Attached files
file | filename |
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EX-10.2 - PEETS COFFEE & TEA INC | v184882_ex10-2.htm |
EX-32.2 - PEETS COFFEE & TEA INC | v184882_ex32-2.htm |
EX-32.1 - PEETS COFFEE & TEA INC | v184882_ex32-1.htm |
EX-10.1 - PEETS COFFEE & TEA INC | v184882_ex10-1.htm |
EX-31.2 - PEETS COFFEE & TEA INC | v184882_ex31-2.htm |
EX-31.1 - PEETS COFFEE & TEA INC | v184882_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended April 4, 2010
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________to __________________
Commission
file number: 0-32233
PEET’S
COFFEE & TEA, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Washington
|
91-0863396
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(I.R.S.
Employer
Identification
No.)
|
1400
Park Avenue
Emeryville,
California 94608-3520
(Address
of Principal Executive Offices)(Zip Code)
(510)
594-2100
(Registrant’s
telephone number, including area code)
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 x 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 (§232.405 of this chapter) 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 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:
Large
Accelerated Filer o
|
Accelerated
Filer x
|
Non-Accelerated
Filer o
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes o No x
As of May
9, 2010 13,309,890 shares of registrant’s Common Stock were
outstanding.
INDEX
|
Page
|
||
PART
I
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
3
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
17
|
|
Item
4.
|
Controls
and Procedures
|
18
|
|
PART
II
|
OTHER
INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
18
|
|
Item
1A.
|
Risk
Factors
|
19
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and use of Proceeds
|
19
|
|
Item
5.
|
Other
Information
|
20
|
|
Item
6.
|
Exhibits
|
20
|
|
Signatures
|
21
|
2
ITEM
1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEET’S
COFFEE & TEA, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited,
in thousands, except share amounts)
April
4,
|
January
3,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 55,824 | $ | 47,934 | ||||
Accounts
receivable, net
|
12,539 | 15,209 | ||||||
Inventories
|
24,239 | 25,936 | ||||||
Deferred
income taxes - current
|
3,592 | 3,592 | ||||||
Prepaid
expenses and other
|
6,481 | 5,863 | ||||||
Total
current assets
|
102,675 | 98,534 | ||||||
Property,
plant and equipment, net
|
101,623 | 103,494 | ||||||
Other
assets, net
|
2,176 | 2,775 | ||||||
Total
assets
|
$ | 206,474 | $ | 204,803 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and other accrued liabilities
|
$ | 11,840 | $ | 13,669 | ||||
Accrued
compensation and benefits
|
6,601 | 10,832 | ||||||
Deferred
revenue
|
5,513 | 6,845 | ||||||
Total
current liabilities
|
23,954 | 31,346 | ||||||
Deferred
income taxes - non current
|
316 | 321 | ||||||
Deferred
lease credits
|
7,070 | 7,059 | ||||||
Other
long-term liabilities
|
1,135 | 1,021 | ||||||
Total
liabilities
|
32,475 | 39,747 | ||||||
Shareholders'
equity
|
||||||||
Common
stock, no par value; authorized 50,000,000 shares;
|
||||||||
issued
and outstanding:13,309,000 and 13,104,000 shares
|
97,946 | 92,054 | ||||||
Retained
earnings
|
76,053 | 73,002 | ||||||
Total
shareholders' equity
|
173,999 | 165,056 | ||||||
Total
liabilities and shareholders' equity
|
$ | 206,474 | $ | 204,803 |
See notes
to condensed consolidated financial statements.
3
PEET’S
COFFEE & TEA, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited,
in thousands, except per share amounts)
Thirteen
weeks ended
|
||||||||
April
4,
|
March
29,
|
|||||||
2010
|
2009
|
|||||||
Retail
stores
|
$ | 50,071 | $ | 47,982 | ||||
Specialty
sales
|
31,125 | 24,122 | ||||||
Net
revenue
|
81,196 | 72,104 | ||||||
Cost
of sales and related occupancy expenses
|
37,539 | 32,568 | ||||||
Operating
expenses
|
27,837 | 25,171 | ||||||
Transaction
related expenses
|
824 | - | ||||||
General
and administrative expenses
|
6,302 | 5,938 | ||||||
Depreciation
and amortization expenses
|
3,877 | 3,607 | ||||||
Total
costs and expenses from operations
|
76,379 | 67,284 | ||||||
Income
from operations
|
4,817 | 4,820 | ||||||
Interest
(expense) income, net
|
(1 | ) | 78 | |||||
Income
before income taxes
|
4,816 | 4,898 | ||||||
Income
tax provision
|
1,765 | 1,845 | ||||||
Net
income
|
$ | 3,051 | $ | 3,053 | ||||
Net
income per share:
|
||||||||
Basic
|
$ | 0.23 | $ | 0.23 | ||||
Diluted
|
$ | 0.22 | $ | 0.23 | ||||
Shares
used in calculation of net income per share:
|
||||||||
Basic
|
13,188 | 13,039 | ||||||
Diluted
|
13,809 | 13,241 |
4
PEET’S
COFFEE & TEA, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
Thirteen
weeks ended
|
||||||||
April
4,
|
March
29,
|
|||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 3,051 | $ | 3,053 | ||||
Adjustments
to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation
and amortization
|
4,422 | 4,141 | ||||||
Amortization
of interest purchased
|
- | 27 | ||||||
Stock-based
compensation
|
742 | 643 | ||||||
Excess
tax benefit from exercise of stock options
|
(1,113 | ) | (28 | ) | ||||
Tax
benefit from exercise of stock options
|
946 | 17 | ||||||
Loss
on disposition of assets and asset impairment
|
31 | 7 | ||||||
Deferred
income taxes
|
(5 | ) | (9 | ) | ||||
Changes
in other assets and liabilities:
|
||||||||
Accounts
receivable, net
|
2,670 | 1,809 | ||||||
Inventories
|
1,697 | 3,552 | ||||||
Prepaid
expenses and other current assets
|
(618 | ) | 1,694 | |||||
Other
assets
|
29 | 177 | ||||||
Accounts
payable, accrued liabilities and deferred revenue
|
(7,354 | ) | (3,235 | ) | ||||
Deferred
lease credits and other long-term liabilities
|
125 | 453 | ||||||
Net
cash provided by operating activities
|
4,623 | 12,301 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property, plant and equipment
|
(2,623 | ) | (3,787 | ) | ||||
Proceeds
from sales of property, plant and equipment
|
13 | - | ||||||
Changes
in restricted investments
|
560 | 884 | ||||||
Proceeds
from sales and maturities of marketable securities
|
- | 3,972 | ||||||
Net
cash (used in) provided by investing activities
|
(2,050 | ) | 1,069 | |||||
Cash
flows from financing activities:
|
||||||||
Net
proceeds from issuance of common stock
|
4,732 | 450 | ||||||
Purchase
of common stock
|
(528 | ) | (6,564 | ) | ||||
Excess
tax benefit from exercise of stock options
|
1,113 | 28 | ||||||
Net
cash provided by (used in) financing activities
|
5,317 | (6,086 | ) | |||||
Increase
in cash and cash equivalents
|
7,890 | 7,284 | ||||||
Cash
and cash equivalents, beginning of year
|
47,934 | 4,719 | ||||||
Cash
and cash equivalents, end of year
|
$ | 55,824 | $ | 12,003 | ||||
Non-cash
investing activities:
|
||||||||
Capital
expenditures incurred, but not yet paid
|
$ | 118 | $ | 1,548 | ||||
Other
cash flow information:
|
||||||||
Cash
paid for income taxes
|
91 | 21 |
5
Peet’s
Coffee & Tea, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Basis of
Presentation
|
The
accompanying condensed consolidated financial statements of Peet’s Coffee &
Tea, Inc. and its subsidiaries (collectively, the “Company” or “Peet’s”) as of
April 4, 2010 and for the thirteen weeks ended April 4, 2010 and March 29, 2009
are unaudited and, in the opinion of management, contain all adjustments,
consisting only of normal recurring items necessary to present fairly the
financial position and results of operations for such periods. The information
included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read
in conjunction with the Company’s annual consolidated financial statements in
Peet’s Annual Report on Form 10-K for the year ended January 3, 2010 (the “2009
Form 10-K”).
The
results of operations for the thirteen weeks ended April 4, 2010 are not
necessarily indicative of the results expected for the full year.
We
evaluated all subsequent events that occurred after the balance sheet date
through the date and time our financial statements were
issued.
Recent
Accounting Pronouncements
On
January 21, 2010, the Financial Accounting Standards Board (“FASB”) issued
an Accounting Standards Update (“ASU”) on Measurements and Disclosures,” to add
new requirements for disclosures about transfers into and out of Levels 1 and 2
and separate disclosures about purchases, sales, issuances, and settlements
relating to Level 3 measurements. The ASU also clarifies existing fair
value disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value. We are required to comply with
the requirements of this ASU commencing the first day of our 2010 fiscal
year. This ASU did not have an impact to our condensed consolidated
financial statements except to require us to provide increased
disclosure.
In
February 2010, the FASB issued an ASU which amends Subtopic 855, “Subsequent
Events”, of the ASC. An entity that is an SEC filer is not required
to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between
Subtopic 855-10 and the SEC’s requirements.
Comprehensive
Income
For the
thirteen weeks ended April 4, 2010 and March 29, 2009, comprehensive income was
$3,051,000 and $3,010,000, respectively. Comprehensive income consists of net
income and net unrealized gains and losses on investments.
Net
Income per Share
Basic net
income per share is computed as net income divided by the weighted average
number of common shares outstanding for the period. Diluted net income per share
reflects the potential dilution that could occur from common shares issued
through stock options. Anti-dilutive shares of 47,469 and 1,567,229 have been
excluded from diluted weighted average shares outstanding for the thirteen week
periods ended April 4, 2010 and March 29, 2009, respectively.
The
number of incremental shares from the assumed exercise of stock options was
calculated by applying the treasury stock method. The following table summarizes
the differences between basic weighted average shares outstanding and diluted
weighted average shares outstanding used to compute diluted net income per share
(in thousands):
6
Thirteen
weeks
|
||||||||
April
4,
|
March
29,
|
|||||||
2010
|
2009
|
|||||||
Basic
weighted average shares outstanding
|
13,188 | 13,039 | ||||||
Incremental
shares from assumed exercise of stock options
|
621 | 202 | ||||||
Diluted
weighted average shares outstanding
|
13,809 | 13,241 |
2.
|
Fair Value
Measurements
|
The
Company adopted a single authoritative definition of fair value, a framework for
measuring fair value and expanded disclosure of fair value measurements for
financial assets and liabilities as of the beginning of the 2008 fiscal
year. The impact of adoption was not significant. ASC 820, “Fair
Value Measurements and Disclosures,” defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
Level 1 - Quoted prices in
active markets for identical assets or liabilities.
Level 2 - Inputs other than
quoted prices included within Level 1 that are either directly or indirectly
observable.
Level 3 - Unobservable inputs
that are supported by little or no market activity, therefore requiring an
entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
The
Company uses the market approach, as defined as Level 1 in the fair value
hierarchy, to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant
information generated by market transactions involving identical assets or
liabilities.
Unrealized
gains or losses on marketable securities are recorded in accumulated other
comprehensive income at each measurement date.
The
carrying value of cash and equivalents, restricted cash, receivables and
accounts payable approximates fair value.
Assets and Liabilities
Measured at Fair Value on a Non-Recurring Basis
The
Company measures certain non-financial assets and liabilities, including
long-lived assets, at fair value on a non-recurring basis, as deemed necessary.
As of April 4, 2010, the Company was not required to measure any non-financial
assets and liabilities at fair value.
7
3.
|
Inventories
|
The
Company’s inventories consist of the following (in thousands):
April
4,
|
January
3,
|
|||||||
2010
|
2010
|
|||||||
Green
coffee
|
$ | 13,930 | $ | 16,228 | ||||
Other
inventory
|
10,309 | 9,708 | ||||||
Total
|
$ | 24,239 | $ | 25,936 |
4.
|
Stock Purchase
Program
|
On
October 27, 2008, the Board of Directors approved a stock purchase program
providing for the purchase of up to one million shares of the Company’s common
stock, with no deadline for completion and the Company announced its plan on
October 28, 2008 on Form 8-K. During the thirteen weeks ended April
4, 2010, the Company purchased and retired 14,044 shares of common stock, at an
average price of $37.60, in accordance with this stock purchase program.
721,844 shares remain available for purchase under this stock purchase
program.
5.
|
Stock-Based
Compensation
|
Stock
Option Plans
The
Company maintains several equity incentive plans under which it may currently
grant non-qualified stock options to employees and non-employee
directors.
Changes
in stock options were as follows:
Weighted Average
|
Aggregate
|
|||||||||||||||
Weighted Average
|
Remaining
|
Intrinsic
|
||||||||||||||
Options
|
Exercise Price
|
Contractual
|
Value
|
|||||||||||||
Outstanding
|
Per Share
|
Life (Years)
|
(in thousands)
|
|||||||||||||
Outstanding
at January 3, 2010
|
2,764,225 | $ | 22.35 | 5.50 | $ | 30,400 | ||||||||||
Granted
|
54,500 | 33.70 | ||||||||||||||
Canceled
|
(3,994 | ) | 25.92 | |||||||||||||
Exercised
|
(219,553 | ) | 21.56 | |||||||||||||
Oustanding
at April 4, 2010
|
2,595,178 | $ | 22.66 | 5.46 | $ | 38,889 | ||||||||||
Vested
or expected to vest, April 4, 2010
|
2,462,150 | $ | 22.13 | 5.22 | $ | 37,455 | ||||||||||
Exercisable
at April 4, 2010
|
1,615,625 | $ | 20.07 | 3.94 | $ | 28,388 |
Stock-Based
Compensation
Stock-based
compensation expense consists of and was recognized in the condensed
consolidated statements of income as follows (in thousands):
Thirteen
weeks ended
|
||||||||
April
4,
|
March
29,
|
|||||||
2010
|
2009
|
|||||||
Stock-based
compensation expense
|
$ | 742 | $ | 592 | ||||
Employee
Stock Purchase Plan expense
|
- | 51 | ||||||
Total
|
$ | 742 | $ | 643 | ||||
Cost
of sales and related occupancy expenses
|
$ | 74 | $ | 45 | ||||
Operating
expenses
|
282 | 297 | ||||||
General
and administrative expenses
|
386 | 301 | ||||||
Total
|
$ | 742 | $ | 643 | ||||
Tax
benefit
|
$ | 302 | $ | 262 |
The fair
value of each option grant and Employee Stock Purchase Plan award is estimated
on the date of grant using the Black-Scholes-Merton option-pricing model with
the following assumptions:
Stock Options
|
||||
April
4,
|
||||
2010
|
||||
Expected
term in years
|
6.1 | |||
Expected
stock price volatility
|
37.8 | % | ||
Risk-free
interest rate
|
2.5 | % | ||
Expected
dividend yield
|
0.0 | % | ||
Estimated
fair value per option granted
|
$ | 13.72 |
6.
|
Line of
Credit
|
On
November 26, 2008, the Company entered into a credit agreement with Wells Fargo
Bank, National Association (“Wells Fargo”). The credit agreement
provides for a $25.0 million revolving line of credit, the proceeds of which may
be used in the general course of business, including to fund working capital,
capital expenditures, share repurchases and other needs of the Company. The line
of credit had an original maturity date of December 1, 2009, with an option by
the Company to extend the maturity date to December 1, 2010, which was exercised
pursuant to the terms of the credit agreement.
During
the thirteen weeks ended April 4, 2010 and as of April 4, 2010, there were no
borrowings under this agreement. Total unused borrowing capacity under the
credit agreement was $25.0 million as of April 4,
2010.
9
7.
|
Legal
Proceedings
|
We are
party to the significant legal proceedings described below. Based on our
experience, we believe that any damage amounts claimed in the specific matters
discussed below are not meaningful indicators of our potential liability. We
believe that we have valid defenses to these legal proceedings and are defending
the matters vigorously. Nevertheless, the outcome of any litigation is
inherently uncertain. We are currently unable to estimate the remaining possible
losses, if any, in the unresolved legal proceedings described below. Should any
one of these proceedings against us, or a combination of more than one, be
successful, or should we determine to settle any or a combination of these
matters on unfavorable terms, we may be required to pay substantial sums, which
could have a material impact on our financial position or results of
operations.
On
July 14, 2008, a complaint was filed against the Company in California
Superior Court, Alameda County, by three former employees on behalf of
themselves and all other California store managers. The complaint alleges that
store managers based in California were not paid overtime wages, were not
provided meal or rest periods, were not provided accurate wage statements and
were not reimbursed for business expenses. The plaintiffs seek injunctive
relief, monetary damages, penalties, costs and attorneys’ fees, and prejudgment
interest. On October 8, 2008, the Company filed an answer denying the
allegations set forth in the complaint and asserting a number of affirmative
defenses thereto. On November 12, 2008 the plaintiffs filed an amended
complaint asserting an additional claim for penalties On November 26, 2008
the Company filed an answer thereto denying the allegations in the first amended
complaint and asserting a number of affirmative defenses thereto. On
December 16, 2009, the Company reached a tentative settlement pursuant to
which we would deny any liability but agree to maximum payment of $2.6 million,
including plaintiff’s attorney’s fees. Any difference between the maximum
and the actual payment amount based on class participation is not expected to be
material. The parties appeared before the California Superior Court on
March 26, 2010 to seek the Court’s preliminary approval of the settlement
terms.
On March
9, 2010, a First Amended Complaint was filed in California Superior Court by
Amber Morgan and Norna Lai, on behalf of themselves and all other non-exempt
employees similarly situated in the state of California naming Peet’s Coffee
& Tea, Inc. as a defendant. The First Amended Complaint alleges claims
for unpaid overtime, unpaid meal and rest period premiums, unpaid business
expenses, unpaid minimum wages, untimely wages paid at time of termination,
untimely payment of wages, failure to pay vacation wages, violation of
California Business & Professions Code section 17200 and non-compliant wage
statements. The plaintiffs seek injunctive relief, restitution, monetary
damages, penalties under the California Labor Code Private Attorneys General
Act, costs and
attorneys’ fees, penalties, and prejudgment interest. The Company was
served with the First Amended Complaint on April 1, 2010. At this time, it is
not feasible to predict the outcome of or a range of loss, should a loss occur,
from this proceeding.
The
Company is involved in various other litigation and governmental proceedings,
not described above, that arise in the normal course of business. While it is
not possible to determine with certainty the ultimate outcome or the duration of
any such litigation or governmental proceedings, the Company believes, based on
current knowledge and the advice of counsel, that such litigation and
proceedings will not have a material impact on the Company’s financial position
or results of operations.
On
February 8, 2010, the Company received a letter from a law firm alleging
that the Company and several other well known sellers of coffee violate the
California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known
as Proposition 65, by failing to warn consumers that “ready-to-drink” coffee
contains a substance that is allegedly known to cause cancer. Under Proposition
65, the letter commenced a 60-day period during which the California Attorney
General was required to decide whether to take over or otherwise become involved
in this matter. That 60-day period has now expired, and the Attorney General has
not taken any steps to become involved in the matter to the best of our
knowledge. The law firm that served the letter on the Company, as
expected, filed a complaint on April 13, 2010, naming the Company along with
many others who serve ready-to-drink coffee. The complaint seeks statutory
penalties and costs of enforcement, as well as a court order that the Company is
required to provide warnings and other notices to customers. We intend to
respond to the complaint by the required deadline in mid-May. As this
matter is at a very early stage, we are not able to predict the probability of
the outcome or estimate of loss, if any, related to this
matter.
10
Currently,
the Company is not a party to any other legal proceedings that management
believes would have a material effect on the financial position or
results of operations of the Company.
8.
|
Segment
Information
|
The
Company operates in two reportable segments: retail and specialty
sales. Retail store operations consist of sales of whole bean coffee,
beverages, tea and related products through Company-operated retail
stores. Specialty sales consist of whole bean coffee sales through
three operating segments: grocery, home delivery, foodservice and
office.
Management
evaluates segment performance primarily based on revenue and segment operating
income. The following table presents certain financial information
for each segment. Segment income before taxes excludes unallocated
marketing expenses and general and administrative
expenses. Unallocated assets include cash, coffee inventory in the
warehouse, corporate headquarter assets and intangible and other assets (dollars
in thousands).
Retail
|
Specialty
|
Unallocated
|
Total
|
|||||||||||||||||||||||||
Percent
|
Percent
|
Percent
|
||||||||||||||||||||||||||
of Net
|
of Net
|
of Net
|
||||||||||||||||||||||||||
Amount
|
Revenue
|
Amount
|
Revenue
|
Amount
|
Revenue
|
|||||||||||||||||||||||
For
the thirteen weeks ended April 4, 2010
|
||||||||||||||||||||||||||||
Net
revenue
|
$ | 50,071 | 100.0 | % | $ | 31,125 | 100.0 | % | $ | 81,196 | 100.0 | % | ||||||||||||||||
Cost
of sales and occupancy
|
21,654 | 43.2 | % | 15,885 | 51.0 | % | 37,539 | 46.2 | % | |||||||||||||||||||
Operating
expenses
|
21,130 | 42.2 | % | 6,707 | 21.5 | % | 27,837 | 34.3 | % | |||||||||||||||||||
Depreciation
and amortization
|
2,749 | 5.5 | % | 432 | 1.4 | % | $ | 696 | 3,877 | 4.8 | % | |||||||||||||||||
Segment
operating income
|
4,538 | 9.1 | % | 8,101 | 26.0 | % | (7,822 | ) | 4,817 | 5.9 | % | |||||||||||||||||
Total
assets
|
54,027 | 17,720 | 134,727 | 206,474 | ||||||||||||||||||||||||
Capital
expenditures
|
1,519 | 191 | 913 | 2,623 | ||||||||||||||||||||||||
For
the thirteen weeks ended March 29, 2009
|
||||||||||||||||||||||||||||
Net
revenue
|
$ | 47,982 | 100.0 | % | $ | 24,122 | 100.0 | % | $ | 72,104 | 100.0 | % | ||||||||||||||||
Cost
of sales and occupancy
|
20,525 | 42.8 | % | 12,043 | 49.9 | % | 32,568 | 45.2 | % | |||||||||||||||||||
Operating
expenses
|
19,756 | 41.2 | % | 5,415 | 22.4 | % | 25,171 | 34.9 | % | |||||||||||||||||||
Depreciation
and amortization
|
2,762 | 5.8 | % | 427 | 1.8 | % | $ | 418 | 3,607 | 5.0 | % | |||||||||||||||||
Segment
operating income
|
4,939 | 10.3 | % | 6,237 | 25.9 | % | (6,356 | ) | 4,820 | 6.7 | % | |||||||||||||||||
Total
assets
|
58,885 | 16,248 | 96,807 | 171,940 | ||||||||||||||||||||||||
Capital
expenditures
|
1,731 | 707 | 1,349 | 3,787 |
11
You
should read the following discussion and analysis in conjunction with our
financial statements and related notes included elsewhere in this report. Except
for historical information, the discussion in this report contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In some cases, you can identify forward-looking
statements by terminology, such as “may,” “should,” “could,” “predict,”
“potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,”
“believe,” “estimate,” “forecast” and similar expressions (or the negative of
such expressions). The forward-looking statements in this Form 10-Q
include, but are not limited to, statements regarding our expectations for the
growth of the specialty coffee industry; our planned geographic expansion of our
retail presence; our plans to open new retail stores; our plans to expand into
new grocery markets; and our expectations for future revenue, margins, expenses,
operating results, inventory levels and capital expenditures. These statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. Forward-looking statements reflect our current views
with respect to future events, are based on assumptions, and are subject to
risks, uncertainties and other important factors. Given these risks,
uncertainties and other important factors, you should not place undue reliance
on these forward-looking statements. Also, forward-looking statements represent
our estimates and assumptions only as of the date of this report. Except as
required by law, we assume no obligation to update any forward-looking
statements publicly, or to update the reasons actual results could differ
materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future. Important factors that
could cause actual results to differ materially include, but are not limited to,
the following:
|
·
|
The recent
recession or a worsening of the United States and global economy could
materially adversely affect our business. Our revenues and performance
depend significantly on consumer confidence and spending, which have
deteriorated due to the recession and may remain depressed for the
foreseeable future. Some of the factors that could influence the levels of
consumer confidence and spending include, without limitation, continuing
conditions in the residential real estate and mortgage markets, access to
credit, labor and healthcare costs, increases in fuel and other energy
costs, consumer confidence and other macroeconomic factors affecting
consumer spending behavior. These and other economic factors could have a
material adverse effect on demand for our products and on our financial
condition and operating
results.
|
|
·
|
Increases in
the cost and decreases in availability of high quality arabica coffee beans
could impact our profitability and growth of our business. Although we do not purchase
coffee on the commodity markets, price movements in the commodity trading
of coffee impact the prices we pay. Coffee is a trade commodity and, in
general, its price can fluctuate depending on: weather patterns in
coffee-producing countries; economic and political conditions affecting
coffee-producing countries; foreign currency fluctuations; the ability of
coffee-producing countries to agree to export quotas; and general economic
conditions that make commodities more or less attractive investment
options. If costs increase and we are unable to pass along increased
coffee costs, our margin will decrease and our profitability will decrease
accordingly. In addition, if we are not able to purchase sufficient
quantities of high quality arabica beans due to any of the above factors,
we may not be able to fulfill the demand for our coffee, our revenue may
decrease and our ability to expand our business may be negatively
impacted.
|
|
·
|
A significant
interruption in the operation of our roasting and distribution facility
could potentially disrupt our operations. We have only one roasting and
distribution facility that roasts Peet’s coffee. A significant
interruption in the operation of our roasting and distribution facility,
whether as a result of a natural disaster, pandemic or other causes, could
significantly impair our ability to operate our business. Since we only
roast our coffee to order, we do not carry inventory of roasted coffee in
our roasting plant. Therefore, a disruption in service in our roasting
facility would impact our sales in our retail and specialty channels
almost immediately. Moreover, our roasting and distribution facility and
most of our stores are located near several major earthquake faults. The
impact of a major earthquake on our facilities, infrastructure and overall
operations is difficult to predict and an earthquake could seriously
disrupt our entire
business.
|
12
|
·
|
Complaints or
claims by current, former or prospective employees or governmental
agencies could adversely affect us. We are subject to a variety of
laws and 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. We have been, and in the future may be, the subject of
complaints or litigation from current, former or prospective employees or
governmental agencies. In addition, successful complaints against our
competitors may spur similar lawsuits against us. For instance, in 2003,
two lawsuits (which have since been settled) were filed against the
Company alleging misclassification of employment position and sought
damages, restitution, reclassification and attorneys’ fees and costs. On
July 14, 2008, a complaint was filed alleging that store managers based in
California were not paid overtime wages, were not provided meal or rest
periods, were not provided accurate wage statements and were not
reimbursed for business expenses. In addition, on March 9, 2010, a
complaint was filed by exempt employees on their own behalf and on behalf
of employees similarly situated alleging claims for unpaid overtime,
unpaid meal and rest period premiums, unpaid business expenses, unpaid
minimum wages, untimely wages paid at time of termination, untimely
payment of wages, failure to pay vacation wages and non-compliant wage
statements. These types of claims and litigation involving current, former
or prospective employees could divert our management’s 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.
|
For a
discussion of additional material risks and uncertainties that the Company
faces, see the discussion in the 2009 Form 10-K titled “Risk
Factors.”
Company
Overview and Industry Outlook
Peet’s is
a specialty coffee roaster and marketer of fresh,
deep-roasted whole bean coffee and tea sold through multiple channels
of distribution for home and away-from-home enjoyment. Founded in
Berkeley, California in 1966, Peet's has established a loyal customer base with
strong brand awareness in California. Our growth strategy is based on
the sale of whole bean coffee, tea and high-quality beverages in multiple
channels of distribution including our own retail stores, grocery, home
delivery, and foodservice and office accounts throughout the United
States.
As we
grow, we expect our operations to continue to be vertically integrated, allowing
us to control the quality of our product at all stages. We purchase high
quality arabica coffee beans from countries around the world, and we use our
artisan-roasting technique to bring out the distinctive flavor of our coffees.
Because roasted coffee is perishable, we are committed to delivering our coffee
under the strictest freshness standards. As a result, we do not stock or
inventory roasted coffee. We roast to order and ship fresh coffee daily to our
stores and customers. Control of purchasing, roasting, packaging and
distribution of our coffee allows us to maintain our commitment to freshness, is
cost effective, and enhances our margins and profit potential.
We expect
the specialty coffee industry to continue to grow. We believe that this
growth will be fueled by continued consumer interest in high quality coffee and
related products. We believe that by offering high-quality products to
consumers throughout the country, we will attract the same loyal customer base
that we have attracted in California.
We
believe growth opportunities exist in all of our distribution channels. We
believe that our specialty sales can expand to geographies where we do not have
a retail presence. Our first priority has been to develop primarily in the
western U.S. markets where we already have a presence and higher customer
awareness. In the long-term, we expect to continue to open new retail stores in
strategic west coast locations that meet our demographic profile and partner
with distributors and companies who share our passion for quality and freshness
and are willing and able to execute accordingly in the foodservice and office
environment. In grocery, we expect to continue to expand into new markets
although the full extent of our penetration will depend upon the development of
specialty coffee as a category in many markets.
While
coffee commodity costs began to decline in the second half of 2008, costs rose
steadily in 2009 and by year end returned to early 2008 levels. We expect the
commodity market to continue to be volatile as worldwide demand, the strength of
the dollar, and weather will continue to cause uncertainty in the
market.
Our net
revenues depend significantly on consumer confidence and spending, which have
deteriorated over that last two years due to the recession and may remain
depressed for the foreseeable future. Despite the recession, we have been able
to grow our revenues by opening new retail stores, adding new foodservice
accounts, and growing our business in our current grocery customer base. We
plan to open a handful of new stores for the remainder of 2010 in addition to
the one new store we opened in the first quarter of 2010.
13
Results
of Operations
The
following discussion on results of operations should be read in conjunction with
the condensed consolidated financial statements and accompanying notes and the
other financial data included elsewhere in this report.
Thirteen weeks ended
|
||||||||
April 4,
|
March 29,
|
|||||||
2010
|
2009
|
|||||||
Statement
of income as a percent of net revenue:
|
||||||||
Net
revenue
|
100.0 | % | 100.0 | % | ||||
Cost
of sales and related occupancy expenses
|
46.2 | 45.2 | ||||||
Operating
expenses
|
34.3 | 34.9 | ||||||
Transaction
related expenses
|
1.0 | - | ||||||
General
and administrative expenses
|
7.8 | 8.2 | ||||||
Depreciation
and amortization expenses
|
4.8 | 5.0 | ||||||
Income
from operations
|
5.9 | 6.7 | ||||||
Interest
income
|
- | 0.1 | ||||||
Income
before income taxes
|
5.9 | 6.8 | ||||||
Income
tax provision
|
2.2 | 2.6 | ||||||
Net
income
|
3.8 | % | 4.2 | % | ||||
Percent
of net revenue by business segment:
|
||||||||
Retail
stores
|
61.7 | % | 66.5 | % | ||||
Specialty
sales
|
38.3 | 33.5 | ||||||
Percent
of net revenue by business category:
|
||||||||
Whole
bean coffee and related products
|
55.4 | % | 51.7 | % | ||||
Beverages
and pastries
|
44.6 | 48.3 | ||||||
Cost
of sales and related occupancy expenses as a percent of segment
revenue:
|
||||||||
Retail
stores
|
43.2 | % | 42.8 | % | ||||
Specialty
sales
|
51.0 | 49.9 | ||||||
Operating
expenses as a percent of segment revenue:
|
||||||||
Retail
stores
|
42.2 | % | 41.2 | % | ||||
Specialty
sales
|
21.5 | 22.4 | ||||||
Percent
increase from prior year:
|
||||||||
Net
Revenue
|
12.6 | % | 7.4 | % | ||||
Retail
stores
|
4.4 | 7.6 | ||||||
Specialty
sales
|
29.0 | 7.1 | ||||||
Cost
of sales and related occupancy expenses
|
15.3 | 1.8 | ||||||
Operating
expenses
|
10.6 | 7.0 | ||||||
Transaction
related expenses
|
100.0 | - | ||||||
General
and administrative expenses
|
6.1 | 6.8 | ||||||
Depreciation
and amortization expenses
|
7.5 | 17.5 | ||||||
Selected
operating data:
|
||||||||
Number
of retail stores in operation
|
||||||||
Beginning
of the period
|
192 | 188 | ||||||
Store
openings
|
1 | 2 | ||||||
Store
closures
|
- | - | ||||||
End
of the period
|
193 | 190 |
14
Net
revenue
Net
revenue for the thirteen weeks ended April 4, 2010 increased $9.1 million, or
12.6%, versus the corresponding period in 2009 as a result of the continued
expansion of our retail and specialty sales segments. Sales of whole bean and
related products increased 20.6% to $44.9 million. Net revenue from beverages
and pastries increased 4.1% to $36.3 million.
In the
retail segment, net revenue increased $2.1 million, or 4.4%, compared to the
corresponding period in 2009 primarily as a result of increased sales from
stores operating for over one year and from the 3 net new stores we opened in
the last 12 months. Sales of whole bean coffee and related products in the
retail segment decreased by 2.3% to $13.9 million, while sales of beverages and
pastries increased by 7.1% to $36.2 million. The slower growth in whole bean and
related products was primarily due to continuing cannibalization of bean sales
in retail stores as we increased the availability and sales levels of Peet’s
coffee in grocery stores and our own new retail stores.
In the
specialty sales segment, net revenue increased $7.0 million, or 29%, compared to
the first quarter of 2009, as summarized by business channel below. The growth
in net revenue in grocery was due to increased share in existing markets and to
a lesser extent, the introduction of Godiva coffee in the fourth quarter of
2009. Net revenue in foodservice and office coffee sales increased due to new
accounts added over the last 12 months. Net revenue growth in the
home delivery channel was flat compared to the corresponding period in 2009 as
the effect of cannibalization from our grocery business expansion
stabilized.
Thirteen weeks ended
|
||||||||||||||||
(dollars in thousands)
|
April 4, 2010
|
March 29, 2009
|
Increase/(Decrease)
|
|||||||||||||
Grocery
|
$ | 18,643 | $ | 13,387 | $ | 5,256 | 39.3 | % | ||||||||
Foodservice
and office
|
8,480 | 6,706 | 1,774 | 26.5 | % | |||||||||||
Home
delivery
|
4,002 | 4,029 | (27 | ) | -0.7 | % | ||||||||||
Total
specialty
|
$ | 31,125 | $ | 24,122 | $ | 7,003 | 29.0 | % |
Cost
of sales and related occupancy expenses
Cost of
sales and related occupancy expenses consist of product costs, including
manufacturing costs, rent and other occupancy costs. As a percent of net
revenue, cost of sales increased from 45.2% in the first quarter of 2009 to
46.2% in the first quarter of 2010. The increase from last year was due to the
shift from retail towards specialty, which has a higher cost of sales, and
higher milk costs.
In the
retail segment, cost of sales and related occupancy expenses as a percent of net
revenue increased 0.4% primarily due to higher milk costs.
In the
specialty segment, cost of sales and related occupancy expenses as a percent of
net revenue increased 1.1% primarily due to the implementation of improved
everyday pricing in our grocery business in mid-2009 and the mix impact of
Godiva coffee, which has a lower margin.
For the
remainder of the year, we expect cost of sales and related occupancy expenses as
a percent of revenue to remain above last year levels, due to the mix shift
toward specialty and higher milk prices.
Operating
expenses
Operating
expenses consist of both retail and specialty segment operating costs, such as
employee labor and benefits, repairs and maintenance, supplies, training,
travel, banking and card processing fees. Operating expenses as a percentage of
net revenue decreased 0.6% to 34.3%. The decrease was primarily due to the mix
shift from retail towards specialty, which has lower operating costs, and
leverage of our DSD sales and distribution system, offset by investments in
training and repairs and maintenance in our stores and higher healthcare
costs.
15
In the
retail segment, operating expenses as a percent of net revenue increased 1.0%
primarily due to healthcare, training costs and higher repairs and maintenance
costs.
In the
specialty segment, operating expenses as a percent of net revenue decreased 0.9%
primarily due to leverage of our DSD sales and distribution system.
We expect
operating expenses as a percent of net revenue in 2010 to continue to improve
primarily due to the continued shift in business towards specialty
channels.
Transaction
related expenses
Transaction
related expenses consists of $0.8 million of external professional and legal
fees incurred to comply with a subpoena we received from the Federal Trade
Commission in connection with its anti-trust review of the proposed Green
Mountain Coffee Roasters acquisition of Diedrich Coffee.
General
and administrative expenses
General
and administrative expenses increased to $6.3 million compared to $5.9 million
for the corresponding period last year driven by higher payroll related costs
and professional and legal fees, partially offset by lower marketing costs
compared to the same prior year period.
Depreciation
and amortization expenses
Depreciation
and amortization expenses increased to $3.9 million, compared to $3.6 million
for the corresponding period last year. The increase was primarily due to the
implementation of a new ERP system in the third quarter of 2009.
Interest
(expense) income, net
We invest
in U.S. government, agency, municipal and equity securities. Interest income
includes interest income and gains or losses from the sale of these instruments.
Due to lower average balances during the quarter, our earnings were offset by
interest expense on our deferred compensation plan. During the corresponding
period of 2009 we earned $0.1 million.
Income
tax provision
The
effective income tax rate for the first quarter of 2010 is 36.6% compared to
37.7% during the first quarter of 2009 due to an increase in the benefit of the
domestic production deduction and hiring tax credits.
The
Company does not expect unrecognized tax benefits to change significantly within
the next 12 months.
Liquidity
and Capital Resources
At April
4, 2010 we had $55.8 million in cash and cash equivalents. Working capital was $78.7 million as of April 4,
2010.
Net cash
provided by operating activities was $4.6 million for the thirteen
weeks ended April 4, 2010 compared to $12.3 million for the same prior year
period. Operating cash flows were lower than the prior year period primarily due
to timing of payroll, coffee purchases, and income tax prepayments, and other
changes in working capital.
Net cash
used in investing activities was $2.1 million for the thirteen
weeks ended April 4, 2010 compared to net cash provided by investing activities
of $1.1 million in the prior year period. Investing activities primarily relate
to purchases of property, plant and equipment and maturities and purchases of
marketable securities. During the thirteen week period ended April 4, 2010, we
purchased property, plant and equipment totaling $2.6 million primarily related
to our one new store, information technology support systems and hardware to
support our growing infrastructure, and additional equipment and machinery for
our roasting facility. During the thirteen week period ended April 4, 2010,
there were no proceeds from maturities of marketable securities compared to $4.0
million in the prior year period. Proceeds from a release of restricted
investments totaled $0.6 million for the thirteen
week period ended April 4, 2010.
16
Net cash provided by financing
activities for the thirteen weeks ended April 4, 2010 was $5.3 million compared
to net cash used in financing activities of $6.1 million for the same prior year
period. Financing activities primarily relate to the proceeds from stock
option exercises, offset by repurchase of our common
stock.
The
Company’s obligations under the line of credit are guaranteed by the Company’s
wholly-owned subsidiary, Peet’s Operating Company, and secured by substantially
all of the Company’s and Peet’s Operating Company’s personal
property. The line of credit had an original maturity date of
December 1, 2009, with an option by the Company to extend the maturity date to
December 1, 2010, which was exercised pursuant to the terms of the credit
agreement.
Amounts
drawn under the credit agreement will bear interest (computed on the basis of a
360-day year, actual days elapsed) either (i) at a fluctuating rate per annum of
1.50% above, for any day, the rate of interest equal to LIBOR then in effect for
delivery for a 1 month period, or (ii) at a fixed rate per annum of 1.50% above
LIBOR in effect on the first day of the applicable period commencing on a
business day and continuing for 1, 3, or 6 months, as designated by the Company,
during which all or a portion of the outstanding principal balance will bear
interest determined in relation to LIBOR.
The
credit agreement contains customary affirmative and negative covenants,
including a requirement to maintain the Company’s financial condition in
accordance with certain ratios and thresholds, and events of default that permit
the Bank to accelerate the Company’s outstanding obligations, including
nonpayment of principal, interest, fees or other amounts, violation of
covenants, inaccuracy of representations and warranties and upon the occurrence
of bankruptcy and other adverse material change in the Company’s financial
condition. The Company is required to comply with the following financial
covenants as of each fiscal quarter end, as defined in the credit agreement: a
minimum Current Ratio not less than 0.75 to 1.0, a Leverage Ratio not greater
than 1.75 to 1.0, an EBITDAR Coverage Ratio not less than 1.75 to 1.0, and net
income after tax provision not less than $1.00.
During
the quarter ended and as of April 4, 2010, there were no borrowings under this
agreement. Total unused borrowing capacity under the credit agreement was $25.0
million as of April 4, 2010.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
We invest
excess cash in equity securities and interest-bearing, U.S. government, agency,
and municipal securities. These financial instruments are subject to stock
market volatility and fluctuations of daily interest rates. Therefore our
investment portfolio is exposed to market risk from these changes.
The
supply and price of coffee are subject to significant volatility and can be
affected by multiple factors in the producing countries, including weather,
political and economic conditions. In addition, green coffee bean prices have
been affected in the past, and may be affected in the future, by the actions of
certain organizations and associations that have historically attempted to
influence commodity prices of green coffee beans through agreements establishing
export quotas or restricting coffee supplies worldwide.
We
currently use fixed-price purchase commitments, but in the past have used and
may potentially in the future use coffee futures and coffee futures options to
manage coffee supply and price risk.
Fixed-Price
and Not-Yet-Priced Purchase Commitments
We enter
into fixed-price purchase commitments in order to secure an adequate supply of
quality green coffee beans and fix our cost of green coffee beans. These
commitments are made with established coffee brokers and are denominated in U.S.
dollars. We also enter into “not-yet-priced” commitments based on a fixed
premium over the New York “C” market with the option to fix the price at any
time. As of April 4, 2010, we had approximately $35.7 million in open
fixed-priced purchase commitments and approximately $3.1 million in
not-yet-priced commitments for a total of approximately $38.8 million with
delivery dates ranging from April 2010 through July 2011. We believe, based on
relationships established with our suppliers, that the risk of non-delivery on
such purchase commitments is low.
17
Item
4. Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934, as
amended, reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
As of
April 4, 2010, the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the quarter covered by this report at the
reasonable-assurance level.
There
have been no changes in our internal controls over financial reporting during
the fiscal quarter ended April 4, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
We are
party to the significant legal proceedings described below. Based on our
experience, we believe that any damage amounts claimed in the specific matters
discussed below are not meaningful indicators of our potential liability. We
believe that we have valid defenses to these legal proceedings and are defending
the matters vigorously. Nevertheless, the outcome of any litigation is
inherently uncertain. We are currently unable to estimate the remaining possible
losses, if any, in the unresolved legal proceedings described below. Should any
one of these proceedings against us, or a combination of more than one, be
successful, or should we determine to settle any or a combination of these
matters on unfavorable terms, we may be required to pay substantial sums, which
could have a material impact on our financial position or results of
operations.
On
July 14, 2008, a complaint was filed against the Company in California
Superior Court, Alameda County, by three former employees on behalf of
themselves and all other California store managers. The complaint alleges that
store managers based in California were not paid overtime wages, were not
provided meal or rest periods, were not provided accurate wage statements and
were not reimbursed for business expenses. The plaintiffs seek injunctive
relief, monetary damages, penalties, costs and attorneys’ fees, and prejudgment
interest. On October 8, 2008, the Company filed an answer denying the
allegations set forth in the complaint and asserting a number of affirmative
defenses thereto. On November 12, 2008 the plaintiffs filed an amended
complaint asserting an additional claim for penalties On November 26, 2008
the Company filed an answer thereto denying the allegations in the first amended
complaint and asserting a number of affirmative defenses thereto. On
December 16, 2009, the Company reached a tentative settlement pursuant to
which we would deny any liability but agree to maximum payment of $2.6 million,
including plaintiff’s attorney’s fees. Any difference between the maximum
and the actual payment amount based on class participation is not expected to be material. The parties appeared before the
California Superior Court on March 26, 2010 to seek the Court’s preliminary
approval of the settlement terms.
On March
9, 2010, a First Amended Complaint was filed in California Superior Court by
Amber Morgan and Norna Lai, on behalf of themselves and all other non-exempt
employees similarly situated in the state of California naming Peet’s Coffee
& Tea, Inc. as a defendant. The First Amended Complaint alleges claims
for unpaid overtime, unpaid meal and rest period premiums, unpaid business
expenses, unpaid minimum wages, untimely wages paid at time of termination,
untimely payment of wages, failure to pay vacation wages, violation of
California Business & Professions Code section 17200 and non-compliant wage
statements. The plaintiffs seek injunctive relief, restitution, monetary
damages, penalties under the California Labor Code Private Attorneys General
Act, costs and
attorneys’ fees, penalties, and prejudgment interest. The Company was
served with the First Amended Complaint on April 1, 2010. At this time, it is
not feasible to predict the outcome of or a range of loss, should a loss occur,
from this proceeding.
18
The
Company is involved in various other litigation and governmental proceedings,
not described above, that arise in the normal course of business. While it is
not possible to determine with certainty the ultimate outcome or the duration of
any such litigation or governmental proceedings, the Company believes, based on
current knowledge and the advice of counsel, that such litigation and
proceedings will not have a material impact on the Company’s financial position
or results of operations.
On
February 8, 2010, the Company received a letter from a law firm alleging
that the Company and several other well known sellers of coffee violate the
California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known
as Proposition 65, by failing to warn consumers that “ready-to-drink” coffee
contains a substance that is allegedly known to cause cancer. Under Proposition
65, the letter commenced a 60-day period during which the California Attorney
General was required to decide whether to take over or otherwise become involved
in this matter. That 60-day period has now expired, and the Attorney General has
not taken any steps to become involved in the matter to the best of our
knowledge. The law firm that served the letter on the Company, as
expected, filed a complaint on April 13, 2010, naming the Company along with
many others who serve ready-to-drink coffee. The complaint seeks statutory
penalties and costs of enforcement, as well as a court order that the Company is
required to provide warnings and other notices to customers. We intend to
respond to the complaint by the required deadline in mid-May. As this
matter is at a very early stage, we are not able to predict the probability of
the outcome or estimate of loss, if any, related to this matter.
Currently,
the Company is not a party to any other legal proceedings that management
believes would have a material effect on the financial position or results of
operations of the Company.
Item
1A. Risk Factors
Not
applicable.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Information
regarding purchases of the Company’s securities by or on behalf of the Company
is set forth in the table below.
Repurchases
of Equity Securities
Period
|
Total Number of
Shares Purchased
|
Average Price Paid
per Share
|
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
|
Maximum Number of Shares
that May Yet Be Purchased
Under the Plans or Programs
|
||||||||||||
January
4, 2010 -
February
7, 2010
|
- | $ | - | 264,112 | 735,888 | |||||||||||
February
8, 2010- (1)
March
7, 2010
|
9,857 | $ | 37.46 | 273,969 | 726,031 | |||||||||||
March
8, 2010- (1)
April
4, 2010
|
4,187 | $ | 37.93 | 278,156 | 721,844 |
(1)
|
Repurchases
were made pursuant a stock repurchase program announced on October 27,
2008, providing for the additional purchase of up to one million shares of
the Company’s common stock, with no deadline for
completion. Purchases under the program would be made from time
to time on the open market at prevailing market prices or in negotiated
transactions off the market.
|
19
Item
5. Other Information
On
February 4, 2010, based on the Company meeting its 2009 financial and strategic
objectives (including the achievement of the maximum funding level on the
financial objective), the Committee approved cash bonus payments to Messrs.
O’Dea and Cawley and Mses. Bogeajis and Lansing of $360,605, $187,834, $116,623
and $138,099, respectively. These payments represented the maximum 167% of
incentive target available and was the same funding percent applied to all
participating executives.
This
disclosure is provided in lieu of disclosure under Item 5.02(e) of Form
8-K.
Item
6. Exhibits
Exhibit
|
Description
|
|
3.1
|
Amended
and Restated Articles of Incorporation. Incorporated by reference to
Exhibit 3.6 to the Company’s Amendment No. 2 to its Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on December
22, 2000 (File. No. 333-47976).
|
|
3.2
|
Amended
and Restated Bylaws. Incorporated by reference to Exhibit 3.8 to the
Company’s Amendment No. 1 to its Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on December 1, 2000 (File. No.
333-47976).
|
|
4.1
|
Form
of common stock certificate. Incorporated by reference to Exhibit 4.1 to
the Company’s Amendment No. 2 to its Registration Statement on Form S-1
filed with the Securities and Exchange Commission on December 22, 2000
(File. No. 333-47976).
|
|
10.1
|
Nonqualified
Supplemental Deferred Compensation Plan Adoption Agreement dated as of
December 11, 2009, and related Plan Document.
|
|
10.2
|
Letter
Agreement between the Company and P. Christine Lansing, dated as of April
9, 2010.
|
|
31.1
|
Certification
of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
|
|
31.2
|
Certification
of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
|
|
32.1
|
Certification
of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to
Section 906 of Sarbanes-Oxley Act of
2002.
|
20
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.
PEET’S
COFFEE & TEA, INC.
|
||
Date:
May 13, 2010
|
By:
|
/s/ Thomas
P. Cawley
|
Thomas
P. Cawley
|
||
Vice
President, Chief Financial Officer and
Secretary
|
21