UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended January 3,
2010.
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or
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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 .
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Commission File Number:
000-51535
CARIBOU COFFEE COMPANY,
INC.
(Exact name of registrant as
specified in its charter)
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Minnesota
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41-1731219
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(State or other jurisdiction
of
incorporation or organization)
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(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
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 Par value per share
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Nasdaq Global Market
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Securities Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 preceding 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation of S-K is not contained
herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of voting and non-voting common
equity held by non-affiliates of the Registrant was
approximately $49,500,358 as of June 28, 2009, based upon
the closing price on the Nasdaq Global Market reported for such
date. This calculation does not reflect a determination that
certain persons are affiliates of the Registrant for any other
purpose.
As of March 18, 2010, there were 20,041,371 shares of
the registrants Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the
registrants Annual Meeting of Shareholders, to be held on
May 13, 2010 have been incorporated by reference into
Part III of this Annual Report on
Form 10-K.
PART I
Founded in 1992, we are evolving into a branded premium coffee
company across three reportable operating segments: Retail
Coffeehouses, Commercial and Franchise. Currently, we are the
second largest company-operated premium coffeehouse operator in
the United States based on the number of coffeehouses operated.
As of January 3, 2010, we had 534 coffeehouses, including
121 franchised locations. Our coffeehouses are located in
20 states, the District of Columbia and international
markets. Our coffeehouses aspire to be the community place loved
by our guests as we strive to provide them with an extraordinary
experience that makes their day better. We source the
highest-quality coffees in the world and our skilled roast
masters personally oversee the craft roasting of every single
batch to bring out the best in every bean. We also provide the
highest quality handcrafted beverages, foods and coffee
lifestyle items. We deliver our guest experience with our unique
blend of expertise, fun and authentic human connection in a
comfortable and welcoming coffeehouse environment. We will
continue our efforts to increase our comparable coffeehouse
sales from building our brand awareness and loyalty through
marketing efforts and introducing new products. We intend to
continue strategically expanding our coffeehouse locations
predominately in our existing markets. Our unique coffees are
also available within our commercial segment via grocery stores,
mass merchandisers, club stores, office coffee and foodservice
providers, hotels, entertainment venues and
e-commerce
channels. In addition, we sell our blended coffees and license
our brand to Keurig, Inc. for sale and use in its K-Cup single
serve line of business. Caribou Coffee is a proud recipient of
the Rainforest Alliance Corporate Green Globe Award and is
committed to operating practices that promote sustainability and
environmental protection. For more information visit www.
Cariboucoffee.com.
Segment
Financial Information
We have three reportable operating segments: retail, commercial
and franchise. Financial information about our segments is
included in Note 18 to our consolidated financial
statements included in Item 8 of this Annual Report on
Form 10-K.
Retail Coffeehouses. As of January 3,
2010, we operated 413 company-operated coffeehouses located
in 16 states and the District of Columbia, including 211
coffeehouses in Minnesota and 54 coffeehouses in Illinois. We
focus on offering our customers high-quality premium coffee and
espresso-based beverages, and also offer specialty teas, baked
goods, whole bean coffee, branded merchandise and related
products. We believe we provide a unique experience for our
customers through the combination of our high-quality products,
distinctive coffeehouse environment and customer service.
Our retail growth objective is to profitably build a leading
premium coffeehouse brand. We will continue our efforts to
increase our comparable coffeehouse sales from building our
brand through marketing efforts and introducing new products. We
believe that we have strong brand awareness and loyalty in
markets where we operate coffeehouses. As we increase the
density of coffeehouses within these markets we will be able to
drive higher customer awareness, loyalty and comparable
coffeehouse sales. As our comparable coffeehouse sales increase,
we expect our operating margins to improve as we leverage our
operating structure.
Commercial. We sell our 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, Inc. for sale and use in its K-Cup single serve line
of business. This segment of our business continues to expand.
During our fiscal year ended January 3, 2010, the
commercial segment experienced sales growth of 54% versus the
prior fiscal year. Our growth strategy for the commercial
segment is to continue to build our existing relationships and
add new relationships with these points of distribution for our
premium whole bean and ground coffee.
Franchise. We opened our first franchised
coffeehouse in 2004 and as of January 3, 2010, we have
expanded the number of franchised coffeehouses and licensed
kiosks to 121 with 71 of the franchised coffeehouses in
international markets. We intend to continue to franchise and
license Caribou Coffee branded coffeehouses and kiosks both
domestically and internationally, where we believe there are
significant opportunities to grow our business with qualified,
multi-unit
franchise development and licensing partners. In 2010, we are
expecting to open 30 to 35 franchised coffeehouses and licensed
kiosks in both domestic and international markets.
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Purchasing
Our principal raw material is coffee beans. We typically enter
into supply contracts to purchase a pre-determined quantity of
coffee beans at a fixed price per pound. These contracts with
individual suppliers usually cover periods up to a year. As of
January 3, 2010, we had commitments to purchase coffee
beans at a total cost of $15.1 million through December
2010, or roughly 83% of our anticipated coffee bean requirements
for 2010. We will purchase the remainder of the coffee beans we
need in the market at negotiated prices or under additional
supply contracts we enter into during the fiscal year 2010.
Our second largest raw material is dairy. We obtain our dairy
products from regional dairy suppliers. In our established
markets, we generally have arrangements with a dairy supplier
under which we purchase for fixed prices based upon the
commodity price plus a percentage.
Competition
Our primary competitors for coffee beverage sales are other
premium coffee shops. In all markets in which we do business,
there are numerous competitors in the premium coffee beverage
business, and we expect this situation to continue. Starbucks is
the premium coffeehouse segment leader with approximately 6,800
locations in the United States and approximately 2,100
locations internationally. Our primary competitors in addition
to Starbucks are regional or local market coffeehouses. We also
compete with numerous restaurants in various categories.
We believe that our customers choose among premium coffeehouses
based upon the quality and variety of the coffee and other
products, atmosphere, convenience, customer service and, to a
lesser extent, price. Although we believe consumers
differentiate coffee brands based on freshness (as an element of
coffee quality), to our knowledge, few significant competitors
focus on craft roasting and product freshness in the same manner
as Caribou Coffee. We spend significant resources to
differentiate our customer experience, which is defined by our
products, coffeehouse environment and customer service, from the
offerings of our competitors. Despite these efforts, our
competitors still may be successful in attracting our customers.
Competition in the premium coffee market is becoming
increasingly intense as relatively low barriers to entry
encourage new competitors to enter the market. The financial,
marketing and operating resources of these new market entrants
may be greater than our resources. In addition, some of our
existing competitors have substantially greater financial,
marketing and operating resources. Our failure to compete
successfully against current or future competitors could have an
adverse effect on our business, including loss of customers,
declining net sales and loss of market share.
We also face intense competition in the expansion of our
franchise program as the number of franchising alternatives for
potential franchisees increases. We will continue to seek
franchisees to operate coffeehouses under the Caribou Coffee
brand in both domestic and international markets. We believe
that our ability to recruit, retain and contract with qualified
franchisees will be increasingly important to our operations as
we expand. Along with our high-quality products, our unique
coffeehouse environment and our exceptional customer service, we
believe that our innovative development of the store
within a store kiosk program will allow us to
differentiate ourselves from other franchise offerings.
In our commercial business, we face competition from a number of
large multi-national consumer product companies including Kraft
Foods Inc., Nestle Inc. and Proctor & Gamble, as well
as, regional premium coffee bean companies, some of which also
operate premium coffeehouses. As we seek to expand our
opportunities with existing and potential commercial customers,
we may not be successful.
We also compete with numerous other retailers and restaurants
for retail real estate locations for our coffeehouses.
Service
Marks and Trademarks
We regard the Caribou Coffee Brand and related intellectual
property and other proprietary rights as important to our
success. We rely on a combination of trademarks, copyrights,
service marks, trade secrets and similar rights to protect our
intellectual property. We own several trademarks and service
marks that have been registered with the U.S. Patent and
Trademark Office, including Caribou Coffee, Reindeer Blend and
other product-specific names. We also use our trademarks and
other intellectual property on the Internet. We have
applications pending with the
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U.S. Patent and Trademark Office for a number of additional
marks, including Amys Blend and Mahogany. We have
registered or made application to register one or more of our
marks in a number of foreign countries and expect to continue to
do so in the future as we expand internationally. There can be
no assurance that we can obtain the registration for the marks
in every country where registration has been sought.
Our ability to differentiate the Caribou Coffee brand from those
of our competitors depends, in part, on the strength and
enforcement of our trademarks. We must constantly protect
against any infringement by competitors. If a competitor
infringes on our trademark rights, we may have to litigate to
protect our rights, in which case, we may incur significant
expenses and divert significant attention from our business
operations.
Employees
As of January 3, 2010, we employed a workforce of
5,917 people, approximately 1,577 of whom are considered
full-time employees. None of our employees are represented by a
labor union. We consider our relationship with our employees to
be good.
Government
Regulation
Our coffee roasting operations and our coffeehouses are subject
to various governmental laws, regulations and licenses relating
to health and safety, building and land use, and environmental
protection. These governmental authorities include federal,
state and local health, environmental, labor relations,
sanitation, building, zoning, fire, safety and other departments
that have jurisdiction over the development and operation of
these locations. Our roasting facility is subject to state and
local air quality and emissions regulations. We believe that we
are in compliance in all material respects with all such laws
and regulations and that we have obtained all material licenses
that are required for the operation of our business. We are not
aware of any environmental regulations that have or that we
believe will have a material adverse effect on our operations.
Our activities are also subject to the American with
Disabilities Act and related regulations, which prohibit
discrimination on the basis of disability in public
accommodations and employment. Changes in any of these laws or
regulations could have a material adverse affect on our
operations, sales, and profitability. Delays or failures in
obtaining or maintaining required construction and operating
licenses, permits or approvals could delay or prevent the
opening of new coffeehouse locations, or could materially and
adversely affect the operation of existing coffeehouses.
Seasonality
Our business is subject to seasonal fluctuations, including
fluctuations resulting from weather conditions and holidays. A
disproportionate percentage of our total annual net sales and
profits are realized during the fourth quarter of our fiscal
year, which includes the December holiday season. In addition,
quarterly results are affected by the timing of the opening of
new coffeehouses, and our growth may conceal the impact of other
seasonal influences. Because of the seasonality of our business,
results for any quarter are not necessarily indicative of the
results that may be achieved for the full fiscal year.
Available
Information
Our website is located at www.cariboucoffee.com. Caribou Coffee
Companys
Form 10-K
reports, along with all other reports and amendments filed with
or furnished to the Securities and Exchange Commission
(SEC), are publicly available free of charge on
Caribou Coffee Companys website at www.cariboucoffee.com
accessed from the Home page through the
Investors section or at www.sec.gov as soon as
reasonably practicable after these materials are filed with or
furnished to the SEC. The Companys corporate governance
policies, ethics code and Board of Directors committee
charters are also posted within this section of our website. The
information on the Companys website is not part of this or
any other report Caribou Coffee Company files with, or furnishes
to, the SEC.
Certain statements we make in this filing, and other written or
oral statements made by or on our behalf, may constitute
forward-looking statements within the meaning of the
federal securities laws. Words or phrases such as should
result, are expected to, we
anticipate, we estimate, we
project, we believe, or similar expressions
are intended to identify forward-looking statements. These
statements are subject to certain risks and uncertainties
5
that could cause actual results to differ materially from our
historical experience and our present expectations or
projections. We believe that these forward-looking statements
are reasonable; however, you should not place undue reliance on
such statements. Such statements speak only as of the date they
are made, and we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of
future events, new information or otherwise. The following risk
factors, as well as the risks detailed in the
Business section and others that we may add from
time to time, are some of the factors that could cause our
actual results to differ materially from the expected results
described in our forward-looking statements.
Risks
Related to Our Business
The
United States economic crisis could adversely affect our
business and financial results.
Many sectors of the economy have been adversely impacted from
the global economic recession. As a business selling premium
products that is dependent upon consumer discretionary spending,
we face a challenging environment because our customers may have
less money for discretionary purchases as a result of job
losses, foreclosures, bankruptcies, reduced access to credit and
sharply falling home prices. Any resulting decreases in customer
traffic or average value per transaction will negatively impact
our financial performance as reduced revenues result in sales
de-leveraging which creates downward pressure on margins and
profitability.
The
availability and price of high quality Arabica coffee beans
could impact our profitability and growth of our
business.
We source our green coffee beans from direct coffee farmer
relationships utilizing brokers. If we are not able to source
sufficient quantities of green coffee beans to meet our demands
for growth and expand, then our business could be negatively
impacted. Also, the prices we pay for coffee beans are subject
to movements in the commodity market for coffee. The price can
fluctuate depending on such things as weather patterns in
coffee-producing countries, economic and political conditions
affecting coffee-producing countries, foreign currency
fluctuations, coffee-producing countries export quotas,
commodity market investor activity and general economic
conditions. Should the price for coffee beans increase and we
are not able to adjust our pricing and cost structure
accordingly, our margins and profitability will decrease.
A
significant interruption in the operation of our roasting,
warehousing and distribution facility could potentially disrupt
our operations.
We have only one roasting, warehousing and distribution facility
supporting our supply chain activities. A significant
interruption impacting this supply chain facility, whether as a
result of a natural disaster or other causes, could
significantly impair our ability to operate our business. A
significant disruption in service from our support center
facility would negatively impact sales in all business segments.
We may
not be able to renew leases or control rent increases at our
retail locations or obtain leases for new
coffeehouses.
Our coffeehouses are all leased. At the end of the term of the
lease, we may be forced to find a new location to lease or close
the coffeehouse. Any of these events could adversely affect our
profitability. We compete with numerous other retailers and
restaurants for coffeehouse sites in the highly competitive
market for retail real estate. As a result, we may not be able
to obtain new leases, or renew existing ones, on acceptable
terms, which could adversely affect our net sales and
brand-building initiatives.
We are
susceptible to adverse trends and economic conditions in
Minnesota and the Upper Midwest.
As of January 3, 2010, 211, or 51%, of our coffeehouses
were located in Minnesota. An additional 76, or 18%, were
located in the states of North Dakota, South Dakota, Iowa,
Illinois and Wisconsin. Our Minnesota coffeehouses accounted for
approximately half of our company-operated coffeehouse net sales
during the year ended January 3, 2010. Our Minnesota, North
Dakota, South Dakota, Iowa, Illinois and Wisconsin
company-operated coffeehouses accounted for approximately 72% of
our coffeehouse net sales during the year ended January 3,
2010. As a result, any adverse trends and economic conditions in
these states have a disproportionate adverse impact on
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our overall results. In addition, given our geographic
concentration in these states, negative publicity in the region
regarding any of our coffeehouses could have a material effect
on our business and operations throughout the region, as could
other regional occurrences such as local strikes, new or revised
laws or regulations, adverse weather conditions, natural
disasters or disruptions in the supply of food products.
Complaints
or claims by current, former or prospective employees could
adversely affect us.
We are subject to a variety of regulations which govern such
matters as minimum wages, overtime and other working conditions,
various family leave mandates and a variety of other laws
enacted, or rules and regulations promulgated, by federal, state
and local governmental authorities that govern these and other
employment matters. A material increase in the minimum wage and
other statutory benefits could adversely affect our operating
results. We have been, and in the future may be, the subject of
complaints or litigation from current, former or prospective
employees from time to time. These complaints or litigation
involving current, former or prospective employees could divert
our managements time and attention from our business
operations and might potentially result in substantial costs of
defense, settlement or other disposition, which could have a
material adverse effect on our results of operations in one or
more fiscal periods.
Risks
Related to Our Structure
Arcapita
has substantial control over us, and could limit other
shareholders ability to influence the outcome of matters
requiring shareholder approval and may support corporate actions
that conflict with other shareholders
interests.
Our largest shareholder is an affiliate of Arcapita Bank B.S.C.
(c), a global investment group founded in 1997 with offices in
Atlanta, London and Bahrain. We refer to Arcapita Bank B.S.C.
(c) and its affiliates collectively as either Arcapita or
our majority shareholder in the
Form 10-K.
Arcapita beneficially owns 11,672,245 shares, or
approximately 58.9%, of the outstanding shares of our common
stock as of January 3, 2010. Arcapitas ownership of
shares of our common stock could have the effect of delaying or
preventing a change of control of us, could discourage a
potential acquirer from obtaining control of us, even if the
acquisition or merger would be in the best interest of our
shareholders, or could otherwise affect our business because of
our compliance with Shariah principles as described below.
This could have an adverse effect on the market price for shares
of our common stock. Arcapita is also able to control the
election of directors to our board. Two of the eight members of
our board of directors are representatives of Arcapita.
Our compliance with Shariah principles may make it
difficult for us to obtain financing and may limit the products
we sell.
Arcapita operates its business and makes its investments in a
manner consistent with the body of Islamic principles known as
Shariah. Consequently, we operate our business in a manner
that is consistent with Shariah principles and will
continue to do so for so long as Arcapita is a controlling
shareholder. Shariah principles regarding the lending and
borrowing of money require application of qualitative and
quantitative standards. A Shariah-compliant company is
prohibited from engaging in derivative hedging transactions such
as interest rate swaps or futures, forward options or other
instruments designed to hedge against changes in interest rates
or the price of commodities we purchase. Also, a Shariah
compliant company is prohibited from dealing in the areas of
alcohol, gambling, pornography, pork and pork-related products.
Provisions
in our articles of incorporation and bylaws and of Minnesota law
have anti-takeover effects that could prevent a change in
control that could be beneficial to our shareholders, which
could depress the market price of shares of our common
stock.
Our articles of incorporation and bylaws and Minnesota corporate
law contain provisions that could delay, defer or prevent a
change in control of us or our management that could be
beneficial to our shareholders. These provisions could also
discourage proxy contests and make it more difficult for you and
other shareholders to elect directors and take other corporate
actions. As a result, these provisions could limit the price
that investors are willing to pay in the future for shares of
our common stock. These provisions might also discourage a
potential acquisition
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proposal or tender offer, even if the acquisition proposal or
tender offer is at a price above the then current market price
for shares of our common stock. These provisions:
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authorize our board of directors to issue preferred stock and to
determine the rights and preferences of those shares, which
would be senior to our common stock, without prior shareholder
approval;
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establish advance notice requirements for nominating directors
and proposing matters to be voted on by shareholders at
shareholder meetings;
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provide that directors may be removed by shareholders only for
cause;
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limit the right of our shareholders to call a special meeting of
shareholders; and
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impose procedural and other requirements that could make it
difficult for shareholders to effect some corporate actions.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
Locations
and Facilities
Coffeehouse
Locations
As of January 3, 2010, we had 534 retail coffeehouses,
including 121 franchised locations. Caribou Coffees
coffeehouses are located in 20 states, the District of
Columbia and international markets.
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Company
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Total
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State
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Owned
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Franchised
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Coffeehouses
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Minnesota
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211
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3
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214
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Illinois
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54
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5
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59
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Ohio
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36
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36
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Michigan
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19
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5
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24
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North Carolina
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19
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1
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20
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Wisconsin
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12
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3
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15
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Georgia
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13
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1
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14
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Virginia
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11
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3
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14
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Colorado
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8
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4
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12
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Maryland
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8
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8
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Iowa
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5
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3
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8
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Washington, D.C.
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6
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6
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North Dakota
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3
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3
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6
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Nebraska
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6
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6
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Kansas
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1
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4
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5
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Pennsylvania
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4
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4
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South Dakota
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2
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2
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4
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Missouri
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1
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2
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3
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Alabama
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2
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2
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Indiana
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2
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2
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Nevada
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1
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1
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International(1)
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71
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71
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413
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121
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534
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(1) |
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represents 66 franchised locations in six Middle Eastern
countries and 5 in South Korea |
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We lease all of our retail facilities. Most of
our existing leases are for five to 10 years and typically
have multiple five-year renewal options. We regularly evaluate
the economic performance of our coffeehouses and, when feasible,
close ones that do not meet our expectations.
Headquarters
and Roasting Facility
We currently conduct our roasting and packaging, and warehouse
and distribution activities in a 130,000 square foot leased
facility in suburban Minneapolis, which also houses our
corporate headquarters. We lease this facility under a lease
that has an initial term that expires in 2019 and is subject to
extensions through 2029. We have an option to purchase the
facility at the end of the initial lease term. This facility has
approximately 46,000 square feet for warehousing of
finished goods and distribution, approximately
42,000 square feet for storage of raw materials, roasting
and packaging and approximately 42,000 square feet of
office space. At present, we are operating at less than our full
capacity, and we believe that our existing infrastructure is
scalable so that we can add additional capacity with limited
incremental capital expenditures in the near future. In
addition, when we need to add additional roasting, packaging and
fulfillment infrastructure, we believe that we can do so at a
relatively inexpensive cost.
This facility is organic certified by the U.S. Department
of Agriculture, allowing us to offer our Rainforest Blend and
our Acacia Blend as organic certified. From time to time we
engage third party vendors to meet special processing needs,
including roasting or specialized packaging for specific
commercial accounts.
|
|
Item 3.
|
Legal
Proceedings
|
On May 25, 2005, the Company received a complaint by three
of its former employees for a lawsuit in the State of Minnesota
District Court for Hennepin County seeking monetary and
equitable relief from the Company under the Minnesota Fair Labor
Standards Act (Minnesota FLSA), the Federal Fair
Labor Standards Act (FLSA), and state common law
(hereafter the FLSA Suit). The FLSA Suit primarily
alleged that the Company misclassified its retail store managers
and managers in training as exempt from the overtime provisions
of the Minnesota FLSA and the FLSA and that these managers and
mangers in training are therefore entitled to overtime
compensation for each week in which they worked more than
40 hours from May 2002 to the present with respect to the
claims under the FLSA and for weeks in which they worked more
than 48 hours from May 2003 to the present with respect to
the claims under the Minnesota FLSA. Plaintiffs sought payment
of allegedly owed and unpaid overtime compensation, liquidated
damages, interest, and among other things, attorneys fees
and costs.
The Company and Plaintiffs, after mediation of the matter on
February 1, 2008, entered into a Stipulation of Settlement
(the Stipulation) to settle the FLSA Suit. The
Stipulation provided for a gross settlement payment of
$2.7 million, plus the employers share of payroll
taxes. A partial settlement payment of $1.75 million was
made on March 15, 2008; a final settlement payment of
$0.95 million was made on December 29, 2008.
Settlement payments made to all participating class members and
all attorneys fees for plaintiffs counsel were paid
from the $2.7 million.
In addition, from time to time, we become involved in certain
legal proceedings in the ordinary course of business. We do not
believe that any such ordinary course legal proceedings to which
we are currently a party will have a material adverse effect on
our financial position or results of operations.
9
|
|
Item 4A.
|
Executive
Officers of the Registrant
|
The following table sets forth certain information concerning
the individuals who will be our executive officers, with ages as
of March 26, 2010:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Michael Tattersfield
|
|
|
44
|
|
|
President and Chief Executive Officer
|
Timothy J. Hennessy
|
|
|
48
|
|
|
Chief Financial Officer
|
Henry J. Suerth
|
|
|
64
|
|
|
Senior Vice President of Commercial Business
|
Daniel J. Hurdle
|
|
|
44
|
|
|
Senior Vice President of Retail Operations and Product Management
|
Alfredo V. Martel
|
|
|
44
|
|
|
Senior Vice President of Marketing
|
Dan E. Lee
|
|
|
53
|
|
|
Senior Vice President General Counsel and Secretary
|
Karen E. McBride-Raffel
|
|
|
44
|
|
|
Vice President of Human Resources
|
Michael Tattersfield has served as our President and
Chief Executive Officer since August 2008. Previously,
Mr. Tattersfield was with lululemon athletica, inc.
(lulu), a yoga-inspired athletic apparel company,
where he served as Chief Operating Officer and Executive Vice
President from 2006 to 2008. Prior to joining lulu,
Mr. Tattersfield served as Vice President Store Operations
for Limited Brands, Inc. (Limited Brands), an
operator of specialty stores that sell apparel, personal care,
beauty and lingerie products, from 2005 to 2006. Prior to
joining Limited Brands, Mr. Tattersfield was with Yum!
Brands, Inc., the worlds largest restaurant company in
terms of system restaurants, serving as President of A&W
All American Food Restaurants from 2003 to 2005, Managing
Director and Chief Executive Officer of Puerto Rico and the
Caribbean from 1998 to 2002, Chief Financial Officer and
Development Director of Mexico from 1996 to 1998 and Director of
Operations of Pizza Hut and KFC for Mexico from 1992 to 1996.
Timothy J. Hennessy has served as our Chief Financial
Officer since September 2008. Previously, Mr. Hennessy was
with Carlson Wagonlit Travel (Carlson Wagonlit), a
European-based leading travel management company, where he
served as Chief Financial Officer and Executive Vice President
from 2001 to 2007, Chief Financial Officer of America and Vice
President from 1999 to 2000 and Group Controller from 1997 to
1999. Prior to joining Carlson Wagonlit, Mr. Hennessy
served as Director of Acquisitions and Strategic Planning for
Carlson Companies (Carlson), a large private company
providing travel, hotel, restaurant, cruise and marketing
services directly to consumers, corporations and government
entities, from 1994 to 1996. Prior to joining Carlson,
Mr. Hennessy was with Deloitte & Touche LLP, an
audit, consulting, financial advisory, risk management and tax
services firm, from 1983 to 1992.
Henry J. Suerth has served as our Senior Vice President
of Commercial Business since April 2009. Mr. Suerth was
with Starbucks Coffee Company where he served as Senior Vice
President of Business Alliances. Mr. Suerth has also held
roles as President and CEO of Infinity Systems, a global audio
company; CEO of Recoton Corporations multi brand home
audio business, as well as general management roles at Ethan
Allen, the Cahners Exposition Group and FMC Corporation.
Mr. Suerth also managed his own Connecticut-based
management consulting company, Decision Resources, for six years
and has an MBA from the Harvard Graduate School of Business
Administration and a B.S. in Industrial Management from Purdue
University.
Daniel J. Hurdle has been with the Company since October
2008 and currently serves as our Senior Vice President of Retail
Operations and Product Management. Previously, Mr. Hurdle
was the Senior Vice President of North American Field Operations
for Weight Watchers. From 2006 to 2008 Mr. Hurdle was
Senior Vice President of Strategy & Business
Development for Washington Mutual. Mr. Hurdle also held
various leadership roles with Starbucks Coffee Company where he
was Vice President, Existing Stores Portfolio from 2005 to 2006;
Vice President, Retail Food Business from 2002 to 2005; and Vice
President, Strategy and Chief of Staff to the President North
America from 2001 to 2002.
10
Alfredo V. Martel has served as our Senior Vice President
of Marketing since October 2008. Previously, Mr. Martel was
employed by KFC USA, Yum! Brands where he held a variety of
marketing positions and was most recently the Director of
Marketing.
Dan E. Lee has served as our General Counsel, Vice
President and Secretary since August 2005 and Senior Vice
President since November 2009. Prior to joining the Company,
Mr. Lee served as an attorney for MoneyGram International,
Inc., a global payment services company, from April 2005 to July
2005. From 1988 to 2004, Mr. Lee worked with Carlson
Companies, Inc., a large private company in the hospitality,
marketing and travel industries. From 2003 to 2004, he was
Executive Vice President, Program Manager and Associate General
Counsel for CW Government Travel, a part of the travel
operations of Carlson Companies responsible for soliciting and
managing travel for U.S. government departments. From 1988
to 2003, he was Associate General Counsel and Assistant
Secretary for Carlson Companies.
Karen E. McBride-Raffel has served as our Vice President
of Human Resources since June 2003 and as our Senior Director of
Field Human Resources from March 2000 through May 2003. Prior to
that time she held various other positions with us since joining
us in 1995, including Human Resource Manager and Director of
Human Resources.
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities
|
Market
for the Registrants Stock
The Companys common stock is listed on the Nasdaq Global
Market under the symbol CBOU. The following table
sets forth, for the periods indicated, the high and low prices
for our common stock as reported on the Nasdaq Global Market.
|
|
|
|
|
|
|
|
|
|
|
Market Price (Low/High)
|
|
|
2009
|
|
2008
|
|
For the Fiscal Year
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
1.36 2.28
|
|
|
$
|
2.40 4.05
|
|
Second Quarter
|
|
$
|
1.97 7.08
|
|
|
$
|
1.75 3.15
|
|
Third Quarter
|
|
$
|
4.78 8.69
|
|
|
$
|
1.28 3.48
|
|
Fourth Quarter
|
|
$
|
6.59 9.15
|
|
|
$
|
1.10 2.54
|
|
As of March 18, 2010, there were approximately 6,377
registered holders of record of the Companys common stock.
Dividend
Policy
We have not declared or paid any dividends on our capital stock.
We expect to retain any future earnings to fund the development
and expansion of our business. Therefore, we do not anticipate
paying cash dividends on our common stock in the foreseeable
future. Our revolving credit facility contains provisions, which
restrict our ability to pay dividends on our common stock.
Sales of
Unregistered Securities
Not applicable.
11
|
|
Item 6.
|
Selected
Financial Data
|
The table below presents our selected consolidated financial
data as of and for each of our fiscal years ended
January 3, 2010, December 28, 2008, December 30,
2007, December 31, 2006 and January 1, 2006. The
balance sheet data and consolidated statement of operations data
as of and for our fiscal years ended January 3, 2010 and
December 28, 2008 are derived from our audited consolidated
financial statements included elsewhere in this report. The
balance sheet data and consolidated statement of operations data
as of and for the fiscal years ended December 30, 2007,
December 31, 2006, and January 1, 2006 are derived
from our audited consolidated financial statements not included
in this report.
The following selected consolidated financial data and operating
information should be read in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the
Companys consolidated financial statements and the related
notes included elsewhere in this report. The historical results
presented below are not necessarily indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended(5)
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2010
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except per share and operating data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses
|
|
$
|
227,224
|
|
|
$
|
229,092
|
|
|
$
|
240,267
|
|
|
$
|
225,649
|
|
|
$
|
191,310
|
|
Commercial and franchise
|
|
|
35,315
|
|
|
|
24,807
|
|
|
|
16,567
|
|
|
|
10,580
|
|
|
|
6,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
262,539
|
|
|
|
253,899
|
|
|
|
256,834
|
|
|
|
236,229
|
|
|
|
197,992
|
|
Cost of sales and related occupancy costs
|
|
|
115,886
|
|
|
|
109,632
|
|
|
|
108,358
|
|
|
|
98,656
|
|
|
|
80,242
|
|
Operating expenses
|
|
|
99,498
|
|
|
|
100,309
|
|
|
|
107,062
|
|
|
|
97,320
|
|
|
|
80,026
|
|
Opening expenses
|
|
|
24
|
|
|
|
230
|
|
|
|
502
|
|
|
|
1,738
|
|
|
|
2,096
|
|
Depreciation and amortization
|
|
|
14,102
|
|
|
|
24,928
|
|
|
|
32,150
|
|
|
|
21,548
|
|
|
|
16,376
|
|
General and administrative expenses
|
|
|
27,145
|
|
|
|
29,145
|
|
|
|
32,324
|
|
|
|
25,943
|
|
|
|
22,742
|
|
Closing expense and disposal of assets
|
|
|
343
|
|
|
|
5,113
|
|
|
|
6,839
|
|
|
|
510
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,541
|
|
|
|
(15,458
|
)
|
|
|
(30,401
|
)
|
|
|
(9,486
|
)
|
|
|
(4,062
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,059
|
|
|
|
1,336
|
|
Interest income
|
|
|
26
|
|
|
|
25
|
|
|
|
181
|
|
|
|
554
|
|
|
|
266
|
|
Interest expense
|
|
|
(261
|
)
|
|
|
(810
|
)
|
|
|
(576
|
)
|
|
|
(695
|
)
|
|
|
(1,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes and
cumulative effect of accounting change
|
|
|
5,306
|
|
|
|
(16,243
|
)
|
|
|
(30,796
|
)
|
|
|
(8,568
|
)
|
|
|
(4,062
|
)
|
Provision (benefit) for income taxes
|
|
|
(246
|
)
|
|
|
36
|
|
|
|
(297
|
)
|
|
|
313
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
5,552
|
|
|
|
(16,279
|
)
|
|
|
(30,499
|
)
|
|
|
(8,881
|
)
|
|
|
(4,141
|
)
|
Noncontrolling interest
|
|
|
414
|
|
|
|
63
|
|
|
|
164
|
|
|
|
178
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to Caribou Coffee Company, Inc.
before cumulative effect of accounting change
|
|
|
5,138
|
|
|
|
(16,342
|
)
|
|
|
(30,663
|
)
|
|
|
(9,059
|
)
|
|
|
(4,460
|
)
|
Cumulative effect of accounting change (net of income tax)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Caribou Coffee Company,
Inc.
|
|
$
|
5,138
|
|
|
$
|
(16,342
|
)
|
|
$
|
(30,663
|
)
|
|
$
|
(9,059
|
)
|
|
$
|
(4,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended(5)
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2010
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except per share and operating data)
|
|
|
Net income (loss) attributable to Caribou Coffee Company, Inc.
common shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Caribou Coffee Company, Inc.
before cumulative effect of accounting change
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to Caribou Coffee Company,
Inc. common shareholders per share
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) attributable to Caribou Coffee
Company, Inc. common shareholders per share
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares used in calculation of net income (loss)
attributable to Caribou Coffee Company, Inc. per share
|
|
|
19,443
|
|
|
|
19,371
|
|
|
|
19,333
|
|
|
|
19,282
|
|
|
|
15,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares used in calculation of net income (loss)
attributable to Caribou Coffee Company, Inc. per share
|
|
|
20,000
|
|
|
|
19,371
|
|
|
|
19,333
|
|
|
|
19,282
|
|
|
|
15,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$
|
21,307
|
|
|
$
|
11,618
|
|
|
$
|
3,797
|
|
|
$
|
15,040
|
|
|
$
|
14,796
|
|
Adjusted EBITDA(2)
|
|
|
21,307
|
|
|
|
11,618
|
|
|
|
3,797
|
|
|
|
15,040
|
|
|
|
15,911
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in comparable coffeehouse sales(3)
|
|
|
(2
|
)%
|
|
|
(4
|
)%
|
|
|
0
|
%
|
|
|
(1
|
)%
|
|
|
6
|
%
|
Company-Operated coffeehouse operating weeks
|
|
|
21,918
|
|
|
|
21,810
|
|
|
|
22,814
|
|
|
|
21,110
|
|
|
|
17,133
|
|
Company-Operated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of year
|
|
|
414
|
|
|
|
432
|
|
|
|
440
|
|
|
|
386
|
|
|
|
304
|
|
Coffeehouses opened during the year
|
|
|
0
|
|
|
|
7
|
|
|
|
20
|
|
|
|
60
|
|
|
|
86
|
|
Coffeehouses closed during the year
|
|
|
(1
|
)
|
|
|
(25
|
)
|
|
|
(28
|
)
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company-Operated
|
|
|
413
|
|
|
|
414
|
|
|
|
432
|
|
|
|
440
|
|
|
|
386
|
|
Franchised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at beginning of year
|
|
|
97
|
|
|
|
52
|
|
|
|
24
|
|
|
|
9
|
|
|
|
2
|
|
Coffeehouses opened during the year
|
|
|
28
|
|
|
|
45
|
|
|
|
28
|
|
|
|
20
|
|
|
|
7
|
|
Coffeehouses closed during the year
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffeehouses open at end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Franchised
|
|
|
121
|
|
|
|
97
|
|
|
|
52
|
|
|
|
24
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coffeehouses open at end of year
|
|
|
534
|
|
|
|
511
|
|
|
|
484
|
|
|
|
464
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2010
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,578
|
|
|
$
|
11,060
|
|
|
$
|
9,886
|
|
|
$
|
14,752
|
|
|
$
|
33,846
|
|
Total assets
|
|
|
93,727
|
|
|
|
89,572
|
|
|
|
111,840
|
|
|
|
136,308
|
|
|
|
147,960
|
|
Total notes payable and revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(76,341
|
)
|
|
|
(81,479
|
)
|
|
|
(65,137
|
)
|
|
|
(33,944
|
)
|
|
|
(24,885
|
)
|
Total equity(4)
|
|
|
50,776
|
|
|
|
44,008
|
|
|
|
59,433
|
|
|
|
88,561
|
|
|
|
97,064
|
|
|
|
|
(1) |
|
In March 2005, the FASB issued accounting guidance that requires
the recognition of a liability for the fair value of a
legally-required conditional asset retirement obligation when
incurred, if the liabilitys fair value can be reasonably
estimated. That guidance also clarifies when an entity would
have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The Company is required
to record an asset and a corresponding liability for the present
value of the estimated asset retirement obligation associated
with the fixed assets and leasehold improvements at some of our
coffeehouse locations. The asset is depreciated over the life of
the corresponding lease while the liability accretes to the
amount of the estimated retirement obligation. The new
accounting guidance was effective for fiscal years ending after
December 15, 2005 and was adopted on October 3, 2005
with a $0.4 million cumulative effect of accounting change
(net of tax) recorded in the Companys results of
operations. This charge is a combination of depreciation and
accretion expense. |
|
(2) |
|
EBITDA and Adjusted EBITDA are supplemental non-GAAP financial
measures. EBITDA is equal to net income (loss) attributable to
Caribou Coffee Company, Inc. excluding: (a) interest
expense; (b) interest income; (c) depreciation and
amortization; and (d) income taxes. Our definition of
Adjusted EBITDA is different from EBITDA because we further
adjust net income attributable to Caribou Coffee Company, Inc.
for: (a) a one-time compensation charge associated with
amending the terms of our Chief Executive Officers
employment agreement; and (b) a one-time recognition of
derivative income associated with the decrease in fair value of
the IPO related underwriters over-allotment
option. For a description of our use of EBITDA and Adjusted
EBITDA and a reconciliation of net income (loss) attributable to
Caribou Coffee Company, Inc. to these non-GAAP financial
measures, see the discussion and related table below. |
|
(3) |
|
Percentage change in comparable coffeehouse 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 sales calculations. |
|
(4) |
|
In December 2007, the FASB issued guidance establishing new
standards that govern the accounting for and reporting of
noncontrolling interests in partially owned subsidiaries. The
Company adopted these accounting rules on December 29, 2008
and has accordingly retroactively applied the presentation and
disclosure requirements for the existing noncontrolling interest
for all periods presented by including noncontrolling interest
as a component of total equity. |
|
(5) |
|
The Companys fiscal year ends on the Sunday closest to
December 31. Fiscal year 2009 includes 53 weeks. All
other fiscal years presented include 52 weeks. |
We believe EBITDA and Adjusted EBITDA are useful to investors in
evaluating our operating performance for the following reasons:
|
|
|
|
|
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 208 company-operated coffeehouses,
from the beginning of fiscal 2003 through 2009. As a result, we
believe depreciation expense is disproportionately large when
compared to the sales from a significant percentage of
|
14
|
|
|
|
|
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. Additionally, depreciation and amortization is impacted
by accelerated depreciation from asset impairments.
Consequently, we believe that adjusting for depreciation and
amortization is useful for evaluating the operating performance
of our coffeehouses.
|
|
|
|
|
|
In June 2005, we recorded a one-time compensation charge of
$1.7 million in connection with amending the terms of the
employment agreement with our former chief executive officer. We
believe that it is useful to exclude this expense from Adjusted
EBITDA because it was non-recurring and was unrelated to our
operations.
|
|
|
|
In connection with our initial public offering
(IPO), we granted the underwriters an option to
purchase 803,700 shares of our common stock at $14 per
share for 30 days beginning on September 28, 2005 (the
grant date). Since this option extended beyond the
closing of the IPO, the option represented a call option that
met the definition of a derivative. Accordingly, the call option
was separately accounted for at fair value with the change in
fair value between the grant date and October 2, 2005
recorded as other income. We used the Black-Scholes valuation
model to determine the fair value of the call option at the
grant date and at October 2, 2005 using the following
assumptions: 50% volatility factor, 30 day life and risk
free interest rate of 3.43%. At September 28, 2005, we
recorded a liability of $0.7 million with a corresponding
decrease to additional paid in capital to record the fair value
of the call option on such date. The fair value of the call
option aggregated less than $0.1million on October 2, 2005
and we recorded the decrease in such fair value aggregating
$0.6 million as other income in the statement of operations
for the thirteen-week period ended October 2, 2005. The
underwriters did not exercise their option and it expired on
October 28, 2005. We believe that it is useful to exclude
this expense from Adjusted EBITDA because it was non-recurring
and was unrelated to our operations.
|
Our management uses EBITDA and Adjusted EBITDA:
|
|
|
|
|
as measurements of operating performance because they assist us
in comparing our operating performance on a consistent basis as
they remove the impact of items not directly resulting from our
coffeehouse operations;
|
|
|
|
for planning purposes, including the preparation of our internal
annual operating budget;
|
|
|
|
to establish targets for certain management compensation
matters; and
|
|
|
|
to evaluate our capacity to incur and service debt, fund capital
expenditures and expand our business.
|
EBITDA and Adjusted EBITDA as calculated by us are not
necessarily comparable to similarly titled measures used by
other companies. In addition, EBITDA and Adjusted EBITDA:
(a) do not represent net income or cash flows from
operating activities as defined by GAAP; (b) are not
necessarily indicative of cash available to fund our cash flow
needs; and (c) should not be considered as alternatives to
net income, operating income, cash flows from operating
activities or our other financial information as determined
under GAAP.
We prepare Adjusted EBITDA by adjusting EBITDA to eliminate the
impact of a number of items that we do not consider indicative
of our core operating performance. You are encouraged to
evaluate each adjustment and the reasons we consider them
appropriate for supplemental analysis. As an analytical tool,
Adjusted EBITDA is subject to all of the limitations applicable
to EBITDA. In addition, in evaluating Adjusted EBITDA, you
should be aware that in the future we might incur expenses
similar to the adjustments in this presentation. Our
presentation of Adjusted EBITDA should not be construed as an
implication that our future results will be unaffected by
unusual or non-recurring items.
15
The table below reconciles net income (loss) attributable to
Caribou Coffee Company, Inc. to EBITDA and Adjusted EBITDA for
the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2010
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Caribou Coffee Company,
Inc.
|
|
$
|
5,138
|
|
|
$
|
(16,342
|
)
|
|
$
|
(30,663
|
)
|
|
$
|
(9,059
|
)
|
|
$
|
(4,905
|
)
|
Interest expense
|
|
|
261
|
|
|
|
810
|
|
|
|
576
|
|
|
|
695
|
|
|
|
1,602
|
|
Interest income
|
|
|
(26
|
)
|
|
|
(25
|
)
|
|
|
(181
|
)
|
|
|
(554
|
)
|
|
|
(266
|
)
|
Depreciation and amortization(1)
|
|
|
16,180
|
|
|
|
27,139
|
|
|
|
34,362
|
|
|
|
23,645
|
|
|
|
18,284
|
|
Provision (benefit) for income taxes
|
|
|
(246
|
)
|
|
|
36
|
|
|
|
(297
|
)
|
|
|
313
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
21,307
|
|
|
|
11,618
|
|
|
|
3,797
|
|
|
|
15,040
|
|
|
|
14,796
|
|
Derivative income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(623
|
)
|
Amendment of employment agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
21,307
|
|
|
$
|
11,618
|
|
|
$
|
3,797
|
|
|
$
|
15,040
|
|
|
$
|
15,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with the
consolidated financial statements and related notes that appear
elsewhere in this report. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of
various factors, including those discussed below and elsewhere
in this report, particularly under the heading Risk
Factors.
Overview
We are the second largest company-operated premium coffeehouse
operator in the United States based on the number of
coffeehouses. As of January 3, 2010, we had 534 retail
locations, including 121 franchised. Our coffeehouses are
located in 20 states and the District of Columbia and two
international markets. Our coffeehouses aspire to be the
community place loved by our guests as we strive to provide them
with an extraordinary experience that makes their day better. We
source the highest-quality coffees in the world and our skilled
roast masters personally oversee the craft roasting of every
single batch to bring out the best in every bean. We also
provide the highest quality handcrafted beverages, foods and
coffee lifestyle items. We deliver our guest experience with our
unique blend of expertise, fun and authentic human connection in
a comfortable and welcoming coffeehouse environment. We will
continue our efforts to increase our comparable coffeehouse
sales, including increasing our brand awareness through
marketing efforts and introducing new products. As our
comparable coffeehouse sales increase, we expect our operating
margins at those coffeehouses to improve as we expect to have a
greater ability to leverage our operating structure. We intend
to continue strategically expanding our coffeehouse locations
predominately in our existing markets. During fiscal year 2009,
we opened 28 new coffeehouses and licensed locations.
In addition, our commercial segment sells our products to
grocery stores, mass merchandisers, club stores, office coffee
and foodservice providers, hotels, entertainment venues and
other commercial customers. During our fiscal year ended
January 3, 2010 the commercial segment experienced sales
growth of 54% compared to the prior fiscal year. Our growth
strategy for the commercial segment is to continue to build our
relationships with existing and add new points of distribution
for our premium whole bean and ground coffee. In addition, we
will continue to
16
leverage our successes from selling our blended coffees and
licensing our brand to Keurig, Inc. for sale and use in its
K-Cup line
of business.
Our goal is to expand into a nationally recognized premium
coffee branded company in the United States by opening new
company-operated coffeehouses, partnering with qualified
developers to open franchised coffeehouses, while adding select
international locations through franchising, and expanding our
points of distribution within our commercial segment.
Critical
Accounting Policies
Our consolidated financial statements and the related notes
contain information that is pertinent to managements
discussion and analysis. The preparation of financial statements
in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities. Our actual results might, under different
assumptions and conditions, differ from our estimates. We
believe the following critical accounting policies are
significant or involve additional management judgment due to the
sensitivity of the methods, assumptions, and estimates necessary
in determining the related asset and liability amounts.
Long-lived assets. Management uses judgment
regarding the future operating and disposition plans for
marginally performing assets and estimates of expected
realizable values for assets to be sold. Actual results may
differ from those estimates. We periodically evaluate possible
impairment at the individual coffeehouse level, and record an
impairment loss whenever we determine impairment factors are
present. We also periodically evaluate the criteria we use as an
indication of a coffeehouse impairment. We consider a history of
coffeehouse operating losses to be a primary indicator of
potential impairment for individual coffeehouse locations. A
lack of improvement at the coffeehouses we are monitoring, or
deteriorating results at other coffeehouses, could result in
additional impairment charges. During fiscal year 2008, the
assets related to thirty-seven coffeehouses were impaired, of
which we recorded charges of approximately $7.5 million. We
had no coffeehouse impairments during fiscal 2009.
Stock-based compensation. We maintain
stock-based compensation plans, which provide for the granting
of non-qualified stock options and restricted stock to officers
and key employees and certain non-employees. Stock options are
granted with strike prices equal to the fair market value of our
common stock as of the dates of grant. Options vest generally
over four years and expire ten years from the grant date. We
recognize expense related to the fair value of our stock-based
compensation awards. The estimated grant date fair value of each
stock-based award is recognized as an expense on a straight line
basis over the requisite service period (generally the vesting
period). The estimated fair value of each option is calculated
using the Black-Scholes option-pricing model. The fair value of
each restricted stock award is calculated based on the trading
value of the underlying stock on the grant date. Stock-based
compensation expense for fiscal year 2009 and 2008, totaled
approximately $1.0 million and $0.8 million,
respectively.
Lease accounting. We enter into operating
leases for all of our coffeehouse locations. Certain of our
leases provide for scheduled rent increases during the lease
terms or for rental payments commencing on a date that is other
than the date we take possession. We recognize rent expense on
leases for coffeehouse and office buildings on a straight line
basis over the initial lease term and commencing on the date we
take possession. We use the date of initial possession
(regardless of when rent payments commence) to begin recognition
of rent expense, which is generally the date we begin to add
leasehold improvements to ready the site for its intended use.
We record landlord allowances as deferred rent in other
long-term liabilities and accrued expenses on our consolidated
balance sheets and amortize such amounts as a component of cost
of sales and related occupancy costs on a straight-line basis
over the term of the related leases.
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.
17
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. 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
$30.4 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. 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.
Fiscal
Periods
Our fiscal year ends on the Sunday falling nearest to
December 31. Fiscal years 2009 and 2008 include 53 and
52 weeks, respectively.
Consolidated
Results of Operations
The following discussion on results of operations should be read
in conjunction with Item 6. Selected Consolidated
Financial Data, the consolidated financial statements and
accompanying notes and the other financial data included
elsewhere in this report.
Fiscal
Year 2009 Compared to Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
Retail Coffeehouses
|
|
|
86.5
|
%
|
|
|
90.2
|
%
|
Commercial and Franchise
|
|
|
13.5
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
|
|
|
100.0
|
|
Costs of sales and related occupancy costs
|
|
|
44.1
|
|
|
|
43.2
|
|
Operating expenses
|
|
|
37.9
|
|
|
|
39.5
|
|
Opening expenses
|
|
|
0.0
|
|
|
|
0.1
|
|
Depreciation and amortization
|
|
|
5.4
|
|
|
|
9.8
|
|
General and administrative expenses
|
|
|
10.3
|
|
|
|
11.5
|
|
Closing expense and disposal of assets
|
|
|
0.1
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
2.1
|
|
|
|
(6.1
|
)
|
Interest income
|
|
|
0.0
|
|
|
|
0.0
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
2.0
|
|
|
|
(6.4
|
)
|
Provision (benefit) for income taxes
|
|
|
(0.1
|
)
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
2.1
|
|
|
|
(6.4
|
)
|
Noncontrolling interest
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Caribou Coffee Company,
Inc.
|
|
|
2.0
|
%
|
|
|
(6.4
|
)%
|
|
|
|
|
|
|
|
|
|
18
Net
Sales
Net sales increased $8.6 million, or 3.4%, to
$262.5 million in fiscal 2009, from $253.9 million in
fiscal 2008. Approximately $5.1 million of this increase is
due to the extra week in the 2009 fiscal year. The remainder of
this increase is primarily attributable to an increase in
commercial sales. Comparable coffeehouse sales for fiscal year
2009 were down 2.3% when compared with fiscal year 2008.
Franchised sales are not included in the comparable coffeehouse
sales calculations. For fiscal 2009, Commercial and Franchise
sales increased $10.5 million, or 42.4%, as compared to
fiscal 2008. When adjusting for the extra week in the 2009
fiscal year, Commercial and Franchise sales increased
$9.7 million, or 39.0% This increase was largely due to
sales to existing and new commercial customers and to product
sales, franchise fees and royalties from the twenty-four net
franchised coffeehouses openings during the preceding twelve
months.
Costs
and Expenses
Cost of sales and related occupancy
costs. Cost of sales and related occupancy costs
increased $6.3 million, or 5.7%, to $115.9 million in
fiscal year 2009, from $109.6 million in fiscal year 2008.
This increase is primarily attributable to the increased cost of
sales associated with the increased product sales in our
commercial and franchise segments. Commercial and Franchise
sales generally have a higher cost of sales and related
occupancy costs rate than company-operated coffeehouses. As a
percentage of net sales, cost of sales and related occupancy
costs increased to 44.1% in fiscal year 2009, from 43.2% in
fiscal year 2008. The increase in cost of sales and related
occupancy costs as a percentage of net sales was primarily due
to the high growth in Commercial and Franchise sales which
changed the overall mix of sales.
Operating expenses. Operating expenses
decreased $0.8 million, or 0.8%, to $99.5 million in
fiscal year 2009, from $100.3 million in fiscal year 2008.
As a percentage of total net sales, operating expenses decreased
to 37.9% in fiscal year 2009 from 39.5% in fiscal year 2008. The
decrease in operating expenses as a percentage of net sales was
primarily due to lower labor expense as a percent of net sales
at company-operated coffeehouses. We also were able to leverage
the increase in sales in our franchise and commercial segments
with relatively flat operating expenses in those segments
compared to 2008. During 2009, the company increased its
investment in building its brand through marketing activities
and increased its investment in product development areas.
Opening expenses. Opening expenses were
minimal in fiscal year 2009, down from $0.2 million in
fiscal year 2008. We opened 7 new company-operated coffeehouses
in fiscal year 2008 and did not open any new company-operated
coffeehouses in fiscal year 2009.
Depreciation and amortization. Depreciation
and amortization decreased $10.8 million, or 43.4%, to
$14.1 million in fiscal year 2009, from $24.9 million
in fiscal year 2008. This decrease was largely due to the
accelerated depreciation in 2007 associated with coffeehouse
asset impairments in fiscal 2008. Coffeehouse depreciation and
amortization includes $7.5 million in accelerated
depreciation associated with coffeehouse asset impairments in
fiscal 2008. We had no impairments recorded in fiscal year 2009.
Additionally fiscal year 2009 depreciation and amortization
decreased due to a lower depreciable asset base as a result of
accelerated depreciation associated with coffeehouse asset
impairments recorded prior to fiscal year 2009 and reduced
capital spending in fiscal years 2009 and 2008.
General and administrative expenses. General
and administrative expenses decreased $2.0 million, or
6.9%, to $27.1 million in fiscal 2009 from
$29.1 million in fiscal 2008. As a percentage of total net
sales, general and administrative expenses decreased to 10.3% of
total net sales in fiscal year 2009, from 11.5% of total net
sales in fiscal year 2008. This decrease is primarily related to
severance costs of $1.7 million recorded in fiscal year
2008 resulting from management changes as well as cost
efficiencies realized during fiscal year 2009 from realigning
our corporate and field administrative functional resources
while investing in marketing and product management resources.
Closing expenses and disposal of
assets. Closing expenses and disposal of assets
decreased $4.8 million to $0.3 million in fiscal year
2009 from $5.1 million in fiscal year 2008. The decrease in
closing expenses and disposal of assets is primarily
attributable to asset write-off and lease termination costs
associated with the closing of 25 underperforming
company-operated coffeehouses in fiscal year 2008 compared to
closing one company-operated
19
coffeehouse in fiscal year 2009. Expenses associated with the
closings are variable from coffeehouse to coffeehouse and are
dependent upon the amount of time left on the lease and the
remaining carrying value of assets associated with each
coffeehouse.
Interest expense. Interest expense decreased
$0.5 million to $0.2 million in fiscal year 2009 from
$0.8 million in fiscal year 2008. During 2009, the Company
did not draw on its revolving credit facility and the interest
expense is primarily related to credit facility acquisition cost
amortization and on-going commitment fees. During fiscal year
2008, the Company periodically had borrowings under its
revolving credit facility.
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 fiscal 2009 and 2008.
Retail
Coffeehouses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
% Change
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
|
|
As a% of coffeehouse sales
|
|
|
Coffeehouse sales
|
|
$
|
227,223
|
|
|
$
|
229,092
|
|
|
|
(0.8
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
93,027
|
|
|
|
94,568
|
|
|
|
(1.6
|
)
|
|
|
40.9
|
|
|
|
41.3
|
|
Operating expenses
|
|
|
94,569
|
|
|
|
96,535
|
|
|
|
(2.0
|
)
|
|
|
41.6
|
|
|
|
42.1
|
|
Opening expenses
|
|
|
0
|
|
|
|
181
|
|
|
|
(100.0
|
)
|
|
|
0.0
|
|
|
|
0.1
|
|
Depreciation and amortization
|
|
|
14,053
|
|
|
|
24,899
|
|
|
|
(43.6
|
)
|
|
|
6.2
|
|
|
|
10.9
|
|
General and administrative expenses
|
|
|
7,994
|
|
|
|
9,564
|
|
|
|
(16.4
|
)
|
|
|
3.5
|
|
|
|
4.2
|
|
Closing expense and disposal of assets
|
|
|
357
|
|
|
|
5,016
|
|
|
|
(92.9
|
)
|
|
|
0.2
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
$
|
17,224
|
|
|
$
|
(1,671
|
)
|
|
|
(1,130.8
|
)%
|
|
|
7.6
|
%
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The retail segment operates company-operated coffeehouses. As of
January 3, 2010, there were 413 company-operated
coffeehouses in 16 states and the District of Columbia.
Retail
Coffeehouse sales
Coffeehouse sales decreased $1.9 million, or 0.8%, to
$227.2 million in fiscal year 2009 from $229.1 million
in fiscal year 2008. This decrease is primarily attributable to
the 2.3% decline in comparable coffeehouse sales offset by the
additional week in the 2009 fiscal calendar.
Costs
and Expenses
Cost of sales and related occupancy
costs. Cost of sales and related occupancy costs
decreased $1.5 million, or 1.6%, to $93.0 million in
fiscal year 2009, from $94.6 million in fiscal year 2008.
As a percentage of total net sales, cost of sales and related
occupancy costs decreased to 40.9% in fiscal year 2009, from
41.3% in fiscal year 2008. The decrease in cost of sales and
related occupancy costs as a percentage of coffeehouse sales was
primarily due to cost management in 2009 and the closing of
underperforming coffeehouses in fiscal year 2008.
Operating expenses. Operating expenses
decreased $2.0 million, or 2.0%, to $94.6 million in
fiscal year 2009, from $96.5 million in fiscal year 2008.
As a percentage of total net sales, operating expenses decreased
to 41.6% in fiscal year 2009 from 42.1% in fiscal year 2008. The
decrease in operating expenses as a percentage of
20
coffeehouse sales was primarily due to better leverage of labor
expense in fiscal year 2009 while investing in brand building
and product development activities.
Opening expenses. Opening expenses were
$0.2 million in fiscal year 2008, related to 7 new
company-operated coffeehouses that were opened. There were no
company-operated coffeehouse openings in fiscal year 2009.
Depreciation and amortization. Depreciation
and amortization decreased $10.8 million, or 43.6%, to
$14.1 million in fiscal year 2009, from $24.9 million
in fiscal year 2008. As a percentage of coffeehouse sales,
coffeehouse depreciation and amortization decreased to 6.2% in
fiscal year 2009 from 10.9% in fiscal year 2008. This decrease
was due to accelerated depreciation associated with coffeehouse
asset impairments in fiscal year 2008 as well as a lower
depreciable asset base as a result of impairments recorded prior
to fiscal year 2009 and reduced capital spending in fiscal years
2009 and 2008. Coffeehouse depreciation and amortization
includes $7.5 million in accelerated depreciation
associated with coffeehouse asset impairments in fiscal year
2008. There were no coffeehouse impairments recorded in fiscal
year 2009.
General and administrative expenses. General
and administrative expenses decreased $1.6 million, or
16.4%, to $8.0 million in fiscal year 2009 from
$9.6 million in fiscal 2008. As a percentage of coffeehouse
sales, general and administrative expenses decreased to 3.5% in
fiscal year 2009 from 4.2% in fiscal year 2008. The decrease was
largely due to the realignment of our operating structure
supporting our retail coffeehouse activities.
Closing expense and disposal of
assets. Closing expense and disposal of assets
decreased $4.7 million to $0.4 million in fiscal year
2009 from $5.0 million in fiscal year 2008. The decrease in
closing expense and disposal of assets is primarily attributable
to asset write-offs and lease termination costs associated with
the closing of 25 underperforming company-operated coffeehouses
in fiscal year 2008 compared to one company-operated coffeehouse
closure in fiscal year 2009. Expenses associated with the
closings are variable from coffeehouse to coffeehouse and are
dependent upon the amount of time left on the lease and the
remaining carrying value of assets associated with each
coffeehouse.
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
% Change
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
|
|
As a% of commercial sales
|
|
|
Sales
|
|
$
|
27,577
|
|
|
$
|
17,927
|
|
|
|
53.8
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
18,515
|
|
|
|
11,296
|
|
|
|
63.9
|
|
|
|
67.1
|
|
|
|
63.0
|
|
Operating expenses
|
|
|
3,819
|
|
|
|
2,258
|
|
|
|
69.1
|
|
|
|
13.8
|
|
|
|
12.6
|
|
Depreciation and amortization
|
|
|
44
|
|
|
|
32
|
|
|
|
37.5
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
5,199
|
|
|
$
|
4,341
|
|
|
|
19.8
|
%
|
|
|
18.9
|
%
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, Inc. for
sale and use in its K-Cup single serve line of business.
Sales
Sales increased $9.6 million, or 53.8%, to
$27.6 million in fiscal 2009 from $17.9 million in
fiscal 2008. This increase is primarily attributable to the
incremental sales to new and existing customers, primarily
grocery stores and Keurig, Inc.
Costs
and Expenses
Cost of sales and related occupancy
costs. Cost of sales and related occupancy costs
increased $7.2 million, or 63.9%, to $18.5 million in
fiscal year 2009, from $11.3 million in fiscal year 2008.
As a percentage of total net
21
sales, cost of sales and related occupancy costs increased to
67.1% in fiscal year 2009, from 63.0% in fiscal year 2008. The
increase was primarily due to incremental sales to new and
existing grocery customers and higher levels of trade discounts
to support the Caribou brand as we enter into new geographic
markets.
Operating expenses. Operating expenses
increased $1.5 million, or 69.1%, to $3.8 million in
fiscal year 2009, from $2.3 million in fiscal year 2008. As
a percentage of sales, operating expenses increased to 13.8% in
fiscal year 2009 from 12.6% in fiscal year 2008. The increase in
operating expenses was due to an increase in marketing expenses
to build the Caribou Coffee brand in new geographic markets.
Franchise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
% Change
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
|
|
As a% of franchise sales
|
|
|
Sales
|
|
$
|
7,738
|
|
|
$
|
6,880
|
|
|
|
12.5
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of sales and related occupancy costs
|
|
|
4,344
|
|
|
|
3,768
|
|
|
|
15.3
|
|
|
|
56.1
|
|
|
|
54.8
|
|
Operating expenses
|
|
|
1,110
|
|
|
|
1,516
|
|
|
|
(26.8
|
)
|
|
|
14.3
|
|
|
|
22.0
|
|
Opening expenses
|
|
|
24
|
|
|
|
49
|
|
|
|
(51.0
|
)
|
|
|
0.3
|
|
|
|
0.7
|
|
Depreciation and amortization
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
(266.7
|
)
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
2,255
|
|
|
$
|
1,550
|
|
|
|
45.5
|
%
|
|
|
29.1
|
%
|
|
|
22.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The franchise segment sells franchises and coffee related
products to operate Caribou Coffee branded coffeehouses to
domestic and international franchisees. As of January 3,
2010, there were 121 franchised coffeehouses in the U.S and
international markets.
Sales
Sales increased $0.8 million or 12.5% to $7.7 million
in fiscal 2009 from $6.9 in fiscal 2008. This increase is
primarily attributable to franchise fees, royalties and product
sales from the 28 new franchise coffeehouses opened during the
year.
Costs
and Expenses
Cost of sales and related occupancy
costs. Cost of sales and related occupancy costs
increased $0.6 million, or 15.3%, to $4.3 million in
fiscal year 2009, from $3.8 million in fiscal year 2008. As
a percentage of sales, cost of sales and related occupancy costs
increased to 56.1% in fiscal year 2009, from 54.8% in fiscal
year 2008. The increase in cost of sales and related occupancy
costs as a percentage of sales was primarily due to the revenue
mix, as product sales to our franchise partners became a larger
percentage of total franchise sales.
Operating expenses. Operating expenses
decreased $0.4 million, or 26.8%, to $1.1 million in
fiscal year 2009, from $1.5 million in fiscal year 2008. As
a percentage of sales, operating expenses decreased to 14.3% in
fiscal year 2009 from 22.0% in fiscal year 2008. The decrease in
operating expenses as a percentage of sales was primarily due to
leverage obtained on certain fixed segment expenses and a
decrease in administrative support costs.
Unallocated
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
% Change
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
|
|
As a% of total net sales
|
|
|
General and administrative expenses
|
|
$
|
19,151
|
|
|
$
|
19,581
|
|
|
|
2.2
|
%
|
|
|
7.3
|
%
|
|
|
7.7
|
%
|
Closing expense and disposal of assets
|
|
|
(14
|
)
|
|
|
97
|
|
|
|
(114.5
|
)
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(19,137
|
)
|
|
$
|
(19,678
|
)
|
|
|
(2.7
|
)%
|
|
|
(7.3
|
)%
|
|
|
(7.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
General and administrative
expenses. Unallocated general and administrative
expenses decreased $0.4 million, or 2.2%, to
$19.1 million in fiscal year 2009 from $19.6 million
in fiscal 2008. As a percentage of total net sales, unallocated
general and administrative expenses decreased to 7.3% of total
net sales in fiscal year 2009, from 7.7% of total net sales in
fiscal year 2008. The decrease is primarily due to severance
costs incurred in fiscal year 2008 resulting from management
changes as well as cost efficiencies realized during fiscal year
2009 from realigning corporate administrative functional
resources while investing in marketing and product management
resources.
Liquidity
and Capital Resources
Cash and cash equivalents as of January 3, 2010 were
$23.6 million, compared to cash and cash equivalents of
$11.1 million as of December 28, 2008. Our principal
requirements for cash are capital expenditures, coffeehouse
closing costs and funding operations. Capital expenditures
include the development costs related to the opening of new
coffeehouses, maintenance and remodeling of existing
coffeehouses, general and administrative expenditures for items
like management information systems and costs for expanding
production capacity to meet the growth demands of our business.
Coffeehouse closing costs include the cost of exiting a
coffeehouse location including costs to remove equipment and
signage and lease termination costs. Currently, our requirements
for capital have been funded through cash flow from operations.
For fiscal years 2009 and 2008, we generated cash flow from
operating activities of $15.6 million and
$7.0 million, respectively. The increase in the amount of
cash provided by operating activities during fiscal year 2009
was the result of higher EBITDA during fiscal year 2009 offset
by an increase in of $1.6 million in our working capital
needs predominately to fund the growth in our commercial
business.
A portion of our cash flow generated from operating activities
in each of the last two fiscal years has been invested in
capital expenditures. Total capital expenditures for fiscal
2009, were $3.0 million, compared to capital expenditures
of $5.9 million for fiscal 2008. We did not open any new
company-operated coffeehouses in fiscal year 2009. We opened 7
new company-operated coffeehouses in fiscal year 2008.
Net cash provided by financing activities was $0.1 million
for fiscal 2009 compared to $0.3 million used by financing
activities for fiscal 2008. As of fiscal year end 2009, we had
$9.0 million available under our revolving credit facility
and no amount outstanding.
On February 19, 2010, the Company entered into a new three
year credit facility. The amount available under the new
agreement is $25.0 million, consisting of
$15.0 million immediately available and an option to
increase the amount available by an additional $10.0 million
under terms to be mutually agreed. 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.
The Companys Board of Directors has authorized the Company
to repurchase up to $10 million of its outstanding ordinary
shares. Stock purchases may be made from time to time in open
market transactions depending upon market conditions. The
Company anticipates funding any repurchase of shares with
available cash on hand.
Our capital requirements include capital expenditures and
funding operations. Capital expenditures include the development
costs related to the opening of new coffeehouses, maintenance
and remodeling of existing coffeehouses, general and
administrative expenditures for items like management
information systems and costs for expanding production capacity
to meet growth objectives. Our future capital requirements and
the adequacy of available funds will depend on many factors,
including the pace of our retail coffeehouse expansion, growth
in our commercial segment and overall company operating
performance. We expect capital expenditures for fiscal 2010 to
be in the range of $15.0 to $20.0 million. We believe that
our current liquidity and cash flow from operations will provide
sufficient liquidity to fund our operations for at least
12 months.
New
Accounting Standards
Effective July 1, 2009, the Financial Accounting Standards
Boards (FASB) Accounting Standards
Codification (ASC) became the single official source
of authoritative, nongovernmental generally accepted accounting
principles (GAAP) in the United States. The
historical GAAP hierarchy was eliminated and the ASC became the
only level of authoritative GAAP, other than guidance issued by
the Securities and Exchange Commission. Our accounting policies
23
were not affected by the conversion to ASC. However, references
to specific accounting standards in the footnotes to our
consolidated financial statements have been changed to refer to
the appropriate section of ASC.
In September 2006, the FASB issued accounting guidance which
defines fair value, provides guidance for measuring fair value
in GAAP and expands disclosures about fair value measurements.
On December 31, 2007, we adopted these accounting rules for
financial assets and liabilities. We adopted the provisions
related to non-financial assets and liabilities on
December 29, 2008. The adoption of these accounting rules
did not have a material impact on our consolidated statement of
operations, cash flows or financial position.
In December 2007, the FASB issued guidance establishing new
standards that govern the accounting for and reporting of
noncontrolling interests in partially owned subsidiaries. We
adopted these accounting rules on December 29, 2008 and has
accordingly retroactively applied the presentation and
disclosure requirements for the existing noncontrolling interest
for all periods presented.
In March 2008, the FASB issued revised guidance requiring
enhanced disclosures about an entitys derivative
instruments and hedging activities. We adopted these accounting
rules on December 29, 2008. See Note 5 for the new
disclosures.
In May 2009, the FASB issued guidance intended to establish
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued.
Specifically, this standard sets forth the period after the
balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. This new accounting rule is effective for
fiscal years and interim periods ended after June 15, 2009.
We adopted this standard effective June 28, 2009. Our
subsequent events disclosures are included in our Notes to the
Consolidated Financial Statements in Note 20.
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. We will adopt this guidance in
its first annual and interim reporting periods beginning
January 4, 2010. We have not determined the impact that
this guidance may have on its financial statements.
Off-Balance
Sheet Arrangements
We lease retail coffeehouses, roasting and distribution
facilities and office space under operating leases expiring
through March 2021. Most lease agreements contain renewal
options and rent escalation clauses. Certain leases provide for
contingent rentals based upon gross sales. The average remaining
lease lives in our leased real estate portfolio is less than
five years and the aggregate minimum future rental payments
under these agreements as of January 3, 2010 are
approximately $101 million.
At January 3, 2010 we had fixed price inventory purchase
commitments, primarily for green coffee, aggregating
approximately $15.1 million. These commitments are for less
than one year.
Inflation
The primary inflationary factors affecting our business are
costs associated with coffee beans, dairy, freight, paper
products, real estate and labor costs. Many of our leases
require us to pay taxes, maintenance, repairs, insurance and
utilities, all of which are generally subject to inflationary
increases. We believe that inflation has not had a material
impact on our results of operations in recent years.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
24
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Caribou Coffee
Company, Inc. and Affiliates
We have audited the accompanying consolidated balance sheets of
Caribou Coffee Company, Inc. and Affiliates (A Majority Owned
Subsidiary of Caribou Holding Company Limited) (the Company) as
of January 3, 2010 and December 28, 2008, and the
related consolidated statements of operations,
shareholders equity, and cash flows for the years then
ended. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Caribou Coffee Company, Inc. and
Affiliates (A Majority Owned Subsidiary of Caribou Holding
Company Limited) as of January 3, 2010 and
December 28, 2008, and the consolidated results of their
operations and their cash flows for the years then ended, in
conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 3 to the consolidated financial
statements, in 2009 the Company changed its presentation of
noncontrolling interests with the adoption of FASB statement
No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment to ARB No. 51, (codified in FASB
Accounting Standards Codification (ASC) Topic 810,
Consolidation) effective December 29, 2008.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 26, 2010
25
Caribou
Coffee Company, Inc. and Affiliates
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
|
In thousands except
|
|
|
|
per share data
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,578
|
|
|
$
|
11,060
|
|
Accounts receivable (net of allowance for doubtful accounts of
$3 and $72 at January 3, 2010 and December 28, 2008,
respectively)
|
|
|
5,887
|
|
|
|
5,311
|
|
Other receivables (net of allowance for doubtful accounts of
$128 and $76 at January 3, 2010 and December 28, 2008,
respectively)
|
|
|
1,268
|
|
|
|
916
|
|
Income tax receivable
|
|
|
193
|
|
|
|
60
|
|
Inventories
|
|
|
13,278
|
|
|
|
10,218
|
|
Prepaid expenses and other current assets
|
|
|
1,546
|
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
45,750
|
|
|
|
28,446
|
|
Property and equipment, net of accumulated depreciation and
amortization
|
|
|
47,135
|
|
|
|
60,312
|
|
Restricted cash
|
|
|
605
|
|
|
|
327
|
|
Other assets
|
|
|
237
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
93,727
|
|
|
$
|
89,572
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
9,042
|
|
|
$
|
8,229
|
|
Accrued compensation
|
|
|
6,296
|
|
|
|
6,241
|
|
Accrued expenses
|
|
|
7,563
|
|
|
|
8,317
|
|
Deferred revenue
|
|
|
8,747
|
|
|
|
9,473
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
31,648
|
|
|
|
32,260
|
|
Asset retirement liability
|
|
|
1,120
|
|
|
|
1,035
|
|
Deferred rent liability
|
|
|
7,955
|
|
|
|
9,245
|
|
Deferred revenue
|
|
|
2,072
|
|
|
|
2,538
|
|
Income tax liability
|
|
|
156
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
Total long term liabilities
|
|
|
11,303
|
|
|
|
13,304
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Caribou Coffee Company, Inc. Shareholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.01, 20,000 shares authorized;
no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, par value $.01, 200,000 shares authorized;
19,814 and 19,371 shares issued and outstanding at
January 3, 2010 and December 28, 2008, respectively
|
|
|
198
|
|
|
|
194
|
|
Additional paid-in capital
|
|
|
126,770
|
|
|
|
125,222
|
|
Accumulated other comprehensive loss
|
|
|
(7
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(76,341
|
)
|
|
|
(81,479
|
)
|
|
|
|
|
|
|
|
|
|
Total Caribou Coffee Company, Inc. shareholders equity
|
|
|
50,620
|
|
|
|
43,937
|
|
Noncontrolling interest
|
|
|
156
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
50,776
|
|
|
|
44,008
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
93,727
|
|
|
$
|
89,572
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
26
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
|
In thousands except per share data
|
|
|
Coffeehouse sales, net
|
|
$
|
227,224
|
|
|
$
|
229,092
|
|
Commercial and franchise sales, net
|
|
|
35,315
|
|
|
|
24,807
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
262,539
|
|
|
|
253,899
|
|
Cost of sales and related occupancy costs
|
|
|
115,886
|
|
|
|
109,632
|
|
Operating expenses
|
|
|
99,498
|
|
|
|
100,309
|
|
Opening expenses
|
|
|
24
|
|
|
|
230
|
|
Depreciation and amortization
|
|
|
14,102
|
|
|
|
24,928
|
|
General and administrative expenses
|
|
|
27,145
|
|
|
|
29,145
|
|
Closing expense and disposal of assets
|
|
|
343
|
|
|
|
5,113
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,541
|
|
|
|
(15,458
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
26
|
|
|
|
25
|
|
Interest expense
|
|
|
(261
|
)
|
|
|
(810
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before (benefit) provision for income taxes
|
|
|
5,306
|
|
|
|
(16,243
|
)
|
(Benefit) provision for income taxes
|
|
|
(246
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,552
|
|
|
|
(16,279
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
414
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Caribou Coffee Company,
Inc.
|
|
$
|
5,138
|
|
|
$
|
(16,342
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to Caribou Coffee Company,
Inc. common shareholders per share
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) attributable to Caribou Coffee
Company, Inc. common shareholders per share
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares outstanding
|
|
|
19,443
|
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares outstanding
|
|
|
20,000
|
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-In
|
|
|
Noncontrolling
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Interest
|
|
|
Loss
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
In thousands
|
|
|
Balance, December 30, 2007
|
|
|
19,371
|
|
|
$
|
194
|
|
|
$
|
124,232
|
|
|
$
|
144
|
|
|
$
|
|
|
|
$
|
(65,137
|
)
|
|
$
|
59,433
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
(16,342
|
)
|
|
|
(16,279
|
)
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
753
|
|
Shareholder contribution
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
Distribution of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2008
|
|
|
19,371
|
|
|
|
194
|
|
|
|
125,222
|
|
|
|
71
|
|
|
|
|
|
|
|
(81,479
|
)
|
|
|
44,008
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414
|
|
|
|
|
|
|
|
5,138
|
|
|
|
5,552
|
|
Changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
1,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,049
|
|
Options exercised
|
|
|
105
|
|
|
|
1
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588
|
|
Restricted shares issued
|
|
|
338
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
Purchase of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 3, 2010
|
|
|
19,814
|
|
|
$
|
198
|
|
|
$
|
126,770
|
|
|
$
|
156
|
|
|
$
|
(7
|
)
|
|
$
|
(76,341
|
)
|
|
$
|
50,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
28
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
|
In thousands
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Caribou Coffee Company,
Inc.
|
|
$
|
5,138
|
|
|
$
|
(16,342
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,180
|
|
|
|
27,139
|
|
Amortization of deferred financing fees
|
|
|
141
|
|
|
|
459
|
|
Noncontrolling interest
|
|
|
414
|
|
|
|
63
|
|
Provision for closing expense and asset disposals
|
|
|
218
|
|
|
|
665
|
|
Shareholder contribution
|
|
|
|
|
|
|
237
|
|
Stock-based compensation
|
|
|
1,049
|
|
|
|
753
|
|
Non cash accretion expense
|
|
|
85
|
|
|
|
46
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable and other receivables
|
|
|
(1,061
|
)
|
|
|
(1,461
|
)
|
Inventories
|
|
|
(3,060
|
)
|
|
|
11
|
|
Prepaid expenses and other assets
|
|
|
(525
|
)
|
|
|
978
|
|
Accounts payable
|
|
|
813
|
|
|
|
(1,421
|
)
|
Accrued expenses and other liabilities
|
|
|
(2,606
|
)
|
|
|
(3,275
|
)
|
Deferred revenue
|
|
|
(1,192
|
)
|
|
|
(831
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
15,594
|
|
|
|
7,021
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(2,969
|
)
|
|
|
(5,933
|
)
|
Proceeds from the disposal of property
|
|
|
28
|
|
|
|
253
|
|
(Increase) Decrease in restricted cash
|
|
|
(278
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,219
|
)
|
|
|
(5,596
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Distribution of noncontrolling interest
|
|
|
(309
|
)
|
|
|
(136
|
)
|
Purchase of noncontrolling interest
|
|
|
(105
|
)
|
|
|
|
|
Issuance of common stock
|
|
|
588
|
|
|
|
|
|
Payment of debt financing fees
|
|
|
(31
|
)
|
|
|
(115
|
)
|
Proceeds from short term borrowings
|
|
|
|
|
|
|
3,000
|
|
Repayments of short term borrowings
|
|
|
|
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
143
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
12,518
|
|
|
|
1,174
|
|
Cash and cash equivalents at beginning of year
|
|
|
11,060
|
|
|
|
9,886
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
23,578
|
|
|
$
|
11,060
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
130
|
|
|
$
|
351
|
|
Income taxes
|
|
|
225
|
|
|
|
(12
|
)
|
Accrual for leasehold improvements, furniture, and equipment
|
|
$
|
81
|
|
|
$
|
4
|
|
See accompanying notes.
29
|
|
1.
|
Business
and Summary of Significant Accounting Policies
|
Description
of Business
Caribou Coffee Company, Inc. and Affiliates (Caribou
or the Company) is a specialty retailer of
high-quality coffees, teas, bakery goods, and related
merchandise. The Company is a majority-owned subsidiary of
Caribou Holding Company Limited. As of January 3, 2010, the
Company had 534 coffeehouses, including 121 franchised
locations, located in Minnesota, Illinois, Ohio, Michigan, North
Carolina, Georgia, Maryland, Wisconsin, Virginia, Pennsylvania,
Iowa, Colorado, North Dakota, South Dakota, Kansas, Missouri,
Nevada, Indiana, Nebraska, Washington, D.C and international
markets.
Principles
of Consolidation
The Companys consolidated financial statements include the
accounts of Caribou Coffee Company, Inc., affiliates that it
controls and a third party finance company (which exists for
purposes of the Companys revolving credit facility) where
the Company is the primary beneficiary in a variable interest
entity. The affiliates are Caribou MSP Airport, a partnership in
which the Company owns a 49% interest and that operates six
coffeehouses, and Caribou Coffee Development Company, Inc., a
licensor of Caribou Coffee branded coffeehouses. The Company
controls the daily operations of Caribou Coffee Development
Company, Inc. and accordingly consolidates their results of
operations. The Company provided a loan to its partner in
Caribou MSP Airport for all of the partners equity
contribution to the venture. Consequently, the Company bears all
the risk of loss but does not control all decisions that may
have a significant effect on the success of the venture.
Therefore, the Company consolidates the Caribou MSP Airport, as
it is the primary beneficiary in this variable interest entity.
Prior to December 31, 2008, the Company owned a 50%
interest in Caribou Ventures, L.L.C (Ventures), a
partnership that operated one coffeehouse. On December 31,
2008, the Company purchased the outstanding 50% interest in
Ventures for $0.1 million. Prior to December 31, 2008,
because the Company controlled the daily operations of Ventures,
the results of operations were consolidated. All material
intercompany balances and transactions between Caribou Coffee
Company, Inc. and Caribou Ventures, L.L.C., Caribou MSP Airport,
Caribou Coffee Development Company, Inc. and the third party
finance company have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the
U.S. (GAAP) requires management to make
estimates and assumptions that affect the amounts reported in
the accompanying consolidated financial statements. Actual
results may differ from those estimates, and such differences
may be material to the consolidated financial statements.
Fiscal
Year End
The Companys fiscal year ends on the Sunday closest to
December 31. Fiscal years 2009 and 2008 include 53 and
52 weeks, respectively.
Cash
and Cash Equivalents
Cash and cash equivalents include all highly liquid investments
with a maturity of three months or less when purchased.
Fair
Value of Financial Instruments
The fair values of the Companys financial instruments,
which include cash and cash equivalents, approximate their
carrying values. The Company places its cash with high quality
FDIC-insured financial institutions. Credit losses have not been
significant.
30
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market.
Property
and Equipment
Property and equipment is stated on the basis of cost less
accumulated depreciation. The Company capitalizes direct costs
associated with the site selection and construction of new
coffeehouses, including direct internal payroll and payroll
related costs. The Company did not have any of these capitalized
costs during the year ended January 3, 2010 and capitalized
approximately $0.2 million of such costs during the year
ended December 28, 2008. These costs are amortized over the
lease terms of the underlying leases. Depreciation of property
and equipment is computed using the straight-line method over
the assets estimated useful lives of two to 20 years.
Leasehold improvements are amortized using the straight-line
method over the shorter of their estimated useful lives or the
related initial lease term, excluding renewal option terms,
which is generally five to ten years, unless it is reasonably
assured that the renewal option term is going to be exercised.
The Company has certain asset retirement obligations, primarily
associated with leasehold improvements, whereby at the end of a
lease, the Company is contractually obligated to remove such
leasehold improvements in order to comply with the lease
agreement. At the inception of a lease with such conditions, the
Company records an asset retirement obligation liability and a
corresponding capital asset in an amount equal to the estimated
fair value of the obligation. The liability is estimated based
on a number of assumptions requiring managements judgment,
including store closing costs and discount rates, and is
accreted to its projected future value over time. The
capitalized asset is depreciated using the estimated useful life
for depreciation of leasehold improvement assets. Upon
satisfaction of the asset retirement obligation conditions, any
difference between the recorded asset retirement obligation
liability and the actual retirement costs incurred is recognized
as an operating gain or loss in the Companys financial
statements in the period incurred.
Total asset retirement obligation expense in fiscal 2009 and
fiscal 2008 was less than $0.1 million and
$0.2 million, respectively, and is included in costs of
sales and related occupancy costs and depreciation and
amortization. As of January 3, 2010 and December 28,
2008, the Companys net asset retirement obligation asset
included in property, plant and equipment, net of accumulated
depreciation and amortization, was $0.0 million and
$0.1 million, respectively, while the Companys net
asset retirement obligation liability included in asset
retirement liability was $1.1 million and
$1.0 million, respectively.
Deferred
Financing Fees
The Company capitalized the costs incurred in acquiring its
revolving credit facility and included the costs as a component
of other assets. The costs are being amortized over the life of
the agreement on a straight-line basis.
Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Stock
Compensation
The Company maintains stock option plans, which provide for the
granting of non-qualified stock options to officers and key
employees and certain non-employees. Stock options have been
granted at exercise prices equal to
31
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the fair market value of the Companys common stock as of
the dates of grant. Options vest generally over four years and
expire ten years from the grant date.
The Company recognizes expense related to the fair value of our
stock-based compensation awards. The estimated grant date fair
value of each stock-based award is recognized in income on a
straight line basis over the requisite service period (generally
the vesting period). The estimated fair value of stock options
are calculated using the Black-Scholes option-pricing model. The
estimated fair value of restricted stock is calculated using the
trading value of the underlying stock on the date of the grant.
Stock-based compensation expense for fiscal years 2009 and 2008,
totaled approximately $1.0 million and $0.8 million,
respectively.
Coffeehouse
Preopening and Closing Expenses
Costs incurred in connection with
start-up and
promotion of new coffeehouse openings are expensed as incurred.
When a coffeehouse is closed, the remaining carrying amount of
property and equipment, net of expected recovery value, is
charged to operations. For coffeehouses under operating lease
agreements, the estimated liability under the lease is also
accrued.
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
expected to be remitted to various tax jurisdictions.
Accordingly, sales taxes have no effect on the Companys
reported net sales in the accompanying statements of operations.
Revenue from the sale of products to commercial, franchise or
on-line customers is recognized when ownership and price risk of
the products are legally transferred to the customer, which is
generally upon the shipment of goods. Revenues include any
applicable shipping and handling costs invoiced to the customer,
and the expense of such shipping and handling costs is included
in cost of sales.
The Company sells stored value cards of various denominations.
Cash receipts related to stored value card sales are deferred
when initially received and revenue is recognized when the card
is redeemed and the related products are delivered to the
customer. Such amounts are classified as a current liability on
the Companys consolidated balance sheets. The Company will
honor all stored value cards presented for payment; however, the
Company has determined that the likelihood of redemption is
remote for certain card balances due to long periods of
inactivity. In these circumstances, to the extent management
determines there is no requirement for remitting balances to
government agencies under unclaimed property laws, card and
certificate balances may be recognized in the consolidated
statements of operations. The Company uses the redemption
recognition method and recognizes the estimated value of
abandoned cards as a percentage of every stored value card
redeemed and includes the amount in coffeehouse sales. Such
amounts represent the Companys experience regarding unused
balances related to stored value cards redeemed. The Company
excludes stored value card balances sold in jurisdictions which
require remittance of unused balances to government agencies
under unclaimed property laws.
Territory development fees and initial franchise fees are
recognized upon substantial performance of services for a new
territory or coffeehouse, which is generally upon the opening of
a new coffeehouse. Royalties based upon a percentage of reported
sales are recognized on a monthly basis when earned. Cash
payments received in advance for territory development fees or
initial franchise fees are recorded as deferred revenue until
earned.
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.
32
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company maintains liabilities based on historical experience
and managements judgment at the end of each period for the
estimate expenses incurred, but unpaid for these programs.
Advertising
Advertising costs are expensed as incurred. Production costs for
radio and television advertising are expensed when the
commercials are initially aired. Advertising expenses aggregated
approximately $8.3 million and $5.6 million, for the
years ended January 3, 2010 and December 28, 2008,
respectively.
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.
Income
Taxes
The Company accounts for income taxes under the liability
method. Under this method, deferred income tax assets and
liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities and
are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
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. The Companys 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.
Net
Income (Loss) Per Share
Basic net income (loss) per share was computed based on the
weighted average number of shares of common stock outstanding.
Diluted net income (loss) per share was computed based on the
weighted average number of shares of common stock outstanding
plus the impact of potentially dilutive shares, if any.
|
|
2.
|
Impairments,
Coffeehouse Closings and Asset Disposals
|
Based on an operating cash flow analysis performed throughout
the year combined with operational judgment on the future
potential of individual coffeehouses, the Company commits to a
plan to close unprofitable coffeehouses. If the coffeehouse
assets are deemed to be impaired, the Company records a charge
to reduce the carrying value of the property and equipment to
estimated fair value. There were no impairment charges taken in
fiscal year 2009. In fiscal year 2008 the Company recorded
depreciation expense of $7.5 million for the impairment of
37 coffeehouses.
Upon closing of the coffeehouses, the Company will accrue for
estimated lease commitments and other expenses associated with
the closings. The Company also writes off the carrying value of
property and equipment
33
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that is abandoned or disposed of in connection with coffeehouse
remodels, coffeehouse relocations or general property and
equipment impairment.
Closing and disposal charges consist of the following (in
thousands, except coffeehouse numbers):
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Coffeehouse closures
|
|
|
1
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Amount charged to operations for closed coffeehouses:
|
|
|
|
|
|
|
|
|
Lease costs associated with lease termination cash impact
|
|
$
|
125
|
|
|
$
|
4,448
|
|
Lease reserve non cash impact
|
|
|
202
|
|
|
|
(175
|
)
|
Net book value of closed coffeehouse property and equipment
|
|
|
16
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
|
Coffeehouse closing expense and disposal of assets
|
|
$
|
343
|
|
|
$
|
5,113
|
|
|
|
|
|
|
|
|
|
|
A summary of the activity in the lease exit accrual and
management severance accrual is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
Deductions
|
|
|
Balance at
|
|
Year Ended:
|
|
Year
|
|
|
Expense
|
|
|
From Reserves
|
|
|
End of Year
|
|
|
January 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs
|
|
$
|
222
|
|
|
$
|
327
|
|
|
$
|
96
|
|
|
$
|
453
|
|
Severance
|
|
|
716
|
|
|
|
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
938
|
|
|
$
|
299
|
|
|
$
|
784
|
|
|
$
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs
|
|
$
|
467
|
|
|
$
|
4,273
|
|
|
$
|
4,518
|
|
|
$
|
222
|
|
Severance
|
|
|
1,353
|
|
|
|
1,780
|
|
|
|
2,417
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,820
|
|
|
$
|
3,004
|
|
|
$
|
3,886
|
|
|
$
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company completed a reorganization of general and
administrative departments and eliminated some positions during
fiscal year 2008. The severance costs related to these actions
was $1.8 million and was included in general and
administrative expense. All related severance amounts were paid
in fiscal 2009. In 2007, the Companys CEO resigned his
position and received a lump sum severance benefit of
$1.4 million which was paid in fiscal 2008.
|
|
3.
|
Recent
Accounting Pronouncements
|
Effective July 1, 2009, the Financial Accounting Standards
Boards (FASB) Accounting Standards
Codification (ASC) became the single official source
of authoritative, nongovernmental generally accepted accounting
principles (GAAP) in the United States. The
historical GAAP hierarchy was eliminated and the ASC became the
only level of authoritative GAAP, other than guidance issued by
the Securities and Exchange Commission. Our accounting policies
were not affected by the conversion to ASC. However, references
to specific accounting standards in the footnotes to our
consolidated financial statements have been changed to refer to
the appropriate section of ASC.
34
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the FASB issued accounting guidance which
defines fair value, provides guidance for measuring fair value
in GAAP and expands disclosures about fair value measurements.
On December 31, 2007, the Company adopted these accounting
rules for financial assets and liabilities. The Company adopted
the provisions related to non-financial assets and liabilities
on December 29, 2008. The adoption of these accounting
rules did not have a material impact on the Companys
consolidated statement of operations, cash flows or financial
position.
In December 2007, the FASB issued guidance establishing new
standards that govern the accounting for and reporting of
noncontrolling interests in partially owned subsidiaries. The
Company adopted these accounting rules on December 29, 2008
and has accordingly retroactively applied the presentation and
disclosure requirements for the existing noncontrolling interest
for all periods presented.
In March 2008, the FASB issued revised guidance requiring
enhanced disclosures about an entitys derivative
instruments and hedging activities. The Company adopted these
accounting rules on December 29, 2008. See Note 5 for
the new disclosures.
In May 2009, the FASB issued guidance intended to establish
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued.
Specifically, this standard sets forth the period after the
balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. This new accounting rule is effective for
fiscal years and interim periods ended after June 15, 2009.
The Company adopted this standard effective June 28, 2009.
See Note 9 for subsequent event disclosure.
In June 2009, the FASB issued guidance which amends certain ASC
concepts related to consolidation of variable interest entities.
Among other accounting and disclosure requirements, this
guidance replaces the quantitative-based risks and rewards
calculation for determining which enterprise has a controlling
financial interest in a variable interest entity with an
approach focused on identifying which enterprise has the power
to direct the activities of a variable interest entity and the
obligation to absorb losses of the entity or the right to
receive benefits from the entity. The Company will adopt this
guidance in its first annual and interim reporting periods
beginning January 4, 2010. The Company has not determined
the impact that this guidance may have on its financial
statements.
At January 3, 2010 and December 28, 2008, cash of
$0.6 million and $0.3 million, respectively, was
pledged as collateral on outstanding letters of credit related
to lease commitments and was classified as restricted cash in
the consolidated balance sheets.
|
|
5.
|
Derivative
Financial Instruments
|
The Company evaluates various strategies in managing its
exposure to market-based risks, such as entering into hedging
transactions to manage its exposure to fluctuating dairy
commodity prices.
The Company records all derivatives on the 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.
35
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of January 3, 2010, the Company had accumulated net
derivative losses of $7 thousand in other comprehensive income,
all of which pertains to hedging instruments that will be
realized within 12 months and will also continue to
experience fair value changes before affecting earnings. Based
on notional amounts, as of January 3, 2010, the Company had
dairy commodity futures contracts representing approximately 348
thousand gallons. The Companys cash flow derivative
instruments contain credit-risk-related contingent features. At
January 3, 2010, the Company, in the normal course of
business, has not posted any collateral related to these
contingent features.
The following table presents the fair values of derivative
instruments on the consolidated balance sheets as of
January 3, 2010 and December 28, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
|
January 3, 2010
|
|
|
December 28, 2008
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Contract Type
|
|
Balance Sheet Location
|
|
|
|
|
|
|
|
|
Cash flow commodity hedges
|
|
Accrued expenses
|
|
$
|
7
|
|
|
$
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Contract Type
|
|
Balance Sheet Location
|
|
|
|
|
|
|
|
|
Cash flow commodity hedges
|
|
Accrued expenses
|
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
7
|
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the effect of derivative
instruments on the consolidated financial statements for the
years ended January 3, 2010 and December 28, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Recognized in OCI
|
|
Gain/(Loss) Reclassified into Earnings
|
|
|
January 3,
|
|
December 28,
|
|
January 3,
|
|
December 28,
|
Contract type
|
|
2010
|
|
2008
|
|
2010
|
|
2008
|
|
Cash flow commodity hedges(1)
|
|
$
|
(72
|
)
|
|
$
|
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
|
|
(1) |
|
There was no material ineffectiveness during the periods
presented |
During the years ended January 3, 2010 and
December 28, 2008, the Company recognized $0.2 million
and $0.3 million in losses, respectively, related to
commodity hedges not designated as hedging instruments. The
recognized losses related to commodity hedges not designated as
hedging instruments and commodity hedges designated as hedging
instruments are recorded in the consolidated statements of
operations as costs of goods sold and related occupancy expenses.
|
|
6.
|
Fair
Value Measurements
|
Generally Accepted Accounting Principles defines fair value,
establishes a framework for measuring fair value, and
establishes 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.
|
36
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
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
January 3, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
January 3, 2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,578
|
|
|
$
|
23,578
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
The following table presents the financial assets and
liabilities measured at fair value on a recurring basis as of
December 28, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
December 28, 2008
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,060
|
|
|
$
|
11,060
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
303
|
|
|
$
|
303
|
|
|
$
|
|
|
|
$
|
|
|
Cash and cash equivalents include cash held at FDIC-insured
financial institutions and highly liquid money market funds. The
fair value of cash equivalents is determined using quoted market
prices in active markets for identical assets, thus they are
considered to be Level 1 instruments.
Derivative assets consist of commodity futures contracts. Where
applicable, the Company uses quoted prices in an active market
for identical derivative assets and liabilities that are traded
in exchanges. These derivative liabilities are included in
Level 1.
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Coffee
|
|
$
|
5,615
|
|
|
$
|
4,652
|
|
Merchandise held for sale
|
|
|
4,029
|
|
|
|
2,843
|
|
Supplies
|
|
|
3,634
|
|
|
|
2,723
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,278
|
|
|
$
|
10,218
|
|
|
|
|
|
|
|
|
|
|
At January 3, 2010 the Company had fixed price inventory
purchase commitments, primarily for green coffee, aggregating
approximately $15.1 million. These commitments are for less
than one year.
37
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Property
and Equipment
|
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Leasehold improvements
|
|
$
|
87,515
|
|
|
$
|
87,499
|
|
Furniture, fixtures, and equipment
|
|
|
112,661
|
|
|
|
110,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,176
|
|
|
|
198,223
|
|
Less accumulated depreciation and amortization
|
|
|
(153,041
|
)
|
|
|
(137,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,135
|
|
|
$
|
60,312
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on furniture, fixtures and equipment and
amortization expense on leasehold improvements totaled
$16.2 million and $27.1 million for the years ended
January 3, 2010 and December 28, 2008, respectively,
of which $1.0 million, is included in cost of sales and
related occupancy costs for both years and $1.1 million and
$1.3 million, respectively, are included in general and
administrative expense on the Companys statements of
operations.
|
|
9.
|
Revolving
Credit Facility
|
The Company maintains 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 $9.0 million and the
expiration of the agreement is June 30, 2010. 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. The terms of the
revolving credit facility are economically equivalent to the
lease financing arrangement such that the amount of rent
payments and unpaid acquisition costs under the lease financing
arrangement are at all times equal to the interest and principal
under the revolving credit facility. The Company consolidates
the third party finance company as the Company is the primary
beneficiary in a variable interest entity due to the terms and
provisions of the lease financing arrangement. Accordingly, the
Companys consolidated balance sheets include all assets
and liabilities of the third party finance company under the
captions property and equipment and revolving credit facility,
respectively. The Companys consolidated statements of
operations include all the operations of the finance company
including all interest expense related to the revolving credit
facility. Notwithstanding this presentation, the Companys
obligations are limited to its obligations under the lease
financing arrangement and the Company has no 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 January 3, 2010 and December 28, 2008,
there was no property and equipment leased under this
arrangement. The lease financing arrangement has been structured
to be consistent with Shariah principles.
The terms of the sale leaseback agreement contain certain
financial covenants and limitations on the amount used for
expansion activities based on EBITDA, leverage ratios, and
interest coverage ratios of the Company. The Company is liable
for a commitment fee on any unused portion of the facility. The
unused portion of the facility aggregated $9.0 million at
January 3, 2010. The commitment fee varies between 0.375%
to 0.5% based on outstanding borrowing and financial covenants.
38
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Unamortized deferred financing fees capitalized on the balance
sheet totaled less than $0.1 million and $0.2 million
as of January 3, 2010 and December 28, 2008,
respectively. Amortization expense on deferred financing fees
totaled $0.1 million and $0.5 million for the years
ended January 3, 2010 and December 28, 2008,
respectively.
On February 19, 2010, the Company entered into a new three
year credit facility, structured similarly to the Shariah
compliant facility described above. The amount available under
the new agreement is $25.0 million, consisting of
$15.0 million immediately available and an option to
increase the amount available by an additional
$10.0 million under terms to be mutually agreed. 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.
|
|
10.
|
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 and key employees and certain non-employees. Stock
options have been granted at prices equal to the fair market
values as of the dates of grant. Options vest generally in four
years and expire in ten years from the grant date. Upon the
exercise of an option, new shares of stock are issued by the
Company. The Companys share-based compensation expense for
fiscal years 2009 and 2008, were $1.0 million and
$0.8 million, respectively.
The Company receives a tax deduction for certain stock option
exercises during the period the options are exercised, generally
for the excess of the price at which the stock is sold over the
exercise price of the options. The Company reports excess tax
benefits from the award of equity instruments as financing cash
flows in the Consolidated Statements of Cash Flows when a
deduction reported for tax return purposes for an award of
equity instruments exceeds the cumulative compensation cost for
the instruments recognized for financial reporting purposes.
The per share weighted-average fair value of stock options
granted during the years ended January 3, 2010 and
December 28, 2008 was $1.19 and $1.10, respectively, on the
date of grant using the Black-Scholes option-pricing model to
estimate fair value of share-based awards with the following
weighted average assumptions:
|
|
|
|
|
|
|
Years Ended
|
|
|
January 3,
|
|
December 28,
|
|
|
2010
|
|
2008
|
|
Expected dividend yield
|
|
0%
|
|
0%
|
Weighted average risk free interest rate
|
|
1.91%
|
|
2.95%
|
Expected life
|
|
5 years
|
|
5 years
|
Volatility
|
|
61%-65%
|
|
31%-59%
|
The Company uses historical information to estimate the
volatility of its share price and employee terminations in its
valuation model. Separate groups of employees that have similar
historical exercise behavior are considered separately for
valuation purposes. The expected term of options granted is
estimated based on historical exercise behavior and represents
the period of time that options granted are expected to be
outstanding. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
At January 3, 2010, there was $1.0 million of
unrecognized compensation cost related to stock options, which
is expected to be recognized over a weighted-average period of
2.4 years.
39
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option activity during the years indicated is as follows
(in thousands, except per share and life data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
Options Outstanding
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contract Life
|
|
|
Outstanding, December 30, 2007
|
|
|
2,571
|
|
|
$
|
7.46
|
|
|
|
6.47Yrs
|
|
Granted
|
|
|
1,236
|
|
|
$
|
2.29
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,356
|
)
|
|
$
|
6.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 28, 2008
|
|
|
2,451
|
|
|
$
|
5.16
|
|
|
|
7.89 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10
|
|
|
$
|
2.22
|
|
|
|
|
|
Exercised
|
|
|
(105
|
)
|
|
$
|
5.59
|
|
|
|
|
|
Forfeited
|
|
|
(660
|
)
|
|
$
|
7.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 3, 2010
|
|
|
1,696
|
|
|
$
|
4.27
|
|
|
|
7.54 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest at January 3, 2010
|
|
|
1,696
|
|
|
$
|
4.27
|
|
|
|
7.54 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested at January 3, 2010
|
|
|
778
|
|
|
$
|
6.04
|
|
|
|
6.42 Yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted to employees are exercisable according to the
terms of each agreement, usually four years. At January 3,
2010 and December 28, 2008, 0.8 million options
outstanding were exercisable with weighted average exercise
prices of $6.04 and $7.67, respectively. At January 3, 2010
and December 28, 2008, 2.6 million and
2.8 million shares, respectively, of the Companys
common stock were reserved for issuance related to stock options
and restricted stock awards. During the fiscal year ended
January 3, 2010, the total intrinsic value of stock options
exercised was $0.2 million and the gross amount of proceeds
the Company received from the exercise of stock options was
$0.6 million. During the fiscal year ended
December 28, 2008 no stock options were exercised. During
the fiscal years ended January 3, 2010 and
December 28, 2008, the total fair value of options vested
was $0.7 million and $0.6 million, respectively.
The following table summarizes information about stock options
outstanding at January 3, 2010 (in thousands, except per
share and life data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Options
|
|
|
Remaining
|
|
|
Average
|
|
|
Options
|
|
|
Average
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$ 1.06 - $ 4.08
|
|
|
1,097
|
|
|
|
8.63 years
|
|
|
$
|
2.23
|
|
|
|
274
|
|
|
$
|
2.24
|
|
$ 4.09 - $ 6.56
|
|
|
88
|
|
|
|
4.79 years
|
|
|
$
|
5.82
|
|
|
|
64
|
|
|
$
|
5.75
|
|
$ 6.57 - $ 9.04
|
|
|
393
|
|
|
|
5.60 years
|
|
|
$
|
7.46
|
|
|
|
325
|
|
|
$
|
7.37
|
|
$ 9.05 - $11.52
|
|
|
73
|
|
|
|
5.70 years
|
|
|
$
|
9.82
|
|
|
|
70
|
|
|
$
|
9.84
|
|
$11.53 - $14.00
|
|
|
45
|
|
|
|
5.75 years
|
|
|
$
|
14.00
|
|
|
|
45
|
|
|
$
|
14.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,696
|
|
|
|
7.54 years
|
|
|
$
|
4.27
|
|
|
|
778
|
|
|
$
|
6.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock activity during the year is as follows (in
thousands, except per share and life data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
Non-vested shares outstanding
|
|
Shares
|
|
|
Fair Value
|
|
|
Balance, December 28, 2008
|
|
|
150
|
|
|
$
|
2.86
|
|
Granted
|
|
|
188
|
|
|
$
|
7.60
|
|
Vested
|
|
|
(38
|
)
|
|
$
|
2.86
|
|
|
|
|
|
|
|
|
|
|
Balance January 3, 2010
|
|
|
300
|
|
|
$
|
5.83
|
|
|
|
|
|
|
|
|
|
|
40
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted stock awards granted to employees vest according to
the terms of each agreement, usually four years. At
January 3, 2010, there was $1.6 million of
unrecognized compensation cost related to non-vested restricted
shares granted to employees. The cost is expected to be
recognized over a weighted average period of 3.5 years. The
total fair value of the shares vested during the year ended
January 3, 2010 was $0.1 million.
|
|
11.
|
Leasing
Arrangements and Commitments
|
The Company leases retail coffeehouses, roasting and
distribution facilities and office space under operating leases
expiring through March 2021. Most lease agreements contain
renewal options and rent escalation clauses. Certain leases
provide for contingent rentals based upon gross sales.
Rental expense under these lease agreements, excluding real
estate taxes, common area charges and insurance, was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Minimum rentals
|
|
$
|
19,678
|
|
|
$
|
25,327
|
|
Contingent rentals
|
|
|
1,837
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,515
|
|
|
|
27,356
|
|
Less sublease rentals
|
|
|
(546
|
)
|
|
|
(729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,969
|
|
|
$
|
26,627
|
|
|
|
|
|
|
|
|
|
|
Minimum future rental payments under these agreements as of
January 3, 2010 are as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
20,555
|
|
2011
|
|
|
18,783
|
|
2012
|
|
|
16,601
|
|
2013
|
|
|
14,129
|
|
2014
|
|
|
11,299
|
|
Thereafter
|
|
|
19,632
|
|
|
|
|
|
|
|
|
$
|
100,999
|
|
|
|
|
|
|
Total future minimum sublease rental income is $2.0 million.
The (benefit) provision for income taxes consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
U.S. Federal
|
|
$
|
(286
|
)
|
|
$
|
|
|
State
|
|
|
40
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(246
|
)
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
41
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the differences between income taxes
computed at the U.S. Federal statutory tax rate and the
Companys income tax (benefit) provision is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Tax at U.S. Federal statutory rate
|
|
$
|
1,663
|
|
|
$
|
(5,549
|
)
|
Tax at blended State statutory rate net of federal benefit
|
|
|
304
|
|
|
|
(794
|
)
|
Permanent differences
|
|
|
32
|
|
|
|
30
|
|
Changes in valuation allowance
|
|
|
(2,449
|
)
|
|
|
6,378
|
|
Decrease to reserve for tax contingencies
|
|
|
(330
|
)
|
|
|
(42
|
)
|
Deferred tax adjustment
|
|
|
519
|
|
|
|
|
|
Other, net
|
|
|
15
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(246
|
)
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards totaled $30.4 million at
January 3, 2010. The net operating loss carryforwards will
begin to expire in 2023, if not utilized. Additional equity
offerings or certain changes in control in future years may
further limit the Companys ability to utilize
carryforwards. After consideration of all the evidence, both
positive and negative, management has recorded a valuation
allowance against its deferred income tax assets at
January 3, 2010 and December 28, 2008 due to the
uncertainty of realizing such deferred income tax assets.
Deferred income taxes reflect the tax effect of temporary
differences between the carrying amounts of the assets and
liabilities for financial reporting purposes and amounts used
for income taxes. The tax effects of temporary differences that
give rise to significant portions of the Companys deferred
income tax assets (liabilities) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Depreciation
|
|
$
|
11,676
|
|
|
$
|
9,985
|
|
Deferred rent on leases
|
|
|
(452
|
)
|
|
|
(180
|
)
|
Net operating loss carryforwards
|
|
|
11,871
|
|
|
|
15,043
|
|
Coffeehouse closing and asset reserves
|
|
|
154
|
|
|
|
75
|
|
Accrued expenses
|
|
|
1,722
|
|
|
|
2,316
|
|
Deferred revenue
|
|
|
1,232
|
|
|
|
1,350
|
|
Other
|
|
|
610
|
|
|
|
1,018
|
|
State deferred (excluding state loss carryforwards)
|
|
|
2,641
|
|
|
|
2,296
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
29,454
|
|
|
|
31,903
|
|
Less deferred income tax asset valuation allowance
|
|
|
(29,454
|
)
|
|
|
(31,903
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
At January 3, 2010, the Company had $2.9 million of
total unrecognized tax benefits, of which $0.2 million, if
recognized, could have a favorable impact on the effective
income tax rate in future periods. This determination could be
affected if the Company were to change its position with respect
to recognizing income tax benefits for
42
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
future deductions. A reconciliation of the beginning and ending
amount of unrecognized tax benefits as of January 3, 2010
and December 28, 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
3,238
|
|
|
$
|
3,401
|
|
Current year positions
|
|
|
|
|
|
|
43
|
|
Expiration of statute of limitations
|
|
|
(377
|
)
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,861
|
|
|
$
|
3,238
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense.
The Company anticipates that it is reasonably possible that the
total amount of unrecognized tax benefits related to the timing
of certain occupancy deductions could decrease in the range of
$0.1 million to $0.2 million during the next
12 months due to the closure of tax years by expiration of
the statute of limitations.
For federal purposes, tax years prior to 2003 are closed for
assessment purposes; however, the years remain open to
examination as a result of net operating losses being generated
and carried forward into future years. Tax years in which a net
operating loss was generated will remain open for examination
until the statute of limitations will close on tax years
utilizing net operating loss carryforward to reduce the tax due.
Generally, the statute of limitations will close on tax years
utilizing net operating loss carryforwards three years
subsequent to the utilization of net operating losses. For state
purposes, the statute of limitations remains open in a similar
manner for states where the Company generated net operating
losses.
|
|
13.
|
Related
Party Transactions
|
During fiscal year 2008 the Companys majority shareholder
contributed management consulting and research services with a
value of $0.2 million. Since the Company was the primary
beneficiary of these services, it included the amount in general
and administrative expense and recorded a corresponding increase
to additional paid-in capital.
|
|
14.
|
Employee
Benefit Plan
|
The Company sponsors a 401(k) defined contribution plan for
substantially all employees. Amounts expensed for company
contributions to the plan aggregated approximately
$0.1 million for the year ended January 3, 2010. The
Company did not make a contribution for the year ended
December 28, 2008.
|
|
15.
|
Master
Franchise Agreement
|
In November 2004, the Company entered into a Master Franchise
Agreement with a franchisee. The agreement provides the
franchisee the right to develop, subfranchise or operate 250
Caribou Coffee coffeehouses in 12 Middle Eastern countries. The
Agreement expires in November 2012 and provides for certain
renewal options.
In connection with the agreement, the franchisee paid the
Company a nonrefundable deposit aggregating $3.3 million.
In addition to the deposit, the franchisee is obligated to pay
the Company $20 thousand per
franchised/subfranchised
coffeehouse (initial franchise fee) opened for the first 100
Caribou Coffee Coffeehouses and $15 thousand for each additional
franchised/subfranchised coffeehouse opened (after the first
100). The agreement provides for $5 thousand of the initial
deposit received by the Company to be applied against the
initial franchise fee as discussed herein. Monthly royalty
payments ranging from 3%-5% of gross sales are also due to the
Company.
43
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company included $2.0 million and $2.3 million of
the deposit related to this agreement in long term liabilities
as deferred revenue and $0.5 million and $0.3 million
in current liabilities as deferred revenue as of January 3,
2010 and December 28, 2008, respectively. 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. 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. At January 3, 2010, there were
64 coffeehouses operating under this Agreement. The
franchisee and certain owners of the franchisee also own
indirect interests in Caribou Holding Company Limited.
The Company deferred certain costs in connection with the Master
Franchise Agreement of which $0.1 million were included
other assets at January 3, 2010 and December 28, 2008.
These costs include the direct costs for training franchisees,
establishing a logistics and distribution network to supply
product to franchisees, related travel and legal costs. These
costs are direct one-time charges incurred by the Company
associated with the start up of the Master Franchise Agreement.
These costs will be deferred until the related revenue is
recognized when the coffeehouse is opened.
|
|
16.
|
Net
Income (loss) Per Share
|
Basic and diluted net income (loss) attributable to Caribou
Coffee Company, Inc. common shareholders per share for years
ended January 3, 2010 and December 28, 2008, were as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2010
|
|
|
2008
|
|
|
Net income (loss) attributable to Caribou Coffee Company,
Inc.
|
|
$
|
5,138
|
|
|
$
|
(16,342
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
19,443
|
|
|
|
19,371
|
|
Dilutive impact of stock-based compensation
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding dilutive
|
|
|
20,000
|
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.26
|
|
|
$
|
(0.84
|
)
|
For fiscal 2009 and 2008, 0.6 million and 2.4 million
stock options, respectively, were excluded from the calculation
of shares applicable to diluted net income (loss) per share
because their inclusion would have been anti-dilutive.
|
|
17.
|
Commitments
and Contingencies
|
On July 26, 2005, three of the Companys former
employees filed a lawsuit against us in the State of Minnesota
District Court for Hennepin County seeking monetary and
equitable relief from us under the Minnesota Fair Labor
Standards Act, or the Minnesota FLSA, the federal FLSA and state
common law. The suit primarily alleged that the Company
misclassified its retail coffeehouse managers as exempt from the
overtime provisions of the Minnesota FLSA and the federal FLSA
and that these managers are therefore entitled to overtime
compensation for each week in which they worked more than
40 hours from May 2002 to the present with respect to the
claims under the federal FLSA and for weeks in which they worked
more than 48 hours from May 2003 to the present with
respect to the claims under the Minnesota FLSA. Plaintiffs
sought payment of allegedly owed and unpaid overtime
compensation, liquidated damages, interest and among other
things, attorneys fees and costs.
44
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 1, 2008, the Company entered into a Stipulation
of Settlement (the Stipulation) to settle the
lawsuit. The Stipulation provides for a gross settlement payment
of $2.7 million, plus the employers share of payroll
taxes. A partial settlement payment of $1.8 million was
made in the first quarter of 2008 and the final settlement
payment of $1.0 million was made in the first quarter of
2009.
In addition, from time to time, the Company becomes involved in
certain legal proceedings in the ordinary course of business.
The Company does not believe that any such ordinary course legal
proceedings to which it is currently a party will have a
material adverse effect on its financial position or results of
operations.
Segment information is prepared on the same basis that the
Companys 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. All of the segment sales are from external
customers.
Retail
Coffeehouses
The Companys retail segment represents 86.5% and 90.2% of
total net sales for fiscal years 2009 and 2008, respectively.
The retail segment operated 413 company-operated
coffeehouses located in 16 states and the District of
Columbia as of January 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 Companys commercial segment represents 10.5% and 7.1%
of total net sales for fiscal years 2009 and 2008, respectively.
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 Companys franchise segment represents 2.9% and 2.7% of
total net sales for fiscal years 2009 and 2008, respectively.
The franchise segment sells franchises to operate Caribou Coffee
branded coffeehouses to domestic and international franchisees.
As of January 3, 2010, there were 121 franchised
coffeehouses in U.S and international markets.
45
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tables below presents information by operating segment for
the fiscal years noted (in thousands):
Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Retail
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
|
Net sales
|
|
$
|
227,224
|
|
|
$
|
27,577
|
|
|
$
|
7,738
|
|
|
$
|
|
|
|
$
|
262,539
|
|
Costs of sales and related occupancy costs
|
|
|
93,027
|
|
|
|
18,515
|
|
|
|
4,344
|
|
|
|
|
|
|
|
115,886
|
|
Operating expenses
|
|
|
94,569
|
|
|
|
3,819
|
|
|
|
1,110
|
|
|
|
|
|
|
|
99,498
|
|
Opening expenses
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Depreciation and amortization
|
|
|
14,053
|
|
|
|
44
|
|
|
|
5
|
|
|
|
|
|
|
|
14,102
|
|
General and administrative expenses
|
|
|
7,994
|
|
|
|
|
|
|
|
|
|
|
|
19,151
|
|
|
|
27,145
|
|
Closing expense and disposal of assets
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
17,224
|
|
|
$
|
5,199
|
|
|
$
|
2,255
|
|
|
$
|
(19,137
|
)
|
|
$
|
5,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
39,089
|
|
|
$
|
186
|
|
|
$
|
64
|
|
|
$
|
7,796
|
|
|
$
|
47,135
|
|
Net capital expenditures
|
|
$
|
2,046
|
|
|
$
|
100
|
|
|
$
|
56
|
|
|
$
|
844
|
|
|
$
|
3,046
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Retail
|
|
|
Commercial
|
|
|
Franchise
|
|
|
Corporate
|
|
|
Total
|
|
|
Net sales
|
|
$
|
229,092
|
|
|
$
|
17,927
|
|
|
$
|
6,880
|
|
|
$
|
|
|
|
$
|
253,899
|
|
Costs of sales and related occupancy costs
|
|
|
94,568
|
|
|
|
11,296
|
|
|
|
3,768
|
|
|
|
|
|
|
|
109,632
|
|
Operating expenses
|
|
|
96,535
|
|
|
|
2,258
|
|
|
|
1,516
|
|
|
|
|
|
|
|
100,309
|
|
Opening expenses
|
|
|
181
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
230
|
|
Depreciation and amortization
|
|
|
24,899
|
|
|
|
32
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
24,928
|
|
General and administrative expenses
|
|
|
9,564
|
|
|
|
|
|
|
|
|
|
|
|
19,581
|
|
|
|
29,145
|
|
Closing expense and disposal of assets
|
|
|
5,016
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
5,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
$
|
(1,671
|
)
|
|
$
|
4,341
|
|
|
$
|
1,550
|
|
|
$
|
(19,678
|
)
|
|
$
|
(15,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
50,822
|
|
|
$
|
130
|
|
|
$
|
12
|
|
|
$
|
9,348
|
|
|
$
|
60,312
|
|
Net impairment
|
|
$
|
7,460
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,460
|
|
Net capital expenditures
|
|
$
|
3,941
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,896
|
|
|
$
|
5,837
|
|
All of the Companys assets are located in the United
States and less than 1% of the Companys consolidated sales
come from outside the United States. No customer accounts for
10% or more of the Companys sales.
46
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company
Limited)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Selected
Quarterly Financial Data (Unaudited) (in thousands except per
share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarters
|
Year Ended January 3, 2010
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Net sales
|
|
$
|
60,380
|
|
|
$
|
62,954
|
|
|
$
|
62,739
|
|
|
$
|
76,466
|
|
Cost of sales and related occupancy costs
|
|
|
26,272
|
|
|
|
27,317
|
|
|
|
27,849
|
|
|
|
34,448
|
|
Operating income
|
|
|
376
|
|
|
|
1,405
|
|
|
|
686
|
|
|
|
3,074
|
|
Net income attributable to Caribou Coffee Company, Inc.
|
|
|
346
|
|
|
|
1,168
|
|
|
|
654
|
|
|
|
2,970
|
|
Net income attributable to Caribou Coffee Company, Inc. per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.02
|
|
|
|
0.06
|
|
|
|
0.03
|
|
|
|
0.15
|
|
Diluted
|
|
|
0.02
|
|
|
|
0.06
|
|
|
|
0.03
|
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarters
|
Year Ended December 28, 2008
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Net sales
|
|
$
|
61,757
|
|
|
$
|
63,183
|
|
|
$
|
60,910
|
|
|
$
|
68,049
|
|
Cost of sales and related occupancy costs
|
|
|
26,213
|
|
|
|
27,004
|
|
|
|
26,992
|
|
|
|
29,423
|
|
Operating (loss) income
|
|
|
(5,853
|
)
|
|
|
(2,282
|
)
|
|
|
(8,684
|
)
|
|
|
1,361
|
|
Net (loss) income attributable to Caribou Coffee Company,
Inc.
|
|
|
(6,406
|
)
|
|
|
(2,432
|
)
|
|
|
(8,766
|
)
|
|
|
1,262
|
|
Net (loss) income attributable to Caribou Coffee Company, Inc.
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.33
|
)
|
|
|
(0.13
|
)
|
|
|
(0.45
|
)
|
|
|
0.07
|
|
Diluted
|
|
|
(0.33
|
)
|
|
|
(0.13
|
)
|
|
|
(0.45
|
)
|
|
|
0.07
|
|
47
CARIBOU
COFFEE COMPANY, INC. AND AFFILIATES
Schedule II
Valuation and Qualifying Accounts and Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Additions
|
|
|
|
|
|
|
Beginning of
|
|
Charged to
|
|
Deductions from
|
|
Balance at
|
Years Ended:
|
|
Year
|
|
Expense
|
|
reserves
|
|
End of Year
|
|
|
(In thousands)
|
|
January 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
72
|
|
|
$
|
19
|
|
|
$
|
88
|
(1)
|
|
$
|
3
|
|
Deferred income tax asset valuation allowance
|
|
$
|
31,903
|
|
|
$
|
|
|
|
$
|
2,449
|
|
|
$
|
29,454
|
|
December 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
8
|
|
|
$
|
117
|
|
|
$
|
53
|
(1)
|
|
$
|
72
|
|
Deferred income tax asset valuation allowance
|
|
$
|
25,525
|
|
|
$
|
6,378
|
|
|
$
|
|
|
|
$
|
31,903
|
|
|
|
|
(1) |
|
Deductions represent the write-off of accounts deemed
uncollectible. |
48
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A(T).
|
Controls
and Procedures
|
Conclusion
regarding the Effectiveness of Disclosure 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 the disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon that evaluation, our chief
executive officer and chief financial officer concluded that the
companys disclosure controls and procedures are effective,
as of January 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 and fiscal year ended January 3, 2010, that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Report of
Management on Internal Control over Financial
Reporting
The management of Caribou Coffee is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in
accordance with accounting principles generally accepted in the
United States of America. Internal control over financial
reporting includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements; providing
reasonable assurance that receipts and expenditures are made in
accordance with management authorization; and providing
reasonable assurance that unauthorized acquisition, use or
disposition of company assets that could have a material effect
on our financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal
control over financial reporting is not intended to provide
absolute assurance that a misstatement of our financial
statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
and criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. This evaluation
included review of the documentation of controls, evaluation of
the design effectiveness of controls, testing of the operating
effectiveness of controls and a conclusion on this evaluation.
Based on this evaluation, management concluded that our
Companys internal control over financial reporting was
effective as of January 3, 2010.
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control
over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements
report in this annual report.
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item regarding the
Companys directors is incorporated herein by reference to
the sections entitled PROPOSAL 1 ELECTION
OF DIRECTORS and EXECUTIVE COMPENSATION
Section 16(a) Beneficial Ownership Reporting
Compliance in the Companys definitive Proxy
Statement for the
49
Annual Meeting of Shareholders to be held on May 13, 2010
(the Proxy Statement). Information regarding the
Companys executive officers is set forth in Item 4A
of Part 1 of this Report under the caption Executive
Officers of the Registrant.
The Company adopted a code of ethics applicable to its chief
executive officer, chief financial officer, controller and other
finance leaders, which is a code of ethics as
defined by applicable rules of the Securities and Exchange
Commission. This code is publicly available on the
Companys website at www.cariboucoffee.com in the Investors
section accessed through the Corporate Governance
menu option. If the Company makes any amendments to this code
other than technical, administrative or other non-substantive
amendments, or grants any waivers, including implicit waivers,
from a provision of this code to the Companys chief
executive officer, chief financial officer or controller, the
Company will disclose the nature of the amendment or waiver, its
effective date and to whom it applies on its website or in a
report on
Form 8-K
filed with the Securities and Exchange Commission.
|
|
Item 11.
|
Executive
Compensation
|
Information concerning executive compensation required by
Item 11 is set forth under the captions Executive
Compensation, Stock Option Grants and
Exercises, Employment Agreements and
Compensation Committee Interlocks in the Proxy
Statement and is incorporated by reference into this annual
report on
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
|
Information concerning security ownership of certain beneficial
owners and management required by Item 12 is set forth
under the caption Beneficial Ownership of Common
Stock and Executive Compensation Equity
Compensation Plan Information in the Proxy Statement and
is incorporated by reference into this annual report on
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information concerning certain relationships and related
transactions required by Item 13 is set forth under the
captions Executive Compensation Certain
Relationships and Related Transactions in the Proxy
Statement and is incorporated by reference into this annual
report of
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information concerning principal accounting fees and services
required by Item 14 is set forth under the caption
Proposal 2 Ratification of Selection of
Independent Auditors in the Proxy Statement and is
incorporated by reference into this annual report on
Form 10-K.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The following documents are filed as part of this annual report
on
Form 10-K.
(a)(1) Index to Consolidated Financial Statements.
50
The following Consolidated Financial Statements of Caribou
Coffee Company, Inc. are filed as Part II, Item 8 of
this annual report on
Form 10-K:
|
|
|
|
|
|
|
Page
|
|
|
|
|
25
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
|
|
(a)(2) Index to Financial Statement Schedules.
|
|
|
|
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves
|
|
|
48
|
|
All other financial statement schedules are omitted because they
are not applicable, not required or because the required
information is included in the Consolidated Financial Statements
or Notes thereto.
(a)(3) Listing of Exhibits
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
3
|
.1
|
|
|
|
Form of Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Companys Registration Statement on
Form S-1/A
filed August 25, 2005).
|
|
3
|
.2
|
|
|
|
Form of Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.2 to the Companys
Registration Statement on
Form S-1/A
filed August 25, 2005).
|
|
4
|
.1
|
|
|
|
Form of Registrants Common Stock Certificate (incorporated
by reference to Exhibit 4.1 to the Companys
Registration Statement on
Form S-1/A
filed September 6, 2005).
|
|
10
|
.1*
|
|
|
|
1994 Stock Awards Plan (incorporated by reference to
Exhibit 10.1 to the Companys Registration Statement
on
Form S-1
filed July 19, 2005).
|
|
10
|
.2*
|
|
|
|
Form of 1994 Stock Awards Plan Stock Option Grant and Agreement
(incorporated by reference to Exhibit 10.2 to the
Companys Registration Statement on
Form S-1
filed July 19, 2005).
|
|
10
|
.3*
|
|
|
|
2001 Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 to the Companys Registration Statement
on
Form S-1
filed July 19, 2005).
|
|
10
|
.4*
|
|
|
|
Amendment No. 1 to the 2001 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Companys Registration Statement on
Form S-1
filed July 19, 2005).
|
|
10
|
.5*
|
|
|
|
Form of 2001 Stock Incentive Plan Stock Option Grant and
Agreement (incorporated by reference to Exhibit 10.5 to the
Companys Registration Statement on
Form S-1
filed July 19, 2005).
|
|
10
|
.6*
|
|
|
|
2005 Equity Incentive Plan (incorporated by reference to
Exhibit 10.6 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.7*
|
|
|
|
Description of Annual Support Center and Field Management Bonus
Plan (incorporated by reference to Exhibit 10.1 to the
Companys on
Form 8-K
filed May 26, 2006).
|
|
10
|
.10*
|
|
|
|
Form of Directors and Officers Indemnification Agreement
(incorporated by reference to Exhibit 10.13 of the
Companys
Form 10-K
for the year ended January 1, 2006).
|
|
10
|
.11
|
|
|
|
Master Franchise Agreement between Caribou Coffee Company, Inc.
and Al-Sayer Enterprises (incorporated by reference to
Exhibit 10.14 to the Companys Registration Statement
on
Form S-1/A
filed September 14, 2005).
|
|
10
|
.13
|
|
|
|
Commercial Lease between Caribou Coffee Company, Inc. and Twin
Lakes III LLC, dated September 5, 2003 (incorporated
by reference to Exhibit 10.18 to the Companys
Registration Statement on
Form S-1/A
filed August 25, 2005).
|
51
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
10
|
.14
|
|
|
|
Second Amended and Restated Lease and License Financing and
Purchase Option Agreement between Caribou Coffee Company, Inc.
and Arabica Funding, Inc., dated June 29, 2004
(incorporated by reference to Exhibit 10.19 to the
Companys Registration Statement on
Form S-1/A
filed August 25, 2005)
|
|
10
|
.15
|
|
|
|
Amendment to Second Amended and Restated Lease and License
Financing and Purchase Option Agreement between Caribou Coffee
Company, Inc. and Arabica Funding, Inc., dated March 25,
2005 (incorporated by reference to Exhibit 10.20 to the
Companys Registration Statement on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.16
|
|
|
|
Second Amendment to Second Amended and Restated Lease and
License Financing and Purchase Option Agreement between Caribou
Coffee Company, Inc. and Arabica Funding, Inc., dated
May 10, 2005 (incorporated by reference to
Exhibit 10.21 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.17
|
|
|
|
Second Amended and Restated Call Option Letter from Arabica
Funding, Inc. to Caribou Coffee Company, Inc., dated
June 29, 2004 (incorporated by reference to
Exhibit 10.22 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.18
|
|
|
|
Second Amended and Restated Put Option Letter from Caribou
Coffee Company, Inc. to Arabica Funding, Inc., dated
June 29, 2004 (incorporated by reference to
Exhibit 10.23 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.19
|
|
|
|
Second Amended and Restated Tax Matters Agreement between
Caribou Coffee Company, Inc. and Arabica Funding, Inc., dated
June 29, 2004 (incorporated by reference to
Exhibit 10.24 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.20
|
|
|
|
Second Amended and Restated Supplemental Agreement between
Caribou Coffee Company, Inc. and Arabica Funding, Inc., dated
June 29, 2004 (incorporated by reference to
Exhibit 10.25 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.21
|
|
|
|
Credit Agreement among Arabica Funding, Inc., as Borrower, The
Several Lenders from Time to Time Parties thereto, and Fleet
National Bank, as Administrative Agent, dated as of
June 29, 2004 (incorporated by reference to
Exhibit 10.26 to the Companys Registration Statement
on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.22
|
|
|
|
Amendment to Credit Agreement among Arabica Funding, Inc., as
Borrower, The Several Lenders from Time to Time Parties Thereto,
and Fleet National Bank, as Administrative Agent, dated as of
March 2005 (incorporated by reference to Exhibit 10.27 to
the Companys Registration Statement on
Form S-1/A
filed August 25, 2005).
|
|
10
|
.25*
|
|
|
|
Offer Letter from Caribou Coffee Company, Inc. to Michael J.
Tattersfield, dated August 1, 2008 (incorporated by
reference to Exhibit 10.1 to the Companys
Form 8-K
filed August 4, 2008).
|
|
10
|
.26*
|
|
|
|
Offer Letter from Caribou Coffee Company, Inc. to Timothy J.
Hennessy, dated September 9, 2008 (incorporated by
reference to Exhibit 10.1 to the Companys
Form 8-K
filed September 9, 2008).
|
|
10
|
.28
|
|
|
|
Sixth Amendment to Credit Agreement among Arabica Funding, Inc.,
as Borrower, The Several Lenders from Time to Time Parties
Thereto, and Bank of America, N.A. as
successor-by-merger
to Fleet National Bank, as Administrative Agent, dated as of
November 12, 2008 (incorporated by reference to
Exhibit 10.28 to the Companys
Form 10-K
filed March 20, 2009).
|
|
10
|
.29
|
|
|
|
Seventh Amendment to Second Amended and Restated Lease and
License Financing and Purchase Option Agreement between Caribou
Coffee Company, Inc. and Arabica Funding, Inc., dated
November 12, 2008 (incorporated by reference to
Exhibit 10.29 to the Companys Form
10-K filed
March 20, 2009).
|
|
21
|
.1
|
|
|
|
List of Subsidiaries (incorporated by reference to
Exhibit 21.1 to the Companys Registration Statement
on
Form S-1/A
filed September 14, 2005).
|
|
23
|
.1
|
|
|
|
Consent of Independent Registered Public Accounting Firm
|
|
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.
|
52
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
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.
|
|
|
|
* |
|
Indicates management contracts and compensatory plans and
arrangements required to be filed pursuant to Item 15(b) of
this annual report. |
(b) Exhibits.
See Item 15 (a)(3)
(c) Financial Statement Schedules.
See Item 15(a)(2)
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Caribou Coffee Company,
Inc.
|
|
|
|
By:
|
/s/ MICHAEL
TATTERSFIELD
|
Name: Michael Tattersfield
|
|
|
|
Title:
|
President and Chief Executive Officer
|
March 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ MICHAEL
TATTERSFIELD
Michael
Tattersfield
|
|
President and Chief Executive Officer (principal executive
officer)
|
|
March 26, 2010
|
|
|
|
|
|
/s/ TIMOTHY
J. HENNESSEY
Timothy
J. Hennessey
|
|
Chief Financial Officer
(principal financial officer)
|
|
March 26, 2010
|
|
|
|
|
|
/s/ NATHAN
G. HJELSETH
Nathan
G. Hjelseth
|
|
Controller
(principal accounting officer)
|
|
March 26, 2010
|
|
|
|
|
|
/s/ GARY
A. GRAVES
Gary
A. Graves
|
|
Non-Executive Chairman
of the Board of Directors
|
|
March 26, 2010
|
|
|
|
|
|
/s/ CHARLES
H. OGBURN
Charles
H. Ogburn
|
|
Director
|
|
March 26, 2010
|
|
|
|
|
|
/s/ CHARLES
L. GRIFFITH
Charles
L. Griffith
|
|
Director
|
|
March 26, 2010
|
|
|
|
|
|
/s/ SARAH
PALISI CHAPIN
Sarah
Palisi Chapin
|
|
Director
|
|
March 26, 2010
|
|
|
|
|
|
/s/ KIP
R. CAFFEY
Kip
R. Caffey
|
|
Director
|
|
March 26, 2010
|
|
|
|
|
|
/s/ WALLACE
B. DOOLIN
Wallace
B. Doolin
|
|
Director
|
|
March 26, 2010
|
|
|
|
|
|
/s/ MICHAEL
J. COLES
Michael
J. Coles
|
|
Director
|
|
March 26, 2010
|
|
|
|
|
|
/s/ PHILIP
SANFORD
Philip
Sanford
|
|
Director
|
|
March 26, 2010
|
54