Mail Stop 6010
August 15, 2005
George E, Mileusnic, Chief Financial Officer
Caribou Coffee Company, Inc.
3900 Lakebreeze Avenue, North
Brooklyn Center, Minnesota 55429
Re: Caribou Coffee Company, Inc.
Registration Statement on Form S-1
Filed July 19, 2005
File No. 333-126991
Dear Mr. Mileusnic:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Cover Page
1. Please confirm that any preliminary prospectus you circulate
will
include all non- Rule 430A information. This includes the price
range and related information based on a bona fide estimate of the
public offering price within that range and other information that
was left blank throughout the document. Also, note that we may
have
additional comments after you file this information.
2. Please note that we will also have additional comments when you
complete the various blanks throughout the filing that are not
price
related.
3. Please give us copies of any graphics you intend to use in your
prospectus.
Our Majority Shareholder, page 3
4. In view of its recent name change please disclose the former
name
of Arcapita Bank B.S.C. (c).
Summary Financial and Other Data, page 5
Selected Consolidated Financial and Other Information, page 23
MD&A, page 37
5. We note that you have presented two non-GAAP financial measures
in
your filing, EBITDA and Adjusted EBITDA which you state that
management uses as measurements of operating performance and which
you reconcile to net income. We believe that because your non-
cash
closing costs and asset disposals are recurring items, they should
not be included in an adjustment to a non-GAAP performance measure
as
outlined in Item 10(e)(ii)(B) of Regulation S-K. Please remove
this
adjustment. We also believe that by adding back minority interest
to
net income, you are presenting net earnings of ownership interests
in
your two consolidated joint ventures to which you are not
entitled.
We believe that this presentation is prohibited under Item 10 of
Regulation S-X and would also like you to remove this adjustment
to
"Adjusted EBITDA" in your next amendment. See Question 8 of
Frequently Asked Questions Regarding the Use of Non-GAAP Financial
Measures issued June 13, 2003. Additionally, we understand from
your
MD&A section that the caption lease financing expense, net
includes
several types of items. Please ensure you only include interest
expense in your EBITDA calculation.
Summary Financial and other Data, page 6
6. Please explain the term "comparable coffeehouse net sales."
Also,
clarify whether this figure includes the net sales of closed
facilities.
7. Please add a note to the table to briefly explain that the
company
plans to retire its capital equipment lease obligations with
offering
proceeds.
If we are not able to grow our business..., page 9
8. Please revise the risk factor caption to reflect the risk
described in the first sentence of the paragraph below the bullet
points.
Capitalization, page 21
9. We note your disclosure that the actual column reflects the
stock
split of common shares that will occur immediately prior to the
closing and that the adjusted basis also gives effect to the stock
split of common shares. Please revise your disclosures so that
the
stock split is discussed only in relation to the actual column,
since
the stock split should be retroactively reflected in your
historical
financial statements and related disclosures for all periods
presented, as indicated in our comment below.
We may be subject to adverse publicity resulting from the alleged
statements ..., page 17
10. Please tell us, with a view to disclosure, more background
about
the statements, such as describe the statements made and identify
who
made them. Also revise the risk factor to clarify the risk.
Management`s Discussion and Analysis..., page 27
Liquidity and Capital Resources, page 35
11. We note that you have a negative working capital balance at
both
December 28, 2003 and January 2, 2005. Please revise your
liquidity
disclosure to include management`s plans to remedy the deficiency
and
discuss any potentially adverse impact on the Company if it is
unable
to do so. Additionally, disclose any reasonably possible outcomes
to
your lack of liquidity, such as the need to curtail your
operations,
inability to implement your business plan, etc.
12. Please disclose the average or range of typical costs per
store
for leasehold improvements and capital equipment. Clarify the
source
of financing for leasehold improvements. For example, are they
included in the capital leases?
13. Please discuss the effect on liquidity and capital resources
from
the restrictions discussed in the carryover paragraph at the
bottom
of page 16.
Quantitative and Qualitative Disclosures About Market Risk, page
39
14. Revise to discuss the impact of a hypothetical 10% increase or
decrease in LIBOR without giving effect to the expected repayment
of
the existing lease financing arrangement with a portion of the net
proceeds from the offering.
Growth Strategy, page 44
15. Please briefly describe the known competitive circumstances in
the intended foreign license area.
Coffeehouse Design and Atmosphere, page 47
16. Please clarify why your designs and layouts may appeal to
international customers.
17. Please discuss the company`s policies regarding major
renovation
or remodeling of retail stores, including categories of items
replaced, time periods and costs.
Site Selection and Construction, page 48
18. Please explain your site selection process in the areas of
existing Starbucks stores.
Licensing, page 50
19. Please describe the current and expected basic terms of your
licensing agreements. For example, who will be responsible for
startup costs? What are the anticipated license fees and royalty
arrangements? Will licensees be required to purchase coffee and
other inventory and supplies from you?
20. Please disclose any material relationships with the licensee.
Headquarters and Roasting Facility, page 52
21. If material, please quantify the capacity of the coffee
roaster
and the packaging station.
Management, page 55
22. With respect to Mr. Coles please clarify his principal
business
occupation(s) from 2000 to 2003.
23. Please state the date Mr. Coles was elected chairman.
Describe
the relationship of that election to his appointment as Chief
Executive Officer"
24. Please discuss, if applicable, policies regarding
representation
of Arcapita on the Board.
Board Committees, page 57
25. Please disclose the number of authorized directors and
describe
how and when you will nominate and elect additional directors to
meet
your stated goals.
Executive Officer Compensation, page 58
26. Please describe the "Senior Executive 2005 Supplemental Bonus
Plan" and the "Annual Support Center and Field Management Bonus
Plan." We note that Exhibits 10.7 and 10.8 are each a "Summary"
of
such plans. Also, file the plans as exhibits.
2005 Equity Incentive Plan, page 60
27. Please revise to describe in greater detail the "certain
changes
in our corporate structure or capitalization" contemplated by the
plan. Describe what corresponding "appropriate adjustments" will
be
made.
Employment Agreements, page 61
28. With regard to Mr. Coles, state the exercise price(s) and
expiration date(s) of the 100,000 options. Briefly describe the
exercise price basis. Provide similar information regarding
options
granted to Mr. Mileusnic and Ms. O`Neil.
29. Please revise to clarify the relationship between the "target
annual bonuses" and the "Senior Executive 2005 Supplemental Bonus
Plan."
Reserved Shares, page 74
30. We note that the underwriters have reserved a certain number
of
shares to be sold in this offering to directors, officers,
employees,
business associates and related persons. Please provide us with
the
following information:
* Please tell us the circumstances leading to the allotment of
shares
being reserved, including the timing and content of all
communications with potential participants;
* Provide details on how the reserved share plan is being
conducted,
including how the prospective participants and the number of
reserved
shares will be determined;
* Tell us whether purchasers are required to establish accounts
with
the underwriters before the effective time, and, if so, whether
any
funds are deposited into any newly established brokerage accounts
before the effective date of the registration statement;
* Tell us whether the procedures for the reserved shares differ
from
the procedures for the general offering to the public;
* We note that some of the persons who may purchase the shares are
also within the categories of persons described in Item 404 of
Regulation S-K. If applicable, please add the disclosure required
by
Item 404 in an appropriate place in your document; and
* Provide a copy of all written material used in connection with
the
reserved share program and analyze how that material is consistent
with Rule 134.
Electronic Sale, Offer and Distribution, page 76
31. We note your disclosure that in connection with the offering
Merrill Lynch will be distributing the prospectus electronically.
Please describe to us the procedures for the electronic offer,
sale
and distribution of the shares. If you become aware of any
additional members of the underwriting syndicate that may engage
in
electronic offers, sales or distributions after you respond to
this
comment, promptly advise us of the identities of those members and
provide us with a description of their procedures.
Also, in your discussion of the procedures, tell us how your
procedures ensure that the distribution complies with Section 5 of
the Securities Act. In particular:
* the communications used;
* the availability of the preliminary prospectus;
* the manner of conducting the distribution and sale, such as the
use
of indications of interest or conditional offers; and
* the funding of an account and payment of the purchase price.
Finally tell us whether you or the underwriters have any
arrangements
with a third party to host or access your preliminary prospectus
on
the internet. If so, identify the party and the website, describe
the material terms of your agreement and provide us with a copy of
any written agreement. Provide us also with copies of all
information concerning your company or prospectus that has
appeared
on their website. Again, if you subsequently enter into any such
arrangements, promptly advise us of such arrangements.
We may have further comment.
Financial Statements
32. We note that you will be effecting a stock split immediately
prior to the closing of the offering. Please revise your
financial
statements and all related disclosures to give retroactive effect
to
the stock split. Additionally, please add a note to the financial
statements discussing this retroactive adjustment. See Paragraph
54
of SFAS 128 and SAB Topic 4C.
Consolidated Balance Sheets, page F-11
33. We note that accrued expenses comprise approximately 50% of
total
current liabilities. Please revise your disclosure to show any
amounts that are greater than 5% of total current liabilities.
See
Rule 5-02.20 of Regulation S-X.
Consolidated Statements of Operations, page F-12
34. We note from page 31 of your MD&A that lease financing expense
as
presented on the statement of operations, is a net amount
consisting
of the payment of rent and the amortization of deferred financing
fee
under your lease financing arrangement, net of interest income
from
notes receivable. Please tell us why you believe it is
appropriate
to reflect interest income from notes receivable as a component of
lease financing expense. Additionally, please tell us how you
have
determined or calculated the amount of amortization of deferred
financing fees recorded. We may have further comment upon receipt
of
your response.
35. We note that you have presented minority interest above the
provision for income taxes on the face of the statements of
operations. Please revise your presentation to show minority
interest below income (loss) before provision for income taxes and
the provision for income taxes. See Rule 5-03.12 of Regulation S-
X.
Consolidated Statements of Cash Flows, page F-14
36. Please explain why the amounts of the "provisions for closing
expense and asset disposals" reflected in your consolidated
statements of cash flows for all periods presented do not agree to
the amounts reflected in "Closing expense and disposal of assets"
reflected in your consolidated statements of operations. Please
advise or revise as appropriate.
37. We note from your statements of cash flows that the management
fee paid to an affiliate`s stockholder was amortized into expense
in
2002 and 2003. Please tell us and disclose in Note 12 the amount
of
any expense for these management fees recognized during all
periods
presented. Also, if no expense was recognized in 2004 and
services
were provided, please tell us your basis for not recognizing the
related expense.
Notes to the Financial Statements
Note 1. Business and Summary of Significant Accounting Policies
38. Please tell us and disclose in Note 1 the Company`s ownership
interest in the controlled affiliates which the Company
consolidates
in its financial statements. Additionally, if the ownership
interest
held by the Company does not exceed 50%, please explain in detail
why
the Company believes that it controls these entities and that the
use
of consolidation accounting is appropriate.
Note 2. Store Closings and Asset Disposals
39. We note that during the last three years you impaired or wrote
off the carrying value of fixed assets that were abandoned or
disposed due to coffeehouse closings. Please tell us whether any
of
the assets met the criteria to be classified as held for sale, as
outlined in paragraph 30 of SFAS No. 144. If so, please explain
why
no assets held for sale have been reflected in your balance sheets
in
accordance with paragraph 46 of SFAS No. 144. Additionally,
please
tell us why you have not presented the results of operations for
the
stores that have been closed or planned to be closed as
discontinued
operations. See paragraphs 42 and 43 of SFAS No. 144.
40. We note that you recognized a loss in the year ended January
2,
2005 in connection with consolidation of your corporate
headquarters,
warehouse and roasting facilities. Please revise your disclosure
to
include the facts and circumstances leading to the consolidation
and
the expected completion date. Also, for each major type of cost
associated with the activity (for example, one-time termination
benefits, contract termination costs, and other associated costs),
disclose: (1) the total amount expected to be incurred in
connection
with the activity, the amount incurred in the period, and the
cumulative amount incurred to date; and (2) a reconciliation of
the
beginning and ending liability balances showing separately the
changes during the period attributable to costs incurred and
charged
to expense, costs paid or otherwise settled, and any adjustments
to
the liability with an explanation of the reason(s). See paragraph
20
of SFAS No. 146.
41. Please revise Note 2 to disclose the revenues associated with
the
unprofitable stores that were or are being closed. Refer to the
requirements of paragraph 47c of SFAS No.144.
Note 7. Property and Equipment
42. Please revise note 7 to include disclosure of depreciation
expense for the last three years. See paragraph 5 of APB 12.
Note 8. Notes Payable and Capital Lease Obligations
43. We note your disclosure of the capital lease obligation
outstanding as of December 28, 2003 and January 2, 2005. Please
revise your disclosure to include: the gross amount of assets
recorded under capital leases by major classes according to nature
or
function and the total amount of accumulated amortization thereon;
the future minimum lease payments as of the date of the latest
balance sheet presented, in the aggregate and for each of the five
succeeding fiscal years; and the amortization expense for the last
three years as included in the statements of operations. See
paragraph 13 and 16 of SFAS No. 13.
Note 10. Leasing Arrangements and Commitments
44. We note that certain leases provide for contingent rentals
based
upon gross sales. Please revise your disclosure to more
specifically
explain when you recognize the expense related to contingent
rental
provisions. See paragraph 16 of SFAS No. 13.
Note 12. Related Party Transaction
45. We note that in January 2003 you released your security
interest
in the cash value of an insurance policy in satisfaction of a
portion
of the deferred compensation liability to your former CEO, which
resulted in a non-cash charge to income of $431,423. Please
explain
to the nature of this transaction and how it resulted in an
expense
during 2003. See FTB 85-4.
Unaudited Financial Statements for the Quarter Ended April 3, 2005
Note 9. Subsequent Events
46. We note from your disclosure on page 16 of the Risk Factors
section, that after the offering, your majority shareholder,
Arcapita, will beneficially own stock enough stock of the Company
to
have the effective power to control the vote on substantially all
significant matters without the approval of other stockholders.
Please revise the subsequent events note to the financial
statements
to disclose the existence of this potential control relationship
with
respect to your outstanding common shares immediately after the
offering. Refer to the requirements of paragraph 2 of SFAS 57.
47. Please tell us and explain in Note 9 how you calculated or
determined the charge recognized in connection with the issuance
of
75,000 shares of common stock to your Chief Executive Officer in
connection with amending and restating his prior employment
agreement. If a price other than the expected public offering
price
was used to value the shares issued, please explain why you
believe
the price used was appropriate.
Other
48. Please revise the notes to the Company`s interim financial
statements to give effect to our comments on the Company`s audited
financial statements, where applicable.
49. We note from the disclosure on page 4 that the number of
outstanding stock options at July 15, 2005 of 1,712,892 has
increased
significantly from the number outstanding as of January 2, 2005 as
disclosed in Note 9 to your financial statements. We further note
from the discussion on page 58 under the heading "Compensation of
Directors" that the Company plans to issue certain stock option
grants to its directors upon the effective date of the Company`s
planned public offering. Given these recent and planned option
grants, please tell us and revise MD&A to discuss the number and
expected terms of the stock options that the Company plans to
issue
in connection with its planned public offering and the estimated
amount of expense that will be recognized in connection with the
option grants. Additionally, tell us the number and terms of the
options that have issued during the twelve month period preceding
the
filing of the Company`s Form S-1 registration statement and
explain
how any expense recognized in connection with the option grants
was
calculated or determined. If no expense was or will be recognized,
please explain why. We may have further comment upon receipt of
your
response.
50. In the event of a delay in the effectiveness of the Company`s
Form S-1 registration statement, please update the financial
statements and related disclosures as required by Rule 3-12 of
Regulation S-X.
51. Please include a currently dated consent of the Independent
Registered Public Accounting Firm in any future amendments to your
Form S-1 registration statement.
Exhibits - page II-3
52. Please file material leases and financing agreements, e.g.,
your
headquarters facility lease, and the equipment sale leaseback
agreement(s). Also, file the "Master License Agreement" discussed
in
Note 14 to the financial statements.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Claire Erlanger at (202) 551-3301 or Linda
Cvrkl at (202) 551-3813 if you have questions regarding comments
on
the financial statements and related matters. Please contact Alan
Morris at (202) 551-3601 or me at (202 551-3602 with any other
questions.
Sincerely,
Thomas Jones
Senior Attorney
cc. John D. Wilson (King & Spalding, Atlanta GA)
via Telefax 404-572-5100
George E, Mileusnic, Chief Financial Officer
Caribou Coffee Company, Inc.
August 15, 2005
Page 13