UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended July 4, 2010
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________to __________________
Commission
file number: 0-32233
PEET’S
COFFEE & TEA, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Washington
|
|
91-0863396
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
1400
Park Avenue
Emeryville,
California 94608-3520
(Address
of Principal Executive Offices)(Zip Code)
(510)
594-2100
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
¨
.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
Large
Accelerated Filer
¨
|
Accelerated
Filer
x
|
Non-Accelerated
Filer
¨
|
Smaller
reporting company
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes
o
No
x
As of
August 8, 2010 12,857,088 shares of registrant’s Common Stock were
outstanding.
|
INDEX
|
Page
|
|
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
3
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
20
|
Item
4.
|
Controls
and Procedures
|
20
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
21
|
Item
1A.
|
Risk
Factors
|
22
|
Item
2.
|
Unregistered
Sales of Equity Securities and use of Proceeds
|
22
|
Item
5.
|
Other
Information
|
22
|
Item
6.
|
Exhibits
|
23
|
|
Signatures
|
24
|
PART
I – FINANCIAL INFORMATION
ITEM
1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEET’S
COFFEE & TEA, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited,
in thousands, except share amounts)
|
|
July 4,
|
|
|
January 3,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
42,855
|
|
|
$
|
47,934
|
|
Accounts
receivable, net
|
|
|
12,216
|
|
|
|
15,209
|
|
Inventories
|
|
|
37,392
|
|
|
|
25,936
|
|
Deferred
income taxes - current
|
|
|
3,592
|
|
|
|
3,592
|
|
Prepaid
expenses and other
|
|
|
5,585
|
|
|
|
5,863
|
|
Total
current assets
|
|
|
101,640
|
|
|
|
98,534
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
100,081
|
|
|
|
103,494
|
|
Other
assets, net
|
|
|
2,166
|
|
|
|
2,775
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
203,887
|
|
|
$
|
204,803
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and other accrued liabilities
|
|
$
|
12,209
|
|
|
$
|
13,669
|
|
Accrued
compensation and benefits
|
|
|
8,950
|
|
|
|
10,832
|
|
Deferred
revenue
|
|
|
5,468
|
|
|
|
6,845
|
|
Total
current liabilities
|
|
|
26,627
|
|
|
|
31,346
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes - non current
|
|
|
315
|
|
|
|
321
|
|
Deferred
lease credits
|
|
|
7,033
|
|
|
|
7,059
|
|
Other
long-term liabilities
|
|
|
1,307
|
|
|
|
1,021
|
|
Total
liabilities
|
|
|
35,282
|
|
|
|
39,747
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value; authorized 50,000,000 shares;
issued
and outstanding:13,075,000 and 13,104,000 shares
|
|
|
88,297
|
|
|
|
92,054
|
|
Retained
earnings
|
|
|
80,308
|
|
|
|
73,002
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
168,605
|
|
|
|
165,056
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
203,887
|
|
|
$
|
204,803
|
|
See notes
to condensed consolidated financial statements.
PEET’S
COFFEE & TEA, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited,
in thousands, except per share amounts)
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
July
4,
|
|
|
June
28,
|
|
|
July
4,
|
|
|
June
28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
$
|
50,560
|
|
|
$
|
48,840
|
|
|
$
|
100,631
|
|
|
$
|
96,823
|
|
Specialty
sales
|
|
|
30,216
|
|
|
|
24,725
|
|
|
|
61,341
|
|
|
|
48,847
|
|
Net
revenue
|
|
|
80,776
|
|
|
|
73,565
|
|
|
|
161,972
|
|
|
|
145,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and related occupancy expenses
|
|
|
37,377
|
|
|
|
32,953
|
|
|
|
74,916
|
|
|
|
65,521
|
|
Operating
expenses
|
|
|
26,937
|
|
|
|
25,522
|
|
|
|
54,774
|
|
|
|
50,673
|
|
Transaction
related expenses
|
|
|
146
|
|
|
|
58
|
|
|
|
970
|
|
|
|
79
|
|
General
and administrative expenses
|
|
|
5,622
|
|
|
|
6,074
|
|
|
|
11,924
|
|
|
|
12,012
|
|
Depreciation
and amortization expenses
|
|
|
4,020
|
|
|
|
3,631
|
|
|
|
7,897
|
|
|
|
7,238
|
|
Total
costs and expenses from operations
|
|
|
74,102
|
|
|
|
68,238
|
|
|
|
150,481
|
|
|
|
135,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
6,674
|
|
|
|
5,327
|
|
|
|
11,491
|
|
|
|
10,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
5
|
|
|
|
48
|
|
|
|
4
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
6,679
|
|
|
|
5,375
|
|
|
|
11,495
|
|
|
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
2,424
|
|
|
|
1,967
|
|
|
|
4,189
|
|
|
|
3,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,255
|
|
|
$
|
3,408
|
|
|
$
|
7,306
|
|
|
$
|
6,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.26
|
|
|
$
|
0.55
|
|
|
$
|
0.50
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.26
|
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,248
|
|
|
|
12,915
|
|
|
|
13,218
|
|
|
|
12,977
|
|
Diluted
|
|
|
13,885
|
|
|
|
13,217
|
|
|
|
13,847
|
|
|
|
13,229
|
|
See notes
to condensed consolidated financial statements.
PEET’S
COFFEE & TEA, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
|
|
Twenty-six weeks ended
|
|
|
|
July
4,
|
|
|
June
28,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,306
|
|
|
$
|
6,461
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,981
|
|
|
|
8,304
|
|
Amortization
of interest purchased
|
|
|
-
|
|
|
|
36
|
|
Stock-based
compensation
|
|
|
1,623
|
|
|
|
1,508
|
|
Excess
tax benefit from exercise of stock options
|
|
|
(1,481
|
)
|
|
|
(249
|
)
|
Tax
benefit from exercise of stock options
|
|
|
1,228
|
|
|
|
124
|
|
Loss
on disposition of assets and asset impairment
|
|
|
63
|
|
|
|
18
|
|
Deferred
income taxes
|
|
|
(6
|
)
|
|
|
(10
|
)
|
Changes
in other assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
2,993
|
|
|
|
2,359
|
|
Inventories
|
|
|
(11,456
|
)
|
|
|
(3,349
|
)
|
Prepaid
expenses and other current assets
|
|
|
278
|
|
|
|
2,195
|
|
Other
assets
|
|
|
31
|
|
|
|
184
|
|
Accounts
payable, accrued liabilities and deferred revenue
|
|
|
(4,893
|
)
|
|
|
(2,322
|
)
|
Deferred
lease credits and other long-term liabilities
|
|
|
260
|
|
|
|
665
|
|
Net
cash provided by operating activities
|
|
|
4,927
|
|
|
|
15,924
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(5,455
|
)
|
|
|
(8,853
|
)
|
Proceeds
from sales of property, plant and equipment
|
|
|
17
|
|
|
|
-
|
|
Changes
in restricted investments
|
|
|
559
|
|
|
|
864
|
|
Proceeds
from sales and maturities of marketable securities
|
|
|
-
|
|
|
|
7,607
|
|
Purchases
of marketable securities
|
|
|
-
|
|
|
|
(370
|
)
|
Net
cash used in investing activities
|
|
|
(4,879
|
)
|
|
|
(752
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
8,122
|
|
|
|
1,572
|
|
Purchase
of common stock
|
|
|
(14,730
|
)
|
|
|
(6,564
|
)
|
Excess
tax benefit from exercise of stock options
|
|
|
1,481
|
|
|
|
249
|
|
Net
cash used in financing activities
|
|
|
(5,127
|
)
|
|
|
(4,743
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(5,079
|
)
|
|
|
10,429
|
|
Cash
and cash equivalents, beginning of period
|
|
|
47,934
|
|
|
|
4,719
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
42,855
|
|
|
$
|
15,148
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures incurred, but not yet paid
|
|
$
|
330
|
|
|
$
|
1,304
|
|
Other
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
2,721
|
|
|
|
2,136
|
|
See notes
to condensed consolidated financial statements.
Peet’s
Coffee & Tea, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying condensed consolidated financial statements of Peet’s Coffee &
Tea, Inc. and its subsidiaries (collectively, the “Company” or “Peet’s”) as of
July 4, 2010 and for the thirteen and twenty-six weeks ended July 4, 2010 and
June 28, 2009 are unaudited and, in the opinion of management, contain all
adjustments, consisting only of normal recurring items necessary to present
fairly the financial position and results of operations for such periods.
The information
included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read
in conjunction with the Company’s annual consolidated financial statements in
Peet’s Annual Report on Form 10-K for the year ended January 3, 2010 (the “2009
Form 10-K”).
The
results of operations for the thirteen and twenty-six weeks ended July 4, 2010
are not necessarily indicative of the results expected for the full
year.
Recent
Accounting Pronouncements
On
January 21, 2010, the Financial Accounting Standards Board (“FASB”) issued
an Accounting Standards Update (“ASU”) relating to Fair Value Measurements and
Disclosures, to add new requirements for disclosures about transfers into and
out of fair value measurement Levels 1 and 2 and separate disclosures about
purchases, sales, issuances, and settlements relating to Level 3 fair value
measurements. The ASU also clarifies existing fair value disclosures about
the level of disaggregation and about inputs and valuation techniques used to
measure fair value. We are required to comply with the requirements of this ASU
commencing the first day of our 2010 fiscal year. This ASU did not have an
impact to our condensed consolidated financial statements except to require us
to provide increased disclosure.
In
February 2010, the FASB issued an ASU that amends Subtopic 855, “Subsequent
Events”, of the Accounting Standards Codification (“ASC”). An entity that is an
SEC filer is not required to disclose the date through which subsequent events
have been evaluated. This change alleviates potential conflicts between Subtopic
855-10 and the SEC’s disclosure requirements.
Comprehensive
Income
For the
thirteen weeks ended July 4, 2010 and June 28, 2009, comprehensive income was
$4,255,000 and $7,671,000, respectively. For the twenty-six weeks ended July 4,
2010 and June 28, 2009, comprehensive income was $7,306,000 and $10,682,000,
respectively. Comprehensive income consists of net income and net unrealized
gains and losses on investments.
Net
Income per Share
Basic net
income per share is computed as net income divided by the weighted average
number of common shares outstanding for the period. Diluted net income per share
reflects the potential dilution that could occur from common shares issued
through stock options. Anti-dilutive shares of 147,763 and 1,380,920 have been
excluded from diluted weighted average shares outstanding for the thirteen week
periods ended July 4, 2010 and June 28, 2009, respectively, and 97,071 and
1,408,319 for the twenty-six week periods, respectively.
The
number of incremental shares from the assumed exercise of stock options was
calculated by applying the treasury stock method. The following table summarizes
the differences between basic weighted average shares outstanding and diluted
weighted average shares outstanding used to compute diluted net income per share
(in thousands):
|
|
Thirteen weeks
|
|
|
Twenty-six weeks
|
|
|
|
July
4,
|
|
|
June
28
|
|
|
July
4,
|
|
|
June
28
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
13,248
|
|
|
|
12,915
|
|
|
|
13,218
|
|
|
|
12,977
|
|
Incremental
shares from assumed exercise of stock options and awards
|
|
|
637
|
|
|
|
302
|
|
|
|
629
|
|
|
|
252
|
|
Diluted
weighted average shares outstanding
|
|
|
13,885
|
|
|
|
13,217
|
|
|
|
13,847
|
|
|
|
13,229
|
|
2.
|
Fair Value
Measurements
|
The
Company adopted a single authoritative definition of fair value, a framework for
measuring fair value and expanded disclosure of fair value measurements for
financial assets and liabilities as of the beginning of the 2008 fiscal
year. The impact of adoption was not significant. ASC 820, “Fair
Value Measurements and Disclosures,” defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
Level 1
- Quoted prices in
active markets for identical assets or liabilities.
Level 2 -
Inputs other than
quoted prices included within Level 1 that are either directly or indirectly
observable.
Level 3
- Unobservable inputs
that are supported by little or no market activity, therefore requiring an
entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
The
Company uses the market approach, as defined as Level 1 in the fair value
hierarchy, to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant
information generated by market transactions involving identical assets or
liabilities.
Unrealized
gains or losses on marketable securities are recorded in accumulated other
comprehensive income at each measurement date.
The
carrying value of cash and equivalents, restricted cash, receivables and
accounts payable approximates fair value.
Assets and Liabilities
Measured at Fair Value on a Non-Recurring Basis
The
Company measures certain non-financial assets and liabilities, including
long-lived assets, at fair value on a non-recurring basis, as deemed necessary.
As of July 4, 2010, the Company was not required to measure any non-financial
assets and liabilities at fair value.
The
Company’s inventories consist of the following (in thousands):
|
|
July 4,
|
|
|
January 3,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Green
coffee
|
|
$
|
27,054
|
|
|
$
|
16,228
|
|
Other
inventory
|
|
|
10,338
|
|
|
|
9,708
|
|
Total
|
|
$
|
37,392
|
|
|
$
|
25,936
|
|
4.
|
Stock Purchase
Program
|
On
October 27, 2008, the Board of Directors approved a stock purchase program
providing for the purchase of up to one million shares of the Company’s common
stock, with no deadline for completion and the Company announced its plan on
October 28, 2008 on Form 8-K. During the twenty-six weeks ended July 4,
2010, the Company purchased and retired 380,990 shares of common stock, at an
average price of $38.66, in accordance with this stock purchase
program. 354,898 shares remain available for purchase under this stock
purchase program.
5.
|
Stock-Based
Compensation
|
On May
18, 2010, the Company’s shareholders approved the Peet’s Coffee & Tea, Inc.
2010 Equity Incentive Plan. The 2010 Plan is intended as the successor to and
continuation of the Peet’s Coffee & Tea, Inc. 2000 Equity Incentive Plan
(“Prior Plan”). Under the 2010 Plan, the Company may grant incentive stock
options, nonstatutory stock options, stock appreciation rights, restricted stock
awards, restricted stock unit awards (“RSUs”), performance stock awards,
performance cash awards, and other stock awards. The aggregate number of shares
of common stock that may be issued pursuant to stock awards from and after May
18, 2010 shall not exceed 700,000 shares plus shares underlying options under
the Prior Plan that expire or terminate, less one share for each share of stock
issued pursuant to an option or stock appreciation right under the Prior Plan
after January 3, 2010 and 1.8 shares for each share of stock issued pursuant to
a restricted stock award, restricted stock unit award (“RSUs”), performance
stock award, performance cash award, or other stock award. No additional stock
awards shall be granted under the Prior Plan.
Stock
Option Activity
Changes
in stock options were as follows:
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Outstanding
|
|
|
Per Share
|
|
|
Life (Years)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 3, 2010
|
|
|
2,764,225
|
|
|
$
|
22.35
|
|
|
|
5.50
|
|
|
$
|
30,400
|
|
Granted
|
|
|
199,530
|
|
|
|
36.58
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(87,952
|
)
|
|
|
26.28
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(351,861
|
)
|
|
|
23.08
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 4, 2010
|
|
|
2,523,942
|
|
|
$
|
23.24
|
|
|
|
5.32
|
|
|
$
|
37,398
|
|
Vested
or expected to vest, July 4, 2010
|
|
|
2,423,567
|
|
|
$
|
22.97
|
|
|
|
5.21
|
|
|
$
|
36,550
|
|
Exercisable
at July 4, 2010
|
|
|
1,753,763
|
|
|
$
|
20.72
|
|
|
|
4.13
|
|
|
$
|
30,353
|
|
Restricted
Stock Units
During
the second quarter, the Company began granting RSUs under the 2010 Equity
Incentive Plan.
Changes
in RSU’s were as follows:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Units
|
|
|
Grant Date
|
|
|
|
Outstanding
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Outstanding
at January 3, 2010
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
27,035
|
|
|
|
37.14
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited,
cancelled or expired
|
|
|
(450
|
)
|
|
|
37.10
|
|
Outstanding
at July 4, 2010
|
|
|
26,585
|
|
|
$
|
37.14
|
|
Stock-Based
Compensation
Stock-based
compensation expense consists of and was recognized in the condensed
consolidated statements of income as follows (in thousands):
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
July
4,
|
|
|
June
28,
|
|
|
July
4,
|
|
|
June
28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
$
|
879
|
|
|
$
|
802
|
|
|
$
|
1,621
|
|
|
$
|
1,394
|
|
Employee
Stock Purchase Plan expense
|
|
|
2
|
|
|
|
63
|
|
|
|
2
|
|
|
|
114
|
|
Total
|
|
$
|
881
|
|
|
$
|
865
|
|
|
$
|
1,623
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and related occupancy expenses
|
|
$
|
232
|
|
|
$
|
146
|
|
|
$
|
306
|
|
|
$
|
191
|
|
Operating
expenses
|
|
|
162
|
|
|
|
327
|
|
|
|
444
|
|
|
|
624
|
|
General
and administrative expenses
|
|
|
487
|
|
|
|
392
|
|
|
|
873
|
|
|
|
693
|
|
Total
|
|
$
|
881
|
|
|
$
|
865
|
|
|
$
|
1,623
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefit
|
|
$
|
359
|
|
|
$
|
352
|
|
|
$
|
661
|
|
|
$
|
615
|
|
The fair
value of each option grant, restricted stock unit award, and Employee Stock
Purchase Plan award is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model with the following
assumptions:
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
Expected
term in years
|
|
|
5.7
|
|
|
|
5.7
|
|
Expected
stock price volatility
|
|
|
36.7
|
%
|
|
|
37.6
|
%
|
Risk-free
interest rate
|
|
|
2.5
|
%
|
|
|
2.9
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
Estimated
fair value per option granted
|
|
$
|
14.13
|
|
|
$
|
10.56
|
|
Estimated
fair value per RSU awarded
|
|
$
|
37.14
|
|
|
$
|
-
|
|
On
November 26, 2008, the Company entered into a credit agreement with Wells Fargo
Bank, National Association (“Wells Fargo”). The credit agreement
provides for a $25.0 million revolving line of credit, the proceeds of which may
be used in the general course of business, including to fund working capital,
capital expenditures, share repurchases and other needs of the Company. The line
of credit had an original maturity date of December 1, 2009, with an option by
the Company to extend the maturity date to December 1, 2010, which was exercised
pursuant to the terms of the credit agreement.
During
the thirteen weeks ended July 4, 2010 and as of July 4, 2010, there were no
borrowings under this agreement. Total unused borrowing capacity under the
credit agreement was $25.0 million as of July 4, 2010.
We are
party to the significant legal proceedings described below. Based on our
experience, we believe that any damage amounts claimed in the specific matters
discussed below are not meaningful indicators of our potential liability. We
believe that we have valid defenses to these legal proceedings and are defending
the matters vigorously. Nevertheless, the outcome of any litigation is
inherently uncertain. We are currently unable to estimate the remaining possible
losses, if any, in the unresolved legal proceedings described below. Should any
one of these proceedings against us, or a combination of more than one, be
successful, or should we determine to settle any or a combination of these
matters on unfavorable terms, we may be required to pay substantial sums, which
could have a material impact on our financial position or results of
operations.
On
July 14, 2008, a complaint was filed against the Company in California
Superior Court, Alameda County, by three former employees on behalf of
themselves and all other California store managers. The complaint alleges that
store managers based in California were not paid overtime wages, were not
provided meal or rest periods, were not provided accurate wage statements and
were not reimbursed for business expenses. The plaintiffs seek injunctive
relief, monetary damages, penalties, costs and attorneys’ fees, and prejudgment
interest. On December 16, 2009, the Company reached a tentative settlement
pursuant to which we would deny any liability but agree to maximum payment of
$2.6 million, including plaintiff’s attorney’s fees, which is included in
accounts payable and other accrued liabilities at January 3, 2010 and July 4,
2010. Any difference between the maximum and the actual payment amount
based on class participation is not expected to be material. The parties
appeared before the California Superior Court on March 26, 2010 to seek the
Court’s preliminary approval of the settlement terms which was subsequently
granted and Notice to the Class was mailed on May 21, 2010. The Notice
period concluded on August 4, 2010, and the parties will next appear before the
Court for final approval of the settlement on September 1, 2010.
On April
1, 2010, the Company was served with the First Amended Complaint filed in
California Superior Court by Amber Morgan and Norna Lai, on behalf of themselves
and all other non-exempt employees similarly situated in the state of California
naming Peet’s Coffee & Tea, Inc. as a defendant. The First Amended
Complaint alleges claims for unpaid overtime, unpaid meal and rest period
premiums, unpaid business expenses, unpaid minimum wages, untimely wages paid at
time of termination, untimely payment of wages, failure to pay vacation wages,
violation of California Business & Professions Code section 17200
and non-compliant wage
statements. The plaintiffs seek injunctive relief, restitution, monetary
damages, penalties under the California Labor Code Private Attorneys General
Act, costs and attorneys’ fees, penalties, and prejudgment interest. On
April 30, 2010, the Company filed an answer denying the allegations set forth in
the complaint and asserting a number of affirmative defenses thereto. At this
time, it is not feasible to predict the outcome of or a range of loss, should a
loss occur, from this proceeding.
On
February 8, 2010, the Company received a letter from a law firm alleging
that the Company and several other well known sellers of coffee violate the
California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known
as Proposition 65, by failing to warn consumers that “ready-to-drink” coffee
contains a substance that is allegedly known to cause cancer. Under Proposition
65, the letter commenced a 60-day period during which the California Attorney
General was required to decide whether to take over or otherwise become involved
in this matter. That 60-day period has now expired, and the Attorney General has
not taken any steps to become involved in the matter to the best of our
knowledge. The law firm that served the letter on the Company, as
expected, filed a complaint on April 13, 2010, naming the Company along with
many others who serve ready-to-drink coffee. The complaint seeks statutory
penalties and costs of enforcement, as well as a court order that the Company is
required to provide warnings and other notices to customers. As this
matter is at a very early stage, we are not able to predict the probability of
the outcome or estimate of loss, if any, related to this
matter.
The
Company is involved in various other litigation and governmental proceedings,
not described above, that arise in the normal course of business. While it is
not possible to determine with certainty the ultimate outcome or the duration of
any such litigation or governmental proceedings, the Company believes, based on
current knowledge and the advice of counsel, that such litigation and
proceedings will not have a material impact on the Company’s financial position
or results of operations.
The
Company operates in two reportable segments: retail and specialty
sales. Retail store operations consist of sales of whole bean coffee,
beverages, tea and related products through Company-operated retail
stores. Specialty sales consist of whole bean coffee sales through
three operating segments: grocery, home delivery, foodservice and
office.
Management
evaluates segment performance primarily based on revenue and segment operating
income. The following table presents certain financial information
for each segment. Segment income before taxes excludes unallocated
marketing expenses and general and administrative
expenses. Unallocated assets include cash, coffee inventory in the
warehouse, corporate headquarter assets and intangible and other assets (dollars
in thousands).
|
|
Retail
|
|
|
Specialty
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Net
|
|
|
|
|
|
of Net
|
|
|
|
|
|
|
|
|
of Net
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the thirteen weeks ended July 4, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
50,560
|
|
|
|
100.0
|
%
|
|
$
|
30,216
|
|
|
|
100.0
|
%
|
|
|
|
|
$
|
80,776
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
21,964
|
|
|
|
43.4
|
%
|
|
|
15,413
|
|
|
|
51.0
|
%
|
|
|
|
|
|
37,377
|
|
|
|
46.3
|
%
|
Operating
expenses
|
|
|
20,350
|
|
|
|
40.2
|
%
|
|
|
6,587
|
|
|
|
21.8
|
%
|
|
|
|
|
|
26,937
|
|
|
|
33.3
|
%
|
Depreciation
and amortization
|
|
|
2,867
|
|
|
|
5.7
|
%
|
|
|
457
|
|
|
|
1.5
|
%
|
|
$
|
696
|
|
|
|
4,020
|
|
|
|
5.0
|
%
|
Segment
operating income
|
|
|
5,379
|
|
|
|
10.6
|
%
|
|
|
7,759
|
|
|
|
25.7
|
%
|
|
|
(6,464
|
)
|
|
|
6,674
|
|
|
|
8.3
|
%
|
Total
assets
|
|
|
53,266
|
|
|
|
|
|
|
|
17,173
|
|
|
|
|
|
|
|
133,448
|
|
|
|
203,887
|
|
|
|
|
|
Capital
expenditures
|
|
|
1,941
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
565
|
|
|
|
2,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the thirteen weeks ended June 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
48,840
|
|
|
|
100.0
|
%
|
|
$
|
24,725
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
73,565
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
21,226
|
|
|
|
43.5
|
%
|
|
|
11,727
|
|
|
|
47.4
|
%
|
|
|
|
|
|
|
32,953
|
|
|
|
44.8
|
%
|
Operating
expenses
|
|
|
20,173
|
|
|
|
41.3
|
%
|
|
|
5,349
|
|
|
|
21.6
|
%
|
|
|
|
|
|
|
25,522
|
|
|
|
34.7
|
%
|
Depreciation
and amortization
|
|
|
2,780
|
|
|
|
5.7
|
%
|
|
|
435
|
|
|
|
1.8
|
%
|
|
$
|
416
|
|
|
|
3,631
|
|
|
|
4.9
|
%
|
Segment
operating income
|
|
|
4,661
|
|
|
|
9.5
|
%
|
|
|
7,214
|
|
|
|
29.2
|
%
|
|
|
(6,548
|
)
|
|
|
5,327
|
|
|
|
7.2
|
%
|
Total
assets
|
|
|
59,578
|
|
|
|
|
|
|
|
15,822
|
|
|
|
|
|
|
|
107,187
|
|
|
|
182,587
|
|
|
|
|
|
Capital
expenditures
|
|
|
2,040
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
3,003
|
|
|
|
5,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the twenty-six weeks ended July 4, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
100,631
|
|
|
|
100.0
|
%
|
|
$
|
61,341
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
161,972
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
43,618
|
|
|
|
43.3
|
%
|
|
|
31,298
|
|
|
|
51.0
|
%
|
|
|
|
|
|
|
74,916
|
|
|
|
46.3
|
%
|
Operating
expenses
|
|
|
41,480
|
|
|
|
41.2
|
%
|
|
|
13,294
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
54,774
|
|
|
|
33.8
|
%
|
Depreciation
and amortization
|
|
|
5,616
|
|
|
|
5.6
|
%
|
|
|
889
|
|
|
|
1.4
|
%
|
|
$
|
1,392
|
|
|
|
7,897
|
|
|
|
4.9
|
%
|
Segment
operating income
|
|
|
9,917
|
|
|
|
9.9
|
%
|
|
|
15,860
|
|
|
|
25.9
|
%
|
|
|
(14,286
|
)
|
|
|
11,491
|
|
|
|
7.1
|
%
|
Total
assets
|
|
|
53,266
|
|
|
|
|
|
|
|
17,173
|
|
|
|
|
|
|
|
133,448
|
|
|
|
203,887
|
|
|
|
|
|
Capital
expenditures
|
|
|
3,460
|
|
|
|
|
|
|
|
517
|
|
|
|
|
|
|
|
1,478
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the twenty-six weeks ended June 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
96,823
|
|
|
|
100.0
|
%
|
|
$
|
48,847
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
145,670
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
41,751
|
|
|
|
43.1
|
%
|
|
|
23,770
|
|
|
|
48.7
|
%
|
|
|
|
|
|
|
65,521
|
|
|
|
45.0
|
%
|
Operating
expenses
|
|
|
39,929
|
|
|
|
41.2
|
%
|
|
|
10,744
|
|
|
|
22.0
|
%
|
|
|
|
|
|
|
50,673
|
|
|
|
34.8
|
%
|
Depreciation
and amortization
|
|
|
5,542
|
|
|
|
5.7
|
%
|
|
|
862
|
|
|
|
1.8
|
%
|
|
$
|
834
|
|
|
|
7,238
|
|
|
|
5.0
|
%
|
Segment
operating income
|
|
|
9,601
|
|
|
|
9.9
|
%
|
|
|
13,471
|
|
|
|
27.6
|
%
|
|
|
(12,925
|
)
|
|
|
10,147
|
|
|
|
7.0
|
%
|
Total
assets
|
|
|
59,578
|
|
|
|
|
|
|
|
15,822
|
|
|
|
|
|
|
|
107,187
|
|
|
|
182,587
|
|
|
|
|
|
Capital
expenditures
|
|
|
3,771
|
|
|
|
|
|
|
|
730
|
|
|
|
|
|
|
|
4,352
|
|
|
|
8,853
|
|
|
|
|
|
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
You
should read the following discussion and analysis in conjunction with our
financial statements and related notes included elsewhere in this report. Except
for historical information, the discussion in this report contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In some cases, you can identify forward-looking
statements by terminology, such as “may,” “should,” “could,” “predict,”
“potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,”
“believe,” “estimate,” “forecast” and similar expressions (or the negative of
such expressions). The forward-looking statements in this Form 10-Q
include, but are not limited to, statements regarding our expectations for the
growth of the specialty coffee industry; our expectations regarding green coffee
prices and the coffee commodity market; our plans to open new retail stores; our
plans to expand into new grocery markets; our expectations regarding the outcome
and/or impact of legal proceedings to which we are a party; and our expectations
for future revenue, margins, expenses, operating results, inventory levels and
capital expenditures. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events, are based on assumptions, and are subject to risks, uncertainties and
other important factors. Given these risks, uncertainties and other important
factors, you should not place undue reliance on these forward-looking
statements. Also, forward-looking statements represent our estimates and
assumptions only as of the date of this report. Except as required by law, we
assume no obligation to update any forward-looking statements publicly, or to
update the reasons actual results could differ materially from those anticipated
in any forward-looking statements, even if new information becomes available in
the future. Important factors that could cause actual results to
differ materially include, but are not limited to, the following:
|
·
|
The recent recession or a
worsening of the United States and global economy could materially
adversely affect our business.
Our revenues and
performance depend significantly on consumer confidence and spending,
which have deteriorated due to the recession and may remain depressed for
the foreseeable future. Some of the factors that could influence the
levels of consumer confidence and spending include, without limitation,
continuing conditions in the residential real estate and mortgage markets,
access to credit, labor and healthcare costs, increases in fuel and other
energy costs, consumer confidence and other macroeconomic factors
affecting consumer spending behavior. These and other economic factors
could have a material adverse effect on demand for our products and on our
financial condition and operating
results.
|
|
·
|
Increases in the cost and
decreases in availability of high quality Arabica
coffee beans could impact our
profitability and growth of our business.
Although we do not
purchase coffee on the commodity markets, price movements in the commodity
trading of coffee impact the prices we pay. Coffee is a trade commodity
and, in general, its price can fluctuate depending on: weather patterns in
coffee-producing countries; economic and political conditions affecting
coffee-producing countries; foreign currency fluctuations; the ability of
coffee-producing countries to agree to export quotas; and general economic
conditions that make commodities more or less attractive investment
options. If costs increase and we are unable to pass along increased
coffee costs, our margin will decrease and our profitability will decrease
accordingly. In addition, if we are not able to purchase sufficient
quantities of high quality Arabica beans due to any of the above factors,
we may not be able to fulfill the demand for our coffee, our revenue may
decrease and our ability to expand our business may be negatively
impacted.
|
|
·
|
A significant interruption in
the operation of our roasting and distribution facility could potentially
disrupt our operations.
We have only one roasting and distribution
facility that roasts Peet’s coffee. A significant interruption in the
operation of our roasting and distribution facility, whether as a result
of a natural disaster, pandemic or other causes, could significantly
impair our ability to operate our business. Since we only roast our coffee
to order, we do not carry inventory of roasted coffee in our roasting
plant. Therefore, a disruption in service in our roasting facility would
impact our sales in our retail and specialty channels almost immediately.
Moreover, our roasting and distribution facility and most of our stores
are located near several major earthquake faults. The impact of a major
earthquake on our facilities, infrastructure and overall operations is
difficult to predict and an earthquake could seriously disrupt our entire
business.
|
|
·
|
Complaints or claims by
current, former or prospective employees or governmental agencies could
adversely affect us.
We are subject to a variety of laws and
regulations which govern such matters as minimum wages, overtime and other
working conditions, various family leave mandates and a variety of other
laws enacted, or rules and regulations promulgated, by federal, state and
local governmental authorities that govern these and other employment
matters. We have been, and in the future may be, the subject of complaints
or litigation from current, former or prospective employees or
governmental agencies. In addition, successful complaints against our
competitors may spur similar lawsuits against us. For instance, in 2003,
two lawsuits (which have since been settled) were filed against the
Company alleging misclassification of employment position and sought
damages, restitution, reclassification and attorneys’ fees and costs. On
July 14, 2008, a complaint was filed alleging that store managers based in
California were not paid overtime wages, were not provided meal or rest
periods, were not provided accurate wage statements and were not
reimbursed for business expenses. In addition, on March 9, 2010, a
complaint was filed by exempt employees on their own behalf and on behalf
of employees similarly situated alleging claims for unpaid overtime,
unpaid meal and rest period premiums, unpaid business expenses, unpaid
minimum wages, untimely wages paid at time of termination, untimely
payment of wages, failure to pay vacation wages and non-compliant wage
statements. These types of claims and litigation involving current, former
or prospective employees could divert our management’s time and attention
from our business operations and might potentially result in substantial
costs of defense, settlement or other disposition, which could have a
material adverse effect on our results of operations in one or more fiscal
periods.
|
For a
discussion of additional material risks and uncertainties that the Company
faces, see the discussion in the 2009 Form 10-K titled “Risk
Factors.”
Company
Overview and Industry Outlook
Peet’s is
a specialty coffee roaster and marketer of fresh,
deep-roasted whole bean coffee and tea sold through multiple channels
of distribution for home and away-from-home enjoyment. Founded in
Berkeley, California in 1966, Peet's has established a loyal customer base with
strong brand awareness in California. Our growth strategy is based on
the sale of whole bean coffee, tea and high-quality beverages in multiple
channels of distribution including our own retail stores, grocery, home
delivery, and foodservice and office accounts throughout the United
States.
As we
grow, we expect our operations to continue to be vertically integrated, allowing
us to control the quality of our product at all stages. We purchase high
quality Arabica coffee beans from countries around the world, and we use our
artisan-roasting technique to bring out the distinctive flavor of our coffees.
Because roasted coffee is perishable, we are committed to delivering our coffee
under the strictest freshness standards. As a result, we do not stock or
inventory roasted coffee. We roast to order and ship fresh coffee daily to our
stores and customers. Control of purchasing, roasting, packaging and
distribution of our coffee allows us to maintain our commitment to freshness, is
cost effective, and enhances our margins and profit potential.
We expect
the specialty coffee industry to continue to grow. We believe that this
growth will be fueled by continued consumer interest in high quality coffee and
related products. We believe that by offering high-quality products to
consumers throughout the country, we will attract the same loyal customer base
that we have attracted in California.
We
believe growth opportunities exist in all of our distribution channels. We
believe that our specialty sales can expand to geographies where we do not have
a retail presence. Our first priority has been to develop primarily in the
western U.S. markets where we already have a presence and higher customer
awareness. In the long-term, we expect to continue to open new retail stores in
strategic west coast locations that meet our demographic profile and partner
with distributors and companies who share our passion for quality and freshness
and are willing and able to execute accordingly in the foodservice and office
environment. In grocery, we expect to continue to expand into new markets
although the full extent of our penetration will depend upon the development of
specialty coffee as a category in many markets.
While
coffee commodity costs began to decline in the second half of 2008, costs rose
steadily in 2009 and by year end returned to early 2008 levels. The coffee
market is now 25% higher than it was three months ago. We expect the commodity
market to continue to be volatile as worldwide demand, the strength of the
dollar, and weather will continue to cause uncertainty in the
market.
Our net
revenues depend significantly on consumer confidence and spending, which have
deteriorated over that last two years due to the recession and may remain
depressed for the foreseeable future. Despite the recession, we have been able
to grow our revenues by opening new retail stores, adding new foodservice
accounts, growing our business in our current grocery customer base, and to a
lesser extent, the introduction of new products.
Results
of Operations
The
following discussion on results of operations should be read in conjunction with
the condensed consolidated financial statements and accompanying notes and the
other financial data included elsewhere in this report.
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of income as a percent of net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost
of sales and related occupancy expenses
|
|
|
46.3
|
|
|
|
44.8
|
|
|
|
46.3
|
|
|
|
45.0
|
|
Operating
expenses
|
|
|
33.3
|
|
|
|
34.7
|
|
|
|
33.8
|
|
|
|
34.8
|
|
Transaction
related expenses
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
0.1
|
|
General
and administrative expenses
|
|
|
7.0
|
|
|
|
8.3
|
|
|
|
7.4
|
|
|
|
8.2
|
|
Depreciation
and amortization expenses
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
5.0
|
|
Income
from operations
|
|
|
8.3
|
|
|
|
7.2
|
|
|
|
7.1
|
|
|
|
7.0
|
|
Interest
income
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
Income
before income taxes
|
|
|
8.3
|
|
|
|
7.3
|
|
|
|
7.1
|
|
|
|
7.1
|
|
Income
tax provision
|
|
|
3.0
|
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
2.6
|
|
Net
income
|
|
|
5.3
|
%
|
|
|
4.6
|
%
|
|
|
4.5
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
of net revenue by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
|
62.6
|
%
|
|
|
66.4
|
%
|
|
|
62.1
|
%
|
|
|
66.5
|
%
|
Specialty
sales
|
|
|
37.4
|
|
|
|
33.6
|
|
|
|
37.9
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
of net revenue by business category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whole
bean coffee and related products
|
|
|
54.1
|
%
|
|
|
51.9
|
%
|
|
|
54.7
|
%
|
|
|
52.5
|
%
|
Beverages
and pastries
|
|
|
45.9
|
|
|
|
48.1
|
|
|
|
45.3
|
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and related occupancy expenses as a percent of segment
revenue:
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
|
43.4
|
%
|
|
|
43.5
|
%
|
|
|
43.3
|
%
|
|
|
43.1
|
%
|
Specialty
sales
|
|
|
51.0
|
|
|
|
47.4
|
|
|
|
51.0
|
|
|
|
48.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses as a percent of segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
|
40.2
|
%
|
|
|
41.3
|
%
|
|
|
41.2
|
%
|
|
|
41.2
|
%
|
Specialty
sales
|
|
|
21.8
|
|
|
|
21.6
|
|
|
|
21.7
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
increase from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
|
9.8
|
%
|
|
|
5.0
|
%
|
|
|
11.2
|
%
|
|
|
6.2
|
%
|
Retail
stores
|
|
|
3.5
|
|
|
|
5.5
|
|
|
|
3.9
|
|
|
|
6.5
|
|
Specialty
sales
|
|
|
22.2
|
|
|
|
4.1
|
|
|
|
25.6
|
|
|
|
5.6
|
|
Cost
of sales and related occupancy expenses
|
|
|
13.4
|
|
|
|
2.2
|
|
|
|
14.3
|
|
|
|
2.0
|
|
Operating
expenses
|
|
|
5.5
|
|
|
|
3.6
|
|
|
|
8.1
|
|
|
|
5.3
|
|
General
and administrative expenses
|
|
|
(7.4
|
)
|
|
|
11.8
|
|
|
|
(0.7
|
)
|
|
|
9.2
|
|
Depreciation
and amortization expenses
|
|
|
10.7
|
|
|
|
14.3
|
|
|
|
9.1
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of retail stores in operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of the period
|
|
|
193
|
|
|
|
190
|
|
|
|
192
|
|
|
|
188
|
|
Store
openings
|
|
|
-
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
Store
closures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
End
of the period
|
|
|
193
|
|
|
|
192
|
|
|
|
193
|
|
|
|
192
|
|
Thirteen
Weeks Ended July 4, 2010 Compared to Thirteen Weeks Ended June 28,
2009
Net
revenue
Net
revenue for the thirteen weeks ended July 4, 2010 increased $7.2 million, or
9.8%, compared to the corresponding period in 2009. Sales of whole bean and
related products increased 14.4% to $43.7 million. Net revenue from beverages
and pastries increased 4.8% to $37.1 million.
In the
retail segment, net revenue increased $1.7 million, or 3.5%, compared to the
corresponding period in 2009 primarily as a result of growth in beverage and
pastries sales from stores operating for over one year. Sales of whole bean
coffee and related products in the retail segment increased by 0.1% to $13.6
million, while sales of beverages and pastries increased by 4.9% to $37.1
million. The slower growth in whole bean and related products was primarily due
to continuing cannibalization of bean sales in retail stores as we increased the
availability and sales levels of Peet’s coffee in grocery stores. Beverage and
pastries sales were driven in part by new product introductions, including
Peet’s Bottled Iced Tea and the expansion of third-party products included in
our new reach-in coolers.
In the
specialty sales segment, net revenue increased $5.5 million, or 22.2%, compared
to the second quarter of 2009, as summarized by business channel below. The
growth in net revenue in grocery was due to increased share in existing markets
and to a lesser extent, the introduction of Godiva coffee in the fourth quarter
of 2009. Net revenue in foodservice and office coffee sales increased primarily
due to new accounts added over the last 12 months. Net revenue in the home
delivery channel decreased slightly compared to the corresponding period in 2009
due to continuing cannibalization from our grocery business
expansion.
|
|
Thirteen weeks ended
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
July 4, 2010
|
|
|
June 28, 2009
|
|
|
Increase/(Decrease)
|
|
Grocery
|
|
$
|
17,804
|
|
|
$
|
13,835
|
|
|
$
|
3,969
|
|
|
|
28.7
|
%
|
Foodservice
and office
|
|
|
8,446
|
|
|
|
6,855
|
|
|
|
1,591
|
|
|
|
23.2
|
%
|
Home
delivery
|
|
|
3,966
|
|
|
|
4,035
|
|
|
|
(69
|
)
|
|
|
-1.7
|
%
|
Total
specialty
|
|
$
|
30,216
|
|
|
$
|
24,725
|
|
|
$
|
5,491
|
|
|
|
22.2
|
%
|
Cost
of sales and related occupancy expenses
Cost of
sales and related occupancy expenses consist of product costs, including
manufacturing costs, rent and other occupancy costs. As a percent of net
revenue, cost of sales increased from 44.8% in the second quarter of 2009 to
46.3% in the second quarter of 2010. The increase from last year was due to the
shift from retail towards specialty, which has a higher cost of sales, and
higher commodity costs, particularly coffee and milk.
In the
retail segment, cost of sales and related occupancy expenses as a percent of net
revenue remained flat as higher commodity costs were offset by sales leverage of
occupancy costs.
In the
specialty segment, cost of sales and related occupancy expenses as a percent of
net revenue increased 3.6% primarily due to lower everyday pricing in our
grocery business, the mix impact of Godiva coffee, which has a lower margin, and
increased coffee costs.
For the
remainder of the year, we expect cost of sales and related occupancy expenses as
a percent of revenue to remain above last year levels, due to the mix shift
toward specialty and higher commodity prices.
Operating
expenses
Operating
expenses consist of both retail and specialty segment operating costs, such as
employee labor and benefits, repairs and maintenance, supplies, training,
travel, banking and card processing fees. Operating expenses as a percentage of
net revenue decreased 1.4% to 33.3%. The decrease was primarily due to the mix
shift from retail towards specialty, which has lower operating costs, and
leverage of our retail overhead costs.
In the
retail segment, operating expenses as a percent of net revenue decreased 1.1%
primarily due to leveraging our retail overhead costs, lower repairs and
maintenance costs, and lower workers compensation expense.
In the
specialty segment, operating expenses as a percent of net revenue increased 0.2%
primarily due to the impact of lower grocery pricing.
We expect
operating expenses as a percent of net revenue in 2010 to continue to improve
primarily due to the continued shift in business towards the specialty
channels.
Transaction
related expenses
Transaction
related expenses consists of $0.1 million of external professional and legal
fees incurred to comply with a subpoena we received from the Federal Trade
Commission in connection with its anti-trust review of the Green Mountain Coffee
Roasters’ acquisition of Diedrich Coffee.
General
and administrative expenses
General
and administrative expenses decreased to $5.6 million compared to $6.1 million
for the corresponding period last year primarily due to lower marketing costs,
partially offset by higher recruiting and professional fees.
Depreciation
and amortization expenses
Depreciation
and amortization expenses increased to $4.0 million, compared to $3.6 million
for the corresponding period last year. The increase was primarily due to the
implementation of a new ERP system in the third quarter of 2009.
Interest
income, net
We invest
in U.S. government, agency, municipal and equity securities. Interest income
includes interest income and gains or losses from the sale of these instruments.
Interest income was lower compared to the corresponding period last year due to
lower interest rates on investments, which was offset by interest expense on
higher balances in our deferred compensation plan.
Income tax
provision
The
effective income tax rate for the second quarter of 2010 is 36.3% compared to
36.6% during the second quarter of 2009 due to normal quarter to quarter rate
fluctuations.
The
Company does not expect unrecognized tax benefits to change significantly within
the next 12 months.
Twenty-six
Weeks Ended July 4, 2010 Compared to Twenty-six Weeks Ended June 28,
2009
Net
revenue
Net
revenue for the twenty-six weeks ended July 4, 2010 increased $16.3 million, or
11.2%, compared to the corresponding period in 2009. Sales of whole bean and
related products increased 15.9% to $88.7 million. Net revenue from beverages
and pastries increased 6.0% to $73.3 million. Beverage and pastries sales were
driven in part by new product introductions, including Peet’s Bottled Iced Tea
and the expansion of third-party products included in our new reach-in
coolers.
In the
retail segment, net revenue increased $3.8 million, or 3.9%, compared to the
corresponding period in 2009 primarily as a result of increased sales from
stores operating for over one year. Sales of whole bean coffee and related
products in the retail segment decreased by 1.1% to $27.4 million, while sales
of beverages and pastries increased by 6.0% to $73.2 million. The decrease in
whole bean and related products sales was primarily due to continuing
cannibalization of bean sales in retail stores as we increased the availability
and sales levels of Peet’s coffee in grocery stores.
In the
specialty sales segment, net revenue increased $12.5 million, or 25.6%, compared
to the first half of 2009, as summarized by business channel below. The growth
in net revenue in grocery was due to increased share in existing markets and to
a lesser extent, the introduction of Godiva coffee in the fourth quarter of
2009. Net revenue in foodservice and office coffee sales increased due to new
accounts added over the last 12 months. Net revenue in the home delivery channel
decreased slightly compared to the corresponding period in 2009 due to
continuing cannibalization from our grocery business expansion.
|
|
Twenty-six weeks ended
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
July 4, 2010
|
|
|
June 28, 2009
|
|
|
Increase/(Decrease)
|
|
Grocery
|
|
$
|
36,445
|
|
|
$
|
27,222
|
|
|
$
|
9,223
|
|
|
|
33.9
|
%
|
Foodservice
and office
|
|
|
16,927
|
|
|
|
13,561
|
|
|
|
3,366
|
|
|
|
24.8
|
%
|
Home
delivery
|
|
|
7,968
|
|
|
|
8,064
|
|
|
|
(96
|
)
|
|
|
-1.2
|
%
|
Total
specialty
|
|
$
|
61,340
|
|
|
$
|
48,847
|
|
|
$
|
12,493
|
|
|
|
25.6
|
%
|
Cost
of sales and related occupancy expenses
Cost of
sales and related occupancy expenses consist of product costs, including
manufacturing costs, rent and other occupancy costs. As a percent of net
revenue, cost of sales increased from 45.0% in the first half of 2009 to 46.3%
in the first half of 2010. The increase from last year was due to the shift from
retail towards specialty, which has a higher cost of sales, and higher coffee
and milk commodity costs.
In the
retail segment, cost of sales and related occupancy expenses as a percent of net
revenue increased 0.2% as higher commodity costs were largely offset by sales
leverage of occupancy costs.
In the
specialty segment, cost of sales and related occupancy expenses as a percent of
net revenue increased 2.4% primarily due to lower everyday pricing in our
grocery business, the mix impact of Godiva coffee, which has a lower margin, and
increased coffee costs.
For the
remainder of the year, we expect cost of sales and related occupancy expenses as
a percent of revenue to remain above last year levels, due to the mix shift
toward specialty and higher coffee and milk prices.
Operating
expenses
Operating
expenses consist of both retail and specialty segment operating costs, such as
employee labor and benefits, repairs and maintenance, supplies, training,
travel, banking and card processing fees. Operating expenses as a percentage of
net revenue decreased 1.0% to 33.8%. The decrease was primarily due to the mix
shift from retail towards specialty, which has lower operating costs, leveraging
our retail overhead costs, offset slightly by retail labor deployment training
in the first quarter.
In the
retail segment, operating expenses as a percent of net revenue remained flat
primarily due to leveraging our retail overhead costs, offset by investments in
training.
In the
specialty segment, operating expenses as a percent of net revenue decreased 0.3%
primarily due to leverage of our DSD sales and distribution system, partially
offset by lower everyday pricing in grocery.
We expect
operating expenses as a percent of net revenue in 2010 to continue to improve
primarily due to the continued shift in business towards specialty
channels.
Transaction
related expenses
Transaction
related expenses consists of $1.0 million of external professional and legal
fees incurred to comply with a subpoena we received from the Federal Trade
Commission in connection with its anti-trust review of the proposed Green
Mountain Coffee Roasters’ acquisition of Diedrich Coffee.
General
and administrative expenses
General
and administrative expenses decreased slightly to $11.9 million, compared to
$12.0 million for the corresponding period last year due to lower marketing
costs during the twenty-six weeks compared to the same prior year period, offset
primarily by increased professional fees, legal fees, and stock-based
compensation.
Depreciation
and amortization expenses
Depreciation
and amortization expenses increased to $7.9 million, compared to $7.2 million
for the corresponding period last year. The increase was primarily due to the
implementation of a new ERP system in the third quarter of 2009.
Interest
income, net
We invest
in U.S. government, agency, municipal and equity securities. Interest income
includes interest income and gains or losses from the sale of these instruments.
Interest income was lower compared to the corresponding period last year due to
lower interest rates on investments, which was offset by interest expense on
higher balances in our deferred compensation plan. During the corresponding
period of 2009 we earned $0.1 million.
Income
tax provision
The
effective income tax rate for the first half of 2010 is 36.4% compared to 37.1%
during the first half of 2009 due to normal quarter to quarter rate
fluctuations. The Company does not expect unrecognized tax benefits to change
significantly within the next 12 months.
Liquidity
and Capital Resources
At July
4, 2010 we had $42.9
million
in cash and cash equivalents. Working capital was $75.0
million
as of July 4, 2010.
Net cash
provided by operating activities was $4.9 million for the twenty-six weeks ended
July 4, 2010 compared to $15.9 million for the same prior year period. Operating
cash flows were lower than the prior year period primarily due to coffee
purchases and other changes in working capital. Coffee purchases increased over
the prior year due primarily to delivery and purchase timing in addition to
inventory increases to support our growth and increased costs.
Net cash
used in investing activities was $4.9 million for the twenty-six weeks ended
July 4, 2010 compared to $0.8 million in the prior year period. Investing
activities primarily relate to purchases of property, plant and equipment and
maturities and purchases of marketable securities. During the twenty-six week
period ended July 4, 2010, we purchased property, plant and equipment totaling
$5.5 million primarily related to one new store and improvements to existing
stores, information technology support systems and hardware, and additional
equipment and machinery for our roasting facility. During the twenty-six week
period ended July 4, 2010, there were no purchases or proceeds from maturities
of marketable securities and proceeds from the release of restricted investments
totaled $0.6 million for the twenty-six week period ended July 4,
2010.
Net cash
used by financing activities for the twenty-six weeks ended July 4, 2010 was
$5.1 million compared to $4.7 million for the same prior year period.
Financing activities primarily relate to repurchases of our common stock
totaling $14.7 million, offset by proceeds from stock option exercises of $8.1
million.
The
Company also has $25.0 million available through a credit agreement entered into
on November 26, 2008 with Wells Fargo Bank, National Association, the proceeds
of which may be used in the general course of business, including to fund
working capital, capital expenditures, share repurchases and other needs of the
Company.
The
Company’s obligations under the line of credit are guaranteed by the Company’s
wholly-owned subsidiary, Peet’s Operating Company, and secured by substantially
all of the Company’s and Peet’s Operating Company’s personal property. The line
of credit had an original maturity date of December 1, 2009, with an option by
the Company to extend the maturity date to December 1, 2010, which was exercised
pursuant to the terms of the credit agreement.
Amounts
drawn under the credit agreement will bear interest (computed on the basis of a
360-day year, actual days elapsed) either (i) at a fluctuating rate per annum of
1.50% above, for any day, the rate of interest equal to LIBOR then in effect for
delivery for a 1 month period, or (ii) at a fixed rate per annum of 1.50% above
LIBOR in effect on the first day of the applicable period commencing on a
business day and continuing for 1, 3, or 6 months, as designated by the Company,
during which all or a portion of the outstanding principal balance will bear
interest determined in relation to LIBOR.
The
credit agreement contains customary affirmative and negative covenants,
including a requirement to maintain the Company’s financial condition in
accordance with certain ratios and thresholds, and events of default that permit
the Bank to accelerate the Company’s outstanding obligations, including
nonpayment of principal, interest, fees or other amounts, violation of
covenants, inaccuracy of representations and warranties and upon the occurrence
of bankruptcy and other adverse material change in the Company’s financial
condition. The Company is required to comply with the following financial
covenants as of each fiscal quarter end, as defined in the credit agreement: a
minimum Current Ratio not less than 0.75 to 1.0, a Leverage Ratio not greater
than 1.75 to 1.0, an EBITDAR Coverage Ratio not less than 1.75 to 1.0, and net
income after tax provision not less than $1.00.
During
the quarter ended and as of July 4, 2010, there were no borrowings under this
agreement. Total unused borrowing capacity under the credit agreement was $25.0
million as of July 4, 2010. As of July 4, 2010, we were in compliance with these
financial covenants.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
We invest
excess cash in equity securities and interest-bearing, U.S. government, agency,
and municipal securities. These financial instruments are subject to stock
market volatility and fluctuations of daily interest rates. Therefore our
investment portfolio is exposed to market risk from these changes.
The
supply and price of coffee are subject to significant volatility and can be
affected by multiple factors in the producing countries, including weather,
political and economic conditions. In addition, green coffee bean prices have
been affected in the past, and may be affected in the future, by the actions of
certain organizations and associations that have historically attempted to
influence commodity prices of green coffee beans through agreements establishing
export quotas or restricting coffee supplies worldwide.
We
currently use fixed-price purchase commitments, but in the past have used and
may potentially in the future use coffee futures and coffee futures options to
manage coffee supply and price risk.
Fixed-Price
and Not-Yet-Priced Purchase Commitments
We enter
into fixed-price purchase commitments in order to secure an adequate supply of
quality green coffee beans and fix our cost of green coffee beans. These
commitments are made with established coffee brokers and are denominated in U.S.
dollars. We also enter into “not-yet-priced” commitments based on a fixed
premium over the New York “C” market with the option to fix the price at any
time. As of July 4, 2010, we had approximately $18.2 million in open
fixed-priced purchase commitments and approximately $14.2 million in
not-yet-priced commitments for a total of approximately $32.4 million with
delivery dates ranging from July 2010 through September 2011. We believe, based
on relationships established with our suppliers, that the risk of non-delivery
on such purchase commitments is low.
Item
4. Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934, as
amended, reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
As of
July 4, 2010, the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the quarter covered by this report at the
reasonable-assurance level.
There
have been no changes in our internal controls over financial reporting during
the fiscal quarter ended July 4, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
We are
party to the significant legal proceedings described below. Based on our
experience, we believe that any damage amounts claimed in the specific matters
discussed below are not meaningful indicators of our potential liability. We
believe that we have valid defenses to these legal proceedings and are defending
the matters vigorously. Nevertheless, the outcome of any litigation is
inherently uncertain. We are currently unable to estimate the remaining possible
losses, if any, in the unresolved legal proceedings described below. Should any
one of these proceedings against us, or a combination of more than one, be
successful, or should we determine to settle any or a combination of these
matters on unfavorable terms, we may be required to pay substantial sums, which
could have a material impact on our financial position or results of
operations.
On
July 14, 2008, a complaint was filed against the Company in California
Superior Court, Alameda County, by three former employees on behalf of
themselves and all other California store managers. The complaint alleges that
store managers based in California were not paid overtime wages, were not
provided meal or rest periods, were not provided accurate wage statements and
were not reimbursed for business expenses. The plaintiffs seek injunctive
relief, monetary damages, penalties, costs and attorneys’ fees, and prejudgment
interest. On December 16, 2009, the Company reached a tentative settlement
pursuant to which we would deny any liability but agree to maximum payment of
$2.6 million, including plaintiff’s attorney’s fees, which is included in
accounts payable and other accrued liabilities at January 3, 2010 and July 4,
2010. Any difference between the maximum and the actual payment amount
based on class participation is not expected to be material. The parties
appeared before the California Superior Court on March 26, 2010 to seek the
Court’s preliminary approval of the settlement terms which was subsequently
granted and Notice to the Class was mailed on May 21, 2010. The Notice
period concluded on August 4, 2010, and the parties will next appear before the
Court for final approval of the settlement on September 1, 2010.
On April
1, 2010, the Company was served with the First Amended Complaint filed in
California Superior Court by Amber Morgan and Norna Lai, on behalf of themselves
and all other non-exempt employees similarly situated in the state of California
naming Peet’s Coffee & Tea, Inc. as a defendant. The First Amended
Complaint alleges claims for unpaid overtime, unpaid meal and rest period
premiums, unpaid business expenses, unpaid minimum wages, untimely wages paid at
time of termination, untimely payment of wages, failure to pay vacation wages,
violation of California Business & Professions Code section 17200
and non-compliant wage
statements. The plaintiffs seek injunctive relief, restitution, monetary
damages, penalties under the California Labor Code Private Attorneys General
Act, costs and attorneys’ fees, penalties, and prejudgment interest. On
April 30, 2010, the Company filed an answer denying the allegations set forth in
the complaint and asserting a number of affirmative defenses thereto. At this
time, it is not feasible to predict the outcome of or a range of loss, should a
loss occur, from this proceeding.
On
February 8, 2010, the Company received a letter from a law firm alleging
that the Company and several other well known sellers of coffee violate the
California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known
as Proposition 65, by failing to warn consumers that “ready-to-drink” coffee
contains a substance that is allegedly known to cause cancer. Under Proposition
65, the letter commenced a 60-day period during which the California Attorney
General was required to decide whether to take over or otherwise become involved
in this matter. That 60-day period has now expired, and the Attorney General has
not taken any steps to become involved in the matter to the best of our
knowledge. The law firm that served the letter on the Company, as
expected, filed a complaint on April 13, 2010, naming the Company along with
many others who serve ready-to-drink coffee. The complaint seeks statutory
penalties and costs of enforcement, as well as a court order that the Company is
required to provide warnings and other notices to customers. As this
matter is at a very early stage, we are not able to predict the probability of
the outcome or estimate of loss, if any, related to this
matter.
The
Company is involved in various other litigation and governmental proceedings,
not described above, that arise in the normal course of business. While it is
not possible to determine with certainty the ultimate outcome or the duration of
any such litigation or governmental proceedings, the Company believes, based on
current knowledge and the advice of counsel, that such litigation and
proceedings will not have a material impact on the Company’s financial position
or results of operations.
Item
1A. Risk Factors
Not
applicable.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Information
regarding purchases of the Company’s securities by or on behalf of the Company
is set forth in the table below.
Repurchases
of Equity Securities
Period
|
|
Total
Number of
Shares
Purchased
|
|
|
Average Price
Paid
per Share
|
|
|
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
|
|
|
Maximum Number of Shares
that May Yet Be Purchased
Under the Plans or Programs
|
|
April
5, 2010 - May 9, 2010 (1)
|
|
|
21,322
|
|
|
$
|
37.95
|
|
|
|
299,478
|
|
|
|
700,522
|
|
May
10, 2010 - June 6, 2010 (1)
|
|
|
146,874
|
|
|
$
|
37.27
|
|
|
|
446,352
|
|
|
|
553,648
|
|
June
7, 2010 - July 4, 2010 (1)
|
|
|
198,750
|
|
|
$
|
39.84
|
|
|
|
645,102
|
|
|
|
354,898
|
|
|
(1)
|
Repurchases
were made pursuant a stock repurchase program announced on October 27,
2008, providing for the additional purchase of up to one million shares of
the Company’s common stock, with no deadline for completion. Purchases
under the program would be made from time to time on the open market at
prevailing market prices or in negotiated transactions off the
market.
|
Item
5. Other Information
Item
6. Exhibits
Exhibit
|
|
Description
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation. Incorporated by reference to
Exhibit 3.6 to the Company’s Amendment No. 2 to its Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on December
22, 2000 (File. No. 333-47976).
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws. Incorporated by reference to Exhibit 3.8 to the
Company’s Amendment No. 1 to its Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on December 1, 2000 (File. No.
333-47976).
|
|
|
|
4.1
|
|
Form
of common stock certificate. Incorporated by reference to Exhibit 4.1 to
the Company’s Amendment No. 2 to its Registration Statement on Form S-1
filed with the Securities and Exchange Commission on December 22, 2000
(File. No. 333-47976).
|
|
|
|
10.1
31.1
|
|
Amended
and Restated 2000 Non-Employee Director Stock Option Plan
Certification
of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
|
|
|
|
31.2
|
|
Certification
of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
|
|
|
|
32.1
|
|
Certification
of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification
of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to
Section 906 of Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
PEET’S
COFFEE & TEA, INC.
|
|
|
|
Date:
August 12, 2010
|
By:
|
/s/ Thomas P.
Cawley
|
|
Thomas
P. Cawley
|
|
Vice
President, Chief Financial Officer and
Secretary
|
Peets Coffee & Tea, Inc. (MM) (NASDAQ:PEET)
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