | 39 | 192.3 | % | 0.2 | % | 0.1 | % | ||||||||||||
Net income (loss) attributable to
Caribou Coffee Company, Inc. |
$ | 654 | $ | (8,766 | ) | (107.5 | )% | 1.0 | % | (14.4 | )% | |||||||||
Net Sales
Total net sales increased $1.8 million, or 3.0%, to $62.7 million in the third thirteen weeks
of 2009 from $60.9 million in the third thirteen weeks of 2008. This increase was attributable to a
sales increase in the commercial segment partially offset by a 0.5% decrease of comparable
coffeehouse sales and a slight decrease in franchise segment sales. Coffeehouse net sales
decreased $0.2 million, or 0.5%, to $54.5 million in the third thirteen weeks of 2009 from $54.7
million in the third thirteen weeks of 2008. Commercial and franchise sales increased by $2.1
million, or 33.7%, to $8.3 million for the third thirteen weeks of 2009 from $6.2 million for the
third thirteen weeks
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of 2008. This increase was largely due to sales to existing and new commercial customers
offset slightly by fewer product sales, franchise fees and royalties from franchised coffeehouses
during the preceding 12 months.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased
$0.8 million, or 3.2%, to $27.8 million in the third thirteen weeks of 2009, from $27.0 million in
the third thirteen weeks of 2008. This increase was largely due to higher commercial and franchise
sales and was partially offset by lower coffeehouse net sales. As a percentage of total net sales,
cost of sales and related occupancy costs increased to 44.4% in the third thirteen weeks of 2009
from 44.3% in the third thirteen weeks of 2008 as commercial and franchise sales
typically have a higher cost of goods sold as a percentage of sales than coffeehouse sales.
Operating expenses. Operating expenses decreased $0.3 million, or 1.1%, to $24.3 million in
the third thirteen weeks of fiscal 2009, from $24.6 million in the third thirteen weeks of 2008.
This decrease is attributable to operating performance improvements
and 23 fewer operating coffeehouse weeks
in the third thirteen weeks of 2009 as compared to the third thirteen weeks of 2008. As
a result, operating expenses as a percentage of total net sales decreased to 38.7% in the third
thirteen weeks of 2009 from 40.3% in the third thirteen weeks of 2008.
Opening expenses. Opening expenses were minimal during the third thirteen weeks of 2009 and
2008 as there were no new company-owned coffeehouses opened in 2009 and two new company-owned
coffeehouses opened in 2008. With respect to franchise coffeehouses, four and five new franchise
coffeehouses were opened in the third thirteen weeks of 2009 and 2008, respectively.
Depreciation and amortization. Depreciation and amortization decreased $6.7 million, or 66.1%,
to $3.5 million in the third thirteen weeks of 2009, from $10.2 million in the third thirteen weeks
of 2008. As a percentage of total net sales, depreciation and amortization was 5.5% in the third
thirteen weeks of 2009, compared to 16.8% in the third thirteen weeks of 2008. This decrease is due
to the impairment of company-owned coffeehouses during 2008.
Depreciation and amortization in the third
thirteen weeks of 2008 includes $5.7 million in accelerated depreciation associated with
coffeehouse impairments.
General and administrative expenses. General and administrative expenses decreased $0.8
million, or 11.3%, to $6.3 million in the third thirteen weeks of 2009, from $7.1 million in the
third thirteen weeks of 2008. As a percentage of total net sales, general and administrative
expenses decreased to 10.1% in the third thirteen weeks of 2009, from 11.7% in the third thirteen
weeks of 2008. The decrease in general and administrative expenses was largely due to a reduction
in personnel related costs at our support center.
Closing expense and disposal of assets. Closing expense and disposal of assets were $0.1
million in the third thirteen weeks of 2009 compared to $0.6 million in the third thirteen weeks of
2008. One company-owned coffeehouse was closed in the third thirteen weeks of 2009 compared to two
company-owned coffeehouse closures in third thirteen weeks of 2008. We will continue to actively
manage our portfolio of coffeehouses.
Interest income. Interest income increased slightly in the third thirteen weeks of 2009, as
compared to the third thirteen weeks of 2008 due to more cash on hand in 2009.
Interest expense. Interest expense remained relatively flat at $0.1 million for both the
third thirteen weeks of 2009 and 2008. Outstanding borrowings as of September 27, 2009 and
September 28, 2008 were $0.0 million and $3.0 million, respectively.
Operating Segments
Segment information is prepared on the same basis that our management reviews financial
information for decision making purposes. We have three reportable operating segments: retail,
commercial and franchise. Unallocated corporate includes expenses pertaining to corporate
administrative functions that support the operating segments but are not specifically attributable
to or managed by any segment and are not included in the
20
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reported financial results of the operating segments. The following tables summarize our
results of operations by segment for the third thirteen weeks of fiscal 2009 and 2008.
Retail
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of coffeehouse sales | |||||||||||||||||||
Coffeehouse sales |
$ | 54,479 | $ | 54,731 | (0.5 | )% | 100.0 | % | 100.0 | % | ||||||||||
Costs of sales and related occupancy costs |
22,644 | 23,080 | (1.9 | )% | 41.6 | % | 42.2 | % | ||||||||||||
Operating expenses |
23,004 | 23,727 | (3.0 | )% | 42.2 | % | 43.3 | % | ||||||||||||
Opening expenses |
| 56 | (100.0 | )% | | % | 0.1 | % | ||||||||||||
Depreciation and amortization |
3,454 | 10,199 | (66.1 | )% | 6.3 | % | 18.6 | % | ||||||||||||
General and administrative expenses |
1,742 | 2,195 | (20.6 | )% | 3.2 | % | 4.0 | % | ||||||||||||
Closing expense and disposal of assets |
123 | 646 | (81.0 | )% | 0.2 | % | 1.2 | % | ||||||||||||
Operating income (loss) |
$ | 3,512 | $ | (5,172 | ) | (167.9 | )% | 6.4 | % | (9.4 | )% | |||||||||
The retail segment operates company-owned coffeehouses. As of September 27, 2009, there were
413 company-owned coffeehouses in 16 states and the District of Columbia.
Coffeehouse sales
Coffeehouse sales decreased $0.2 million, or 0.5%, to $54.5 million in the third thirteen
weeks of 2009 from $54.7 million in the third thirteen weeks of 2008. This decrease is attributable
to a 0.5% decrease in comparable coffeehouse net sales in the third thirteen weeks of 2009 as
compared to the same period in 2008.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs
decreased $0.4 million, or 1.9%, to $22.6 million in the third thirteen weeks of 2009, from $23.1
million for the third thirteen weeks of 2008. Cost of sales and related occupancy costs as a
percentage of coffeehouse net sales decreased to 41.6% for the third thirteen weeks of 2009 from
42.2% for the third thirteen weeks of 2008. The decrease was primarily due to lower coffeehouse
sales in 2009 and the closing of underperforming coffeehouses in 2008.
Operating expenses. Operating expenses decreased $0.7 million, or 3.0%, to $23.0 million for
the third thirteen weeks of 2009, from $23.7 million for the third thirteen weeks of 2008. As a
percentage of coffeehouse net sales, operating expenses decreased to 42.2% in the third thirteen
weeks of 2009 from 43.3% in the third thirteen weeks of 2008. This decrease is primarily
attributable to operating performance improvements in 2009.
Depreciation and amortization. Depreciation and amortization decreased $6.7 million, or
66.1%, to $3.5 million for the third thirteen weeks of 2009, from $10.2 million for the third
thirteen weeks of 2008. This decrease is due to the impairment of company-owned coffeehouses during
2008. Depreciation and amortization includes $5.7 million in accelerated depreciation associated with coffeehouse
impairments in the third thirteen weeks of 2008.
General and administrative expenses. General and administrative expenses decreased $0.5
million, or 20.6%, to $1.7 million for the third thirteen weeks of 2009 from $2.2 million for the
third thirteen weeks of 2008. The decrease was largely due to the realignment of our operating
regions, in which we downsized the number of district managers.
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Closing expense and disposal of assets. Closing expense and disposal of assets decreased $0.5
million to $0.1 million for the third thirteen weeks of 2009 from $0.6 million for the third
thirteen weeks of 2008. The decrease in closing expense and disposal of assets is primarily
attributable to asset write-offs and lease termination costs associated with the closing of two
underperforming company-owned coffeehouses in the third thirteen weeks of 2008. There was one
company-owned coffeehouse closure in the third thirteen weeks of fiscal 2009. We will continue to
actively manage our portfolio of company-owned coffeehouses. Expenses associated with the closings
are variable from coffeehouse to coffeehouse and are dependent upon the amount of time left on the
lease and the remaining book value of assets associated with each coffeehouse.
Commercial
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of commercial sales | |||||||||||||||||||
Sales |
$ | 6,557 | $ | 4,467 | 46.8 | % | 100.0 | % | 100.0 | % | ||||||||||
Costs of sales and related occupancy costs |
4,232 | 2,858 | 48.1 | % | 64.5 | % | 64.0 | % | ||||||||||||
Operating expenses |
1,010 | 568 | 77.8 | % | 15.4 | % | 12.7 | % | ||||||||||||
Depreciation and amortization |
10 | 9 | 11.1 | % | 0.2 | % | 0.2 | % | ||||||||||||
Operating income |
$ | 1,305 | $ | 1,032 | 26.5 | % | 19.9 | % | 23.1 | % | ||||||||||
The commercial segment sells high-quality gourmet whole bean and ground coffee to grocery
stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment
venues, college campuses and on-line customers.
Sales
Sales increased $2.1 million, or 46.8%, to $6.6 million in the third thirteen weeks of 2009,
from $4.5 million in the third thirteen weeks of 2008. This increase is primarily attributable to
the incremental sales to existing grocery stores and Keurig Incorporated, an industry leader in
single cup brewing technology, as well as, sales to new grocery stores and food brokers who
distribute our products.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs
increased $1.4 million, or 48.1%, to $4.2 million for the third thirteen weeks of 2009, from $2.9
million for the third thirteen weeks of 2008. The increase was largely driven by increased sales.
As a percentage of sales, cost of sales and related occupancy costs increased to 64.5% for the
third thirteen weeks of 2009, from 64.0% for the third thirteen weeks of 2008. The slight increase
in cost of sales and related occupancy costs as a percentage of sales was primarily due to sales
mix changes among commercial categories.
Operating expenses. Operating expenses increased $0.4 million, or 77.8%, to $1.0 million for
the third thirteen weeks of 2009, from $0.6 million for the third thirteen weeks of 2008. As a
percentage of sales, operating expenses increased to 15.4% in the third thirteen weeks of 2009 from
12.7% in the third thirteen weeks of 2008. The increase is attributable to higher labor,
marketing, and other operating costs as we invest in our team and infrastructure to support our
growing commercial segment.
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Franchise
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of franchise sales | |||||||||||||||||||
Sales |
$ | 1,703 | $ | 1,712 | (0.5 | )% | 100.0 | % | 100.0 | % | ||||||||||
Costs of sales and related occupancy costs |
973 | 1,054 | (7.7 | )% | 57.1 | % | 61.6 | % | ||||||||||||
Operating expenses |
283 | 276 | 2.5 | % | 16.6 | % | 16.1 | % | ||||||||||||
Opening expenses |
6 | 6 | | % | 0.4 | % | 0.3 | % | ||||||||||||
Depreciation and amortization |
1 | | | % | 0.1 | % | | % | ||||||||||||
Operating income |
$ | 440 | $ | 376 | 17.0 | % | 25.8 | % | 22.0 | % | ||||||||||
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of September 27, 2009, there were 112 franchised
coffeehouses in the U.S. and international markets.
Sales
Sales remained flat at $1.7 million for the third thirteen weeks of 2009 when compared to the
third thirteen weeks of 2008. An increase in royalties from our franchises was offset by lower
product sales to our franchisees.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs
decreased $0.1 million, or 7.7%, to $1.0 million for the third thirteen weeks of 2009, from $1.1
million for the third thirteen weeks of 2008. The decrease was primarily due to lower product sales
to our franchised coffeehouses during the third thirteen weeks of 2009. As a percentage of sales,
cost of sales and related occupancy costs decreased to 57.1% for the third thirteen weeks of 2009,
from 61.6% for the third thirteen weeks of 2008. The decrease in cost of sales and related
occupancy costs as a percentage of sales was primarily due to a change in revenue mix in the
franchise segment.
Operating expenses. Operating expenses remained flat at $0.3 million for the third thirteen
weeks of 2009 compared to the third thirteen weeks of 2008.
Opening expenses. Opening expenses remained flat at less than $0.1 million in the third
thirteen weeks of 2009 and 2008.
Unallocated Corporate
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of total net sales | |||||||||||||||||||
General and administrative expenses |
$ | 4,571 | $ | 4,920 | (7.1 | )% | 7.3 | % | 8.1 | % | ||||||||||
Operating (loss) |
$ | (4,571 | ) | $ | (4,920 | ) | (7.1 | )% | 7.3 | % | (8.1 | )% | ||||||||
General and administrative expenses. General and administrative expenses decreased $0.3
million, or 7.1%, to $4.6 million in the third thirteen weeks of 2009, from $4.9 million in the
third thirteen weeks of 2008. As a percentage of total net sales, general and administrative
expenses decreased to 7.3% in the third thirteen weeks of 2009, from 8.1% in the third thirteen
weeks of 2008. The decrease in general and administrative expenses was largely due to a reduction
of personnel related costs at our support center.
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Thirty-Nine Weeks Ended September 27, 2009 vs. Thirty-Nine Weeks Ended September 28, 2008
Results of Operations
The following table presents the consolidated statements of operations as well as the
percentage relationship to total net sales of items included in our consolidated statement of
operations:
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of total net sales | |||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Net sales: |
||||||||||||||||||||
Coffeehouse |
$ | 162,637 | $ | 168,618 | (3.5 | )% | 87.4 | % | 90.7 | % | ||||||||||
Commercial and franchise |
23,436 | 17,232 | 36.0 | % | 12.6 | % | 9.3 | % | ||||||||||||
Total net sales |
186,073 | 185,850 | 0.1 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of sales and related occupancy costs |
81,438 | 80,209 | 1.5 | % | 43.8 | % | 43.1 | % | ||||||||||||
Operating expenses |
71,485 | 75,785 | (5.7 | )% | 38.4 | % | 40.8 | % | ||||||||||||
Opening expenses |
20 | 198 | (89.9 | )% | | % | 0.1 | % | ||||||||||||
Depreciation and amortization |
10,776 | 20,771 | (48.1 | )% | 5.8 | % | 11.2 | % | ||||||||||||
General and administrative expenses |
19,708 | 21,183 | (7.0 | )% | 10.6 | % | 11.4 | % | ||||||||||||
Closing expense and disposal of assets |
179 | 4,524 | (96.0 | )% | 0.1 | % | 2.4 | % | ||||||||||||
Operating income (loss) |
2,467 | (16,820 | ) | (114.7 | )% | 1.3 | % | (9.0 | )% | |||||||||||
Other income (expense): |
||||||||||||||||||||
Interest income |
17 | 23 | (26.1 | )% | | % | | % | ||||||||||||
Interest expense |
(189 | ) | (714 | ) | (73.5 | )% | (0.1 | )% | (0.4 | )% | ||||||||||
Income (loss) before provision for
income taxes and noncontrolling interest |
2,295 | (17,511 | ) | (113.1 | )% | 1.2 | % | (9.4 | )% | |||||||||||
(Benefit from) provision for income taxes |
(182 | ) | 14 | (1,400.0 | )% | (0.1 | )% | 0.0 | % | |||||||||||
Net income (loss) |
2,477 | (17,525 | ) | (114.1 | )% | 1.3 | % | (9.4 | )% | |||||||||||
Less: Net income attributable to
noncontrolling interest |
309 | 79 | 291.1 | % | 0.2 | % | 0.0 | % | ||||||||||||
Net income (loss) attributable to
Caribou Coffee Company, Inc. |
$ | 2,168 | $ | (17,604 | ) | (112.3 | )% | 1.2 | % | (9.4 | )% | |||||||||
Net Sales
Total net sales increased $0.2 million, or 0.1%, to $186.1 million in the first thirty-nine
weeks of 2009 from $185.8 million in the first thirty-nine weeks of 2008. This increase is due to
an increase in our commercial and franchise sales partially offset by a decrease in our
company-owned coffeehouse sales. Coffeehouse net sales decreased $6.0 million, or 3.5%, to $162.6
million in the first thirty-nine weeks of 2009 from $168.6 million in the first thirty-nine weeks
of 2008. This decrease is attributable to 288 fewer operating coffeehouse weeks and a 3.0%
decrease in comparable coffeehouse net sales in the first thirty-nine weeks of 2009 as compared to
the same period in 2008. Commercial and franchise sales increased by $6.2 million, or 36.0%, to
$23.4 million for the first thirty-nine weeks of 2009 from $17.2 million for the first thirty-nine
weeks of 2008, offsetting the decrease in company-owned coffeehouse sales. This increase was
largely due to sales to existing and new commercial customers and product sales, franchise fees and
royalties from the development of 32 franchised coffeehouses during the preceding 12 months.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased
$1.2 million, or 1.5%, to $81.4 million in the first thirty-nine weeks of 2009, from $80.2 million
in the first thirty-nine weeks of 2008. This increase was due to higher commercial and franchise
sales. As a percentage of total net sales, cost of sales and related occupancy costs increased to
43.8% in the first thirty-nine weeks of 2009 from 43.1% in the first thirty-nine weeks of 2008 as
commercial and franchise sales typically have a higher cost of goods as percentage of sales than
company-owned coffeehouse sales.
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Operating expenses. Operating expenses decreased $4.3 million, or 5.7%, to $71.5 million in
the first thirty-nine weeks of 2009, from $75.8 million in the first thirty-nine weeks of 2008.
This decrease is attributable to operating performance improvements
and 288 fewer operating coffeehouse weeks
in the first thirty-nine weeks of 2009 as compared to the first thirty-nine weeks of
2008. As a result, operating expenses as a percentage of total net sales decreased to 38.4% in the
first thirty-nine weeks of 2009 from 40.8% in the first thirty-nine weeks of 2008.
Opening expenses. Opening expenses were minimal during the first twenty-six weeks of 2009 as
compared to $0.2 million in the first thirty-nine weeks of 2008. There were no new company-owned
coffeehouses opened in the first thirty-nine weeks of 2009 versus seven new company-owned
coffeehouses in the same period of 2008.
Depreciation and amortization. Depreciation and amortization decreased $10.0 million, or
48.1%, to $10.8 million in the first thirty-nine weeks of 2009, from $20.8 million in the first
thirty-nine weeks of 2008. As a percentage of total net sales, depreciation and amortization was
5.8% in the first thirty-nine weeks of 2009, compared to 11.2% in the first thirty-nine weeks of
2008. The decrease was due to the impairment of company-owned coffeehouses during the first
thirty-nine weeks of 2008 and lower depreciable assets in 2009 from impairments
during 2008. Depreciation and amortization in the first thirty-nine weeks of 2008 included $7.5
million in accelerated deprecation associated with the coffeehouse impairments.
General and administrative expenses. General and administrative expenses decreased $1.5
million, or 7.0%, to $19.7 million in the first thirty-nine weeks of 2009, from $21.2 million in
the first thirty-nine weeks of 2008. As a percentage of total net sales, general and administrative
expenses decreased to 10.6% in the first thirty-nine weeks of 2009, from 11.4% in the first
thirty-nine weeks of 2008. The decrease in general and administrative expenses was largely due to
reductions in personnel related costs during 2009 and $1.3 million of severance costs incurred during the first thirty-nine weeks of 2008.
Closing expenses and disposal of assets. Closing expense and disposal of assets decreased
$4.3 million to $0.2 million in the first thirty-nine weeks of 2009 from $4.5 million in the first
thirty-nine weeks of 2008. This decrease is due to costs associated with twenty-four company-owned
coffeehouse closures in the first thirty-nine weeks of 2008. There was one company-owned
coffeehouse closure in the first thirty-nine weeks of 2009. We will continue to actively manage our
portfolio of coffeehouses.
Interest income. Interest income remained flat in the first thirty-nine weeks of 2009, as
compared to the first thirty-nine weeks of 2008.
Interest expense. Interest expense decreased $0.5 million to $0.2 million in the first
thirty-nine weeks of 2009 from $0.7 million in the first thirty-nine weeks of 2008. Interest
expense decreased due to the 2008 write-off of a portion of the costs associated with acquiring the
revolving credit facility as the amount available under our revolving credit facility was reduced
from $60.0 million to $20.0 during the first thirteen weeks of fiscal 2008. The outstanding
borrowings as of September 27, 2009 and September 28, 2008 were $0.0 million and $3.0 million,
respectively.
Operating Segments
Segment information is prepared on the same basis that our management reviews financial
information for decision making purposes. We have three reportable operating segments: retail,
commercial and franchise. Unallocated corporate includes expenses pertaining to corporate
administrative functions that support the operating segments but are not specifically attributable
to or managed by any segment and are not included in the reported financial results of the
operating segments. The following tables summarize our results of operations by segment for the
first thirty-nine weeks of fiscal 2009 and 2008.
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Table of Contents
Retail
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of coffeehouse sales | |||||||||||||||||||
Coffeehouse sales |
$ | 162,637 | $ | 168,618 | (3.5 | )% | 100.0 | % | 100.0 | % | ||||||||||
Costs of sales and related occupancy costs |
66,827 | 69,799 | (4.3 | )% | 41.1 | % | 41.4 | % | ||||||||||||
Operating expenses |
68,023 | 73,149 | (7.0 | )% | 41.8 | % | 43.4 | % | ||||||||||||
Opening expenses |
| 167 | (100.0 | )% | | % | 0.1 | % | ||||||||||||
Depreciation and amortization |
10,741 | 20,749 | (48.2 | )% | 6.6 | % | 12.3 | % | ||||||||||||
General and administrative expenses |
5,591 | 6,976 | (19.9 | )% | 3.4 | % | 4.1 | % | ||||||||||||
Closing expense and disposal of assets |
196 | 4,412 | (95.6 | )% | 0.1 | % | 2.6 | % | ||||||||||||
Operating income (loss) |
$ | 11,259 | $ | (6,634 | ) | (269.7 | )% | 6.9 | % | (3.9 | )% | |||||||||
The retail segment operates company-owned coffeehouses. As of September 27, 2009, there were
413 company-owned coffeehouses in 16 states and the District of Columbia.
Coffeehouse sales
Coffeehouse sales decreased $6.0 million, or 3.5%, to $162.6 million in the first thirty-nine
weeks of 2009 from $168.6 million in the first thirty-nine weeks of 2008. This decrease is
attributable to 288 fewer operating coffeehouse weeks and a 3.0% decrease in comparable coffeehouse
net sales in the first thirty-nine weeks of 2009 as compared to the same period in 2008.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs
decreased $3.0 million, or 4.3%, to $66.8 million for the first thirty-nine weeks of 2009, from
$69.8 million for the first thirty-nine weeks of 2008. As a percentage of coffeehouse sales, cost
of sales and related occupancy costs decreased slightly to 41.1% in the first thirty-nine weeks of
2009 from 41.4% in the first thirty-nine weeks of 2008. The decrease was primarily due to the
closing of underperforming coffeehouses in 2008.
Operating expenses. Operating expenses decreased $5.1 million, or 7.0%, to $68.0 million for
the first thirty-nine weeks of 2009, from $73.1 million for the first thirty-nine weeks of 2008. As
a percentage of coffeehouse sales, operating expenses decreased to 41.8% in the first thirty-nine
weeks of 2009 from 43.4% in the first thirty-nine weeks of 2008. These decreases are primarily
attributable to operating performance improvements and 288 fewer coffeehouse operating weeks for the first thirty-nine weeks of fiscal
2009 related to the closing of underperforming stores in
2008.
Depreciation and amortization. Depreciation and amortization decreased $10.0 million, or
48.2%, to $10.7 million for the first thirty-nine weeks of 2009, from $20.7 million for the first
thirty-nine weeks of 2008. The decrease was due to the impairment of company-owned coffeehouses
during the first thirty-nine weeks of 2008 and lower depreciable
assets during 2009.
Depreciation and amortization includes $7.5 million
in accelerated depreciation associated with coffeehouse impairments in the first thirty-nine weeks
of 2008.
General and administrative expenses. General and administrative expenses decreased $1.4
million, or 19.9%, to $5.6 million for the first thirty-nine weeks of 2009 from $7.0 million for
the first thirty-nine weeks of 2008. The decrease was largely due to the realignment of our
operating regions, in which we downsized the number of district
managers.
Closing expense and disposal of assets. Closing expense and disposal of assets decreased $4.2
million to $0.2 million for the first thirty-nine weeks of 2009 from $4.4 million for the first
thirty-nine weeks of 2008. The
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decrease in closing expense and disposal of assets is primarily attributable to asset write-offs and
lease termination costs associated with the closing of twenty-four underperforming company-owned
coffeehouses in the first thirty-nine weeks of 2008. There was one company-owned coffeehouse
closure in the first thirty-nine weeks of 2009. We will continue to actively manage our portfolio
of company-owned coffeehouses.
Commercial
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of commercial sales | |||||||||||||||||||
Sales |
$ | 17,996 | $ | 12,502 | 43.9 | % | 100.0 | % | 100.0 | % | ||||||||||
Costs of sales and related occupancy costs |
11,529 | 7,771 | 48.4 | % | 64.1 | % | 62.1 | % | ||||||||||||
Operating expenses |
2,582 | 1,548 | 66.8 | % | 14.3 | % | 12.4 | % | ||||||||||||
Depreciation and amortization |
32 | 22 | 45.5 | % | 0.2 | % | 0.2 | % | ||||||||||||
Operating income |
$ | 3,853 | $ | 3,161 | 21.9 | % | 21.4 | % | 25.3 | % | ||||||||||
The commercial segment sells high-quality gourmet whole bean and ground coffee to grocery
stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment
venues, college campuses and on-line customers.
Sales
Sales increased $5.5 million, or 43.9%, to $18.0 million in the first thirty-nine weeks of
2009, from $12.5 million in the first thirty-nine weeks of 2008. This increase is primarily
attributable to the incremental sales to existing grocery stores and Keurig Incorporated, an
industry leader in single cup brewing technology, as well as, sales to new grocery stores and food
brokers who distribute our products.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs
increased $3.8 million, or 48.4%, to $11.5 million for the first thirty-nine weeks of 2009, from
$7.8 million for the first thirty-nine weeks of 2008. The increase was largely driven by increased
sales. As a percentage of sales, cost of sales and related occupancy costs increased to 64.1% for
the first thirty-nine weeks of 2009, from 62.1% for the first thirty-nine weeks of 2008. The
increase in cost of sales and related occupancy costs as a percentage of sales was primarily due to
changes in the sales mix among commercial customer categories.
Operating expenses. Operating expenses increased $1.0 million, or 66.8%, to $2.6 million for
the first thirty-nine weeks of 2009, from $1.6 million for the first thirty-nine weeks of 2008. As
a percentage of sales, operating expenses increased to 14.3% in the first thirty-nine weeks of 2009
from 12.4% in the first thirty-nine weeks of 2008. The increase is attributable to higher labor,
marketing, and other operating costs as we invest in our team and infrastructure to support our
growing commercial segment.
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Franchise
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of franchise sales | |||||||||||||||||||
Sales |
$ | 5,440 | $ | 4,730 | 15.0 | % | 100.0 | % | 100.0 | % | ||||||||||
Costs of sales and related occupancy costs |
3,082 | 2,639 | 16.8 | % | 56.7 | % | 55.8 | % | ||||||||||||
Operating expenses |
880 | 1,088 | (19.1 | )% | 16.2 | % | 23.0 | % | ||||||||||||
Opening expenses |
20 | 31 | (35.5 | )% | 0.4 | % | 0.7 | % | ||||||||||||
Depreciation and amortization |
3 | | | % | 0.1 | % | | % | ||||||||||||
Operating income |
$ | 1,455 | $ | 972 | 49.7 | % | 26.7 | % | 20.5 | % | ||||||||||
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of September 27, 2009, there were 112 franchised
coffeehouses in the U.S. and international markets.
Sales
Sales increased $0.7 million, or 15.0%, to $5.4 million for the first thirty-nine weeks of
2009 from $4.7 million for the first thirty-nine weeks of 2008. This increase is primarily
attributable to royalties and product sales from the 32 new franchise coffeehouses opened during
the preceding 12 months.
Costs and Expenses
Cost of sales and related occupancy costs. Cost of sales and related occupancy costs
increased $0.4 million, or 16.8%, to $3.1 million for the first thirty-nine weeks of 2009, from
$2.6 million for the first thirty-nine weeks of 2008. The increase was primarily due to the
additional product sales from the 32 new franchised coffeehouses opened during the past twelve
months. As a percentage of sales, cost of sales and related occupancy costs increased to 56.7% for
the first thirty-nine weeks of 2009, from 55.8% for the first thirty-nine weeks of 2008. The
increase in cost of sales and related occupancy costs as a percentage of sales was primarily due to
a change in product mix sold to franchisees.
Operating expenses. Operating expenses decreased $0.2 million, or 19.1%, to $0.9 million for
the first thirty-nine weeks of 2009, from $1.1 million for the first thirty-nine weeks of 2008.
This decrease is primarily attributable to improving the alignment of administrative costs associated
with supporting the franchise business. As a percentage of sales, operating expenses decreased to
16.2% for the first thirty-nine weeks of 2009 from 23.0% for the first thirty-nine weeks of 2008.
The decrease in operating expenses as a percentage of sales was
primarily due to the improved cost alignment
noted above and leverage obtained on certain fixed segment expenses.
Unallocated Corporate
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||
September 27, | September 28, | % | September 27, | September 28, | ||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | ||||||||||||||||
(In thousands) | As a % of total net sales | |||||||||||||||||||
General and administrative expenses |
$ | 14,117 | $ | 14,207 | (0.6 | )% | 7.6 | % | 7.6 | % | ||||||||||
Closing expense and disposal of assets |
(17 | ) | 112 | (115.2 | )% | 0.0 | % | 0.1 | % | |||||||||||
Operating (loss) |
$ | (14,100 | ) | $ | (14,319 | ) | 1.5 | % | (7.6 | )% | (7.7 | )% | ||||||||
General and administrative expenses. General and administrative expenses remained relatively
flat with a slight decrease of $0.1 million, or 0.6%, to $14.1 million in the first thirty-nine
weeks of 2009, from $14.2 million in the first thirty-nine weeks of 2008. As a percentage of total
net sales, general and administrative expenses were 7.6% for both the first thirty-nine weeks of
2009 and 2008.
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Liquidity and Capital Resources
The following table summarizes our cash flow activity and should be read in conjunction with
the Consolidated Statements of Cash Flows:
Thirty-Nine Weeks Ended | ||||||||||||
September 27, | September 28, | Increase / | ||||||||||
2009 | 2008 | (Decrease) | ||||||||||
(In thousands) | ||||||||||||
Net cash provided (used) by operating activities |
$ | 8,582 | $ | (372 | ) | $ | 8,954 | |||||
Net cash used in investing activities |
(809 | ) | (5,461 | ) | 4,652 | |||||||
Net cash provided by financing activities |
253 | 2,885 | (2,632 | ) | ||||||||
Net change in cash and cash equivalents |
$ | 8,026 | $ | (2,948 | ) | $ | 10,974 | |||||
Cash and cash equivalents as of September 27, 2009 were $19.1 million, compared to cash and
cash equivalents of $11.1 million as of December 28, 2008. Generally, our principal requirements
for cash are capital expenditures and funding operations. Capital expenditures included development
costs related to the opening of new coffeehouses, maintenance and remodeling of existing
coffeehouses, general and administrative expenditures for items like management information systems
and costs for new production equipment. Currently our requirements for capital have been funded
through cash flow from operations.
Net cash provided by operating activities for the first thirty-nine weeks of 2009 was $8.6
million compared to net cash used in operating activities of $0.4 million for the first thirty-nine
weeks of 2008. The $9.0 million increase in cash provided by operating activities was the result
of improved operating performance.
Net cash used in investing activities during the first thirty-nine weeks of 2009 was $0.8
million, compared to net cash used in investing activities of $5.5 million for the first
thirty-nine weeks of 2008. A significant amount of the capital expenditures for 2008 was related to
the construction of new coffeehouses, which included the cost of leasehold improvements and capital
equipment. We opened seven new company-owned coffeehouses in the first thirty-nine weeks of 2008.
There were no new company-owned coffeehouses in the first thirty-nine weeks of 2009. The remainder
of the capital expenditures for both the first thirty-nine weeks of 2009 and 2008 was for equipment
in our existing coffeehouses in addition to roasting, packaging and computer equipment and systems.
Financing activities provided cash of $0.3 million during the first thirty-nine weeks of 2009,
compared to cash provided of $2.9 million during the first thirty-nine weeks of 2008. We did not
make any borrowings under our revolving credit facility and carried no balance during the first
thirty-nine weeks of 2009. We borrowed $3.0 million under our revolving credit facility during the
thirty-nine weeks ended September 28, 2008 and $3.0 million remained outstanding at September 28,
2008. Our revolving credit facility expiration date is June 29, 2010. Interest payable under the
revolving credit facility is equal to the amount outstanding under the facility multiplied by the
applicable LIBOR rate plus a specified margin.
Our future capital requirements and the adequacy of available funds will depend on many
factors, including the pace of our expansion, real estate markets, the availability of suitable
site locations and the nature of the arrangements negotiated with
landlords for new coffeehouses.
We expect capital expenditures
for fiscal 2009 to be approximately $3.0 million. We believe that our current liquidity and cash
flow from operations will provide sufficient liquidity to fund our operations for at least 12
months. In the future, we may amend or replace our revolving credit facility or enter into another
financing arrangement to provide us with additional liquidity. We expect that any such financing
arrangement would be structured in a manner that would be
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compliant with Shariah principles. Shariah principles regarding the lending and borrowing of
money require application of qualitative and quantitative standards. Given the current financial
crisis in the capital markets, and the credit markets in particular, the availability and terms of
a new financing arrangement is uncertain
Off-Balance Sheet Arrangements
Other than our coffeehouse leases, we do not have any off-balance sheet arrangements. As of
September 27, 2009, we were committed to fixed and price-to-be-fixed green coffee purchase
contracts with deliveries expected through December 2010. We only contract for green coffee
expected to be used in the normal course of business. We believe, based on relationships
established with our suppliers in the past, the risk of non-delivery on such purchase commitments
is remote.
Recent Accounting Pronouncements
Effective July 1, 2009, the Financial Accounting Standards Boards (FASB) Accounting
Standards Codification (ASC) became the single official source of authoritative, nongovernmental
generally accepted accounting principles (GAAP) in the United States. The historical GAAP
hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than
guidance issued by the Securities and Exchange Commission. Our accounting policies were not
affected by the conversion to ASC. However, references to specific accounting standards in the
footnotes to our consolidated financial statements have been changed to refer to the appropriate
section of ASC.
In September 2006, the FASB issued accounting guidance, which defines fair value, provides
guidance for measuring fair value in GAAP and expands disclosures about fair value measurements. On
December 31, 2007, the Company adopted these accounting rules for financial assets and liabilities.
The Company adopted the the provisions related to non-financial assets and liabilities on December
29, 2008. The adoption of these accounting rules did not have a material impact on the Companys
consolidated statement of operations, cash flows or financial position.
In December 2007, the FASB issued guidance establishing new standards that govern the
accounting for and reporting of noncontrolling interests in partially owned subsidiaries. The
Company adopted these accounting rules on December 29, 2008 and has accordingly retroactively
applied the presentation and disclosure requirements for the existing noncontrolling interest for
all periods presented.
In March 2008, the FASB issued revised guidance requiring enhanced disclosures about an
entitys derivative instruments and hedging activities. The Company adopted these accounting rules
on December 29, 2008. See Note 5 for the new disclosures.
In May 2009, the FASB issued guidance intended to establish general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. Specifically, this standard sets forth the
period after the balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date. This
new accounting rule is effective for fiscal years and interim periods ended after June 15, 2009.
The Company adopted this standard effective June 28, 2009 and has evaluated any subsequent events
through November 5, 2009. There are no material subsequent events which would require recording or
further disclosure.
In June 2009, the FASB issued guidance which amends certain ASC concepts related to
consolidation of variable interest entities. Among other accounting and disclosure requirements,
this guidance replaces the quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity with an approach
focused on identifying which enterprise has the power to direct the activities of a variable
interest entity and the obligation to absorb losses of the entity or the right to receive benefits
from the entity. The Company will adopt this guidance in its first annual and interim reporting
periods beginning after November 15, 2009. The Company has not determined the impact that this
guidance may have on its financial statements.
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Key Financial Metrics
We review our operations based on both financial and non-financial metrics. Among the key
financial metrics upon which management focuses in reviewing our performance are comparable
coffeehouse net sales, EBITDA (a non-GAAP measure), cash flow from operations before general and
administrative expenses, general and administrative expenses and capital expenditures. Among the
key non-financial metrics upon which management focuses in reviewing performance are the number of
new coffeehouse openings, average check and transaction count.
The following table sets forth non-GAAP metrics and operating data that do not otherwise
appear in our consolidated financial statements as of and for the thirteen and twenty-six weeks
ended September 27, 2009 and September 28, 2008:
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 27, | September 28, | September 27, | September 28, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands, except operating data) | ||||||||||||||||
Non-GAAP Metrics: |
||||||||||||||||
EBITDA(1) |
$ | 4,536 | $ | 2,037 | $ | 14,518 | $ | 5,488 | ||||||||
Operating Data: |
||||||||||||||||
Percentage change in comparable coffeehouse
net sales(2) |
(0.5 | %) | (4.7 | %) | (3.0 | %) | (2.9 | %) | ||||||||
Company-Owned: |
||||||||||||||||
Coffeehouses open at beginning of period |
414 | 415 | 414 | 432 | ||||||||||||
Coffeehouses opened during the period |
0 | 2 | 0 | 7 | ||||||||||||
Coffeehouses closed during the period |
(1 | ) | (2 | ) | (1 | ) | (24 | ) | ||||||||
Coffeehouses open at end of period: |
||||||||||||||||
Total Company-Owned |
413 | 415 | 413 | 415 | ||||||||||||
Franchised: |
||||||||||||||||
Coffeehouses open at beginning of period |
108 | 75 | 97 | 52 | ||||||||||||
Coffeehouses opened during the period |
4 | 5 | 18 | 28 | ||||||||||||
Coffeehouses closed during the period |
| | (3 | ) | | |||||||||||
Coffeehouses open at end of period: |
||||||||||||||||
Total Franchised |
112 | 80 | 112 | 80 | ||||||||||||
Total coffeehouses open at end of period |
525 | 495 | 525 | 495 | ||||||||||||
(1) | See reconciliation and discussion of non-GAAP measures which follow at the end of this section. | |
(2) | Percentage change in comparable coffeehouse net sales compares the net sales of coffeehouses during a fiscal period to the net sales from the same coffeehouses for the equivalent period in the prior year. A coffeehouse is included in this calculation beginning in its thirteenth full fiscal month of operations. A closed coffeehouse is included in the calculation for each full month that the coffeehouse was open in both fiscal periods. Franchised coffeehouses are not included in the comparable coffeehouse net sales calculations. |
EBITDA is equal to net income (loss) excluding: (a) interest expense; (b) interest income; (c)
depreciation and amortization; and (d) income taxes.
We believe EBITDA is useful to investors in evaluating our operating performance for the
following reason:
| Our coffeehouse leases are generally short-term (5-10 years), and we must depreciate all of the cost associated with those leases on a straight-line basis over the initial lease term, excluding renewal options (unless such renewal periods are reasonably assured at the inception of the lease). We opened a net 210 company-owned coffeehouses from the beginning of fiscal 2003 through the end of the first thirty-nine weeks of 2009. As a result, we believe depreciation expense is disproportionately large when compared to the sales from a significant percentage of our coffeehouses that are in their initial years of operations. Also, many of the assets being depreciated have actual useful lives that exceed the initial lease term, excluding |
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renewal options. Consequently, we believe that adjusting for depreciation and amortization is useful for evaluating the operating performance of our coffeehouses. |
Our management uses EBITDA:
| As a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items not directly resulting from our coffeehouse operations; | ||
| For planning purposes, including the preparation of our internal annual operating budget; | ||
| To establish targets for certain management compensation matters; and | ||
| To evaluate our capacity to incur and service debt, fund capital expenditures and expand our business. |
EBITDA as calculated by us is not necessarily comparable to similarly titled measures used by
other companies. In addition, EBITDA: (a) does not represent net income or cash flows from
operating activities as defined by GAAP; (b) is not necessarily indicative of cash available to
fund our cash flow needs; and (c) should not be considered an alternative to net income, operating
income, cash flows from operating activities or our other financial information as determined under
GAAP.
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 27, | September 28, | September 27, | September 28, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income (loss) |
$ | 654 | $ | (8,766 | ) | $ | 2,168 | $ | (17,604 | ) | ||||||
Interest expense |
68 | 81 | 189 | 714 | ||||||||||||
Interest income |
(10 | ) | (2 | ) | (17 | ) | (23 | ) | ||||||||
Depreciation and
amortization(1) |
3,964 | 10,760 | 12,360 | 22,387 | ||||||||||||
(Benefit)
provision for income
taxes |
(140 | ) | (36 | ) | (182 | ) | 14 | |||||||||
EBITDA |
$ | 4,536 | $ | 2,037 | $ | 14,518 | $ | 5,488 | ||||||||
(1) | Includes depreciation and amortization associated with our headquarters and roasting facility that are categorized as general and administrative expenses and cost of sales and related occupancy costs on our statement of operations. |
Item 3. | Quantitative and Qualitative Disclosures about Market Risks. |
Not applicable.
Item 4T. | Controls and Procedures. |
We carried out an evaluation, under the supervision and with the participation of our
management, including the chief executive officer and the chief financial officer, of the
effectiveness of the design and the operations of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon that evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures are effective, as of September 27,
2009, in ensuring that material information relating to us required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms. There were no changes in our
internal control over financial reporting during the quarter ended September 27, 2009, that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On July 26, 2005, three of the Companys former employees filed a lawsuit against us in the
State of Minnesota District Court for Hennepin County seeking monetary and equitable relief from us
under the Minnesota Fair Labor Standards Act, or the Minnesota FLSA, the federal FLSA and state
common law. The suit primarily alleged that the Company misclassified its retail coffeehouse
managers as exempt from the overtime provisions of the Minnesota FLSA and the federal FLSA and that
these managers are therefore entitled to overtime compensation for each week in which they worked
more than 40 hours from May 2002 to the present with respect to the claims under the federal FLSA
and for weeks in which they worked more than 48 hours from May 2003 to the present with respect to
the claims under the Minnesota FLSA. Plaintiffs sought payment of allegedly owed and unpaid
overtime compensation, liquidated damages, interest and among other things, attorneys fees and
costs.
On February 1, 2008, the Company entered into a Stipulation of Settlement (the Stipulation)
to settle the lawsuit. The Stipulation provides for a gross settlement payment of $2.7 million,
plus the employers share of payroll taxes. A partial settlement payment of $1.8 million was made
in the first quarter of 2008 and the final settlement payment of $1.0 million was made in the first
quarter of 2009.
In addition, from time to time, the Company becomes involved in certain legal proceedings in
the ordinary course of business. The Company does not believe that any such ordinary course legal
proceedings to which it is currently a party will have a material adverse effect on its financial
position or results of operations.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in the Risk Factors
section of our Annual Report on Form 10-K for the year ended December 28, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
Not applicable.
Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
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Item 6. Exhibits.
3.1*
|
Form of Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement of Form S-1/A filed August 25, 2005). | |
3.2*
|
Form of Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Companys Registration Statement of Form S-1/A filed August 25, 2005). | |
4.1*
|
Form of Registrants Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Companys Registration Statement of Form S-1/A filed September 6, 2005). | |
31.1
|
Certification Pursuant to Rule 13a 14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification Pursuant to Rule 13a 14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Asterisk (*) indicates exhibit previously filed with the Securities and Exchange Commission as indicated in parentheses. |
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SIGNATURE
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.
CARIBOU COFFEE COMPANY, INC. |
||||
By: | /s/ Michael Tattersfield | |||
Michael Tattersfield | ||||
Chief Executive Officer and President | ||||
Date:
November 6, 2009
35