UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2007.
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File Number: 000-51535
CARIBOU COFFEE COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Minnesota
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41-1731219
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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3900 Lakebreeze Avenue North
Brooklyn Center, Minnesota
(Address of principal executive offices)
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55429
(Zip Code)
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(763) 592-2200
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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 is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
o
Accelerated Filer
o
Non-Accelerated Filer
þ
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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Title
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Shares Outstanding as of November 5, 2007
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Common Stock, par value $0.01 per share
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19,370,590
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CARIBOU COFFEE COMPANY, INC.
FORM 10-Q
For the Thirteen Week Period Ended September 30, 2007
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements.
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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September 30,
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October 1,
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September 30,
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October 1,
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2007
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2006
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2007
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2006
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(Unaudited)
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Coffeehouse sales
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$
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58,211,989
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$
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54,429,921
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$
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175,619,215
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$
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161,924,173
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Other sales
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3,768,684
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2,538,521
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11,061,473
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7,594,474
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Total net sales
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61,980,673
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56,968,442
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186,680,688
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169,518,647
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Cost of sales and related occupancy costs
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26,755,963
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23,725,262
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78,789,728
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70,755,516
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Operating expenses
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26,627,164
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23,941,709
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79,636,345
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70,149,599
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Opening expenses
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108,915
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463,062
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284,724
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1,245,616
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Depreciation and amortization
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7,143,094
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5,335,922
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19,145,894
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15,406,328
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General and administrative expenses
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6,851,462
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6,772,130
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20,609,025
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19,113,218
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Closing expense and disposal of assets
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2,871,719
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90,847
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3,732,583
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362,236
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Operating loss
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(8,377,644
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)
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(3,360,490
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)
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(15,517,611
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)
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(7,513,866
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)
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Other income (expense):
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Other income
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231,673
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796,238
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Interest income
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53,865
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202,901
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133,001
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523,293
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Interest expense
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(130,432
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)
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(144,824
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)
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(425,730
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)
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(478,662
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)
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Loss before (benefit) provision for
income taxes and minority interest
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(8,454,211
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)
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(3,070,740
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)
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(15,810,340
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)
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(6,672,997
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)
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(Benefit) provision for income taxes
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(31,468
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)
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(25,428
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)
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(327,565
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)
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256,928
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Loss before minority interest
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(8,422,743
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)
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(3,045,312
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)
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(15,482,775
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)
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(6,929,925
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)
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Minority interest
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40,316
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57,481
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121,850
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130,086
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Net loss
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$
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(8,463,059
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)
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$
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(3,102,793
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)
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$
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(15,604,625
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)
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$
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(7,060,011
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)
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Basic and diluted net loss per share
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$
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(0.44
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)
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$
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(0.16
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)
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$
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(0.81
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)
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$
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(0.37
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)
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Basic and diluted weighted average
number of shares outstanding
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19,354,140
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19,285,625
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19,320,737
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19,280,178
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See accompanying notes.
3
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30,
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December 31,
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2007
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2006
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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5,557,851
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$
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14,752,269
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Accounts receivable (net of allowance for doubtful accounts of $23,926
and $12,693 at September 30, 2007 and December 31, 2006, respectively)
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2,569,568
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1,663,139
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Other receivables
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1,332,916
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1,769,256
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Income tax receivables
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58,450
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Inventories
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11,108,857
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10,294,493
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Prepaid expenses and other current assets
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765,196
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1,339,596
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Total current assets
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21,392,838
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29,818,753
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Property and equipment, net of accumulated depreciation and amortization
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91,539,471
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104,754,885
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Notes receivable
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36,325
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48,413
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Restricted cash
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412,875
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286,005
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Other assets
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1,065,251
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1,399,542
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Total assets
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$
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114,446,760
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$
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136,307,598
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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7,614,858
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$
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9,681,879
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Accrued compensation
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4,660,283
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5,676,449
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Accrued expenses
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6,669,738
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7,518,379
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Deferred revenue
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6,497,421
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9,002,588
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Total current liabilities
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25,442,300
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31,879,295
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Asset retirement liability
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940,381
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872,184
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Deferred rent liability
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11,344,973
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11,733,473
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Deferred revenue
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2,884,500
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2,919,000
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Income tax liability
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473,064
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342,108
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Minority interests in affiliates
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140,649
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159,050
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Total long term liabilities
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15,783,567
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16,025,815
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Shareholders equity:
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Preferred stock, par value $.01, 20,000,000 shares authorized; no
shares issued and outstanding
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Common stock, par value $.01, 200,000,000 shares authorized; 19,370,590
and 19,286,425 shares issued and outstanding at September 30, 2007 and
December 31, 2006, respectively
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193,706
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192,864
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Additional paid-in capital
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123,105,790
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122,153,502
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Accumulated deficit
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(50,078,603
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)
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(33,943,878
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)
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Total shareholders equity
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73,220,893
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|
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88,402,488
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|
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Total liabilities and shareholders equity
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$
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114,446,760
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$
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136,307,598
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|
|
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|
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See accompanying notes.
4
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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|
|
|
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|
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Thirty-Nine Weeks Ended
|
|
|
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September 30,
|
|
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October 1,
|
|
|
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2007
|
|
|
2006
|
|
|
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(Unaudited)
|
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Operating activities
|
|
|
|
|
|
|
|
|
Net loss
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|
$
|
(15,604,625
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)
|
|
$
|
(7,060,011
|
)
|
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
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|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,812,441
|
|
|
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16,999,519
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Amortization of deferred financing fees
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|
|
258,294
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|
|
|
258,291
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Minority interests in affiliates
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|
121,850
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|
|
|
130,086
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Provision for closing expense and asset disposals
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|
2,337,271
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|
|
|
282,936
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Share-based compensation
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|
|
428,666
|
|
|
|
329,000
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|
Non cash accretion expense
|
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|
68,197
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|
|
|
68,813
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Changes in operating assets and liabilities:
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|
|
|
|
|
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Restricted cash
|
|
|
(126,870
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)
|
|
|
35,025
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|
Accounts receivable and other receivables
|
|
|
(458,001
|
)
|
|
|
623,962
|
|
Income tax receivable
|
|
|
(58,450
|
)
|
|
|
135,750
|
|
Inventories
|
|
|
(814,364
|
)
|
|
|
379,043
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|
Prepaid expenses and other assets
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|
650,397
|
|
|
|
(141,856
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)
|
Accounts payable
|
|
|
(2,067,021
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)
|
|
|
(6,257,709
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)
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Accrued compensation
|
|
|
(1,016,166
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)
|
|
|
(2,051,595
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)
|
Accrued expenses and income tax liability
|
|
|
(128,071
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)
|
|
|
2,212,822
|
|
Deferred revenue
|
|
|
(2,539,668
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)
|
|
|
(3,315,608
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,863,880
|
|
|
|
2,628,468
|
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Investing activities
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(11,442,511
|
)
|
|
|
(23,118,094
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(11,442,511
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)
|
|
|
(23,118,094
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)
|
Financing activities
|
|
|
|
|
|
|
|
|
Distribution of minority interests earnings
|
|
|
(140,251
|
)
|
|
|
(99,785
|
)
|
Net proceeds (expenses) from initial public offering
|
|
|
|
|
|
|
(69,292
|
)
|
Issuance of common stock
|
|
|
524,464
|
|
|
|
89,105
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(11,651
|
)
|
Sale of treasury stock
|
|
|
|
|
|
|
20,662
|
|
|
|
|
|
|
|
|
Net cash provided (used ) by financing activities
|
|
|
384,213
|
|
|
|
(70,961
|
)
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(9,194,418
|
)
|
|
|
(20,560,587
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
14,752,269
|
|
|
|
33,846,111
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,557,851
|
|
|
$
|
13,285,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Non cash financing and investing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for leasehold improvements, furniture, and equipment
|
|
$
|
168,298
|
|
|
$
|
1,429,188
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The Company and Caribou refer to Caribou Coffee Company, Inc. and 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. and 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 Ventures, L.L.C., a partnership in which the Company owns a 50% interest
that operates one coffeehouse, Caribou MSP Airport, a partnership in which the Company owns a 49%
interest that operates five coffeehouses, and Caribou Coffee Development Company, Inc., a licensor
of Caribou Coffee branded coffeehouses. The Company controls the daily operations of Caribou
Ventures, L.L.C. and 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. 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
reported herein consists of four 13-week quarters in a 52-week year. Each fiscal quarter reported
herein consists of two four-week months and one five-week month.
The Companys sales are somewhat seasonal, with the fourth quarter accounting for the highest
sales volumes. Operating results for the thirteen and thirty-nine week periods ended September 30,
2007 are not necessarily indicative of future results that may be expected for the year ending
December 30, 2007.
6
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes coffeehouse sales when payment is tendered at the point of sale.
Revenue from the sale of products to commercial, mail order or license 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.
Sales to commercial customers where a right of return exists are deferred until the product is
sold to the ultimate customer or a predictable return history is available.
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. On January 1, 2007, the Company
discontinued its policy of charging a $2.00 per month maintenance fee on all of its stored value
cards which have had no activity for 12 consecutive months. In 2006, this maintenance fee was
recorded as other income on the Companys financial statements.
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. Beginning January 1, 2007, the Company estimates that cards which have had
no activity for 16 months are unlikely to be used in the future. 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. For the thirteen and thirty-nine
weeks ended September 30, 2007, the Company recognized coffeehouse sales of approximately $209,000
and $787,000, respectively, related to estimated abandoned stored value card balances.
Operating Leases and Rent Expense
The Company accounts for its operating leases in accordance with Statement of Financial
Accounting Standards (SFAS) No. 13,
Accounting for Leases,
and FASB Technical Bulletin No. 85-3,
Accounting for Operating Leases With Scheduled Rent Increases.
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.
3. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. This statement
clarifies the definition of fair value, establishes a framework for measuring fair value and
expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact of the adoption of
this statement.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115,
which is effective for
fiscal years beginning after November 15, 2007. This statement permits an entity to choose to
measure many financial instruments and certain other items at fair value at specified election
dates. Subsequent unrealized gains and losses on items for which the fair value has been elected
will be reported in earnings. The Company is currently evaluating the potential impact of this
statement.
7
4. Coffeehouse Closing and Asset Disposals
Based on an operating cash flow analysis performed throughout the year, the Company commits to
a plan to close unprofitable coffeehouses. If the coffeehouse assets are deemed to be impaired, the
Company records a charge to reduce the carrying value of the property and equipment to estimated
realizable value in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets.
Upon closing of the coffeehouses, the Company will accrue for estimated lease
commitments and other expenses associated with the closings.
Charges related to coffeehouse closures and the impairment of assets still in service during
the thirteen and thirty-nine week periods ended September 30, 2007 and October 1, 2006 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
September 30,
|
|
|
October 1,
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Coffeehouse closures
|
|
|
11
|
|
|
|
1
|
|
|
|
19
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount charged to
operations for
closed
coffeehouses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount charged to
operations for
lease costs
associated with
lease
terminations-cash
|
|
$
|
753,549
|
|
|
$
|
|
|
|
$
|
1,328,353
|
|
|
$
|
|
|
Net book value of
closed coffeehouse
property and
equipment
|
|
|
2,127,445
|
|
|
|
51,547
|
|
|
|
2,292,014
|
|
|
|
225,503
|
|
Amount charged to
operations for
other property and
equipment
write-offs
|
|
|
3,838
|
|
|
|
|
|
|
|
45,256
|
|
|
|
57,433
|
|
Amount charged to
operations for
costs to
consolidate
facilities-cash
|
|
|
(13,113
|
)
|
|
|
39,300
|
|
|
|
66,960
|
|
|
|
79,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse closing
expense and
disposal of assets
|
|
$
|
2,871,719
|
|
|
$
|
90,847
|
|
|
$
|
3,732,583
|
|
|
$
|
362,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense related to
charges for
impaired assets
|
|
$
|
1,529,000
|
|
|
$
|
205,000
|
|
|
$
|
2,451,000
|
|
|
$
|
633,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As required by SFAS 146,
Accounting for Costs Associated with Exit or Disposal Activities,
the
Company records estimated costs for store closures when they are incurred rather than at the date
of a commitment to an exit or disposal plan. These costs primarily consist of the estimated cost
to terminate real estate leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
September 30,
|
|
|
October 1,
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Accrued exit costs beginning balance
|
|
$
|
531,561
|
|
|
$
|
540,343
|
|
|
$
|
511,641
|
|
|
$
|
601,712
|
|
Expenses accrued
|
|
|
47,038
|
|
|
|
40,223
|
|
|
|
235,704
|
|
|
|
93,432
|
|
Payments
|
|
|
(44,303
|
)
|
|
|
(52,060
|
)
|
|
|
(213,049
|
)
|
|
|
(166,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued exit costs ending balance
|
|
$
|
534,296
|
|
|
$
|
528,506
|
|
|
$
|
534,296
|
|
|
$
|
528,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Coffee
|
|
$
|
3,646,999
|
|
|
$
|
3,879,079
|
|
Other merchandise held for sale
|
|
|
3,976,184
|
|
|
|
3,627,035
|
|
Supplies
|
|
|
3,485,674
|
|
|
|
2,788,379
|
|
|
|
|
|
|
|
|
|
|
$
|
11,108,857
|
|
|
$
|
10,294,493
|
|
|
|
|
|
|
|
|
Inventories are net of related reserves totaling $116,578 and $374,289 at September 30, 2007
and December 31, 2006, respectively.
8
At September 30, 2007 and December 31, 2006, the Company had committed to fixed price purchase
contracts, primarily for green coffee, aggregating approximately $2,202,000 and $5,433,000,
respectively. These fixed price contracts are for less than one year. The Company is also
committed to price-to-be-fixed green coffee purchase contracts with deliveries through December
2008. The Company only contracts for green coffee expected to be used in the normal course of
business. The Company believes, based on relationships established with its suppliers in the past,
the risk of non-delivery on such purchase commitments is remote.
6. Equity and Share-Based Compensation
The Company maintains stock option plans which provide for the granting of non-qualified stock
options 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 vest generally in four
years and expire in ten years from the grant date. Effective January 2, 2006, the Company adopted
the fair value recognition provisions of SFAS 123R using the modified-prospective-transition
method. Under SFAS 123R, share-based compensation expense for the thirteen weeks ended September
30, 2007 and October 1, 2006 totaled approximately $150,000 and $154,000, respectively, and for the
thirty-nine weeks ending September 30, 2007 and October 1, 2006, totaled approximately $429,000 and
$329,000, respectively.
Stock option activity during the period indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contract
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
Outstanding, December 31, 2006
|
|
|
2,421,600
|
|
|
$
|
7.43
|
|
|
6.98 Yrs
|
|
|
|
|
Granted
|
|
|
132,726
|
|
|
$
|
7.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(14,101
|
)
|
|
$
|
6.69
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(23,562
|
)
|
|
$
|
7.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 1, 2007
|
|
|
2,516,663
|
|
|
$
|
7.45
|
|
|
6.86 Yrs
|
|
$
|
(529,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
210,000
|
|
|
$
|
7.57
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(19,332
|
)
|
|
$
|
6.70
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(110,500
|
)
|
|
$
|
7.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, July 1, 2007
|
|
|
2,596,831
|
|
|
$
|
7.48
|
|
|
6.81 Yrs
|
|
$
|
(1,133,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
96,524
|
|
|
$
|
6.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50,732
|
)
|
|
$
|
5.93
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(49,196
|
)
|
|
$
|
7.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2007
|
|
|
2,593,427
|
|
|
$
|
7.46
|
|
|
6.73 Yrs
|
|
$
|
(2,141,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested at September 30, 2007
|
|
|
1,637,313
|
|
|
$
|
6.96
|
|
|
5.57 Yrs
|
|
$
|
(541,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Income Taxes
On January 1, 2007, we adopted the provisions of Financial Standards Accounting Board
Interpretations No. 48 Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of
FASB Statement No. 109 (SFAS 109). As a result of the implementation of FIN 48, we recognized a
$530,100 increase to long term income tax liabilities for unrecognized tax benefits (including
interest and penalties of $70,000), which was accounted for on the Companys balance sheet as a
reduction to the beginning balance of retained earnings. At the adoption date of January 1, 2007,
we had $4,759,000 of total unrecognized tax benefits, of which 802,208, if recognized could have a
favorable impact on the effective tax rate in future periods. At September 30, 2007, we had
$3,755,000 of unrecognized tax benefits.
During the thirteen weeks ended September 30, 2007 and October 1, 2006, the Company
recognized a tax benefit of $31,468 and $25,428, respectively. For the thirteen weeks ended
September 30, 2007, our tax benefit consisted of $29,341 of state income tax expense and $60,809 of
tax benefit related to the decrease of its long term income tax liabilities for unrecognized tax
benefits due to the expiration of the statute of limitations. For the thirty-nine weeks ended
September 30, 2007, and October 1, 2006, the Company recognized a tax benefit of $327,565 and tax
expense of $256,928, respectively. For the thirty-nine weeks ended September 30, 2007, our tax
benefit consisted of $71,579 of state income tax expense and $399,144 of tax benefit related to the
decrease of its long term income tax liabilities for unrecognized tax benefits due to the
expiration of the statute of limitations.
We recognize interest and penalties related to uncertain tax positions in income tax expense.
8. Net Loss Per Share
Basic and diluted net loss per share for the thirteen and thirty-nine week periods ended
September 30, 2007 and October 1, 2006 were as follows:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
September 30,
|
|
|
October 1,
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net loss
|
|
$
|
(8,463,059
|
)
|
|
$
|
(3,102,793
|
)
|
|
$
|
(15,604,625
|
)
|
|
$
|
(7,060,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding (for basic and diluted
calculation)
|
|
|
19,354,140
|
|
|
|
19,285,625
|
|
|
|
19,320,737
|
|
|
|
19,280,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.44
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.37
|
)
|
For the thirteen and thirty-nine week periods ended September 30, 2007 and October 1, 2006,
stock options were excluded from the calculation of shares applicable to diluted net loss per share
because their inclusion would have been anti-dilutive.
9. 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 $3,250,000. In addition to the deposit, the franchisee is obligated to pay the Company
$20,000 per franchised/subfranchised coffeehouse (initial franchise fee) opened for the first 100
Caribou Coffee Coffeehouses and $15,000 for each additional franchised/subfranchised coffeehouse
opened (after the first 100). The agreement provides for $5,000 of the initial deposit received by
the Company to be applied against the initial franchise fee as discussed herein. Monthly royalty
payments ranging from 3%-5% of gross sales are also due to the Company.
The Company included $2,626,000 of the deposit in long term liabilities as deferred revenue and
$350,000 in current liabilities as deferred revenue on its September 30, 2007 balance sheet. As of
December 31, 2006, the Company included $2,769,000 of the deposit in long term liabilities as
deferred revenue and $325,000 in current liabilities as deferred revenue. 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 $350,000 and $325,000 as of September 30, 2007 and December 31, 2006,
respectively, consist of franchise fees for the coffeehouses estimated to be opened during the
subsequent 12 months per the development schedule in the Master Franchise Agreement. At September
30, 2007, there were twenty-eight coffeehouses operating under this Agreement. The franchisee and
certain owners of the franchisee also own indirect interests in Caribou Holding Company Limited.
The Company also deferred certain costs in connection with the Master Franchise Agreement
which were $232,485 and $244,005 at September 30, 2007 and December 31, 2006 respectively. These
costs include the direct costs for training franchisees, establishing a logistics and distribution
network to supply product to franchisees, related travel and legal costs. These costs are direct
one-time charges incurred by the Company associated with the start up of the Master Franchise
Agreement. These costs will be deferred until the related revenue is recognized when the
coffeehouse is opened.
10. Commitments and Contingencies
On July 26, 2005, three of our former employees filed a lawsuit against us, which we removed
to the federal court in Minnesota, under the federal Fair Labor Standards Act (FLSA), the
Minnesota FLSA, and state common law. The suit now primarily alleges that we misclassified our
retail coffeehouse managers as exempt from the overtime provisions of the FLSA and the Minnesota
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. The plaintiffs are seeking to represent
themselves and all of our allegedly similarly situated current and former (within the foregoing
periods of time) coffeehouse managers. The plaintiffs are seeking payment of an unspecified amount
of allegedly owed and unpaid overtime compensation, liquidated damages, prejudgment interest, civil
penalties under the Minnesota FLSA, a full accounting of the amount allegedly owed to the putative
class, temporary and injunctive relief, attorneys fees and costs. On October 31, 2005,
10
the court granted the plaintiffs motion to conditionally certify
an alleged nationwide class of our current and former coffeehouse managers since May 25, 2002 for
purposes of pursuing the plaintiffs claim that the coffeehouse managers were and are misclassified
as exempt under the FLSA. The period for potential class members to opt in and discovery is now
closed. On September 22, 2006 we filed a Motion for Decertification seeking to decertify the
conditionally certified class. On October 10, 2006, the plaintiffs moved to certify an alleged opt
out class under the Minnesota FLSA. On February 16, 2007 we filed a Motion for Summary Judgment on
the claims of the original three named plaintiffs and the plaintiffs filed a motion to reopen the
opt in period on the FLSA claims. On April 6, 2007, the Magistrate Judge recommended that our
Motion for Decertification be denied, that the plaintiffs motion to certify an opt out class under
the Minnesota FLSA be granted, and that their motion to reopen the opt in period on the FLSA claims
be denied. On April 25, 2007, we and the plaintiffs filed Objections with the District Judge to
these recommendations that respectively went against each side. On May 17, 2007, the District
Judge denied all Objections and adopted the Magistrate Judges recommendations in their entirety.
On June 1, 2007, we filed a Petition with the Eighth Circuit Court of Appeals seeking permission to
immediately appeal the District Courts class certification rulings. On July 10, 2007, a three
judge panel of the Eighth Circuit denied this Petition by a vote of 2-1. In the meantime, however,
on April 19, 2007, the Court granted our Motion for Summary Judgment as to the claims of one of the
original three named plaintiffs and to limit the FLSA claims of all other plaintiffs to the period
of time beginning on May 25, 2003 (rather than going back to May 25, 2002 as alleged by the
plaintiffs). We continue to believe that we have defenses to all of the remaining claims in this
case, and we are vigorously defending the lawsuit. These claims could divert our managements time
and attention from our business operations and might potentially result in substantial costs of
defense, settlement or other disposition, which could have a material adverse effect on our results
of operations in one or more fiscal periods.
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 31, 2006 contained in the Companys 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 Companys filings with the Securities and
Exchange Commission. The Company undertakes 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 30, 2007, we had 473 retail locations,
including 41 licensed locations and 6 joint venture locations. 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. In addition, we sell our products to
grocery stores and mass merchandisers, office coffee providers, airlines, hotels, sports and
entertainment venues, college campuses and other commercial 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.
11
We intend to franchise the Caribou Coffee brand where we believe there are significant
opportunities to grow our business, both domestically and internationally. In late 2006, we
completed and filed our Uniform Franchise Offering Circular (UFOC) and have begun discussions with
a number of qualified multi-unit developers for key U.S. markets. As of June 29, 2007, a domestic
development agreement has been signed with a local developer for the development of 20 locations in
the Northern New Jersey market. In late 2006, we announced our first entry into the Asian market
and our second major international franchise agreement which calls for the development of a minimum
of 25 coffeehouses in South Korea over the next five years. As of September 30, 2007, 4 locations
have opened in South Korea. In 2005, we entered into a master franchise agreement with a local
franchisee to develop 250 coffeehouses in the Middle East through 2012 and have opened 28
coffeehouses under this agreement. We are currently exploring franchise arrangements in other
international markets.
A key part of our continued business expansion is the aggressive development of a national
brand presence through brand licensing agreements. To date, we have entered into brand licensing
agreements with Kemps, Inc. (a St. Paul based dairy), General Mills, Coca-Cola North America (CCNA)
and most recently, Keurig Incorporated, an industry leader in single-cup coffee brewing technology.
The Kemps licensing agreement allows Kemps to use Caribou Coffee marks and coffee in producing
various gourmet coffee flavored ice cream products. The products are sold at retail grocery stores.
Under the General Mills licensing agreement, General Mills will use the Caribou Coffee marks and
coffee in the production of various gourmet coffee flavored snack bars. Four gourmet coffee
flavored snack bars have been produced, distributed and marketed throughout the U.S. In November
2006, we announced our brand licensing arrangement with CCNA to launch a new line of premium
ready-to-drink iced coffees in the U.S. The new Caribou Iced Coffee product was launched in select
markets this August with convenience and limited grocery store distribution. Our most recent
business licensing agreement is with Keurig Incorporated. Under this licensing agreement, Caribou
branded coffee is packaged in Keurig K-Cups offering single cup coffee lovers eight Caribou Coffee
varieties to choose from for both at home and in the office consumption. The Caribou Coffee K-cups
and Keurig brewers are available in our coffeehouses and on our website.
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 31,
2006, (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 and the following additional critical accounting policy
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.
Income taxes
- We account for uncertain tax positions in accordance with FASB Interpretation
No. 48
Accounting for Uncertainty in Income Taxes
(FIN 48) an interpretation of FASB Statement
No. 109 (SFAS 109). The application of income tax law is inherently complex. Laws and
regulations in this area are voluminous and are often ambiguous. As such, we are required to make
many subjective assumptions and judgments regarding our income tax exposures. Interpretations of
and guidance surrounding income tax laws and regulations change over time, and as such, changes in
our subjective assumptions and judgments can materially affect amounts recognized in the
consolidated balance sheets and statements of income. See note 7 to the condensed consolidated
financial statements, Income Taxes, for additional detail on our uncertain tax positions.
Fiscal Periods
Our fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year reported
herein consists of four 13-week quarters in a 52-week year. Each fiscal quarter reported herein
consists of two four-week months and one five-week month.
The Companys sales are somewhat seasonal, with the fourth quarter accounting for the highest
sales volumes. Operating results for the thirteen week period ended September 30, 2007, are not
necessarily indicative of future results that may be expected for the year ending December 30,
2007.
12
Thirteen Weeks Ended September 30, 2007 vs. Thirteen Weeks Ended October 1, 2006
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 the Companys consolidated
statement of operations
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
September 30,
|
|
|
October 1,
|
|
|
%
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse
|
|
$
|
58,212
|
|
|
$
|
54,430
|
|
|
|
6.9
|
%
|
|
|
93.9
|
%
|
|
|
95.5
|
%
|
Other sales
|
|
|
3,769
|
|
|
|
2,538
|
|
|
|
48.5
|
|
|
|
6.1
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
61,981
|
|
|
|
56,968
|
|
|
|
8.8
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of sales and related occupancy costs
|
|
|
26,756
|
|
|
|
23,725
|
|
|
|
12.8
|
|
|
|
43.2
|
|
|
|
41.6
|
|
Operating expenses
|
|
|
26,627
|
|
|
|
23,942
|
|
|
|
11.2
|
|
|
|
43.0
|
|
|
|
42.0
|
|
Opening expenses
|
|
|
109
|
|
|
|
463
|
|
|
|
(76.5
|
)
|
|
|
0.2
|
|
|
|
0.8
|
|
Depreciation and amortization
|
|
|
7,143
|
|
|
|
5,336
|
|
|
|
33.9
|
|
|
|
11.5
|
|
|
|
9.4
|
|
General and administrative expenses
|
|
|
6,852
|
|
|
|
6,772
|
|
|
|
1.2
|
|
|
|
11.0
|
|
|
|
11.9
|
|
Closing expense and disposal of assets
|
|
|
2,872
|
|
|
|
91
|
|
|
|
3061.0
|
|
|
|
4.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(8,378
|
)
|
|
|
(3,361
|
)
|
|
|
(149.3
|
)
|
|
|
(13.5
|
)
|
|
|
(5.9
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
232
|
|
|
|
(100.0
|
)
|
|
|
0.0
|
|
|
|
0.4
|
|
Interest income
|
|
|
54
|
|
|
|
203
|
|
|
|
(73.5
|
)
|
|
|
0.1
|
|
|
|
0.4
|
|
Interest expense
|
|
|
(130
|
)
|
|
|
(145
|
)
|
|
|
(9.9
|
)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before (benefit ) provision for
income taxes and minority interest
|
|
|
(8,454
|
)
|
|
|
(3,071
|
)
|
|
|
(175.3
|
)
|
|
|
(13.6
|
)
|
|
|
(5.4
|
)
|
(Benefit )provision for income taxes
|
|
|
(31
|
)
|
|
|
(25
|
)
|
|
|
(23.8
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest
|
|
|
(8,423
|
)
|
|
|
(3,046
|
)
|
|
|
(176.6
|
)
|
|
|
(13.6
|
)
|
|
|
(5.4
|
)
|
Minority interest
|
|
|
40
|
|
|
|
57
|
|
|
|
(29.9
|
)
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,463
|
)
|
|
$
|
(3,103
|
)
|
|
|
(172.8
|
)
|
|
|
(13.6
|
)%
|
|
|
(5.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Total net sales increased $5.0 million, or 8.8%, to $62.0 million in the third thirteen weeks
of fiscal 2007, from $57.0 million in the third thirteen weeks of fiscal 2006. This increase was
primarily attributable to the opening of net 16 new company-owned coffeehouses during the past
twelve months. Other net sales increased by $1.3 million, or 48.5% to $3.8 million for the third
thirteen weeks of fiscal 2007 from $2.5 million for the third thirteen weeks of fiscal 2006. This
increase was primarily driven by sales to grocery stores, club stores and other commercial
accounts. Also contributing to the increase were product sales and royalties from the 25 net new
franchised coffeehouses opened during the past twelve months and franchise development fees from
the two new franchised coffeehouse opened in the third thirteen weeks of 2007.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs increased
$3.1 million, or 12.8%, to $26.8 million in the third thirteen weeks of fiscal 2007, from $23.7
million in the third thirteen weeks of fiscal 2006. This increase was primarily due to an increase
in our total net sales. As a percentage of total net sales, cost of sales and related occupancy
costs increased to 43.2% in the third thirteen weeks of fiscal 2007 from 41.6% in the third
thirteen weeks of fiscal 2006. The increase in cost of sales and related occupancy costs as a
percent of total net sales was primarily due to higher dairy and product mix.
13
Operating expenses.
Operating expenses increased $2.7 million, or 11.2%, to $26.6 million in
the third thirteen weeks of fiscal 2007, from $23.9 million in the third thirteen weeks of fiscal
2006. As a percentage of total net sales, operating expenses increased to 43.0% in the third
thirteen weeks of fiscal 2007 from 42.0% in the third thirteen weeks of fiscal 2006. The increase
in operating expenses as a percentage of total net sales was primarily due to increases in
coffeehouse labor costs, including employee benefits, at both new and existing units.
Opening expenses.
Opening expenses decreased $0.4 million, or 76.5%, to $0.1 million in the
third thirteen weeks of fiscal 2007, from $0.5 million in the third thirteen weeks of fiscal 2006.
The decrease in coffeehouse opening expense was primarily attributable to the opening of two new
company-owned coffeehouses in the third thirteen weeks of fiscal 2007 versus opening twelve new
company-owned coffeehouses during the third thirteen weeks of fiscal 2006.
Depreciation and amortization.
Depreciation and amortization increased $1.8 million, or 33.9%,
to $7.1 million in the third thirteen weeks of fiscal 2007, from $5.3 million in the third thirteen
weeks of fiscal 2006. This increase was primarily due to additional depreciation associated with
six impaired coffeehouses compared to one impaired coffeehouse last year. As a percentage of total
net sales, depreciation and amortization was 11.5% in the third thirteen weeks of fiscal 2007,
compared to 9.4% in the third thirteen weeks of fiscal 2006. This increase as a percentage of total
net sales was due to the 16 net new coffeehouses opened during the last twelve months and a $1.3
million increase in impairment expense to $1.5 million in the third thirteen weeks of fiscal year
2007, from $0.2 million in the third thirteen weeks of fiscal year 2006.
General and administrative expenses.
General and administrative expenses increased $0.1
million, or 1.2%, to $6.9 million in the third thirteen weeks of fiscal 2007 from $6.8 million in
the third thirteen weeks of fiscal 2006. As a percentage of total net sales, general and
administrative expenses decreased to 11.0% in the third thirteen weeks of fiscal 2007, from 11.9%
in the third thirteen weeks of fiscal 2006. The decrease in general and administrative expenses was
due to the Companys ability to leverage its general and administrative costs.
Closing expenses and disposal of assets.
Closing expense and disposal of assets increased
$2.8 million to $2.9 million in the third thirteen weeks of fiscal 2007 from $0.1 million in the
third thirteen weeks of fiscal 2006. This increase is due to eleven coffeehouse closures in the
third thirteen weeks of fiscal 2007, compared to one in the third thirteen weeks of fiscal 2006.
The Company will continue to actively manage its portfolio of coffeehouses. Expenses associated
with the closings are variable from coffeehouse to coffeehouse and are dependant upon the amount of
time left on the leases and the remaining book value associated with each coffeehouse.
Other Income.
Other income decreased $0.2 million in the third thirteen weeks of fiscal 2007
from $0.2 million in the third thirteen weeks of fiscal 2006 due to the elimination of the monthly
$2.00 maintenance fee which was deducted from a Caribou branded stored value cards balance after
12 consecutive months of inactivity. The Company determined that stored value cards which have
been inactive for 16 months are unlikely to be used in the future. As of January 1, 2007, the
Company began recognizing breakage revenue for these inactive cards using the redemption
recognition method and has classified such revenue as a component of coffeehouse sales.
Interest income.
Interest income decreased by $0.1 million to $0.1 million in the third
thirteen weeks of fiscal 2007, from $0.2 million in the third thirteen weeks of fiscal 2006 due to
the decrease in our cash and cash equivalents balance from $13.3 million as of October 1, 2006, to
$5.6 million as of September 30, 2007.
Interest expense.
Interest expense remained flat at $0.1 million in the third thirteen weeks
of fiscal 2007 and 2006. Interest expense was comprised of commitment fees, agency fees and debt
acquisition cost amortization associated with the Companys revolving credit facility. There were
no outstanding borrowings at the end of either the third thirteen weeks of fiscal 2007 or fiscal
2006.
14
Thirty-Nine Weeks Ended September 30, 2007 vs. Thirty-Nine Weeks Ended October 1, 2006
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 the Companys consolidated
statement of operations
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
September 30,
|
|
|
October 1,
|
|
|
%
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse
|
|
$
|
175,619
|
|
|
$
|
161,924
|
|
|
|
8.5
|
%
|
|
|
94.1
|
%
|
|
|
95.5
|
%
|
Other sales
|
|
|
11,062
|
|
|
|
7,595
|
|
|
|
45.7
|
|
|
|
5.9
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
186,681
|
|
|
|
169,519
|
|
|
|
10.1
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of sales and related occupancy costs
|
|
|
78,790
|
|
|
|
70,755
|
|
|
|
11.4
|
|
|
|
42.2
|
|
|
|
41.7
|
|
Operating expenses
|
|
|
79,636
|
|
|
|
70,150
|
|
|
|
13.5
|
|
|
|
42.7
|
|
|
|
41.4
|
|
Opening expenses
|
|
|
285
|
|
|
|
1,246
|
|
|
|
(77.1
|
)
|
|
|
0.2
|
|
|
|
0.7
|
|
Depreciation and amortization
|
|
|
19,146
|
|
|
|
15,406
|
|
|
|
24.3
|
|
|
|
10.3
|
|
|
|
9.1
|
|
General and administrative expenses
|
|
|
20,609
|
|
|
|
19,113
|
|
|
|
7.8
|
|
|
|
11.0
|
|
|
|
11.3
|
|
Closing expense and disposal of assets
|
|
|
3,733
|
|
|
|
362
|
|
|
|
930.4
|
|
|
|
2.0
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(15,518
|
)
|
|
|
(7,513
|
)
|
|
|
(106.5
|
)
|
|
|
(8.4
|
)
|
|
|
(4.4
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
796
|
|
|
|
(100.0
|
)
|
|
|
0.0
|
|
|
|
0.5
|
|
Interest income
|
|
|
133
|
|
|
|
523
|
|
|
|
(74.6
|
)
|
|
|
0.1
|
|
|
|
0.3
|
|
Interest expense
|
|
|
(426
|
)
|
|
|
(479
|
)
|
|
|
(11.1
|
)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before (benefit) provision for
income taxes and minority interest
|
|
|
(15,811
|
)
|
|
|
(6,673
|
)
|
|
|
(136.9
|
)
|
|
|
(8.5
|
)
|
|
|
(3.9
|
)
|
(Benefit ) provision for income taxes
|
|
|
(328
|
)
|
|
|
257
|
|
|
|
(227.5
|
)
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest
|
|
|
(15,483
|
)
|
|
|
(6,930
|
)
|
|
|
(123.4
|
)
|
|
|
(8.3
|
)
|
|
|
(4.1
|
)
|
Minority interest
|
|
|
122
|
|
|
|
130
|
|
|
|
(6.3
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,605
|
)
|
|
$
|
(7,060
|
)
|
|
|
(121.0
|
)
|
|
|
(8.4
|
)%
|
|
|
(4.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Total net sales increased $17.2 million, or 10.1%, to $186.7 million in the first thirty-nine
weeks of fiscal 2007, from $169.5 million in the first thirty-nine weeks of fiscal 2006. This
increase was primarily attributable to the opening of net 16 new company-owned coffeehouses in the
last twelve months. Other net sales increased by $3.5 million, or 45.7% to $11.1 million for the
first thirty-nine weeks of fiscal 2007 from $7.6 million for the first thirty-nine weeks of fiscal
2006. This increase was primarily driven by sales to grocery stores, club stores and other
commercial accounts. Also contributing to the increase were product sales and royalties from the
25 net new franchised coffeehouses opened during the past twelve months.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs increased
$8.0 million, or 11.4%, to $78.8 million in the first thirty-nine weeks of fiscal 2007, from $70.8
million in the first thirty-nine weeks of fiscal 2006. This increase was primarily due to an
increase in our total net sales. As a percentage of total net sales, cost of sales and related
occupancy costs increased to 42.2% in the first thirty-nine weeks of fiscal 2007 from 41.7% in the
first thirty-nine weeks of fiscal 2006. The increase in cost of sales and related occupancy costs
as a percent of total net sales was primarily due to higher percentage occupancy costs at new
coffeehouses and mix of product sales.
Operating expenses.
Operating expenses increased $9.5 million, or 13.5%, to $79.6 million in
the first thirty-nine weeks of fiscal 2007, from $70.1 million in the first thirty-nine weeks of
fiscal 2006. This increase was primarily due to the increased number of coffeehouses in operation.
As a percentage of total net sales, operating expenses
increased to 42.7% in the first thirty-nine weeks of fiscal 2007 from 41.4% in the first
thirty-nine weeks of fiscal 2006. This increase as a percentage of total net sales was primarily
due to an increase in coffeehouse labor costs, including employee benefits.
15
Opening expenses.
Opening expenses decreased $0.9 million, or 77.1%, to $0.3 million in the
first thirty-nine weeks of fiscal 2007, from $1.2 million in the first thirty-nine weeks of fiscal
2006. The decrease in coffeehouse opening expense was primarily attributable to the opening of
eleven new company-owned coffeehouses in the first thirty-nine weeks of fiscal 2007 versus
thirty-five new company-owned coffeehouses during the first thirty-nine weeks of fiscal 2006.
Depreciation and amortization.
Depreciation and amortization increased $3.7 million, or 24.3%,
to $19.1 million in the first thirty-nine weeks of fiscal 2007, from $15.4 million in the first
thirty-nine weeks of fiscal 2006. This increase was primarily due to additional depreciation
associated with nine impaired coffeehouses in addition to depreciation associated with new
coffeehouses opened during the last twelve months. As a percentage of total net sales, depreciation
and amortization was 10.3% in the first thirty-nine weeks of fiscal 2007, compared to 9.1% in the
first thirty-nine weeks of fiscal 2006. This increase as a percentage of total net sales was due to
the 16 net new coffeehouses opened during the last twelve months and a $1.8 million increase in
impairment expense to $2.4 million in the first thirty-nine weeks of fiscal year 2007, from $0.6
million in the first thirty-nine weeks of fiscal year 2006.
General and administrative expenses.
General and administrative expenses increased $1.5
million, or 7.8%, to $20.6 million in the first thirty-nine weeks of fiscal 2007 from $19.1 million
in the first thirty-nine weeks of fiscal 2006. As a percentage of total net sales, general and
administrative expenses decreased to 11.0% in the first thirty-nine weeks of fiscal 2007, from
11.3% in the first thirty-nine weeks of fiscal 2006. The decrease in general and administrative
expenses as a percentage of total net sales was due to the Companys ability to leverage its
general and administrative costs.
Closing expenses and disposal of assets.
In the first thirty-nine weeks of fiscal 2007
closing expenses and disposal of assets increased $3.3 million to $3.7 million in the first
thirty-nine weeks of fiscal 2007 from $0.4 million in the first thirty-nine weeks of fiscal 2006.
This increase is primarily due to the closing of nineteen company-owned coffeehouses in the first
thirty-nine weeks of fiscal 2007, compared to five in the first thirty-nine weeks of fiscal 2006.
The Company will continue to actively manage its portfolio of coffeehouses. Expenses associated
with the closings are variable from coffeehouse to coffeehouse and are dependant upon the amount of
time left on the leases and the remaining book value associated with each coffeehouse.
Other Income.
Other income decreased $0.8 million in the first thirty-nine weeks of fiscal
2007 from $0.8 million in the first thirty-nine weeks of fiscal 2006 due to the elimination of the
monthly $2.00 maintenance fee which was deducted from a Caribou branded stored value cards balance
after 12 consecutive months of inactivity. The Company determined that stored value cards which
have been inactive for 16 months are unlikely to be used in the future. As of January 1, 2007, the
Company began recognizing breakage revenue for these inactive cards using the redemption
recognition method and has classified such revenue as a component of coffeehouse sales.
Interest income.
Interest income decreased by $0.4 million to $0.1 million in the first
thirty-nine weeks of fiscal 2007, from $0.5 million in the first thirty-nine weeks of fiscal 2006
due to the decrease in our cash and cash equivalents balance from $13.3 million as of October 1,
2006 to $5.6 million as of September 30, 2007.
Interest expense.
Interest expense decreased by $0.1 million to $0.4 million in the first
thirty-nine weeks of fiscal 2007, from $0.5 million in the first thirty-nine weeks of fiscal 2006.
Interest expense was comprised of commitment fees, agency fees and debt acquisition cost
amortization associated with the Companys revolving credit facility. There were no outstanding
borrowings at the end of either the first thirty-nine weeks of fiscal 2007 or fiscal 2006.
Income tax provision.
Income tax provision decreased by $0.6 million to a $0.3 million benefit
in the first thirty-nine weeks of fiscal 2007, from a $0.3 million expense in the first thirty-nine
weeks of fiscal 2006 due to the reversal of income tax reserves. The income tax reserve was
reduced as a result of the expiration of the associated statue of limitations.
16
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 30,
|
|
|
October 1,
|
|
|
Increase /
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
1,864
|
|
|
$
|
2,628
|
|
|
$
|
(764
|
)
|
Net cash used in investing activities
|
|
|
(11,442
|
)
|
|
|
(23,118
|
)
|
|
|
11,675
|
|
Net cash provided (used) by financing activities
|
|
|
384
|
|
|
|
(71
|
)
|
|
|
455
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(9,194
|
)
|
|
$
|
(20,561
|
)
|
|
$
|
11,367
|
|
|
|
|
Cash and cash equivalents as of September 30, 2007, were $5.6 million, compared to cash and
cash equivalents of $14.8 million as of December 31, 2006. Generally, our principal requirements
for cash are capital expenditures for the development of new coffeehouses, maintaining or
remodeling existing coffeehouses and funding operations. Our requirements for capital have been
funded through cash flow from operations and proceeds from our initial public offering. Other than
normal operating expenses, cash requirements for fiscal 2007 are expected to consist primarily of
capital expenditures for new company-owned coffeehouses, the remodeling of existing company-owned
coffeehouses and other infrastructure capital needs. Management expects capital expenditures to be
in the range of $18.0 million to $21.0 million in fiscal 2007.
Net cash provided by operating activities for the first thirty-nine weeks of fiscal 2007 was
$1.9 million compared to net cash provided of $2.6 million for the first thirty-nine weeks of 2006.
The $0.7 million decrease of cash provided by operating activities was the result of an increase
in our net loss, partially offset by additional depreciation, non-cash closing costs and lower
working capital requirements.
Net cash used in investing activities during the first thirty-nine weeks of fiscal 2007 was
$11.4 million compared to net cash used in investing activities of $23.1 million for the first
thirty-nine weeks of fiscal 2006. A significant amount of these capital expenditures for each
fiscal year, were for the construction of new coffeehouses, which include the cost of leasehold
improvements and capital equipment. The company opened eleven new company-owned coffeehouses in
the first thirty-nine weeks of fiscal 2007 and thirty-five company-owned coffeehouses in the first
thirty-nine weeks of fiscal 2006. The remainder of the capital expenditures for each fiscal year
was for the remodel of existing coffeehouses in addition to roasting, packaging and computer
equipment and systems.
Net cash provided by financing activities was $0.4 million for the first thirty-nine weeks of
fiscal 2007 compared to $0.1 million used by financing activities for the first thirty-nine weeks
of fiscal 2006. The increase in net cash provided by financing activities is attributable to sales
of stock to option holders under the Companys 2005 Equity Incentive Plan. We did not have any
borrowings under our revolving credit facility during fiscal 2006 or in the first thirty-nine weeks
of fiscal 2007. As of September 30, 2007, we had $60 million available under our revolving credit
facility, all of which remains undrawn and available for borrowing. 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. The revolving credit facility is subject to
financial and non-financial covenants. Our revolving credit facility expires in June of 2009.
We believe that our anticipated future cash flows from operations and amount available under
our revolving credit facility will be sufficient to fund our working capital and capital
expenditure requirements for the next twelve months.
17
Off-Balance Sheet Arrangements
Other than our coffeehouse leases, we do not have any off-balance sheet arrangements. As of
September 30, 2007, we were committed to fixed and price-to-be-fixed green coffee purchase
contracts with deliveries expected through December 2008. The Company only contracts for green
coffee expected to be used in the normal course of business. The Company believers, based on
relationships established with its suppliers in the past, the risk of non-delivery on such purchase
commitments is remote.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. This statement
clarifies the definition of fair value, establishes a framework for measuring fair value and
expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the potential impact of this
statement.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115,
which is effective for
fiscal years beginning after November 15, 2007. This statement permits an entity to choose to
measure many financial instruments and certain other items at fair value at specified election
dates. Subsequent unrealized gains and losses on items for which the fair value has been elected
will be reported in earnings. We are currently evaluating the potential impact of this statement.
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 for the thirteen and thirty-nine weeks ended
September 30, 2007 and October 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
September 30,
|
|
|
October 1,
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except operating data)
|
|
Non-GAAP Metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
(715
|
)
|
|
$
|
2,766
|
|
|
$
|
5,173
|
|
|
$
|
10,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in comparable
coffeehouse net sales(2)
|
|
|
1
|
%
|
|
|
(1
|
)%
|
|
|
0
|
%
|
|
|
(2
|
)%
|
Company-Owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of period
|
|
|
441
|
|
|
|
405
|
|
|
|
440
|
|
|
|
386
|
|
Coffeehouses opened during the period
|
|
|
2
|
|
|
|
12
|
|
|
|
11
|
|
|
|
35
|
|
Coffeehouses closed during the period
|
|
|
11
|
|
|
|
1
|
|
|
|
19
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company-Owned
|
|
|
432
|
|
|
|
416
|
|
|
|
432
|
|
|
|
416
|
|
Franchised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of period
|
|
|
39
|
|
|
|
11
|
|
|
|
24
|
|
|
|
9
|
|
Coffeehouses opened during the period
|
|
|
2
|
|
|
|
5
|
|
|
|
17
|
|
|
|
12
|
|
Coffeehouses closed during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Coffeehouses open at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Franchised
|
|
|
41
|
|
|
|
16
|
|
|
|
41
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coffeehouses open at end of period
|
|
|
473
|
|
|
|
432
|
|
|
|
473
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
(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 a 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 285 coffeehouses from the beginning of fiscal 2002
through the end of the first thirty-nine weeks of fiscal 2007. 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 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 30,
|
|
|
October 1,
|
|
|
September 30,
|
|
|
October 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
Net loss
|
|
$
|
(8,463
|
)
|
|
$
|
(3,103
|
)
|
|
$
|
(15,605
|
)
|
|
$
|
(7,060
|
)
|
Interest expense
|
|
|
130
|
|
|
|
145
|
|
|
|
426
|
|
|
|
479
|
|
Interest income
|
|
|
(54
|
)
|
|
|
(203
|
)
|
|
|
(133
|
)
|
|
|
(523
|
)
|
Depreciation and
amortization(1)
|
|
|
7,703
|
|
|
|
5,952
|
|
|
|
20,813
|
|
|
|
17,000
|
|
(Benefit)/Provision
for income taxes
|
|
|
(31
|
)
|
|
|
(25
|
)
|
|
|
(328
|
)
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
(715
|
)
|
|
$
|
2,766
|
|
|
$
|
5,173
|
|
|
$
|
10,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Primary Market Risk Exposures
Our primary market risk exposures are in the areas of commodity costs, rent and lease
acquisition costs. Many of the coffee bean, dairy and paper products purchased by us are affected
by changes in weather, production, availability, seasonality, and other factors outside our
control. In addition, we believe that almost all of our beverage, food offerings and supplies are
available from several sources, which helps to control market risks. We have exposure to rising
rents and lease acquisition costs, which may impact our actual cost to open and operate new
coffeehouses. The exposure to rising rents could negatively impact operating results of
coffeehouses. Although the lease acquisition cost will not impact significantly the operating
results of the coffeehouse, it would impact the return on investment for such coffeehouse.
Financial Instruments and Derivative Commodity Instruments
We enter into fixed-price purchase commitments in order to secure an adequate supply of
quality coffee beans and fix our cost of coffee beans. These commitments are made with established
coffee brokers and are denominated in U.S. dollars. As of September 30, 2007, we had approximately
$2.2 million in open fixed-priced purchase commitments with delivery dates ranging from October
2007 through September 2008. We also have price-to-be-fixed green coffee purchase contracts with
deliveries through December 2008. We believe, based on relationships established with our suppliers
in the past that the risk of non-delivery on such purchase commitments is low.
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 30,
2007, 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 30, 2007, that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II OTHER INFORMATION
Item 1.
Legal Proceedings.
On July 26, 2005, three of our former employees filed a lawsuit against us, which we removed
to the federal court in Minnesota, under the federal Fair Labor Standards Act (FLSA), the
Minnesota FLSA, and state common law. The suit now primarily alleges that we misclassified our
retail coffeehouse managers as exempt from the overtime provisions of the FLSA and the Minnesota
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. The plaintiffs are seeking to represent
themselves and all of our allegedly similarly situated current and former (within the foregoing
periods of time) coffeehouse managers. The plaintiffs are seeking payment of an unspecified amount
of allegedly owed and unpaid overtime compensation, liquidated damages, prejudgment interest, civil
penalties under the Minnesota FLSA, a full accounting of the amount allegedly owed to the putative
class, temporary and injunctive relief, attorneys fees and costs. On October 31, 2005,
20
the court granted the plaintiffs motion to conditionally certify an alleged nationwide class of our current
and former coffeehouse managers since May 25, 2002 for purposes of pursuing the plaintiffs claim
that the coffeehouse managers were and are misclassified as exempt under the FLSA. The period for
potential class members to opt in and discovery is now closed. On September 22, 2006 we filed a
Motion for Decertification seeking to decertify the conditionally certified class. On October 10,
2006, the plaintiffs moved to certify an alleged opt out class under the Minnesota FLSA. On
February 16, 2007 we filed a Motion for Summary Judgment on the claims of the original three named
plaintiffs and the plaintiffs filed a motion to reopen the opt in period on the FLSA claims. On
April 6, 2007, the Magistrate Judge recommended that our Motion for Decertification be denied, that
the plaintiffs motion to certify an opt out class under the Minnesota FLSA be granted, and that
their motion to reopen the opt in period on the FLSA claims be denied. On April 25, 2007, we and
the plaintiffs filed Objections with the District Judge to these recommendations that respectively went against
each side. On May 17, 2007, the District Judge denied all Objections and adopted the Magistrate
Judges recommendations in their entirety. On June 1, 2007, we filed a Petition with the Eighth
Circuit Court of Appeals seeking permission to immediately appeal the District Courts class
certification rulings. On July 10, 2007, a three judge panel of the Eighth Circuit denied this
Petition by a vote of 2-1. In the meantime, however, on April 19, 2007, the Court granted our
Motion for Summary Judgment as to the claims of one of the original three named plaintiffs and to
limit the FLSA claims of all other plaintiffs to the period of time beginning on May 25, 2003
(rather than going back to May 25, 2002 as alleged by the plaintiffs). We continue to believe that
we have defenses to all of the remaining claims in this case, and we are vigorously defending the
lawsuit. These claims could divert our managements time and attention from our business operations
and might potentially result in substantial costs of defense, settlement or other disposition,
which could have a material adverse effect on our results of operations in one or more fiscal
periods.
In addition, from time to time, we become involved in certain legal proceedings in the
ordinary course of business. We do not believe that any such ordinary course legal proceedings to
which we are currently a party will have a material adverse effect on our 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 the Companys Annual Report on Form 10-K for the year ended December 31, 2006.
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.
At the Companys Annual Meeting held on August 8, 2007, the shareholders elected six directors
to serve until the 2008 Annual Meeting of Shareholders and ratified the selection of Ernst & Young
LLP as the Companys independent registered public accounting firm for the fiscal year ending
December 31, 2007.
21
The table below shows the results of the shareholders votes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes in
|
|
Votes
|
|
votes
|
|
Votes
|
|
Broker
|
|
|
Favor
|
|
Against
|
|
Withheld
|
|
Abstentions
|
|
Non-Votes
|
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kip R. Caffey
|
|
|
18,026,461
|
|
|
|
0
|
|
|
|
241,177
|
|
|
|
0
|
|
|
|
0
|
|
Michael J. Coles
|
|
|
17,693,676
|
|
|
|
0
|
|
|
|
573,962
|
|
|
|
0
|
|
|
|
0
|
|
Wallace B. Doolin
|
|
|
17,979,881
|
|
|
|
0
|
|
|
|
287,757
|
|
|
|
0
|
|
|
|
0
|
|
Charles L. Griffith
|
|
|
17,698,382
|
|
|
|
0
|
|
|
|
569,256
|
|
|
|
0
|
|
|
|
0
|
|
Jeffrey C. Neal
|
|
|
18,024,151
|
|
|
|
0
|
|
|
|
243,487
|
|
|
|
0
|
|
|
|
0
|
|
Charles H. Ogburn
|
|
|
17,700,937
|
|
|
|
0
|
|
|
|
566,701
|
|
|
|
0
|
|
|
|
0
|
|
|
Ratification of independent registered
public accounting firm
|
|
|
18,044,408
|
|
|
|
179,489
|
|
|
|
0
|
|
|
|
43,741
|
|
|
|
0
|
|
Item 5.
Other Information.
Not applicable
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.
22
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/ George E. Mileusnic
|
|
|
|
George E. Mileusnic
|
|
|
|
Chief Financial Officer
|
|
|
Date: November 9, 2007
23
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