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 June 29, 2008.
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
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55429
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Brooklyn Center, Minnesota
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(Zip Code)
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(Address of principal executive offices)
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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,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller Reporting Company
þ
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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 July 24, 2008
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Common Stock, par value $0.01 per share
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19,370,590
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CARIBOU COFFEE COMPANY, INC.
FORM 10-Q
For the Thirteen Week Period Ended June 29, 2008
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements.
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Thirteen Weeks Ended
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Twenty-Six Weeks Ended
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June 29,
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July 1,
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June 29,
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July 1,
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2008
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2007
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2008
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2007
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(Unaudited)
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Coffeehouse sales
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$
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57,267,099
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$
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59,331,262
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$
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113,887,162
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$
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117,407,226
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Other sales
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5,916,290
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3,516,123
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11,052,948
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7,292,789
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Total net sales
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63,183,389
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62,847,385
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124,940,110
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124,700,015
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Cost of sales and related occupancy costs
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27,004,012
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26,519,499
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53,216,720
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52,033,765
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Operating expenses
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25,815,112
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27,021,720
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51,209,974
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53,009,181
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Opening expenses
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50,425
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66,018
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135,452
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175,809
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Depreciation and amortization
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4,645,264
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5,985,216
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10,566,323
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12,002,800
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General and administrative expenses
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6,617,706
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7,153,341
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14,067,245
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13,757,563
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Closing expense and disposal of assets
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1,332,414
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133,886
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3,878,743
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860,864
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Operating loss
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(2,281,544
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)
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(4,032,295
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)
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(8,134,347
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)
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(7,139,967
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)
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Other income (expense):
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Interest income
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2,752
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45,899
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20,291
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79,136
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Interest expense
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(121,863
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)
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(165,579
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)
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(633,459
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)
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(295,298
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Loss before provision (benefit) for
income taxes and minority interest
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(2,400,655
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)
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(4,151,975
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)
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(8,747,515
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)
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(7,356,129
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)
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Provision (benefit) for income taxes
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43,861
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(315,932
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)
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49,846
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(296,097
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Loss before minority interest
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(2,444,516
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)
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(3,836,043
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(8,797,361
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(7,060,032
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Minority interest
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(12,956
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54,473
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40,182
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81,534
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Net loss
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$
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(2,431,560
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)
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$
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(3,890,516
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)
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$
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(8,837,543
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)
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$
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(7,141,566
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)
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Basic and diluted net loss per share
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$
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(0.13
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$
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(0.20
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$
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(0.46
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$
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(0.37
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Basic and diluted weighted average
number of shares outstanding
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19,370,590
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19,320,055
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19,370,590
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19,304,035
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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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June 29,
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December 30,
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2008
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2007
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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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6,749,930
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$
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9,886,427
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Accounts
receivable (net of allowance for doubtful accounts of $50,669 and $7,989 at June 29, 2008 and December 30, 2007, respectively)
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3,090,036
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3,116,864
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Other receivables (net of allowance for doubtful accounts of $60,828 and $9,399 at June 29, 2008 and December 30, 2007, respectively)
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1,280,274
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1,544,281
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Income tax receivable
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92,645
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149,304
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Inventories
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10,260,257
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10,228,527
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Prepaid expenses and other current assets
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841,412
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1,690,668
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Total current assets
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22,314,554
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26,616,071
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Property and equipment, net of accumulated depreciation and amortization
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74,403,518
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83,798,120
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Notes receivable
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24,237
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32,296
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Restricted cash
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12,229
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410,831
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Other assets
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532,300
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982,334
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Total assets
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$
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97,286,838
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$
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111,839,652
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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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7,764,996
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$
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9,650,326
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Accrued compensation
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7,464,583
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7,863,445
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Accrued expenses
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7,032,004
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9,318,442
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Deferred revenue
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6,530,320
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9,987,724
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Total current liabilities
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28,791,903
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36,819,937
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Revolving credit facility
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3,000,000
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Asset retirement liability
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1,009,709
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989,490
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Deferred rent liability
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10,307,717
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11,271,186
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Deferred revenue
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2,742,000
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2,853,500
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Income tax liability
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477,710
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473,064
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Minority interests in affiliates
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73,575
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144,176
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Total long term liabilities
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17,610,711
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15,731,416
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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 $.01, 200,000,000 shares authorized; 19,370,590
shares issued and outstanding at June 29, 2008 and
December 30, 2007
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193,706
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193,706
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Additional paid-in capital
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124,665,330
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124,231,862
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Accumulated deficit
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(73,974,812
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)
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(65,137,269
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)
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Total shareholders equity
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50,884,224
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59,288,299
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Total liabilities and shareholders equity
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$
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97,286,838
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$
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111,839,652
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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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Twenty-Six Weeks Ended
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June 29,
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July 1,
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2008
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2007
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(Unaudited)
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Operating activities
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|
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Net loss
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$
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(8,837,543
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)
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$
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(7,141,566
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)
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Adjustments to reconcile net loss to net cash (used) provided
by operating activities:
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Depreciation and amortization
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11,627,437
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13,109,014
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Amortization of deferred financing fees
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401,905
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172,196
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Minority interests in affiliates
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40,182
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81,534
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Provision for closing expense and asset disposals
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1,142,699
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369,255
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Share-based compensation
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302,794
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278,666
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Non cash accretion expense
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20,219
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54,404
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Shareholder contribution
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130,674
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Changes in operating assets and liabilities:
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Restricted cash
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398,602
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Accounts receivable and other receivables
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298,894
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(387,370
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)
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Income tax receivable
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|
56,659
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|
|
|
(151,569
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)
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Inventories
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(31,730
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)
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1,000,647
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Prepaid expenses and other assets
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897,385
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293,082
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Accounts payable
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(1,885,330
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)
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(3,183,108
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)
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Accrued compensation
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|
(398,862
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)
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|
580,457
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Accrued expenses and income tax liability
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|
(2,585,353
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)
|
|
|
(848,598
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)
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Deferred revenue
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|
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(3,568,904
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)
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|
|
(2,435,680
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)
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|
|
|
|
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Net cash (used) provided by operating activities
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|
|
(1,990,272
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)
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1,791,364
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Investing activities
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|
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Payments for property and equipment
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|
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(4,035,442
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)
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|
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(8,309,760
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)
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|
|
|
|
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Net cash used in investing activities
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|
|
(4,035,442
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)
|
|
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(8,309,760
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)
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Financing activities
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|
|
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|
|
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Borrowings under revolving credit facility
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|
|
3,000,000
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|
|
|
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Distribution of minority interests earnings
|
|
|
(110,783
|
)
|
|
|
(91,942
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)
|
Issuance of common stock
|
|
|
|
|
|
|
223,837
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,889,217
|
|
|
|
131,895
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(3,136,497
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)
|
|
|
(6,386,501
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
9,886,427
|
|
|
|
14,752,269
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
6,749,930
|
|
|
$
|
8,365,768
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Noncash financing and investing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for leasehold improvements, furniture, and equipment
|
|
$
|
|
|
|
$
|
446,606
|
|
|
|
|
|
|
|
|
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 its affiliates,
collectively.
The unaudited condensed consolidated financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles for interim financial information and
with the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly,
they do not include all information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management, these statements
include all adjustments considered necessary for the fair presentation of all interim periods
reported herein. All adjustments are of a normal recurring nature unless otherwise disclosed.
Management believes that the disclosures made are adequate for a fair presentation of the Companys
results of operations, financial position and cash flows. These consolidated financial statements
should be read in conjunction with the year-end consolidated financial statements and accompanying
notes included in the Companys Annual Report on Form 10-K (File No. 000-51535).
Principles of Consolidation
The Companys consolidated financial statements include the accounts of Caribou Coffee
Company, Inc., affiliates that it controls and a third party finance company (which exists for
purposes of the Companys revolving credit facility, as described in the Companys Annual Report on
Form 10-K) where the Company is the primary beneficiary in a variable interest entity. The
affiliates are Caribou Ventures, L.L.C., a partnership in which the Company owns a 50% interest and
that operates one coffeehouse, Caribou MSP Airport, a partnership in which the Company owns a 49%
interest and 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
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 June 29, 2008 are not
necessarily indicative of future results that may be expected for the year ending December 28,
2008.
6
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes retail coffeehouse revenue (coffeehouse sales) when payment is tendered
at the point of sale. Sales tax collected from customers is presented net of amounts expected to be
remitted to various tax jurisdictions. Accordingly, sales taxes have no effect on the Companys
reported net sales in the accompanying statements of operations.
Revenue from the sale of products to commercial, franchise or on-line customers (other sales)
is recognized when ownership and price risk of the products are legally transferred to the
customer, which is generally upon the shipment of goods. Revenues include any applicable shipping
and handling costs invoiced to the customer, and the expense of such shipping and handling costs is
included in cost of sales.
The Company sells stored value cards of various denominations. Cash receipts related to stored
value card sales are deferred when initially received and revenue is recognized when the card is
redeemed and the related products are delivered to the customer. Such amounts are classified as a
current liability on the Companys consolidated balance sheets. The Company will honor all stored
value cards presented for payment; however, the Company has determined that the likelihood of
redemption is remote for certain card balances due to long periods of inactivity. 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.
Territory development fees and initial franchise fees are recognized upon substantial
performance of services for a new territory or coffeehouse, which is generally upon the opening of
a new coffeehouse. Royalties based upon a percentage of reported sales are recognized on a monthly
basis when earned. Cash payments received in advance for territory development fees or initial
franchise fees are recorded as deferred revenue until earned.
Operating Leases and Rent Expense
The Company accounts for its operating leases in accordance with Statement of Financial
Accounting Standards (SFAS) No. 13,
Accounting for Leases,
and the Financial Accounting Standards
Board (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. Contingent rents, including those based on a percentage of retail
sales over stated levels, and rental payment increases based on a contingent future event are
accrued over the respective contingency periods when the achievement of such targets or events are
deemed to be probable by the Company.
3. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
(SFAS 157). SFAS 157
defines fair value, provides guidance for measuring fair value in GAAP and expands disclosures
about fair value measurements. On December 31, 2007, the Company adopted SFAS 157 for financial
assets and liabilities and will adopt SFAS 157 at the beginning of fiscal 2009 for nonfinancial
assets and liabilities. The adoption of this statement did not have a material impact on the
Companys consolidated statement of operations, cash flows or financial position.
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
(SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value. On December 31, 2007, the Company did not elect to adopt SFAS 159.
7
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements
(SFAS 160). SFAS 160 establishes new standards that will govern the accounting for and
reporting of noncontrolling interests in partially owned subsidiaries. SFAS 160 is effective for
fiscal years beginning on or after December 15, 2008, and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. All other requirements
shall be applied prospectively. The Company is currently evaluating the potential impact of this
statement.
4. Impairments, Coffeehouse Closings, Asset Disposals and Severance
Based on an operating cash flow analysis performed throughout the year combined with
operational judgment on the future potential of individual coffeehouses, 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. During the thirteen week periods ended June 29, 2008 and July 1, 2007, the
Company recorded depreciation expense of $238,404 for the impairment of one coffeehouse and
$510,417 for the impairment of two coffeehouses, respectively, in its retail segment. During the
twenty-six week periods ended June 29, 2008 and July 1, 2007, the Company recorded depreciation
expense of $1,717,443 for the impairment of six coffeehouses and $922,878 for the impairment of
three coffeehouses, respectively, in its retail segment.
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 disposal charges consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Coffeehouse closures
|
|
|
6
|
|
|
|
6
|
|
|
|
22
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount charged to
operations for
closed
coffeehouses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount charged to
operations for
closed coffeehouses
lease reserve
non-cash
|
|
$
|
99,929
|
|
|
$
|
99,735
|
|
|
$
|
585,275
|
|
|
$
|
83,195
|
|
Amount charged to
operations for
costs to
consolidate
facilities
|
|
|
|
|
|
|
40,037
|
|
|
|
|
|
|
|
80,073
|
|
Amount charged to
operations for
lease costs
associated with
lease
termination-cash
|
|
|
1,070,259
|
|
|
|
(43,225
|
)
|
|
|
2,736,044
|
|
|
|
491,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total exit costs
|
|
|
1,170,188
|
|
|
|
96,547
|
|
|
|
3,321,319
|
|
|
|
654,877
|
|
Net book value of
closed coffeehouse
property and
equipment
|
|
|
162,226
|
|
|
|
956
|
|
|
|
557,424
|
|
|
|
164,569
|
|
Amount charged to
operations for
other property and
equipment
write-offs
|
|
|
|
|
|
|
36,383
|
|
|
|
|
|
|
|
41,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse closing
expense and
disposal of assets
|
|
$
|
1,332,414
|
|
|
$
|
133,886
|
|
|
$
|
3,878,743
|
|
|
$
|
860,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending exit activity accrual is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
from
|
|
|
Balance at
|
|
Twenty-Six Weeks Ended:
|
|
Year
|
|
|
Expense
|
|
|
reserves
|
|
|
End of Quarter
|
|
June 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs
|
|
$
|
466,768
|
|
|
$
|
3,352,193
|
|
|
$
|
2,749,552
|
|
|
$
|
1,069,409
|
|
Severance
|
|
|
1,353,000
|
|
|
|
754,895
|
|
|
|
180,387
|
|
|
|
1,927,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,819,768
|
|
|
$
|
4,107,088
|
|
|
$
|
2,929,939
|
|
|
$
|
2,996,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Additions
|
|
Deductions
|
|
|
|
|
Beginning of
|
|
Charged to
|
|
from
|
|
Balance at
|
Twenty-Six Weeks Ended:
|
|
Year
|
|
Expense
|
|
reserves
|
|
End of Quarter
|
July 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs
|
|
$
|
511,641
|
|
|
$
|
654,877
|
|
|
$
|
634,957
|
|
|
$
|
531,561
|
|
During the twenty-six weeks ended June 29, 2008, the Companys CFO resigned from his position.
Additionally, the Company completed a reorganization of general and administrative departments and
eliminated some positions. The Company accrued severance costs related to the Chief Financial
Officers resignation and the eliminated positions in the amount of $754,895.
In November 2007, the Companys Chief Executive Officer resigned his position. In connection
with his resignation, the Company entered into an agreement with the former Chief Executive Officer
to (1) continue to pay him a base salary for 60 days; (2) immediately vest all of his unvested
stock options; and (3) pay him a lump sum severance benefit of $1,353,000 in July 2008. The
Company recorded a liability for the amount of the severance benefit in the fourth quarter of
fiscal year 2007 and included the amount in accrued compensation and general and administrative
expense.
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Coffee
|
|
$
|
4,025,051
|
|
|
$
|
3,485,133
|
|
Other merchandise held for sale
|
|
|
3,099,165
|
|
|
|
4,345,584
|
|
Supplies
|
|
|
3,136,041
|
|
|
|
2,397,810
|
|
|
|
|
|
|
|
|
|
|
$
|
10,260,257
|
|
|
$
|
10,228,527
|
|
|
|
|
|
|
|
|
At June 29, 2008 and December 30, 2007, the Company had committed to fixed price purchase
contracts, primarily for green coffee, aggregating approximately $6,286,000 and $6,922,000,
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
2009. 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
over four years and expire ten years from the grant date. Under SFAS 123R, share-based compensation
expense for the thirteen weeks ended June 29, 2008 and July 1, 2007 totaled approximately $151,000
and $137,000, respectively, and for the twenty-six weeks ended June 29, 2008 and July 1, 2007
totaled approximately $303,000 and $279,000, 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 30, 2007
|
|
|
2,570,746
|
|
|
$
|
7.46
|
|
|
6.47 Yrs
|
|
|
|
|
Granted
|
|
|
55,000
|
|
|
$
|
2.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(14,331
|
)
|
|
$
|
8.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 30, 2008
|
|
|
2,611,415
|
|
|
$
|
7.35
|
|
|
6.28 Yrs
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contract
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
Granted
|
|
|
160,271
|
|
|
$
|
2.54
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,217,651
|
)
|
|
$
|
7.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 29, 2008
|
|
|
1,554,035
|
|
|
$
|
7.10
|
|
|
7.26 Yrs
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested at June 29, 2008
|
|
|
761,089
|
|
|
$
|
7.53
|
|
|
5.86 Yrs
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Income Taxes
During the thirteen and twenty-six weeks ended June 29, 2008, the Company recognized a tax
provision of $43,861 and $49,846, respectively. After consideration of all evidence, both positive
and negative, management has recorded a valuation allowance against its deferred income tax assets
at June 29, 2008 due to the uncertainty of realizing such deferred income tax assets. During the
thirteen and twenty-six weeks ended July 1, 2007, the Company recognized a tax benefit of $315,932
and $295,295, respectively, principally as a result of reducing its long term income tax liability
for unrecognized tax benefits due to the expiration of the statue of limitations.
8. Net Loss Per Share
Basic and diluted net loss per share for the thirteen and twenty-six week periods ended June
29, 2008 and July 1, 2007, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
June 29
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net loss
|
|
$
|
(2,431,560
|
)
|
|
$
|
(3,890,516
|
)
|
|
$
|
(8,837,543
|
)
|
|
$
|
(7,141,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding (for basic and diluted
calculation)
|
|
|
19,370,590
|
|
|
|
19,320,055
|
|
|
|
19,370,590
|
|
|
|
19,304,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.37
|
)
|
For the thirteen and twenty-six week periods ended June 29, 2008 and July 1, 2007, 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 $2,470,000 of the deposit in long term liabilities as deferred revenue
and $290,000 in current liabilities as deferred revenue on its June 29, 2008 balance sheet. As of
December 30, 2007, the Company included $2,535,000 of the deposit in long term liabilities as
deferred revenue and $290,000 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 current portion of deferred revenue represents the franchise fees for the
coffeehouses estimated to be opened during the subsequent twelve months per the development
schedule in the Master Franchise Agreement. At June 29, 2008, there were forty 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 of
which $21,000 was included in prepaid expense at both June 29, 2008 and December 30, 2007, and
$198,974 and $204,410 was
10
included in other assets at June 29, 2008 and December 30, 2007,
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. Note Payable and Revolving Credit Facility
On December 27, 2000, the Company entered into a sale leaseback arrangement with a third party
finance company whereby from time to time the Company sells equipment to the finance company and
immediately following the sale, it leases back all of the equipment it sold to such third party.
In February 2008, the Company amended the sale leaseback arrangement, reducing the maximum amount
available to $20 million from $60 million and modified certain of the arrangements financial
covenants. The sale leaseback arrangements expiration date of June 29, 2009 was not changed. The
Company had $3,000,000 of equipment leased under this arrangement at June 29, 2008, and the Company
had no equipment leased under this arrangement at December 30, 2007. In connection with the
amendment, the Company wrote-off $306,000, which is a portion of the costs associated with the
acquisition of the sale leaseback arrangement, which is included in interest expense on the
Companys statement of operations.
11. Commitments and Contingencies
On May 25, 2005, the Company received a complaint by three of its former employees for a
lawsuit in the State of Minnesota District Court for Hennepin County seeking monetary and equitable
relief from the Company under the Minnesota Fair Labor Standards Act (Minnesota FLSA), the
Federal Fair Labor Standards Act (FLSA), and state common law (hereafter the FLSA Suit). The
FLSA Suit primarily alleges that the Company misclassified its retail store managers and managers
in training as exempt from the overtime provisions of the Minnesota FLSA and the FLSA and that
these managers and mangers in training 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 FLSA and for weeks in which they worked more than 48 hours from May 2003 to the
present with respect to the claims under the Minnesota FLSA. Plaintiffs sought payment of an
unspecified amount of allegedly owed and unpaid overtime compensation, liquidated damages,
prejudgment interest, civil penalties under the Minnesota FLSA, an accounting of the amount
allegedly owed to the putative class, temporary and injunctive relief, attorneys fees and costs.
Since commencement, the Company has removed the matter to Federal Court for the District of
Minnesota. The Plaintiffs have also brought a motion to have the FLSA Suit conditionally certified
as a class action on behalf of the relevant class. This motion for conditional certification
though opposed by the Company was granted to the Plaintiffs. As a result of the grant of this
conditional certification of the relevant class, notices were sent to potential class members
giving them the option to opt in to the litigation. At this date the opt-in period has expired and
295 of the over 900 potential class members opted in to the litigation.
The Company and Plaintiffs after mediation of the matter on February 1, 2008, entered into a
Stipulation of Settlement (the Stipulation) to settle the FLSA Suit. The Stipulation, which was
contingent upon court approval, provides for a gross settlement payment of $2.7 million, plus the
employers share of payroll taxes. The settlement payments will be made as follows: 1) $1.75
million on the later of the date of District Court final approval of the settlement or March 15,
2008; and 2) $950,000 on the later of December 29, 2008 or thirty (30) days after the date of final
District Court approval of the settlement, along with interest on this installment from the date of
the initial installment payment at 6% simple interest. Settlement payments will be made to all
participating class members and all attorneys fees for plaintiffs counsel will be paid from the
$2.7 million.
On April 1, 2008, the Company received a complaint by DMP Limited Partnership for a lawsuit in
the United States District Court for the Western District of Pennsylvania seeking monetary relief
from the Company related to the termination of a Lease Agreement (the Lease Suit) for a proposed
Company coffeehouse in Pittsburgh, Pennsylvania. The Lease Suit alleges that the Company is in
default of the Lease Agreement and seeks monetary
11
damages of in excess of $526,000. It is the
position of the Company that it is not in default of the Lease Agreement
and that DMP Limited Partnership is obligated to reimburse the Company in excess of $162,179
that the Company has already paid to DMP Limited Partnership as rent. The Company seeks
reimbursement of this amount as a result from the failure of DMP Limited Partnership to meet all of
its obligations under the Lease Agreement. Discovery has commenced and the Company intends to
vigorously defend itself in the matter.
On May 6, 2008, the Company received a compliant for a lawsuit in the District Court, Ninth
Judicial District, County of Beltrami, State of Minnesota, from Lindsey Savage, individually and on
behalf of others similarly situated known and unknown, seeking monetary and equitable relief from
the Company under the Minnesota Fair Labor Standards Act (Minnesota FLSA) and in related
allegations that the Company was unjustly enriched and converted the funds of certain of its
employees. The essence of the claim is that the Company should have somehow prohibited shift
supervisors and/or store managers from participating in any money left in change and/or tip jars at
Company stores. The Company intends to vigorously defend the matter. Discovery has commenced and
is ongoing.
On July 3, 2008 the Company received a complaint in the United States District Court Northern
District of Illinois, from Arimathea LLC alleging that the hinged lid containers used by the
Company in the sale of Caribou Coffee Glacier Blast Gum infringes certain alleged patents held by
Arimathea LLC. The suit seeks monetary and equitable relief from the Company. The Company intends
to vigorously defend the matter.
12. Segment Reporting
Segment information is prepared on the same basis that the Companys management reviews
financial information for decision making purposes. The Company has three reportable operating
segments: retail, commercial and franchise. Unallocated corporate includes expenses pertaining to
corporate administrative functions that support the operating segments but are not specifically
attributable to or managed by any segment and are not included in the reported financial results of
the operating segments. All of the segment sales are from external customers.
Retail
The retail segment operated 415 company-owned coffeehouses located in 16 states and the
District of Columbia, as of June 29, 2008. The coffeehouses offer customers high-quality gourmet
coffee and espresso-based beverages, specialty teas, baked goods, whole bean coffee, branded
merchandise and related products.
Commercial
The commercial segment sells high-quality gourmet whole and ground coffee to grocery stores,
mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues,
college campuses and on-line customers.
Franchise
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of June 29, 2008, there were 75 franchised coffeehouses
in U.S and international markets.
The tables below present information by operating segment for the thirteen and twenty-six
weeks ended June 29, 2008 and July 1, 2007:
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended June 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
(in thousands)
|
|
Retail
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
Total net sales
|
|
$
|
57,267
|
|
|
$
|
4,484
|
|
|
$
|
1,432
|
|
|
$
|
|
|
|
$
|
63,183
|
|
Costs of sales and related occupancy costs
|
|
|
23,419
|
|
|
|
2,882
|
|
|
|
703
|
|
|
|
|
|
|
|
27,004
|
|
Operating expenses
|
|
|
24,935
|
|
|
|
480
|
|
|
|
400
|
|
|
|
|
|
|
|
25,815
|
|
Opening expenses
|
|
|
25
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
51
|
|
Depreciation and amortization
|
|
|
4,637
|
|
|
|
7
|
|
|
|
1
|
|
|
|
|
|
|
|
4,645
|
|
General and administrative expenses
|
|
|
2,272
|
|
|
|
|
|
|
|
|
|
|
|
4,346
|
|
|
|
6,618
|
|
Closing expense and disposal of assets
|
|
|
1,229
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
750
|
|
|
$
|
1,115
|
|
|
$
|
302
|
|
|
$
|
(4,449
|
)
|
|
$
|
(2,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
64,669
|
|
|
$
|
75
|
|
|
$
|
15
|
|
|
$
|
9,645
|
|
|
$
|
74,404
|
|
Net impairment
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended July 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
(in thousands)
|
|
Retail
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
Total net sales
|
|
$
|
59,330
|
|
|
$
|
2,681
|
|
|
$
|
836
|
|
|
$
|
|
|
|
$
|
62,847
|
|
Costs of sales and related occupancy costs
|
|
|
24,268
|
|
|
|
1,843
|
|
|
|
408
|
|
|
|
|
|
|
|
26,519
|
|
Operating expenses
|
|
|
26,251
|
|
|
|
486
|
|
|
|
285
|
|
|
|
|
|
|
|
27,022
|
|
Opening expenses
|
|
|
74
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
66
|
|
Depreciation and amortization
|
|
|
5,977
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
5,985
|
|
General and administrative expenses
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
4,616
|
|
|
|
7,153
|
|
Closing expense and disposal of assets
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
89
|
|
|
$
|
346
|
|
|
$
|
149
|
|
|
$
|
(4,616
|
)
|
|
$
|
(4,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
88,019
|
|
|
$
|
76
|
|
|
$
|
22
|
|
|
$
|
10,403
|
|
|
$
|
98,520
|
|
Net impairment
|
|
$
|
510
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six weeks ended June 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
(in thousands)
|
|
Retail
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
Total net sales
|
|
$
|
113,887
|
|
|
$
|
8,034
|
|
|
$
|
3,019
|
|
|
$
|
|
|
|
$
|
124,940
|
|
Costs of sales and related occupancy costs
|
|
|
46,719
|
|
|
|
4,913
|
|
|
|
1,585
|
|
|
|
|
|
|
|
53,217
|
|
Operating expenses
|
|
|
49,423
|
|
|
|
979
|
|
|
|
808
|
|
|
|
|
|
|
|
51,210
|
|
Opening expenses
|
|
|
110
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
135
|
|
Depreciation and amortization
|
|
|
10,550
|
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
10,566
|
|
General and administrative expenses
|
|
|
4,780
|
|
|
|
|
|
|
|
|
|
|
|
9,287
|
|
|
|
14,067
|
|
Closing expense and disposal of assets
|
|
|
3,767
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
3,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
$
|
(1,462
|
)
|
|
$
|
2,129
|
|
|
$
|
598
|
|
|
$
|
(9,399
|
)
|
|
$
|
(8,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
64,669
|
|
|
$
|
75
|
|
|
$
|
15
|
|
|
$
|
9,645
|
|
|
$
|
74,404
|
|
Net impairment
|
|
$
|
1,717
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six weeks ended July 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
(in thousands)
|
|
Retail
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
Total net sales
|
|
$
|
117,407
|
|
|
$
|
5,182
|
|
|
$
|
2,111
|
|
|
$
|
|
|
|
$
|
124,700
|
|
Costs of sales and related occupancy costs
|
|
|
47,588
|
|
|
|
3,337
|
|
|
|
1,109
|
|
|
|
|
|
|
|
52,034
|
|
Operating expenses
|
|
|
51,398
|
|
|
|
992
|
|
|
|
619
|
|
|
|
|
|
|
|
53,009
|
|
Opening expenses
|
|
|
166
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
176
|
|
Depreciation and amortization
|
|
|
11,986
|
|
|
|
12
|
|
|
|
5
|
|
|
|
|
|
|
|
12,003
|
|
General and administrative expenses
|
|
|
4,912
|
|
|
|
|
|
|
|
|
|
|
|
8,845
|
|
|
|
13,757
|
|
Closing expense and disposal of assets
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
496
|
|
|
$
|
841
|
|
|
$
|
368
|
|
|
$
|
(8,845
|
)
|
|
$
|
(7,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
88,019
|
|
|
$
|
76
|
|
|
$
|
22
|
|
|
$
|
10,403
|
|
|
$
|
98,520
|
|
Net impairment
|
|
$
|
923
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
923
|
|
All of the Companys assets are located in the United States, and approximately 1% of the
Companys consolidated sales come from outside the United States. No customer accounts for 10% or
more of the Companys sales.
14
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 30, 2007 contained in the our Form 10-K (File No. 000-51535).
FORWARD-LOOKING STATEMENTS
Certain statements in this report and other written or oral statements made by or on behalf of
Caribou Coffee are forward-looking statements within the meaning of the federal securities laws.
Statements regarding future events and developments and our future performance, as well as
managements current expectations, beliefs, plans, estimates or projections relating to the future,
are forward-looking statements within the meaning of these laws. These forward-looking statements
are subject to a number of risks and uncertainties. Among the important factors that could cause
actual results to differ materially from those indicated by such forward-looking statements are:
fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of
management focusing on implementation of a growth strategy, failure to develop and maintain the
Caribou Coffee brand and other factors disclosed in the our filings with the Securities and
Exchange Commission. We undertake no obligation to update any forward-looking statements in order
to reflect events or circumstances that may arise after the date of this report.
Overview
We are the second largest company-owned gourmet coffeehouse operator in the United States
based on the number of coffeehouses. As of June 29, 2008, we had 490 retail locations, including 75
franchised locations and 6 joint venture locations. Our coffeehouses are located in 16 states, the
District of Columbia and international markets. We focus on offering our customers high-quality
gourmet coffee and espresso-based beverages, as well as specialty teas baked goods, whole bean
coffee, branded merchandise and related products. Additionally, we sell our high-quality whole bean
and ground coffee to grocery stores, mass merchandisers, office coffee providers, airlines, hotels,
sports and entertainment venues, college campuses and on-line customers. We focus on creating a
unique experience for customers through a combination of high-quality products, a comfortable and
welcoming coffeehouse environment and customer service.
We will continue our efforts to increase comparable coffeehouse sales, including increasing
brand awareness through marketing efforts and introducing new products and promotions. If our
comparable coffeehouse sales increase, we expect our operating margins at those coffeehouses to
improve as we expect to have greater ability to leverage our fixed expense.
We intend to continue to grow through multiple points of distribution, including opening new
company-owned coffeehouses, partnering with qualified developers to open domestic and international
coffeehouses and partnerships with other commercial partners to expand our brand presence.
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 30,
2007, (File No. 000-51535) includes a summary of the critical accounting policies we believe are
the most important to aid in understanding our financial condition and results of operations. We
believe those critical accounting policies are significant or involve additional management
judgment due to the sensitivity of the methods, assumptions, and estimates necessary in determining
the related asset and liability amounts.
15
Fiscal Periods
Our fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year consists
of four 13-week quarters in a 52-week year. Each fiscal quarter reported herein consists of two
four-week months and one five-week month.
Our sales are somewhat seasonal, with the fourth quarter accounting for the highest sales
volumes. Operating results for the thirteen week period ended June 29, 2008 are not necessarily
indicative of future results that may be expected for the year ending December 28, 2008.
Thirteen Weeks Ended June 29, 2008 vs. Thirteen Weeks Ended July 1, 2007
Results of Operations
The following table presents the consolidated statements of operations as well as the
percentage relationship to total net sales of items included in our consolidated statement of
operations
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse
|
|
$
|
57,267
|
|
|
$
|
59,331
|
|
|
|
(3.5
|
)%
|
|
|
90.6
|
%
|
|
|
94.4
|
%
|
Other
|
|
|
5,916
|
|
|
|
3,516
|
|
|
|
68.3
|
%
|
|
|
9.4
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
63,183
|
|
|
|
62,847
|
|
|
|
0.5
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales and related occupancy costs
|
|
|
27,004
|
|
|
|
26,519
|
|
|
|
1.8
|
%
|
|
|
42.7
|
%
|
|
|
42.2
|
%
|
Operating expenses
|
|
|
25,815
|
|
|
|
27,022
|
|
|
|
(4.5
|
)%
|
|
|
40.8
|
%
|
|
|
43.0
|
%
|
Opening expenses
|
|
|
51
|
|
|
|
66
|
|
|
|
(22.7
|
)%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Depreciation and amortization
|
|
|
4,645
|
|
|
|
5,985
|
|
|
|
(22.4
|
)%
|
|
|
7.4
|
%
|
|
|
9.5
|
%
|
General and administrative expenses
|
|
|
6,618
|
|
|
|
7,153
|
|
|
|
(7.5
|
)%
|
|
|
10.5
|
%
|
|
|
11.4
|
%
|
Closing expense and disposal of assets
|
|
|
1,332
|
|
|
|
134
|
|
|
|
894.0
|
%
|
|
|
2.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,282
|
)
|
|
|
(4,032
|
)
|
|
|
43.4
|
%
|
|
|
(3.6
|
)%
|
|
|
(6.4
|
)%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3
|
|
|
|
46
|
|
|
|
(93.5
|
)%
|
|
|
|
%
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(122
|
)
|
|
|
(166
|
)
|
|
|
(26.5
|
)%
|
|
|
(0.2
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
and minority interest
|
|
|
(2,401
|
)
|
|
|
(4,152
|
)
|
|
|
42.2
|
%
|
|
|
(3.8
|
)%
|
|
|
(6.6
|
)%
|
Provision (benefit) for income taxes
|
|
|
44
|
|
|
|
(316
|
)
|
|
|
(113.9
|
)%
|
|
|
0.0
|
%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest
|
|
|
(2,445
|
)
|
|
|
(3,836
|
)
|
|
|
36.3
|
%
|
|
|
(3.8
|
)%
|
|
|
(6.1
|
)%
|
Minority interest
|
|
|
(13
|
)
|
|
|
54
|
|
|
|
124.1
|
%
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,432
|
)
|
|
$
|
(3,890
|
)
|
|
|
37.5
|
%
|
|
|
(3.8
|
)%
|
|
|
(6.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Total net sales increased $0.4 million, or 0.5%, to $63.2 million in the second thirteen weeks
of fiscal 2008 from $62.8 million in the second thirteen weeks of fiscal 2007. This increase is
largely due to increased sales in our commercial and franchise segments in the second thirteen
weeks of fiscal 2008 as compared to the same period in fiscal 2007. Other net sales increased by
$2.4 million, or 68.3%, to $5.9 million for the second thirteen weeks of fiscal 2008 from $3.5
million for the second thirteen weeks of fiscal 2007. This increase was largely due to sales to
existing and new commercial customers and product sales, franchise fees and royalties from the
development of 36 franchised coffeehouses during the preceding 12 months. Coffeehouse net sales
decreased $2.0 million, or 3.5%, to $57.3 million in the second thirteen weeks of fiscal 2008 from
$59.3 million in the second thirteen weeks of fiscal 2007. This decrease is attributable to 318
fewer operating coffeehouse weeks and a 1.7% decrease in comparable coffeehouse net sales in the
second thirteen weeks of fiscal 2008 as compared to the same period in fiscal 2007.
16
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs increased
$0.5 million, or 1.8%, to $27.0 million in the second thirteen weeks of fiscal 2008, from $26.5
million in the second thirteen weeks of fiscal 2007. This increase was largely due to higher other
sales and was partially offset by lower coffeehouse net sales. As a percentage of total net sales,
cost of sales and related occupancy costs increased to 42.7% in the second thirteen weeks of fiscal
2008 from 42.2% in the second thirteen weeks of fiscal 2007. The increase in cost of sales and
related occupancy costs as a percent of total net sales was primarily due to higher other sales
which typically have a higher cost of goods sold as a percentage of sales than coffeehouse sales.
Operating expenses.
Operating expenses decreased $1.2 million, or 4.5%, to $25.8 million in
the second thirteen weeks of fiscal 2008, from $27.0 million in the second thirteen weeks of fiscal
2007. This decrease is attributable to the 318 fewer operating coffeehouse weeks and tighter
management of labor costs in the second thirteen weeks of fiscal 2008 as compared to the second
thirteen weeks of fiscal 2007. As a percentage of total net sales, operating expenses decreased to
40.8% in the second thirteen weeks of fiscal 2008 from 43.0% in the second thirteen weeks of fiscal
2007. The decrease in operating expenses as a percentage of total net sales was primarily due to
tighter management of labor costs and from closing underperforming company-owned coffeehouses.
Opening expenses.
Opening expenses remained flat at $0.1 million in the second thirteen weeks
of fiscal 2008. We opened no new company-owned coffeehouses in the second thirteen weeks of fiscal
2008 versus five new company-owned coffeehouses during the second thirteen weeks of fiscal 2007.
Depreciation and amortization.
Depreciation and amortization decreased $1.4 million, or 22.4%,
to $4.6 million in the second thirteen weeks of fiscal 2008, from $6.0 million in the second
thirteen weeks of fiscal 2007. This decrease is due to the impairment of 38 company-owned
coffeehouses during the preceding twelve months and the fewer number of company-owned coffeehouses
in operation at the end of the second thirteen weeks ended June 29, 2008 as compared to the prior
year. Depreciation and amortization includes $0.2 million in accelerated depreciation associated
with coffeehouse impairments in the second thirteen weeks of fiscal 2008 as compared to $0.5
million in the second thirteen weeks of 2007. As a percentage of total net sales, depreciation and
amortization was 7.4% in the second thirteen weeks of fiscal 2008, compared to 9.5% in the second
thirteen weeks of fiscal 2007. This decrease as a percentage of total net sales was due to the
lower number of company-owned coffeehouses opened during the second thirteen weeks of fiscal 2008
and due to the impairment of 38 company-owned coffeehouses during the previous twelve months.
General and administrative expenses.
General and administrative expenses decreased $0.6
million, or 7.5%, to $6.6 million in the second thirteen weeks of fiscal 2008, from $7.2 million in
the second thirteen weeks of fiscal 2007. As a percentage of total net sales, general and
administrative expenses decreased to 10.5% in the second thirteen weeks of fiscal 2008, from 11.4%
in the second thirteen weeks of fiscal 2007. The decrease in general and administrative expenses
was largely due to lower labor costs during the second thirteen weeks of fiscal 2008.
Closing expenses and disposal of assets.
Closing expense and disposal of assets increased
$1.2 million to $1.3 million in the second thirteen weeks of fiscal 2008 from $0.1 million in the
second thirteen weeks of fiscal 2007. We closed six company-owned coffeehouses in both the second
thirteen weeks of 2008 and 2007. The increase in closing expense and
disposal of assets is attributable to the wide variations in the
costs associated with coffeehouse closings. The closing costs on an
individual store basis vary due to such factors as the real estate
market conditions, the amount of time left on the lease, the
remaining net book value of the coffeehouse assets and a variety of
store specific factors. We will continue to actively manage our
portfolio of coffeehouses.
Interest income.
Interest income remained flat in the second thirteen weeks of fiscal 2008,
as compared to the second thirteen weeks of fiscal 2007.
Interest expense.
Interest expense decreased $0.1 million to $0.1 million in the second
thirteen weeks of fiscal 2008 from $0.2 million in the second thirteen weeks of 2007. Interest
expense decreased due to lower costs associated with reducing our revolving credit facility from
$60.0 million to $20.0 million. Outstanding borrowings as of June 29, 2008 and July 1, 2007 were
$3.0 million and $0.0 million, respectively.
17
Operating Segments
Segment information is prepared on the same basis that our management reviews financial
information for decision making purposes. We have three reportable operating segments: retail,
commercial and franchise. Unallocated corporate includes expenses pertaining to corporate
administrative functions that support the operating segments but are not specifically attributable
to or managed by any segment and are not included in the reported financial results of the
operating segments. The following tables summarize our results of operations by segment for the
second thirteen weeks of fiscal 2008 and 2007.
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
13 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of coffeehouse sales
|
|
Coffeehouse sales
|
|
$
|
57,267
|
|
|
$
|
59,330
|
|
|
|
(3.5
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
23,419
|
|
|
|
24,268
|
|
|
|
(3.5
|
)%
|
|
|
40.9
|
%
|
|
|
40.9
|
%
|
Operating expenses
|
|
|
24,935
|
|
|
|
26,251
|
|
|
|
(5.0
|
)%
|
|
|
43.5
|
%
|
|
|
44.2
|
%
|
Opening expenses
|
|
|
25
|
|
|
|
74
|
|
|
|
(66.2
|
)%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Depreciation and amortization
|
|
|
4,637
|
|
|
|
5,977
|
|
|
|
(22.4
|
)%
|
|
|
8.1
|
%
|
|
|
10.1
|
%
|
General and administrative expenses
|
|
|
2,272
|
|
|
|
2,537
|
|
|
|
(10.4
|
)%
|
|
|
4.0
|
%
|
|
|
4.3
|
%
|
Closing expense and disposal of assets
|
|
|
1,229
|
|
|
|
134
|
|
|
|
817.2
|
%
|
|
|
2.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
750
|
|
|
$
|
89
|
|
|
|
742.7
|
%
|
|
|
1.3
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The retail segment operates company-owned coffeehouses. As of June 29, 2008, there were 415
company-owned coffeehouses in 16 states and the District of Columbia.
Coffeehouse sales
Coffeehouse sales decreased $2.0 million, or 3.5%, to $57.3 million in the second thirteen
weeks of fiscal 2008 from $59.3 million in the second thirteen weeks of fiscal 2007. This decrease
is attributable to 318 fewer operating coffeehouse weeks due to store closings and a 1.7% decrease
in comparable coffeehouse net sales in the second thirteen weeks of fiscal 2008 as compared to the
same period in fiscal 2007.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy decreased $0.9
million, or 3.5%, to $23.4 million in the second thirteen weeks of 2008, from $24.3 million for the
second thirteen weeks of 2007. The decrease in cost of sales and related occupancy costs was
primarily due lower coffeehouse sales. Cost of sales and related occupancy costs as a percentage of
coffeehouse net sales remained flat at 40.9%.
Operating expenses.
Operating expenses decreased $1.4 million, or 5.0%, to $24.9 million for
the second thirteen weeks of 2008, from $26.3 million for the second thirteen weeks of 2007. This
decrease is primarily attributable to the 318 fewer coffeehouse operating weeks for the second
thirteen weeks of fiscal 2008 as compared to the same period in fiscal 2007 and the tighter
management of labor costs. As a percentage of coffeehouse net sales, operating expenses decreased
to 43.5% in the second thirteen weeks of 2008 from 44.2% in the second thirteen weeks of 2007. The
decrease in operating expenses as a percentage of coffeehouse net sales was primarily due to
tighter management of labor cost and closing underperforming company-owned coffeehouses.
Depreciation and amortization.
Depreciation and amortization decreased $1.4 million, or
22.4%, to $4.6 million for the second thirteen weeks of 2008, from $6.0 million for the second
thirteen weeks of 2007. This decrease is due to the impairment of 38 company-owned coffeehouses
during the preceding twelve months and the fewer number of company-owned coffeehouses in operation
at the end of the second thirteen weeks ended June 29, 2008 as compared to the prior year.
Depreciation and amortization includes $0.2 million in accelerated depreciation associated with
18
coffeehouse impairments in the second thirteen weeks of fiscal 2008 as compared to $0.5
million in the second thirteen weeks of 2007.
General and administrative expenses.
General and administrative expenses decreased
$0.2 million, or 10.4%, to $2.3 million for the second thirteen weeks of fiscal 2008 from
$2.5 million for the second thirteen weeks of fiscal 2007. The decrease was largely due to lower
labor costs.
Closing expense and disposal of assets.
Closing expense and disposal of assets increased
$1.1 million to $1.2 million for the second thirteen weeks of 2008 from $0.1 million for the second
thirteen weeks of 2007. We closed six company-owned coffeehouses in
both the second thirteen weeks of 2008 and 2007. The increase in
closing expense and disposal of assets is attributable to the wide
variations in the costs associated with coffeehouse closings. The
closing costs on an individual store basis vary due to such factors
as the real estate market conditions, the amount of time left on the
lease, the remaining net book value of the coffeehouse assets and a
variety of store specific factors.
We will continue to actively manage our portfolio of company-owned coffeehouses.
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
13 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of commercial sales
|
|
Sales
|
|
$
|
4,484
|
|
|
$
|
2,681
|
|
|
|
67.3
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
2,882
|
|
|
|
1,843
|
|
|
|
56.4
|
%
|
|
|
64.3
|
%
|
|
|
68.7
|
%
|
Operating expenses
|
|
|
480
|
|
|
|
486
|
|
|
|
(1.2
|
)%
|
|
|
10.7
|
%
|
|
|
18.2
|
%
|
Depreciation and amortization
|
|
|
7
|
|
|
|
6
|
|
|
|
16.7
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
1,115
|
|
|
$
|
346
|
|
|
|
222.3
|
%
|
|
|
24.9
|
%
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The commercial segment sells high-quality gourmet whole bean and ground coffee to grocery
stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment
venues, college campuses and on-line customers.
Sales
Sales increased $1.8 million, or 67.3%, to $4.5 million in the second thirteen weeks of fiscal
2008, from $2.7 million in the second thirteen weeks of fiscal 2007. This increase is primarily
attributable to the incremental sales to existing grocery stores and Keurig Incorporated, an
industry leader in single cup brewing technology, as well as, sales to new grocery stores and food
brokers who distribute our products.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $1.1 million, or 56.4%, to $2.9 million for the second thirteen weeks of 2008, from
$1.8 million for the second thirteen weeks of 2007. The increase was largely driven by increased
sales. As a percentage of sales, cost of sales and related occupancy costs decreased to 64.3% for
the second thirteen weeks of 2008, from 68.7% for the second thirteen weeks of 2007. The reduction
in cost of sales and related occupancy costs as a percentage of sales was primarily due to lower
grocery store slotting charges on new grocery accounts.
Operating expenses.
Operating expenses remained flat at $0.5 million. As a percentage of
sales, operating expenses decreased to 10.7% in the second thirteen weeks of 2008 from 18.2% in the
second thirteen weeks of 2007. The decrease is attributable to leveraging relatively fixed
operating expenses.
19
Franchise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
13 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of franchise sales
|
|
Sales
|
|
$
|
1,432
|
|
|
$
|
836
|
|
|
|
71.3
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
703
|
|
|
|
408
|
|
|
|
72.3
|
%
|
|
|
49.1
|
%
|
|
|
48.8
|
%
|
Operating expenses
|
|
|
400
|
|
|
|
285
|
|
|
|
40.4
|
%
|
|
|
27.9
|
%
|
|
|
34.1
|
%
|
Opening expenses
|
|
|
26
|
|
|
|
(8
|
)
|
|
|
(425.0
|
)%
|
|
|
1.8
|
%
|
|
|
(1.0
|
)%
|
Depreciation and amortization
|
|
|
1
|
|
|
|
2
|
|
|
|
(50.0
|
)%
|
|
|
0.1
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
302
|
|
|
$
|
149
|
|
|
|
102.7
|
%
|
|
|
21.1
|
%
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of June 29, 2008, there were 75 franchised coffeehouses
in the U.S and international markets.
Sales
Sales increased $0.6 million, or 71.3%, to $1.4 million for the second thirteen weeks of 2008
from $0.8 million for the second thirteen weeks of 2007. This increase is primarily attributable
to royalties and product sales from the 36 new franchise coffeehouses opened during the preceding
12 months.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $0.3 million, or 72.3%, to $0.7 million for the second thirteen weeks of 2008, from
$0.4 million for the second thirteen weeks of 2007. The increase was primarily due to the
additional product sales from the new franchised coffeehouses opened during the past twelve months.
As a percentage of sales, cost of sales and related occupancy costs increased slightly to 49.1% for
the second thirteen weeks of 2008, from 48.8% for the second thirteen weeks of 2007. The increase
in cost of sales and related occupancy costs as a percentage of sales was primarily due to a change
in product mix sold to franchisees.
Operating expenses.
Operating expenses increased $0.1 million, or 40.4%, to $0.4 million for
the second thirteen weeks of 2008, from $0.3 million for the second thirteen weeks of 2007. This
increase is primarily attributable to increased administrative costs associated with supporting the
growth of our franchise business. As a percentage of sales, operating expenses decreased to 27.9%
for the second thirteen weeks of 2008 from 34.1% for the second thirteen weeks of 2007. The
decrease in operating expenses as a percentage of sales was primarily due to leverage obtained on
certain fixed segment expenses.
Opening expenses.
Opening expenses remained flat at $0.1 million in the second thirteen weeks
of fiscal 2008. In the second thirteen weeks of 2007 we received reimbursement for preopening
expenses from a franchisor, offsetting prior period expenses.
20
Unallocated Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
13 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
General and administrative expenses
|
|
$
|
4,346
|
|
|
$
|
4,616
|
|
|
|
(5.8
|
)%
|
|
|
6.9
|
%
|
|
|
7.3
|
%
|
Closing expense and disposal of assets
|
|
|
103
|
|
|
|
|
|
|
|
n/a
|
|
|
|
0.1
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)
|
|
$
|
(4,449
|
)
|
|
$
|
(4,616
|
)
|
|
|
3.6
|
%
|
|
|
(7.0
|
)%
|
|
|
(7.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses.
General and administrative expenses decreased $0.3
million, or 5.8%, to $4.3 million in the second thirteen weeks of fiscal 2008, from $4.6 million in
the second thirteen weeks of fiscal 2007. As a percentage of total net sales, general and
administrative expenses decreased to 6.9% in the second thirteen weeks of fiscal 2008, from 7.3% in
the second thirteen weeks of fiscal 2007. The decrease in general and administrative expenses as a
percentage of net sales was due to decreased labor costs during the second thirteen weeks of fiscal
2008.
Twenty-Six Weeks Ended June 29, 2008 vs. Twenty-Six Weeks Ended July 1, 2007
Results of Operations
The following table presents the consolidated statements of operations as well as the
percentage relationship to total net sales of items included in our consolidated statement of
operations
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse
|
|
$
|
113,887
|
|
|
$
|
117,407
|
|
|
|
(3.0
|
)%
|
|
|
91.2
|
%
|
|
|
94.2
|
%
|
Other
|
|
|
11,053
|
|
|
|
7,293
|
|
|
|
51.6
|
%
|
|
|
8.8
|
%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
124,940
|
|
|
|
124,700
|
|
|
|
0.2
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales and related occupancy costs
|
|
|
53,217
|
|
|
|
52,034
|
|
|
|
2.3
|
%
|
|
|
42.6
|
%
|
|
|
41.7
|
%
|
Operating expenses
|
|
|
51,210
|
|
|
|
53,009
|
|
|
|
(3.4
|
)%
|
|
|
41.0
|
%
|
|
|
42.5
|
%
|
Opening expenses
|
|
|
135
|
|
|
|
176
|
|
|
|
(23.3
|
)%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Depreciation and amortization
|
|
|
10,566
|
|
|
|
12,003
|
|
|
|
(12.0
|
)%
|
|
|
8.4
|
%
|
|
|
9.7
|
%
|
General and administrative expenses
|
|
|
14,067
|
|
|
|
13,757
|
|
|
|
2.3
|
%
|
|
|
11.3
|
%
|
|
|
11.0
|
%
|
Closing expense and disposal of assets
|
|
|
3,879
|
|
|
|
861
|
|
|
|
350.5
|
%
|
|
|
3.1
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(8,134
|
)
|
|
|
(7,140
|
)
|
|
|
13.9
|
%
|
|
|
(6.5
|
)%
|
|
|
(5.7
|
)%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
20
|
|
|
|
79
|
|
|
|
(74.7
|
)%
|
|
|
|
%
|
|
|
0.0
|
%
|
Interest expense
|
|
|
(634
|
)
|
|
|
(295
|
)
|
|
|
114.9
|
%
|
|
|
(0.5
|
)%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
and minority interest
|
|
|
(8,748
|
)
|
|
|
(7,356
|
)
|
|
|
18.9
|
%
|
|
|
(7.0
|
)%
|
|
|
(5.9
|
)%
|
Provision (benefit) for income taxes
|
|
|
50
|
|
|
|
(296
|
)
|
|
|
(116.9
|
)%
|
|
|
0.0
|
%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest
|
|
|
(8,798
|
)
|
|
|
(7,060
|
)
|
|
|
24.6
|
%
|
|
|
(7.0
|
)%
|
|
|
(5.7
|
)%
|
Minority interest
|
|
|
40
|
|
|
|
82
|
|
|
|
(51.2
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,838
|
)
|
|
$
|
(7,142
|
)
|
|
|
23.7
|
%
|
|
|
(7.0
|
)%
|
|
|
(5.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Total net sales increased $0.2 million, or 0.2%, to $124.9 million in the first twenty-six
weeks of fiscal 2008 from $124.7 million in the first twenty-six weeks of fiscal 2007. This
increase is largely due to increased sales in our commercial and franchise segments in the first
twenty-six weeks of fiscal 2008 as compared to the same period in fiscal 2007. Other net sales
increased by $3.8 million, or 51.6%, to $11.1 million for the first twenty-six weeks of
21
fiscal 2008 from $7.3 million for the first twenty-six weeks of fiscal 2007. This increase
was largely due to sales to existing and new commercial customers and product sales, franchise fees
and royalties from the development of 36 franchised coffeehouses during the preceding 12 months.
Coffeehouse net sales decreased $3.5 million, or 3.0%, to $113.9 million in the first twenty-six
weeks of fiscal 2008 from $117.4 million in the first twenty-six weeks of fiscal 2007. This
decrease is attributable to 464 fewer operating coffeehouse weeks and a 2.0% decrease in comparable
coffeehouse net sales in the first twenty-six weeks of fiscal 2008 as compared to the same period
in fiscal 2007.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs increased
$1.2 million, or 2.3%, to $53.2 million in the first twenty-six weeks of fiscal 2008, from $52.0
million in the first twenty-six weeks of fiscal 2007. This increase was largely due to higher
other sales. As a percentage of total net sales, cost of sales and related occupancy costs
increased to 42.6% in the first twenty-six weeks of fiscal 2008 from 41.7% in the first twenty-six
weeks of fiscal 2007. The increase in cost of sales and related occupancy costs as a percent of
total net sales was primarily due to higher other sales which typically have a higher cost of goods
as percentage of sales than coffeehouse sales.
Operating expenses.
Operating expenses decreased $1.8 million, or 3.4%, to $51.2 million in
the first twenty-six weeks of fiscal 2008, from $53.0 million in the first twenty-six weeks of
fiscal 2007. This decrease is attributable to 464 fewer operating coffeehouse weeks, tighter
management of labor costs and the timing of coffeehouse maintenance and marketing expense in the
first twenty-six weeks of fiscal 2008 as compared to the first twenty-six weeks of fiscal 2007. As
a percentage of total net sales, operating expenses decreased to 41.0% in the first twenty-six
weeks of fiscal 2008 from 42.5% in the first twenty-six weeks of fiscal 2007. The decrease in
operating expenses as a percentage of total net sales was primarily due to tighter management of
labor costs, the timing of coffeehouse maintenance and marketing expenses and from closing
underperforming company-owned coffeehouses.
Opening expenses.
Opening expenses decreased $0.1 million, or 23.3%, to $0.1 million in the
first twenty-six weeks of fiscal 2008, from $0.2 million in the first twenty-six weeks of fiscal
2007. We opened five new company-owned coffeehouses in the first twenty-six weeks of fiscal 2008
versus nine new company-owned coffeehouses during the first twenty-six weeks of fiscal 2007.
Depreciation and amortization.
Depreciation and amortization decreased $1.4 million, or 12.0%,
to $10.6 million in the first twenty-six weeks of fiscal 2008, from $12.0 million in the first
twenty-six weeks of fiscal 2007. This decrease is due to the impairment of 38 company-owned
coffeehouses during the preceding twelve months and the fewer number of company-owned coffeehouses
in operation at the end of the first twenty-six weeks ended June 29, 2008 as compared to the prior
year. Depreciation and amortization includes $1.7 million in accelerated depreciation associated
with coffeehouse impairments in the first twenty-six weeks of fiscal 2008 as compared to $0.9
million in the first twenty-six weeks of 2007. As a percentage of total net sales, depreciation
and amortization was 8.4 % in the first twenty-six weeks of fiscal 2008, compared to 9.7% in the
first twenty-six weeks of fiscal 2007. This decrease as a percentage of total net sales was due to
the lower number of company-owned coffeehouses opened during the first twenty-six weeks of fiscal
2008 and due to the impairment of 38 company-owned coffeehouses during the previous twelve months.
General and administrative expenses.
General and administrative expenses increased $0.3
million, or 2.3%, to $14.1 million in the first twenty-six weeks of fiscal 2008, from $13.8 million
in the first twenty-six weeks of fiscal 2007. As a percentage of total net sales, general and
administrative expenses increased to 11.3% in the first twenty-six weeks of fiscal 2008, from 11.0%
in the first twenty-six weeks of fiscal 2007. The increase in general and administrative expenses
was largely due to severance costs incurred during the first twenty-six weeks of fiscal 2008.
Closing expenses and disposal of assets.
Closing expense and disposal of assets increased
$3.0 million to $3.9 million in the first twenty-six weeks of fiscal 2008 from $0.9 million in the
first twenty-six weeks of fiscal 2007. This increase is due to costs associated with twenty-four
coffeehouse closures in the first twenty-six weeks of fiscal 2008, compared to eight in the first
twenty-six weeks of fiscal 2007, and due to the wide variations in
the costs associated with coffeehouse closings. The closing costs on
an individual store basis vary due to such factors as the real estate
market conditions, the amount of time left on the lease, the
remaining net book value of the coffeehouse assets and a variety of
store specific factors. We will continue to actively manage our portfolio of
coffeehouses.
22
Interest income.
Interest income remained flat in the first twenty-six weeks of fiscal 2008,
as compared to the first twenty-six weeks of fiscal 2007.
Interest expense.
Interest expense increased $0.3 million to $0.6 million in the first
twenty-six weeks of fiscal 2008 from $0.3 million in the first twenty-six weeks of 2007. Interest
expense increased due to the write-off of a portion of the costs associated with acquiring the our
revolving credit facility because the we reduced the amount available under our revolving credit
facility from $60.0 million to $20.0 during the first thirteen weeks of fiscal 2008. The
outstanding borrowings as of June 29, 2008 and July 1, 2007 were $3.0 million and $0.0 million,
respectively.
Operating Segments
Segment information is prepared on the same basis that our management reviews financial
information for decision making purposes. We have three reportable operating segments: retail,
commercial and franchise. Unallocated corporate includes expenses pertaining to corporate
administrative functions that support the operating segments but are not specifically attributable
to or managed by any segment and are not included in the reported financial results of the
operating segments. The following tables summarize our results of operations by segment for the
first twenty-six weeks of fiscal 2008 and 2007.
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of coffeehouse sales
|
|
Coffeehouse sales
|
|
$
|
113,887
|
|
|
$
|
117,407
|
|
|
|
(3.0
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
46,719
|
|
|
|
47,588
|
|
|
|
(1.8
|
)%
|
|
|
41.0
|
%
|
|
|
40.5
|
%
|
Operating expenses
|
|
|
49,423
|
|
|
|
51,398
|
|
|
|
(3.8
|
)%
|
|
|
43.4
|
%
|
|
|
43.8
|
%
|
Opening expenses
|
|
|
110
|
|
|
|
166
|
|
|
|
(33.7
|
)%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Depreciation and amortization
|
|
|
10,550
|
|
|
|
11,986
|
|
|
|
(12.0
|
)%
|
|
|
9.3
|
%
|
|
|
10.2
|
%
|
General and administrative expenses
|
|
|
4,780
|
|
|
|
4,912
|
|
|
|
(2.7
|
)%
|
|
|
4.2
|
%
|
|
|
4.2
|
%
|
Closing expense and disposal of assets
|
|
|
3,767
|
|
|
|
861
|
|
|
|
337.4
|
%
|
|
|
3.3
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
$
|
(1,462
|
)
|
|
$
|
496
|
|
|
|
(394.8
|
)%
|
|
|
(1.3
|
)%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The retail segment operates company-owned coffeehouses. As of June 29, 2008, there were 415
company-owned coffeehouses in 16 states and the District of Columbia.
Coffeehouse sales
Coffeehouse sales decreased $3.5 million, or 3.0%, to $113.9 million in the first twenty-six
weeks of fiscal 2008 from $117.4 million in the first twenty-six weeks of fiscal 2007. This
decrease is attributable to 464 fewer operating coffeehouse weeks and a 2.0% decrease in comparable
coffeehouse net sales in the first twenty-six weeks of fiscal 2008 as compared to the same period
in fiscal 2007.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy decreased $0.9
million, or 1.8%, to $46.7 million for the first twenty-six weeks of 2008, from $47.6 million for
the first twenty-six weeks of 2007. The decrease in cost of sales and related occupancy costs was
primarily due lower coffeehouse sales. As a percentage of coffeehouse sales, cost of sales and
related occupancy costs increased to 41.0% in the first twenty-six weeks of 2008 from 40.5% in the
first twenty-six weeks of 2007. The increase of cost of sales and related occupancy costs as a
percent of coffeehouse sales was largely due to higher dairy and freight expense.
23
Operating expenses.
Operating expenses decreased $2.0 million, or 3.8%, to $49.4 million for
the first twenty-six weeks of 2008, from $51.4 million for the first twenty-six weeks of 2007. As a
percentage of coffeehouse sales, operating expenses decreased to 43.4% in the first twenty-six
weeks of 2008 from 43.8% in the first twenty-six weeks of 2007. These decreases are primarily
attributable to the 464 fewer coffeehouse operating weeks for the first twenty-six weeks of fiscal
2008 as compared to the same period in fiscal 2007 and the timing of coffeehouse maintenance and
marketing expenses.
Depreciation and amortization.
Depreciation and amortization decreased $1.4 million, or
12.0%, to $10.6 million for the first twenty-six weeks of 2007, from $12.0 million for the first
twenty-six weeks of 2007. This decrease is due to the impairment of 38 company-owned coffeehouses
during the previous twelve months and the fewer number of company-owned coffeehouses in operation
at the end of the first twenty-six weeks ended June 29, 2008 as compared to the prior year.
Depreciation and amortization includes $1.7 million in accelerated depreciation associated with
coffeehouse impairments in the first twenty-six weeks of fiscal 2008 as compared to $0.9 million in
the first twenty-six weeks of 2007.
General and administrative expenses.
General and administrative expenses decreased
$0.1 million, or 2.7%, to $4.8 million for the first twenty-six weeks of fiscal 2008 from
$4.9 million for the first twenty-six weeks of fiscal 2007. The decrease was largely due to
decreased coffeehouse management costs.
Closing expense and disposal of assets.
Closing expense and disposal of assets increased
$2.9 million to $3.8 million for the first twenty-six weeks of 2008 from $0.9 million for the first
twenty-six weeks of 2007. The increase in closing expense and disposal of assets is primarily
attributable to asset write-offs and lease termination costs associated with the closing of
twenty-four underperforming company-owned coffeehouses in the first twenty-six weeks of 2008
compared to eight closed company-owned coffeehouses in the first
twenty-six weeks of 2007, and due to the wide variations in the costs
associated with coffeehouse closings. The closing costs on an
individual store basis vary due to such factors as the real estate
market conditions, the amount of time left on the lease, the
remaining net book value of the coffeehouse assets and a variety of
store specific factors. We will
continue to actively manage our portfolio of company-owned coffeehouses.
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of commercial sales
|
|
Sales
|
|
$
|
8,034
|
|
|
$
|
5,182
|
|
|
|
55.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
4,913
|
|
|
|
3,337
|
|
|
|
47.3
|
%
|
|
|
61.1
|
%
|
|
|
64.4
|
%
|
Operating expenses
|
|
|
979
|
|
|
|
992
|
|
|
|
(1.3
|
)%
|
|
|
12.2
|
%
|
|
|
19.2
|
%
|
Depreciation and amortization
|
|
|
13
|
|
|
|
12
|
|
|
|
8.3
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
2,129
|
|
|
$
|
841
|
|
|
|
153.2
|
%
|
|
|
26.5
|
%
|
|
|
16.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The commercial segment sells high-quality gourmet whole bean and ground coffee to grocery
stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment
venues, college campuses and on-line customers.
Sales
Sales increased $2.8 million, or 55.0%, to $8.0 million in the first twenty-six weeks of
fiscal 2008, from $5.2 million in the first twenty-six weeks of fiscal 2007. This increase is
primarily attributable to the incremental sales to existing grocery stores and Keurig Incorporated,
an industry leader in single cup brewing technology, as well as, sales to new grocery stores and
food brokers who distribute our products.
24
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $1.6 million, or 47.3%, to $4.9 million for the first twenty-six weeks of 2008, from
$3.3 million for the first twenty-six weeks of 2007. The increase was largely driven by increased
sales. As a percentage of sales, cost of sales and related occupancy costs decreased to 61.1% for
the first twenty-six weeks of 2007, from 64.4% for the first twenty-six weeks of 2007. The
reduction in cost of sales and related occupancy costs as a percentage of sales was primarily due
to lower grocery store slotting charges on new grocery accounts.
Franchise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of franchise sales
|
|
Sales
|
|
$
|
3,019
|
|
|
$
|
2,111
|
|
|
|
43.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
1,585
|
|
|
|
1,109
|
|
|
|
42.9
|
%
|
|
|
52.5
|
%
|
|
|
52.6
|
%
|
Operating expenses
|
|
|
808
|
|
|
|
619
|
|
|
|
30.5
|
%
|
|
|
26.8
|
%
|
|
|
29.3
|
%
|
Opening expenses
|
|
|
25
|
|
|
|
10
|
|
|
|
150.0
|
%
|
|
|
0.8
|
%
|
|
|
0.5
|
%
|
Depreciation and amortization
|
|
|
3
|
|
|
|
5
|
|
|
|
(40.0
|
)%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
598
|
|
|
$
|
368
|
|
|
|
62.5
|
%
|
|
|
19.8
|
%
|
|
|
17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of June 29, 2008, there were 75 franchised coffeehouses
in the U.S and international markets.
Sales
Sales increased $0.9 million, or 43.0%, to $3.0 million for the first twenty-six weeks of 2008
from $2.1 million for the first twenty-six weeks of 2007. This increase is primarily attributable
to royalties and product sales from the 36 new franchise coffeehouses opened during the preceding
12 months.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $0.5 million, or 42.9%, to $1.6 million for the first twenty-six weeks of 2008, from
$1.1 million for the first twenty-six weeks of 2007. The increase was primarily due to the
additional product sales from the 36 new franchised coffeehouses opened during the past twelve
months. As a percentage of sales, cost of sales and related occupancy costs decreased slightly to
52.5% for the first twenty-six weeks of 2008, from 52.6% for the first twenty-six weeks of 2007.
The decrease in cost of sales and related occupancy costs as a percentage of sales was primarily
due to a change in product mix sold to franchisees.
Operating expenses.
Operating expenses increased $0.2 million, or 30.5%, to $0.8 million for
the first twenty-six weeks of 2008, from $0.6 million for the first twenty-six weeks of 2007. This
increase is primarily attributable to increased administrative costs associated with supporting the
growth of our franchise business. As a percentage of sales, operating expenses decreased to 26.8%
for the first twenty-six weeks of 2008 from 29.3% for first twenty-six weeks of 2007. The decrease
in operating expenses as a percentage of sales was primarily due to leverage obtained on certain
fixed segment expenses.
25
Unallocated Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
%
|
|
|
June 29,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
General and administrative expenses
|
|
$
|
9,287
|
|
|
$
|
8,845
|
|
|
|
5.0
|
%
|
|
|
7.4
|
%
|
|
|
7.1
|
%
|
Closing expense and disposal of assets
|
|
|
112
|
|
|
|
|
|
|
|
n/a
|
|
|
|
0.1
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)
|
|
$
|
(9,399
|
)
|
|
$
|
(8,845
|
)
|
|
|
(6.3
|
)%
|
|
|
(7.5
|
)%
|
|
|
(7.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses.
General and administrative expenses increased $0.5
million, or 5.0%, to $9.3 million in the first twenty-six weeks of fiscal 2008, from $8.8 million
in the first twenty-six weeks of fiscal 2007. As a percentage of total net sales, general and
administrative expenses increased to 7.4% in the first twenty-six weeks of fiscal 2008, from 7.1%
in the first twenty-six weeks of fiscal 2007. The increase in general and administrative expenses
as a percentage of net sales was due to severance costs incurred during the first twenty-six weeks
of fiscal 2008.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
|
|
|
June 29,
|
|
|
July 1,
|
|
|
Increase /
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
Net cash (used) provided by operating activities
|
|
$
|
(1,990
|
)
|
|
$
|
1,791
|
|
|
$
|
(3,781
|
)
|
Net cash used in investing activities
|
|
|
(4,035
|
)
|
|
|
(8,310
|
)
|
|
|
4,275
|
|
Net cash provided by financing activities
|
|
|
2,889
|
|
|
|
132
|
|
|
|
2,757
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(3,136
|
)
|
|
$
|
(6,387
|
)
|
|
$
|
3,251
|
|
|
|
|
Cash and cash equivalents as of June 29, 2008 were $6.7 million, compared to cash and cash
equivalents of $9.9 million as of December 30, 2007. Generally, our principal requirements for cash
are capital expenditures, coffeehouse closing costs and funding operations. Capital expenditures
included development costs related to the opening of new coffeehouses, maintenance and remodeling
of existing coffeehouses, general and administrative expenditures for items like management
information systems and costs for new production equipment. Coffeehouse closing costs include the
cost of exiting a coffeehouse location, including costs to remove equipment and signage and lease
termination costs. Currently our requirements for capital have been funded through cash flow from
operations and our revolving credit facility.
Net cash used by operating activities for the first twenty-six weeks of fiscal 2008 was $2.0
million compared to net cash provided by operating activities of $1.8 million for the first
twenty-six weeks of fiscal 2007. The $3.8 million increase in cash used by operating activities
was the result of an increase in our net loss, a reduction in the deferred revenue liability and a
decrease in accrued expenses. The reduction in the deferred revenue liability is attributable to
customer use of amounts put on stored value Caribou Cards during the fourth quarter of 2007. The
decrease in accrued expenses is primarily attributable to the $1.8 million payment made as part of
the FLSA claim settlement.
26
Net cash used in investing activities during the first twenty-six weeks of fiscal 2008 was
$4.0 million, compared to net cash used in investing activities of $8.3 million for the first
twenty-six weeks of fiscal 2007. A significant amount of these capital expenditures for each fiscal
year was for the construction of new coffeehouses, which included the cost of leasehold
improvements and capital equipment. We opened five new company-owned coffeehouses in the first
twenty-six weeks of fiscal 2008 and nine company-owned coffeehouses in the first twenty-six weeks
of fiscal 2007. The remainder of the capital expenditures for both the first twenty-six weeks of
2008 and 2007 was for the remodel of existing coffeehouses in addition to roasting, packaging and
computer equipment and systems.
Net cash provided by financing activities increased $2.8 million during the first twenty-six
weeks of 2008 as compared to the same period in the prior year. We borrowed $3.0 million under
our revolving credit facility during the twenty-six weeks ended June 29, 2008 and $3.0 million
remained outstanding at June 29, 2008. We did not make any borrowings under our revolving credit
facility and carried no balance during the first twentysix weeks of 2007. In February 2008, we
amended our revolving credit facility reducing the maximum amount available to $20.0 million and
modifying certain of the revolving credit financial covenants. Our revolving credit facility
expiration date of June 29, 2009 was not changed. Interest payable under the revolving credit
facility is equal to the amount outstanding under the facility multiplied by the applicable LIBOR
rate plus a specified margin.
Our future capital requirements and the adequacy of available funds will depend on many
factors, including the pace of our expansion, real estate markets, the availability of suitable
site locations and the nature of the arrangements negotiated with landlords for new coffeehouse as
well as lease termination costs associated with existing underperforming coffeehouse leases.
Expenses associated with the lease terminations for existing underperforming coffeehouse leases are
variable from coffeehouse to coffeehouse and are dependent upon the amount of time left on the
lease, local real estate market conditions as well as other factors. We expect capital expenditures
for fiscal 2008 to be in the range of $10.0 to $12.0 million and expect closing expense and
disposal of asset costs in fiscal 2008 to be consistent with fiscal 2007. We believe that our
current liquidity, cash flow from operations and amounts available under our revolving credit
facility will provide sufficient liquidity to fund our operations for at least 12 months. In the
future, we may amend or replace our revolving credit facility or enter into another financing
arrangement to provide us with additional liquidity. We expect that any such financing arrangement
would be structured in a manner that would be compliant with Shariah principles. Shariah
principles regarding the lending and borrowing of money are complicated, requiring application of
qualitative and quantitative standards. The negotiation and documentation of financing that is
compliant with these principles are generally complex and time consuming. As such, if we have
immediate liquidity needs, we may not be able to obtain financing that is compliant with Shariah
principles on a timely basis.
Off-Balance Sheet Arrangements
Other than our coffeehouse leases, we do not have any off-balance sheet arrangements. As of
June 29, 2008, we were committed to fixed and price-to-be-fixed green coffee purchase contracts
with deliveries expected through December 2009. We only contract for green coffee expected to be
used in the normal course of business. We believe, based on relationships established with our
suppliers in the past, the risk of non-delivery on such purchase commitments is remote.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
(SFAS 157). SFAS 157
defines fair value, provides guidance for measuring fair value in U.S. generally accepted
accounting principles and expands disclosures about fair value measurements. On December 31, 2007,
we adopted SFAS 157 for financial assets and liabilities and will adopt SFAS 157 at the beginning
of fiscal 2009 for nonfinancial assets and liabilities. The adoption of this statement did not have
a material impact on our consolidated statement of operations, cash flows or financial position.
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
(SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value. On December 31, 2007, the Company did not elect to adopt
SFAS 159.
27
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements
(SFAS 160). SFAS 160 establishes new standards that will govern the accounting for and
reporting of noncontrolling interests in partially owned subsidiaries. SFAS 160 is effective for
fiscal years beginning on or after December 15, 2008 and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. All other requirements
shall be applied prospectively. 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 as of and for the thirteen and twenty-six weeks
ended June 29, 2008 and July 1, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 29, 2008
|
|
|
July 1, 2007
|
|
|
June 29, 2008
|
|
|
July 1, 2007
|
|
|
|
(In thousands, except operating data)
|
|
Non-GAAP Metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
2,938
|
|
|
$
|
2,440
|
|
|
$
|
3,453
|
|
|
$
|
5,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in comparable
coffeehouse net sales(2)
|
|
|
(1.7
|
%)
|
|
|
1
|
%
|
|
|
(2.0
|
%)
|
|
|
0
|
%
|
Company-Owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of period
|
|
|
421
|
|
|
|
442
|
|
|
|
432
|
|
|
|
440
|
|
Coffeehouses opened during the period
|
|
|
0
|
|
|
|
5
|
|
|
|
5
|
|
|
|
9
|
|
Coffeehouses closed during the period
|
|
|
6
|
|
|
|
6
|
|
|
|
22
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company-Owned
|
|
|
415
|
|
|
|
441
|
|
|
|
415
|
|
|
|
441
|
|
Franchised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of period
|
|
|
63
|
|
|
|
33
|
|
|
|
52
|
|
|
|
24
|
|
Coffeehouses opened during the period
|
|
|
12
|
|
|
|
6
|
|
|
|
23
|
|
|
|
15
|
|
Coffeehouses closed during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Franchised
|
|
|
75
|
|
|
|
39
|
|
|
|
75
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coffeehouses open at end of period
|
|
|
490
|
|
|
|
480
|
|
|
|
490
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
28
We believe EBITDA is useful to investors in evaluating our operating performance for the
following reason:
|
|
|
Our coffeehouse leases are generally short-term (5-10 years), and we must depreciate
all of the cost associated with those leases on a straight-line basis over the initial
lease term, excluding renewal options (unless such renewal periods are reasonably assured
at the inception of the lease). We opened a net 212 company-owned coffeehouses from the
beginning of fiscal 2003 through the end of the first twenty-six weeks of fiscal 2008. 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
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 29, 2008
|
|
|
July 1, 2007
|
|
|
June 29, 2008
|
|
|
July 1, 2007
|
|
|
|
(In thousands)
|
|
Net loss
|
|
$
|
(2,432
|
)
|
|
$
|
(3,890
|
)
|
|
$
|
(8,838
|
)
|
|
$
|
(7,142
|
)
|
Interest expense
|
|
|
122
|
|
|
|
166
|
|
|
|
634
|
|
|
|
295
|
|
Interest income
|
|
|
(3
|
)
|
|
|
(46
|
)
|
|
|
(20
|
)
|
|
|
(79
|
)
|
Depreciation and
amortization(1)
|
|
|
5,207
|
|
|
|
6,526
|
|
|
|
11,627
|
|
|
|
13,110
|
|
Provision (benefit)
for income taxes
|
|
|
44
|
|
|
|
(316
|
)
|
|
|
50
|
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
2,938
|
|
|
$
|
2,440
|
|
|
$
|
3,453
|
|
|
$
|
5,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes depreciation and amortization associated with our headquarters and roasting facility
that are categorized as general and administrative expenses and cost of sales and related
occupancy costs on our statement of operations.
|
Item 3.
Quantitative and Qualitative Disclosures about Market Risks.
Not applicable.
Item 4T.
Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of our
management, including the chief executive officer and the chief financial officer, of the
effectiveness of the design and the operations of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon that evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures are effective, as of June 29, 2008,
in ensuring
29
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 June 29, 2008, 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 May 25, 2005, we received a complaint by three of its former employees for a lawsuit in the
State of Minnesota District Court for Hennepin County seeking monetary and equitable relief from us
under the Minnesota Fair Labor Standards Act (Minnesota FLSA), the Federal Fair Labor Standards
Act (FLSA), and state common law (hereafter the FLSA Suit). The FLSA Suit primarily alleges
that we misclassified its retail store managers and managers in training as exempt from the
overtime provisions of the Minnesota FLSA and the FLSA and that these managers and mangers in
training 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 FLSA and for weeks
in which they worked more than 48 hours from May 2003 to the present with respect to the claims
under the Minnesota FLSA. Plaintiffs sought payment of an unspecified amount of allegedly owed and
unpaid overtime compensation, liquidated damages, prejudgment interest, civil penalties under the
Minnesota FLSA, an accounting of the amount allegedly owed to the putative class, temporary and
injunctive relief, attorneys fees and costs.
Since commencement, we have removed the matter to Federal Court for the District of Minnesota.
The Plaintiffs have also brought a motion to have the FLSA Suit conditionally certified as a class
action on behalf of the relevant class. This motion for conditional certification though opposed
by us was granted to the Plaintiffs. As a result of the grant of this conditional certification of
the relevant class, notices were sent to potential class members giving them the option to opt in
to the litigation. At this date the opt-in period has expired and 295 of the over 900 potential
class members opted in to the litigation.
On February 1, 2008, after mediation of the matter, we entered into a Stipulation of
Settlement (the Stipulation) to settle the FLSA Suit. The Stipulation, which was contingent upon
court approval, provides for a gross settlement payment of $2.7 million, plus the employers share
of payroll taxes. The settlement payments will be made as follows: 1) $1.75 million on the later
of the date of District Court final approval of the settlement or March 15, 2008; and 2) $950,000
on the later of December 29, 2008 or thirty (30) days after the date of final District Court
approval of the settlement, along with interest on this installment from the date of the initial
installment payment at 6% simple interest. Settlement payments will be made to all participating
class members and all attorneys fees for plaintiffs counsel will be paid from the $2.7 million.
On April 1, 2008, we received a complaint by DMP Limited Partnership for a lawsuit in the
United States District Court for the Western District of Pennsylvania seeking monetary relief from
us related to the termination of a Lease Agreement (the Lease Suit) for a proposed Company
coffeehouse in Pittsburgh, Pennsylvania. The Lease Suit alleges that we are in default of the
Lease Agreement and seeks monetary damages of in excess of $526,000. It is our position that we
are not in default of the Lease Agreement and that DMP Limited Partnership is obligated to
reimburse us in excess of $162,179 that we have already paid to DMP Limited Partnership as rent.
We seek reimbursement of this amount as a result from the failure of DMP Limited Partnership to
meet all of its obligations under the Lease Agreement. Discovery has commenced and we intend to
vigorously defend ourself in the matter.
On May 6, 2008, we received a compliant for a lawsuit in the District Court, Ninth Judicial
District, County of Beltrami, State of Minnesota, from Lindsey Savage, individually and on behalf
of others similarly situated known and unknown, seeking monetary and equitable relief from us under
the Minnesota Fair Labor Standards Act (Minnesota FLSA) and in related allegations that we were
unjustly enriched and converted the funds of certain of its employees. The essence of the claim is
that we should have somehow prohibited shift supervisors and/or store managers from participating
in any money left in change and/or tip jars at Company stores. We intend to vigorously defend the
matter. Discovery has commenced and is ongoing.
30
On July 3, 2008 we received a complaint in the United States District Court Northern District
of Illinois, from Arimathea LLC alleging that the hinged lid containers used by us in the sale of
Caribou Coffee Glacier Blast Gum infringes certain alleged patents held by Arimathea LLC. The suit
seeks monetary and equitable relief from us. We intend to vigorously defend the matter.
Item 1A.
Risk Factors.
There have been no material changes from the risk factors disclosed in the Risk Factors
section of our Annual Report on Form 10-K for the year ended December 30, 2007.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
Not applicable.
Use of Proceeds
Not applicable.
Item 3.
Defaults Upon Senior Securities.
Not applicable.
Item 4.
Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5.
Other Information.
Not applicable.
31
Item 6.
Exhibits.
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3.1*
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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).
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3.2*
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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).
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4.1*
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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).
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31.1
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Certification Pursuant to Rule 13a 14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification Pursuant to Rule 13a 14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification Pursuant to 18 U.S. C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification Pursuant to 18 U.S. C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Asterisk (*) indicates exhibit previously filed with the Securities and Exchange Commission as
indicated in parentheses.
32
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.
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CARIBOU COFFEE COMPANY, INC.
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By:
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/s/ Michael Tattersfield
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Michael Tattersfield
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Chief Executive Officer and President
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Date:
August 6, 2008
33
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