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 October 3, 2010.
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
(State or other jurisdiction of
incorporation or organization)
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41-1731219
(I.R.S. Employer
Identification No.)
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3900 Lakebreeze Avenue North
Brooklyn Center, Minnesota
(Address of principal executive offices)
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55429
(Zip Code)
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Registrants Telephone Number, Including Area Code
: (763) 592-2200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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
On
November 12, 2010, 20,041,873 shares of Registrants $0.01 par value common stock were
outstanding.
CARIBOU COFFEE COMPANY, INC.
FORM 10-Q
For the Thirteen Week Period Ended October 3, 2010
Table of Contents
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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3
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Condensed Consolidated Statements of Operations
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3
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Condensed Consolidated Balance Sheets
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4
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Condensed Consolidated Statement of Changes in Equity
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5
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Condensed Consolidated Statements of Cash Flows
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6
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Notes to Condensed Consolidated Financial Statements
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7
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Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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16
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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28
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Item 4T.
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Controls and Procedures
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28
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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29
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Item 1A.
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Risk Factors
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29
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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29
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Item 3.
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Defaults Upon Senior Securities
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29
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Item 4.
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Reserved
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29
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Item 5.
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Other Information
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29
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Item 6.
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Exhibits
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30
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Signature
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31
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See accompanying notes.
2
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements.
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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October 3,
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September 27,
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October 3,
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September 27,
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2010
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2009
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2010
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2009
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(In thousands, except for per share amounts)
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(Unaudited)
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Coffeehouse sales
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$
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56,626
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$
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54,479
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$
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169,974
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$
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162,637
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Commercial and franchise sales
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13,547
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8,260
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36,134
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23,436
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Total net sales
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70,173
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62,739
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206,108
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186,073
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Cost of sales and related occupancy costs
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32,701
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27,849
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94,651
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81,438
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Operating expenses
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25,130
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24,426
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75,159
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71,684
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Depreciation and amortization
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3,099
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3,465
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9,271
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10,776
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General and administrative expenses
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7,421
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6,313
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21,563
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19,708
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Operating income
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1,822
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686
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5,464
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2,467
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Other income (expense):
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Interest income
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9
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10
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19
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17
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Interest expense
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(63
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)
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(68
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)
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(234
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)
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(189
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)
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Income before provision for (benefit
from) income taxes
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1,768
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628
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5,249
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2,295
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Provision for (benefit from) income taxes
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32
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(140
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)
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(106
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)
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(182
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)
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Net income
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1,736
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768
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5,355
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2,477
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Less: Net income attributable to
noncontrolling interest
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129
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114
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289
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309
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Net Income attributable to Caribou
Coffee Company, Inc.
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$
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1,607
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$
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654
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$
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5,066
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$
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2,168
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Basic net income attributable to Caribou
Coffee Company, Inc. common shareholders
per share
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$
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0.08
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$
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0.03
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$
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0.26
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$
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0.11
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Diluted net income attributable to
Caribou Coffee Company, Inc. common
shareholders per share
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$
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0.08
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$
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0.03
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$
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0.25
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$
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0.11
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Basic weighted average number of shares
outstanding
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19,610
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19,470
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19,599
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19,418
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Diluted weighted average number of
shares outstanding
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20,710
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20,169
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20,540
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19,830
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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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October 3,
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January 3,
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2010
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2010
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(In thousands, except per share
amounts)
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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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10,018
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$
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23,578
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Accounts receivable (net of allowance for doubtful accounts of $3 at
October 3, 2010 and January 3, 2010)
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9,130
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5,887
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Other receivables (net of allowance for doubtful accounts of $202 and
$128 at October 3, 2010 and January 3, 2010, respectively)
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1,806
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1,268
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Income tax receivable
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102
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193
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Inventories
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31,182
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13,278
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Prepaid expenses and other current assets
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1,085
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1,546
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Total current assets
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53,323
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45,750
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Property and equipment, net of accumulated depreciation and amortization
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42,228
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47,135
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Restricted cash
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605
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605
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Other assets
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403
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237
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Total assets
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$
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96,559
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$
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93,727
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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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10,350
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$
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9,042
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Accrued compensation
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6,821
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6,296
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Accrued expenses
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6,476
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7,563
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Deferred revenue
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5,847
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8,747
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Total current liabilities
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29,494
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31,648
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Asset retirement liability
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1,176
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1,120
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Deferred rent liability
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6,716
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7,955
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Deferred revenue
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2,072
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|
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2,072
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Income tax liability
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2
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156
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|
|
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Total long term liabilities
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9,966
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11,303
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Equity:
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Caribou Coffee Company, Inc. Shareholders equity:
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Preferred stock, par value $.01, 20,000 shares authorized; no shares
issued and outstanding
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Common stock, par value $.01, 200,000 shares authorized; 20,042 and
19,814 shares issued and outstanding at October 3, 2010 and January
3, 2010, respectively
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200
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|
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|
198
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Additional paid-in capital
|
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127,964
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126,770
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Accumulated other comprehensive income (loss)
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21
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|
|
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(7
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)
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Accumulated deficit
|
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(71,275
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)
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(76,341
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)
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Total Caribou Coffee Company, Inc. shareholders equity
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56,910
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|
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50,620
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Noncontrolling interest
|
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|
189
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|
|
|
156
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|
|
|
|
|
|
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Total equity
|
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57,099
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50,776
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|
|
|
|
|
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Total liabilities and equity
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$
|
96,559
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|
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$
|
93,727
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|
|
|
|
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See accompanying notes.
4
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited)
(in thousands)
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|
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|
|
|
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|
|
|
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|
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Accumulated
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|
|
|
|
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Common Stock
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Additional
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|
|
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Other
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Number of
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|
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Paid-In
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|
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Noncontrolling
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Comprehensive
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Accumulated
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|
|
|
|
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Shares
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Amount
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|
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Capital
|
|
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Interest
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|
|
Income (loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Balance, January 3, 2010
|
|
|
19,814
|
|
|
$
|
198
|
|
|
$
|
126,770
|
|
|
$
|
156
|
|
|
$
|
(7
|
)
|
|
$
|
(76,341
|
)
|
|
$
|
50,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
5,066
|
|
|
|
5,355
|
|
Changes in fair value of
derivative financial
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
45
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302
|
|
Restricted shares issued,
net of cancellations
|
|
|
193
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
Stock repurchase
|
|
|
(10
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 3, 2010
|
|
|
20,042
|
|
|
$
|
200
|
|
|
$
|
127,964
|
|
|
$
|
189
|
|
|
$
|
21
|
|
|
$
|
(71,275
|
)
|
|
$
|
57,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income attributable to Caribou Coffee Company, Inc.
|
|
$
|
5,066
|
|
|
$
|
2,168
|
|
Adjustments to reconcile net income to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,748
|
|
|
|
12,360
|
|
Amortization of deferred financing fees
|
|
|
121
|
|
|
|
99
|
|
Noncontrolling interest
|
|
|
289
|
|
|
|
309
|
|
Stock-based compensation
|
|
|
967
|
|
|
|
664
|
|
Other
|
|
|
(185
|
)
|
|
|
73
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable and other receivables
|
|
|
(3,690
|
)
|
|
|
(469
|
)
|
Inventories
|
|
|
(17,904
|
)
|
|
|
(2,240
|
)
|
Prepaid expenses and other assets
|
|
|
472
|
|
|
|
241
|
|
Accounts payable
|
|
|
284
|
|
|
|
1,545
|
|
Accrued expenses and other liabilities
|
|
|
(1,501
|
)
|
|
|
(2,250
|
)
|
Deferred revenue
|
|
|
(2,900
|
)
|
|
|
(3,918
|
)
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
(8,233
|
)
|
|
|
8,582
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(5,024
|
)
|
|
|
(845
|
)
|
Proceeds from the disposal of property
|
|
|
22
|
|
|
|
36
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,002
|
)
|
|
|
(809
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Distribution of noncontrolling interest
|
|
|
(256
|
)
|
|
|
(195
|
)
|
Purchase of noncontrolling interest
|
|
|
|
|
|
|
(105
|
)
|
Issuance of common stock
|
|
|
302
|
|
|
|
584
|
|
Payment of debt financing fees
|
|
|
(298
|
)
|
|
|
(31
|
)
|
Stock repurchase
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities
|
|
|
(325
|
)
|
|
|
253
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(13,560
|
)
|
|
|
8,026
|
|
Cash and cash equivalents at beginning of period
|
|
|
23,578
|
|
|
|
11,060
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
10,018
|
|
|
$
|
19,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Noncash financing and investing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for leasehold improvements, furniture and equipment
|
|
$
|
1,024
|
|
|
$
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
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 condensed 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 condensed consolidated financial statements include the accounts of Caribou
Coffee Company, Inc., affiliates that it controls and a third party finance company (which exists
for purposes of the Companys revolving credit facility, as described in the Companys Annual
Report on Form 10-K) where the Company is the primary beneficiary in a variable interest entity.
The affiliates are Caribou MSP Airport, a partnership in which the Company owns a 49% interest and
that operates six coffeehouses, and Caribou Coffee Development Company, Inc., a licensor of Caribou
Coffee branded coffeehouses. The Company controls the daily operations of Caribou Coffee
Development Company, Inc. and accordingly consolidates their results of operations. The Company
provided a loan to its partner in Caribou MSP Airport for all of the partners equity contribution
to the venture. Consequently, the Company bears all the risk of loss but does not control all
decisions that may have a significant effect on the success of the venture. Therefore, the Company
consolidates the Caribou MSP Airport, as it is the primary beneficiary in this variable interest
entity. All material intercompany balances and transactions between Caribou Coffee Company, Inc.,
Caribou MSP Airport and Caribou Coffee Development Company, Inc. and the third party finance
company have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the U.S. (GAAP) requires management to make estimates and assumptions that affect the
amounts reported in the accompanying consolidated financial statements. Actual results may differ
from those estimates, and such differences may be material to the consolidated financial
statements.
Fiscal Year End
The Companys fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year
consists of four 13-week quarters in a 52-week year and three 13-week quarters and one 14-week
fourth quarter in a 53-week year. Fiscal year 2009 included 53 weeks. 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 October 3, 2010 are not
necessarily indicative of future results that may be expected for the year ending January 2, 2011.
7
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes retail coffeehouse sales for products and services when payment is
tendered at the point of sale. Sales tax collected from customers is presented net of amounts 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 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 condensed consolidated balance sheets. The Company will honor
all stored value cards presented for payment; however, the Company has determined that the
likelihood of redemption is remote for certain card balances due to long periods of inactivity. In
these circumstances, to the extent management determines there is no requirement for remitting
balances to government agencies under unclaimed property laws, card and certificate balances may be
recognized in the consolidated statements of operations. The Company uses the redemption
recognition method and recognizes the estimated value of abandoned cards as a percentage of every
stored value card redeemed and includes the amount in coffeehouse sales. Such amounts represent the
Companys experience regarding unused balances related to stored value cards redeemed. The Company
excludes stored value card balances sold in jurisdictions which require remittance of unused
balances to government agencies under unclaimed property laws.
Territory development fees and initial franchise fees are recognized upon substantial
performance of services for a new territory or coffeehouse, which is generally upon the opening of
a new coffeehouse. Royalties based upon a percentage of reported sales are recognized on a monthly
basis when earned. Cash payments received in advance for territory development fees or initial
franchise fees are recorded as deferred revenue until earned.
All revenues are recognized net of any discounts, returns, allowances and sales incentives,
including coupon redemptions and rebates. The Company periodically participates in trade-promotion
programs such as shelf price reductions and consumer coupon programs that require the Company to
estimate and accrue the expected cost of such programs. Coupons are recognized as a liability when
distributed based upon expected consumer redemptions. The Company maintains liabilities based on
historical experience and managements judgment at the end of each period for the estimated
expenses incurred, but unpaid for these programs
Operating Leases and Rent Expense
Certain of the Companys lease agreements provide for scheduled rent increases during the
lease term or for rental payments commencing at a date other than the date of initial occupancy.
Rent expense is recorded on a straight-line basis over the initial lease term and renewal periods
that are reasonably assured. The difference between rent expense and rent paid is recorded as
deferred rent and is included in accrued expenses and deferred rent liability in the
consolidated balance sheets. Contingent rents, including those based on a percentage of retail
sales over stated levels, and rental payment increases based on a contingent future event are
accrued over the respective contingency periods when the achievement of such targets or events are
deemed to be probable by the Company.
3. Recent Accounting Pronouncements
In June 2009, the FASB issued guidance which amends certain ASC concepts related to
consolidation of variable interest entities. Among other accounting and disclosure requirements,
this guidance replaces the quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity with an approach
focused on identifying which enterprise has the power to direct the activities of a variable
interest entity and the obligation to absorb losses of the entity or the right to receive benefits
from the entity.
8
The Company adopted this guidance on January 4, 2010. The adoption of this guidance did not
have a material impact on its financial statements.
4. Derivative Financial Instruments
The Company evaluates various strategies in managing its exposure to market-based risks, such
as entering into hedging transactions to manage its exposure to fluctuating dairy commodity prices.
The Company records all derivatives on the condensed consolidated balance sheets at fair
value. For those cash flow hedges that have been designated and qualify as an effective accounting
hedge, the effective portion of the derivatives gain or loss is initially reported as a component
of other comprehensive income (OCI) and subsequently reclassified into net earnings when the
hedged exposure affects net income. For those cash flow hedges that are not designated or do not
qualify as an effective accounting hedge, the entire derivative gain or loss is recorded in
earnings as incurred.
As of October 3, 2010, the Company had accumulated net derivative gains of less than $0.1
million in prepaid expenses and other current assets. As of January 3, 2010, the Company had
accumulated net derivative losses of less than $0.1 million in OCI and in accrued expenses. The
gains and losses pertain to derivatives designated as cash flow hedging instruments that will be
realized within 12 months and will also continue to experience fair value changes before affecting
earnings. Based on notional amounts, as of October 3, 2010 the Company had dairy commodity futures
contracts representing approximately nine hundred fifty thousand gallons. The Companys cash flow
derivative instruments contain credit-risk-related contingent features. At October 3, 2010, the
Company has no collateral posted related to these contingent features.
The following table presents the gains and losses of the Companys derivative financial
instruments for the thirteen and thirty-nine week periods ended October 3, 2010 and September 27,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
|
October 3,
|
|
September 27,
|
|
October 3
|
|
September 27,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Derivatives designated as hedging instruments
|
|
$
|
7
|
|
|
$
|
(44
|
)
|
|
$
|
(28
|
)
|
|
$
|
(44
|
)
|
Derivatives not designated as hedging instruments
|
|
$
|
|
|
|
$
|
96
|
|
|
$
|
|
|
|
$
|
223
|
|
The recognized gains/losses related to commodity hedges not designated as hedging instruments
and commodity hedges designated as hedging instruments are recorded in the condensed consolidated
statements of operations as costs of goods sold and related occupancy expenses.
5. Fair Value Measurements
Generally Accepted Accounting Principles define fair value, establish a framework for
measuring fair value, and establish a fair value hierarchy that prioritizes the inputs used to
measure fair value:
|
|
|
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets
or liabilities traded in active markets.
|
|
|
|
|
Level 2: Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly.
|
|
|
|
|
Level 3: Inputs that are generally unobservable. These inputs may be used with
internally developed methodologies that result in managements best estimate of fair
value.
|
The following table presents the financial assets and liabilities measured at fair value on a
recurring basis as of October 3, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash deposits
|
|
$
|
5,982
|
|
|
$
|
5,982
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds
|
|
$
|
4,036
|
|
|
$
|
4,036
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives
|
|
$
|
21
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
|
|
9
The following table presents the financial assets and liabilities measured at fair value on a
recurring basis as of January 3, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash deposits
|
|
$
|
1,557
|
|
|
$
|
1,557
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds
|
|
$
|
22,021
|
|
|
$
|
22,021
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
Cash and cash equivalents include cash held at FDIC-insured financial institutions and highly
liquid money market funds. The fair value of cash equivalents is determined using quoted market
prices in active markets for identical assets, thus they are considered to be Level 1 instruments.
Derivative assets and liabilities consist of commodity futures contracts. Where applicable,
the Company uses quoted prices in an active market for identical derivative assets and liabilities
that are traded in exchanges. These derivative assets are included in Level 1.
6. Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
January 3,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Coffee
|
|
$
|
24,219
|
|
|
$
|
5,615
|
|
Other merchandise held for sale
|
|
|
4,059
|
|
|
|
4,029
|
|
Supplies
|
|
|
2,905
|
|
|
|
3,634
|
|
|
|
|
|
|
|
|
|
|
$
|
31,183
|
|
|
$
|
13,278
|
|
|
|
|
|
|
|
|
At October 3, 2010 and January 3, 2010, the Company had committed to fixed price purchase
commitments, primarily for green coffee, aggregating approximately $25.3 million and $15.1 million,
respectively. These fixed price contracts are for less than one year.
7. Equity and Stock Based Compensation
The Company maintains stock compensation plans, which provide for the granting of
non-qualified stock options and restricted stock to officers, key employees and certain
non-employees. Stock options have been granted at prices equal to the fair market values as of the
dates of grant. Options and restricted stock generally vest over four years and options generally
expire ten years from the grant date. Stock-based compensation expense for the thirteen weeks ended
October 3, 2010 and September 27, 2009 was approximately $0.3 million and $0.2 million,
respectively, and is included in general and administrative expenses in the condensed consolidated
statements of operations. Stock-based compensation for the thirty-nine weeks ended October 3, 2010
and September 27, 2009 was approximately $1.0 million and $0.7 million, respectively.
10
Stock option activity during the period indicated is as follows (in thousands, except per share and
life data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
Number of
|
|
Average
|
|
Contract
|
|
|
Shares
|
|
Exercise Price
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 3, 2010
|
|
|
1,696
|
|
|
$
|
4.27
|
|
|
7.54 Yrs
|
Exercised
|
|
|
(5
|
)
|
|
$
|
5.72
|
|
|
|
|
|
Forfeited
|
|
|
(26
|
)
|
|
$
|
6.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 4, 2010
|
|
|
1,665
|
|
|
$
|
4.23
|
|
|
7.31 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(25
|
)
|
|
$
|
7.05
|
|
|
|
|
|
Forfeited
|
|
|
(10
|
)
|
|
$
|
6.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, July 4, 2010
|
|
|
1,630
|
|
|
$
|
4.18
|
|
|
7.10 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(15
|
)
|
|
$
|
6.41
|
|
|
|
|
|
Forfeited
|
|
|
(10
|
)
|
|
$
|
6.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, October 3, 2010
|
|
|
1,605
|
|
|
$
|
4.15
|
|
|
6.89 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested at October 3, 2010
|
|
|
983
|
|
|
$
|
5.23
|
|
|
6.28 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock activity during the period indicated is as follows (in thousands, except per
share and life data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
Number of
|
|
Average Grant Date
|
|
Contract
|
|
|
Shares
|
|
Fair Value
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 3, 2010
|
|
|
300
|
|
|
$
|
5.83
|
|
|
3.50 Yrs
|
Granted
|
|
|
215
|
|
|
$
|
7.07
|
|
|
|
|
|
Forfeited
|
|
|
(9
|
)
|
|
$
|
8.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 4, 2010
|
|
|
506
|
|
|
$
|
6.31
|
|
|
3.31 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Vested
|
|
|
(3
|
)
|
|
$
|
1.86
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, July 4, 2010
|
|
|
503
|
|
|
$
|
6.34
|
|
|
3.11 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Vested
|
|
|
(78
|
)
|
|
$
|
5.54
|
|
|
|
|
|
Forfeited
|
|
|
(20
|
)
|
|
$
|
7.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, October 3, 2010
|
|
|
405
|
|
|
$
|
6.43
|
|
|
2.91 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Income Taxes
During the thirteen and thirty-nine weeks ended October 3, 2010, the Company recognized a tax
provision of less than $0.1 million and a tax benefit of $0.1 million, respectively. After
consideration of all evidence, both positive and negative, management has recorded a valuation
allowance against its deferred income tax assets at October 3, 2010 due to the uncertainty of
realizing such deferred income tax assets. During the thirteen and thirty-nine weeks ended
September 27, 2009, the Company recognized a tax benefit of $0.1 million and $0.2 million,
respectively.
11
9. Net Income Per Share
Basic and diluted net income attributable to Caribou Coffee Company, Inc. common shareholders
per share for the thirteen and thirty-nine week periods ended October 3, 2010 and September 27,
2009, were as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
October 3
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net income attributable to Caribou
Coffee Company, Inc.
|
|
$
|
1,607
|
|
|
$
|
654
|
|
|
$
|
5,066
|
|
|
$
|
2,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
basic
|
|
|
19,610
|
|
|
|
19,470
|
|
|
|
19,599
|
|
|
|
19,418
|
|
Dilutive impact of stock-based compensation
|
|
|
1,100
|
|
|
|
699
|
|
|
|
941
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
dilutive
|
|
|
20,710
|
|
|
|
20,169
|
|
|
|
20,540
|
|
|
|
19,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.26
|
|
|
$
|
0.11
|
|
Diluted net income per share
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.25
|
|
|
$
|
0.11
|
|
For the thirteen week periods ended October 3, 2010 and September 27, 2009, 0.1 million and
0.4 million stock options, respectively, and for the thirty-nine week periods ended October 3, 2010
and September 27, 2009, 0.2 million and 0.6 million stock options, respectively were excluded from
the calculation of shares applicable to diluted net income per share because their inclusion would
have been anti-dilutive.
10. Master Franchise Agreement
In November 2004, the Company entered into a Master Franchise Agreement with a franchisee. The
agreement provides the franchisee the right to develop, subfranchise or operate 250 Caribou Coffee
coffeehouses in 12 Middle Eastern countries. The Agreement expires in November 2012 and provides
for certain renewal options.
In connection with the agreement, the franchisee paid the Company a nonrefundable deposit
aggregating $3.3 million. In addition to the deposit, the franchisee is obligated to pay the
Company $20 thousand per franchised/subfranchised coffeehouse (initial franchise fee) opened for
the first 100 Caribou Coffee Coffeehouses and $15 thousand for each additional
franchised/subfranchised coffeehouse opened (after the first 100). The agreement provides for $5
thousand per location 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.
As of October 3, 2010 and January 3, 2010, the Company included $2.1 million and $2.0 million,
respectively, of the deposit in long term liabilities as deferred revenue and $0.5 million and $0.5
million, respectively, in current liabilities as deferred revenue on its balance sheet. 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 October 3, 2010, there were 70
coffeehouses operating under this Agreement. The franchisee and certain owners of the franchisee
also own indirect interests in Caribou Holding Company Limited.
12
11. Revolving Credit Facility
On February 19, 2010, the Company entered into a sale leaseback arrangement with a third party
finance company whereby from time to time the Company sells equipment to the finance company, and,
immediately following the sale, it leases back all of the equipment it sold to such third party.
The Company does not recognize any gain or loss on the sale of the assets. The maximum amount of
equipment the Company can sell and leaseback is $15.0 million, with an option for an additional
$10.0 million. The agreement expires on February 19, 2013. Annual rent payable under the lease
arrangement is equal to the amount outstanding under the lease financing arrangement multiplied by the applicable Federal Funds effective rate plus a specified margin or the
lenders prime rate plus a specified margin.
The finance company funds its obligations under the lease financing arrangement through a
revolving credit facility that it entered into with a commercial lender also on February 19, 2010.
The terms of the revolving credit facility are economically equivalent to the lease financing
arrangement such that the amount of rent payments and unpaid acquisition costs under the lease
financing arrangement are at all times equal to the interest and principal under the revolving
credit facility. The Company consolidates the third party finance company as the Company is the
primary beneficiary in a variable interest entity due to the terms and provisions of the lease
financing arrangement. Accordingly, the Companys condensed consolidated balance sheets include all
assets and liabilities of the third party finance company under the captions property and equipment
and revolving credit facility, respectively. The Companys condensed consolidated statements of
operations include all the operations of the finance company including all interest expense related
to the revolving credit facility. Notwithstanding this presentation, the Companys obligations are
limited to its obligations under the lease financing arrangement and the Company has no obligations
under the revolving credit facility. The third party finance company was established solely for the
purpose of facilitating the Companys sale leaseback arrangement. The finance company does not have
any other assets or liabilities or income and expense other than those associated with the
revolving credit facility. At October 3, 2010 there was no property and equipment leased under this
arrangement. The lease financing arrangement has been structured to be consistent with Shariah
principles.
Both the lease financing arrangement and the revolving credit facility above were entered into
on February 19, 2010. Simultaneously, the Company terminated a similar lease financing arrangement
and revolving credit facility with a different commercial lender. Upon termination of the old lease
financing arrangement and revolving credit facility, the Company wrote off $0.1 million in deferred
financing fees and capitalized $0.3 million in deferred financing fees related to the new lease
arrangement and revolving credit facility, which will be amortized over the three year life of the
agreements.
The terms of the sale leaseback agreement contain certain financial covenants and limitations
on the amount used for expansion activities based on leverage ratios and interest coverage ratios
of the Company. The Company is liable for a 0.5% commitment fee on any unused portion of the
facility. There are no amounts outstanding under the new facility at October 3, 2010 or under the
previous facility at January 3, 2010.
Unamortized deferred financing fees capitalized on the balance sheet totaled $0.2 million and
$0.1 million as of October 3, 2010 and January 3, 2010 respectively. Interest payable under the
new revolving credit facility is equal to the amount outstanding under the facility multiplied by
the applicable LIBOR rate plus a specified margin.
12. Commitments and Contingencies
From time to time, the Company becomes involved in certain legal proceedings in the ordinary
course of business. The Company does not believe that any such ordinary course legal proceedings to
which it is currently a party will have a material adverse effect on its financial position or
results of operations.
13. Segment Reporting
Segment information is prepared on the same basis that the Companys management reviews
financial information for decision making purposes. The Company has three reportable operating
segments: retail coffeehouses, commercial and franchise. Unallocated corporate includes expenses
pertaining to corporate
13
administrative functions that support the operating segments but are not
specifically attributable to or managed by any segment and are not included in the reported
financial results of the operating segments. All of the segment sales are from external customers.
Retail Coffeehouses
The Companys retail segment operated 410 company-owned coffeehouses located in 16 states and
the District of Columbia, as of October 3, 2010. The coffeehouses offer customers high-quality
premium coffee and espresso-based beverages, and also offer specialty teas, baked goods, whole bean coffee, branded
merchandise and related products.
Commercial
The commercial segment sells high-quality premium whole bean and ground coffee to grocery
stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels,
entertainment venues, and on-line customers.
Franchise
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of October 3, 2010, there were 129 franchised
coffeehouses in U.S and international markets.
The tables below present information by operating segment for the thirteen and thirty-nine
weeks ended October 3, 2010 and September 27, 2009 (in thousands):
Thirteen weeks ended October 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Coffeehouses
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Total net sales
|
|
$
|
56,626
|
|
|
$
|
11,255
|
|
|
$
|
2,292
|
|
|
$
|
|
|
|
$
|
70,173
|
|
Costs of sales and related occupancy costs
|
|
|
23,694
|
|
|
|
7,706
|
|
|
|
1,301
|
|
|
|
|
|
|
|
32,701
|
|
Operating expenses
|
|
|
23,666
|
|
|
|
1,140
|
|
|
|
324
|
|
|
|
|
|
|
|
25,130
|
|
Depreciation and amortization
|
|
|
3,079
|
|
|
|
16
|
|
|
|
4
|
|
|
|
|
|
|
|
3,099
|
|
General and administrative expenses
|
|
|
2,276
|
|
|
|
|
|
|
|
|
|
|
|
5,145
|
|
|
|
7,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
3,911
|
|
|
$
|
2,393
|
|
|
$
|
663
|
|
|
$
|
(5,145
|
)
|
|
$
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
33,201
|
|
|
$
|
352
|
|
|
$
|
53
|
|
|
$
|
8,622
|
|
|
$
|
42,228
|
|
Net capital expenditures
|
|
$
|
3,652
|
|
|
$
|
508
|
|
|
$
|
|
|
|
$
|
333
|
|
|
$
|
4,493
|
|
Thirteen weeks ended September 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Coffeehouses
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Total net sales
|
|
$
|
54,479
|
|
|
$
|
6,557
|
|
|
$
|
1,703
|
|
|
$
|
|
|
|
$
|
62,739
|
|
Costs of sales and related occupancy costs
|
|
|
22,644
|
|
|
|
4,232
|
|
|
|
973
|
|
|
|
|
|
|
|
27,849
|
|
Operating expenses
|
|
|
23,127
|
|
|
|
1,010
|
|
|
|
289
|
|
|
|
|
|
|
|
24,426
|
|
Depreciation and amortization
|
|
|
3,454
|
|
|
|
10
|
|
|
|
1
|
|
|
|
|
|
|
|
3,465
|
|
General and administrative expenses
|
|
|
1,742
|
|
|
|
|
|
|
|
|
|
|
|
4,571
|
|
|
|
6,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
3,512
|
|
|
$
|
1,305
|
|
|
$
|
440
|
|
|
$
|
(4,571
|
)
|
|
$
|
686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
40,896
|
|
|
$
|
107
|
|
|
$
|
9
|
|
|
$
|
7,932
|
|
|
$
|
48,944
|
|
Net capital expenditures
|
|
$
|
483
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
92
|
|
|
$
|
579
|
|
14
Thirty-nine weeks ended October 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Coffeehouses
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Total net sales
|
|
$
|
169,974
|
|
|
$
|
28,902
|
|
|
$
|
7,232
|
|
|
$
|
|
|
|
$
|
206,108
|
|
Costs of sales and related occupancy costs
|
|
|
70,744
|
|
|
|
19,668
|
|
|
|
4,239
|
|
|
|
|
|
|
|
94,651
|
|
Operating expenses
|
|
|
70,945
|
|
|
|
3,223
|
|
|
|
991
|
|
|
|
|
|
|
|
75,159
|
|
Depreciation and amortization
|
|
|
9,218
|
|
|
|
42
|
|
|
|
11
|
|
|
|
|
|
|
|
9,271
|
|
General and administrative expenses
|
|
|
6,245
|
|
|
|
|
|
|
|
|
|
|
|
15,318
|
|
|
|
21,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
12,822
|
|
|
$
|
5,969
|
|
|
$
|
1,991
|
|
|
$
|
(15,318
|
)
|
|
$
|
5,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
33,201
|
|
|
$
|
352
|
|
|
$
|
53
|
|
|
$
|
8,622
|
|
|
$
|
42,228
|
|
Net capital expenditures
|
|
$
|
4,454
|
|
|
$
|
581
|
|
|
$
|
56
|
|
|
$
|
855
|
|
|
$
|
5,946
|
|
Thirty-nine weeks ended September 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Coffeehouses
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Total net sales
|
|
$
|
162,637
|
|
|
$
|
17,996
|
|
|
$
|
5,440
|
|
|
$
|
|
|
|
$
|
186,073
|
|
Costs of sales and related occupancy costs
|
|
|
66,827
|
|
|
|
11,529
|
|
|
|
3,082
|
|
|
|
|
|
|
|
81,438
|
|
Operating expenses
|
|
|
68,219
|
|
|
|
2,582
|
|
|
|
900
|
|
|
|
|
|
|
|
71,684
|
|
Depreciation and amortization
|
|
|
10,741
|
|
|
|
32
|
|
|
|
3
|
|
|
|
|
|
|
|
10,776
|
|
General and administrative expenses
|
|
|
5,591
|
|
|
|
|
|
|
|
|
|
|
|
14,100
|
|
|
|
19,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
$
|
11,259
|
|
|
$
|
3,853
|
|
|
$
|
1,455
|
|
|
$
|
(14,100
|
)
|
|
$
|
2,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
40,896
|
|
|
$
|
107
|
|
|
$
|
9
|
|
|
$
|
7,932
|
|
|
$
|
48,944
|
|
Net capital expenditures
|
|
$
|
701
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
319
|
|
|
$
|
1,028
|
|
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.
15
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 January 3, 2010 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 October 3, 2010, we had 539 retail locations, including
129 franchised. Our coffeehouses are located in 19 states, the District of Columbia and
international markets. We focus on offering our customers high-quality gourmet coffee and
espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded
merchandise and related products. Additionally, we sell our high-quality whole bean and ground
coffee to grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and
entertainment venues, college campuses and on-line customers. We focus on creating a unique
experience for customers through a combination of high-quality products, a comfortable and
welcoming coffeehouse environment and customer service.
We will continue our efforts to increase comparable coffeehouse sales, including increasing
brand awareness through marketing efforts and introducing new products and promotions. As our
comparable coffeehouse sales increase, we expect our operating margins at those coffeehouses to
improve as we expect to have greater ability to leverage our fixed expense.
We intend to strategically expand our coffeehouse locations in our existing markets. Our goal
is to expand our concept into a nationally recognized brand in the United States by opening new
company-operated coffeehouses and partnering with qualified developers to open franchised
coffeehouses while adding select international locations through franchising.
Critical Accounting Policies
The preparation of our financial statements requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods
presented. Our Annual Report on Form 10-K for the fiscal year ended January 3, 2010, (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. Our critical accounting policy related to
income taxes has been updated below. We believe the critical accounting policies included in our Annual
Report on Form 10-K and our updated critical accounting policy below for income taxes are significant or
involve additional management judgment due to the sensitivity of the methods, assumptions, and estimates
necessary in determining the related asset and liability amounts.
Income taxes
. We provide for income taxes based on our estimate of federal and state tax liabilities. These estimates include, among other items, effective rates for state and local income taxes, estimates related to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain other items. Our estimates are based
on the information available to us at the time we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.
Deferred income tax assets and
liabilities are recognized for the expected future income tax benefits or consequences of loss carryforwards and temporary
differences between the book and tax basis of assets and liabilities. We must assess the likelihood that we will be able to
recover our deferred tax assets. If recovery is not likely, we establish valuation allowances to offset any deferred tax asset
recorded. The valuation allowance is based upon historical taxable income. In evaluating whether the Company would more likely than not recover these deferred tax assets, it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carryforwards where history does not support such an assumption. Given that we have had net operating losses, we have recognized a valuation allowance equal to 100% of our net deferred tax assets. As of January 3, 2010, our loss carryforward was $31.9 million and we had a valuation allowance aggregating $29.4 million recorded such that net deferred income tax assets were fully reserved at such date. Future income generation or implementation of tax planning strategies to recover these deferred tax assets in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of income tax expense or increase in income tax benefit. The net operating loss carryforwards will begin to expire in 2011, if not utilized.
Though the validity of any tax position
is a matter of tax law, the body of statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous. Because of this, whether a tax position will ultimately be sustained may be uncertain. Our recognition of an uncertain tax position is dependent on whether or not that position is more likely than not of being sustained upon audit by the relevant taxing authority. If an uncertain tax position is more likely than not of being sustained, the position must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained.
16
Fiscal Periods
Our fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year consists
of four 13-week quarters in a 52-week year and three 13-week quarters and one 14-week fourth
quarter in a 53-week year. Fiscal year 2009 included 53 weeks. Each fiscal quarter reported herein
consist of two four-week periods and one five-week period.
Our sales are somewhat seasonal, with the fourth quarter accounting for the highest sales
volumes. Operating results for the thirteen week period ended October 3, 2010 are not necessarily
indicative of future results that may be expected for the year ending January 2, 2011.
Thirteen Weeks Ended October 3, 2010 vs. Thirteen Weeks Ended September 27, 2009
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
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse
|
|
$
|
56,626
|
|
|
$
|
54,479
|
|
|
|
3.9
|
%
|
|
|
80.7
|
%
|
|
|
86.8
|
%
|
Commercial and franchise
|
|
|
13,547
|
|
|
|
8,260
|
|
|
|
64.0
|
%
|
|
|
19.3
|
%
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
70,173
|
|
|
|
62,739
|
|
|
|
11.8
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales and related occupancy costs
|
|
|
32,701
|
|
|
|
27,849
|
|
|
|
17.4
|
%
|
|
|
46.6
|
%
|
|
|
44.4
|
%
|
Operating expenses
|
|
|
25,130
|
|
|
|
24,426
|
|
|
|
2.9
|
%
|
|
|
35.8
|
%
|
|
|
38.9
|
%
|
Depreciation and amortization
|
|
|
3,099
|
|
|
|
3,465
|
|
|
|
(10.6
|
)%
|
|
|
4.4
|
%
|
|
|
5.5
|
%
|
General and administrative expenses
|
|
|
7,421
|
|
|
|
6,313
|
|
|
|
17.6
|
%
|
|
|
10.6
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,822
|
|
|
|
686
|
|
|
|
165.6
|
%
|
|
|
2.6
|
%
|
|
|
1.1
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9
|
|
|
|
10
|
|
|
|
(10.0
|
)%
|
|
|
|
%
|
|
|
|
%
|
Interest expense
|
|
|
(63
|
)
|
|
|
(68
|
)
|
|
|
(7.4
|
)%
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for (benefit
from) income taxes and noncontrolling
interest
|
|
|
1,768
|
|
|
|
628
|
|
|
|
181.5
|
%
|
|
|
2.5
|
%
|
|
|
1.0
|
%
|
Provision for (benefit from) income taxes
|
|
|
32
|
|
|
|
(140
|
)
|
|
|
(122.9
|
)%
|
|
|
|
%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,736
|
|
|
|
768
|
|
|
|
126.0
|
%
|
|
|
2.5
|
%
|
|
|
1.2
|
%
|
Less: Net income attributable to
noncontrolling interest
|
|
|
129
|
|
|
|
114
|
|
|
|
13.2
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Caribou
Coffee Company, Inc.
|
|
$
|
1,607
|
|
|
$
|
654
|
|
|
|
145.7
|
%
|
|
|
2.3
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Net sales increased $7.5 million, or 11.8%, to $70.2 million in the third thirteen weeks of
2010 from $62.7 million in the third thirteen weeks of 2009. Each of our business segments
contributed significantly to our consolidated revenue growth. Coffeehouse net sales increased $2.1
million, or 3.9%, to $56.6 million in the third thirteen weeks of 2010 from $54.5 million in the
third thirteen weeks of 2009 due to higher comparable coffeehouse sales. Commercial and franchise
sales increased by $5.3 million, or 64.0%, to $13.5 million for the third thirteen weeks of 2010
from $8.3 million for the third thirteen weeks of 2009 due to additional sales to new and existing
customers and franchises.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs increased
$4.9 million, or 17.4%, to $32.7 million in the third thirteen weeks of 2010, from $27.8 million in
the third thirteen weeks of 2009,
17
primarily due to higher sales. On a dollar basis, this growth was attributable to increased
volume across each of our operating segments. As a percentage of total net sales, cost of sales and
related occupancy costs increased to 46.6% in the third thirteen weeks of 2010 from 44.4% in the
third thirteen weeks of 2009. The increase as a percentage of sales was due to an overall mix
change with a higher percentage of sales coming from the commercial and franchise segments.
Operating expenses.
Operating expenses increased $0.7 million, or 2.9%, to $25.1 million in
the third thirteen weeks of fiscal 2010, from $24.4 million in the third thirteen weeks of 2009. On
a dollar basis, this increase was primarily driven by an increase in variable expenses related to
our increase in sales volume. Operating expenses as a percentage of total net sales decreased to
35.8% in the third thirteen weeks of 2010 from 38.9% in the third thirteen weeks of 2009 as we were
able to gain leverage on fixed costs within these categories from our increase in sales and lower
marketing spend in the quarter.
Depreciation and amortization.
Depreciation and amortization decreased $0.3 million, or 10.6%,
to $3.1million in the third thirteen weeks of 2010, from $3.5 million in the third thirteen weeks
of 2009. As a percentage of total net sales, depreciation and amortization was 4.4% in the third
thirteen weeks of 2010, compared to 5.5% in the third thirteen weeks of 2009. This decrease in
dollars is due to a lower depreciable asset base from reduced capital spending in 2009 and 2010,
and the decrease as a percent of sales is due to better leverage from our increasing sales volume.
General and administrative expenses.
General and administrative expense increased $1.1
million, or 17.6%, to $7.4 million in the third thirteen weeks of 2010, from $6.3 million in the
third thirteen weeks of 2009. As a percentage of total net sales, general and administrative
expenses were 10.6% in the third thirteen weeks of 2010, compared to 10.1% in the third thirteen
weeks of 2009. This increase is due to resources added in support of key initiatives, including marketing, product
management, and real estate.
Interest income.
Interest income decreased slightly in the third thirteen weeks of 2010, as
compared to the third thirteen weeks of 2009 due to less cash on hand during the period.
Interest expense.
Interest expense remained relatively flat at $0.1 million for both the
third thirteen weeks of 2010 and 2009. We had no outstanding borrowings during the third thirteen
weeks of 2010 or 2009.
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
third thirteen weeks of fiscal 2010 and 2009.
Retail Coffeehouses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of coffeehouse sales
|
|
Coffeehouse sales, net
|
|
$
|
56,626
|
|
|
$
|
54,479
|
|
|
|
3.9
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
23,694
|
|
|
|
22,644
|
|
|
|
4.6
|
%
|
|
|
41.8
|
%
|
|
|
41.6
|
%
|
Operating expenses
|
|
|
23,666
|
|
|
|
23,127
|
|
|
|
2.3
|
%
|
|
|
41.8
|
%
|
|
|
42.5
|
%
|
Depreciation and amortization
|
|
|
3,079
|
|
|
|
3,454
|
|
|
|
(10.9
|
)%
|
|
|
5.4
|
%
|
|
|
6.3
|
%
|
General and administrative expenses
|
|
|
2,276
|
|
|
|
1,742
|
|
|
|
30.7
|
%
|
|
|
4.0
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
3,911
|
|
|
$
|
3,512
|
|
|
|
11.4
|
%
|
|
|
6.9
|
%
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The retail segment operates company-owned coffeehouses. As of October 3, 2010 and September
27, 2009, there were 410 and 413 company-owned coffeehouses, respectively, in 16 states and the
District of Columbia.
Coffeehouse sales
Coffeehouse sales increased $2.1 million, or 3.9%, to $56.6 million in the third thirteen
weeks of 2010 from $54.5 million in the third thirteen weeks of 2009. This increase is attributable
to a 4.4% increase in comparable coffeehouse sales in the third thirteen weeks of 2010 as compared
to the same period in 2009. The increase in comparable coffeehouse sales was driven by increased
traffic in our coffeehouses and a higher average guest check, primarily due to higher food sales,
attributable to the launch of hot cereal in our coffeehouses at the
beginning of the year and the phased rollout of breakfast
sandwiches during the thirteen week period which are now in 200 of our coffeehouses.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $1.1 million, or 4.6%, to $23.7 million in the third thirteen weeks of 2010, from $22.6
million for the third thirteen weeks of 2009. The increase in total dollars was driven primarily by
increased cost of goods related to our 4.4% growth in comparable coffeehouse sales. Cost of sales
and related occupancy costs as a percentage of coffeehouse net sales increased to 41.8% in the
third thirteen weeks of 2010 from 41.6% in the third thirteen weeks of 2009 due to higher costs
associated with a shift to higher quality product platforms launched in our retail coffeehouse
segment, particularly shifting from a powder based chocolate ingredient to real, all natural
chocolate in all of our chocolate based beverages, offset by sales leverage gained on largely fixed
occupancy costs.
Operating expenses.
Operating expenses increased $0.6 million, or 2.3%, to $23.7 million for
the third thirteen weeks of 2010, from $23.1 million for the third thirteen weeks of 2009. On a
dollar basis, this increase was due to an increase in variable expenses, such as credit card fees
related to our 4.4% increase in comparable coffeehouses sales, as well as higher labor cost as we
train our team members on our new product launches, such as breakfast sandwiches. As a percentage
of coffeehouse net sales, operating expenses decreased to 41.8% in the third thirteen weeks of 2010
from 42.5% in the third thirteen weeks of 2009. This decrease is primarily attributable to
leverage gained from our increase in sales and lower marketing spend in the third thirteen weeks of
2010 compared to the prior year period.
Depreciation and amortization.
Depreciation and amortization decreased $0.4 million, or
10.9%, to $3.1 million for the third thirteen weeks of 2010, from $3.5 million for the third
thirteen weeks of 2009. This decrease is due to our lower depreciable asset base due to lower
levels of capital spending in 2009 and the first and second quarters of 2010.
General and administrative expenses.
General and administrative expenses increased $0.6
million, or 30.7%, to $2.3 million for the third thirteen weeks of 2010 from $1.7 million for the
third thirteen weeks of 2009. The increase was primarily due to the cost of building out our new
store development teams as we prepare for future new store openings.
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of commercial sales
|
|
Sales, net
|
|
$
|
11,255
|
|
|
$
|
6,557
|
|
|
|
71.6
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
7,706
|
|
|
|
4,232
|
|
|
|
82.1
|
%
|
|
|
68.5
|
%
|
|
|
64.5
|
%
|
Operating expenses
|
|
|
1,140
|
|
|
|
1,010
|
|
|
|
12.9
|
%
|
|
|
10.1
|
%
|
|
|
15.4
|
%
|
Depreciation and amortization
|
|
|
16
|
|
|
|
10
|
|
|
|
60.0
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
2,393
|
|
|
$
|
1,305
|
|
|
|
83.4
|
%
|
|
|
21.3
|
%
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The commercial segment sells high-quality premium whole bean and ground coffee to grocery
stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels,
entertainment venues and on-line customers. In addition, we sell our blended coffees and license
our brand to Keurig for sale and use in its K-Cup single serve line of business.
Sales
Sales increased $4.7 million, or 71.6%, to $11.3 million in the third thirteen weeks of 2010,
from $6.6 million in the third thirteen weeks of 2009. We
periodically align our inventory weeks of supply on hand across our
various coffee blends. In the third quarter, we took advantage of the
13-year highs in the coffee commodity market, and sold
$2.0 million of raw coffee beans for blends no longer needed. The remaining increase is primarily
attributable to the incremental sales to existing grocery stores, club stores and mass
merchandisers, in which Caribou handles sales and distribution, as well as increased sales to
Keurig Incorporated, an industry leader in single cup brewing technology. The increase in sales to
Caribou-managed accounts was primarily driven by increased distribution gained in the second half
of 2009. At the beginning of 2010, Caribou Coffee was found in over forty states and in seven
thousand stores through our Caribou-managed sales channel. We did not experience large new customer
door growth in the third quarter of 2010. The increase in sales to Keurig has primarily been driven
by an increased sales penetration of Keurig single-cup brewing machines.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $3.5 million, or 82.1%, to $7.7 million for the third thirteen weeks of 2010, from $4.2
million for the third thirteen weeks of 2009. On a dollar basis, this increase in cost of sales was
primarily related to the 71.6% increase in sales volume in this segment. As a percentage of sales,
cost of sales increased to 68.5% for the third thirteen weeks of 2010, from 64.5% for the third
thirteen weeks of 2009. This increase in cost of sales as a percentage of sales was the sale of
$2.0 million of raw coffee beans, which had a lower margin than our traditional commercial sales.
Operating expenses.
Operating expenses increased $0.1 million, or 12.9%, to $1.1 million for
the third thirteen weeks of 2010, from $1.0 million for the third thirteen weeks of 2009. The
increase is attributable to higher labor, marketing, and other operating costs as we invest in our
team and infrastructure to support our growing commercial segment. As a percentage of sales,
operating expenses decreased to 10.1% in the third thirteen weeks of 2010 from 15.4% in the third
thirteen weeks of 2009 due to leverage on higher sales.
Franchise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of franchise sales
|
|
Sales, net
|
|
$
|
2,292
|
|
|
$
|
1,703
|
|
|
|
34.6
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
1,301
|
|
|
|
973
|
|
|
|
33.7
|
%
|
|
|
56.8
|
%
|
|
|
57.1
|
%
|
Operating expenses
|
|
|
324
|
|
|
|
289
|
|
|
|
12.1
|
%
|
|
|
14.1
|
%
|
|
|
17.0
|
%
|
Depreciation and amortization
|
|
|
4
|
|
|
|
1
|
|
|
|
300.0
|
%
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
663
|
|
|
$
|
440
|
|
|
|
50.7
|
%
|
|
|
28.9
|
%
|
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of October 3, 2010 and September 27, 2009, there were
129 and 112 franchised coffeehouses, respectively, in the U.S and international markets.
Sales
Sales increased $0.6 million, or 34.6%, to $2.3 million in the third thirteen weeks of 2010,
from $1.7 million in the third thirteen weeks of 2009 primarily due to higher product sales to our
franchisees, especially internationally, due to product pipeline fill for new stores to be opened
in 2010.
20
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $0.3 million, or 33.7%, to $1.3 million for the third thirteen weeks of 2010, from $1.0
million for the third thirteen weeks of 2009. As a percentage of sales, cost of sales and related
occupancy costs decreased to 56.8% for the third thirteen weeks of 2010, from 57.1% for the third
thirteen weeks of 2009. The decrease in cost of sales and related occupancy costs as a percentage
of sales was primarily due to a change in revenue mix in the franchise segment, as a greater
portion of sales were in the form of franchise fees for newly opened franchises.
Operating expenses.
Operating expenses remained relatively flat for the third thirteen weeks
of 2010 compared to the third thirteen weeks of 2009. Operating expenses in this segment are
primarily related to labor, travel, and other administrative costs.
Unallocated Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
General and administrative expenses
|
|
|
5,145
|
|
|
|
4,571
|
|
|
|
12.6
|
%
|
|
|
7.3
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(5,145
|
)
|
|
$
|
(4,571
|
)
|
|
|
12.6
|
%
|
|
|
7.3
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses.
General and administrative expenses increased $0.5
million, or 12.6%, to $5.1 million for the third thirteen weeks of 2010, from $4.6 million for the
third thirteen weeks of 2009. As a percentage of total net sales, general and administrative
expenses remained flat at 7.3%.
Thirty-Nine Weeks Ended October 3, 2010 vs. Thirty-Nine Weeks Ended September 27, 2009
Results of Operations
The following table presents the consolidated statements of operations as well as the
percentage relationship to total net sales of items included in our consolidated statement of
operations
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse
|
|
$
|
169,974
|
|
|
$
|
162,637
|
|
|
|
4.5
|
%
|
|
|
82.5
|
%
|
|
|
87.4
|
%
|
Commercial and franchise
|
|
|
36,134
|
|
|
|
23,436
|
|
|
|
54.2
|
%
|
|
|
17.5
|
%
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
206,108
|
|
|
|
186,073
|
|
|
|
10.8
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales and related occupancy costs
|
|
|
94,651
|
|
|
|
81,438
|
|
|
|
16.2
|
%
|
|
|
45.9
|
%
|
|
|
43.8
|
%
|
Operating expenses
|
|
|
75,159
|
|
|
|
71,684
|
|
|
|
4.8
|
%
|
|
|
36.5
|
%
|
|
|
38.5
|
%
|
Depreciation and amortization
|
|
|
9,271
|
|
|
|
10,776
|
|
|
|
(14.0
|
)%
|
|
|
4.5
|
%
|
|
|
5.8
|
%
|
General and administrative expenses
|
|
|
21,563
|
|
|
|
19,708
|
|
|
|
9.4
|
%
|
|
|
10.5
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,464
|
|
|
|
2,467
|
|
|
|
121.5
|
%
|
|
|
2.7
|
%
|
|
|
1.3
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
19
|
|
|
|
17
|
|
|
|
11.8
|
%
|
|
|
|
%
|
|
|
|
%
|
Interest expense
|
|
|
(234
|
)
|
|
|
(189
|
)
|
|
|
23.8
|
%
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before benefit from income taxes
and noncontrolling interest
|
|
|
5,249
|
|
|
|
2,295
|
|
|
|
128.7
|
%
|
|
|
2.5
|
%
|
|
|
1.2
|
%
|
Benefit from income taxes
|
|
|
(106
|
)
|
|
|
(182
|
)
|
|
|
(41.8
|
)%
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
Net income
|
|
|
5,355
|
|
|
|
2,477
|
|
|
|
116.2
|
%
|
|
|
2.6
|
%
|
|
|
1.3
|
%
|
Less: Net income attributable to
noncontrolling interest
|
|
|
289
|
|
|
|
309
|
|
|
|
(6.5
|
)%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Caribou
Coffee Company, Inc.
|
|
$
|
5,066
|
|
|
$
|
2,168
|
|
|
|
133.7
|
%
|
|
|
2.5
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Net sales increased $20.0 million, or 10.8%, to $206.1 million in the first thirty-nine weeks
of 2010 from $186.1 million in the first thirty-nine weeks of 2009. Each of our business segments
contributed significantly to our consolidated revenue growth. Coffeehouse net sales increased $7.4
million, or 4.5%, to $170.0 million in the first thirty-nine weeks of 2010 from $162.6 million in
the first thirty-nine weeks of 2009. Commercial and franchise sales increased by $12.7 million, or
54.2%, to $36.1 million for the first thirty-nine weeks of 2010 from $23.4 million for the first
thirty-nine weeks of 2009. Commercial segment sales grew by $10.9 million or 60.6%, based on
increased sales to existing customers, primarily due to distribution growth achieved during the
second half of 2009. Franchise sales grew by $1.8 million or 32.9% primarily due to new franchise
and license locations added in the second half of last year, as well as international product sales
related to new store development pipeline fill.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs increased
$13.2 million, or 16.2%, to $94.6 million in the first thirty-nine weeks of 2010, from $81.4
million in the first thirty-nine weeks of 2009, primarily due to higher sales. On a dollar basis,
this growth was attributable to increased volume across each of our operating segments. As a
percentage of total net sales, cost of sales and related occupancy costs increased to 45.9% in the
first thirty-nine weeks of 2010 from 43.8% in the first thirty-nine weeks of 2009. The increase as
a percentage of sales was due to an overall mix change with a higher percentage of sales coming
from the commercial and franchise segments.
Operating expenses.
Operating expenses increased $3.5 million, or 4.8%, to $75.2 million in
the first thirty-nine weeks of fiscal 2010, from $71.7 million in the first thirty-nine weeks of
2009. On a dollar basis, this increase was primarily driven by an increase in variable expenses
related to our increase in sales volume, as well as a $1.1 million increase in marketing and
product management initiatives as compared to the comparable period of the prior year. Operating
expenses as a percentage of total net sales decreased to 36.5% in the first thirty-nine weeks of
2010 from 38.5% in the first thirty-nine weeks of 2009 as we were able to gain leverage on these
categories from our increase in sales, particularly in labor costs needed to support our operating
segments.
Depreciation and amortization.
Depreciation and amortization decreased $1.5 million, or 14.0%,
to $9.3 million in the first thirty-nine weeks of 2010, from $10.8 million in the first thirty-nine
weeks of 2009. As a percentage of total net sales, depreciation and amortization was 4.5% in the
first thirty-nine weeks of 2010, compared to 5.8% in the first thirty-nine weeks of 2009. This
decrease in dollars is due to a lower depreciable asset base from reduced capital spending in 2009
and the first half of 2010 compared to previous years, and the decrease as a percent of sales is
due to better leverage from our increasing sales volume.
General and administrative expenses.
General and administrative expenses increased $1.9
million, or 9.4%, to $21.6 million in the first thirty-nine weeks of 2010, from $19.7 million in
the first thirty-nine weeks of 2009. As a percentage of total net sales, general and
administrative expenses were 10.5% in the first thirty-nine weeks of 2010, compared to 10.6% in the
first thirty-nine weeks of 2009. The dollar value increase is due to higher payroll costs for
support personnel hired in the later half of 2009. The decrease as a percentage of sales is due to
leverage on higher sales.
Interest income.
Interest income increased slightly in the first thirty-nine weeks of 2010,
as compared to the first thirty-nine weeks of 2009 due to more cash on hand in 2010.
Interest expense.
Interest expense remained flat at $0.2 million for both the first
thirty-nine weeks of 2010 and 2009. We had no outstanding borrowings during first thirty-nine
weeks of 2010 or 2009.
22
Operating Segments
Segment information is prepared on the same basis that our management reviews financial
information for decision making purposes. We have three reportable operating segments: retail,
commercial and franchise. Unallocated corporate includes expenses pertaining to corporate
administrative functions that support the operating segments but are not specifically attributable
to or managed by any segment and are not included in the reported financial results of the
operating segments. The following tables summarize our results of operations by segment for the
first thirty-nine weeks of fiscal 2010 and 2009.
Retail Coffeehouses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of coffeehouse sales
|
|
Coffeehouse sales, net
|
|
$
|
169,974
|
|
|
$
|
162,637
|
|
|
|
4.5
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
70,744
|
|
|
|
66,827
|
|
|
|
5.9
|
%
|
|
|
41.6
|
%
|
|
|
41.1
|
%
|
Operating expenses
|
|
|
70,945
|
|
|
|
68,219
|
|
|
|
4.0
|
%
|
|
|
41.7
|
%
|
|
|
41.9
|
%
|
Depreciation and amortization
|
|
|
9,218
|
|
|
|
10,741
|
|
|
|
(14.2
|
)%
|
|
|
5.4
|
%
|
|
|
6.6
|
%
|
General and administrative expenses
|
|
|
6,245
|
|
|
|
5,591
|
|
|
|
11.7
|
%
|
|
|
3.7
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
12,822
|
|
|
$
|
11,259
|
|
|
|
13.9
|
%
|
|
|
7.5
|
%
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The retail segment operates company-owned coffeehouses. As of October 3, 2010 and September
29, 2009, there were 410 and 413 company-owned coffeehouses, respectively, in 16 states and the
District of Columbia.
Coffeehouse sales
Coffeehouse sales increased $7.4 million, or 4.5%, to $170.0 million in the first thirty-nine
weeks of 2010 from $162.6 million in the first thirty-nine weeks of 2009. This increase is
attributable to a 4.8% increase in comparable coffeehouse sales in the first thirty-nine weeks of
2010 as compared to the same period in 2009. The increase in comparable coffeehouse sales was
driven by increased traffic in our coffeehouses and a higher average guest check, primarily due to
higher food sales, attributable to the launch of hot cereal in our coffeehouses.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $3.9 million, or 5.9%, to $70.7 million in the first thirty-nine weeks of 2010, from
$66.8 million for the first thirty-nine weeks of 2009. The increase in total dollars was driven
primarily by increased cost of goods related to our 4.8% growth in comparable coffeehouse sales.
Cost of sales and related occupancy costs as a percentage of coffeehouse net sales increased to
41.6% for the first thirty-nine weeks of 2010 from 41.1% for the first thirty-nine weeks of 2009.
The increase was primarily due to a shift to higher quality product platforms launched in our
retail coffeehouse segment, particularly shifting from a powder based chocolate ingredient to real,
all natural chocolate in all of our chocolate based beverages.
Operating expenses.
Operating expenses increased $2.7 million, or 4.0%, to $70.9 million for
the first thirty-nine weeks of 2010, from $68.2 million for the first thirty-nine weeks of 2009.
On a dollar basis, this increase was due to an increase in variable expenses, such as supplies and
credit card fees related to our 4.8% increase in comparable coffeehouses sales, $0.6 million in
incremental spending on marketing and product management initiatives in the retail coffeehouse
segment, as well as higher labor costs as we train team members on our new product launches, such
as hot cereal and breakfast sandwiches, when compared to the prior year. As a percentage of
coffeehouse net sales, operating expenses decreased to 41.7% in the first thirty-nine weeks of 2010
from 41.9% for the first thirty-nine weeks of 2009.
23
Depreciation and amortization.
Depreciation and amortization decreased $1.5 million, or
14.2%, to $9.2 million for the first thirty-nine weeks of 2010, from $10.7 million for the first
thirty-nine weeks of 2009. This decrease is due to our lower depreciable asset base due to lower
levels of capital spending in 2009 and the first half of 2010.
General and administrative expenses.
General and administrative expenses increased $0.6
million, or 11.7%, to $6.2 million for the first thirty-nine weeks of 2010 from $5.6 million for
the first thirty-nine weeks of 2009. The increase was primarily due to higher payroll related
costs, particularly medical costs, in our retail coffeehouse field support and multi-unit
management teams.
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of commercial sales
|
|
Sales, net
|
|
$
|
28,902
|
|
|
$
|
17,996
|
|
|
|
60.6
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
19,668
|
|
|
|
11,529
|
|
|
|
70.6
|
%
|
|
|
68.1
|
%
|
|
|
64.1
|
%
|
Operating expenses
|
|
|
3,223
|
|
|
|
2,582
|
|
|
|
24.8
|
%
|
|
|
11.2
|
%
|
|
|
14.3
|
%
|
Depreciation and amortization
|
|
|
42
|
|
|
|
32
|
|
|
|
31.3
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
5,969
|
|
|
$
|
3,853
|
|
|
|
54.9
|
%
|
|
|
20.7
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $10.9 million, or 60.6%, to $28.9 million in the first thirty-nine weeks of
2010, from $18.0 million in the first thirty-nine weeks of 2009. This increase is primarily
attributable to the incremental sales to existing grocery stores, club stores and mass
merchandisers, in which Caribou handles sales and distribution, as well as increased sales to
Keurig Incorporated, an industry leader in single cup brewing technology. The increase in sales to
Caribou-managed accounts was primarily driven by increased distribution gained in the second half
of 2009. At the beginning of 2010, Caribou Coffee was found in over forty states and in seven
thousand stores through our Caribou-managed sales channel. We did not experience large new customer
door growth in 2010. The increase in sales to Keurig has primarily been driven by an increased
sales penetration of Keurig single-cup brewing machines.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $8.2 million, or 70.6%, to $19.7 million for the first thirty-nine weeks of 2010, from
$11.5 million for the first thirty-nine weeks of 2009. On a dollar basis, this increase in cost of
sales was primarily related to the 60.6% increase in sales volume in this segment. As a percentage
of sales, cost of sales increased to 68.1% for the first thirty-nine weeks of 2010, from 64.1% for
the first thirty-nine weeks of 2009. The increase in cost of sales as a percentage of sales was due
to increased investment in trade promotions and allowances. We have increased these programs as a
method to support the brand through increased distribution as well as increased trial and awareness
from a consumer standpoint.
Operating expenses.
Operating expenses increased $0.6 million, or 24.8%, to $3.2 million for
the first thirty-nine weeks of 2010, from $2.6 million for the first thirty-nine weeks of 2009.
The increase is attributable to higher marketing as we invest to support our growing commercial
segment. As a percentage of sales, operating expenses decreased to 11.2% in the first thirty-nine
weeks of 2010 from 14.3% in the first thirty-nine weeks of 2009 due to leverage on higher sales.
24
Franchise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of franchise sales
|
|
Sales, net
|
|
$
|
7,232
|
|
|
$
|
5,440
|
|
|
|
32.9
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
4,239
|
|
|
|
3,082
|
|
|
|
37.5
|
%
|
|
|
58.6
|
%
|
|
|
56.7
|
%
|
Operating expenses
|
|
|
991
|
|
|
|
900
|
|
|
|
10.1
|
%
|
|
|
13.7
|
%
|
|
|
16.5
|
%
|
Depreciation and amortization
|
|
|
11
|
|
|
|
3
|
|
|
|
266.7
|
%
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
1,991
|
|
|
$
|
1,455
|
|
|
|
36.8
|
%
|
|
|
27.5
|
%
|
|
|
26.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to
domestic and international franchisees. As of October 3, 2010 and September 29, 2009, there were
129 and 112 franchised coffeehouses, respectively, in the U.S and international markets.
Sales
Sales increased $1.8 million, or 32.9%, to $7.2 million in the first thirty-nine weeks of
2010, from $5.4 million in the first thirty-nine weeks of 2009 primarily due to higher product
sales to our franchisees, especially internationally, due to product pipeline fill for new stores
to be opened in 2010.
Costs and Expenses
Cost of sales and related occupancy costs.
Cost of sales and related occupancy costs
increased $1.1 million, or 37.5%, to $4.2 million for the first thirty-nine weeks of 2010, from
$3.1 million for the first thirty-nine weeks of 2009. As a percentage of sales, cost of sales
increased to 58.6% for the first thirty-nine weeks of 2010, from 56.7% for the first thirty-nine
weeks of 2009. The increase in cost of sales as a percentage of sales was primarily due to a change
in revenue mix in the franchise segment, as a greater portion of sales were product sales.
Operating expenses.
Operating expenses increased $0.1 million, or 10.1%, to $1.0 million for
the first thirty-nine weeks of 2010, from $0.9 million for the first thirty-nine weeks of 2009.
Operating expenses in this segment are primarily related to labor, travel, and other administrative
costs.
Unallocated Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
%
|
|
|
October 3,
|
|
|
September 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
As a % of total net sales
|
|
General and administrative expenses
|
|
$
|
15,318
|
|
|
$
|
14,100
|
|
|
|
8.6
|
%
|
|
|
7.4
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(15,318
|
)
|
|
$
|
(14,100
|
)
|
|
|
8.6
|
%
|
|
|
7.4
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses.
General and administrative expenses increased $1.2
million, or 8.6%, to $15.3 million for the first thirty-nine weeks of 2010, from $14.1 million for
the first thirty-nine weeks of 2009 due to higher payroll costs for support personnel hired in the
latter half of 2009. As a percentage of total net sales, general and administrative expenses
decreased to 7.4% in the first thirty-nine weeks of 2010, from 7.6% in the first thirty-nine weeks
of 2009, due to leverage on higher net sales.
25
Liquidity and Capital Resources
The following table summarizes our cash flow activity and should be read in conjunction with
the Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Increase /
|
|
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
$
|
(8,232
|
)
|
|
$
|
8,582
|
|
|
$
|
(16,814
|
)
|
Net cash used in investing activities
|
|
|
(5,002
|
)
|
|
|
(809
|
)
|
|
|
(4,193
|
)
|
Net cash (used) provided by financing activities
|
|
|
(326
|
)
|
|
|
253
|
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(13,560
|
)
|
|
$
|
8,026
|
|
|
$
|
(21,586
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of October 3, 2010 were $10.0 million, compared to cash and cash
equivalents of $23.6 million as of January 3, 2010. Generally, our principal requirements for cash
are capital expenditures and funding operations. Capital expenditures included maintenance and
remodeling of existing coffeehouses, general and administrative expenditures for items like
management information systems and costs for new production equipment. Currently our requirements
for capital have been funded through cash flow from operations.
Net cash used by operating activities for the first thirty-nine weeks of 2010 was $8.2 million
compared to net cash provided by operating activities of $8.6 million for the first thirty-nine
weeks of 2009. The $16.8 million decrease in cash used by operating activities was the result of
cash used in working capital, primarily inventory as we build inventory levels to support our
growing business, particularly in our commercial business.
Net cash used in investing activities during the first thirty-nine weeks of 2010 was $5.0
million, compared to net cash used in investing activities of $0.8 million for the first
thirty-nine weeks of 2009. The increase in capital expenditures was primarily for oven equipment in
our coffeehouses to support our new food product launches.
Net cash used by financing activities for the first thirty-nine weeks of 2010 was $0.3 million
compared to net cash provided by financing activities of $0.3 million for the first thirty-nine
weeks of 2009. The increase in financing cash used is due to the costs associated with our new
credit facility. In Q1 of 2010 we announced that our board of directors had authorized up to $10
million in a share repurchase program. In the first thirty-nine weeks of 2010 we repurchased
approximately 10,000 shares at a weighted average market price of $7.30 per share.
Our future capital requirements and the adequacy of available funds will depend on many
factors, including the pace of our expansion, real estate markets, the availability of suitable
site locations and the nature of the arrangements negotiated with landlords for new coffeehouses 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 2010 to be in the range of $10 to $12 million. We believe that our current
liquidity and cash flow from operations will provide sufficient liquidity to fund our operations
for at least 12 months.
Off-Balance Sheet Arrangements
Other than our coffeehouse leases, we do not have any off-balance sheet arrangements. As of
October 3, 2010, we were committed to fixed and price-to-be-fixed green coffee purchase contracts
with deliveries expected through December 2011. 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.
26
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance which amends certain ASC concepts related to
consolidation of variable interest entities. Among other accounting and disclosure requirements,
this guidance replaces the quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity with an approach
focused on identifying which enterprise has the power to direct the activities of a variable
interest entity and the obligation to absorb losses of the entity or the right to receive benefits
from the entity. The Company adopted this guidance on January 4, 2010. The adoption of this
guidance did not have a material impact on its financial statements.
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 thirty-nine weeks
ended October 3, 2010 and September 27, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 3, 2010
|
|
|
September 27, 2009
|
|
|
October 3, 2010
|
|
|
September 27, 2009
|
|
|
|
|
|
|
|
(In thousands, except operating data)
|
|
|
|
|
|
Non-GAAP Metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
5,300
|
|
|
$
|
4,536
|
|
|
$
|
15,923
|
|
|
$
|
14,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in comparable coffeehouse
net sales(2)
|
|
|
4.4
|
%
|
|
|
(0.5
|
%)
|
|
|
4.8
|
%
|
|
|
(3.0
|
%)
|
Company-Owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of period
|
|
|
411
|
|
|
|
414
|
|
|
|
413
|
|
|
|
414
|
|
Coffeehouses opened during the period
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Coffeehouses closed during the period
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company-Owned
|
|
|
410
|
|
|
|
413
|
|
|
|
410
|
|
|
|
413
|
|
Franchised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of period
|
|
|
128
|
|
|
|
108
|
|
|
|
121
|
|
|
|
97
|
|
Coffeehouses opened during the period
|
|
|
6
|
|
|
|
4
|
|
|
|
13
|
|
|
|
18
|
|
Coffeehouses closed during the period
|
|
|
(5
|
)
|
|
|
0
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Franchised
|
|
|
129
|
|
|
|
112
|
|
|
|
129
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coffeehouses open at end of period
|
|
|
539
|
|
|
|
525
|
|
|
|
539
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
27
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 207 company-owned coffeehouses from the
beginning of fiscal 2003 through the end of the first thirty-nine weeks of 2010. 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 evaluate our capacity to incur and service debt, fund capital expenditures and
expand our business.
|
EBITDA as calculated by us is not necessarily comparable to similarly titled measures used by
other companies. In addition, EBITDA: (a) does not represent net income or cash flows from
operating activities as defined by GAAP; (b) is not necessarily indicative of cash available to
fund our cash flow needs; and (c) should not be considered an alternative to net income, operating
income, cash flows from operating activities or our other financial information as determined under
GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
|
October 3, 2010
|
|
|
September 27, 2009
|
|
|
October 3, 2010
|
|
|
September 27, 2009
|
|
|
|
(In thousands)
|
Net income attributable to Caribou
Coffee Company, Inc.
|
|
$
|
1,607
|
|
|
$
|
654
|
|
|
$
|
5,066
|
|
|
$
|
2,168
|
|
Interest expense
|
|
|
63
|
|
|
|
68
|
|
|
|
234
|
|
|
|
189
|
|
Interest income
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
(19
|
)
|
|
|
(17
|
)
|
Depreciation and amortization(1)
|
|
|
3,607
|
|
|
|
3,964
|
|
|
|
10,748
|
|
|
|
12,360
|
|
Provision (benefit) from income taxes
|
|
|
32
|
|
|
|
(140
|
)
|
|
|
(106
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
5,300
|
|
|
$
|
4,536
|
|
|
$
|
15,923
|
|
|
$
|
14,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
28
financial officer concluded that our disclosure controls and procedures are effective, as of
October 3, 2010, in ensuring that material information relating to us required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms. There were no changes in our
internal control over financial reporting during the quarter ended October 3, 2010, 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.
From time to time, the Company becomes involved in certain legal proceedings in the ordinary
course of business. The Company does not believe that any such ordinary course legal proceedings to
which it is currently a party will have a material adverse effect on its financial position or
results of operations.
Item 1A.
Risk Factors.
There have been no material changes from the risk factors disclosed in the Risk Factors
section of our Annual Report on Form 10-K for the year ended January 3, 2010.
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.
Reserved.
Not applicable.
Item 5.
Other Information.
Not applicable.
29
Item 6.
Exhibits.
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).
|
|
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).
|
|
10.14*
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|
Lease and License Financing and Purchase Option Agreement between
Caribou Coffee Company Inc. and Arabica Funding, Inc., dated
February 19, 2010.
|
|
10.15*
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|
Credit Agreement among Arabica Funding, Inc., as Borrower, and
Wells Fargo Bank, N.A., as Administrative Agent, dated as of
February 19, 2010.
|
|
31.1
|
|
Certification Pursuant to Rule 13a 14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
|
Certification Pursuant to Rule 13a 14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
|
Certification Pursuant to 18 U.S. C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
|
Certification Pursuant to 18 U.S. C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
Asterisk (*) indicates exhibit previously filed with the Securities and Exchange Commission as
indicated in parentheses.
30
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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|
|
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CARIBOU COFFEE COMPANY, INC.
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|
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By:
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/s/ Michael Tattersfield
|
|
|
|
Michael Tattersfield
|
|
|
|
Chief Executive Officer and President
|
|
|
Date: November 11, 2010
31
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