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 1, 2012 contained in the our Form 10-K (File No.
[000-51535]).

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 April 1, 2012, we had 585 retail locations, including 174 franchised locations. Our coffeehouses are located in 21 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 ten quarters, including 2.5% for the quarter ending April 1, 2012. Our commercial segment has also experienced accelerated growth and in the first thirteen weeks of 2012 represented 22% 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 1, 2012, (File No.
[000-51535]) includes a summary

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 April 1, 2012 are not necessarily indicative of future results that may be expected for the year ending December 30, 2012.

Thirteen Weeks Ended April 1, 2012 vs. Thirteen Weeks Ended April 3, 2011

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
                                        April 1,       April 3,          %             April 1,           April 3,
                                          2012           2011          Change            2012               2011
                                            (In thousands)                             As a % of total net sales
Statement of Operations Data:
Net sales:
Coffeehouse                            $   59,737      $  57,611           3.7 %             74.2 %            79.7 %
Commercial and franchise                   20,804         14,664          41.9 %             25.8 %            20.3 %

Total net sales                            80,541         72,275          11.4 %            100.0 %           100.0 %
Cost of sales and related occupancy
costs                                      42,053         33,236          26.5 %             52.2 %            46.0 %
Operating expenses                         26,593         25,406           4.7 %             33.0 %            35.2 %
Depreciation and amortization               2,505          2,936         (14.7 )%             3.1 %             4.1 %
General and administrative expenses         7,275          7,802          (6.8 )%             9.0 %            10.8 %

Operating income                            2,115          2,895         (26.9 )%             2.6 %             4.0 %
Other income (expense):
Interest income                                12              5         140.0 %               -  %              -  %
Interest expense                              (21 )          (56 )       (62.5 )%              -  %            (0.1 )%

Income before provision for (benefit
from) income taxes and
noncontrolling interest                     2,106          2,844         (25.9 )%             2.6 %             3.9 %
Provision for (benefit from) income
taxes                                         827        (21,334 )      (103.9 )%             1.0 %           (29.5 )%

Net income                                  1,279         24,178         (94.7 )%             1.6 %            33.5 %
Less: Net income attributable to
noncontrolling interest                        38            107         (64.5 )%              -  %             0.1 %

Net income attributable to Caribou
Coffee Company, Inc.                   $    1,241      $  24,071         (94.8 )%             1.5 %            33.3 %

Net Sales

Net sales increased $8.3 million, or 11.4%, to $80.5 million in the first thirteen weeks of 2012 from $72.3 million in the first thirteen weeks of 2011. Each of our business segments contributed significantly to our consolidated revenue growth. Coffeehouse net sales increased $2.1 million, or 3.7%, to $59.7 million in the first thirteen weeks of 2012 from $57.6 million in the first thirteen weeks of 2011. Commercial and franchise sales increased by $6.1 million, or 41.9%, to $20.8 million for the first thirteen weeks of 2012 from $14.7 million for the first thirteen weeks of 2011. Commercial segment sales grew by $5.8 million or 49.9%, based on increased sales to new and existing customers. Franchise sales grew by $0.3 million or 10.6% primarily due to new franchise and license locations.

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $8.8 million, or 26.5%, to $42.1 million in the first thirteen weeks of 2012, from $33.2 million in the first thirteen weeks of 2011, primarily due to significantly higher coffee commodity costs and higher sales volume across each of our operating segments. As a percentage of total net sales, cost of sales and related occupancy costs increased to 52.2% in the first thirteen weeks of 2012 from 46.0% in the first thirteen weeks of 2011. 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 4.7%, to $26.6 million in the first thirteen weeks of 2012, from $25.4 million in the first thirteen weeks of 2011. On a dollar basis, this increase was primarily driven by an increase in variable expenses related to our increase in sales volume. Operating expenses as a percentage of total net sales decreased to 33.0% in the first thirteen weeks of 2012 from 35.2% in the first thirteen weeks of 2011 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 14.7%, to $2.5 million in the first thirteen weeks of 2012, from $2.9 million in the first thirteen weeks of 2011. This decrease is due to a lower depreciable asset base from reduced capital spending in fiscal years 2011, 2010 and 2009.

General and administrative expenses. General and administrative expenses decreased $0.5 million, or 6.8%, to $7.3 million in the first thirteen weeks of 2012, from $7.8 million in the first thirteen weeks of 2011. As a percentage of total net sales, general and administrative expenses was 9.0% in the first thirteen weeks of 2012, compared to 10.8% in the first thirteen weeks of 2011. This decrease is primarily due to lower performance based compensation through the first 13 weeks of 2012.

Interest expense. Interest expense remained relatively flat at $0.1 million for both the first thirteen weeks of 2012 and 2011. We had no outstanding borrowings during the first thirteen weeks of 2012 or 2011.

Tax expense (benefit). Tax expense during the first 13 weeks of 2012 was $0.8 million compared to a tax benefit of $21.3 in the same period of 2011. In the first thirteen 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.

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 thirteen weeks 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 April 1, 2012, we no longer maintain a valuation allowance for any of our gross deferred tax assets.

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 first thirteen weeks of fiscal 2012 and 2011.

Retail Coffeehouses



                                              Thirteen Weeks Ended                       Thirteen Weeks Ended
                                      April 1,       April 3,          %             April 1,             April 3,
                                        2012           2011         Change             2012                 2011
                                           (In thousands)                            As a % of coffeehouse sales
Coffeehouse sales                     $  59,737      $  57,611          3.7 %              100.0 %            100.0 %
Costs of sales and related
occupancy costs                          26,549         24,143         10.0 %               44.4 %             41.9 %
Operating expenses                       25,185         23,977          5.0 %               42.2 %             41.6 %
Depreciation and amortization             2,470          2,903        (14.9 )%               4.1 %              5.0 %
General and administrative
expenses                                  2,247          2,257         (0.4 )%               3.8 %              3.9 %

Operating income                      $   3,286      $   4,331        (24.1 )%               5.5 %              7.5 %

The retail segment operates company-owned coffeehouses. As of April 1, 2011, there were 411 company-owned coffeehouses in 16 states and the District of Columbia.

Sales

Coffeehouse sales increased $2.1 million, or 3.7%, to $59.7 million in the first thirteen weeks of 2012 from $57.6 million in the first thirteen weeks of 2011. This increase is attributable to a 2.5% increase in comparable coffeehouse sales in the first thirteen weeks of 2012 as compared to the same period in 2011. The increase in comparable coffeehouse sales was primarily driven by increased traffic and a change in the mix of beverage sales.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $2.4 million, or 10.0%, to $26.5 million in the first thirteen weeks of 2012, from $24.1 million for the first thirteen weeks of 2011. The increase in total dollars was driven primarily by increase cost of goods related to higher year over year coffee commodity costs and our 2.5% growth in comparable coffeehouse sales. Cost of sales and related occupancy costs as a percentage of coffeehouse net sales increased to 44.4% for the first thirteen weeks of 2012 from 41.9% for the first thirteen weeks of 2011 due higher coffee commodity costs.

Operating expenses. Operating expenses increased $1.2 million, or 5.0%, to $25.2 million for the first thirteen weeks of 2012, from $24.0 million for the first thirteen weeks of 2011. On a dollar basis, this increase was due to higher labor to support our sales increase and an increase in fees for debit card transactions due to recent legislative changes. As a percentage of coffeehouse net sales, operating expenses increased to 42.2% in the first thirteen weeks of 2012 from 41.6% in the first thirteen weeks of 2011, due to increased fees for debit card transactions.

Depreciation and amortization. Depreciation and amortization decreased $0.4 million, or 14.9%, to $2.5 million for the first thirteen weeks of 2012, from $2.9 million for the first thirteen weeks of 2011. 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 first thirteen weeks of 2012 and the first thirteen weeks of 2011.

Commercial



                                              Thirteen Weeks Ended                      Thirteen Weeks Ended
                                      April 1,       April 3,          %             April 1,            April 3,
                                        2012           2011         Change             2012                2011
                                           (In thousands)                            As a % of commercial sales
Sales                                 $  17,478      $  11,657         49.9 %             100.0 %            100.0 %
Costs of sales and related
occupancy costs                          13,491          7,313         84.5 %              77.2 %             62.7 %
Operating expenses                        1,093          1,300        (15.9 )%              6.3 %             11.2 %
Depreciation and amortization                32             29         10.3 %               0.2 %              0.2 %

Operating income                      $   2,862      $   3,015         (5.1 )%             16.4 %             25.9 %

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 April 3, 2011, Caribou Coffee can be found in over 40 states and in 7,500 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 $5.8 million, or 49.9%, to $17.5 million in the first thirteen weeks of 2012, from $11.7 million in the first thirteen weeks of 2011. 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 $6.2 million, or 84.5%, to $13.5 million for the first thirteen weeks of 2012, from $7.3 million for the first thirteen weeks of 2011. On a dollar basis, this increase in cost of sales was primarily related to the 49.9% increase in sales volume in this segment as well as higher year over year coffee commodity costs. As a percentage of sales, cost of sales and related occupancy costs increased to 77.2% for the first thirteen weeks of 2012, from 62.7% for the first thirteen weeks of 2011. This increase in cost of sales and related occupancy costs as a percentage of sales was due to higher coffee commodity costs.

Operating expenses. Operating expenses decreased $0.2 million, or 15.9%, to $1.1 million for the first thirteen weeks of 2012, from $1.3 million for the first thirteen weeks of 2011. As a percentage of sales, operating expenses decreased to 6.3% in the first thirteen weeks of 2012 from 11.2% in the first thirteen weeks of 2011. The decrease is attributable to leveraging our relatively fixed operating costs in our Commercial segment.

Franchise



                                                     Thirteen Weeks Ended                     Thirteen Weeks Ended
                                              April 1,       April 3,         %            April 1,           April 3,
                                                2012           2011        Change            2012               2011
                                                  (In thousands)                           As a % of franchise sales
Sales                                        $    3,326     $    3,007        10.6 %            100.0 %           100.0 %
Costs of sales and related occupancy costs        2,013          1,780        13.1 %             60.5 %            59.2 %
Operating expenses                                  315            129       144.2 %              9.5 %             4.3 %
Depreciation and amortization                         3              4       (25.0 )%             0.1 %             0.1 %

Operating income                             $      995     $    1,094        (9.0 )%            29.9 %            36.4 %

Sales

Sales increased $0.3 million, or 10.6%, to $3.3 million in the first thirteen weeks of 2012, from $3.0 million in the first thirteen weeks of 2011 primarily due to higher product sales and royalties from 174 franchise locations, a net increase of 39 locations from the prior year.

Costs and Expenses

Cost of sales and related occupancy costs. Cost of sales and related occupancy costs increased $0.2 million, or 13.1%, to $2.0 million for the first thirteen weeks of 2012, from $1.8 million for the first thirteen weeks of 2011 due primarily to our increase in product sales to our franchise partners, as well as higher coffee commodity costs. As a percentage of sales, cost of sales and related occupancy costs increased to 60.5% for the first thirteen weeks of 2012, from 59.2% for the first thirteen weeks of 2011. This increase in cost of sales and related occupancy costs as a percentage of sales was due to higher commodity costs.

Operating expenses. Operating expenses increased $0.2 million, or 144.2%, to $0.3 million in the first thirteen weeks of 2012, from $0.1 million in the first thirteen weeks of 2011. As a percentage of sales, operating expenses increased to 9.5% in the first thirteen weeks of 2012 from 4.3% in the first thirteen weeks of 2011. This increase is primarily related to higher labor costs to support our growing franchise business.

Unallocated Corporate



                                                 Thirteen Weeks Ended                       Thirteen Weeks Ended
                                        April 1,        April 3,           %            April 1,            April 3,
                                          2012            2011          Change            2012                2011
                                             (In thousands)                              As a % of total net sales
General and administrative expenses         5,028           5,545          (9.3 )%             6.2 %              7.7 %

Operating loss                          $  (5,028 )     $  (5,545 )        (9.3 )%             6.2 %              7.7 %

General and administrative expenses. General and administrative expenses decreased $0.5 million, or 9.3%, to $5.0 million for the first thirteen weeks of 2012 from $5.5 million for the first thirteen weeks of 2011. As a percentage of total net sales, general and administrative expenses decreased to 6.2% in the first thirteen weeks of 2012, from 7.7% in the first thirteen weeks of 2011. This decrease was due to lower performance based compensation through the first thirteen weeks of 2012.

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:



                                                    Thirteen Weeks Ended
                                                 April 1,          April 3,          Increase /
                                                   2012              2011            (Decrease)
                                                                 (In thousands)
Net cash provided by (used in) operating
activities                                      $      (654 )      $   3,352        $     (4,006 )
Net cash used in investing activities                (1,690 )         (1,428 )              (262 )
Net cash provided by financing activities               398               39                 359

Net decrease (increase) in cash and cash
equivalents                                     $     1,946        $  (1,963 )      $      3,909

Net cash used in operating activities for the first thirteen weeks of 2012 was $0.7 million compared to net cash provided by operating activities of $3.4 million for the first thirteen weeks of 2011. This $4.0 million decrease in cash provided by operating activities was the result of higher working capital needs, particularly related to inventory and the increase in coffee commodity costs.

Net cash used in investing activities for the first thirteen weeks of 2012 was $1.7 million compared to net cash used in investing activities of $1.4 million for the first thirteen weeks of 2011. This slight increase in investing activities is due equipment purchases in the current period to support our retail launches.

Net cash provided by financing activities for the first thirteen weeks of 2012 was $0.4 million compared to net cash used by financing activities of $0.1 million for the first thirteen weeks of 2011. The increase in financing cash . . .