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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006.oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File
    Number: 000-51535
  CARIBOU COFFEE COMPANY,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Minnesota

41-1731219(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)3900 Lakebreeze Avenue North
    Brooklyn Center, Minnesota(Address of principal
    executive offices)

55429(Zip
    Code)   (Registrants telephone number, including area code):
 (763) 592-2200
  Securities Registered Pursuant to Section 12(b) of the
    Act:
 None
  Securities
    Registered Pursuant to Section 12(g) of the Act:
 Common Stock, $0.01 Par Value Per Share
  o þ
  o þ
  þ o
  Form 10-K Form 10-K. o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 



TABLE OF
    CONTENTS
   
 PART I.Item 1


Business


3Item 1A


Risk
    Factors


6Item 1B


Unresolved Staff
    Comments


16Item 2


Properties


16Item 3


Legal
    Proceedings


17Item 4


Submission of
    Matters to a Vote of Security Holders


17Item 4A


Executive Officers
    of the Registrant


18PART II.Item 5


Market for the
    Registrants Common Equity, Related Shareholder Matters and
    Issuer Purchases of Equity Securities


20Item 6


Selected Financial
    Data


21Item 7


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


24Item 7A


Quantitative and
    Qualitative Disclosures About Market Risk


32Item 8


Financial
    Statements and Supplementary Data


32Item 9


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


54Item 9A


Controls and
    Procedures


54Item 9B


Other
    Information


54PART III.Item 10


Directors and
    Executive Officers of the Registrant


54Item 11


Executive
    Compensation


54Item 12


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Shareholder Matters


54Item 13


Certain
    Relationships and Related Transactions, and Director
    Independence


55Item 14


Principal
    Accountant Fees and Services


55PART IV.Item 15


Exhibits and
    Financial Statement Schedules


55Signatures


58Consent of Independent Registered Public Accounting FirmCertificationCertificationSection 906 CertificationSection 906 Certification   2




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PART I  Item 1.
    Business      Growth
    Strategy
    
    Continue to Open New Company-Operated Coffeehouse
    Locations.  We have opened
    146 company-operated locations in the past two fiscal
    years, including 60 coffeehouse locations in 2006. We intend to
    further penetrate a number of our existing markets by opening
    Company-operated coffeehouses in a variety of traditional retail
    venues, although we will reduce the number of Company-operated
    coffeehouses openings to
    25-30 in
    2007 in order to more aggressively pursue our domestic franchise
    strategy. In order to maximize expansion opportunities, we will
    continue to explore different coffeehouse layouts and designs
    that best fit particular venues or locations.
    Increasing our Comparable Coffeehouse Sales and Enhancing
    Operating Margins.  We will continue our efforts
    to increase our comparable coffeehouse sales, including
    increasing our brand awareness through marketing efforts and
    introducing new products and promotions. We believe that we have
    strong brand awareness in markets where we have a significant
    coffeehouse presence and that by building a similar coffeehouse
    base in other metropolitan areas we will be able to drive
    customer awareness and comparable coffeehouse sales. As our
    comparable coffeehouse sales increase, we expect our operating
    margins at those coffeehouses to improve. In addition, we are
    seeking to improve operating margins by leveraging our increased
    purchasing power to negotiate more favorable pricing in a
    variety of areas from telecommunications and credit card
    processing to paper products.
    Expanding our Franchising Business.  We intend
    to franchise the Caribou Coffee brand, where we believe there
    are significant opportunities to grow our business, both
    domestically and internationally. In late 2006 we completed and
    filed our Uniform Franchise Offering Circular (UFOC) and have
    begun discussions with a number of qualified
    multi-unit
    developers for key U.S. Markets. In late 2006 we announced
    our first entry into the Asian market and our second major
    international franchise agreement which calls for the
    development of a minimum of 25 coffeehouses in South Korea over
    the next five years. In 2005, we entered into a master franchise
    agreement with a local franchisee to develop 250 coffeehouses in
    the Middle East through 2012 and have opened 17 coffeehouses
    under this agreement. We are currently exploring franchise
    arrangements in other international markets. 3




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
    Expanding Complementary Distribution
    Channels.  We are continuing our efforts to expand
    the distribution channels for our products to increase our
    revenue sources, profitability and brand awareness in existing
    and new markets. These complementary distribution channels
    include:
    Commercial Channels  We will continue to offer
    our products through a number of commercial channels, including
    grocery stores and mass merchandisers, office coffee providers,
    airlines, hotels, sports and entertainment venues and college
    campuses. We intend to build upon our existing relationships
    with grocery stores such as Byerlys and Lunds, airlines
    such as Frontier Airlines and national office coffee providers
    such as Aramark.
    Mail-order and Internet  Mail-order and
    Internet-based channels allow us to reach customers familiar
    with our brand who may not have convenient access to our
    coffeehouses. In addition, sales through these channels may help
    us to identify new markets for coffeehouses. Through marketing
    and other brand building initiatives, we intend to leverage our
    existing coffeehouse-based growth to drive additional mail-order
    and Internet sales.
    Brand Licensing.  A key part of our continued
    business expansion is the aggressive development of a national
    brand presence through brand licensing agreements. To date we
    have entered into brand licensing agreements with Kemps, Inc. a
    St. Paul based dairy, General Mills,
    Coca-Cola
    North America (CCNA) and most recently, Keurig Incorporated, an
    industry leader in single-cup coffee brewing technology. The
    licensing agreement with Kemps allows Kemps to use Caribou
    Coffee marks and coffee in producing various gourmet coffee
    flavored ice cream products. The products are sold at retail
    grocery stores. Under the licensing agreement, General Mills
    will use the Caribou Coffee marks and coffee in the production
    of various gourmet coffee flavored snack bars. Four gourmet
    coffee flavored snack bars have been produced, distributed and
    marketed throughout the U.S. In November 2006, we announced
    our third brand licensing arrangement with CCNA to launch a new
    line of premium
    ready-to-drink
    iced coffees in the U.S during the summer of 2007. Our most
    recent business licensing agreement is with Keurig Incorporated,
    the leader in gourmet single cup brewing. Under this licensing
    agreement Caribou Coffee will be packaged in Keurig
    K-Cups
    offering single cup coffee lovers eight Caribou Coffee varieties
    to choose from for both at home and in the office consumption.  Purchasing
      Competition
   4




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Service
    Marks and Trademarks
      Employees
    Government
    Regulation
      Seasonality
   5




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Available
    Information
  Form 10-K About Us
 Item 1A.  Risk
    Factors  Certain statements we make in this filing, and other written
    or oral statements made by or on our behalf, may constitute
    forward-looking statements within the meaning of the
    federal securities laws. Words or phrases such as should
    result, are expected to, we
    anticipate, we estimate, we
    project, we believe, or similar expressions
    are intended to identify forward-looking statements. These
    statements are subject to certain risks and uncertainties that
    could cause actual results to differ materially from our
    historical experience and our present expectations or
    projections. We believe that these forward-looking statements
    are reasonable; however, you should not place undue reliance on
    such statements. Such statements speak only as of the date they
    are made, and we undertake no obligation to publicly update or
    revise any forward-looking statement, whether as a result of
    future events, new information or otherwise. The following risk
    factors, and others that we may add from time to time, are some
    of the factors that could cause our actual results to differ
    materially from the expected results described in our
    forward-looking statements.
  Risks
    Related to Our Business
  We
    have a history of net losses and may incur losses in the
    future.
      Implementation
    of our growth strategy may divert managements attention
    from other aspects of our business and place a strain on our
    management, operational and financial resources, as well as our
    information systems.
    
    obtain suitable sites at acceptable costs in highly competitive
    real estate markets;
    successfully manage new coffeehouses;
    hire, train and retain qualified personnel;
    continue to improve and expand our coffee, other beverage and
    food offerings;
    expand our commercial sales;
    attract franchisees who will operate coffeehouses
    internationally and domestically; 6




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
    continue to upgrade inventory control, marketing and information
    systems; and
    maintain strict quality control from the purchase of coffee
    beans to the cup of freshly brewed coffee in a customers
    hand.    If we
    fail to continue to develop and maintain our brand, our business
    could suffer.
    We
    will need to raise additional capital in order to continue to
    grow our business, which subjects us to the risks that we may be
    unable to maintain or grow our business as planned or that our
    shareholders may be subject to substantial additional
    dilution.
      We
    compete with a number of companies for customers. The success of
    these competitors could have an adverse effect on
    us.
     7




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We may
    not be successful in maintaining or expanding our commercial
    business.
    We may
    not be able to manage our expected growth, which could adversely
    affect our operating results.
    Our
    new company-owned coffeehouses in existing markets may not
    achieve market acceptance or the same levels of
    profitability.
    Franchised
    coffeehouses may not achieve market acceptance or
    profitability.
    A
    significant interruption in the operation of our roasting or
    distribution facility could potentially disrupt our
    operations.
  day-to-day
 8




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Because
    our business is highly dependent on a single product, gourmet
    coffee, we are vulnerable to changes in consumer preferences and
    economic conditions that could harm our financial
    results.
    We
    depend on the expertise of key personnel. If these individuals
    leave or change their role without effective replacements, our
    operations may suffer.
    We may
    not be able to hire or retain additional coffeehouse managers
    and other coffeehouse personnel and our recruiting and
    compensation costs may increase as a result of turnover, both of
    which may increase our costs and reduce our profitability and
    may adversely impact our ability to implement our business
    strategy.
    Our
    roasting methods are essential to the quality of our coffee, and
    our business would suffer if our competitors were able to
    duplicate them.
    We are
    susceptible to adverse trends and economic conditions in
    Minnesota.
    Because
    we rely heavily on third party shipping companies to deliver our
    coffee, any disruption in their services or increase in shipping
    costs could adversely affect our sales and
    profitability.
   9




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
    have an adverse impact on the quality of the coffee shipped, and
    thereby adversely affect our brand and reputation;
    result in the disposal of an amount of coffee that could not be
    shipped in a timely manner; and
    require us to contract with alternative, and possibly more
    expensive, shipping companies.    We
    could be subject to complaints or claims from our customers or
    adverse publicity resulting from those complaints or
    claims.
    Complaints
    or claims by current, former or prospective employees could
    adversely affect us.
    We may
    not be able to renew leases or control rent increases at our
    retail locations or obtain leases for new
    coffeehouses.
   10




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Our
    growth through franchising may not occur as rapidly as we
    currently anticipate and may be subject to additional
    risks.
    Growth
    of our international operations may be adversely affected by
    factors outside of our control.
    Compliance
    with health, environmental, safety and other government
    regulations applicable to us could increase costs and affect
    profitability.
    We may
    not be able to adequately protect our intellectual property,
    which could harm the value of our brand and adversely affect our
    sales and profitability.
   11




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Our
    disclosure controls and procedures may not prevent or detect all
    errors or acts of fraud.
    If we
    fail to maintain an effective system of internal controls over
    financial reporting, we may not be able to accurately report our
    financial results or prevent fraud. As a result, current and
    potential shareholders could lose confidence in our financial
    and other public reporting, which would harm our business and
    the trading price of shares of our common stock.
    We
    have a significant number of options outstanding to acquire
    shares of our common stock that, when exercised, will dilute
    existing shareholders and could decrease the market price of our
    common stock.
    Changes
    in other existing financial accounting standards or practices or
    taxation rules or practices may adversely affect our results of
    operations.
   12




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Risks
    Related to Our Industry
  Our
    gourmet coffee contains caffeine and other active compounds, the
    health effects of some of which are not fully
    understood.
    A
    shortage in the supply, or an increase in the price, of coffee
    beans could adversely affect our net sales.
    We
    face the risk of fluctuations in the cost, availability and
    quality of our non-coffee raw ingredients.
    Risks
    Related to Our Structure
  Arcapita
    has substantial control over us, and could limit other
    shareholders ability to influence the outcome of matters
    requiring shareholder approval and may support corporate actions
    that conflict with other shareholders
    interests.
     13




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Our
    compliance with Shariah principles may make it difficult
    for us to obtain financing and may limit the products we
    sell.
    We may
    be subject to adverse publicity resulting from statements about
    Arcapita or complaints or questions from our customers arising
    from such adverse publicity.
    Our
    annual results and comparable coffeehouse sales may fluctuate
    significantly and could fall below the expectations of
    securities analysts and investors, which could cause the market
    price of our common stock to decline.
      
    the disposition of coffeehouses;
    the opening of new coffeehouses;
    increases in labor costs;
    increases in the cost of food products;
    the ability of our franchisees to meet their future commitments
    under development agreements;
    consumer concerns about food quality;
    the level of competition from existing or new competitors in the
    our industry;
    inclement weather patterns, and
    economic conditions generally, and in each of the markets in
    which we are located.   14




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Provisions
    in our articles of incorporation and bylaws and of Minnesota law
    have anti-takeover effects that could prevent a change in
    control that could be beneficial to our shareholders, which
    could depress the market price of shares of our common
    stock.
    
    authorize our board of directors to issue preferred stock and to
    determine the rights and preferences of those shares, which
    would be senior to our common stock, without prior shareholder
    approval;
    establish advance notice requirements for nominating directors
    and proposing matters to be voted on by shareholders at
    shareholder meetings;
    provide that directors may be removed by shareholders only for
    cause;
    limit the right of our shareholders to call a special meeting of
    shareholders; and
    impose procedural and other requirements that could make it
    difficult for shareholders to effect some corporate actions.  Because
    we do not intend to pay dividends, shareholders will benefit
    from an investment in shares of our common stock only if it
    appreciates in value.
   15




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  Locations
    and Facilities
  Coffeehouse
    Locations
    State

CoffeehousesMinnesota(1)


193Illinois


62Ohio


37Michigan(4)


30North Carolina


21Georgia(2)


20Virginia(3)


16Wisconsin


13Maryland


12Washington, D.C.


8Colorado


8Iowa


6North Dakota


6Pennsylvania


5Nebraska


4South Dakota


2Kansas


2Indiana


1Missouri


1International(5)


17464     (1)
    
    includes one franchised location and five locations owned by
    joint ventures(2)
    
    includes one franchised location(3)
    
    includes two franchised locations(4)
    
    includes three franchised locations(5)
    
    represents seventeen franchised locations in two Middle Eastern
    countries    Headquarters
    and Roasting Facility
   16




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Item 3.
    Legal
    Proceedings      Item 4.
    Submission
    of Matters to a Vote of Security Holders   17




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Item 4A.
    Executive
    Officers of the Registrant    Name

Age

PositionMichael J. Coles


63


Chief Executive Officer,
    President(1) and Chairman of the BoardRosalyn T. Mallet(2)


51


President and Chief Operating
    OfficerGeorge E. Mileusnic


52


Chief Financial OfficerAmy K. ONeil


37


Senior Vice President of Store
    OperationsEdward T. Boyle


44


Vice President of Research and
    DevelopmentKathy F. Hollenhorst


44


Senior Vice President of MarketingDeborah K. Jones


53


Vice President of TrainingDan E. Lee


50


General Counsel, Vice President
    and SecretaryKaren E. McBride-Raffel


41


Vice President of Human ResourcesMichael E. Peterson


44


Vice President, Controller and
    TreasurerChristopher B. Rich


51


Vice President of Global
    FranchisingHenry A. Stein


49


Vice President of Business
    Development and Commercial SalesR. Paul Turek


52


Vice President of Support
    Operations     (1)
    
    Mr. Coles has agreed to resign as President upon
    Ms. Mallet assuming the office on or about April 2, 2007.(2)
    
    Ms Mallet is expected to assume this office on or about
    April 2, 2007.  Michael J. Coles not-for-profit
  Rosalyn T. Mallet
  George E. Mileusnic
 18




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Amy K. ONeil
  Edward T. Boyle
  Kathy F. Hollenhorst
  Deborah K. Jones
  Dan E. Lee
  Karen E. McBride-Raffel
  Michael E. Peterson
  Christopher B. Rich
  Henry A. Stein Coca-Cola
  R. Paul Turek
 19




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PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities  Market
    for the Registrants Stock
    Market Price (High/Low)2006


2005(1)For the Fiscal YearFirst Quarter

$
11.29 - 8.19


N/ASecond Quarter

$
10.51 - 7.42


N/AThird Quarter

$
8.31 - 6.00


$13.00 - 11.35Fourth Quarter

$
8.99 - 7.23


$12.24 - 9.04     (1)
    
    On September 29, 2005, our common stock began trading on
    the Nasdaq Global Market. Prior to that time, there was no
    public market for our common stock.    Dividend
    Policy
    Sales of
    Unregistered Securities
    Use of
    Proceeds from Registered Securities.
  No. 333-126691)
 20




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Item 6.
    Selected
    Financial Data      Fiscal Year EndedDecember 31,


January 1,


January 2,


December 28,


December 29,2006


2006


2005


2003


2002(In thousands, except per share and operating data)Statements of Operations
    Data:Net sales:Coffeehouses

$
225,649


$
191,310


$
157,169


$
121,779


$
103,291Other


10,580



6,682



3,323



1,922



4,663Total net sales


236,229



197,992



160,492



123,701



107,954Cost of sales and related occupancy


98,656



80,242



65,320



50,641



44,883Operating expenses


97,320



80,026



65,030



49,364



40,064Opening expenses


1,738



2,096



1,202



822



439Depreciation and amortization


21,548



16,376



13,382



10,453



7,431General and administrative expenses


25,943



22,742



15,535



12,343



10,296Closing expense and disposal of
    assets


510



572



1,034



166



917Operating income (loss)


(9,486
)


(4,062
)


(1,010
)


(88
)


3,924Other income (expense):Other income


1,059



1,336



378



35



Interest income


554



266



6



9



29Interest expense


(695
)


(1,602
)


(963
)


(511
)


(496
)Income (loss) before provision for
    income taxes, minority interest and cumulative effect of
    accounting change


(8,568
)


(4,062
)


(1,589
)


(555
)


3,457Provision for income taxes


313



79



220



228



156Income (loss) before minority
    interest and cumulative effect of accounting change


(8,881
)


(4,141
)


(1,809
)


(783
)


3,301Minority interest


178



319



265



154



188Income (loss) before cumulative
    effect of accounting change


(9,059
)


(4,460
)


(2,074
)


(937
)


3,113Cumulative effect of accounting
    change (net of income tax)(1)






(445
)










Net income (loss)

$
(9,059
)

$
(4,905
)

$
(2,074
)

$
(937
)

$
3,113Net income (loss) per share:Net income (loss) before cumulative
    effect of accounting change

$
(0.47
)

$
(0.29
)

$
(0.15
)

$
(0.07
)

$
0.23Cumulative effect of accounting
    change






(0.03
)










Net income (loss)


(0.47
)


(0.32
)


(0.15
)


(0.07
)


0.23Basic and diluted shares used in
    calculation of net (loss) income per share(2)


19,282



15,255



13,798



13,348



13,296 21




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Fiscal Year EndedDecember 31,


January 1,


January 2,


December 28,


December 29,2006


2006


2005


2003


2002(In thousands, except per share and operating data)Non-GAAP Financial
    Measures:EBITDA(3)

$
15,040


$
14,796


$
13,893


$
11,561


$
11,786Adjusted EBITDA(3)


15,040



15,911



14,393



11,561



11,786Operating Data:Percentage change in comparable
    coffeehouse sales(4)


(1
)%


6
%


8
%


3
%


(2
)%Company-Owned:Coffeehouses open at beginning of
    year


386



304



251



203



185Coffeehouses opened during the year


60



86



57



50



24Coffeehouses closed during the year


(6
)


(4
)


(4
)


(2
)


(6
)Coffeehouses open at end of year:Total Company-Owned


440



386



304



251



203Franchised:Coffeehouses open at beginning of
    year


9



2











Coffeehouses opened during the year


20



7



2







Coffeehouses closed during the year


(5
)














Coffeehouses open at end of year:Total Franchised


24



9



2







Total coffeehouses open at end of
    year


464



395



306



251



203   As ofDecember 31,


January 1,


January 2,


December 28,


December 29,2006


2006


2005


2003


2002(In thousands)Balance Sheet Data:Cash and cash equivalents

$
14,752


$
33,846


$
7,618


$
4,779


$
2,645Total assets


136,308



147,960



86,207



62,010



51,973Total notes payable and revolving
    credit facility










19,924



5,334



1,668Accumulated deficit


(33,944
)


(24,885
)


(19,979
)


(17,905
)


(16,969
)Total shareholders equity


88,402



96,926



33,793



35,817



33,496     (1)
    
    In March 2005, the FASB issued Financial Interpretation
    No. 47 (FIN 47), Accounting for Asset
    Retirement Obligations-an interpretation of FASB Statement
    No. 143. FIN 47 requires the recognition of a
    liability for the fair value of a legally-required conditional
    asset retirement obligation when incurred, if the
    liabilitys fair value can be reasonably estimated.
    FIN 47 also clarifies when an entity would have sufficient
    information to reasonably estimate the fair value of an asset
    retirement obligation. The Company is required to record an
    asset and a corresponding liability for the present value of the
    estimated asset retirement obligation associated with the fixed
    assets and leasehold improvements at some of our coffeehouse
    locations. The asset is depreciated over the life of the
    corresponding lease while the liability accretes to the amount
    of the estimated retirement obligation. FIN 47 was
    effective for fiscal years ending after December 15, 2005.
    The Company adopted FIN 47 on October 3, 2005 with a
    $0.4 million cumulative effect of accounting change (net of
    tax) recorded in the Companys results of operations. This
    charge is a combination of depreciation and accretion expense.(2)
    
    For the fiscal year ended December 29, 2002, basic shares
    were 13,294 and diluted shares were 13,296. In each other year
    presented, the number of shares used in the calculation of basic
    and diluted net (loss) income per share is the same because all
    outstanding stock options were antidilutive.(3)
    
    EBITDA and Adjusted EBITDA are supplemental non-GAAP financial
    measures. EBITDA is equal to net (loss) income excluding:
    (a) interest expense; (b) interest income;
    (c) depreciation and amortization; and (d) income
    taxes. Our definition of Adjusted EBITDA is different from
    EBITDA because we further adjust net income for: (a) a
    one-time cost to consolidate corporate and operating locations;
    (b) a one-time compensation charge 22




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associated with amending the terms of our Chief Executive
    Officers employment agreement; and (c) a one-time
    recognition of derivative income associated with the decrease in
    fair value of the IPO  related underwriters
    over-allotment option. For a description of our use of EBITDA
    and Adjusted EBITDA and a reconciliation of net income (loss) to
    these non-GAAP financial measures, see the discussion and
    related table below.(4)
    
    Percentage change in comparable coffeehouse sales compares the
    net sales of coffeehouse during a fiscal period to the net sales
    from the same coffeehouses for the equivalent period in the
    prior year. A coffeehouse is included in this calculation
    beginning in its thirteenth full fiscal month of operations. A
    closed coffeehouse is included in the calculation for each full
    month that the coffeehouse was open in both fiscal periods.
    Franchised coffeehouses are not included in the comparable
    coffeehouse sales calculations.    
    Our coffeehouse leases are generally short-term
    (5-10 years) and we must depreciate all of the cost
    associated with those leases on a straight-line basis over the
    initial lease term excluding renewal options (unless such
    renewal periods are reasonably assured at the inception of the
    lease). We opened 277 company-owned coffeehouses, from the
    beginning of fiscal 2002 through 2006. As a result, we believe
    depreciation expense is disproportionately large when compared
    to the sales from a significant percentage of our coffeehouses
    that are in their initial years of operations. Also, many of the
    assets being depreciated have actual useful lives that exceed
    the initial lease term excluding renewal options. Consequently,
    we believe that adjusting for depreciation and amortization is
    useful for evaluating the operating performance of our
    coffeehouses.
    The one-time cost to consolidate corporate and operating
    locations represents a $.5 million charge we recorded in
    fiscal 2004 for the remaining lease payments, reduced by
    estimated sublease rentals that could be reasonably obtained,
    for our previous headquarters and roasting facility. We vacated
    this facility when we consolidated our corporate offices and our
    roasting, packaging, warehousing and distribution activities,
    which we had previously operated out of three separate
    facilities, into a single facility. We believe it is useful to
    exclude this charge from Adjusted EBITDA because it was
    non-recurring and was not reflective of our operating
    performance.
    In June 2005, we recorded a one-time compensation charge of
    $1.7 million in connection with amending the terms of the
    employment agreement with our Chief Executive Officer. We
    believe that it is useful to exclude this expense from Adjusted
    EBITDA because it was non-recurring and was unrelated to our
    operations.
    In connection with our initial public offering
    (IPO), we granted the underwriters an option to
    purchase 803,700 shares of the our common stock at
    $14 per share for 30 days beginning on
    September 28, 2005 (the grant date). Since this
    option extended beyond the closing of the IPO, the option
    represented a call option that met the definition of a
    derivative under SFAS No. 133, Accounting for
    Derivative Instruments and Hedging Activities. Accordingly,
    the call option was separately accounted for at fair value with
    the change in fair value between the grant date and
    October 2, 2005 recorded as other income. We used the
    Black-Scholes valuation model to determine the fair value of the
    call option at the grant date and at October 2, 2005 using
    the following assumptions: 50% volatility factor, 30 day
    life and risk free interest rate of 3.43%. At September 28,
    2005, we recorded a liability of $657,989 with a corresponding
    decrease to additional paid in capital to record the fair value
    of the call option on such date. The fair value of the call
    option aggregated $34,880 on October 2, 2005 and we
    recorded the decrease in such fair value aggregating $623,109 as
    other income in the statement of operations for the
    thirteen-week period ended October 2, 2005. The
    underwriters did not exercise their option and it expired on
    October 28, 2005. We believe that it is useful to exclude
    this expense from Adjusted EBITDA because it was non-recurring
    and was unrelated to our operations.    
    as measurements of operating performance because they assist us
    in comparing our operating performance on a consistent basis as
    they remove the impact of items not directly resulting from our
    coffeehouse operations;
    for planning purposes, including the preparation of our internal
    annual operating budget; 23




---



##### Table of Contents




    to establish targets for certain management compensation
    matters; and
    to evaluate our capacity to incur and service debt, fund capital
    expenditures and expand our business.        Fiscal Year EndedDecember 31,


January 1,


January 2,


December 28,


December 29,2006


2006


2005


2003


2002(In thousands)Statement of Operations
    Data:Net income (loss)

$
(9,059
)

$
(4,905
)

$
(2,074
)

$
(937
)

$
3,113Interest expense


695



1,603



963



511



496Interest income


(554
)


(266
)


(6
)


(9
)


(29
)Depreciation and amortization(1)


23,645



18,284



14,791



11,768



8,050Provision for income taxes


313



80



219



228



156EBITDA


15,040



14,796



13,893



11,561



11,786Consolidation of corporate and
    operating locations










500







Derivative income






(623
)










Amendment of employment agreement






1,738











Adjusted EBITDA

$
15,040


$
15,911


$
14,393


$
11,561


$
11,786     (1)
    
    Includes depreciation and amortization associated with our
    headquarters and roasting facility that are categorized as
    general and administrative expenses and cost of sales and
    related occupancy costs on our statement of operations.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
   24




---



##### Table of Contents



Coca-Cola ready-to-drink
  Critical
    Accounting Policies
    Long-lived assets.
  Stock options. Accounting
    for Stock Issued to Employees ,
    Share-Based Payment
 25




---



##### Table of Contents



Accounting for
    Stock-Based Compensation.
  Lease accounting. Bulletin No. 85-3, Bulletin No. 88-1,
  Income taxes.
    Lease financing arrangement and revolving credit
    facility.
   26




---



##### Table of Contents



Fiscal
    Periods
    Results
    of Operations
    Fiscal Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Statement of Operations
    Data:Net Sales:Coffeehouses


95.5
%


96.6
%


97.9
%Other


4.5



3.4



2.1Total net sales


100.0



100.0



100.0Costs of sales and related
    occupancy costs


41.8



40.5



40.7Operating expenses


41.2



40.4



40.5Opening expenses


0.7



1.1



0.7Depreciation and amortization


9.1



8.3



8.3General and administrative expenses


11.0



11.5



9.7Closing expense and disposal of
    assets


0.2



0.3



0.6Operating loss


(4.0
)


(2.1
)


(0.6
)Other income


0.5



0.7



0.2Interest income


0.2



0.1



0.0Interest expense


(0.3
)


(0.8
)


(0.6
)Loss before provision for income
    taxes, minority interest and cumulative effect of accounting
    change


(3.6
)


(2.1
)


(1.0
)Provision for income taxes


0.1



0.0



0.1Loss before minority interest and
    cumulative effect of accounting change


(3.7
)


(2.1
)


(1.1
)Minority interest


0.1



0.2



0.2Loss before cumulative effect of
    accounting change


(3.8
)


(2.3
)


(1.3
)Cumulative effect of accounting
    change (net of income taxes)


0.0



(0.2
)


0.0Net loss


(3.8
)%


(2.5
)%


(1.3
)%   Fiscal
    Year 2006 Compared to Fiscal Year 2005
  Net
    Sales
   27




---



##### Table of Contents



Costs
    and Expenses
  Cost of sales and related occupancy
    costs.
  Operating expenses.
  Opening expenses.
  Depreciation and amortization.
  General and administrative expenses.
  Closing expenses and disposal of
    assets.
  Other Income.
 28




---



##### Table of Contents



Interest income.
  Interest expense.
  Fiscal
    Year 2005 (52 weeks) Compared to Fiscal Year 2004
    (53 weeks)
  Net
    Sales
  52-week 52-week
  Costs
    and Expenses
  Cost of sales and related occupancy
    costs.
  Operating expenses.
  Opening expenses.
  Depreciation and amortization.
  General and administrative expenses.
 29




---



##### Table of Contents



Closing expenses and disposal of
    assets.
  Other Income. Accounting for
    Derivative Instruments and Hedging Activities.
  Interest income.
  Interest expense.
  Liquidity
    and Capital Resources
       30




---



##### Table of Contents



New
    Accounting Standards
  Accounting for
    Uncertainty in Income Taxes Accounting for Income Taxes
   31




---



##### Table of Contents



Contractual
    Obligations
    Due within


Due from 1


Due from 3


Due afterTotal


1 Year


to 3 Years


to 5 Years


5 Years(In thousands)Operating lease obligations

$
155,857


$
21,502


$
39,667


$
35,886


$
58,802Purchase Obligations


5,433



5,433











Total

$
161,290


$
26,935


$
39,667


$
35,886


$
58,802     Off-Balance
    Sheet Arrangements
    Inflation
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Primary
    Market Risk Exposures
    Financial
    Instruments and Derivative Commodity Instruments
      Item 8.
    Financial
    Statements and Supplementary Data 32




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            rnst oung
    33




---



##### Table of Contents



Caribou
    Coffee Company, Inc. and Affiliates
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
 Consolidated
    Balance Sheets  December 31,


January 1,2006


2006Current assets:Cash and cash equivalents

$
14,752,269


$
33,846,111Accounts receivable (net of
    allowance for doubtful accounts of approximately $12,693 and
    $237,595 at December 31, 2006 and January 1, 2006)


1,663,139



1,137,120Other receivables


1,769,256



2,260,254Income tax receivable






135,750Inventories


10,294,493



11,182,512Prepaid expenses and other current
    assets


1,339,596



1,251,555Total current assets


29,818,753



49,813,302Property and equipment, net of
    accumulated depreciation and amortization


104,754,885



96,022,720Notes receivable-related party


48,413



64,531Restricted cash


286,005



321,030Other assets


1,399,542



1,738,717Total assets assets

$
136,307,598


$
147,960,300Current liabilities:Accounts payable

$
9,681,879


$
14,553,743Accrued compensation


5,676,449



5,462,657Accrued expenses


7,860,487



8,504,552Deferred revenue


9,002,588



8,165,260Total current liabilities


32,221,403



36,686,212Asset retirement liability


872,184



760,997Deferred rent liability


11,733,473



10,485,177Deferred revenue


2,919,000



2,964,000Minority interests in affiliates


159,050



138,159Total long term liabilities


15,683,707



14,348,333Commitments and contingenciesShareholders equity:Preferred stock, par value $.01,
    20,000,000 shares authorized; no shares Issued and
    outstanding






Common stock, par value $.01,
    200,000,000 shares authorized; 19,286,425 and
    19,269,133 shares issued and outstanding at
    December 31, 2006 and January 1, 2006, respectively


192,864



192,699Treasury stock






(9,011
)Additional paid-in capital


122,153,502



121,626,855Accumulated deficit


(33,943,878
)


(24,884,788
)Total shareholders equity


88,402,488



96,925,755Total liabilities and
    shareholders equity

$
136,307,598


$
147,960,300    34




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##### Table of Contents



Caribou
    Coffee Company, Inc. and Affiliates
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
 Consolidated
    Statements of Operations  Years EndedDecember 31,


January 1,


January 2,2006


2006


2005Coffeehouse sales

$
225,649,269


$
191,309,555


$
157,169,378Other sales


10,579,467



6,682,277



3,322,861Total net sales


236,228,736



197,991,832



160,492,239Cost of sales and related
    occupancy costs


98,655,629



80,242,163



65,319,899Operating expenses


97,319,754



80,025,542



65,029,400Opening expenses


1,737,637



2,095,945



1,201,829Depreciation and amortization


21,548,195



16,375,704



13,381,562General and administrative expenses


25,943,045



22,742,130



15,534,987Closing expense and disposal of
    assets


510,461



571,985



1,034,422Operating loss


(9,485,985
)


(4,061,637
)


(1,009,860
)Other income (expense):Other income


1,059,936



1,336,081



378,309Interest income


553,767



265,977



5,583Interest expense


(695,323
)


(1,602,529
)


(963,356
)Loss before provision for income
    taxes, minority interest and cumulative effect of accounting
    change


(8,567,605
)


(4,062,108
)


(1,589,324
)Provision for income taxes


313,327



79,564



219,330Loss before minority interest and
    cumulative effect of accounting change


(8,880,932
)


(4,141,672
)


(1,808,654
)Minority interest


178,158



318,943



265,163Loss before cumulative effect of
    accounting change


(9,059,090
)


(4,460,615
)


(2,073,817
)Cumulative effect of accounting
    change (net of income taxes)






(444,861
)


Net loss

$
(9,059,090
)

$
(4,905,476
)

$
(2,073,817
)Net loss per share:Net loss before cumulative effect
    of accounting change

$
(0.47
)

$
(0.29
)

$
(0.15
)Cumulative effect of accounting
    change






(0.03
)


Net loss

$
(0.47
)

$
(0.32
)

$
(0.15
)Basic and diluted weighted average
    number of shares outstanding


19,281,740



15,254,761



13,798,347    35




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##### Table of Contents



Caribou
    Coffee Company, Inc. and Affiliates
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
 Consolidated
    Statements of Changes in Shareholders Equity  Common Stock


AdditionalNumber of





Paid-In


Treasury


Accumulated


ShareholdersShares


Amount


Capital


Stock


Deficit


EquityBalance, December 28, 2003


13,794,369


$
137,944


$
53,584,770


$



$
(17,905,495
)

$
35,817,219Issuance of common stock


7,067



70



39,680











39,750Refund of expenses related to sale
    of common stock










9,559











9,559Net loss


















(2,073,817
)


(2,073,817
)Balance, January 2, 2005


13,801,436



138,014



53,634,009







(19,979,312
)


33,792,711Stock repurchase


(1,617
)










(21,401
)






(21,401
)Stock repurchase of fractional
    shares


(15
)






(216
)










(216
)Issuance of treasury stock in
    connection with stock options


885











12,390







12,390Issuance of common stock


100,000



1,000



986,750











987,750Common stock sold in initial public
    offering, net of expenses


5,358,000



53,580



67,577,111











67,630,691Expiration of underwriters
    over- allotment option










(623,109
)










(623,109
)Exercise of stock options


10,444



105



52,310











52,415Net loss


















(4,905,476
)


(4,905,476
)Balance, January 1, 2006


19,269,133



192,699



121,626,855



(9,011
)


(24,884,788
)


96,925,755Stock repurchase


(1,302
)










(11,651
)






(11,651
)Share based compensation










507,000











507,000Issuance of treasury stock in
    connection with stock options


2,034











20,662







20,662Additional expenses related to
    initial public offering of common stock










(69,292
)










(69,292
)Exercise of stock options


16,560



165



88,939











89,104Net loss


















(9,059,090
)


(9,059,090
)Balance, December 31, 2006


19,286,425


$
192,864



122,153,502


$



$
(33,943,878
)

$
88,402,488    36




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##### Table of Contents



Caribou
    Coffee Company, Inc. and Affiliates
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
 Consolidated
    Statements of Cash Flows  Years EndedDecember 31,


January 1,


January 2,2006


2006


2005Operating activitiesNet loss

$
(9,059,090
)

$
(4,905,476
)

$
(2,073,817
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


23,645,110



18,283,786



14,790,877Amortization of deferred financing
    fees


344,392



353,450



419,195Minority interests in affiliates


178,158



318,943



265,163Provision for closing expense and
    asset disposals


263,172



274,260



698,569Stock-based compensation


507,000







Non cash compensation






987,750



Non cash derivative income






(623,109
)Non cash accretion expense


111,187



407,535



Changes in operating assets and
    liabilities:Restricted cash


35,025



218,953



Accounts receivable and other
    receivables


(18,903
)


(1,429,889
)


3,243Income tax receivable


135,750



315,418



(351,168
)Inventories


888,019



(5,478,072
)


(1,532,834
)Prepaid expenses and other assets


(93,258
)


(1,032,017
)


(73,548
)Accounts payable


(4,871,865
)


9,242,057



1,683,792Accrued compensation


213,792



755,415



(1,956,567
)Accrued expenses


2,301,046



1,725,963



6,554,199Deferred revenue


792,328



2,765,547



4,924,180Deferred compensation










(165,781
)Net cash provided by operating
    activities


15,371,863



22,180,514



23,185,503Investing activitiesPayments for property and equipment


(34,337,262
)


(43,214,246
)


(32,352,637
)Net cash used in investing
    activities


(34,337,262
)


(43,214,246
)


(32,352,637
)Financing activitiesBorrowings under revolving credit
    facility






10,000,000



28,923,930Repayment of revolving credit
    facility






(29,923,930
)


(15,051,081
)Distribution of minority
    interests earnings


(157,266
)


(397,990
)


(284,499
)Net proceeds (expenses) from
    initial public offering


(69,292
)


67,630,691



Issuance of common stock


89,104



52,415



49,309Repurchase of common stock


(11,651
)


(21,401
)


Sale of treasury stock


20,662



12,390



Purchase of fractional shares






(216
)


Deferred financing fees paid






(90,586
)


(1,631,372
)Net cash provided (used) by
    financing activities


(128,443
)


47,261,373



12,006,287Increase (decrease) in cash and
    cash equivalents


(19,093,842
)


26,227,641



2,839,153Cash and cash equivalents at
    beginning of year


33,846,111



7,618,470



4,779,317Cash and cash equivalents at end
    of year

$
14,752,269


$
33,846,111


$
7,618,470Supplemental disclosure of cash
    flow informationCash paid (received) during the
    year for:Interest


350,931



1,249,079



1,037,188Income taxes


(79,538
)


(161,821
)


569,168Accrual for leasehold
    improvements, furniture, and equipment

$
1,676,512


$
3,373,326


$
1,063,274    37




---



##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
  1.
    Business
    and Summary of Significant Accounting Policies  Description
    of Business
  high-quality
  Principles
    of Consolidation
    Use of
    Estimates
    Fiscal
    Year End
    Cash
    and Cash Equivalents
    Fair
    Value of Financial Instruments
   38




---



##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventories
  (first-in,
  Accounts
    Receivable
    Other
    Receivables
    Property
    and Equipment
    Accounting for Asset Retirement
    Obligations-an interpretation of FASB Statement
    No. 143.
  Deferred
    Financing Fees
    Impairment
    of Long-Lived Assets and Long-Lived Assets to Be Disposed
    Of
   39




---



##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock
    Compensation
    Share-Based Payment Accounting for Stock Issued to
    Employees
  Accounting for
    Stock-Based Compensation
  Coffeehouse
    Preopening and Closing Expenses
  start-up
  Revenue
    Recognition
    Advertising
   40




---



##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Operating
    Leases and Rent Expense
  Accounting for Leases Bulletin No. 85-3, Accounting for Operating Leases With Scheduled Rent
    Increases.
  Income
    Taxes
  Accounting for
    Income Taxes.
  Net
    Loss Per Share
    2.
    Coffeehouse
    Closings and Asset Disposals  Accounting for Costs Associated
    with Exit or Disposal Activities.
 41




---



##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years EndedDecember 31,


January 1,


January 2,2006


2006


2005Coffeehouse closures


6



4



4Amount charged to operations for
    closed coffeehouses:Cash closure costs

$



$
30,000


$
335,853Amount charged to operations for
    lease costs associated with lease termination-cash


127,500



150,836



Net book value of closed
    coffeehouse property and equipment


194,413



96,331



189,714Amount charged to operations for
    other property and equipment write-offs


68,759



177,929



8,855Amount charged to operations for
    costs to consolidate facilities-cash


119,789



116,889



500,000Coffeehouse closing expense and
    disposal of assets

$
510,461


$
571,985


$
1,034,422Depreciation expense related to
    charges for impaired assets

$
1,225,000


$
859,940


$
985,152   As ofDecember 31,


January 1,


January 2,2006


2006


2005Closing accrual

$
511,641


$
601,712


$
500,000   3.
    Recent
    Accounting Pronouncements  Accounting for
    Uncertainty in Income Taxes Accounting for Income Taxes
  ,
    Fair Value Measurements.
 42




---



##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Cash and
    Cash Equivalents    December 31,


January 1,2006


2006Operating funds

$
12,184,408


$
7,602,905Money market funds/short-term
    investments


2,567,861



26,243,206$
14,752,269


$
33,846,111   5.
    Restricted
    Cash    6.
    Inventories    December 31,


January 1,2006


2006Coffee

$
3,879,079


$
5,048,815Merchandise held for sale


3,627,035



3,311,014Supplies


2,788,379



2,822,683$
10,294,493


$
11,182,512     7.
    Property
    and Equipment    December 31,


January 1,2006


2006Leasehold improvements

$
95,044,683


$
87,516,286Furniture, fixtures, and equipment


103,580,625



80,531,306198,625,308



168,047,592Less accumulated depreciation and
    amortization


(93,870,423
)


(72,024,872
)$
104,754,885


$
96,022,720    43




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    Note Payable
    and Revolving Credit Facility          December 31,


January 1,2006


2006Revolving credit facility

$



$
$



$
     December 31,


January 1,2006


2006Deferred financing fees

$
1,721,958


$
1,721,958Less accumulated amortization


(860,979
)


(516,587
)$
860,979


$
1,205,371  44




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Equity
    and Stock Based Compensation          Years EndedJanuary 1,


January 2,2006


2005Net loss, as reported

$
(4,905,476
)

$
(2,073,817
)Deduct: Share-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects


(380,238
)


(336,112
)Pro forma net loss

$
(5,285,714
)

$
(2,409,929
)Basic and diluted net loss per
    shareAs reported

$
(0.32
)

$
(0.15
)Pro forma

$
(0.35
)

$
(0.17
)    45




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Black-Scholes
  Years EndedDecember 31,

January 1,

January 2,2006

2006

2005Expected dividend yield

0%

0%

0%Weighted average risk free
    interest rate

4.78%

4.01%

3.43%Expected life

5 years

5 years

5 yearsVolatility

47%-50%

0-56%

0%         Weighted


Weighted


AggregateNumber of


Average


Average


IntrinsicShares


Exercise Price


Contract Life


ValueOutstanding, December 28, 2003


1,621,789


$
6.30



8.57 YrsGranted


226,000


$
6.70Exercised


(7,067
)

$
5.62Forfeited


(69,266
)

$
6.06Outstanding, January 2, 2005


1,771,456


$
6.36



7.81 YrsGranted


781,867


$
8.80Exercised


(11,329
)

$
5.71Forfeited


(337,795
)

$
6.55Outstanding, January 1, 2006


2,204,199


$
7.21



7.66 YrsGranted


341,088


$
8.93Exercised


(18,594
)

$
5.90Forfeited


(105,093
)

$
7.96Outstanding, December 31, 2006


2,421,600


$
7.43



6.98 Yrs


$
2,668,323Options vested and expected to
    vest at December 31, 2006


2,009,299


$
7.11



6.57 Yrs


$
2,855,671Options vested at
    December 31, 2006


1,341,893


$
6.68



6.00 Yrs


$
2,484,213    46




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Options Outstanding


Options ExercisableWeighted AverageNumber of Options


Remaining


Weighted Average


Number of Options


Weighted AverageRange of Exercise Prices

Outstanding


Contractual Life


Exercise Price


Exercisable


Exercise Price$ 4.87 - $ 6.70


1,455,704



5.80 years


$
6.37



1,166,712


$
6.29$ 6.71 - $ 8.52


342,446



8.77 years


$
7.21



60,253


$
7.09$ 8.53 - $10.35


562,657



8.75 years


$
9.60



99,730


$
9.87$10.36 - $12.17


5,793



8.87 years


$
11.00



1,448


$
11.00$12.18 - $14.00


55,000



8.76 years


$
14.00



13,750


$
14.00Total


2,421,600



6.98 years


$
7.43



1,341,893


$
6.68   10.
    Leasing
    Arrangements and Commitments      Years EndedDecember 31,


January 1,


January 2,2006


2006


2005Minimum rentals

$
19,473,725


$
15,439,020


$
12,018,384Contingent rentals


2,053,608



1,843,955



1,659,95921,527,333



17,282,795



13,678,343Less sublease rentals


(222,582
)


(273,227
)


(257,640
)$
21,304,751


$
17,009,748


$
13,420,703     2007

$
21,502,1072008


20,237,3502009


19,429,8392010


18,632,9592011


17,252,600Thereafter


58,802,342$
155,857,197    47




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11.
    Income
    Taxes    Years EndedDecember 31,


January 1,


January 2,2006


2006


2005Current:U.S. Federal

$
80,158


$
35,440


$
State


189,444



44,124



219,330Foreign


43,725







$
313,327


$
79,564


$
219,330     Years EndedDecember 31,


January 1,


January 2,2006


2006


2005Tax at U.S. Federal statutory
    rate

$
(2,973,559
)

$
(1,640,810
)

$
(630,522
)Federal AMT






35,440



Tax at State statutory rate net of
    federal benefit


(488,260
)






State income taxes, net of federal
    benefit


125,033



(218,679
)


111,757Foreign tax


43,725







Permanent differences


42,002



(216,903
)


34,381Changes in valuation allowance


3,378,513



2,168,498



820,293Increase to reserve for tax
    contingencies


105,000







Other, net


80,873



(47,982
)


(116,579
)$
313,327


$
79,564


$
219,330    48




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,


January 1,2006


2006Depreciation

$
3,746,096


$
1,737,080Deferred rent on leases


458,557



520,728Net operating loss carryforwards


5,203,334



4,579,923Coffeehouse closing and asset
    reserves


173,958



204,582Accrued expenses


810,290



509,141Deferred revenue


1,364,412



1,223,416Other


469,019



511,785State deferred


1,093,466



653,964Gross deferred income tax assets


13,319,132



9,940,619Less deferred income tax asset
    valuation allowance


(13,319,132
)


(9,940,619
)Net deferred income tax assets

$



$
   12.
    Related
    Party Transactions  Management
    Agreement
    Notes
    from Affiliates
    Executive
    Split Dollar Life Insurance
   49




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    Employee
    Benefit Plan    14.
    Master
    Franchise Agreement        15.
    Net Loss
    Per Share    December 31,


January 1,


January 2,2006


2006


2005Net loss

$
(9,059,090
)

$
(4,905,476
)

$
(2,073,817
)Weighted average number of shares
    outstanding (for basic calculation)


19,281,740



15,254,761



13,798,347Effects of dilutive stock options










Weighted average number of shares
    outstanding (for diluted calculation)


19,281,740



15,254,761



13,798,347Net loss per share 
    basic and diluted

$
(0.47
)

$
(0.32
)

$
(0.15
)    50




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   16.
    Commitments
    and Contingencies     51




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
    (A Majority Owned Subsidiary of Caribou Holding Company
    Limited)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   17.
    Selected
    Quarterly Financial Data (Unaudited)  Fiscal QuartersYear Ended January 1, 2006

First


Second


Third


FourthNet sales

$
45,039,679


$
47,913,940


$
48,654,813


$
56,383,400Cost of sales and related
    occupancy costs


18,044,841



19,371,860



19,606,907



23,218,555Operating income (loss)


25,553



(2,126,391
)


(1,372,532
)


(588,267
)Net loss


(437,217
)


(2,668,520
)


(1,198,380
)


(601,359
)Net loss per shareBasic


(0.03
)


(0.19
)


(0.08
)


(0.03
)Diluted


(0.03
)


(0.19
)


(0.08
)


(0.03
)   Fiscal QuartersYear Ended December 31, 2006

First


Second


Third


FourthNet sales

$
55,966,211


$
56,583,993


$
56,968,442


$
66,710,090Cost of sales and related
    occupancy costs


23,266,067



23,764,186



23,725,262



27,900,114Operating income (loss)


(1,730,372
)


(2,423,004
)


(3,360,490
)


(1,972,119
)Net loss


(1,572,065
)


(2,385,153
)


(3,102,793
)


(1,999,079
)Net loss per shareBasic


(0.08
)


(0.12
)


(0.16
)


(0.10
)Diluted


(0.08
)


(0.12
)


(0.16
)


(0.10
)  52




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##### Table of Contents



CARIBOU
    COFFEE COMPANY, INC. AND AFFILIATES
  Schedule II 
    Valuation and Qualifying Accounts and Reserves
  Balance at


AdditionsBeginning of


Charged to


Deductions from


Balance atYears Ended:

Year


Expense


reserves


End of YearJanuary 2, 2005Allowance for doubtful accounts

$
34,900


$



$



$
34,900Deferred income tax asset
    valuation allowance

$
6,951,828


$
820,293


$



$
7,772,121January 1, 2006Allowance for doubtful accounts

$
34,900


$
202,695


$



$
237,595Deferred income tax asset
    valuation allowance

$
7,772,121


$
2,168,498


$



$
9,940,619Inventory reserve

$



$
444,281


$



$
444,281December 31,
    2006Allowance for doubtful accounts

$
237,595


$



$
224,902
(1)

$
12,693Deferred income tax asset
    valuation allowance

$
9,940,619


$
3,378,513


$



$
13,319,132Inventory reserve

$
444,281


$
346,298


$
416,290
(2)

$
374,289     (1)
    
    Deductions represent the write-off of accounts deemed
    uncollectible.(2)
    
    Deductions represent the write-off of obsolete inventory. 53




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Conclusion
    regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rules 13a-15(e) 15d-15(e)
  Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    About Us Form 8-K
  Item 11.
    Executive
    Compensation  Form 10-K.
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters  Form 10-K.
 54




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Form 10-K.
  Item 14.
    Principal
    Accounting Fees and Services  Form 10-K.
 PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K.
  Index to Consolidated Financial Statements.
  Form 10-K:
  PageReport of
    Independent Registered Public Accounting Firm


33Consolidated
    Balance Sheets as of December 31, 2006 and January 1,
    2006


34Consolidated
    Statements of Operations for the Years Ended December 31,
    2006, January 1, 2006, and January 2, 2005


35Consolidated
    Statements of Changes in Shareholders Equity for the Years
    Ended December 31, 2006, January 1, 2006, and
    January 2, 2005


36Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006, January 1, 2006, and January 2, 2005


37Notes to
    Consolidated Financial Statements


38-52   Index to Financial Statement Schedule.
      Listing of Exhibits
  ExhibitNumber



Description of Exhibits3
.1



Form of Amended and Restated
    Articles of Incorporation of the Company (incorporated by
    reference to Exhibit 3.1 to the Companys Registration
    Statement on
    Form S-1/A
    filed August 25, 2005).3
.2



Form of Amended and Restated
    Bylaws of the Company (incorporated by reference to
    Exhibit 3.2 to the Companys Registration Statement on
    Form S-1/A
    filed August 25, 2005).4
.1



Form of Registrants Common
    Stock Certificate (incorporated by reference to Exhibit 4.1
    to the Companys Registration Statement on
    Form S-1/A
    filed September 6, 2005).10
.1



1994 Stock Awards Plan
    (incorporated by reference to Exhibit 10.1 to the
    Companys Registration Statement on
    Form S-1
    filed July 19, 2005).10
.2



Form of 1994 Stock Awards Plan
    Stock Option Grant and Agreement (incorporated by reference to
    Exhibit 10.2 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.3



2001 Stock Incentive Plan
    (incorporated by reference to Exhibit 10.3 to the
    Companys Registration Statement on
    Form S-1
    filed July 19, 2005). 55




---



##### Table of Contents



ExhibitNumber



Description of Exhibits10
.4



Amendment No. 1 to the 2001
    Stock Incentive Plan (incorporated by reference to
    Exhibit 10.4 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.5



Form of 2001 Stock Incentive Plan
    Stock Option Grant and Agreement (incorporated by reference to
    Exhibit 10.5 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.6



2005 Equity Incentive Plan
    (incorporated by reference to Exhibit 10.6 to the
    Companys Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.7



Senior Executive 2005 Supplemental
    Bonus Plan (incorporated by reference to Exhibit 10.7 to
    the Companys Registration Statement on
    Form S-1/A
    filed September 20, 2005).10
.8



Description of Annual Support
    Center and Field Management Bonus Plan (incorporated by
    reference to Exhibit 10.1 to the Companys on
    Form 8-K
    filed May 26, 2006).10
.9*



Amended and Restated Employment
    Agreement between Caribou Coffee Company, Inc. and Michael J.
    Coles, dated June 29, 2005 (incorporated by reference to
    Exhibit 10.9 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.10*



Bonus Compensation Agreement
    between Caribou Coffee Company, Inc. and Michael J. Coles dated
    June 29, 2005 (incorporated by reference to
    Exhibit 10.10 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.11*



Employment Agreement between
    Caribou Coffee Company, Inc. and George E. Mileusnic, dated
    July 18, 2005 (incorporated by reference to
    Exhibit 10.11 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.12*



Employment Agreement between
    Caribou Coffee Company, Inc. and Amy K. ONeil, dated
    July 18, 2005 (incorporated by reference to
    Exhibit 10.12 to the Companys Registration Statement
    on
    Form S-1
    filed July 19, 2005).10
.13*



Form of Directors and Officers
    Indemnification Agreement (incorporated by reference to
    Exhibit 10.13 of the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.14



Master Franchise Agreement between
    Caribou Coffee Company, Inc. and Al-Sayer Enterprises
    (incorporated by reference to Exhibit 10.14 to the
    Companys Registration Statement on
    Form S-1/A
    filed September 14, 2005).10
.15*



Offer Letter from Caribou Coffee
    Company, Inc. to Janet D. Astor, dated November 29, 2004
    (incorporated by reference to Exhibit 10.15 to the
    Companys Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.16*



Severance Agreement between
    Caribou Coffee Company, Inc. and Janet D. Astor, dated
    December 13, 2004 (incorporated by reference to
    Exhibit 10.16 to the Companys Registration Statement
    on
    Form S-1/A
    filed August 25, 2005).10
.17*



Offer Letter from Caribou Coffee
    Company, Inc. to Kathy F. Hollenhorst, dated April 13, 2005
    (incorporated by reference to Exhibit 10.17 to the
    Companys Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.18



Commercial Lease between Caribou
    Coffee Company, Inc. and Twin Lakes III LLC, dated
    September 5, 2003 (incorporated by reference to
    Exhibit 10.18 to the Companys Registration Statement
    on
    Form S-1/A
    filed August 25, 2005).10
.19



Second Amended and Restated Lease
    and License Financing and Purchase Option Agreement between
    Caribou Coffee Company, Inc. and Arabica Funding, Inc., dated
    June 29, 2004 (incorporated by reference to
    Exhibit 10.19 to the Companys Registration Statement
    on
    Form S-1/A
    filed August 25, 2005)10
.20



Amendment to Second Amended and
    Restated Lease and License Financing and Purchase Option
    Agreement between Caribou Coffee Company, Inc. and Arabica
    Funding, Inc., dated March 25, 2005 (incorporated by
    reference to Exhibit 10.20 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.21



Second Amendment to Second Amended
    and Restated Lease and License Financing and Purchase Option
    Agreement between Caribou Coffee Company, Inc. and Arabica
    Funding, Inc., dated May 10, 2005 (incorporated by
    reference to Exhibit 10.21 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005). 56




---



##### Table of Contents



ExhibitNumber



Description of Exhibits10
.22



Second Amended and Restated Call
    Option Letter from Arabica Funding, Inc. to Caribou Coffee
    Company, Inc., dated June 29, 2004 (incorporated by
    reference to Exhibit 10.22 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.23



Second Amended and Restated Put
    Option Letter from Caribou Coffee Company, Inc. to Arabica
    Funding, Inc., dated June 29, 2004 (incorporated by
    reference to Exhibit 10.23 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.24



Second Amended and Restated Tax
    Matters Agreement between Caribou Coffee Company, Inc. and
    Arabica Funding, Inc., dated June 29, 2004 (incorporated by
    reference to Exhibit 10.24 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.25



Second Amended and Restated
    Supplemental Agreement between Caribou Coffee Company, Inc. and
    Arabica Funding, Inc., dated June 29, 2004 (incorporated by
    reference to Exhibit 10.25 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005).10
.26



Credit Agreement among Arabica
    Funding, Inc., as Borrower, The Several Lenders from Time to
    Time Parties thereto, and Fleet National Bank, as Administrative
    Agent, dated as of June 29, 2004 (incorporated by reference
    to Exhibit 10.26 to the Companys Registration
    Statement on
    Form S-1/A
    filed August 25, 2005).10
.27



Amendment to Credit Agreement
    among Arabica Funding, Inc., as Borrower, The Several Lenders
    from Time to Time Parties Thereto, and Fleet National Bank, as
    Administrative Agent, dated as of March 2005 (incorporated by
    reference to Exhibit 10.27 to the Companys
    Registration Statement on
    Form S-1/A
    filed August 25, 2005).21
.1



List of Subsidiaries (incorporated
    by reference to Exhibit 21.1 to the Companys
    Registration Statement on
    Form S-1/A
    filed September 14, 2005).23
.1



Consent of independent registered
    public accounting firm.31
.1



Certification Pursuant to
    Rule 13a  14(a), as Adopted Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2



Certification Pursuant to
    Rule 13a  14(a), as Adopted Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1



Certification Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2



Certification Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Indicates management contracts and compensatory arrangements
    required to be filed pursuant to Item 15(b) of this annual
    report.  (b)
    Exhibits.    (c)
    Financial Statement Schedules.   57




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##### Table of Contents



SIGNATURES    Caribou Coffee Company,
    Inc.
  By:
    /s/  Michael
    J. Coles   Title:
    Chief Executive Officer      Signature

Title

Date/s/  Michael
    J. ColesMichael
    J. Coles

Chief Executive Officer, President
    and
    Chairman of the Board of Directors
    (principal executive officer)

March 30, 2007/s/  George
    E.
    MileusnicGeorge
    E. Mileusnic

Chief Financial Officer
    (principal financial officer)

March 30, 2007/s/  Michael
    E. PetersonMichael
    E. Peterson

Controller
    (principal accounting officer)

March 30, 2007/s/  Charles
    H. OgburnCharles
    H. Ogburn

Director

March 30, 2007/s/  Charles
    L. GriffithCharles
    L. Griffith

Director

March 30, 2007/s/  Jeffery
    C. NealJeffery
    C. Neal

Director

March 30, 2007/s/  Kip
    R. CaffeyKip
    R. Caffey

Director

March 30, 2007/s/  Wallace
    B. DoolinWallace
    B. Doolin

Director

March 30, 2007  58