##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 1, 2006.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to.
 Commission File Number: 000-51535
 
 CARIBOU COFFEE COMPANY, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Minnesota
    
    41-1731219(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3900 Lakebreeze Avenue North 
Brooklyn Center, Minnesota(Address of principal executive offices)
    
    55429(Zip Code)
 (763) 592-2200
 Not Applicable
 þ o
  o o þ
 o þ
  Title
    
    Shares Outstanding as of November 7, 2006Common Stock, par value $0.01 per share
    
    19,286,425




---



##### 



CARIBOU COFFEE COMPANY, INC.
 FORM 10-Q
 For the Thirteen and Thirty-Nine Week Periods Ended October 1, 2006
 Table of Contents
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Statements of Operations
    
    
    3Condensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25Signature
    
    
    26
 2




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##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOctober 2,
    
    
    October 1,
    
    
    October 2,
    
    
    October 1,2005
    
    
    2006
    
    
    2005
    
    
    2006(Unaudited)Coffeehouse sales
    
    $
    46,548,159
    
    
    $
    54,429,921
    
    
    $
    137,379,944
    
    
    $
    161,924,173Other sales
    
    
    2,106,655
    
    
    
    2,538,521
    
    
    
    4,228,488
    
    
    
    7,594,474Total net sales
    
    
    48,654,814
    
    
    
    56,968,442
    
    
    
    141,608,432
    
    
    
    169,518,647Cost of sales and related occupancy costs
    
    
    19,606,907
    
    
    
    23,725,262
    
    
    
    57,023,608
    
    
    
    70,755,516Operating expenses
    
    
    20,142,047
    
    
    
    23,941,709
    
    
    
    57,918,649
    
    
    
    70,149,599Opening expenses
    
    
    398,649
    
    
    
    463,062
    
    
    
    1,176,470
    
    
    
    1,245,616Depreciation and amortization
    
    
    4,116,304
    
    
    
    5,335,922
    
    
    
    11,463,016
    
    
    
    15,406,328General and administrative expenses
    
    
    5,573,713
    
    
    
    6,772,130
    
    
    
    17,189,663
    
    
    
    19,113,218Closing expense and disposal of assets
    
    
    189,725
    
    
    
    90,847
    
    
    
    310,393
    
    
    
    362,236Operating loss
    
    
    (1,372,531
    )
    
    
    (3,360,490
    )
    
    
    (3,473,367
    )
    
    
    (7,513,866
    )Other income (expense):Other income
    
    
    138,546
    
    
    
    231,673
    
    
    
    505,395
    
    
    
    796,238Interest income
    
    
    1,400
    
    
    
    202,901
    
    
    
    28,378
    
    
    
    523,293Derivative income
    
    
    623,109
    
    
    
    
    
    
    
    623,109
    
    
    
    Interest expense
    
    
    (512,222
    )
    
    
    (144,824
    )
    
    
    (1,424,559
    )
    
    
    (478,662
    )Loss before provision (benefit) for
income taxes and minority interest
    
    
    (1,121,698
    )
    
    
    (3,070,740
    )
    
    
    (3,741,044
    )
    
    
    (6,672,997
    )Provision (benefit) for income taxes
    
    
    (46,323
    )
    
    
    (25,428
    )
    
    
    255,000
    
    
    
    256,928Loss before minority interest
    
    
    (1,075,375
    )
    
    
    (3,045,312
    )
    
    
    (3,996,044
    )
    
    
    (6,929,925
    )Minority interest
    
    
    123,005
    
    
    
    57,481
    
    
    
    308,071
    
    
    
    130,086Net loss
    
    $
    (1,198,380
    )
    
    $
    (3,102,793
    )
    
    $
    (4,304,115
    )
    
    $
    (7,060,011
    )Basic and diluted net loss per share
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.31
    )
    
    $
    (0.37
    )Basic and diluted weighted average
number of shares outstanding
    
    
    14,142,047
    
    
    
    19,285,625
    
    
    
    13,916,940
    
    
    
    19,280,178
  3




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##### 



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 January 1,
    
    
    October 1,2006
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,846,111
    
    
    $
    13,285,524Accounts receivable (net of allowance for doubtful accounts of
$237,595 and $13,943 at January 1, 2006 and October 1, 2006)
    
    
    1,137,120
    
    
    
    1,771,540Other receivables
    
    
    2,260,254
    
    
    
    1,013,959Income tax receivable
    
    
    135,750
    
    
    
    Inventories
    
    
    11,182,512
    
    
    
    10,803,469Prepaid expenses and other current assets
    
    
    1,251,555
    
    
    
    1,445,326Total current assets
    
    
    49,813,302
    
    
    
    28,319,818Property and equipment, net of accumulated depreciation and amortization
    
    
    96,022,720
    
    
    
    99,914,221Notes receivable
    
    
    64,531
    
    
    
    52,443Restricted cash
    
    
    321,030
    
    
    
    286,005Other assets
    
    
    1,738,717
    
    
    
    1,428,511Total assets
    
    $
    147,960,300
    
    
    $
    130,000,998LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    14,553,743
    
    
    $
    8,296,034Accrued compensation
    
    
    5,462,657
    
    
    
    3,411,062Accrued expenses
    
    
    8,504,552
    
    
    
    7,527,109Deferred revenue
    
    
    8,165,260
    
    
    
    4,953,652Total current liabilities
    
    
    36,686,212
    
    
    
    24,187,857Asset retirement liability
    
    
    760,997
    
    
    
    829,810Deferred rent liability
    
    
    10,485,177
    
    
    
    11,731,304Deferred revenue
    
    
    2,964,000
    
    
    
    2,860,000Minority interests in affiliates
    
    
    138,159
    
    
    
    168,460Total long term liabilities
    
    
    14,348,333
    
    
    
    15,589,574Commitments 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; 19,269,133
and 19,286,425 shares issued and outstanding at January 1, 2006 and
October 1, 2006, respectively
    
    
    192,699
    
    
    
    192,864Treasury stock
    
    
    (9,011
    )
    
    
    Additional paid-in capital
    
    
    121,626,855
    
    
    
    121,975,502Accumulated deficit
    
    
    (24,884,788
    )
    
    
    (31,944,799
    )Total shareholders equity
    
    
    96,925,755
    
    
    
    90,223,567Total liabilities and shareholders equity
    
    $
    147,960,300
    
    
    $
    130,000,998
  4




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##### 



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Thirty-Nine Weeks EndedOctober 2,
    
    
    October 1,2005
    
    
    2006(Unaudited)Operating activitiesNet loss
    
    $
    (4,304,115
    )
    
    $
    (7,060,011
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    12,769,836
    
    
    
    16,999,519Amortization of deferred financing fees
    
    
    248,218
    
    
    
    258,291Minority interests in affiliates
    
    
    308,070
    
    
    
    130,086Provision for closing expense and asset disposals
    
    
    12,668
    
    
    
    282,936Share-based compensation
    
    
    
    
    
    
    329,000Non cash compensation
    
    
    987,750
    
    
    
    Non cash derivative income
    
    
    (623,109
    )
    
    
    Non cash accretion expense
    
    
    
    
    
    
    68,813Changes in operating assets and liabilities:Restricted cash
    
    
    218,953
    
    
    
    35,025Accounts receivable and other receivables
    
    
    (271,704
    )
    
    
    623,962Income tax receivable
    
    
    441,437
    
    
    
    135,750Inventories
    
    
    (4,828,288
    )
    
    
    379,043Prepaid expenses and other assets
    
    
    (949,782
    )
    
    
    (141,856
    )Accounts payable
    
    
    6,563,650
    
    
    
    (6,257,709
    )Accrued compensation
    
    
    (585,292
    )
    
    
    (2,051,595
    )Accrued expenses
    
    
    547,645
    
    
    
    2,212,822Deferred revenue
    
    
    (157,761
    )
    
    
    (3,315,608
    )Net cash provided by operating activities
    
    
    10,378,176
    
    
    
    2,628,468Investing activitiesPayments for property and equipment
    
    
    (22,982,042
    )
    
    
    (23,118,094
    )Net cash used in investing activities
    
    
    (22,982,042
    )
    
    
    (23,118,094
    )Financing activitiesBorrowings under revolving credit facility
    
    
    10,000,000
    
    
    
    Distribution of minority interests earnings
    
    
    (274,985
    )
    
    
    (99,785
    )IPO expenses
    
    
    (823,812
    )
    
    
    (69,292
    )Issuance of common stock
    
    
    38,398
    
    
    
    89,105Repurchase of common stock
    
    
    (12,390
    )
    
    
    (11,651
    )Sale of treasury stock
    
    
    
    
    
    
    20,662Deferred financing fees paid
    
    
    (70,724
    )
    
    
    Net cash provided (used) by financing activities
    
    
    8,856,487
    
    
    
    (70,961
    )Decrease in cash and cash equivalents
    
    
    (3,747,379
    )
    
    
    (20,560,587
    )Cash and cash equivalents at beginning of period
    
    
    7,618,470
    
    
    
    33,846,111Cash and cash equivalents at end of period
    
    $
    3,871,091
    
    
    $
    13,285,524Supplemental disclosure of cash flow informationNoncash financing and investing transactions:Accrual for IPO expenses
    
    $
    1,221,187
    
    
    $
    Accrual for leasehold improvements, furniture, and equipment
    
    $
    797,805
    
    
    $
    1,429,188
  5




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##### 



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  Fiscal Year End
   6




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##### 



2. Summary of Significant Accounting Policies
 Revenue Recognition
    Operating Leases and Rent Expense
 Accounting for Leases, Accounting for Operating Leases With Scheduled Rent Increases.
 Stock Compensation
  Share-Based Payment Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
 3. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 7




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##### 



Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 4. Coffeehouse Closing and Asset Disposals
 Accounting for the Impairment or Disposal of
Long-Lived Assets.
  Thirteen Weeks Ended
    
    

Thirty-Nine
Weeks EndedOctober 2,
    
    
    October 1,
    
    
    October 2,
    
    
    October 1,2005
    
    
    2006
    
    
    2005
    
    
    2006(Unaudited)Coffeehouse closures
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    5Amount charged to
operations for closed
coffeehouses:Cash closure costs
    
    $
    
    
    
    $
    
    
    
    $
    30,000
    
    
    $
    Amount charged to
operations for lease
costs associated with a
closed coffeehouse-cash
    
    
    150,836
    
    
    
    
    
    
    
    150,836
    
    
    
    Amount charged to
operations for costs to
consolidate
facilities-cash
    
    
    38,889
    
    
    
    39,300
    
    
    
    116,889
    
    
    
    79,300Net book value of
closed coffeehouse
property and equipment
    
    
    
    
    
    
    51,547
    
    
    
    
    
    
    
    225,503Amount charged to
operations for other
property and equipment
write-offs
    
    
    
    
    
    
    
    
    
    
    12,668
    
    
    
    57,433Coffeehouse closing
expense and disposal of
assets
    
    $
    189,725
    
    
    $
    90,547
    
    
    $
    310,393
    
    
    $
    362,236Depreciation expense
related to charges for
impaired assets
    
    $
    250,000
    
    
    $
    205,000
    
    
    $
    384,000
    
    
    $
    633,000
 8




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##### 



5. Inventories
  January 1,
    
    
    October 1,2006
    
    
    2006(Unaudited)Coffee
    
    $
    5,048,815
    
    
    $
    3,841,582Other merchandise held for sale
    
    
    3,311,014
    
    
    
    3,794,448Supplies
    
    
    2,822,683
    
    
    
    3,167,439$
    11,182,512
    
    
    $
    10,803,469
   6. Equity and Share-Based Compensation
    9




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##### 



Thirteen weeks
    
    
    Thirty-nine weeksended
    
    
    endedOctober 2,
    
    
    October 2,2005
    
    
    2005(Unaudited)
    
    
    (Unaudited)Net loss, as reported
    
    $
    (1,198,380
    )
    
    $
    (4,304,115
    )Deduct: Share-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (86,531
    )
    
    
    (198,201
    )Pro forma net loss
    
    $
    (1,284,911
    )
    
    $
    (4,502,316
    )Basic and diluted net loss per shareAs reported
    
    $
    (0.08
    )
    
    $
    (0.31
    )Pro forma
    
    $
    (0.09
    )
    
    $
    (0.32
    )
  Thirteen weeks Ended
    
    
    Thirty-Nine weeks EndedOctober 2,
    
    
    October 1,
    
    
    October 2,
    
    
    October 1,2005
    
    
    2006(1)
    
    
    2005
    
    
    2006Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected volatility
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    50
    %Risk free interest rate
    
    
    4.05
    %
    
    
    
    
    
    
    3.93
    %
    
    
    4.76
    %Expected life
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    5
 
 (1)
    
    There were no options granted in the thirteen week period ending October 1, 2006.   10




---



##### 



Number of
    
    
    Weighted Average
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Contract LifeBalance at January 1, 2006
    
    
    2,204,199
    
    
    $
    7.21Granted
    
    
    194,256
    
    
    $
    9.73Exercised
    
    
    (10,997
    )
    
    $
    5.85Forfeited
    
    
    (11,628
    )
    
    $
    8.05Outstanding at April 2, 2006
    
    
    2,375,830
    
    
    $
    7.41Granted
    
    
    38,500
    
    
    $
    9.00Exercised
    
    
    (4,931
    )
    
    $
    6.17Forfeited
    
    
    (27,560
    )
    
    $
    8.11Outstanding at July 2, 2006
    
    
    2,381,839
    
    
    $
    7.43Granted
    
    
    
    
    
    $
    0.00Exercised
    
    
    (2,666
    )
    
    $
    5.62Forfeited
    
    
    (23,848
    )
    
    $
    8.14Balance at October 1, 2006
    
    
    2,355,325
    
    
    $
    7.43
    
    
    7.13 YrsExercisable at October 1, 2006
    
    
    1,317,325
    
    
    $
    6.60
    
    
    6.20 Yrs
   Weighted AverageGrant Date FairNumber of Shares
    
    
    ValueUnvested at January 1, 2006
    
    
    1,106,398
    
    
    $
    8.15Granted
    
    
    194,256
    
    
    $
    9.73Vested
    
    
    (30,504
    )
    
    $
    6.54Forfeited
    
    
    (10,962
    )
    
    $
    8.19Unvested at April 2, 2006
    
    
    1,259,188
    
    
    $
    8.43Granted
    
    
    38,500
    
    
    $
    9.00Vested
    
    
    (77,977
    )
    
    $
    7.38Forfeited
    
    
    (21,297
    )
    
    $
    8.42Unvested at July 2, 2006
    
    
    1,198,414
    
    
    $
    8.52Granted
    
    
    
    
    
    $
    0.00Vested
    
    
    (142,497
    )
    
    $
    8.77Forfeited
    
    
    (17,917
    )
    
    $
    7.21Unvested at October 1, 2006
    
    
    1,038,000
    
    
    $
    8.48
 7. Income Taxes
  11




---



##### 



8. Net Loss Per Share
  Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOctober 2,
    
    
    October 1,
    
    
    October 2,
    
    
    October 1,2005
    
    
    2006
    
    
    2005
    
    
    2006Net loss
    
    $
    (1,198,380
    )
    
    $
    (3,102,793
    )
    
    $
    (4,304,115
    )
    
    $
    (7,060,011
    )Weighted average common shares
outstanding (for basic and diluted
calculation)
    
    
    14,142,047
    
    
    
    19,285,625
    
    
    
    13,916,940
    
    
    
    19,280,178Basic and diluted net loss per share
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.31
    )
    
    $
    (0.37
    )
  9. Commitments and Contingencies
  12




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  FORWARD-LOOKING STATEMENTS
  Overview
     13




---



##### 



Critical Accounting Policies
  Stock options. Accounting for Stock Issued to Employees ,
Share-Based Payment Accounting for Stock-Based Compensation
 Fiscal Periods
  14




---



##### 



Thirteen Weeks Ended October 1, 2006 vs. Thirteen Weeks Ended October 2, 2005
 Results of Operations
 :
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirteen Weeks EndedOctober 2,
    
    
    October 1,
    
    
    %
    
    
    October 2,
    
    
    October 1,2005
    
    
    2006
    
    
    Change
    
    
    2005
    
    
    2006Statement of Operations Data:
    
    (In thousands)
    
    
    
    
    
    
    As a % of total net salesNet sales:Coffeehouse
    
    $
    46,548
    
    
    $
    54,430
    
    
    
    16.9
    %
    
    
    95.7
    %
    
    
    95.5
    %Other
    
    
    2,107
    
    
    
    2,538
    
    
    
    20.5
    %
    
    
    4.3
    %
    
    
    4.5
    %Total net sales
    
    
    48,655
    
    
    
    56,968
    
    
    
    17.1
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and related occupancy costs
    
    
    19,607
    
    
    
    23,725
    
    
    
    21.0
    %
    
    
    40.3
    %
    
    
    41.6
    %Operating expenses
    
    
    20,142
    
    
    
    23,942
    
    
    
    18.9
    %
    
    
    41.4
    %
    
    
    42.0
    %Opening expenses
    
    
    399
    
    
    
    463
    
    
    
    16.2
    %
    
    
    0.8
    %
    
    
    0.8
    %Depreciation and amortization
    
    
    4,116
    
    
    
    5,336
    
    
    
    29.6
    %
    
    
    8.4
    %
    
    
    9.4
    %General and administrative expenses
    
    
    5,574
    
    
    
    6,772
    
    
    
    21.5
    %
    
    
    11.5
    %
    
    
    11.9
    %Closing expense and disposal of assets
    
    
    190
    
    
    
    91
    
    
    
    (52.1
    )%
    
    
    0.4
    %
    
    
    0.2
    %Operating income (loss)
    
    
    (1,373
    )
    
    
    (3,361
    )
    
    
    (144.8
    )%
    
    
    (2.8
    )%
    
    
    (5.9
    )%Other income (expense):Other income
    
    
    139
    
    
    
    232
    
    
    
    67.2
    %
    
    
    0.3
    %
    
    
    0.4
    %Interest income
    
    
    2
    
    
    
    203
    
    
    
    n/a
    
    
    
    0.0
    %
    
    
    0.4
    %Derivative income
    
    
    623
    
    
    
    
    
    
    
    (100.0
    )%
    
    
    1.3
    %
    
    
    0.0
    %Interest expense
    
    
    (512
    )
    
    
    (145
    )
    
    
    (71.7
    )%
    
    
    (1.1
    )%
    
    
    (0.3
    )%Loss before benefit for income taxes and
minority interest
    
    
    (1,121
    )
    
    
    (3,071
    )
    
    
    (173.8
    )%
    
    
    (2.3
    )%
    
    
    (5.4
    )%Benefit for income taxes
    
    
    (46
    )
    
    
    (25
    )
    
    
    45.1
    %
    
    
    (0.1
    )%
    
    
    0.0
    %Loss before minority interest
    
    
    (1,075
    )
    
    
    (3,046
    )
    
    
    (183.2
    )%
    
    
    (2.2
    )%
    
    
    (5.4
    )%Minority interest
    
    
    123
    
    
    
    57
    
    
    
    (53.3
    )%
    
    
    0.3
    %
    
    
    0.1
    %Net loss
    
    $
    (1,198
    )
    
    $
    (3,103
    )
    
    
    (158.9
    )%
    
    
    (2.5
    )%
    
    
    (5.5
    )%
 Net Sales
  Costs and Expenses
 Cost of sales and related occupancy costs.
 Operating expenses.
 15




---



##### 



Depreciation and amortization.
 General and administrative expenses.
 Closing expenses and disposal of assets.
 Other Income.
 Interest income.
 Derivative income.
 Interest expense.
 16




---



##### 



Thirty-Nine Weeks Ended October 1, 2006 vs. Thirty-Nine Weeks Ended October 2, 2005
 Results of Operations
 (amounts in thousands):
 Thirty-Nine Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 2,
    
    
    October 1,
    
    
    %
    
    
    October 2,
    
    
    October 1,2005
    
    
    2006
    
    
    Change
    
    
    2005
    
    
    2006Statement of Operations Data:
    
    (In thousands)
    
    
    
    
    
    
    As a % of total net salesNet sales:Coffeehouse
    
    $
    137,380
    
    
    $
    161,924
    
    
    
    17.9
    %
    
    
    97.0
    %
    
    
    95.5
    %Other
    
    
    4,229
    
    
    
    7,595
    
    
    
    79.6
    %
    
    
    3.0
    %
    
    
    4.5
    %Total net sales
    
    
    141,609
    
    
    
    169,519
    
    
    
    19.7
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and related occupancy costs
    
    
    57,024
    
    
    
    70,755
    
    
    
    24.1
    %
    
    
    40.3
    %
    
    
    41.7
    %Operating expenses
    
    
    57,919
    
    
    
    70,150
    
    
    
    21.1
    %
    
    
    40.9
    %
    
    
    41.4
    %Opening expenses
    
    
    1,176
    
    
    
    1,246
    
    
    
    5.9
    %
    
    
    0.8
    %
    
    
    0.7
    %Depreciation and amortization
    
    
    11,463
    
    
    
    15,406
    
    
    
    34.4
    %
    
    
    8.1
    %
    
    
    9.1
    %General and administrative expenses
    
    
    17,190
    
    
    
    19,113
    
    
    
    11.2
    %
    
    
    12.1
    %
    
    
    11.3
    %Closing expense and disposal of assets
    
    
    310
    
    
    
    362
    
    
    
    16.7
    %
    
    
    0.2
    %
    
    
    0.2
    %Operating income (loss)
    
    
    (3,473
    )
    
    
    (7,513
    )
    
    
    (116.3
    )%
    
    
    (2.4
    )%
    
    
    (4.4
    )%Other income (expense):Other income
    
    
    505
    
    
    
    796
    
    
    
    57.5
    %
    
    
    0.3
    %
    
    
    0.5
    %Interest income
    
    
    29
    
    
    
    523
    
    
    
    1744.0
    %
    
    
    0.0
    %
    
    
    0.3
    %Derivative income
    
    
    623
    
    
    
    
    
    
    
    (100.0
    )%
    
    
    0.5
    %
    
    
    0.0
    %Interest expense
    
    
    (1,425
    )
    
    
    (479
    )
    
    
    (66.4
    )%
    
    
    (1.0
    )%
    
    
    (0.3
    )%Loss before provision for income taxes
and minority interest
    
    
    (3,741
    )
    
    
    (6,673
    )
    
    
    (78.4
    )%
    
    
    (2.6
    )%
    
    
    (3.9
    )%Provision for income taxes
    
    
    255
    
    
    
    257
    
    
    
    (0.8
    )%
    
    
    0.2
    %
    
    
    0.2
    %Loss before minority interest
    
    
    (3,996
    )
    
    
    (6,930
    )
    
    
    (73.4
    )%
    
    
    (2.8
    )%
    
    
    (4.1
    )%Minority interest
    
    
    308
    
    
    
    130
    
    
    
    (57.8
    )%
    
    
    0.2
    %
    
    
    0.1
    %Net loss
    
    $
    (4,304
    )
    
    $
    (7,060
    )
    
    
    (64.0
    )%
    
    
    (3.0
    )%
    
    
    (4.2
    )%
 Net Sales
  Costs and Expenses
 Cost of sales and related occupancy costs.
 Operating expenses.
 17




---



##### 



Depreciation and amortization.
 General and administrative expenses.
 Closing expenses and disposal of assets.
 Other Income.
 Interest income.
 Derivative income.
 Interest expense.
 18




---



##### 



Liquidity and Capital Resources
      Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 19




---



##### 



Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 Key Financial Metrics
  20




---



##### 



Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOctober 2, 2005
    
    
    October 1, 2006
    
    
    October 2, 2005
    
    
    October 1, 2006(In thousands, except operating data)Non-GAAP Metrics:EBITDA(1)
    
    $
    3,840
    
    
    $
    2,766
    
    
    $
    10,117
    
    
    $
    10,153Adjusted EBITDA(1)
    
    $
    3,217
    
    
    $
    2,766
    
    
    $
    11,232
    
    
    $
    10,153Operating Data:Percentage change in comparable coffeehouse net
sales(2)
    
    
    4
    %
    
    
    (1
    )%
    
    
    7
    %
    
    
    (2
    )%Coffeehouses open at beginning of period
    
    
    325
    
    
    
    405
    
    
    
    304
    
    
    
    386Coffeehouses opened during the period
    
    
    19
    
    
    
    12
    
    
    
    42
    
    
    
    35Coffeehouses closed during the period
    
    
    0
    
    
    
    (1
    )
    
    
    (2
    )
    
    
    (5
    )Coffeehouses open at end of period
    
    
    344
    
    
    
    416
    
    
    
    344
    
    
    
    416Licensed coffeehouses open at end of period
    
    
    4
    
    
    
    16
    
    
    
    4
    
    
    
    16Total coffeehouses open at end of period
    
    
    348
    
    
    
    432
    
    
    
    348
    
    
    
    432
 
 (1)
    
    See reconciliation and discussion of non-GAAP measures which follow at the end of this
section.(2)
    
    Percentage change in comparable coffeehouse net sales compares the net sales of coffeehouses
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.   
    
    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 290 coffeehouses from the beginning of fiscal 2001
through the end of the first thirty-nine weeks of fiscal 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.
    
    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 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
 21




---



##### 




    
    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;
    
    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.
  Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOctober 2, 2005
    
    
    October 1, 2006
    
    
    October 2, 2005
    
    
    October 1, 2006(Thousands)Net loss
    
    $
    (1,198
    )
    
    $
    (3,103
    )
    
    $
    (4,304
    )
    
    $
    (7,060
    )Interest expense
    
    
    512
    
    
    
    145
    
    
    
    1,425
    
    
    
    479Interest income
    
    
    (1
    )
    
    
    (203
    )
    
    
    (28
    )
    
    
    (523
    )Depreciation and
amortization(1)
    
    
    4,573
    
    
    
    5,952
    
    
    
    12,769
    
    
    
    17,000Provision for income taxes
    
    
    (46
    )
    
    
    (25
    )
    
    
    255
    
    
    
    257EBITDA
    
    
    3,840
    
    
    
    2,766
    
    
    
    10,117
    
    
    
    10,153Derivative income
    
    
    (623
    )
    
    
    
    
    
    
    (623
    )Amendment of employment
agreement
    
    
    
    
    
    
    
    
    
    
    1,738
    
    
    
    Adjusted EBITDA
    
    $
    3,217
    
    
    $
    2,766
    
    
    $
    11,232
    
    
    $
    10,153
 
 (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. 22




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Primary Market Risk Exposures
  Financial Instruments and Derivative Commodity Instruments
  
 Item 4. Controls and Procedures.
  23




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Unregistered Sales of Equity Securities
  Use of Proceeds
  24




---



##### 



Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 3.1*
    
    
    Form of Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Companys
Registration Statement of 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 of
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 of
Form S-1/A filed September 6, 2005).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.
 
  25




---



##### 



SIGNATURE
  CARIBOU COFFEE COMPANY, INC.By:
    /s/ George E. MileusnicGeorge E. MileusnicChief Financial Officer  26