##### Table of Contents



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 April 2, 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
    
    55429Brooklyn Center, Minnesota
    
    (Zip Code)(Address of principal executive offices)
 (763) 592-2200
 Not Applicable
  þ o
  o o þ
 o þ
  Title
    
    Shares Outstanding as of May 11, 2006Common Stock, par value $0.01 per share
    
    19,278,980




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##### 



CARIBOU COFFEE COMPANY, INC.
 FORM 10-Q
 For the Thirteen Week Period Ended April 2, 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
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    17Item 4.
    
    Controls and Procedures
    
    18PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    18Item 1A.
    
    Risk Factors
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    18Item 3.
    
    Defaults Upon Senior Securities
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    19Item 5.
    
    Other Information
    
    19Item 6.
    
    Exhibits
    
    19Signatures
    
    
    
    20EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



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 EndedApril 3,
    
    
    April 2,2005
    
    
    2006(Unaudited)Coffeehouse sales
    
    $
    43,997,861
    
    
    $
    53,283,822Other sales
    
    
    1,041,818
    
    
    
    2,682,389Total net sales
    
    
    45,039,679
    
    
    
    55,966,211Cost of sales and related occupancy costs
    
    
    18,044,840
    
    
    
    23,266,067Operating expenses
    
    
    18,372,178
    
    
    
    23,100,856Opening expenses
    
    
    308,320
    
    
    
    415,251Depreciation and amortization
    
    
    3,686,938
    
    
    
    4,805,233General and administrative expenses
    
    
    4,600,953
    
    
    
    6,101,178Closing expense and disposal of assets
    
    
    897
    
    
    
    7,998Operating income (loss)
    
    
    25,553
    
    
    
    (1,730,372
    )Other income (expense):Other income
    
    
    193,443
    
    
    
    322,950Interest income
    
    
    1,365
    
    
    
    187,003Interest expense
    
    
    (424,233
    )
    
    
    (147,742
    )Loss before provision for income taxes and minority interest
    
    
    (203,872
    )
    
    
    (1,368,161
    )Provision for income taxes
    
    
    151,323
    
    
    
    147,039Loss before minority interest
    
    
    (355,195
    )
    
    
    (1,515,200
    )Minority interest
    
    
    82,022
    
    
    
    56,865Net loss
    
    $
    (437,217
    )
    
    $
    (1,572,065
    )Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.08
    )Basic and diluted weighted average number of shares outstanding
    
    
    13,802,021
    
    
    
    19,274,102
  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,
    
    
    April 2,2006
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,846,111
    
    
    $
    20,521,846Accounts receivable (net of allowance for doubtful accounts of
approximately $237,595 and $85,735 at January 1, 2006 and
April 2, 2006)
    
    
    1,137,120
    
    
    
    1,452,945Other receivables
    
    
    2,260,254
    
    
    
    1,254,967Income tax receivable
    
    
    135,750
    
    
    
    53,355Inventories
    
    
    11,182,512
    
    
    
    10,456,268Prepaid expenses and other current assets
    
    
    1,251,555
    
    
    
    1,356,919Total current assets
    
    
    49,813,302
    
    
    
    35,096,300Property and equipment, net of accumulated depreciation and amortization
    
    
    96,022,720
    
    
    
    95,469,325Notes receivable
    
    
    64,531
    
    
    
    60,501Restricted cash
    
    
    321,030
    
    
    
    321,030Other assets
    
    
    1,738,717
    
    
    
    1,638,507Total assets
    
    $
    147,960,300
    
    
    $
    132,585,663LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    14,553,743
    
    
    $
    7,314,547Accrued compensation
    
    
    5,462,657
    
    
    
    3,241,629Accrued expenses
    
    
    8,504,552
    
    
    
    6,275,981Deferred revenue
    
    
    8,165,260
    
    
    
    5,507,739Total current liabilities
    
    
    36,686,212
    
    
    
    22,339,896Asset retirement liability
    
    
    760,997
    
    
    
    781,992Deferred rent liability
    
    
    10,485,177
    
    
    
    10,847,109Deferred revenue
    
    
    2,964,000
    
    
    
    2,956,000Minority interests in affiliates
    
    
    138,159
    
    
    
    167,844Total long term liabilities
    
    
    14,348,333
    
    
    
    14,752,945Commitments 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 19,278,980 shares issued and outstanding at January 1, 2006 and
April 2, 2006, respectively
    
    
    192,699
    
    
    
    192,790Treasury stock
    
    
    (9,011
    )
    
    
    Additional paid-in capital
    
    
    121,626,855
    
    
    
    121,756,885Accumulated deficit
    
    
    (24,884,788
    )
    
    
    (26,456,853
    )Total shareholders equity
    
    
    96,925,755
    
    
    
    95,492,822Total liabilities and shareholders equity
    
    $
    147,960,300
    
    
    $
    132,585,663
  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
 Thirteen Weeks EndedApril 3,
    
    
    April 2,2005
    
    
    2006(Unaudited)Operating activitiesNet loss
    
    $
    (437,217
    )
    
    $
    (1,572,065
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    4,105,641
    
    
    
    5,280,967Amortization of deferred financing fees
    
    
    81,565
    
    
    
    86,097Minority interests in affiliates
    
    
    82,022
    
    
    
    56,865Provision for closing expense and asset disposals
    
    
    897
    
    
    
    7,998Stock-based compensation
    
    
    
    
    
    
    85,000Non cash accretion expense
    
    
    
    
    
    
    20,995Changes in operating assets and liabilities:Accounts receivable and other receivables
    
    
    (196,177
    )
    
    
    693,491Income tax receivable
    
    
    197,753
    
    
    
    82,395Inventories
    
    
    (353,989
    )
    
    
    726,245Prepaid expenses and other assets
    
    
    (434,764
    )
    
    
    (91,251
    )Accounts payable
    
    
    (1,201,620
    )
    
    
    (7,239,196
    )Accrued compensation
    
    
    (1,528,791
    )
    
    
    (2,221,028
    )Accrued expenses
    
    
    (1,751,710
    )
    
    
    408,687Deferred revenue
    
    
    (1,105,927
    )
    
    
    (2,665,521
    )Net cash used by operating activities
    
    
    (2,542,317
    )
    
    
    (6,340,321
    )Investing activitiesPayments for property and equipment
    
    
    (3,723,093
    )
    
    
    (7,010,896
    )Net cash used in investing activities
    
    
    (3,723,093
    )
    
    
    (7,010,896
    )Financing activitiesBorrowings under revolving credit facility
    
    
    2,500,000
    
    
    
    Distribution of minority interests earnings
    
    
    (89,920
    )
    
    
    (27,180
    )Issuance of common stock
    
    
    8,000
    
    
    
    45,121Repurchase of common stock
    
    
    
    
    
    
    (10,210
    )Sale of treasury stock
    
    
    
    
    
    
    19,221Deferred financing fees paid
    
    
    (20,934
    )
    
    
    Net cash provided by financing activities
    
    
    2,397,146
    
    
    
    26,952Decrease in cash and cash equivalents
    
    
    (3,868,264
    )
    
    
    (13,324,265
    )Cash and cash equivalents at beginning of period
    
    
    7,618,470
    
    
    
    33,846,111Cash and cash equivalents at end of period
    
    $
    3,750,206
    
    
    $
    20,521,846Supplemental disclosure of cash flow informationNoncash financing and investing transactions:Accrual for leasehold improvements, furniture, and equipment
    
    $
    1,308,893
    
    
    $
    1,098,000
  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
 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. Coffeehouse Closing and Asset Disposals
  7




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Accounting for the Impairment or Disposal of Long-Lived Assets.
    4. Inventories
  January 1,
    
    
    April 2,2006
    
    
    2006(Unaudited)Coffee
    
    $
    5,048,815
    
    
    $
    4,073,215Other merchandise held for sale
    
    
    3,311,014
    
    
    
    3,070,713Supplies
    
    
    2,822,683
    
    
    
    3,312,340$
    11,182,512
    
    
    $
    10,456,268
   5. Equity and Stock Based Compensation
    8




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April 3,2005(Unaudited)Net loss, as reported
    
    $
    (437,217
    )Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
    
    
    14,348Deduct: Stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (50,937
    )Pro forma net loss
    
    $
    (473,806
    )Basic and diluted net loss per shareAs reported
    
    $
    (0.03
    )Pro forma
    
    $
    (0.03
    )
  Thirteen Weeks EndedApril 3,
    
    April 2,2005
    
    2006Expected dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    0
    %
    
    
    50
    %Risk free interest rate
    
    
    3.43
    %
    
    
    4.71
    %Expected life
    
    
    5
    
    
    
    5
    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
    )
    
    $
    8.05Balance at April 2, 2006
    
    
    2,375,830
    
    
    $
    7.41
    
    
    7.62 YrsExercisable at April 2, 2006
    
    
    1,116,642
    
    
    $
    6.27
    
    
    6.29 Yrs
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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
    
    
    $
    8.43
 6. Income Taxes
  7. Net Loss Per Share
  Thirteen Weeks EndedApril 3,
    
    
    April 2,2005
    
    
    2006Net loss
    
    $
    (437,217
    )
    
    $
    (1,572,065
    )Weighted average common shares
outstanding (for basic and diluted
calculation)
    
    
    13,802,021
    
    
    
    19,274,102Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.08
    )
  10




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8. Commitments and Contingencies
  11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  FORWARD-LOOKING STATEMENTS
  Overview
    Critical Accounting Policies
  12




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Stock options. Accounting for Stock Issued to Employees ,
Share-Based Payment Accounting for Stock-Based Compensation
 Fiscal Periods
  Results of Operations
  Thirteen Weeks EndedApril 3,
    
    April 2,2005
    
    2006Statement of Operations Data:Net sales:Coffeehouse
    
    
    97.7
    %
    
    
    95.2
    %Other
    
    
    2.3
    %
    
    
    4.8
    %Total net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and related occupancy costs
    
    
    40.1
    %
    
    
    41.6
    %Operating expenses
    
    
    40.8
    %
    
    
    41.3
    %Opening expenses
    
    
    0.7
    %
    
    
    0.7
    %Depreciation and amortization
    
    
    8.2
    %
    
    
    8.6
    %General and administrative expenses
    
    
    10.2
    %
    
    
    10.9
    %Closing expense and disposal of assets
    
    
    0.0
    %
    
    
    0.0
    %Operating income (loss)
    
    
    0.0
    %
    
    
    (3.1
    )%Other income (expense):Other income
    
    
    0.4
    %
    
    
    0.6
    %Interest income
    
    
    0.0
    %
    
    
    0.3
    %Interest expense
    
    
    (0.9
    )%
    
    
    (0.3
    )%Loss before provision for income taxes
and minority interest
    
    
    (0.5
    )%
    
    
    (2.5
    )%Provision for income taxes
    
    
    0.3
    %
    
    
    0.2
    %Loss before minority interest
    
    
    (0.8
    )%
    
    
    (2.7
    )%Minority interest
    
    
    0.2
    %
    
    
    0.1
    %Net loss
    
    
    (1.0
    )%
    
    
    (2.8
    )%
 13




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Thirteen Weeks Ended April 2, 2006 vs. Thirteen Weeks Ended April 3, 2005
 Net Sales
  Costs and Expenses
 Cost of sales and related occupancy costs.
 Operating expenses.
 Opening expenses.
 Depreciation and amortization.
 General and administrative expenses.
 Other Income.
 Interest income.
 Interest expense.
 14




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Liquidity and Capital Resources
      Off-Balance Sheet Arrangements
  Key Financial Metrics
   15




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Thirteen Weeks EndedApril 3, 2005
    
    
    April 2, 2006Non-GAAP Metrics:EBITDA(1)
    
    $
    4,243
    
    
    $
    3,817Adjusted EBITDA(1)
    
    $
    4,243
    
    
    $
    3,817Operating Data:Percentage change in comparable
coffeehouse net sales(2)
    
    
    10
    %
    
    
    (1
    )%Coffeehouses open at beginning of
period
    
    
    304
    
    
    
    386Coffeehouses opened during the
period
    
    
    10
    
    
    
    10Coffeehouses closed during the
period
    
    
    
    
    
    
    2Coffeehouses open at end of period
    
    
    314
    
    
    
    394Licensed coffeehouses open at end
of period
    
    
    3
    
    
    
    8Total coffeehouses open at end of
period
    
    
    317
    
    
    
    402
 
 (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 265 coffeehouses from the beginning of fiscal 2001
through the end of the first thirteen weeks of 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.
  
    
    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;
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
    
    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 EndedApril 3, 2005
    
    
    April 2, 2006(In Thousands)Net loss
    
    $
    (437
    )
    
    $
    (1,572
    )Interest expense
    
    
    424
    
    
    
    148Interest income
    
    
    (1
    )
    
    
    (187
    )Depreciation and amortization(1)
    
    
    4,106
    
    
    
    5,281Provision for income taxes
    
    
    151
    
    
    
    147EBITDA
    
    
    4,243
    
    
    
    3,817Adjusted EBITDA
    
    $
    4,243
    
    
    $
    3,817
 
 (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 3. Quantitative and Qualitative Disclosures About Market Risk.
 Primary Market Risk Exposures
  Financial Instruments and Derivative Commodity Instruments
  17




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Item 4. Controls and Procedures.
  
 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
 18




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Use of Proceeds
  
 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.
 19




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SIGNATURE
  CARIBOU COFFEE COMPANY, INC.By:
    /s/ George E. MileusnicGeorge E. MileusnicChief Financial Officer  20