Attached files
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EXCEL - IDEA: XBRL DOCUMENT - COSI INC | Financial_Report.xls |
EX-32.1 - EX-32.1 - COSI INC | a11-25891_1ex32d1.htm |
EX-31.2 - EX-31.2 - COSI INC | a11-25891_1ex31d2.htm |
EX-31.1 - EX-31.1 - COSI INC | a11-25891_1ex31d1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 26, 2011
OR
o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 000-50052
COSÌ, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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06-1393745 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
1751 Lake Cook Road
Deerfield, Illinois 60015
(Address of principal executive offices) (Zip Code)
(847) 597-8800
(Registrants 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 Website, 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 x 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 definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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 x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares of Common Stock, $.01 par value, outstanding as of November 8, 2011: 51,849,511
COSI, INC.
For the nine-month period ended September 26, 2011
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Page Number |
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Consolidated Balance Sheets as of September 26, 2011 and December 27, 2010 |
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3 |
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4 | |
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Consolidated Statement of Stockholders Equity Nine-month period ended September 26, 2011 |
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5 |
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6 | |
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7-12 | |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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13-27 | |
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27 | ||
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27-28 | ||
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29 | ||
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29 | ||
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29 | ||
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30 | ||
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31 | ||
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CERTIFICATIONS |
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32-34 |
Cosi, Inc.
As of September 26, 2011 and December 27, 2010
(dollars in thousands)
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September 26, 2011 |
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December 27, 2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
8,106 |
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$ |
10,307 |
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Accounts receivable, net |
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688 |
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697 |
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Notes receivable, current portion |
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571 |
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506 |
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Inventories |
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726 |
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744 |
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Prepaid expenses and other current assets |
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599 |
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1,639 |
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Total current assets |
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10,690 |
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13,893 |
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Furniture and fixtures, equipment and leasehold improvements, net |
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12,998 |
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15,009 |
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Notes receivable, net of current portion |
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865 |
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1,195 |
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Other assets |
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1,131 |
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1,254 |
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Total assets |
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$ |
25,684 |
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$ |
31,351 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts payable |
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$ |
3,343 |
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$ |
2,992 |
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Accrued expenses |
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8,397 |
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9,237 |
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Deferred franchise revenue |
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61 |
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61 |
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Current portion of other long-term liabilities |
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377 |
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545 |
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Total current liabilities |
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12,178 |
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12,835 |
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Deferred franchise revenue |
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2,150 |
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2,238 |
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Other long-term liabilities, net of current portion |
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3,616 |
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4,592 |
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Total liabilities |
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17,944 |
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19,665 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock - $.01 par value; 100,000,000 shares authorized, 51,849,511 and 51,682,891 shares issued, respectively |
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518 |
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517 |
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Additional paid-in capital |
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283,706 |
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283,388 |
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Treasury stock, 239,543 shares at cost |
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(1,198 |
) |
(1,198 |
) | ||
Accumulated deficit |
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(275,286 |
) |
(271,021 |
) | ||
Total stockholders equity |
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7,740 |
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11,686 |
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Total liabilities and stockholders equity |
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$ |
25,684 |
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$ |
31,351 |
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The accompanying notes are an intergral part of these consolidated financial statements.
Cosi, Inc.
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended September 26, 2011 and September 27, 2010
(dollars in thousands, except share and per share data)
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Three Months Ended |
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Nine Months Ended |
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September 26, |
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September 27, |
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September 26, |
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September 27, |
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2011 |
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2010 |
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2011 |
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2010 |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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Revenues: |
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Restaurant net sales |
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$ |
24,468 |
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$ |
26,341 |
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$ |
73,586 |
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$ |
82,004 |
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Franchise fees and royalties |
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868 |
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782 |
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2,356 |
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2,340 |
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Total revenues |
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25,336 |
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27,123 |
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75,942 |
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84,344 |
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Costs and expenses: |
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Cost of food and beverage |
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5,761 |
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5,835 |
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17,013 |
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18,730 |
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Restaurant labor and related benefits |
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8,957 |
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9,684 |
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26,714 |
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30,979 |
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Occupancy and other restaurant operating expenses |
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7,777 |
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8,257 |
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23,453 |
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26,005 |
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22,495 |
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23,776 |
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67,180 |
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75,714 |
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General and administrative expenses |
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3,311 |
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3,156 |
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9,759 |
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10,108 |
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Depreciation and amortization |
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1,090 |
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1,096 |
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3,180 |
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3,672 |
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Provision for losses on asset impairments and disposals |
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44 |
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88 |
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199 |
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300 |
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Lease termination expense and closed store costs |
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5 |
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172 |
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70 |
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184 |
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Gain on sale of assets |
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(108 |
) |
(59 |
) |
(149 |
) |
(5,266 |
) | ||||
Total costs and expenses |
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26,837 |
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28,229 |
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80,239 |
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84,712 |
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Operating loss |
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(1,501 |
) |
(1,106 |
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(4,297 |
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(368 |
) | ||||
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Interest income |
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1 |
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1 |
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Interest expense |
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(1 |
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(1 |
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(3 |
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Other income |
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10 |
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10 |
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33 |
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13 |
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Net loss |
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$ |
(1,491 |
) |
$ |
(1,096 |
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$ |
(4,265 |
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$ |
(357 |
) |
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Per Share Data: |
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Loss per share, basic and diluted |
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$ |
(0.03 |
) |
$ |
(0.02 |
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$ |
(0.08 |
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$ |
(0.01 |
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Weighted average shares outstanding: |
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51,421,168 |
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51,228,298 |
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51,345,112 |
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50,439,627 |
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The accompanying notes are an integral part of these consolidated financial statements.
Cosi, Inc.
Consolidated Statement of Stockholders Equity
For the Nine Months Ended September 26, 2011
(unaudited)
(dollars in thousands, except share data)
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Common Stock |
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Treasury Stock |
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Additional |
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Number of |
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Paid In |
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Number of |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Deficit |
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Total |
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Balance, December 27, 2010 |
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51,682,891 |
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$ |
517 |
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$ |
283,388 |
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239,543 |
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$ |
(1,198 |
) |
$ |
(271,021 |
) |
$ |
11,686 |
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Issuance of restricted stock, net of forfeitures |
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56,000 |
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Stock-based compensation |
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110,620 |
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1 |
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318 |
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319 |
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Net loss |
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(4,265 |
) |
(4,265 |
) | |||||
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Balance, September 26, 2011 |
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51,849,511 |
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$ |
518 |
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$ |
283,706 |
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239,543 |
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$ |
(1,198 |
) |
$ |
(275,286 |
) |
$ |
7,740 |
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The accompanying notes are an integral part of these consolidated financial statements.
Cosi, Inc.
Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended September 26, 2011 and September 27, 2010
(dollars in thousands)
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September 26, |
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September 27, |
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(Unaudited) |
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(Unaudited) |
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Cash flows from operating activities: |
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Net loss |
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$ |
(4,265 |
) |
$ |
(357 |
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Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization |
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3,180 |
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3,672 |
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Gain on sale of restaurants |
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(5,120 |
) | ||
Gain on sale of assets |
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(149 |
) |
(146 |
) | ||
Non-cash portion of asset impairments and disposals |
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199 |
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300 |
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Provision for bad debts |
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76 |
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13 |
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Stock-based compensation expense |
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319 |
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488 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(67 |
) |
(222 |
) | ||
Notes receivable |
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265 |
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(256 |
) | ||
Inventories |
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17 |
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185 |
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Prepaid expenses and other current assets |
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1,040 |
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1,392 |
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Other assets |
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28 |
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303 |
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Accounts payable and accrued expenses |
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(524 |
) |
(2,489 |
) | ||
Deferred franchise revenue |
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(88 |
) |
(308 |
) | ||
Lease termination accrual |
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(111 |
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127 |
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Other liabilities |
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(997 |
) |
(882 |
) | ||
Net cash used in operating activities |
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(1,077 |
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(3,300 |
) | ||
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Cash flows from investing activities: |
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Proceeds from sale of restaurants |
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6,400 |
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Capital expenditures |
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(1,368 |
) |
(806 |
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Proceeds from sale of assets |
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244 |
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184 |
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Return of security deposits |
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48 |
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Net cash (used in) provided by investing activities |
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(1,124 |
) |
5,826 |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
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5,168 |
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Common stock issuance costs |
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(273 |
) | ||
Net cash provided by financing activities |
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4,895 |
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Net (decrease) increase in cash and cash equivalents |
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(2,201 |
) |
7,421 |
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Cash and cash equivalents, beginning of period |
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10,307 |
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4,079 |
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Cash and cash equivalents, end of period |
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$ |
8,106 |
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$ |
11,500 |
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Supplemental disclosure of cash flow information: |
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Cash paid for: |
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Corporate franchise and income taxes |
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$ |
55 |
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$ |
201 |
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The accompanying notes are an integral part of these consolidated financial statements.
COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). In our opinion, the financial statements reflect all adjustments that are necessary for a fair presentation of the results of operations for the periods shown. All such adjustments are of a normal recurring nature. In preparing financial statements in conformity with U.S. GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
As used in this quarterly report on Form 10-Q, unless the context requires otherwise, the terms we, our, Company or Cosi refer to Cosi, Inc. and its consolidated subsidiaries.
The balance sheet at December 27, 2010 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The results for the three and nine-month periods ended September 26, 2011 and September 27, 2010 are not indicative of the results for the full fiscal year.
Certain amounts in the September 27, 2010 consolidated statement of cash flows have been reclassified to conform to the September 26, 2011 presentation.
This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 27, 2010, as filed with the Securities and Exchange Commission (SEC).
There have been no material changes to our significant accounting policies and estimates from the information provided in Note 1 of our consolidated financial statements included in our Form 10-K for the fiscal year ended December 27, 2010.
Note 2 Stock-Based Compensation Expense
A summary of non-cash, stock-based compensation expense is as follows:
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For the Three Months Ended |
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For the Nine Months Ended |
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(in thousands) |
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(in thousands) |
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September 26, |
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September 27, |
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September 26, |
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September 27, |
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Stock option compensation expense |
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$ |
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$ |
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$ |
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$ |
1 |
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Restricted stock compensation expense, net of forfeitures |
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68 |
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125 |
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319 |
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487 |
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Total non-cash, stock-based compensation expense, net of forfeitures |
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$ |
68 |
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$ |
125 |
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$ |
319 |
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$ |
488 |
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As of September 26, 2011, all compensation expense related to stock options granted under the Companys various incentive plans have been recognized in full. In addition, as of September 26, 2011, there was approximately $0.2 million of total unrecognized compensation expense related to restricted stock shares granted under the Cosi, Inc. 2005 Omnibus Long-Term Incentive Plan (the 2005 Plan). The expense related to these grants is being recognized on a straight-line basis from the date of each grant through fiscal 2015.
COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) continued
In the nine-month period ended September 26, 2011, pursuant to the 2005 Plan and in accordance with the terms and conditions prescribed by the Compensation Committee of our Board of Directors, we granted and issued 98,000 restricted stock shares and 100,000 restricted stock units to key employees. The vesting of these shares and stock units will occur as follows: (i) 20% of the stock shares and stock units vested on the grant date, and (ii) an additional 20% of the stock shares and stock units will vest on each anniversary of the grant date provided that at each such date the employee continues to be employed by the Company. The value of the shares and the stock units for the grants made in the nine-month period ended September 26, 2011, based on the closing price of our common stock on the date of the grants, was approximately $0.3 million. In the nine-month period ended September 27, 2010, we granted and issued 238,250 restricted stock shares and 200,000 restricted stock units of our authorized but unissued common stock to key employees. The value of the shares and the stock units for the grants made during that period, based on the closing price of our common stock on the date of the grants, was approximately $0.4 million. No restricted shares or stock units were issued during the three months ended September 26, 2011 and September 27, 2010.
In the three-month period ended September 26, 2011, 200,000 shares of previously issued restricted stock units were forfeited. The value of the forfeited stock units, based on the closing price of our common stock on the date of the grants, was approximately $0.2 million. During the third quarter of fiscal 2010, the value of the forfeited restricted shares of common stock was immaterial. During the nine-month periods ended September 26, 2011 and September 27, 2010, 42,000 and 21,950 shares, respectively, of previously issued restricted stock shares were forfeited. The value of the forfeited shares, based on the closing price of our common stock on the date of the grants, was approximately $0.02 million and $0.03 million in the nine-month periods ended September 26, 2011 and September 27, 2010, respectively. The accompanying consolidated statements of operations for the nine-month periods ended September 26, 2011 and September 27, 2010 reflects the reversal of approximately $0.06 million and $0.01 million, in each nine-month period, of previously amortized costs related to forfeited shares and units of common stock.
On September 23, 2011, James Hyatt resigned as the Companys Chief Executive Officer, President, and Director. As a result of his resignation, Mr. Hyatt forfeited 200,000 shares of previously issued restricted stock units, as noted in the preceding paragraph. The value of these stock units, based on the closing price of our common stock on the date of each of the grants, was approximately $0.2 million. Of the previously amortized stock compensation costs reversed during the third quarter of fiscal 2011, the entire amount of approximately $0.03 million was related to Mr. Hyatts forfeitures
In the nine-month periods ended September 26, 2011 and September 27, 2010, we issued 110,620 and 152,440 shares, respectively, of our restricted stock shares to members of the Board of Directors pursuant to the 2005 Plan. These shares had an aggregate value of approximately $0.1 million at the time of issuance in both years and vested upon issuance.
Stock-based compensation expense relating to restricted stock grants of approximately $0.1 million is included in the accompanying consolidated statement of operations for each of the quarters ended September 26, 2011 and September 27, 2010. For the nine-month periods ended September 26, 2011 and September 27, 2010, stock-based compensation expense relating to restricted stock grants is $0.3 million and $0.4 million, respectively.
COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) continued
Note 3 Earnings Per Share
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For the Three Months Ended |
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For the Nine Months Ended |
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(net loss in thousands) |
|
(net loss in thousands) |
| ||||||||
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|
September 26, |
|
September 27, |
|
September 26, |
|
September 27, |
| ||||
Net loss |
|
$ |
(1,491 |
) |
$ |
(1,096 |
) |
$ |
(4,265 |
) |
$ |
(357 |
) |
Shares: |
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares outstanding |
|
51,421,168 |
|
51,228,298 |
|
51,345,112 |
|
50,439,627 |
| ||||
|
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|
|
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|
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| ||||
Basic and diluted loss per share |
|
$ |
(0.03 |
) |
$ |
(0.02 |
) |
$ |
(0.08 |
) |
$ |
(0.01 |
) |
Basic and diluted loss per common share is calculated by dividing the net loss by the weighted-average common shares outstanding during each period. As of September 26, 2011 and September 27, 2010, there were, respectively, 188,800 and 215,050 unvested restricted shares of common stock outstanding and 447,228 and 548,312 out-of-the-money stock options to purchase shares of common stock. There were no in-the-money stock options as of September 26, 2011 and September 27, 2010. The unvested restricted shares of common stock meet the requirements for participating securities but were not included in the computation of basic and diluted earnings per share because we incurred a net loss in all periods presented and, hence, the impact would be anti-dilutive. The outstanding out-of-the-money stock options to purchase shares of common stock at September 26, 2011 and September 27, 2010 do not meet the requirements for participating securities and were not included in the computation of basic and diluted earnings per share.
In the nine months ended September 27, 2010, the effect on basic and diluted earnings per share attributable to the approximately $5.1 million gain from the sale of the thirteen restaurants to a franchisee in the District of Columbia was net income of $0.10 per basic and diluted common share. Excluding this gain from our net loss, we would have realized a net loss per basic common weighted average share outstanding of ($0.11) in the nine months ended September 27, 2010.
Note 4 Asset Impairments
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 360 (ASC Topic 360), Property, Plant & Equipment, we evaluate possible impairments at the individual restaurant level periodically and record an impairment loss whenever we determine impairment factors are present. We consider a history of poor financial operating performance to be the primary indicator of potential impairment for individual restaurant locations. We determine whether a restaurant location is impaired based on expected undiscounted cash flows, generally for the remainder of the lease term, and then determine the impairment charge based on discounted cash flows for the same period.
Restaurants are not considered for impairment during the period before they enter the comparable restaurant base, unless specific circumstances warrant otherwise.
We did not record any asset impairments in the three months ended September 26, 2011. The impairment charge in the nine months ended September 26, 2011 relates to one underperforming restaurant. In the three months ended September 27, 2010, we recorded an asset impairment charge of approximately $0.1 million related to maintenance capital expenditures for previously impaired restaurants. In the nine months ended September 27, 2010, we recorded an asset impairment charge of approximately $0.3 million related to two underperforming restaurants.
COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) continued
Note 5 Lease Termination Costs
In the nine-month periods ended September 26, 2011 and September 27, 2010, we incurred lease termination costs of approximately $0.02 million, in each of the periods, related to the closing of two restaurants.
Future store closings, if any, may result in additional lease termination charges. The incurrence of additional lease termination costs will be dependent on our ability to improve operations in those restaurants. If unsuccessful, lease termination costs will be determined through negotiating acceptable terms with our landlords to terminate the leases for those restaurants or on our ability to locate sub-tenants or assignees for the leases at those locations.
Note 6 Contingencies
From time to time, we are a defendant in litigation arising in the ordinary course of our business, including but not limited to claims resulting from slip and fall accidents, claims under federal and state laws governing access to public accommodations or other federal and state laws applicable to our business operations, employment-related claims, property damages, claims from guests alleging illness, injury or other food quality, health or operational concerns, and enforcement of intellectual property rights.
As of the date of this report, there are no legal proceedings pending which, at this time, are expected to have a material adverse effect if decided against the Company.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
On August 23, 2011, Cosi, Inc. (the Company) received notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the bid price for the Companys common stock had closed below the minimum $1.00 per share required for continued inclusion on The Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1). The notification letter states that the Company will be afforded 180 calendar days, or until February 21, 2012, to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of the Companys common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days. The Company intends to actively monitor the bid price for its common stock between now and February 21, 2012, and will consider all available options to resolve the deficiency and regain compliance with the Nasdaq minimum bid price requirement.
Additionally, on August 24, 2011, the Company received notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the market value of the Companys listed securities (MVLS) had closed below the minimum $50,000,000 required for continued listing on The Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(A). The notification letter states that the Company will be afforded 180 calendar days, or until February 21, 2012, to regain compliance with the minimum MVLS requirement. In order to regain compliance, the Company must maintain a minimum MVLS of at least $50,000,000 for a minimum of ten consecutive business days. The Company intends to actively monitor its MVLS between now and February 21, 2012, and will consider all available options to resolve the deficiency and regain compliance with the Nasdaq minimum MVLS requirement.
Other Events
On September 23, 2011, James Hyatt resigned as the Companys Chief Executive Officer, President and Director. The Board of Directors appointed Mark Demilio, the Companys current Chairman of the Board, as Interim Chief Executive Officer of the Company until a successor for Mr. Hyatt is identified. The Board of Directors has created a search committee to select and appoint a permanent Chief Executive Officer and President.
COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) continued
Note 7 Income Taxes
We have recorded a full valuation allowance to reduce our deferred tax assets related primarily to net operating loss carryforwards. Our determination of the valuation allowance is based on an evaluation of whether it is more likely than not that we will be able to utilize the net operating loss carryforwards, based on the Companys operating results. A positive adjustment to income will be recorded in future years if we determine that we could realize these deferred tax assets.
As of December 27, 2010, we had net operating loss (NOL) carryforwards of approximately $193.9 million for U.S. federal income tax purposes. Under the Internal Revenue Code, an ownership change with respect to a corporation can significantly limit the amount of pre-ownership change NOLs and certain other tax assets that the corporation may utilize after the ownership change to offset future taxable income, possibly reducing the amount of cash available to the corporation to satisfy its obligations. An ownership change generally would occur if the aggregate stock ownership of holders of at least 5% of our stock increases by more than 50 percentage points over the preceding three year period. We do not believe that the rights offering that we filed during our first quarter of fiscal 2010 has triggered an ownership change. In addition, a limitation would not have an impact on our consolidated financial statements as we have recorded a valuation allowance for the entire amount of our deferred tax assets.
We adopted ASC 740-10, Income Taxes, which prescribes a comprehensive financial statement model of how a company should recognize, measure, present and disclose uncertain tax positions that the company has taken or expects to take in its income tax returns. The standard requires that only income tax benefits that meet the more likely than not recognition threshold be recognized or continue to be recognized on the effective date. Initial recognition amounts would have been reported as a cumulative effect of a change in accounting principle.
No adjustment was made to the beginning retained earnings balance in fiscal 2007, as the ultimate deductibility of all tax positions is highly certain but there is uncertainty about the timing of such deductibility. No interest or penalties have been accrued relative to tax positions due to the Company having either a tax loss or net operating loss carryforwards to offset any taxable income in all subject years. As a result, no liability for uncertain tax positions has been recorded.
Should the Company need to accrue interest or penalties on uncertain tax positions, it would recognize the interest as interest expense and the penalties as a general and administrative expense.
Due to our unexpired NOLs, Cosi could be subject to IRS income tax examination for the tax year 1996 and all subsequent years. We could also be subject to state income tax examinations in certain states where we have unexpired NOLs.
Note 8 New Accounting Pronouncements
In May 2011, FASB issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a significant impact to the Companys consolidated financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate
COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) continued
but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 is not expected to have a significant impact to the Companys consolidated financial position or results of operations.
In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. ASU 2011-08 simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The adoption of ASU 2011-08 did not have a significant impact to the Companys consolidated financial position or results of operations.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a significant impact on our consolidated financial statements upon adoption.
Item 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the fiscal quarters ended September 26, 2011 and September 27, 2010 should be read in conjunction with Selected Consolidated Financial Data and our audited consolidated financial statements and the notes to those statements that are in our 2010 Annual Report on Form 10-K. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Note Regarding Forward-Looking Statements below and elsewhere in this Quarterly Report.
OVERVIEW
System-wide restaurants:
|
|
For the Three Months Ended |
| ||||||||||
|
|
September 26, 2011 |
|
September 27, 2010 |
| ||||||||
|
|
Company- |
|
Franchise |
|
Total |
|
Company- |
|
Franchise |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants at beginning of period |
|
81 |
|
59 |
|
140 |
|
86 |
|
58 |
|
144 |
|
New restaurants opened |
|
|
|
|
|
|
|
|
|
1 |
|
1 |
|
Restaurants permanently closed |
|
1 |
|
1 |
|
2 |
|
1 |
|
|
|
1 |
|
Restaurants at end of period |
|
80 |
|
58 |
|
138 |
|
85 |
|
59 |
|
144 |
|
|
|
For the Nine Months Ended |
| ||||||||||
|
|
September 26, 2011 |
|
September 27, 2010 |
| ||||||||
|
|
Company- |
|
Franchise |
|
Total |
|
Company- |
|
Franchise |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants at beginning of period |
|
83 |
|
59 |
|
142 |
|
99 |
|
46 |
|
145 |
|
Company-owned sold to franchisee |
|
|
|
|
|
|
|
13 |
|
13 |
|
|
|
New restaurants opened |
|
|
|
|
|
|
|
|
|
2 |
|
2 |
|
Restaurants permanently closed |
|
3 |
|
1 |
|
4 |
|
1 |
|
2 |
|
3 |
|
Restaurants at end of period |
|
80 |
|
58 |
|
138 |
|
85 |
|
59 |
|
144 |
|
As of September 26, 2011, there were 80 Company-owned and 58 franchised premium convenience restaurants operating in 17 states, the District of Columbia, and the United Arab Emirates (UAE). During the three months ended September 26, 2011, we closed one Company-owned restaurant in Meadowbrook, Michigan at the end of its operating lease and one franchised restaurant in Florida closed. During the nine months ended September 26, 2011, we closed three Company-owned restaurants, one in Illinois, New York and Michigan. Subsequent to the end of the third quarter of 2011, one franchised restaurant in Normal, IL closed.
Our restaurants offer innovative, savory, made-to-order products featuring our authentic hearth-baked crackly crust signature Cosi® flatbread and fresh distinctive ingredients. We maintain a pipeline of new menu offerings that are introduced seasonally through limited time offerings to keep our products relevant to our target customers. Our menu features high-quality sandwiches, freshly-tossed salads, breakfast wraps, Cosi® Squagels®, hot melts, flatbread pizzas, Smores and other desserts, and a variety of coffees along with other soft drink beverages, bottled beverages including premium still and sparkling water, teas, alcoholic beverages, and other specialty coffees and beverages. Our restaurants offer lunch and afternoon coffee in a counter-service format, with most offering breakfast and/or dinner and dessert menus as well.
We are currently eligible to offer franchises in 47 states and the District of Columbia. We offer franchises to area
developers and individual franchise operators. The initial franchise fee, payable to us, for both an area developer and an individual franchise operator, is $40,000 for the first restaurant and $35,000 for each additional restaurant.
We believe that offering Cosi® franchised restaurants to area developers and individual franchisees offers the prospects of strong financial returns. By franchising, we believe we will be able to increase the presence of our restaurants in various markets throughout the country and generate additional revenue without the large upfront capital commitments and risk associated with opening Company-owned restaurants.
We believe that incorporating a franchising and area developer model into our strategy will position us to maximize the market potential for the Cosi® brand and concept consistent with our available capital, and we expect that Company-owned restaurants (restaurants that we own as opposed to franchised restaurants) will always be an important part of our new restaurant growth.
We also continue to explore strategic opportunities with our Cosi Pronto® (our grab-and-go concept) and full-service concepts in educational establishments, airports, train stations and other public venues that meet our operating and financial criteria.
Recent Developments
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
On August 23, 2011, Cosi, Inc. (the Company) received notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the bid price for the Companys common stock had closed below the minimum $1.00 per share required for continued inclusion on The Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1). The notification letter states that the Company will be afforded 180 calendar days, or until February 21, 2012, to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of the Companys common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days. The Company intends to actively monitor the bid price for its common stock between now and February 21, 2012, and will consider all available options to resolve the deficiency and regain compliance with the Nasdaq minimum bid price requirement.
Additionally, on August 24, 2011, the Company received notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the market value of the Companys listed securities (MVLS) had closed below the minimum $50,000,000 required for continued listing on The Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(A). The notification letter states that the Company will be afforded 180 calendar days, or until February 21, 2012, to regain compliance with the minimum MVLS requirement. In order to regain compliance, the Company must maintain a minimum MVLS of at least $50,000,000 for a minimum of ten consecutive business days. The Company intends to actively monitor its MVLS between now and February 21, 2012, and will consider all available options to resolve the deficiency and regain compliance with the Nasdaq minimum MVLS requirement.
Other Events
On September 23, 2011, James Hyatt resigned as the Companys Chief Executive Officer, President and Director. The Board of Directors appointed Mark Demilio, the Companys current Chairman of the Board, as Interim Chief Executive Officer of the Company until a successor for Mr. Hyatt is identified. The Board of Directors has created a search committee to select and appoint a permanent Chief Executive Officer and President.
Critical Accounting Policies
Our discussion and analysis of our consolidated financial condition and results of operations is based upon the consolidated financial statements and notes to the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of the consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable and generally accepted for companies in the restaurant industry. We believe that the following addresses the more critical accounting policies used in the preparation of our consolidated financial statements and requires managements most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes in the application of our most critical accounting policies and estimates, judgments and assumptions during the third quarter of fiscal 2011.
Long Lived Assets: ASC 360-10-35 Property, Plant, & Equipment requires management judgments regarding the future operating and disposition plans for marginally-performing assets, and estimates of expected realizable values for assets to be sold. The application of this standard has affected the amount and timing of charges to operating results that have been significant in recent years. We evaluate possible impairment at the individual restaurant level periodically and record an impairment loss whenever we determine impairment factors are present. We consider a history of poor financial operating performance to be the primary indicator of potential impairment for individual restaurant locations. We determine whether a restaurant location is impaired based on expected undiscounted cash flows, generally for the remainder of the lease term, and then determine the impairment charge based on discounted cash flows for the same period. Restaurants are not considered for impairment during the ramp-up period before they enter the comparable restaurant base, unless specific circumstances warrant otherwise.
Lease Termination Charges: ASC 420-10-30 Exit or Disposal Cost Obligations requires companies to recognize a liability for the costs associated with an exit or disposal activity when the liability is incurred, rather than at the time of a commitment to an exit or disposal plan. For all exit activities, we estimate our likely liability under contractual leases for restaurants that have been closed. Such estimates have affected the amount and timing of charges to operating results and are impacted by managements judgments about the time it may take to find a suitable subtenant or assignee, or the terms under which a termination of the lease agreement may be negotiated with the landlord.
Accounting for Lease Obligations: In accordance with ASC 840-10-25 Leases, we recognize rent expense on a straight-line basis over the lease term commencing on the date we take possession. We include any rent escalations, rent abatements during the construction period and any other rent holidays in our straight-line rent expense calculation.
Landlord Allowances: In accordance with ASC 840-10-25 Leases, we record landlord allowances as deferred rent in other long-term liabilities on the consolidated balance sheets and amortize them on a straight-line basis over the term of the related leases.
Stock-Based Compensation Expense: In accordance with ASC 718-10-25 Compensation Stock Compensation we recognize stock-based compensation expense according to the fair value recognition provision, which generally requires, among other things, that all employee share-based compensation be measured using a fair value method and that all the resulting compensation expense be recognized in the financial statements.
We measure the estimated fair value of our granted stock options using a Black-Scholes pricing model and of our restricted stock based on the fair market value of a share of registered stock on the date of grant. The weighted average fair values of the stock options granted through 2005, the last time we issued stock options, were determined using the Black-Scholes option-pricing model.
Income Taxes: We have recorded a full valuation allowance to reduce our deferred tax assets that relate primarily to net operating loss carry-forwards. Our determination of the valuation allowance is based on an evaluation of whether it is more likely than not that we will be able to utilize the net operating loss carry-forwards based on the Companys operating results. A positive adjustment to income will be recorded in future years if we determine that we could realize these deferred tax assets.
We have adopted the provisions of ASC 740-10-25 Income Taxes beginning in fiscal 2007. No adjustment was made to the beginning retained earnings balance, as the ultimate deductibility of all tax positions is highly certain but there is uncertainty about the timing of such deductibility. No interest or penalties have been accrued relative to tax positions due to the Company having either a tax loss or net operating loss carry-forwards to offset any taxable income in all subject years. As a result, no liability for uncertain tax positions has been recorded.
Revenue
Restaurant Net Sales. Our Company-owned restaurant sales are composed almost entirely of food and beverage sales. We record revenue at the time of the purchase of our products by our customers.
Franchise Fees and Royalties. Franchise fees and royalties includes fees earned from franchise agreements entered into with area developers and franchise operators, as well as royalties received based on sales generated at franchised restaurants. We recognize the franchise fee in the period in which a franchise location opens or when fees are forfeited as a result of a termination of an area developer agreement. We recognize franchise royalties in the period in which sales are made by our franchise operators.
Gift Card Sales. We offer our customers the opportunity to purchase gift cards at our restaurants and through our website. Customers can purchase these cards at varying dollar amounts. At the time of purchase by the customer, we record a gift card liability for the face value of the card purchased. We recognize the revenue and reduce the gift card liability when the gift card is redeemed. We do not reduce our recorded liability for potential non-use of purchased gift cards.
COMPARABLE RESTAURANT SALES
In calculating comparable restaurant sales, we include a restaurant in the comparable restaurant base after it has been in operation for 15 full months. We remove from the comparable restaurant base for the period any restaurant that is temporarily shut down for remodeling during that period. As of September 26, 2011 and September 27, 2010, there were 80 and 84 restaurants in our comparable restaurant base, respectively.
Costs and Expenses
Cost of Food and Beverage. Cost of food and beverage is composed of food and beverage costs. Food and beverage costs are variable and fluctuate with sales volume.
Restaurant Labor and Related Benefits. The costs of restaurant labor and related benefits include direct hourly and management wages, bonuses, payroll taxes, health insurance and all other fringe benefits.
Occupancy and Other Restaurant Operating Expenses. Occupancy and other restaurant operating expenses include direct restaurant-level operating expenses, including the cost of paper and packaging, supplies, repairs and maintenance, utilities, rent and related occupancy costs.
General and Administrative Expenses. General and administrative expenses include all corporate and administrative functions that support our restaurants and provide an infrastructure to operate our business. Components of these expenses include executive management costs; supervisory and staff salaries; non-field stock-based compensation expense; non-field bonuses and related taxes and employee benefits; travel; information systems; training; support center rent and related occupancy costs; and professional and consulting fees. The salaries, bonuses and employee benefits costs included as general and administrative expenses are generally more fixed in nature and do not vary directly with the number of restaurants we operate. Stock-based compensation expense includes the charges related to recognizing the fair value of stock options and restricted stock as compensation for awards to certain key employees and non-employee directors, except the costs related to stock-based compensation for restaurant employees which are included in restaurant labor and related benefits.
Depreciation and Amortization. Depreciation and amortization principally relates to restaurant assets.
RESULTS OF OPERATIONS
Our operating results for the three and nine-month periods ended September 26, 2011 and September 27, 2010, expressed as a percentage of total revenues (except where otherwise noted), were as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
September 26, |
|
September 27, |
|
September 26, |
|
September 27, |
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
Restaurant net sales |
|
96.6 |
% |
97.1 |
% |
96.9 |
% |
97.2 |
% |
Franchise fees and royalties |
|
3.4 |
|
2.9 |
|
3.1 |
|
2.8 |
|
Total revenues |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
Cost of food and beverage (1) |
|
23.5 |
|
22.2 |
|
23.1 |
|
22.8 |
|
Restaurant labor and related benefits (1) |
|
36.6 |
|
36.8 |
|
36.3 |
|
37.8 |
|
Occupancy and other restaurant operating expenses (1) |
|
31.8 |
|
31.3 |
|
31.9 |
|
31.7 |
|
|
|
91.9 |
|
90.3 |
|
91.3 |
|
92.3 |
|
General and administrative expenses |
|
13.1 |
|
11.6 |
|
12.9 |
|
12.0 |
|
Depreciation and amortization |
|
4.3 |
|
4.0 |
|
4.2 |
|
4.4 |
|
Provision for losses on asset impairments and disposals |
|
0.2 |
|
0.3 |
|
0.3 |
|
0.4 |
|
Lease termination expense and closed store costs |
|
|
|
0.6 |
|
|
|
0.2 |
|
Gain on sale of assets |
|
(0.4 |
) |
(0.2 |
) |
(0.2 |
) |
(6.2 |
) |
Total costs and expenses |
|
105.9 |
|
104.0 |
|
105.7 |
|
100.4 |
|
Operating loss |
|
(5.9 |
) |
(4.0 |
) |
(5.7 |
) |
(0.4 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
0.1 |
|
|
|
Net loss |
|
(5.9 |
)% |
(4.0 |
)% |
(5.6 |
)% |
(0.4 |
)% |
(1) These are expressed as a percentage of restaurant net sales versus all other items expressed as a percentage of total revenues
Restaurant Net Sales
|
|
Restaurant net sales |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
24,468 |
|
96.6 |
% |
Three months ended September 27, 2010 |
|
$ |
26,341 |
|
97.1 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
73,586 |
|
96.9 |
% |
Nine months ended September 27, 2010 |
|
$ |
82,004 |
|
97.2 |
% |
Restaurant net sales. Restaurant net sales decreased 7.1%, or approximately $1.9 million, in the three months ended September 26, 2011, as compared to the same period of fiscal 2010, due to an approximately $1.1 million decrease in net restaurant sales related to Company-owned restaurants closed during and after the third quarter of fiscal 2010, as well as an approximately $0.8 million, or 3.0%, decrease in net sales in our comparable restaurant base. The decrease in comparable restaurant net sales in the three months ended September 26, 2011 resulted entirely from a decrease in traffic.
In the nine months ended September 26, 2011, restaurant net sales decreased 10.3%, or approximately $8.4 million, as compared to the nine months ended September 27, 2010, due to a decrease of approximately $4.2 million in net restaurant sales from the thirteen Company-owned restaurants sold to a franchisee in the second quarter of fiscal 2010 and a decrease of approximately $4.2 million in net sales related to Company-owned restaurants closed during and subsequent to the first quarter of 2010.
Franchise Fees and Royalties
|
|
Franchise fees and royalties |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
868 |
|
3.4 |
% |
Three months ended September 27, 2010 |
|
$ |
782 |
|
2.9 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
2,356 |
|
3.1 |
% |
Nine months ended September 27, 2010 |
|
$ |
2,340 |
|
2.8 |
% |
Franchise fees and royalties. In the three months ended September 26, 2011, franchise fees and royalties increased by approximately $0.1 million, or 11.1%, to approximately $0.9 million, as compared to the three months ended September 27, 2010. The increase is due primarily to the approximately $0.1 million in franchise fees recognized as a result of cancelled area development agreement during the third quarter of fiscal 2011. Franchise fees and royalties in the nine months of fiscals 2011 and 2010 were comparable. The increase of approximately $0.3 million in franchise royalties in the nine months of fiscal 2011 was entirely offset by the approximately $0.3 million higher franchise fees recognized as a result of cancelled area development agreements during the nine months of fiscal 2010.
Costs and Expenses
|
|
Cost of food and beverage |
| |||
|
|
(in thousands) |
|
as a % of restaurant |
| |
Three months ended September 26, 2011 |
|
$ |
5,761 |
|
23.5 |
% |
Three months ended September 27, 2010 |
|
$ |
5,835 |
|
22.2 |
% |
|
|
(in thousands) |
|
as a % of restaurant |
| |
Nine months ended September 26, 2011 |
|
$ |
17,013 |
|
23.1 |
% |
Nine months ended September 27, 2010 |
|
$ |
18,730 |
|
22.8 |
% |
Cost of food and beverage. The increase in cost of food and beverage, as a percentage of restaurant net sales, in the three and nine months ended September 26, 2011, as compared to the same periods of fiscal 2010, is due primarily to higher costs on certain commodities, the impact of higher fuel costs on distribution, the impact on total menu mix of an increase in sales of breakfast daypart items which carry a higher cost of goods as a percentage of net sales, as well as the impact of certain one-time vendor rebates received during the third quarter of fiscal 2010. The increase in cost of food and beverage during the nine months ended September 26, 2011 was partially offset by the favorable impact of the price increase taken at the end of the second quarter of fiscal 2010.
|
|
Restaurant labor and related benefits |
| |||
|
|
(in thousands) |
|
as a % of restaurant |
| |
Three months ended September 26, 2011 |
|
$ |
8,957 |
|
36.6 |
% |
Three months ended September 27, 2010 |
|
$ |
9,684 |
|
36.8 |
% |
|
|
(in thousands) |
|
as a % of restaurant |
| |
Nine months ended September 26, 2011 |
|
$ |
26,714 |
|
36.3 |
% |
Nine months ended September 27, 2010 |
|
$ |
30,979 |
|
37.8 |
% |
Restaurant labor and related benefits. The decrease in restaurant labor and related benefits, as a percentage of restaurant net sales, in the three months ended September 26, 2011, as compared to the same period of fiscal 2010, is due primarily to savings realized from better deployment of labor hours during peak and non-peak hours of operation, as well as savings on certain healthcare-related benefits, partially offset by the deleveraging effect of the decrease in comparable restaurant sales and higher payroll taxes.
The decrease in restaurant labor and related benefits, as a percentage of restaurant net sales in the nine months ended September 26, 2011, as compared to the same period of fiscal 2010, is due primarily to savings realized from better deployment of labor hours during peak and non-peak hours of operation, the favorable impact on labor of the price increase taken at the end of the second quarter of fiscal 2010, and savings on certain healthcare related benefits.
|
|
Occupancy and other restaurant |
| |||
|
|
(in thousands) |
|
as a % of restaurant |
| |
Three months ended September 26, 2011 |
|
$ |
7,777 |
|
31.8 |
% |
Three months ended September 27, 2010 |
|
$ |
8,257 |
|
31.3 |
% |
|
|
(in thousands) |
|
as a % of restaurant |
| |
Nine months ended September 26, 2011 |
|
$ |
23,453 |
|
31.9 |
% |
Nine months ended September 27, 2010 |
|
$ |
26,005 |
|
31.7 |
% |
Occupancy and other restaurant operating expenses. The increase in occupancy and other restaurant operating expenses, as a percentage of restaurant net sales, in the three months ended September 26, 2011, as compared to the same period of fiscal 2010, is due primarily to the deleveraging effect on the fixed portion of occupancy expenses of the decrease in comparable restaurant net sales, as well as higher costs for paper and packaging.
The increase in occupancy and other restaurant operating expenses, as a percentage of restaurant net sales, in the nine months ended September 26, 2011, as compared to the same period of fiscal 2010, is due primarily to the higher fixed occupancy expenses and higher cost for paper and packaging, partially offset by the lower costs for repairs and maintenance of existing Company-owned restaurants.
|
|
General and administrative expenses |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
3,311 |
|
13.1 |
% |
Three months ended September 27, 2010 |
|
$ |
3,156 |
|
11.6 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
9,759 |
|
12.9 |
% |
Nine months ended September 27, 2010 |
|
$ |
10,108 |
|
12.0 |
% |
General and administrative expenses. The increase in general and administrative expenses of approximately $0.2 million in the three months ended September 26, 2011, as compared to the same period in fiscal 2010, is due primarily to the higher costs associated with advertising media expenses related to our marketing initiatives, as well as higher third-party fees related to legal matters. The decrease in general and administrative expenses of approximately $0.3 million in the nine months ended September 26, 2011, as compared to the same period in fiscal 2010, is due primarily to the lower occupancy costs at our Corporate Headquarters resulting from a reduction of space in late 2010, lower third-party professional fees, labor savings resulting from administrative workforce reductions that occurred during fiscal 2010, and lower business travel-related expenses, partially offset by the higher costs associated with advertising media expenses related to our marketing initiatives.
|
|
Depreciation and amortization |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
1,090 |
|
4.3 |
% |
Three months ended September 27, 2010 |
|
$ |
1,096 |
|
4.0 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
3,180 |
|
4.2 |
% |
Nine months ended September 27, 2010 |
|
$ |
3,672 |
|
4.4 |
% |
Depreciation and amortization. The decrease in depreciation and amortization expense in the three and nine months ended September 26, 2011, as compared to the same periods of fiscal 2010, is due primarily to the retirement of assets with approximately $3.0 million in net book value as a result of the sale of the thirteen Company-owned restaurants in the District of Columbia to a franchisee during the second quarter of fiscal 2010, the impact of asset impairments recorded during and subsequent to the third quarter of fiscal 2010, and the continued depreciation of our comparable restaurant base.
|
|
Provision for losses on asset impairments |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
44 |
|
0.2 |
% |
Three months ended September 27, 2010 |
|
$ |
88 |
|
0.3 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
199 |
|
0.3 |
% |
Nine months ended September 27, 2010 |
|
$ |
300 |
|
0.4 |
% |
Provision for losses on asset impairments and disposals. In the three months ended September 26, 2011, we disposed of assets of approximately $0.04 million related to the closing of one Company-owned restaurant in Michigan at the end of its operating lease. During the same period of fiscal 2010, we recorded an asset impairment charge of approximately $0.1 million related to maintenance capital expenditures on previously impaired restaurants. In the nine months of fiscals 2011 and 2010, we recorded asset impairment charges related to two underperforming restaurants in each of the periods.
|
|
Lease termination expense and closed |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
5 |
|
0.0 |
% |
Three months ended September 27, 2010 |
|
$ |
172 |
|
0.6 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
70 |
|
0.0 |
% |
Nine months ended September 27, 2010 |
|
$ |
184 |
|
0.2 |
% |
Lease termination expense and closed store costs. The lease termination and closed store costs in the three and nine months ended September 26, 2011 are related to the closing of Company-owned restaurants, as well as additional
costs associated with our exercise of an option in the lease to surrender part of the office space at our Corporate Headquarters during the fourth quarter of 2010. The lease termination and closed store charges in the three and nine-month periods ended September 27, 2010 are related to two restaurants where we reached early termination agreements with the landlords to exit the leases.
|
|
Gain on sale of assets |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
108 |
|
0.4 |
% |
Three months ended September 27, 2010 |
|
$ |
59 |
|
0.2 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
149 |
|
0.2 |
% |
Nine months ended September 27, 2010 |
|
$ |
5,266 |
|
6.2 |
% |
Gain on sale of assets. The gain on sale of assets in the three and nine months ended September 26, 2011 is related to the sale of liquor licenses. The gain on the sale of assets in the nine months ended September 27, 2010 of approximately $5.3 million is related to the sale of the thirteen Company-owned restaurants in the District of Columbia to a franchisee as well as the sale of two liquor licenses.
|
|
Net loss |
| |||
|
|
(in thousands) |
|
as a % of total |
| |
Three months ended September 26, 2011 |
|
$ |
1,491 |
|
5.9 |
% |
Three months ended September 27, 2010 |
|
$ |
1,096 |
|
4.0 |
% |
|
|
(in thousands) |
|
as a % of total |
| |
Nine months ended September 26, 2011 |
|
$ |
4,265 |
|
5.6 |
% |
Nine months ended September 27, 2010 |
|
$ |
357 |
|
0.4 |
% |
Net loss. The net loss for the three months ended September 26, 2011 increased to approximately $1.5 million, compared to a net loss of approximately $1.1 million in the same period in fiscal 2010, due primarily to unfavorable restaurant operating margins resulting from a decrease in net restaurant sales, continued inflationary pressures on most food items, as well as higher costs associated with advertising media expenses related to our marketing initiatives, partially offset by the savings on restaurant labor costs resulting from better deployment of labor hours.
The net loss for the nine months ended September 26, 2011 decreased by approximately $1.2 million, net of the gain on the sale of assets from the thirteen Company-owned restaurants in the District of Columbia to a franchisee during fiscal 2010, primarily due to savings on restaurant labor costs resulting from better deployment of labor hours and savings on certain healthcare related benefits, the reduction in general and administrative expenses and the decrease in depreciation expense, partially offset by the higher food costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were approximately $8.1 million on September 26, 2011, compared to $10.3 million on December 27, 2010. We had negative working capital of approximately $1.5 million on September 26, 2011, compared to positive working capital of $1.1 million on December 27, 2010. The decrease in working capital as of September 26, 2011 is primarily due to the funding of the operating loss in the nine months ended September 26, 2011 and to the higher capital expenditures for remodeling and maintenance of existing restaurants. Our principal
requirements for cash in the remainder of 2011 will be for working capital needs, improvements to several restaurants in the Chicago market, as well as routine maintenance of our existing restaurants.
Net cash used in operating activities in the nine months ended September 26, 2011 was approximately $1.1 million, compared to $3.3 million in the nine months ended September 27, 2010. The decrease in net cash used in operating activities in the first nine months of fiscal 2011 was primarily the result of funding a lower year-over-year operating loss, net of depreciation expense and the gain from the sale of the thirteen Company-owned restaurants in the District of Columbia to a franchisee during fiscal 2010, as well as the timing of payments on certain insurance and tax obligations in fiscal 2010.
The cash used in investing activities in the nine months ended September 26, 2011 was approximately $1.1 million compared to net cash provided by investing activities of approximately $5.8 million during the first nine months of fiscal 2010. The year-over-year increase in cash used in investing activities, net of the proceeds from the sale of the thirteen Company-owned restaurants in the District of Columbia to a franchisee during fiscal 2010, is primarily due to the higher capital expenditures during the first nine months of fiscal 2011 for improvements at several Company-owned restaurants.
No cash was used in or provided by financing activities in the nine months ended September 26, 2011. The cash provided by financing activities in the nine months ended September 27, 2010 of approximately $4.9 million is from proceeds associated with the shareholder rights offering and the private placement of shares to our executive officers and outside directors completed in January 2010.
We do not have any current plans to open additional Company-owned restaurants during fiscal 2011. However, we will continue to seek out and evaluate opportunities to develop new Company-owned locations in existing markets. We do expect to incur capital costs associated with improvements and maintenance of existing Company-owned restaurants during the remainder of fiscal 2011. As we currently have no credit facility or available line of credit, we expect to fund any required restaurant remodeling and capital maintenance costs on existing Company-owned locations or required capital for new restaurant development, if any, from cash and cash equivalents on hand, expected cash flows generated by existing Company-owned restaurants, and expected franchise fees and royalties.
We believe that our current cash and cash equivalents and the expected cash flows from Company-owned restaurant operations and expected franchise fees and royalties will be sufficient to fund our cash requirements for working capital needs and remodeling and maintenance of existing restaurants for the next twelve months and for new Company-owned restaurant development, if any. Our conclusion is based on our expected performance for fiscal 2011 and includes a sensitivity analysis that projects varying levels of decline in consumer demand. The range of levels selected was based on our reasonable expectation of demand given the seasonality of our historical performance and the potential impact the current economic environment may have on consumer spending. In analyzing our capital cash outlays during the first nine months of fiscals 2011 and 2010, 84.4% and 62.7%, respectively, of our capital expenditures were spent on improvements and repairs and maintenance associated with existing Company-owned restaurants.
If our Company-owned restaurants do not generate the cash flow levels that we expect, if new franchised restaurants do not open according to our expectations, if we do not generate the franchise fees and royalties that we currently expect, if we incur significant unanticipated cash requirements beyond our normal liquidity needs, or if we experience other unforeseen circumstances, then, in order to fund our cash requirements, we may have to cease new Company-owned restaurant development efforts and may have to effect further labor reductions in general and administrative support functions, seek to sell certain Company-owned locations to franchisees and/or other third parties, seek other sources of financing or take other actions necessitated by the impact of such unanticipated circumstances.
There can be no assurance that we will be able to obtain such financing or sell Company-owned locations to franchisees or other third parties or that we will be able to do so in a timely manner and on acceptable terms to meet our requirements. Given the continued instability in the credit and financial markets, it may be difficult for the Company to obtain additional financing and for franchisees to obtain the financing necessary to open restaurants or to acquire Company-owned locations. An inability to access additional sources of liquidity to fund our cash needs could
materially adversely affect our financial condition and results of operations.
We have entered into agreements that create contractual obligations. These obligations will have an impact on future liquidity and capital resources. The table below presents a summary of these obligations as of September 26, 2011:
|
|
Payments Due by Period |
| |||||||||||||
|
|
(in thousands) |
| |||||||||||||
|
|
|
|
|
|
Due |
|
Due |
|
Due |
| |||||
|
|
Total |
|
Due |
|
Fiscal 2012 |
|
Fiscal 2014 |
|
After |
| |||||
Description |
|
Obligations |
|
Fiscal 2011 |
|
to Fiscal 2013 |
|
to Fiscal 2015 |
|
Fiscal 2015 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt (1) |
|
$ |
25 |
|
$ |
25 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Operating leases (2) |
|
44,949 |
|
3,366 |
|
22,527 |
|
14,161 |
|
4,895 |
| |||||
Other long-term liabilities (3) |
|
313 |
|
204 |
|
109 |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total contractual cash obligations |
|
$ |
45,287 |
|
$ |
3,595 |
|
$ |
22,636 |
|
$ |
14,161 |
|
$ |
4,895 |
|
(1) Amounts shown include aggregate scheduled interest payments of $0.002 million. The pricipal amount of the debt, net of interest obligations, is included in the other long-term liabilities, in the attached consolidated balance sheets. This obligation is related to a trademark infringement settlement.
(2) Amounts shown are net of an aggregate $0.4 million of sub-lease rental income due under non-cancelable subleases and include aggregate accrued contractual lease increases of approximately $2.8 million, which are included in other long-term liabilities in the attached consolidated balance sheets.
(3) These obligations are related to contractual obligations for lease termination agreements and for an obligation related to a legal settlement. These obligations are non-interest bearing and are included in other long-term liabilities in the attached consolidated balance sheets.
We are obligated under non-cancelable operating leases for our restaurants and our administrative offices. Lease terms are generally ten years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance and common area and other operating costs. Some restaurant leases provide for contingent rental payments which are not included in the above table.
Certain of our lease agreements provide for scheduled rent increases during the lease term or for rental payments to commence at a date other than the date of initial occupancy. Rent expense is recognized on a straight-line basis over the term of the respective lease from the date we take possession. Our obligation with respect to these scheduled rent increases has been presented as a long-term liability in other liabilities in the accompanying consolidated balance sheets and totaled $2.8 million and $3.6 million as of September 26, 2011 and September 27, 2010, respectively.
Certain of our leases also provide for landlord contributions to offset a portion of the cost of our leasehold improvements. These allowances are recorded as deferred liabilities and amortized on a straight-line basis as a reduction to rent expense over the term of the related leases. Included in other long-term liabilities in the accompanying consolidated balance sheets as of September 26, 2011 and September 27, 2010 were landlord allowances of approximately $0.7 million and $0.9 million, respectively.
As of September 26, 2011, the Company had outstanding approximately $0.2 million in standby letters of credit, which were provided as security deposits for certain of the lease obligations. The letters of credit are fully secured by cash deposits or marketable securities held in accounts at the issuing banks and are not available for withdrawal by the Company. These amounts are included as a component of Intangibles, Security Deposits and Other Assets in the accompanying consolidated balance sheets.
During fiscal 2008, we entered into a settlement agreement involving a claim from a former employee. The settlement agreement requires us to pay $0.3 million in an initial payment during the first quarter of fiscal 2009 and another $1.0 million in the aggregate in non-interest bearing monthly installments thereafter through 2012. The amount of this settlement is included in other liabilities in the accompanying consolidated balance sheets and its balance as of
September 26, 2011 is approximately $0.2 million.
During fiscal 2009, we entered into a settlement agreement involving a customer claim alleging damages under the American with Disabilities Act with regard to access at our restaurants. The settlement requires us to pay $0.08 million in the aggregate in non-interest bearing quarterly installments commencing in fiscal 2010 through fiscal 2012. The amount of this settlement is included in other liabilities in the accompanying consolidated balance sheets and its balance as of September 26, 2011 is approximately $0.03 million
Purchasing
We have agreements with some of the nations largest food, paper, and beverage manufacturers in the industry. This enables us to provide our restaurants with high quality proprietary food products and non-food items at competitive prices. We source and negotiate prices directly with these suppliers and distribute these products to our restaurants primarily through a national network that consists of some of the nations largest independent distributors. We do not utilize a commissary system. Our inventory control system allows each restaurant to place orders electronically with our master distributor and then transmits the invoices electronically to our accounts payable system. Our scalable system eliminates duplicate work, and we believe it gives our management tight control of costs while ensuring quality and consistency across all restaurants.
We have an agreement with Distribution Market Advantage, Inc. (Distribution Marketing Advantage) that provides us access to a national network of independent distributors. Under this agreement the independent distributors supply us with approximately 79% of our food and paper products, primarily under pricing agreements that we negotiate directly with the suppliers. This agreement was renegotiated and has been extended through December 2013.
We have a long-term beverage marketing agreement with the Coca-Cola Company. We received a marketing allowance under this agreement, which is being recognized as a reduction to expense ratably based on actual products purchased. Effective January 1, 2010, the beverage marketing agreement with the Coca-Cola Company was amended to provide for additional products as well as higher marketing allowances based on purchases.
In October 2010, we entered into an agreement to purchase all contracted coffee products through a single supplier, Royal Cup Coffee, Inc. This agreement expires in October 2015.
Our primary suppliers and independent distributors have parallel facilities and systems to minimize the risk of any disruption of our supply chain.
Self-Insurance
We have a self-insured group health insurance plan. We are responsible for all covered claims to a maximum limit of $100,000 per participant and an additional aggregating maximum limit of $50,000 for the plan year. Benefits paid in excess of these limits are reimbursed to the plan under our stop-loss policy. In addition, we have an aggregate stop-loss policy whereby our liability for total claims submitted cannot exceed a pre-determined dollar factor based upon, among other things, past years claims experience, actual claims paid, the number of plan participants and monthly accumulated aggregate deductibles. During fiscals 2010 and 2009, we did not exceed this pre-determined maximum. For our 2011 plan year, this pre-determined dollar amount is $2.1 million. The balance in the self-insurance reserve account as of September 26, 2011 and
December 27, 2010 was approximately $0.2 million.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained or incorporated by reference in this Form 10-Q or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are subject to risks and uncertainties, including, without limitation, those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December, 27, 2010. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially and adversely affected, and the trading price of our common stock could decline. We do not undertake to publicly update or revise our forward-looking statements even if our future changes make it clear that any projected results expressed or implied therein will not be realized.
Listed below are just some of the factors that would impact our forward looking statements:
· |
the cost of our principal food products and supply and delivery shortages or interruptions; |
|
|
· |
labor shortages or increased labor costs; |
|
|
· |
changes in demographic trends and consumer tastes and preferences, including changes resulting from concerns over nutritional or safety aspects of beef, poultry, produce or other foods or the effects of food-borne illnesses, such as E.coli, mad cow disease and avian influenza or bird flu; |
|
|
· |
competition in our markets, both in our existing business and locating suitable restaurant sites; |
|
|
· |
our operation and execution in new and existing markets; |
|
|
· |
expansion into new markets, including foreign countries; |
|
|
· |
our ability to attract and retain qualified franchisees and our franchisees ability to open restaurants on a timely basis; |
|
|
· |
our ability to locate suitable restaurant sites in new and existing markets and negotiate acceptable lease terms; |
|
|
· |
the rate of our internal growth, and our ability to generate increased revenue from our new and existing restaurants; |
|
|
· |
our ability to generate positive cash flow from existing and new restaurants; |
|
|
· |
fluctuations in our quarterly results due to seasonality; |
|
|
· |
increased government regulation and our ability to secure required governmental approvals and permits; |
|
|
· |
our ability to create customer awareness of our restaurants in new markets; |
|
|
· |
the reliability of our customer and market studies; |
|
|
· |
cost effective and timely planning, design and build-out of new restaurants; |
|
|
· |
our ability to recruit, train and retain qualified corporate and restaurant personnel and management; |
|
|
· |
market saturation due to new restaurant openings; |
· |
inadequate protection of our intellectual property; |
|
|
· |
our ability to obtain additional capital and financing on acceptable terms; |
|
|
· |
adverse weather conditions, which impact customer traffic at our restaurants; and |
|
|
· |
adverse economic conditions. |
The words believe, may, will, should, anticipate, estimate, expect, intend, objective, seek, plan, strive, project or similar words, or the negatives of these words, identify forward-looking statements. We qualify any forward-looking statements entirely by these cautionary factors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our market risk exposures are related to our cash and cash equivalents and interest that we may pay on debt. We have no derivative financial commodity instruments. We invest our excess cash in investment grade, highly liquid, short-term investments. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations. During the third quarter of fiscal 2011, we held no short-term investments and, as a result, a hypothetical one percentage point interest change from those in effect during the third quarter of fiscal 2011 would not have resulted in a fluctuation of interest income. In the third quarter of fiscals 2011 and 2010, interest income was not material.
Foreign Currency Risk
As of September 26, 2011, all of our transactions are conducted, and our accounts denominated, in U.S. dollars. Accordingly, we are not exposed to foreign currency risk.
Inflation
The primary inflationary factors affecting our business are food and labor costs. Some of our food costs are subject to fluctuations in commodity prices. Volatility in the commodity markets such as the wheat and dairy markets can have an adverse impact on our results from operations. Some of our hourly personnel at our restaurants are paid at rates based on the applicable minimum wage, and increases in the minimum wage will directly affect our 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. Historically, inflation has not had a material impact on our results of operation.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the fiscal year covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we are a defendant in litigation arising in the ordinary course of our business, including but not limited to, claims resulting from slip and fall accidents, claims under federal and state laws governing access to public accommodations or other federal and state laws applicable to our business operations, employment-related claims, property damages, claims from guests alleging illness, injury or other food quality, health or operational concerns, and enforcement of intellectual property rights.
In addition to the other information set forth in this report, the factors discussed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for our 2010 fiscal year could materially affect the Companys business, financial condition or operating results. There have been no material changes in our risk factors since our Annual Report on Form 10-K for the year ended December 27, 2010.
(a) Exhibits:
Exhibit Number |
|
Description |
|
|
|
Exhibit 31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 |
The following financial information, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheet as of September 26, 2011 and December 27, 2010, (ii) Consolidated Statements of Operations for the three and nine months ended September 26, 2011 and September 27, 2010, (iii) Consolidated Statements of Cash Flows for the nine months ended September 26, 2011 and September 27, 2010, and (iv) Notes to Consolidated Financial Statements. In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be furnished and not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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COSI, INC. | |
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Date: November 10, 2011 |
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By: /s/ MARK DEMILIO |
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Mark Demilio |
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Chairman, |
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Interim Chief Executive Officer |
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Date: November 10, 2011 |
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By: /s/ WILLIAM KOZIEL |
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William Koziel |
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Chief Financial Officer (chief accounting officer) |
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Treasurer and Secretary |
Exhibit 31.1 |
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Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 31.2 |
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Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 32.1 |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 |
The following financial information, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheet as of September 26, 2011 and December 27, 2010, (ii) Consolidated Statements of Operations for the three and nine months ended September 26, 2011 and September 27, 2010, (iii) Consolidated Statements of Cash Flows for the nine months ended September 26, 2011 and September 27, 2010, and (iv) Notes to Consolidated Financial Statements. In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be furnished and not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. |