Mail Stop 6010
September 2, 2005
George E, Mileusnic, Chief Financial Officer
Caribou Coffee Company
3900 Lakebreeze Avenue, North
Brokklyn Center, Minnesota 55429
Re: Caribou Coffee Company
Pre-effective Amendment No. 1 to
Registration Statement on Form S-1
Filed August 25, 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. We note your responses to prior comments 1 and 2. Please note
that we may have additional comments after you file the
information.
Prospectus Summary, page 1
2. Please present the disclosure in a more balanced manner, such
as
disclose your net losses for the last two years and 2005 at the
beginning of the summary. Also, revise the disclosure concerning
the
majority shareholder to briefly discuss the shareholder and
compliance with Shari`ah principles.
3. Please expand page 3 or another appropriate section to clarify
whether you have opened any coffehouses in the Middle East or at
airports.
The Offering, page 4
Capitalization, page 22
4. We note that you have revised your disclosure to state that the
shares of common stock issuable upon the exercise of stock options
outstanding under the 1994 and 2001 plans have a weighted average
exercise price of $7.09 per share. Please tell us why this amount
has been reduced from the amount of $9.40 disclosed in the
previous
filing, considering that you have separately disclosed to us that
the
exercise price per share for options issued in June through August
of
2005 was $9.87.
Summary Financial and Other Data, page 5
Selected Consolidated Financial and Other Information, page 24
MD&A, page 39
5. We note from your response to prior comment 5 that you continue
to
believe it is appropriate to adjust EBITDA by non-cash closing
costs
and asset disposals and have added additional disclosure regarding
the usefulness to investors of the Adjusted EBITDA measure.
However,
we continue to believe that Item 10(e) of Regulation S-K does not
permit the use of the non-GAAP financial measure in these
circumstances. Both Questions 8 and 9 of Frequently Asked
Questions
Regarding the Use of Non-GAAP Financial Measures issued June 13,
2003
appear applicable to this situation. Your response appears to
imply
that because you consider these as "recurring" costs, they should
be
allowed to be presented in a non-GAAP financial measure as long as
you include disclosure as to why they are useful to the investor.
As
presented in Question 8, the burden of showing how these measures
are
useful to investors is a significant one and the guidance states
that
items adjusting non-GAAP financial measures, "more likely would be
permissible if management reasonably believes it is probable that
the
financial impact of the item will disappear or become immaterial
within a near-term finite period." As indicated in your response,
you expect these closing costs to continue in the future.
Question
9, which addresses similar, restructuring-type costs, also
identifies
the diminishment of these types of charges in the future as
integral
to the allowability in a non-GAAP financial measure. Question 9
indicates that if there is a past pattern of these types of
charges,
no articulated demonstration that such charges will not continue
and
no other unusual reason that a company can substantiate to
identify
the special nature of the restructuring charges, it would be
difficult for a company to meet the burden of disclosing why such
a
non-GAAP financial measure is useful to investors. Please revise
your disclosures to remove the adjustment for non-cash closing
costs
and asset disposals.
Complaints or claims by current, former or prospective employees
could adversely affect us, page 13
6. Please disclose, if true, that an adverse outcome from the
pending
litigation may have a material adverse effect on you.
Our compliance with Shari`ah principles may make it difficult for
us
to obtain financing and may limit the products we sell, page 17
7. Please discuss to the extent practical any other Shari`ah
principles that may make it more difficult for you to obtain
financing and may limit the products you sell. For example,
discuss
the impact of the principles related to the lease financing
arrangement and the revolving credit facility. Also, clarify your
relationship with Arabica Funding, Inc.
Growth Strategy, page 45
8. Please refer to prior comment 15. Please expand this section
or
page 54 to briefly describe the known competitive circumstances in
the intended foreign license area.
Site Selection and Construction, page 49
9. Please discuss, if applicable, the material terms of your
written
agreement with the third party consultant.
10. Please clarify whether the factors you consider for site
selection in the United States are similar to the factors you may
consider for expansion in the Middle East. If not, then please
discuss the factors in greater detail. Also, revise the sections
on
pages 49 and 50 to discuss any material differences between
operations in the United States and the Middle East.
Report of Independent Registered Public Accounting Firm
11. Revise to remove the restrictive legend which follows the
report
on the independent registered public accounting firm prior to the
planned effectiveness of the Company`s Form S-1 registration
statement. The consent of the independent registered public
accounting firm should be similarly revised.
Notes to the Financial Statements
Note 1. Business and Summary of Significant Accounting Policies
12. We note from your response to prior comment 38 that you
consolidate affiliates of which you own 50% or less because you
exercise control, and you have revised your disclosure in Note 1
to
state that you control the daily operations of the partnerships
and
accordingly consolidate their results of operations. However, we
also note from your response to our comment that decisions
pertaining
to significant matters require the consent of the other partners
which indicates the Company may not have control over the
operations
of these entities. Please tell us in further detail the nature of
the rights held by the Company and the other partners under the
terms
of each partnership agreement. As part of your response, you
should
also explain how the rights provided under each partnership
agreement
provide you with control and tell us the relevant accounting
literature that supports your conclusion. We may have further
comment upon receipt of your response.
- - Operating Leases and Rent Expense
13. We note from your response to prior comment 44 that you
recognize
expense related to contingent rentals in the period in which it is
incurred. Please tell us if you evaluate whether or not
achievement
of the target is probable in determining when to recognize
contingent
rental expense, and in doing so follow the guidelines for
accounting
for contingent rentals outlined in EITF 98-9.
Note 2. Store Closings and Asset Disposals
14. We note from your response to prior comment 39 that you
believe
the cash inflows and outflows of the closed locations have been or
will be migrated to new stores or planned new stores in the same
market within a reasonable time period. Please tell us the
purpose
or benefits of closing one store and reopening a new store within
the
same market. Additionally, tell us during the periods presented
in
your financial statements, the number of closed stores that have
been
replaced by new stores currently in operation within the same
market.
We may have further comment upon receipt of your response.
15. We note from your response to prior comment 40 that you have
added a disclosure to Note 2 that the accrual related to the
consolidation of facilities is for the remaining lease rentals,
reduced by estimated sublease rentals. As previously requested in
our comment, please revise your disclosure to include the facts
and
circumstances leading to the consolidation and the expected (or
actual) completion date. See paragraph 20 of SFAS No. 146.
Note 7. Property and Equipment
16. We note from your response to prior comment 42 that you have
revised Note 7 to include disclosure of depreciation and
amortization
expense. Please tell us why the amounts disclosed in Note 7 do
not
agree with the amounts presented on the face of the statements of
operations.
Note 8. Note Payable and Capital Lease Obligations
17. We note from your response to prior comment 34 that you
capitalize costs related to the acquisition of your financing
arrangement and amortize the costs on a straight line basis over
the
five year life of the arrangement. Please revise your filing to
disclose in the notes to the financial statements, the
capitalization
of these costs, the method of amortization, the amortization
period,
amortization expense for each year in which an income statement is
provided, and accumulated amortization at each year end for which
a
balance sheet is presented.
Note 9. Stock Options
18. We note from the disclosures provided in Note 9 that the
Company
utilized the "minimum value method", which excludes a volatility
factor, for purposes of determining the fair value of its stock
option grants for purposes of the pro forma disclosures provided
pursuant to SFAS No.123. Note that the use of this method is
appropriate only for periods prior to the filing of the Company`s
Form S-1 registration statement (i.e., prior to July 19, 2005).
Accordingly, please confirm that the Company will not use this
method
to determine the fair value of is stock option grants for periods
subsequent to the filing of its Form S-1 registration statement.
Refer to the guidance outlined in paragraphs 142 and 174 of SFAS
No.123.
19. We note from the Company`s response to our prior comment
number
49 that the Company has not recorded any expense in connection
with
its grants of stock options, and will not record expense in
connection with planned grants discussed in its response, because
it
believes that the stock options were or will be granted with an
exercise price equal to the fair market value of the stock. We
also
note from the Company`s response that because no expense was or
will
be recognized, the Company has not added any disclosure in MD&A
addressing this matter.
Although expense recognition may not be required in connection
with
the Company`s stock option grants, we continue to believe that
MD&A
and the notes to the Company`s financial statements require
revision
to discuss the number and terms of the options granted during the
twelve month period preceding the latest balance sheet date
presented
in the filing, as well as any option grants to be made in
connection
with the Company`s planned public offering. Accordingly, please
provide the following disclosures:
* Revise the interim financial statements to disclose the number
of
options granted since the end of the prior fiscal year, the
exercise
price, the fair value of the Company`s common stock on the date of
grant, and the intrinsic value, if any, per option. Also, please
indicate whether the valuation used to determine the fair value of
the options was contemporaneous or retrospective, and if the
valuation was prepared by a related party, include a statement to
this effect.
* Revise MD&A to include a discussion of the number of options
outstanding as of the latest balance sheet date presented and the
intrinsic value of those that are vested and unvested, based on
the
expected initial public offering price.
* Also, since it appears that all of your recent option grants
were
not valued on the basis of contemporaneous valuations, please
revise
MD&A to include a discussion of the significant factors,
assumptions
and methodologies used in determining fair value. Also, include a
discussion in MD&A regarding each significant factor that
contributed
to the difference between the fair value as of the date of each
grant
and the estimated expected public offering price.
The revised disclosures to be provided should be presented in a
level
of detail consistent with that provided in your response to our
prior
comment number 49. Refer to the guidance outlined in paragraphs
179
through 182 of the AICPA`s Audit and Accounting Practice Aid,
"Valuation of Privately-Held-Company Equity Securities Issued as
Compensation" and to the disclosure requirements outlined in
paragraph 41 of SFAS No.128.
20. For the stock option grants made from September 2004 through
August 2005, please confirm that none of the options were issued
to
non-employees. If so, please revise your financial statements to
record an expense for the fair market value of any issuances made
to
those non-employees. Refer to the requirements of paragraph 8 of
SFAS No 123 and EITF 96-18.
Unaudited Financial Statements for the Quarter Ended July 3, 2005
21. Revise to include a statement of changes in stockholders`
equity
for the latest interim period presented or disclose any changes in
stockholders` equity since the end of your latest fiscal year in
the
notes to the interim financial statements.
Notes to the Financial Statements
Note 5. Inventories
22. We note that inventories are net of related reserves totaling
$0
and $367,000 at January 2, 2005 and July 3, 2005, respectively.
Please tell us the nature of the changes in your assumptions as to
the realizability of the inventory balance between January 2, 2005
and July 3, 2005 that resulted in the establishment of an
inventory
reserve.
Other
23. 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.
24. 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
25. We note your response to prior comment 52. Please file
complete
agreements. For example, we note that you have not filed exhibits
to
the master license agreement. Also, comments, if any, concerning
your confidential treatment application will be issued in a
separate
letter.
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.
You may contact Claire Erlanger at (202) 551-3301 or Linda
Cvrkel 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
September 2, 2005
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