Caribou Coffee Company, Inc. - FORM 10-Q

Caribou Coffee Company, Inc. - FORM 10-Q - November 9, 2011

Attached files

Attached files

Caribou Coffee Company, Inc. Reports

file	filename
EX-31.1 - SECTION 302 CEO CERTIFICATION - Caribou Coffee Company, Inc.	d252961dex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - Caribou Coffee Company, Inc.	d252961dex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - Caribou Coffee Company, Inc.	d252961dex322.htm
EXCEL - IDEA: XBRL DOCUMENT - Caribou Coffee Company, Inc.	Financial_Report.xls
EX-32.1 - SECTION 906 CEO CERTIFICATION - Caribou Coffee Company, Inc.	d252961dex321.htm

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 2, 2011.

¨	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* *incorporation or organization)*		*(I.R.S. Employer* *Identification No.)*

3900 Lakebreeze Avenue North Brooklyn Center, Minnesota		55429
*(Address of principal executive offices)*		*(Zip Code)*

Registrant’s Telephone Number, Including Area Code: (763) 592-2200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

On November 8, 2011, 20,840,750 shares of Registrant’s $0.01 par value common stock were outstanding.

CARIBOU COFFEE COMPANY, INC.

FORM 10-Q

For the Thirteen Week Period Ended October 2, 2011

Table of Contents


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements			3
Condensed Consolidated Statements of Operations			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statement of Changes in Equity			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4T. Controls and Procedures			30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 3. Defaults Upon Senior Securities			30
Item 4. Submission of Matters to a Vote of Security Holders			30
Item 5. Other Information			30
Item 6. Exhibits			31
Signature			32

See accompanying notes.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
	(In thousands, except for per share amounts) (Unaudited)
Coffeehouse sales	$	58,695		$	56,626		$	176,338		$	169,974
Commercial and franchise sales		22,744			13,547			57,646			36,134

Total net sales		81,439			70,173			233,984			206,108
Cost of sales and related occupancy costs		41,941			32,701			113,100			94,651
Operating expenses		26,291			25,130			78,512			75,159
Depreciation and amortization		2,669			3,099			8,373			9,271
General and administrative expenses		7,763			7,421			23,703			21,563

Operating income		2,775			1,822			10,296			5,464
Other income (expense):
Interest income		3			9			15			19
Interest expense		(70	)		(63	)		(184	)		(234	)

Income before provision for (benefit from) income taxes		2,708			1,768			10,127			5,249
Provision for (benefit from) income taxes		803			32			(20,484	)		(106	)

Net income		1,905			1,736			30,611			5,355
Less: Net income attributable to noncontrolling interest		118			129			328			289

Net Income attributable to Caribou Coffee Company, Inc.	$	1,787		$	1,607		$	30,283		$	5,066

Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share	$	0.09		$	0.08		$	1.51		$	0.26

Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share	$	0.09		$	0.08		$	1.46		$	0.25

Basic weighted average number of shares outstanding		20,232			19,610			20,076			19,599

Diluted weighted average number of shares outstanding		20,953			20,710			20,751			20,540

See accompanying notes.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS


	October 2, 2011			January 2, 2011
	In thousands, except per share amounts (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	41,659		$	23,092
Accounts receivable, net		10,382			8,096
Other receivables, net		2,227			1,227
Inventories		23,008			25,931
Deferred tax assets – current		2,922			—
Prepaid expenses and other current assets		912			1,122

Total current assets		81,110			59,468
Property and equipment, net of accumulated depreciation and amortization		37,443			41,075
Restricted cash		837			837
Deferred tax assets – non-current		17,708			—
Other assets		380			345

Total assets	$	137,478		$	101,725

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,762		$	8,080
Accrued compensation		8,282			5,954
Accrued expenses		8,098			6,916
Deferred revenue		5,615			8,726

Total current liabilities		32,757			29,676

Asset retirement liability		1,249			1,196
Deferred rent liability		5,526			6,296
Deferred revenue		2,144			2,091

Total long term liabilities		8,919			9,583

Equity:
Caribou Coffee Company, Inc. Shareholders’ equity:
Preferred stock, par value $.01, 20,000 shares authorized; no shares issued and outstanding		—			—
Common stock, par value $.01, 200,000 shares authorized; 20,076 and 20,141 shares issued and outstanding at October 2, 2011 and January 2, 2011, respectively		208			202
Additional paid-in capital		132,046			129,026
Accumulated comprehensive income		16			12
Accumulated deficit		(36,658	)		(66,941	)

Total Caribou Coffee Company, Inc. shareholders’ equity		95,612			62,299
Noncontrolling interest		190			167

Total equity		95,802			62,466

Total liabilities and equity	$	137,478		$	101,725

See accompanying notes.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)

(in thousands)


	Common Stock				Additional Paid-In Capital			Noncontrolling Interest			Accumulated Other Comprehensive Income		Accumulated Deficit			Equity
	Number of
	Shares		Amount
Balance, January 2, 2011		20,141	$	202	$	129,026		$	167		$	12	$	(66,941	)	$	62,466
Net income		—		—		—			328			—		30,283			30,611
Changes in fair value of derivative financial instruments		—		—		—			—			4		—			4

Comprehensive income																$	30,615

Share based compensation		—		—		1,329			—			—		—			1,329

Options exercised		385		3		1,694			—			—		—			1,697
Restricted shares issued, net of cancellations		304		3		(3	)		—			—		—			—
Distribution of noncontrolling interest		—		—		—			(305	)		—		—			(305	)

Balance, October 2, 2011		20,830	$	208	$	132,046		$	190		$	16	$	(36,658	)	$	95,802

See accompanying notes.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Thirty-Nine Weeks Ended
	October 2, 2011			October 3, 2010
	(In thousands) (Unaudited)
Operating activities
Net income	$	30,611		$	5,355
Depreciation and amortization		9,843			10,748
Amortization of deferred financing fees		101			121
Stock-based compensation		1,329			967
Deferred income taxes		(20,630	)		—
Other		97			(185	)
Changes in operating assets and liabilities:
Accounts receivable and other receivables		(3,115	)		(3,690	)
Inventories		2,923			(17,904	)
Prepaid expenses and other assets		109			472
Accounts payable		3,099			284
Accrued expenses and other liabilities		2,722			(1,501	)
Deferred revenue		(3,058	)		(2,900	)

Net cash provided (used) by operating activities		24,031			(8,233	)
Investing activities
Payments for property and equipment		(6,650	)		(5,024	)
Proceeds from the disposal of property		—			22

Net cash used in investing activities		(6,650	)		(5,002	)
Financing activities
Distribution of noncontrolling interest		(305	)		(256	)
Issuance of common stock		1,526			302
Payment of debt financing fees		(35	)		(298	)
Stock repurchase		—			(73	)

Net cash provided (used) by financing activities		1,186			(325	)

Increase (decrease) in cash and cash equivalents		18,567			(13,560	)
Cash and cash equivalents at beginning of period		23,092			23,578

Cash and cash equivalents at end of period	$	41,659		$	10,018

Supplemental disclosure of cash flow information
Noncash financing and investing transactions:

Accrual for leasehold improvements, furniture and equipment	$	583		$	1,024

See accompanying notes.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The “Company” and “Caribou” refer to Caribou Coffee Company, Inc. and its affiliates, collectively.

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments considered necessary for the fair presentation of all interim periods reported herein. All adjustments are of a normal recurring nature unless otherwise disclosed. Management believes that the disclosures made are adequate for a fair presentation of the Company’s results of operations, financial position and cash flows. These condensed consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K (File No. 000-51535).

Principles of Consolidation

The Company’s condensed consolidated financial statements include the accounts of Caribou Coffee Company, Inc., affiliates that it controls and a third party finance company (which exists for purposes of the Company’s revolving credit facility, as described in the Company’s Annual Report on Form 10-K) where the Company is the primary beneficiary in a variable interest entity. The affiliates are Caribou MSP Airport, a partnership in which the Company owns a 49% interest and that operates six coffeehouses, and Caribou Coffee Development Company, Inc., a licensor of Caribou Coffee branded coffeehouses. The Company controls the daily operations of Caribou Coffee Development Company, Inc. and accordingly consolidates their results of operations. The Company provided a loan to its partner in Caribou MSP Airport for all of the partner’s equity contribution to the venture. Consequently, the Company bears all the risk of loss but does not control all decisions that may have a significant effect on the success of the venture. Therefore, the Company consolidates the Caribou MSP Airport, as it is the primary beneficiary in this variable interest entity. All material intercompany balances and transactions between Caribou Coffee Company, Inc., Caribou MSP Airport and Caribou Coffee Development Company, Inc. and the third party finance company have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. Actual results may differ from those estimates, and such differences may be material to the consolidated financial statements.

Fiscal Year End

The Company’s fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year consists of four 13-week quarters in a 52-week year and three 13-week quarters and one 14-week fourth quarter in a 53-week year. Each fiscal quarter reported herein consists of two four-week months and one five-week month.

The Company’s sales are somewhat seasonal, with the fourth quarter accounting for the highest sales volumes. Operating results for the thirteen week period ended October 2, 2011 are not necessarily indicative of future results that may be expected for the year ending January 1, 2012.

2. Summary of Significant Accounting Policies

Revenue Recognition

The Company recognizes retail coffeehouse sales for products and services when payment is tendered at the point of sale. Sales tax collected from customers is presented net of amounts expected to be remitted to various tax jurisdictions. Accordingly, sales taxes have no effect on the Company’s reported net sales in the accompanying statements of operations.

Revenue from the sale of products to commercial, franchise or on-line customers is recognized when ownership and price risk of the products are legally transferred to the customer, which is generally upon the shipment of goods. Revenues include any applicable shipping and handling costs invoiced to the customer, and the expense of such shipping and handling costs is included in cost of sales.

The Company sells stored value cards of various denominations. Cash receipts related to stored value card sales are deferred when initially received and revenue is recognized when the card is redeemed and the related products are delivered to the customer. Such amounts are classified as a current liability on the Company’s condensed consolidated balance sheets. The Company will honor all stored value cards presented for payment; however, the Company has determined that the likelihood of redemption is remote for certain card balances due to long periods of inactivity (“breakage”). The Company estimates that cards which have had no activity for 48 months are unlikely to be used in the future. In these circumstances, to the extent management determines there is no requirement for remitting balances to government agencies under unclaimed property laws, card and certificate balances may be recognized in the condensed consolidated statements of operations. The Company uses the redemption recognition method and recognizes the estimated value of abandoned cards as a percentage of every stored value card redeemed and includes the amount in coffeehouse sales. Such amounts represent the Company’s experience regarding unused balances related to stored value cards redeemed. The Company excludes stored value card balances sold in jurisdictions which require remittance of unused balances to government agencies under unclaimed property laws. Breakage recognized was immaterial to all periods presented.

Territory development fees and initial franchise fees are recognized upon substantial performance of services for a new territory or coffeehouse, which is generally upon the opening of a new coffeehouse. Royalties based upon a percentage of reported sales are recognized on a monthly basis when earned. Cash payments received in advance for territory development fees or initial franchise fees are recorded as deferred revenue until earned.

All revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates. The Company periodically participates in trade-promotion programs such as shelf price reductions and consumer coupon programs that require the Company to estimate and accrue the expected cost of such programs. Coupons are recognized as a liability when distributed based upon expected consumer redemptions. The Company maintains liabilities based on historical experience and management’s judgment at the end of each period for the estimated expenses incurred, but unpaid for these programs

Allowance for Doubtful Accounts

Allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method. A summary of the allowance for doubtful accounts is as follows (in thousands):


	October 2, 2011		January 2, 2011
Allowance for doubtful accounts – accounts receivable	$	29	$	20
Allowance for doubtful accounts – other receivables		6		192

Operating Leases and Rent Expense

Certain of the Company’s lease agreements provide for scheduled rent increases during the lease term or for rental payments commencing at a date other than the date of initial occupancy. Rent expense is recorded on a straight-line basis over the initial lease term and renewal periods that are reasonably assured. The difference

between rent expense and rent paid is recorded as deferred rent and is included in “accrued expenses” and “deferred rent liability” in the consolidated balance sheets. Contingent rents, including those based on a percentage of retail sales over stated levels, and rental payment increases based on a contingent future event are accrued over the respective contingency periods when the achievement of such targets or events are deemed to be probable by the Company.

3. Recent Accounting Pronouncements

In January 2010, the FASB issued further guidance under ASC No. 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 requires disclosures about the transfers of investments between levels in the fair value hierarchy and disclosures relating to the reconciliation of fair value measurements using significant unobservable inputs (level 3 investments). ASC 820 is effective for the fiscal years and interim periods beginning after December 15, 2010. The Company adopted the update on January 3, 2011. The adoption of ASC 820 did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2011, the FASB issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income (“OCI”) by eliminating the option to present OCI as part of the Statement of Changes in Shareholder’s Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company’s consolidated financial statements. Under this new guidance, an entity can elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. This guidance is effective for publicly traded companies as of the beginning of a fiscal year that begins after December 15, 2011 and interim and annual periods thereafter. Early adoption is permitted, but full retrospective application is required. As the Company currently reports comprehensive income within its Statement of Stockholder’s Equity, the adoption of these rules will impact the presentation of the Company’s consolidated financial statements beginning in the first quarter of 2012.

4. Derivative Financial Instruments

The Company evaluates various strategies in managing its exposure to market-based risks, such as entering into hedging transactions to manage its exposure to fluctuating dairy commodity prices.

The Company records all derivatives on the condensed consolidated balance sheets at fair value. For those cash flow hedges that have been designated and qualify as an effective accounting hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (“OCI”) and subsequently reclassified into net earnings when the hedged exposure affects net income. For those cash flow hedges that are not designated or do not qualify as an effective accounting hedge, the entire derivative gain or loss is recorded in earnings as incurred.

As of October 2, 2011 and January 2, 2011, the Company had accumulated net derivative gains of $16 thousand and $12 thousand, respectively, in other comprehensive income, all of which pertains to derivatives designated as cash flow hedging instruments that will be realized within 12 months and will also continue to experience fair value changes before affecting earnings. Based on notional amounts, as of October 2, 2011, the Company had dairy commodity futures contracts representing approximately ninety-three thousand gallons. The Company’s cash flow derivative instruments contain credit-risk-related contingent features. At October 2, 2011, the Company, in the normal course of business, has not posted or received collateral related to these contingent features.

The Company had no derivatives not designated as hedging instruments as of October 2, 2011 and January 2, 2011.

The following table presents the effect of derivative instruments on the condensed consolidated financial statements for the thirteen weeks ended October 2, 2011 and October 3, 2010 (in thousands):


	Gain/(Loss) Recognized in OCI				Gain/(Loss) Reclassified into Earnings
Contract Type	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
Cash flow commodity hedges	$	11	$	40	$	56	$	7

The following table presents the effect of derivative instruments on the condensed consolidated financial statements for the thirty-nine weeks ended October 2, 2011 and October 3, 2010 (in thousands):


	Gain/(Loss) Recognized in OCI				Gain/(Loss) Reclassified into Earnings
Contract Type	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
Cash flow commodity hedges	$	128	$	—	$	124	$	(28	)

5. Fair Value Measurements

Generally Accepted Accounting Principles define fair value, establish a framework for measuring fair value, and establish a fair value hierarchy that prioritizes the inputs used to measure fair value:

•

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

•

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•

Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The following table presents the financial assets measured at fair value on a recurring basis as of October 2, 2011 (in thousands):


	Total		Level 1		Level 2		Level 3
Assets:
Cash	$	14,857	$	15,859	$	—	$	—
Money market funds	$	1,002	$	1,002	$	—	$	—
Commercial paper	$	25,800	$	—	$	25,800	$	—
Derivatives	$	16	$	16	$	—	$	—

The following table presents the financial assets measured at fair value on a recurring basis as of January 2, 2011 (in thousands):


	Total		Level 1		Level 2		Level 3
Assets:
Cash	$	5,303	$	5,303	$	—	$	—
Money market funds	$	17,789	$	17,789	$	—	$	—
Derivatives	$	12	$	12	$	—	$	—

Cash and money market funds are cash held at FDIC-insured financial institutions and highly liquid money exchange-traded market funds and are included in cash and cash equivalents in the Condensed Consolidated Balance Sheets. The fair value of money market funds are determined using quoted market prices in active markets for identical assets, thus they are considered to be Level 1 instruments.

We hold positions in commercial paper with a highly rated financial institution that are redeemable on demand. Our commercial paper is considered to be Level 2 instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets.

Derivative assets consist of commodity futures contracts. Where applicable, the Company uses quoted prices in an active market for identical derivative assets and liabilities that are traded in exchanges. These derivative assets are included in Level 1.

6. Inventories

Inventories consist of the following (in thousands):


	October 2, 2011		January 2, 2011
Coffee	$	14,895	$	18,880
Merchandise held for sale		5,098		4,015
Supplies		3,015		3,036

	$	23,008	$	25,931

At October 2, 2011 and January 2, 2011, the Company had fixed price inventory purchase commitments, primarily for green coffee, aggregating approximately $70.5 million and $26.9 million, respectively. These commitments are for less than one year.

7. Equity and Stock Based Compensation

The Company maintains stock compensation plans, which provide for the granting of non-qualified stock options and restricted stock to officers and key employees and certain non-employees. Stock options have been granted at prices equal to the fair market values as of the dates of grant. Options and restricted stock generally vest over four years and options generally expire ten years from the grant date. Upon exercise of an option, new shares of stock are issued by the Company. Stock-based compensation expense for the thirteen weeks ended October 2, 2011 and October 3, 2010 was approximately $0.5 million and $0.3 million, respectively and is included in general and administrative expenses in the condensed consolidated statements of operations. Stock-based compensation expense for the thirty-nine weeks ended October 2, 2011 and October 3, 2010 was approximately $1.3 million and $1.0 million, respectively.

Stock option activity during the period indicated is as follows (in thousands, except per share and life data):


	Number of Shares			Weighted Average Exercise Price		Weighted Average Contract Life
Outstanding, January 2, 2011		1,466		$	3.77		6.88 Yrs
Granted		—		$	—
Exercised		(57	)	$	2.61
Forfeited		(8	)	$	4.84

Outstanding, April 3, 2011		1,401		$	3.81		6.60 Yrs

Granted		—		$	—
Exercised		(232	)	$	3.56
Forfeited		(7	)	$	5.30

Outstanding, July 3, 2011		1,162		$	3.85		6.30 Yrs

Granted		—		$	—
Exercised		(96	)	$	7.32
Forfeited		(8	)	$	5.45

Outstanding, October 2, 2011		1,058		$	3.51		6.30 Yrs

Options vested at October 2, 2011		744		$	4.09		6.03 Yrs

Restricted Stock activity during the period indicated is as follows (in thousands, except per share and life data):


	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Contract Life
Outstanding, January 2, 2011		405		$	6.43
Granted		310		$	9.14
Vested		(82	)	$	7.07
Forfeited		(2	)	$	7.52

Outstanding, April 3, 2011		631		$	7.68		3.25 Yrs


Granted	—		$	—
Vested	(3	)	$	1.86
Forfeited	(4	)	$	7.47

Outstanding, July 3, 2011	624		$	7.71	3.05 Yrs
Granted	—		$	—
Vested	(74	)	$	5.41
Forfeited	—		$	—

Outstanding, October 2, 2011	550		$	8.02	2.85 Yrs

8. Income Taxes

A valuation allowance was originally recorded against our deferred tax assets as we determined the realization of these assets did not meet the more likely than not criteria. During the first quarter of 2011, we determined that a full valuation allowance against our deferred tax assets was not necessary and recorded a partial reversal of the deferred tax valuation allowance of $21.3 million. We considered the available positive and negative evidence, including our recent earnings trend and expected continued future taxable income including the following discrete events: (1) our attainment of three years of cumulative income and (2) the finalization of our current year and long range financial plan which projects sufficient future taxable income. As of October 2, 2011, we continued to maintain a valuation allowance for the remainder of our gross deferred tax assets.

Our effective income tax rate differs from the statutory income tax rate primarily as a result of the reduction of a portion of our valuation allowance described above, our use of federal net operating losses (NOLs) to offset current federal tax expense and our use of tax credits to offset current state tax expense.

9. Net Income Per Share

Basic and diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share for the thirteen week and thirty-nine periods ended October 2, 2011 and October 3, 2010, were as follows (in thousands, except per share data):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 2, 2011		October 3, 2010		October 2 2011		October 3, 2010
Net income attributable to Caribou Coffee Company, Inc.	$	1,787	$	1,607	$	30,283	$	5,066

Weighted average common shares outstanding – basic		20,232		19,610		20,076		19,599
Dilutive impact of stock-based compensation		721		1,100		675		941

Weighted average common shares outstanding – dilutive		20,953		20,710		20,751		20,540

Basic net income per share	$	0.09	$	0.08	$	1.51	$	0.26
Diluted net income per share	$	0.09	$	0.08	$	1.46	$	0.25

For thirteen week period and the thirty-nine week periods ended October 3, 2010, 0.1 million and 0.2 million equity awards, respectively, were excluded from the calculation of shares applicable to diluted net income per share because their inclusion would have been anti-dilutive. There were no anti-dilutive equity awards for the thirteen and thirty-nine week periods ended October 2, 2011.

10. Master Franchise Agreement

In November 2004, the Company entered into a Master Franchise Agreement with a franchisee. The agreement provides the franchisee the right to develop, subfranchise or operate 250 Caribou Coffee coffeehouses in 12 Middle Eastern countries. In June of 2011, the Master Franchise Agreement was amended to expand the rights of the franchisee to develop 350 Caribou Coffee coffeehouses and to extend the expiration date. The Agreement, as amended, expires in December 2021.

In connection with the original agreement, the franchisee paid the Company a nonrefundable deposit aggregating $3.3 million. In addition to the deposit, under the amended agreement the franchisee continues to be obligated to pay the Company $20 thousand per franchised/subfranchised coffeehouse (initial franchise fee) opened for the first 100 Caribou Coffee Coffeehouses and $15 thousand for each additional franchised/subfranchised coffeehouse opened (after the first 100). The agreement provides for $5 thousand of the initial deposit received by the Company to be applied against the initial franchise fee as discussed herein. Monthly royalty payments ranging from 3%-5% of gross sales are also due to the Company.

As of October 2, 2011 and January 2, 2011, the Company included $2.0 and 1.9 million of the deposit in long term liabilities as deferred revenue, respectively. As of October 2, 2011 and January 2, 2011, the Company included $0.3 million in current liabilities as deferred revenue on its balance sheet. The initial deposit will be amortized into income on a pro rata basis along with the initial franchise fee payments received in connection with the execution of the franchise or subfranchise agreements at the time of the coffeehouse opening. The current portion of deferred revenue represents the franchise fees for the coffeehouses estimated to be opened during the subsequent twelve months per the development schedule in the Master Franchise Agreement. At October 2, 2011, there were 74 coffeehouses operating under this Agreement.

11. Revolving Credit Facility

On February 19, 2010, the Company entered into a sale leaseback arrangement with Arabica Funding, Inc. (“Arabica”) a third party finance company whereby from time to time the Company sells equipment to the finance company, and, immediately following the sale, it leases back all of the equipment it sold to such third party. The Company does not recognize any gain or loss on the sale of the assets. The maximum amount of equipment the Company can sell and leaseback is $15.0 million, with an option for an additional $10.0 million. The agreement expires on October 31, 2011. Annual rent payable under the lease arrangement is equal to the amount outstanding under the lease financing arrangement multiplied by the applicable Federal Funds effective rate plus a specified margin or the lenders prime rate plus a specified margin.

The finance company funds its obligations under the lease financing arrangement through a revolving credit facility that it entered into with Wells Fargo, N.A. also on February 19, 2010. The terms of the revolving credit facility are economically equivalent to the lease financing arrangement such that the amount of rent payments and unpaid acquisition costs under the lease financing arrangement are at all times equal to the interest and principal under the revolving credit facility. The Company consolidates the third party finance company as the Company is the primary beneficiary in a variable interest entity due to the terms and provisions of the lease financing arrangement. Accordingly, the Company’s condensed consolidated balance sheets include all assets and liabilities of the third party finance company under the captions property and equipment and revolving credit facility, respectively. The Company’s condensed consolidated statements of operations include all the operations of the finance company including all interest expense related to the revolving credit facility. Notwithstanding this presentation, the Company’s obligations are limited to its obligations under the lease financing arrangement and the Company has no obligations under the revolving credit facility. The third party finance company was established solely for the purpose of facilitating the Company’s sale leaseback arrangement. The finance company does not have any other assets or liabilities or income and expense other than those associated with the revolving credit facility. At October 2, 2011 there was no property and equipment leased under this arrangement.

Both the lease financing arrangement and the revolving credit facility above were entered into on February 19, 2010. Simultaneously, the Company terminated a similar lease financing arrangement and revolving credit facility with a different commercial lender. Upon termination of old lease financing arrangement and revolving credit facility, the Company wrote off $0.1 million in deferred financing fees and capitalized $0.3 million in deferred financing fees related to the new lease arrangement and revolving credit facility, which will be amortized over the life of the agreements.

The terms of the sale leaseback agreement contain certain financial covenants and limitations on the amount used for expansion activities based on leverage ratios and interest coverage ratios of the Company. The Company is liable for 0.5% commitment fee on any unused portion of the facility. There are no amounts outstanding under the facility at October 2, 2011 or January 2, 2011.

Unamortized deferred financing fees capitalized on the balance sheet totaled $0.1 million as of October 2, 2011 and January 2, 2011. Interest payable under the revolving credit facility is equal to the amount outstanding under the facility multiplied by the applicable LIBOR rate plus a specified margin.

On October 14, 2011 we terminated (1) our credit facility with Wells Fargo N.A. and (2) our sale leaseback arrangement with Arabica and entered in to a 5 year, $25.0 million credit facility with US Bank, N.A.

12. Commitments and Contingencies

From time to time, the Company becomes involved in certain legal proceedings in the ordinary course of business. The Company does not believe that any such ordinary course legal proceedings to which it is currently a party will have a material adverse effect on its financial position or results of operations.

13. Segment Reporting

Segment information is prepared on the same basis that the Company’s management reviews financial information for decision making purposes. The Company has three reportable operating segments: retail coffeehouses, commercial and franchise. “Unallocated corporate” includes expenses pertaining to corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. All of the segment sales are from external customers.

Retail Coffeehouses

The Company’s retail segment represented 72.1% and 80.7% of total net sales for the thirteen weeks ended October 2, 2011 and October 3, 2010, respectively and 75.4% and 82.5% of total net sales for the thirty-nine weeks ended October 2, 2011 and October 3, 2010, respectively. The coffeehouses offer customers high-quality premium coffee and espresso-based beverages, food, and also offer specialty teas, whole bean coffee, branded merchandise and related products. The retail segment operated 409 company-owned coffeehouses located in 16 states and the District of Columbia, as of October 2, 2011. The openings and closings of company-owned coffeehouses for the periods presented were as follows:


	Thirteen week period ended				Thirty-nine week period ended
	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
Company-owned coffeehouses open at the beginning of period		407		411		410		413
New company-owned coffeehouses opened during the period		3		—		3		—
Company-owned coffeehouses closed during the period		1		1		4		3

Company-owned coffeehouses open at the end of the period		409		410		409		410

Commercial

The Company’s commercial segment represented 24.3% and 16.0% of total net sales for the thirteen weeks ended October 2, 2011 and October 3, 2010, respectively and 20.6% and 14.0% of total net sales for the thirty-nine weeks ended October 2, 2011 and October 3, 2010, respectively. The commercial segment sells high-quality premium whole and ground coffee to grocery stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels, entertainment venues, on-line customers.

Franchise

The Company’s franchise segment represented 3.7% and 3.3% of total net sales for the thirteen weeks ended October 2, 2011 and October 3, 2010, respectively and 4.0% and 3.5% of total net sales for the thirty-nine weeks

ended October 2, 2011 and October 3, 2010, respectively. The franchise segment sells franchises to operate Caribou Coffee brand coffeehouses to domestic and international franchisees. As of October 2, 2011, there were 150 franchised coffeehouses in U.S and international markets. The openings and closings of franchise-owned coffeehouses for the periods presented were as follows:


	Thirteen week period ended				Thirty-nine week period ended
	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
Franchised coffeehouses open at the beginning of period		147		125		131		121
New franchised coffeehouses opened during the period		5		6		26		13
Franchised coffeehouses closed during the period		2		5		7		8

Franchised coffeehouses open at the end of the period		150		126		150		126

The tables below present information by operating segment for the thirteen and thirty-nine weeks ended October 2, 2011 and October 3, 20100 (in thousands):

Thirteen weeks ended October 2, 2011

		00000000000		00000000000		00000000000		00000000000			00000000000
	Retail Coffeehouses		Commercial		Franchise		Unallocated Corporate			Total
Total net sales	$	58,695	$	19,758	$	2,986	$	—		$	81,439
Costs of sales and related occupancy costs		25,831		14,365		1,745		—			41,941
Operating expenses		24,473		1,521		297		—			26,291
Depreciation and amortization		2,631		34		4		—			2,669
General and administrative expenses		2,345		—		—		5,418			7,763

Operating income (loss)	$	3,415	$	3,838	$	940	$	(5,418	)		2,775

Identifiable assets	$	27,645	$	886	$	38	$	8,874		$	37,443
Capital expenditures	$	2,218		107	$	—		499		$	2,824

Thirteen weeks ended October 3, 2010

		00000000000		00000000000		00000000000		00000000000			00000000000
	Retail Coffeehouses		Commercial		Franchise		Unallocated Corporate			Total
Total net sales	$	56,626	$	11,255	$	2,292	$	—		$	70,173
Costs of sales and related occupancy costs		23,694		7,706		1,301		—			32,701
Operating expenses		23,666		1,140		324		—			25,130
Depreciation and amortization		3,079		16		4		—			3,099
General and administrative expenses		2,276		—		—		5,145			7,421

Operating (loss) income	$	3,911	$	2,393	$	663	$	(5,145	)		1,822

Identifiable assets	$	33,201	$	352	$	53	$	8,622		$	42,228
Capital expenditures	$	3,652	$	508	$	—	$	333		$	4,493

Thirty-nine weeks ended October 2, 2011

		00000000000		00000000000		00000000000		00000000000			00000000000
	Retail Coffeehouses		Commercial		Franchise		Unallocated Corporate			Total
Total net sales	$	176,338	$	48,243	$	9,403	$	—		$	233,984
Costs of sales and related occupancy costs		75,029		32,688		5,383		—			113,100
Operating expenses		73,543		4,264		705		—			78,512
Depreciation and amortization		8,267		94		12		—			8,373
General and administrative expenses		6,874		—		—		16,829			23,703

Operating income (loss)	$	12,625	$	11,197	$	3,303	$	(16,829	)		10,296

Identifiable assets	$	27,645	$	886	$	38	$	8,874		$	37,443
Capital expenditures	$	3,724	$	227	$	—	$	2,299		$	6,250

Thirty-nine weeks ended October 3, 2010

		00000000000		00000000000		00000000000		00000000000			00000000000

	Retail Coffeehouses		Commercial		Franchise		Unallocated Corporate			Total
Total net sales	$	169,974	$	28,902	$	7,232	$	—		$	206,108
Costs of sales and related occupancy costs		70,744		19,668		4,239		—			94,651
Operating expenses		70,945		3,223		991		—			75,159
Depreciation and amortization		9,218		42		11		—			9,271
General and administrative expenses		6,245		—		—		15,318			21,563

Operating (loss) income	$	12,822	$	5,969	$	1,991	$	(15,318	)		5,464

Identifiable assets	$	33,201	$	352	$	53	$	8,622		$	42,228
Capital expenditures	$	4,454	$	581	$	56	$	855		$	5,946

All of the Company’s assets are located in the United States, and approximately 1.9% of the Company’s consolidated sales come from outside the United States.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information in this Management’s Discussion and Analysis section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes included in Item 1 of Part I of this Form 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended January 2, 2011 contained in the our Form 10-K (File No. [000-51535]).

FORWARD-LOOKING STATEMENTS

Certain statements in this report and other written or oral statements made by or on behalf of Caribou Coffee are “forward-looking statements” within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management’s current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Caribou Coffee brand and other factors disclosed in the our filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report.

Overview

Founded in 1992, we are one of the leading branded coffee companies in the United States, with a compelling multi-channel approach to our customers. Based on number of coffeehouses, we are the second largest company-operated premium coffeehouse operator in the United States. As of October 2, 2011, we had 559 retail locations, including 150 franchised locations. Our coffeehouses are located in 20 states, the District of Columbia and nine international markets. Our coffeehouses aspire to be the community place loved by our guests who are provided with an extraordinary experience that makes their day better. Our coffeehouses offer customers high-quality premium coffee and espresso-based beverages, foods and coffee lifestyle items. We believe we create a unique experience for customers through a combination of high-quality products, a comfortable and welcoming coffeehouse environment and customer service. Our success in the retail channel has elevated the Caribou Coffee brand and created demand across other channels, including various commercial and foodservice categories. We sell our high-quality whole bean and ground coffee to grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues, college campuses and on-line customers nationwide. We seek to continue to grow our brand internationally through franchise agreements and we expect to selectively enter into franchising partnerships domestically. Through our multi-channel approach, we believe we offer a total coffee solution platform to our customers.

Our comparable coffeehouse sales have significantly improved driven by the expansion of our food product offerings such as hot oatmeal, breakfast sandwiches and lunch sandwiches. We have reported positive comparable coffeehouse sales over the previous eight quarters, including 4.1% for the quarter ending October 2, 2011. Our commercial segment has also experienced accelerated growth and in the third thirteen weeks of 2011 represented 24% of total net sales, up from less than 5% in 2007. Caribou Coffee whole bean and ground coffee products are found in grocery, mass merchant and club stores in over 40 states, allowing us to expand our brand recognition through this segment and reach customers across the United States. We also sell our blended coffees and license our brand to Green Mountain Coffee Roasters, Inc., an industry leader in single-cup brewing technology, for sale and use in its K-Cup single serve line of business. Caribou Coffee K-Cups represent an important and growing portion of our commercial business. This enables Caribou Coffee products to be available in all 50 states. Our franchise segment franchises our brand to partners to operate Caribou Coffee branded coffeehouses in domestic and international markets. In addition, we sell Caribou Coffee branded products to our partners for resale in these franchised locations.

Critical Accounting Policies

The preparation of our financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. Our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, (File No. [000-51535]) includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial condition and results of operations. We believe those critical accounting policies are significant or involve additional management judgment due to the sensitivity of the methods, assumptions, and estimates necessary in determining the related asset and liability amounts.

Fiscal Periods

Our fiscal year ends on the Sunday falling nearest to December 31. Each fiscal year consists of four 13-week quarters in a 52-week year and three 13-week quarters and one 14-week fourth quarter in a 53-week year. Each fiscal quarter reported herein will consist of two four-week months and one five-week month.

Our sales are somewhat seasonal, with the fourth quarter accounting for the highest sales volumes. Operating results for the thirteen week period ended October 2, 2011 are not necessarily indicative of future results that may be expected for the year ending January 1, 2012.

Thirteen Weeks Ended October 2, 2011 vs. Thirteen Weeks Ended October 3, 2010

Results of Operations

The following table presents the consolidated statements of operations as well as the percentage relationship to total net sales of items included in our consolidated statement of operations:


	Thirteen Weeks Ended									Thirteen Weeks Ended
	October 2, 2011			October 3, 2010			% Change			October 2, 2011			October 3, 2010
	(In thousands)									As a % of total net sales
Statement of Operations Data:
Net sales:
Coffeehouse	$	58,695		$	56,626			3.7	%		72.1	%		80.7	%
Commercial and franchise		22,744			13,547			67.9	%		27.9	%		19.3	%

Total net sales		81,439			70,173			16.1	%		100.0	%		100.0	%
Cost of sales and related occupancy costs		41,941			32,701			28.3	%		51.5	%		46.6	%
Operating expenses		26,291			25,130			4.6	%		32.3	%		35.8	%
Depreciation and amortization		2,669			3,099			(13.9	)%		3.3	%		4.4	%
General and administrative expenses		7,763			7,421			4.6	%		9.5	%		10.6	%

Operating income		2,775			1,822			52.3	%		3.4	%		2.6	%
Other income (expense):
Interest income		3 5			9			(66.7	)%		—	%		—	%
Interest expense		(70	)		(63	)		11.1	%		(0.1	)%		(0.1	)%

Income before benefit from income taxes and noncontrolling interest		2,708			1,768			53.2	%		3.3	%		2.5	%
Provision for income taxes		803			32			2,409.4	%		1.0	%		0.0	%

Net income		1,905			1,736			9.7.0	%		2.3	%		2.5	%
Less: Net income attributable to noncontrolling interest		118			129			(8.5	)%		0.1	%		0.2	%

Net income attributable to Caribou Coffee Company, Inc.	$	1,787		$	1,607			11.2	%		2.2	%		2.3	%

Net Sales

Net sales increased $11.2 million, or 16.1%, to $81.4 million in the third thirteen weeks of 2011 from $70.2 million in the third thirteen weeks of 2010. Each of our business segments contributed significantly to our consolidated revenue growth. Coffeehouse net sales increased $2.1 million, or 3.7%, to $58.7 million in the third thirteen weeks of 2011 from $56.6 million in the third thirteen weeks of 2010. Commercial and franchise sales increased by $9.2 million, or 67.9%, to $22.7 million for the third thirteen weeks of 2011 from $13.5 million for the third thirteen weeks of 2010. Commercial segment sales grew by $8.5 million or 75.5%, based on increased sales to new and existing customers. Franchise sales grew by $0.7 million or 30.3% primarily due to new franchise and license locations.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $9.2 million, or 28.3%, to $41.9 million in the third thirteen weeks of 2011, from $32.7 million in the third thirteen weeks of 2010, primarily due to higher sales. On a dollar basis, this growth was attributable to increased volume across each of our operating segments. As a percentage of total net sales, cost of sales and related occupancy costs increased to 51.5% in the third thirteen weeks of 2011 from 46.6% in the third thirteen weeks of 2010. This increase as a percentage of sales was due to higher coffee commodity costs on a year over year basis and an overall mix change with a higher percentage of sales coming from our commercial and franchise segments, which have higher cost of sales as a percentage of sales.

Operating expenses. Operating expenses increased $1.2 million, or 4.6%, to $26.3 million in the third thirteen weeks of fiscal 2011, from $25.1 million in the third thirteen weeks of 2010. On a dollar basis, this increase was primarily driven by expenses incurred related to new company-owned store openings and an increase in other expenses such as maintenance. Operating expenses as a percentage of total net sales decreased to 32.3% in the third thirteen weeks of 2011 from 35.8% in the third thirteen weeks of 2010 as we were able to gain leverage within our business channels and benefitted from a shift in our overall sales mix to our commercial channel, which has lower operating expenses.

Depreciation and amortization. Depreciation and amortization decreased $0.4 million, or 13.8%, to $2.7 million in the third thirteen weeks of 2011, from $3.1 million in the third thirteen weeks of 2010. This decrease is due to a lower depreciable asset base from reduced capital spending in fiscal years 2010 and 2009.

General and administrative expenses. General and administrative expenses increased $0.4 million, or 4.6%, to $7.8 million in the third thirteen weeks of 2011, from $7.4 million in the third thirteen weeks of 2010. On a dollar basis, this increase was due to additional salary and benefits costs to support our growing business lines. As a percentage of total net sales, general and administrative expenses were 9.5% in the third thirteen weeks of 2011, compared to 10.6% in the third thirteen weeks of 2010 as we were able to leverage fixed costs against higher sales.

Interest expense. Interest expense remained relatively flat at $0.1 million for both the third thirteen weeks of 2011 and 2010. We had no outstanding borrowings during the third thirteen weeks of 2011 or 2010.

Operating Segments

Segment information is prepared on the same basis that our management reviews financial information for decision making purposes. We have three reportable operating segments: retail, commercial and franchise. “Unallocated corporate” includes expenses pertaining to corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. The following tables summarize our results of operations by segment for the third thirteen weeks of fiscal 2011 and 2010.

Retail Coffeehouses


	Thirteen Weeks Ended							Thirteen Weeks Ended
	October 2, 2011		October 3, 2010		% Change			October 2, 2011			October 3, 2010
	(In thousands)							As a % of coffeehouse sales
Coffeehouse sales	$	58,695	$	56,626		3.7	%		100.0	%		100.0	%
Costs of sales and related occupancy costs		25,831		23,694		9.0	%		44.0	%		41.8	%
Operating expenses		24,473		23,666		3.4	%		41.7	%		41.8	%
Depreciation and amortization		2,631		3,079		(14.6	)%		4.5	%		5.4	%
General and administrative expenses		2,345		2,276		3.0	%		4.0	%		4.0	%

Operating income	$	3,415	$	3,911		(12.7	)%		5.8	%		6.9	%

The retail segment operates company-owned coffeehouses. As of October 2, 2011, there were 409 company-owned coffeehouses in 16 states and the District of Columbia.

Sales

Coffeehouse sales increased $2.1 million, or 3.7%, to $58.7 million in the third thirteen weeks of 2011 from $56.6 million in the third thirteen weeks of 2010. This increase is attributable to a 4.1% increase in comparable coffeehouse sales in the third thirteen weeks of 2011 as compared to the same period in 2010. The increase in comparable coffeehouse sales was primarily driven by a higher average guest check, due to higher food sales, attributable to the launch of warm breakfast sandwiches in our coffeehouses.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $2.1 million, or 9.0%, to $25.8 million in the third thirteen weeks of 2011, from $23.7 million for the third thirteen weeks of 2010. The increase in total dollars was driven primarily by increased cost of goods related to our 4.1% growth in comparable coffeehouse sales. Cost of sales and related occupancy costs as a percentage of coffeehouse net sales increased to 44.0% for the third thirteen weeks of 2011 from 41.8% for the third thirteen weeks of 2010 due to the impact of higher coffee commodity costs on our cost of sales.

Operating expenses. Operating expenses increased $0.8 million, or 3.4%, to $24.5 million for the third thirteen weeks of 2011, from $23.7 million for the third thirteen weeks of 2010. On a dollar basis, this increase was due to expenses incurred in the opening of new company-owned coffeehouses and an increase in other expenses, such as maintenance, when compared to the prior year period. As a percentage of coffeehouse net sales, operating expenses decreased to 41.7% in the third thirteen weeks of 2011 from 41.8% in the third thirteen weeks of 2010, due to the leverage gained on higher sales.

Depreciation and amortization. Depreciation and amortization decreased $0.4 million, or 14.6%, to $2.6 million for the third thirteen weeks of 2011, from $3.0 million for the third thirteen weeks of 2010. Depreciation and amortization was lower in the quarter due to a lower depreciable asset base.

General and administrative expenses. General and administrative expenses remained flat at $2.3 million for the third thirteen weeks of 2011 and for third thirteen weeks of 2010.

Commercial


	Thirteen Weeks Ended							Thirteen Weeks Ended
	October 2, 2011		October 3, 2010		% Change			October 2, 2011			October 3, 2010
	(In thousands)							As a % of commercial sales
Sales	$	19,758	$	11,255		75.5	%		100.0	%		100.0	%
Costs of sales and related occupancy costs		14,365		7,706		86.4	%		72.7	%		68.5	%
Operating expenses		1,521		1,140		33.4	%		7.7	%		10.1	%
Depreciation and amortization		34		16		126.7	%		0.2	%		0.1	%

Operating income	$	3,838	$	2,393		60.3	%		19.4	%		21.3	%

The commercial segment sells high-quality premium whole bean and ground coffee to grocery stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels, entertainment venues and on-line customers. In addition, we sell our blended coffees and license our brand to Green Mountain Coffee Roasters for sale and use in its K-Cup single serve line of business. Green Mountain Coffee Roasters, an industry leader in single cup brewing technology, facilitates the sale and distribution of Caribou K-Cups. Caribou Coffee K-Cups represent an important and growing portion of our commercial business. As of October 2, 2011, Caribou Coffee can be found in over 40 states and in 8,500 stores through our Caribou-managed sales channel. Caribou Coffee K-Cups are found in, we believe, an additional 17,000 stores across all 50 states.

Sales

Sales increased $8.5 million, or 75.5%, to $19.8 million in the third thirteen weeks of 2011, from $11.3 million in the third thirteen weeks of 2010. This increase is primarily attributable to the incremental sales to new and existing office coffee and foodservice customers, as well as increased sales to Green Mountain Coffee Roasters.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $6.7 million, or 86.4%, to $14.4 million for the third thirteen weeks of 2011, from $7.7 million for the third thirteen weeks of 2010. On a dollar basis, this increase in cost of sales was primarily related to the 75.5% increase in sales volume in this segment. As a percentage of sales, cost of sales and related occupancy costs increased to 72.7% for the third thirteen weeks of 2011, from 68.5% for the third thirteen weeks of 2010. This increase in cost of sales and related occupancy costs as a percentage of sales was due to higher coffee commodity costs partially offset by selective price increases taken during the quarter to offset rising coffee costs that will continue to occur throughout the year. We expect the rising commodity costs will impact our weighted average coffee cost during the remainder of the year.

Operating expenses. Operating expenses increased $0.4 million, or 33.4%, to $1.5 million for the third thirteen weeks of 2011, from $1.1 million for the third thirteen weeks of 2010. On a dollar basis, that increase is attributable to higher labor and other operating costs as we invest in our team and infrastructure to support our growing commercial segment. As a percentage of sales, operating expenses decreased to 7.7% in the third thirteen weeks of 2011 from 10.1% in the third thirteen weeks of 2010. The decrease is attributable to leveraging higher sales.

Franchise


	Thirteen Weeks Ended							Thirteen Weeks Ended
	October 2, 2011		October 3, 2010		% Change			October 2, 2011			October 3, 2010
	(In thousands)							As a % of franchise sales
Sales	$	2,986	$	2,292		30.3	%		100.0	%		100.0	%
Costs of sales and related occupancy costs		1,745		1,301		34.1	%		58.4	%		56.8	%
Operating expenses		297		324		(8.3	)%		9.9	%		14.1	%
Depreciation and amortization		4		4		0.0	%		0.1	%		0.2	%

Operating income	$	940	$	663		41.8	%		31.5	%		28.9	%

The franchise segment franchises our brand to partners to operate Caribou Coffee branded kiosks and coffeehouses in domestic and international markets. In addition, we sell Caribou Coffee branded products to our partners for resale in these franchised locations. As of October 2, 2011, there were 150 franchised coffeehouses in the U.S and international markets.

Sales

Sales increased $0.7 million, or 30.3%, to $3.0 million in the third thirteen weeks of 2011, from $2.3 million in the third thirteen weeks of 2010 primarily due to higher royalties and product sales to our franchisees. As of the end of the third thirteen weeks of 2011 we have 24 more franchise locations than we had as of the end of the third thirteen weeks of 2010.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $0.4 million, or 34.1%, to $1.7 million for the third thirteen weeks of 2011, from $1.3 million for the third thirteen weeks of 2010 due primarily to our increase in product sales to our franchise partners. As a percentage of sales, cost of sales and related occupancy costs increased to 58.4% for the third thirteen weeks of 2011, from 56.8% for the third thirteen weeks of 2010. This increase in cost of sales and related occupancy costs as a percentage of sales was due to higher commodity costs partially offset by selective price increases taken during the current year.

Operating expenses. Operating expenses remained flat at $0.3 million in the third thirteen weeks of 2011 and the third thirteen weeks of 2010. As a percentage of sales, operating expenses decreased to 9.9% in the third thirteen weeks of 2011 from 14.1% in the third thirteen weeks of 2010 due to leveraging higher sales.

Unallocated Corporate


	Thirteen Weeks Ended									Thirteen Weeks Ended
	October 2, 2011			October 3, 2010			% Change			October 2, 2011			October 3, 2010
	(In thousands)									As a % of total net sales
General and administrative expenses		5,418			5,145			5.3	%		6.7	%		7.3	%

Operating loss	$	(5,418	)	$	(5,145	)		5.3	%		6.7	%		7.3	%

General and administrative expenses. General and administrative expenses increased $0.3 million, or 5.3%, to $5.4 million for the third thirteen weeks of 2011 from $5.1 million for the third thirteen weeks of 2010. On a dollar basis, this increase was due to resources added in the latter half of 2010 to support key initiatives, including marketing, product management and real estate. As a percentage of total net sales, general and administrative expenses decreased to 6.7% in the third thirteen weeks of 2011, from 7.3% in the third thirteen weeks of 2010, due to leveraging higher sales.

Thirty-Nine Weeks Ended October 2, 2011 vs. Thirty-Nine Weeks Ended October 3, 2010

Results of Operations

The following table presents the consolidated statements of operations as well as the percentage relationship to total net sales of items included in our consolidated statement of operations:


	Thirty-Nine Weeks Ended									Thirty-Nine Weeks Ended
	October 2, 2011			October 3, 2010			% Change			October 2, 2011			October 3, 2010
	(In thousands)									As a % of total net sales
Statement of Operations Data:
Net sales:
Coffeehouse	$	176,338		$	169,974			3.7	%		75.4	%		82.5	%
Commercial and franchise		57,646			36,134			59.5	%		24.6	%		17.5	%

Total net sales		233,984			206,108			13.5	%		100.0	%		100.0	%
Cost of sales and related occupancy costs		113,100			94,651			19.5	%		48.3	%		45.9	%
Operating expenses		78,512			75,159			4.5	%		33.6	%		36.5	%
Depreciation and amortization		8,373			9,271			(9.7	)%		3.6	%		4.5	%
General and administrative expenses		23,703			21,563			9.9	%		10.1	%		10.5	%

Operating income		10,296			5,464			88.4	%		4.4	%		2.7	%
Other income (expense):
Interest income		15			19			(21.1	)%		—	%		—	%
Interest expense		(184	)		(234	)		(21.4	)%		(0.1	)%		(0.1	)%

Income before benefit from income taxes and noncontrolling interest		10,127			5,249			92.9	%		4.3	%		2.5	%
Benefit from income taxes		20,484			106			19,224.5	%		8.8	%		0.1	%

Net income		30,611			5,355			471.6	%		13.1	%		2.6	%
Less: Net income attributable to noncontrolling interest		328			289			13.5	%		0.1	%		0.1	%

Net income attributable to Caribou Coffee Company, Inc.	$	30,283		$	5,066			497.8	%		12.9	%		2.5	%

Net Sales

Net sales increased $27.9 million, or 13.5%, to $234.0 million in the first thirty-nine weeks of 2011 from $206.1 million in the first thirty-nine weeks of 2010. Each of our business segments contributed significantly to our

consolidated revenue growth. Coffeehouse net sales increased $6.3 million, or 3.7%, to $176.3 million in the first thirty-nine weeks of 2011 from $170.0 million in the first thirty-nine weeks of 2010. Commercial and franchise sales increased by $21.5 million, or 59.5%, to $57.6 million for the first thirty-nine weeks of 2011 from $36.1 million for the first thirty-nine weeks of 2010. Commercial segment sales grew by $19.3 million or 66.9%, based on increased sales to new and existing customers. Franchise sales grew by $2.2 million or 30.0% primarily due to new franchise and license locations.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $18.4 million, or 19.5%, to $113.1 million in the first thirty-nine weeks of 2011, from $94.7 million in the first thirty-nine weeks of 2010, primarily due to higher sales. On a dollar basis, this growth was attributable to increased volume across each of our operating segments. As a percentage of total net sales, cost of sales and related occupancy costs increased to 48.3% in the first thirty-nine weeks of 2011 from 45.9% in the first thirty-nine weeks of 2010. The increase as a percentage of sales was largely due higher coffee commodity costs on a year over year basis and an overall mix change with a higher percentage of sales coming from our commercial and franchise segments, which have higher cost of sales as a percentage of sales.

Operating expenses. Operating expenses increased $3.3 million, or 4.5%, to $78.5 million in the first thirty-nine weeks of fiscal 2011, from $75.2 million in the first thirty-nine weeks of 2010. On a dollar basis, this increase was primarily driven by an increase in variable expenses related to our increase in sales volume, such as labor and credit card fees as well as increases in our maintenance expense. Operating expenses as a percentage of total net sales decreased to 33.6% in the first thirty-nine weeks of 2011 from 36.5% in the first thirty-nine weeks of 2010 as we were able to gain leverage on these categories from our increase in sales.

Depreciation and amortization. Depreciation and amortization decreased $0.9 million, or 9.7%, to $8.4 million in the first thirty-nine weeks of 2011, from $9.3 million in the first thirty-nine weeks of 2010. This decrease is due to a lower depreciable asset base from reduced capital spending in fiscal years 2010 and 2009.

General and administrative expenses. General and administrative expenses increased $2.1 million, or 9.9%, to $23.7 million in the first thirty-nine weeks of 2011, from $21.6 million in the first thirty-nine weeks of 2010. On a dollar basis, this increase is due to resources added in the latter half of 2010 to support key initiatives, including marketing, product management and real estate. As a percentage of total net sales, general and administrative expenses decreased to 10.1% in the first thirty-nine weeks of 2011 from 10.5% in the first thirty-nine weeks of 2010.

Interest expense. Interest expense remained flat at $0.1 million in the first thirty-nine weeks of 2011 and the first thirty-nine weeks of 2010. We had no outstanding borrowings during the first thirty-nine weeks of 2011 or 2010.

Tax benefit. In the first thirty-nine weeks of 2011, the Company recorded a tax benefit of $20.5 million compared to a tax benefit of $0.1 million in first thirty-nine weeks of 2010. In the first thirty-nine week period of 2011, our net income tax benefit consisted primarily of a reduction of a portion of our valuation allowance on our deferred tax assets as described further below. Our effective income tax rate differs from the statutory income tax rate primarily as a result of the reduction of a portion of our valuation allowance, our use of federal net operating losses (NOLs) to offset current federal tax expense and our use of tax credits to offset current state tax expense.

A valuation allowance was originally recorded against our deferred tax assets as we determined the realization of these assets did not meet the more likely than not criteria. During the first fiscal quarter of 2011, we determined that a full valuation allowance against our deferred tax assets was not necessary and recorded a partial reversal of the deferred tax valuation allowance of $21.3 million. We considered the available positive and negative evidence, including our recent earnings trend and expected continued future taxable income including the following discrete events: (1) our attainment of three years of cumulative income and (2) the finalization of our current year and long range financial plan which projects sufficient future taxable income. As of October 2, 2011, we continued to maintain a valuation allowance for the remainder of our gross deferred tax assets.

Operating Segments

Retail Coffeehouses


	Thirty-Nine Weeks Ended							Thirty-Nine Weeks Ended
	October 2, 2011		October 3, 2010		% Change			October 2, 2011			October 3, 2010
	(In thousands)							As a % of coffeehouse sales
Coffeehouse sales	$	176,338	$	169,974		3.7	%		100.0	%		100.0	%
Costs of sales and related occupancy costs		75,029		70,744		6.1	%		42.5	%		41.6	%
Operating expenses		73,543		70,945		3.7	%		41.7	%		41.7	%
Depreciation and amortization		8,267		9,218		(10.3	)%		4.7	%		5.4	%
General and administrative expenses		6,874		6,245		10.1	%		3.9	%		3.7	%

Operating income	$	12,625	$	12,822		(1.5	)%		7.2	%		7.5	%

Sales

Coffeehouse sales increased $6.3 million, or 3.7%, to $176.3 million in the first thirty-nine weeks of 2011 from $170.0 million in the first thirty-nine weeks of 2010. This increase is attributable to a 4.3% increase in comparable coffeehouse sales in the first thirty-nine weeks of 2011 as compared to the same period in 2010. The increase in comparable coffeehouse sales was primarily driven by a higher average guest check, due to higher food sales, attributable to the launch of warm breakfast sandwiches.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $4.3 million, or 6.1%, to $75.0 million in the first thirty-nine weeks of 2011, from $70.7 million for the first thirty-nine weeks of 2010. The increase in total dollars was driven primarily by increase cost of goods related to our 4.3% growth in comparable coffeehouse sales. Cost of sales and related occupancy costs as a percentage of coffeehouse net sales increased to 42.5% for the first thirty-nine weeks of 2011 from 41.6% for the first thirty-nine weeks of 2010 due to the impact of higher coffee commodity costs on our cost of sales.

Operating expenses. Operating expenses increased $2.6 million, or 3.7%, to $73.5 million for the first thirty-nine weeks of 2011, from $70.9 million for the first thirty-nine weeks of 2010. On a dollar basis, this increase was due to an increase in variable expenses, such as labor and credit card fees related to our 4.3% increase in comparable coffeehouses sales as well as higher maintenance expenses, when compared to the prior year period. As a percentage of coffeehouse net sales, operating expenses were flat at 41.7% in the first thirty-nine weeks of 2011 and 2010.

Depreciation and amortization. Depreciation and amortization decreased $0.9 million, or 10.3%, to $8.3 million for the first thirty-nine weeks of 2011, from $9.2 million for the first thirty-nine weeks of 2010. Depreciation and amortization was lower due to a lower depreciable asset base.

General and administrative expenses. General and administrative expenses increased $0.6 million, or 10.1%, to $6.9 million for the first thirty-nine weeks of 2011 from $6.2 million for the first thirty-nine weeks of 2010. This increase was due to resources added in the latter half of 2010 to support of key initiatives, including marketing, product management and real estate.

Commercial


	Thirty-Nine Weeks Ended							Thirty-Nine Weeks Ended
	October 2, 2011		October 3, 2010		% Change			October 2, 2011			October 3, 2010
	(In thousands)							As a % of commercial sales
Sales	$	48,243	$	28,902		66.9	%		100.0	%		100.0	%
Costs of sales and related occupancy costs		32,688		19,668		66.2	%		67.8	%		68.1	%
Operating expenses		4,264		3,223		32.3	%		8.8	%		11.2	%
Depreciation and amortization		94		42		123.8	%		0.2	%		0.1	%

Operating income	$	11,197	$	5,969		87.6	%		23.2	%		20.7	%

Sales

Sales increased $19.3 million, or 66.9%, to $48.2 million in the first thirty-nine weeks of 2011, from $28.9 million in the first thirty-nine weeks of 2010. This increase is primarily attributable to the incremental sales to new and existing office coffee and foodservice customers, as well as increased sales to Green Mountain Coffee Roasters.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $13.0 million, or 66.2%, to $32.7 million for the first thirty-nine weeks of 2011, from $19.7 million for the first thirty-nine weeks of 2010. On a dollar basis, this increase in cost of sales was primarily related to the 66.9% increase in sales volume in this segment. As a percentage of sales, cost of sales and related occupancy costs decreased to 67.8% for the first thirty-nine weeks of 2011, from 68.1% for the first thirty-nine weeks of 2010. This decrease in cost of sales and related occupancy costs as a percentage of sales was due to selective price increases taken during the current year to offset our expected rising coffee costs that will occur throughout the year as the rising commodity costs will impact our weighted average coffee cost.

Operating expenses. Operating expenses increased $1.0 million, or 32.3%, to $4.3 million for the first thirty-nine weeks of 2011, from $3.2 million for the first thirty-nine weeks of 2010. On a dollar basis, this increase is attributable to higher labor, marketing, and other operating costs as we invest in our team and infrastructure to support our growing commercial segment. As a percentage of sales, operating expenses decreased to 8.8% in the first thirty-nine weeks of 2011 from 11.2% in the first thirty-nine weeks of 2010 as we gain leverage from increased sales.

Franchise


	Thirty-Nine Weeks Ended							Thirty-Nine Weeks Ended
	October 2, 2011		October 3, 2010		% Change			October 2, 2011			October 3, 2010
	(In thousands)							As a % of franchise sales
Sales	$	9,403	$	7,232		30.0	%		100.0	%		100.0	%
Costs of sales and related occupancy costs		5,383		4,239		27.0	%		57.2	%		58.6	%
Operating expenses		705		991		(28.9	)%		7.5	%		13.7	%
Depreciation and amortization		12		11		9.1	%		0.1	%		0.2	%

Operating income	$	3,303	$	1,991		65.9	%		35.1	%		27.5	%

Sales

Sales increased $2.2 million, or 30.0%, to $9.4 million in the first thirty-nine weeks of 2011, from $7.2 million in the first thirty-nine weeks of 2010 primarily due to higher royalties and product sales to our franchisees. As of the end of the first thirty-nine weeks of 2011 we have 24 more franchise locations than we had as of the end of the first thirty-nine weeks of 2010.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $1.1 million, or 27.0%, to $5.4 million for the first thirty-nine weeks of 2011, from $4.2 million for the first thirty-nine weeks of 2010 due primarily to our increase in product sales to our franchise partners. As a percentage of sales, cost of sales and related occupancy costs decreased to 57.2% for the first thirty-nine weeks of 2011, from 58.6% for the first thirty-nine weeks of 2010. This decrease in cost of sales and related occupancy costs as a percentage of sales was due to selective price increases taken during the current year partially by our commodity costs.

Operating expenses. Operating expenses decreased $0.3 million, or 28.9%, to $0.7 million in the first thirty-nine weeks of 2011, from $1.0 million in the first thirty-nine weeks of 2010. As a percentage of sales, operating expenses decreased to 7.5% in the first thirty-nine weeks of 2011 from 13.7% in the first thirty-nine weeks of 2010. This decrease is primarily related to lower labor costs related to open positions that we expect to fill during fiscal year 2011.

Unallocated Corporate


	Thirty-Nine Weeks Ended									Thirty-Nine Weeks Ended
	October 2, 2011			October 3, 2010			% Change			October 2, 2011			October 3, 2010
	(In thousands)									As a % of total net sales
General and administrative expenses		16,829			15,318			9.9	%		7.2	%		7.4	%

Operating loss	$	(16,829	)	$	(15,318	)		9.9	%		7.2	%		7.4	%

General and administrative expenses. General and administrative expenses increased $1.5 million, or 9.9%, to $16.8 million for the first thirty-nine weeks of 2011 from $15.3 million for the first thirty-nine weeks of 2010. On a dollar basis, this increase was due to resources added in the latter half of 2010 to support key initiatives, including marketing, product management and real estate. As a percentage of total net sales, general and administrative expenses decreased to 7.2% in the first thirty-nine weeks of 2011 from 7.4% in the first thirty-nine weeks of 2010.

Liquidity and Capital Resources

The following table summarizes our cash flow activity and should be read in conjunction with the Condensed Consolidated Statements of Cash Flows:


	Thirty-Nine Weeks Ended
	October 2, 2011			October 3, 2010			Increase / (Decrease)
	(In thousands)
Net cash provided (used) by operating activities	$	24,031		$	(8,233	)	$	32,264

Net cash used in investing activities		(6,650	)		(5,002	)		(1,648	)
Net cash provided (used) by financing activities		1,186			(325	)		1,511

Net increase (decrease) in cash and cash equivalents	$	18,567		$	(13,560	)	$	32,127

Cash and cash equivalents as of October 2, 2011 were $41.7 million, compared to cash and cash equivalents of $23.1 million as of January 2, 2011. Generally, our principal requirements for cash are capital expenditures and funding operations. Capital expenditures include maintenance and remodeling of existing coffeehouses, general and administrative expenditures for items like management information systems and costs for expanding production capacity to meet the growth demands of our business. Currently our requirements for capital have been funded through cash flow from operations.

Net cash provided by operating activities for the first thirty-nine weeks of 2011 was $24.0 million compared to net cash used in operating activities of $8.2 million for the first thirty-nine weeks of 2010. The $32.2 million increase in cash provided by operating activities was the result of higher earnings and less cash used for working capital in the first thirty-nine weeks of 2011 compared with the first thirty-nine weeks of 2010 as we built higher inventory balances in the first thirty-nine weeks of 2010.

Net cash used in investing activities during the first thirty-nine weeks of 2011 was $6.7 million, compared to net cash used in investing activities of $5.0 million for the first thirty-nine weeks of 2010 due to higher capital expenditures in 2011.

Net cash provided by financing activities for the first thirty-nine weeks of 2011 was $1.2 million compared to net cash used by financing activities of $0.3 million for the first thirty-nine weeks of 2010. The increase in financing cash provided is due to cash received from stock option exercises in the first thirty-nine weeks of 2011 as well as no payments of debt financing fees in the current year period.

Our future capital requirements and the adequacy of available funds will depend on many factors, including the pace of our expansion, real estate markets, the availability of suitable site locations and the nature of the arrangements negotiated with landlords for new coffeehouses as well as lease termination costs associated with existing underperforming coffeehouse leases. We expect capital expenditures for fiscal 2011 to be approximately $10 million. We believe that our current liquidity and cash flow from operations will provide sufficient liquidity to fund our operations for at least 12 months.

Off-Balance Sheet Arrangements

Other than our coffeehouse leases, we do not have any off-balance sheet arrangements. As of October 2, 2011, we were committed to fixed and price-to-be-fixed green coffee purchase contracts with deliveries expected through December 2012. We only contract for green coffee expected to be used in the normal course of business. We believe, based on relationships established with our suppliers in the past, the risk of non-delivery on such purchase commitments is remote.

Recent Accounting Pronouncements

Key Financial Metrics

We review our operations based on both financial and non-financial metrics. Among the key financial metrics upon which management focuses in reviewing our performance are comparable coffeehouse net sales, EBITDA (a non-GAAP measure), cash flow from operations before general and administrative expenses, general and administrative expenses and capital expenditures. Among the key non-financial metrics upon which management focuses in reviewing performance are the number of new coffeehouse openings, average check and transaction count.

The following table sets forth non-GAAP metrics and operating data that do not otherwise appear in our consolidated financial statements as of and for the thirteen weeks and thirty-nine weeks ended October 2, 2011 and October 3, 2010:


	Thirteen Weeks Ended						Thjrty-Nine Weeks Ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
	(In thousands, except operating data)
Non-GAAP Metrics:
EBITDA(1)	$	5,812		$	5,300		$	19,811		$	15,923

Operating Data:
Percentage change in comparable coffeehouse net sales(2)		4.1	%		4.4	%		4.3	%		4.8	%
Company-Owned:
Coffeehouses open at beginning of period		407			411			410			413
Coffeehouses opened during the period		3			0			3			0
Coffeehouses closed during the period		1			1			4			3

Coffeehouses open at end of period:
Total Company-Owned		409			410			409			410
Franchised:
Coffeehouses open at beginning of period		147			125			131			121
Coffeehouses opened during the period		5			6			26			13
Coffeehouses closed during the period		2			5			7			8

Coffeehouses open at end of period:
Total Franchised		150			126			150			126

Total coffeehouses open at end of period		559			536			559			536

(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. Franchised coffeehouses are not included in the comparable coffeehouse net sales calculations.

EBITDA is equal to net income excluding: (a) interest expense; (b) interest income; (c) depreciation and amortization; and (d) income taxes.

We believe EBITDA is useful to investors in evaluating our operating performance for the following reason:

•

Coffeehouse leases are generally short-term (5-10 years) and Caribou 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). The Company opened a net 206 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the third quarter of fiscal 2011. As a result, management believes depreciation expense is disproportionately large when compared to the sales from a significant percentage of the 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, management believes that adjusting for depreciation and amortization is useful for evaluating the operating performance of the coffeehouses. Furthermore, the Company recorded a significant tax benefit in the first quarter of fiscal 2011 related to the reversal of a valuation allowance against accumulated net operating losses and other deferred tax assets. Consequently, management believes that adjusting for the impact of income taxes is useful in evaluating the overall performance of the Company.

Our management uses EBITDA:

•

As a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items not directly resulting from our coffeehouse operations;

•

For planning purposes, including the preparation of our internal annual operating budget;

•

To evaluate our capacity to incur and service debt, fund capital expenditures and expand our business.

EBITDA as calculated by us is not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA: (a) does not represent net income or cash flows from operating activities as defined by GAAP; (b) is not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered an alternative to net income, operating income, cash flows from operating activities or our other financial information as determined under GAAP.


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
	(In thousands)
Net income attributable to Caribou Coffee Company, Inc.	$	1,787		$	1,607		$	30,283		$	5,066
Interest expense		70			63			184			234
Interest income		(3	)		(9	)		(15	)		(19	)
Depreciation and amortization(1)		3,155			3,607			9,843			10,748
Provision for (benefit from) income taxes		803			32			(20,484	)		(106	)

EBITDA	$	5,812		$	5,300		$	19,811		$	15,923

(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 Risks.

Not applicable.

Item 4T. Controls and Procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and the operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective, as of October 2, 2011, in ensuring that material information relating to us required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. There were no changes in our internal control over financial reporting during the quarter ended October 2, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended January 2, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

Not applicable.

Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities.

Not applicable.

Item 4.

Reserved.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.


3.1*		Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Annual Report of Form 10-K for the year ended January 2, 2011 (File No. 000-51535)).

3.2*		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to our Annual Report of Form 10-K for the year ended January 2, 2011 (File No. 000-51535)).

4.1*		Specimen Common Stock Certificate of the Registrant (incorporated by reference to our Registration Statement on Form S-1/A filed September 6, 2005 (File No. 333-126691)).

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.

101**		The following financial statements from the Company’s 10-Q for the fiscal quarter ended October 2, 2011, formatted in XBRL: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Changes in Equity (iv) Condensed Consolidated Statements of Cash Flows (v) Notes to Condensed Consolidated Financial Statements

*	Denotes exhibit previously filed with the Securities and Exchange Commission as indicated in parentheses.

**	Furnished herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 9, 2011

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