-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E/0BK1Az8yeknBdF/0Vk6X/+sQ42gCRa4p+UpuMZTBI0SskH02V7b55KnEd+CRsz NOn7rtI9MePjPxTSfsFZaw== /in/edgar/work/20000814/0000909954-00-000008/0000909954-00-000008.txt : 20000921 0000909954-00-000008.hdr.sgml : 20000921 ACCESSION NUMBER: 0000909954-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN MOUNTAIN COFFEE INC CENTRAL INDEX KEY: 0000909954 STANDARD INDUSTRIAL CLASSIFICATION: [2090 ] IRS NUMBER: 030339228 STATE OF INCORPORATION: DE FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12340 FILM NUMBER: 698995 BUSINESS ADDRESS: STREET 1: 33 COFFEE LANE CITY: WATERBURY STATE: VT ZIP: 05676 BUSINESS PHONE: 8022445621 MAIL ADDRESS: STREET 1: 33 COFFEE LANE CITY: WATERBURY STATE: VT ZIP: 05676 10-Q 1 0001.txt 10-Q FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the twelve weeks ended July 1, 2000 OR |_| 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 1-12340 GREEN MOUNTAIN COFFEE, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 03-0339228 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 33 Coffee Lane, Waterbury, Vermont 05676 --------------------------------------------------- (Address of principal executive offices) (zip code) (802) 244-5621 ---------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant has (1) 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 [ X ] NO [ ] As of August 1, 2000, 3,081,140 shares of common stock of the registrant were outstanding. Part I. Financial Information Item I. Financial Statements GREEN MOUNTAIN COFFEE, INC. Consolidated Balance Sheets (Dollars in thousands) July 1, September 25, 2000 1999 ------------- ------------- (unaudited) Assets Current assets: Cash and cash equivalents........................................ $ 574 $ 415 Receivables, less allowances of $235 at July 1, 2000 and $190 at September 25, 1999................................... 8,138 6,223 Inventories...................................................... 5,768 5,409 Income tax receivable............................................ - 233 Other current assets............................................. 461 264 Loans to officers................................................ - 250 Deferred income taxes, net....................................... 179 490 ------------- ------------- Total current assets....................................... $ 15,120 $ 13,284 Fixed assets, net................................................... 10,564 10,183 Other long-term assets.............................................. 248 250 Deferred income taxes, net.......................................... 239 161 -------------- ------------- Total assets........................................................ $ 26,171 $ 23,878 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt................................ $ 161 $ 1,127 Accounts payable................................................. 4,814 4,551 Accrued payroll.................................................. 1,484 1,005 Accrued expenses................................................. 1,221 357 Income tax payable............................................... 173 - Accrued losses and other costs of discontinued operations, net... 179 192 ------------- ------------- Total current liabilities................................... 8,032 7,232 ------------- ------------- Long-term debt...................................................... 308 1,908 ------------- ------------- Long-term line of credit............................................ 9,400 3,056 ------------- ------------- Commitments and contingencies Stockholders' equity: Common stock, $0.10 par value: authorized - 10,000,000 shares; issued- 3,649,454 shares at July 1, 2000 and 3,615,404 shares at September 25, 1999............................................ 365 362 Additional paid-in capital....................................... 13,651 13,409 Retained earnings (accumulated deficit).......................... 1,282 (1,435) Treasury shares, at cost: 558,853 shares at July 1, 2000 and 100,609 shares at September 25, 1999, respectively............... (6,867) (654) ------------- ------------- Total stockholders' equity....................................... 8,431 11,682 ------------- ------------- Total liabilities and stockholders' equity................. $ 26,171 $ 23,878 ============= ============= The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
GREEN MOUNTAIN COFFEE, INC. Consolidated Statements of Operations (Dollars in thousands except per share data) Twelve weeks ended ---------------------------- July 1, 2000 July 3, 1999 ------------ ------------ (unaudited) Net sales................................................... $ 19,668 $ 14,973 Cost of sales............................................... 11,909 8,821 ------------ ------------- Gross profit............................................ 7,759 6,152 Selling and operating expenses.............................. 4,912 3,914 General and administrative expenses......................... 1,403 1,164 Loss on abandonment of fixed assets......................... - 75 ------------ ------------ Operating income........................................ 1,444 999 Other income (expense)...................................... 30 (5) Interest (expense).......................................... (141) (164) ------------ ------------ Income from continuing operations before income taxes... 1,333 830 Income tax expense.......................................... (531) (315) ------------ ------------ Net income............................................. $ 802 $ 515 ============ ============ Basic income per share: Weighted average shares outstanding.................... 3,226,415 3,494,399 Net income............................................. $ 0.25 $ 0.15 Diluted income per share: Weighted average shares outstanding.................... 3,511,282 3,552,574 Net income............................................. $ 0.23 $ 0.14 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
GREEN MOUNTAIN COFFEE, INC. Consolidated Statement of Operations (Dollars in thousands except per share data) Forty weeks ended ---------------------------- July 1, 2000 July 3, 1999 ------------ ------------- (unaudited) Net sales...................................................... $ 62,669 $ 49,493 Cost of sales.................................................. 37,595 30,253 ------------ ------------ Gross profit............................................... 25,074 19,240 Selling and operating expenses................................. 15,603 12,568 General and administrative expenses............................ 4,459 3,666 Loss on abandonment of fixed assets............................ 135 100 ------------- ------------ Operating income........................................ 4,877 2,906 Other income................................................... 40 6 Interest (expense)............................................. (389) (639) ------------ ------------ Income from continuing operations before income taxes... 4,528 2,273 Income tax expense............................................. (1,811) (859) ------------ ------------ Income from continuing operations....................... $ 2,717 $ 1,414 Discontinued operations: Income from discontinued retail stores operations, net of income tax expense of $114........................... - 186 ------------ ------------ Net income.............................................. $ 2,717 $ 1,600 ============ ============ Basic income per share: Weighted average shares outstanding....................... 3,361,789 3,499,299 Income from continuing operations......................... $ 0.81 $ 0.40 Income from discontinued operations....................... $ - $ 0.06 ------------ ------------ Net income................................................ $ 0.81 $ 0.46 ============= ============ Diluted income per share: Weighted average shares outstanding....................... 3,534,517 3,532,541 Income from continuing operations......................... $ 0.77 $ 0.40 Income from discontinued operations....................... $ - $ 0.05 ------------ ------------ Net income................................................ $ 0.77 $ 0.45 ============ ============ The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
GREEN MOUNTAIN COFFEE, INC. Consolidated Statements of Cash Flows (Dollars in thousands) Forty weeks ended ---------------------------- July 1, 2000 July 3, 1999 ------------ ------------ (unaudited) Cash flows from operating activities: Net income........................................................... $ 2,717 $ 1,600 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations............................. - (186) Depreciation and amortization................................... 2,288 2,261 Loss on disposal and abandonment of fixed assets................ 171 116 Provision for doubtful accounts................................. 227 207 Deferred income taxes........................................... 233 513 Changes in assets and liabilities: Receivables............................................... (2,142) (868) Inventories............................................... (359) 294 Other current assets...................................... 286 (411) Other long-term assets, net............................... 2 (34) Accounts payable.......................................... 263 416 Accrued payroll........................................... 479 51 Accrued expenses.......................................... 1,037 5 ------------ ------------ Net cash provided by continuing operations................ 5,202 3,964 Net cash (used for) provided by discontinued operations... (13) 111 ------------ ------------ Net cash provided by operating activities................. 5,189 4,075 ------------ ------------ Cash flows from investing activities: Capital expenditures for fixed assets.............................. (3,137) (1,801) Proceeds from disposals of fixed assets.............................. 297 60 Proceeds from disposal of discontinued operations.................... - 158 ------------ ------------ Net cash used for investing activities.................... (2,840) (1,583) ------------ ------------ Cash flows from financing activities: Purchase of treasury shares.......................................... (6,213) (457) Proceeds from issuance of common stock............................... 245 273 Proceeds from issuance of long-term debt............................. 122 - Repayment of long-term debt.......................................... (2,688) (1,199) Principal payments under capital lease obligation.................... - (12) Net change in revolving line of credit............................... 6,344 (916) ------------ ------------ Net cash used for financing activities.................... (2,190) (2,311) ------------ ------------ Net increase in cash and cash equivalents............................... 159 181 Cash and cash equivalents at beginning of period........................ 415 777 ------------ ------------ Cash and cash equivalents at end of period.............................. $ 574 $ 958 ============ ============ The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Green Mountain Coffee, Inc. Notes to Consolidated Financial Statements 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the interim financial data have been included. Results from operations for the twelve and forty week periods ended July 1, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2000. For further information, refer to the consolidated financial statements and the footnotes included in the annual report on Form 10-K for Green Mountain Coffee, Inc. (the "Company") for the fiscal year ended September 25, 1999. Certain reclassifications of prior year balances have been made to conform to the current presentation. 2. Inventories Inventories consist of the following: July 1, September 25, 2000 1999 ------------- ------------- Raw materials and supplies........ $ 2,778,000 $ 2,809,000 Finished goods.................... 2,990,000 2,600,000 ------------- ------------- $ 5,768,000 $ 5,409,000 ============= ============= 3. Earnings per share The following table illustrates the reconciliation of the numerator and denominator of basic and diluted income per share from continuing operations computations as required by SFAS No. 128 (dollars in thousands, except share and per share data): Twelve weeks ended Forty weeks ended ---------------------------- ---------------------------- July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999 ------------ ------------ ------------ ------------ Numerator - basic and diluted earnings per share : Net income from continuing operations........... $ 802 $ 515 $ 2,717 $ 1,414 ============ ============ ============ ============ Denominator: Basic earnings per share - weighted average shares outstanding.............................. 3,226,415 3,494,399 3,361,789 3,499,299 Effect of dilutive securities - stock options... 284,867 58,175 172,728 33,242 --------------- ------------ ------------ ------------ Diluted earnings per share - weighted average shares outstanding.............................. 3,511,282 3,552,574 3,534,517 3,532,541 =============== ============ ============ ============ Basic earnings per share........................ $ 0.25 $ 0.15 $ 0.81 $ 0.40 Diluted earnings per share...................... $ 0.23 $ 0.14 $ 0.77 $ 0.40
For the twelve weeks ended July 1, 2000, all options outstanding had an exercise price less than the market price of the common shares and were therefore included in the computation of diluted income per share. For the twelve weeks ended July 3, 1999 options to purchase 262,326 shares of common stock were outstanding but were not included in the computation of diluted income per share because the options' exercise price was greater than the market price of the common shares. For the forty weeks ended July 1, 2000 and July 3, 1999 options to purchase 2,300 and 299,519 shares of common stock, respectively, were outstanding but were not included in the computation of diluted income per share because the options' exercise price was greater than the market price of the common shares. 4. Segment reporting Business conducted by the Company can be segmented into two distinct areas determined by the distribution channel. The direct mail segment is comprised of all consumer-direct sales and sales to small businesses which are solicited via catalogs and the Company's online store - www.GreenMountainCoffee.com. The wholesale segment is comprised of all sales to customers who resell Green Mountain coffee either as coffee beans or brewed coffee by the cup, such as supermarkets, office coffee distributors, convenience stores, restaurants, and others. Wholesale sales are generated through the Company's direct sales force and a limited number of distributors. Both segments of the Company sell similar products, although the entire Company product range is not fully available to both segments, and direct mail customers do not have access to the same range of equipment service, delivery and merchandising support as wholesale customers. Selling and operating costs directly attributable to the direct mail segment are charged accordingly while all remaining selling, operating, general and administrative expenses (including depreciation and amortization) are charged to the wholesale segment. The Company's management does not review assets by segment. The table below discloses segment net sales and pre-tax income for the twelve and forty weeks ended July 1, 2000 and July 3, 1999 (in thousands): Twelve weeks ended Forty weeks ended ---------------------------- ---------------------------- July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999 ------------ ------------ ------------ ------------ Net sales Reportable segments: Wholesale................. $ 18,898 $ 14,254 $ 59,406 $ 46,718 Direct mail............... 770 719 3,263 2,775 ------------ ------------ ------------ ------------ Total net sales........... $ 19,668 $ 14,973 $ 62,669 $ 49,493 ============ ============ ============ ============ Pre-tax income Reportable segments: Wholesale................. $ 1,311 $ 899 $ 4,502 $ 2,675 Direct mail............... 133 100 375 231 ------------ ------------ ------------ ------------ Operating income.......... 1,444 999 4,877 2,906 Reconciling items: Other income (expense).... 30 (5) 40 6 Interest (expense)........ (141) (164) (389) (639) ------------- ------------ ------------ ------------ Pre-tax income............ $ 1,333 $ 830 $ 4,528 $ 2,273 ============ ============ ============ ============
5. New Debt Agreement On April 7, 2000, the Company consolidated its credit facilities with Fleet Bank -NH ("Fleet"). The amended debt agreement provides for a revolving line of credit of $15,000,000, which matures on March 31, 2003 and is not subject to a borrowing base formula. The purpose of this new facility is to fund the Company's ordinary working capital requirements, planned repurchases of shares of stock and other general corporate purposes. The Fleet term debt facility, which had an outstanding balance of $2,050,000 on April 7, 2000, was extinguished using new borrowings under the line of credit. The interest paid on the new line of credit varies with the prime, LIBOR and Bankers Acceptance rates, plus a margin based on a performance price structure. On July 1, 2000, $9,400,000 was outstanding on the new line of credit. This credit facility is subject to certain quarterly covenants, and the Company was in compliance with these covenants on July 1, 2000. 6. Discontinued Company-Owned Retail Store Operations During the third fiscal quarter of 1998, the Company announced that it was discontinuing its company-owned retail store operations and estimated its loss on disposal at $1,259,000 (net of a tax benefit of $834,000). The pre-tax loss on disposal of $2,093,000 consisted of an estimated loss on disposal of the business of $1,692,000 and a provision of $401,000 for anticipated losses from May 29, 1998 (the measurement date) until disposal. The loss on disposal included provisions for estimated lease termination costs, write-off of leasehold improvements and other fixed assets, severance and employee benefits. During the second quarter of fiscal 1999, the Company revised its estimated pre-tax loss on disposal and reversed $300,000 ($186,000 net of tax) of the original estimate, primarily due to larger than expected proceeds from the sale of fixed assets and lower lease termination costs. 7. ChefExpress.net, Inc. Promissory Note On March 21, 2000, ChefExpress.net, Inc. delivered a promissory note to the Company in the principal amount of $100,000 and bearing an annual interest rate of 8%. The Company has the option to convert this loan into an equity investment at the time of ChefExpress.net's initial private placement offering. In the third quarter of fiscal 2000, due to a delay in the private placement, the Company recorded a 50% reserve on this promissory note. The investment in the ChefExpress.net venture represents an opportunity for the Company to be prominently featured in an e-procurement website that targets to chefs in restaurants and the high-end sector of the food service channel. A board member of Green Mountain Coffee is the Chief Executive Officer and President of ChefExpress.net. 8. Dutch Auction Self-Tender Offer and Open-Market Stock Repurchases On April 17, 2000, the Company commenced a Dutch Auction self-tender offer for up to 300,000 shares of the Company's Common Stock at a price range of $14.50 to $16 per share. Effective May 22, 2000, the Company accepted for purchase all 278,658 shares tendered at a purchase price of $16 per share. The costs associated with this transaction totaled $61,000. During the forty weeks ended July 1, 2000, the Company also repurchased 179,586 shares of its common stock in open-market transactions at a cost of $1,694,000, or an average of $9.43 per share. 9. Derivative instruments and hedging activities In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This pronouncement will require the Company to recognize derivatives on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company expects that this new standard will not have a significant effect on its results of operations. SFAS 137 deferred the effective date of SFAS 133 to fiscal years beginning after June 15, 2000, which is fiscal year 2001 for the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW For the forty weeks ended July 1, 2000, Green Mountain Coffee, Inc. (the "Company" or "Green Mountain") derived approximately 94.8% of its net sales from its wholesale operation. Green Mountain's wholesale operation sells coffee to retailers and food service concerns including supermarkets, restaurants, convenience stores, specialty food stores, hotels, universities and business offices. The Company's direct mail operation accounted for approximately 5.2% of net sales during the same period. Cost of sales consists of the cost of raw materials including coffee beans, flavorings and packaging materials, a portion of the Company's rental expense, the salaries and related expenses of production and distribution personnel, depreciation on production equipment and freight and delivery expenses. Selling and operating expenses consist of expenses that directly support the sales of the Company's wholesale or direct mail channels, including media and advertising expenses, a portion of the Company's rental expense, and the salaries and related expenses of employees directly supporting sales. General and administrative expenses consist of expenses incurred for corporate support and administration, including a portion of the Company's rental expense and the salaries and related expenses of personnel not elsewhere categorized. The Company's fiscal year ends on the last Saturday in September. The Company's fiscal year normally consists of 13 four-week periods with the first, second and third "quarters" ending 16 weeks, 28 weeks and 40 weeks, respectively, after the commencement of the fiscal year. Fiscal 2000, which began on September 26, 1999 and ends on September 30, 2000, will consist of 53 weeks with the thirteenth fiscal period having 5 weeks. COFFEE PRICES, AVAILABILITY AND GENERAL RISK FACTORS Green coffee commodity prices are subject to substantial price fluctuations, generally caused by multiple factors including weather, political and economic conditions in certain coffee-producing countries and other supply-related concerns. The Company believes that the "C" price of coffee (the price per pound quoted by the Coffee, Sugar and Cocoa Exchange) will remain highly volatile in Fiscal 2000 and beyond. In addition to the "C" price, coffee of the quality sought by Green Mountain also tends to trade on a negotiated basis at a substantial premium or "differential" above the "C" price. These differentials are also subject to significant variations. In the past, the Company has generally been able to pass increases in green coffee costs to its customers. However, there can be no assurance that the Company will be successful in passing such fluctuations on to the customers without losses in sales volume or gross margin in the future. Similarly, rapid sharp decreases in the cost of green coffee could also force the Company to lower sales prices before realizing cost reductions in its green coffee inventory. Because Green Mountain roasts over 25 different types of green coffee beans to produce its more than 60 varieties of coffee, if one type of green coffee bean were to become unavailable or prohibitively expensive, management believes Green Mountain could substitute another type of coffee of equal or better quality, meeting a similar taste profile, in a blend or temporarily remove that particular coffee from its product line. However, frequent substitutions could lead to cost increases and fluctuations in gross margins. Furthermore, a worldwide supply shortage of the high-quality arabica coffees the Company purchases could have an adverse impact on the Company. The Company enters into fixed coffee purchase commitments in an attempt to secure an adequate supply of quality coffees. To further reduce its exposure to rising coffee costs, the Company, from time to time, enters into futures contracts and buys options to hedge price-to-be-established coffee purchase commitments. The Company expects to face increasing competition in all its markets, as competitors improve the quality of their coffees to make them more comparable to Green Mountain's. In addition, specialty coffee is now more widely available and a number of competitors benefit from substantially larger promotional budgets following, among other factors, the acquisition of specialty coffee companies by large, consumer goods multinationals. The Company expects that the continued high quality and wide availability of its coffee across a large array of distribution channels and the added-value of its customer service processes will enable Green Mountain to successfully compete in this environment, although there can be no assurance that it will be able to do so. Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the applicable securities laws and regulations. In addition, the Company's representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statements that do not directly relate to any historical or current fact. Words such as "anticipates", "believes", "expects", "estimates", "intends", "plans", "projects", "may", and similar expressions, may identify such forward-looking statements. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those set forth in forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, business conditions in the coffee industry and food industry in general, fluctuations in availability and cost of green coffee, the impact of the loss of a major customer, economic conditions, prevailing interest rates, the management challenges of rapid growth, variances from budgeted sales mix and growth rate, consumer acceptance of the Company's new products, the impact of a tighter job market, weather and special or unusual events, as well as other risk factors described in the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1999 and other factors described from time to time in the Company's filings with the Securities and Exchange Commission. Forward-looking statements reflect management's analysis as of the date of this document. The Company does not undertake to revise these statements to reflect subsequent developments. RESULTS OF OPERATIONS Twelve weeks ended Forty weeks ended ---------------------------- ---------------------------- July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999 ------------ ------------ ------------ ------------ Net sales................................ 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales............................ 60.6 % 58.9 % 60.0 % 61.1 % ------------ ------------ ------------ ------------ Gross profit........................ 39.4 % 41.1 % 40.0 % 38.9 % Selling and operating expenses........... 25.0 % 26.1 % 24.9 % 25.4 % General and administrative expenses...... 7.1 % 7.8 % 7.1 % 7.4 % Loss on abandonment of fixed assets...... - 0.5 % 0.2 % 0.2 % ------------ ------------ ------------ ------------ Operating income.................... 7.3 % 6.7 % 7.8 % 5.9 % Other income (expense)................... 0.2 % (0.0)% 0.0 % 0.0 % Interest (expense)....................... (0.7)% (1.2)% (0.6)% (1.3)% ------------ ------------ ------------ ------------ Income from continuing operations before taxes........................ 6.8 % 5.5 % 7.2 % 4.6 % Income tax expense....................... (2.7)% (2.1)% (2.9)% (1.7)% ------------ ------------ ------------ ------------ Income from continuing operations... 4.1 % 3.4 % 4.3 % 2.9 % ------------ ------------ ------------ ------------ Income from discontinued operations, net of tax expense........................... - - - 0.3 % ------------ ------------ ------------ ------------ Net income.......................... 4.1 % 3.4 % 4.3 % 3.2 % ============ ============ ============ ============
TWELVE WEEKS ENDED JULY 1, 2000 VERSUS TWELVE WEEKS ENDED JULY 3, 1999 Net sales increased by $4,695,000, or 31.4%, from $14,973,000 for the twelve weeks ended July 3, 1999 (the "1999 period") to $19,668,000 for the twelve weeks ended July 1, 2000 (the "2000 period"). Coffee pounds sold increased by approximately 431,000 pounds, or 20.5%, from approximately 2,101,000 pounds in the 1999 period to approximately 2,532,000 pounds in the 2000 period. Sales of of the single-cup Keurig-BrewedTM line of coffees accounted for 214,000 pounds or 49.7% of the pounds growth. The difference between the percentage increase in net sales and the percentage increase in coffee pounds sold is primarily due to the increased sales of Keurig(R) K-cupsTM, whose sales price per coffee pound is greater than the Company's traditional product line. The increase in net sales is primarily attributable to the wholesale segment in which net sales increased by $4,644,000, or 32.6%, from $14,254,000 for the 1999 period to $18,898,000 for the 2000 period. The wholesale net sales increase resulted primarily from the growth in the office coffee service and, to a lesser extent, convenience store channels. Gross profit increased by $1,607,000, or 26.1%, from $6,152,000 for the 1999 period to $7,759,000 for the 2000 period. As a percentage of net sales, gross profit decreased 1.7 percentage points from 41.1% for the 1999 period to 39.4% for the 2000 period. The decrease in gross profit as a percentage of sales was due primarily to the increased sales of Keurig coffees which carry a lower percentage gross margin but also lower operating expenses. Selling and operating expenses increased by $998,000, or 25.5%, from $3,914,000 for the 1999 period to $4,912,000 for the 2000 period. Selling and operating expenses decreased 1.1 percentage points as a percentage of sales from 26.1% for the 1999 period to 25.0% for the 2000 period. The dollar increase in selling and operating expense was primarily due to increased sales and sales support personnel expenses, as well as increased marketing expenses. General and administrative expenses increased by $239,000, or 20.5%, from $1,164,000 for the 1999 period to $1,403,000 for the 2000 period, but decreased 0.7 percentage points as a percentage of sales from 7.8% for the 1999 period to 7.1% for the 2000 period. During the 1999 period, the Company recorded a $75,000 loss on abandonment of loaner equipment. Throughout fiscal 1999, the Company reviewed its inventory of brewing and other equipment on loan to wholesale customers. In the course of this review, a small portion of old equipment was identified which would never be retrieved from customer sites and was in effect given away to customers. As a result of the foregoing, operating income increased by $445,000, or 44.5%, from $999,000 for the 1999 period to $1,444,000 for the 2000 period. Interest expense decreased by $23,000, or 14.0%, from $164,000 for the 1999 period to $141,000 for the 2000 period. Due to recent successive increases in interest rates and repurchases of outstanding shares of the Company's common stock (through the Dutch Auction and other open market transactions - see "Liquidity and Other Resources" below), interest expense is not expected to continue decreasing year over year in the last quarter of fiscal 2000. Income tax expense increased $216,000, or 68.6%, from $315,000 for the 1999 period to $531,000 for the 2000 period. Net income increased by $287,000, or 55.7%, from $515,000 for the 1999 period to $802,000 in the 2000 period. FORTY WEEKS ENDED JULY 1, 2000 VERSUS FORTY WEEKS ENDED JULY 3, 1999 Net sales increased by $13,176,000, or 26.6%, from $49,493,000 for the forty weeks ended July 3, 1999 (the "1999 YTD period") to $62,669,000 for the forty weeks ended July 1, 2000 (the "2000 YTD period"). Coffee pounds sold increased by approximately 1,252,000 pounds, or 18.1%, from approximately 6,904,000 pounds in the 1999 YTD period to approximately 8,156,000 pounds in the 2000 YTD period. Sales of of the single-cup Keurig-BrewedTM line of coffees accounted for 579,000 pounds or 46.2% of the pounds growth. The difference between the percentage increase in net sales and the percentage increase in coffee pounds sold relates primarily to changes in Green Mountain's product sales mix. Sales are increasing fastest with products whose sales price per coffee pound is greater than the Company's traditional product line, such as single-cup Keurig-Brewed TM line of coffees and non-coffee products such as the Company's new Monte Verde TM powdered hot cappuccino and frozen granita products. The increase in net sales is attributable to the wholesale segment in which net sales increased by $12,688,000, or 27.2%, from $46,718,000 for the 1999 YTD period to $59,406,000 for the 2000 YTD period. The wholesale net sales increase resulted primarily from the growth in the office coffee service and, to a lesser extent, convenience store channels. Gross profit increased by $5,834,000, or 30.3%, from $19,240,000 for the 1999 YTD period to $25,074,000 for the 2000 YTD period. As a percentage of net sales, gross profit from continuing operations increased 1.1 percentage points from 38.9% for the 1999 YTD period to 40.0% for the 2000 YTD period. The increase in gross profit as a percentage of sales was due primarily to lower distribution costs, lower green coffee costs, offset in part by increased sales of products with lower gross margin percentages such as the Keurig line of coffees. Selling and operating expenses increased by $3,035,000, or 24.1%, from $12,568,000 for the 1999 YTD period to $15,603,000 for the 2000 YTD period, but decreased by 0.5 percentage point as a percentage of sales from 25.4% in the 1999 YTD period to 24.9% in the 2000 YTD period. The dollar increase in selling and operating expense was primarily due to increased sales personnel expenses, as well as increased marketing and promotional expenses. General and administrative expenses increased by $793,000, or 21.6%, from $3,666,000 for the 1999 YTD period to $4,459,000 for the 2000 YTD period, but decreased 0.3 percentage points as a percentage of sales from 7.4% for the 1999 YTD period to 7.1% for the 2000 YTD period. During the 2000 YTD period, following a thorough review of its production fixed assets, the Company recorded a $135,000 loss on abandonment of production equipment and software. A large portion of the equipment and software writen-off was the coffee roaster control system, which, following a series of upgrades and modifications, had been substantially replaced over time. During the 1999 YTD period, the Company recorded a $100,000 loss on abandonment of loaner equipment (see above). After the losses on abandonment of fixed assets referenced to above, operating income increased by $1,971,000, or 67.8%, from $2,906 ,000 for the 1999 YTD period to $4,877,000 for the 2000 YTD period. Interest expense decreased by $250,000, or 39.1%, from $639,000 for the 1999 YTD period to $389,000 for the 2000 YTD period. The decrease is due to the drop in long-term debt made possible by strong operating cash flows. Income tax expense increased $952,000, or 110.8%, from $859,000 for the 1999 YTD period to $1,811,000 for the 2000 YTD period. Income from continuing operations increased by $1,303,000, or 92.1%, from $1,414,000 for the 1999 YTD period to $2,717,000 in the 2000 YTD period. During the third quarter of fiscal 1998, the Company recorded a loss of $1,259,000 (net of a tax benefit of $834,000) on disposal of its company-owned retail stores operation. During the 1999 YTD period, after having sold or closed all of its stores, the Company revised its estimated pre-tax loss on disposal and reversed $300,000 ($186,000 net of tax) of the original estimate, primarily due to larger than expected proceeds from the sale of fixed assets and lower lease termination costs. Net income increased $1,117,000, or 69.8%, from $1,600,000 in the 1999 YTD period to $2,717,000 in the 2000 YTD period. LIQUIDITY AND CAPITAL RESOURCES Working capital increased $1,036,000 to $7,088,000 at July 1, 2000 from $6,052,000 at September 25, 1999. This increase is primarily due to higher accounts receivable and a decrease in the current portion of long-term debt, and was partially offset by higher accrued expenses. During the 2000 YTD period, Green Mountain had capital expenditures of $3,137,000, including $1,477,000 for equipment on loan to wholesale customers, $623,000 for production and distribution equipment and $634,000 for computer equipment and software. During the 1999 YTD period, Green Mountain had capital expenditures of $1,801,000, including $1,196,000 for equipment on loan to wholesale customers, $291,000 for computer equipment and $219,000 for production equipment. Cash used to fund the capital expenditures in the 2000 YTD period was obtained from net cash provided by operating activities. The Company currently plans to make capital expenditures in fiscal 2000 of approximately $4,000,000. Management continuously reviews capital expenditure needs and actual amounts expended may differ from these estimates. On April 7, 2000, the Company amended its credit facility with Fleet Bank -NH ("Fleet"). The amendment provides for an expanded revolving line of credit of $15,000,000, which matures on March 31, 2003 and is not subject to a borrowing base formula. The purpose of this new facility is to fund the Company's ordinary working capital requirements, planned repurchases of shares of stock and other general corporate purposes. The interest paid on the line of credit varies with the prime, LIBOR and Bankers Acceptance rates, plus a margin based on a performance price structure. On July 1, 2000, a total of $9,400,000 was outstanding under the new line of credit. The new Fleet credit facility is subject to certain quarterly covenants, and the Company was in compliance with these covenants at July 1, 2000. The Fleet term debt facility, which had an outstanding balance of $2,050,000 on April 7, 2000, was extinguished using new borrowings under the line of credit. In the 2000 YTD period, the Company also used $1,694,000 of its cash flow from operations to repurchase approximately 180,000 of its outstanding shares in the open market. In addition, on May 22, 2000, the Company concluded a Dutch Auction self-tender offer and accepted for purchase all 278,658 shares tendered at a purchase price of $16 per share. The total cost of this self-tender offer amounted to approximately $4,519,000. As Management believes the market is still undervaluing the Company's stock, Green Mountain intends to repurchase additional shares in fiscal 2000. Management believes that cash flow from operating activities, existing cash and the currently available credit facility will provide sufficient liquidity to pay all liabilities in the normal course of business, fund capital expenditures and service debt requirements through the remainder of calendar 2000. DEFERRED INCOME TAXES The Company had net deferred tax assets of $538,000 at July 1, 2000. These assets are reported net of a deferred tax asset valuation allowance at that date of $2,355,000 (including $2,306,000 primarily related to a Vermont investment tax credit). Presently, the Company believes that the deferred tax assets, net of deferred tax liabilities and the valuation allowance, are realizable and represent management's best estimate, based on the weight of available evidence as prescribed in SFAS 109, of the amount of deferred tax assets which most likely will be realized. However, management will continue to evaluate the amount of the valuation allowance based on near-term operating results and longer-term projections. YEAR 2000 In anticipation of the January 1, 2000 date change, Green Mountain developed and implemented a Year 2000 plan to address possible Year 2000 disruptions. The Company had assessed its Year 2000 readiness and identified its Year 2000 risk in three broad categories: internal business software; manufacturing, facilities and embedded chip technology; and external noncompliance by customers and suppliers. During the December 31, 1999 to January 1, 2000 date change, Green Mountain monitored its operations and computer systems and has experienced no apparent problems to date. Since January 1, 2000, the Company has also noted no significant Year 2000 problems with its customers and suppliers. The total cost associated with required modifications to become Year 2000 compliant did not have a material effect on Green Mountain's results of operations or financial condition. The Company spent approximately $100,000 on a telephone switching and voice mail system replacement project that was accelerated because of the Year 2000 project and approximately $250,000 on a co-generation project which was partly motivated by Year 2000 concerns related to possible power supply problems. Although Green Mountain believes that its Year 2000 plan successfully eliminated potential problems associated with the Year 2000 date change, it cannot guarantee that the plans, work and funds expended corrected all Year 2000 errors or that the information systems will not generate Year 2000 errors in the future, particularly when operating with third party computer systems or data. In addition, the Company cannot reliably predict the effect future third party disruptions may have on Green Mountain, its operations or financial condition. FACTORS AFFECTING QUARTERLY PERFORMANCE Historically, the Company has experienced significant variations in sales from quarter to quarter due to the holiday season and a variety of other factors, including, but not limited to, general economic trends, the cost of green coffee, competition, marketing programs, weather and special or unusual events. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in information relating to commodity price risks since the Company's disclosure included in Item 7A of Form 10-K as filed with the Securities and Exchange Commission on December 22, 1999. During the first quarter of fiscal 2000, the Company received $34,000 from Fleet National Bank for the termination of its interest rate swap agreement with a $6,000,000 notional amount. This payment was netted against interest expense for the first fiscal quarter. Due to the termination of this agreement, at July 1, 2000, the Company had $9,485,000 of debt subject to variable interest rates. A hypothetical 100 basis points increase in the LIBOR rate, Bankers Acceptance rate and prime rate would result in additional interest expense of $95,000 on an annualized basis. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1 Certificate of Incorporation(1) 3.2 Bylaws(1) 27 Financial Data Schedule. (b) No reports on Form 8-K were filed during the twelve weeks ended July 1, 2000. - ---------- (1) Incorporated by reference to the corresponding exhibit number in the Registration Statement on Form SB-2 (Registration No. 33-66646) filed on July 28, 1993, and declared effective on September 21, 1993. SIGNATURES 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. GREEN MOUNTAIN COFFEE, INC. Date: 8/14/2000 By: /s/ Robert P. Stiller --------- ------------------------------------------------ Robert P. Stiller, President and Chief Executive Officer Date: 8/14/2000 By: /s/ Robert D. Britt --------- ------------------------------------------------ Robert D. Britt, Chief Financial Officer, Treasurer and Secretary EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheet dated 7/1/00 and the Statement of Operations for the sixteen weeks ended 7/1/00 and is qualified in its entirety by reference to such financial statements. 0000909954 GREEN MOUNTAIN COFFEE INC. 1,000 USD OTHER SEP-30-2000 APR-09-2000 JUL-01-2000 1.000 574 0 8,373 235 5,768 15,120 20,145 9,581 26,171 8,032 9,708 0 0 365 8,066 26,171 19,668 19,668 11,909 11,909 4,912 0 141 1,333 531 802 0 0 0 802 0.25 0.23
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