UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 17, 2010
1-12340
(Commission File Number)
GREEN MOUNTAIN COFFEE ROASTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 03-0339228 | |
(Jurisdiction of Incorporation) | (IRS Employer Identification Number) |
33 Coffee Lane, Waterbury, Vermont 05676
(Address of registrants principal executive office)
(802) 244-5621
(Registrants telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01 Financial Statements and Exhibits.
The following financial statements and pro forma financial information omitted from the Current Report on Form 8-K dated December 17, 2010, in reliance upon Item 9.01 (a) and 9.01 (b) of Form 8-K are filed herewith.
(a) Financial Statements of Business Acquired
The following audited consolidated financial statements of LJVH Holdings Inc. (LJVH and together with its subsidiaries, Van Houtte) are filed herewith as Exhibit 99.2:
1. | Report of Independent Auditor |
2. | Consolidated Statement of Earnings for Van Houtte for the years ended April 3, 2010 and March 28, 2009, the 254-day period ended March 29, 2008 and for the Predecessor the 112-day period ended July 18, 2007 |
3. | Consolidated Statements of Comprehensive Income for Van Houtte for the years ended April 3, 2010 and March 28, 2009, for the 254-day period ended March 29, 2008 and for the Predecessor the 112-day period ended July 18, 2007 |
4. | Consolidated Balance Sheets for Van Houtte as of April 3, 2010 and March 28, 2009 |
5. | Consolidated Statement of Shareholders Equity for Van Houtte for the years ended April 3, 2010 and March 28, 2009, for the 254-day period ended March 29, 2008 and for the Predecessor the 112-day period ended July 18, 2007 |
6. | Consolidated Statement of Cash Flows for Van Houtte for the years ended April 3, 2010 and March 28, 2009, for the 254-day period ended March 29, 2008 and for the Predecessor for the 112-day period ended July 18, 2007 |
7. | Notes to Consolidated Financial Statements |
The following unaudited consolidated interim financial statements of Van Houtte are filed herewith as Exhibit 99.3:
1. | Condensed Consolidated Statement of Earnings (Unaudited) for Van Houtte for the twenty-eight weeks ended October 16, 2010 and October 10, 2009 |
2. | Condensed Consolidated Statements of Comprehensive Income (Unaudited) for Van Houtte for the twenty-eight weeks ended October 16, 2010 and October 10, 2009 |
3. | Condensed Consolidated Balance Sheets (Unaudited) for Van Houtte as of October 16, 2010, with comparative figures as of April 3, 2010 |
4. | Condensed Consolidated Statement of Shareholders Equity (Unaudited) for Van Houtte for the twenty-eight weeks ended October 16, 2010 |
5. | Condensed Consolidated Statement of Cash Flows (Unaudited) for Van Houtte for the twenty-eight weeks ended October 16, 2010 and October 10, 2009 |
6. | Notes to Condensed Consolidated Financial Statements (Unaudited) |
(b) Pro Forma Financial Information
Pro forma condensed combined financial information of Green Mountain Coffee Roasters, Inc. are filed herewith as Exhibit 99.4:
1. | Introduction to Pro Forma Condensed Combined Financial Information (Unaudited) |
2. | Pro Forma Condensed Combined Statement of Operations (Unaudited) for the thirteen weeks ended December 25, 2010 |
3. | Pro Forma Condensed Combined Statement of Operations (Unaudited) for the fifty-two weeks ended September 25, 2010 |
4. | Notes to Pro Forma Condensed Combined Financial Statements (Unaudited) |
(d) Exhibits
2.1 | Share Purchase Agreement, dated as of September 14, 2010, by and among Green Mountain Coffee Roasters, Inc., SSR Acquisition Corp., LJVH S.à.r.l., Fonds de solidarité des travailleurs du Québec (F.T.Q.), the individual shareholders and optionholders of LJVH Holdings Inc. and LJ Coffee Agent, LLC (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the fiscal year ended September 25, 2010) | |
23.1 | Consent of KPMG LLP | |
99.1 | Press Release dated December 17, 2010 (previously filed as an exhibit to the Current Report on Form 8-K filed on December 17, 2010) | |
99.2 | Consolidated Balance Sheets of LJVH Holdings Inc. and related Consolidated Statements of Earnings, Comprehensive Income, Shareholders Equity and Cash Flows | |
99.3 | Unaudited Condensed Consolidated Balance Sheets of LJVH Holdings Inc. and related Unaudited Condensed Consolidated Statements of Earnings, Comprehensive Income, Shareholders Equity and Cash Flows | |
99.4 | Unaudited Pro Forma Condensed Combined Financial Information of Green Mountain Coffee Roasters, Inc. |
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 hereunto duly authorized.
GREEN MOUNTAIN COFFEE ROASTERS, INC. | ||
By: | /s/ Frances G. Rathke | |
Name: | Frances G. Rathke | |
Title: | Chief Financial Officer |
Date: March 3, 2011
EXHIBIT INDEX
2.1 | Share Purchase Agreement, dated as of September 14, 2010, by and among Green Mountain Coffee Roasters, Inc., SSR Acquisition Corp., LJVH S.à.r.l., Fonds de solidarité des travailleurs du Québec (F.T.Q.), the individual shareholders and optionholders of LJVH Holdings Inc. and LJ Coffee Agent, LLC (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the fiscal year ended September 25, 2010) | |
23.1 | Consent of KPMG LLP | |
99.1 | Press Release dated December 17, 2010 (previously filed as an exhibit to the Current Report on Form 8-K filed on December 17, 2010) | |
99.2 | Consolidated Balance Sheets of LJVH Holdings Inc. and related Consolidated Statements of Earnings, Comprehensive Income, Shareholders Equity and Cash Flows | |
99.3 | Unaudited Condensed Consolidated Balance Sheets of LJVH Holdings Inc. and related Unaudited Condensed Consolidated Statements of Earnings, Comprehensive Income, Shareholders Equity and Cash Flows | |
99.4 | Unaudited Pro Forma Condensed Combined Financial Information of Green Mountain Coffee Roasters, Inc. |
Exhibit 23.1
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KPMG LLP | Telephone | (514) 840-2100 | |||||||||
Chartered Accountants | Fax | (514) 840-2187 | ||||||||||
600 de Maisonneuve Blvd. West | Internet | www.kpmg.ca | ||||||||||
Suite 1500 | ||||||||||||
Tour KPMG | ||||||||||||
Montréal (Québec) H3A 03A |
AUDITORS CONSENT
The Board of Directors
Van Houtte Holding Company Limited (previously LJVH Holdings Inc.):
We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-29641, No. 333-65321, No. 333-78937, No. 333-70116, No. 333-123255, No. 333-135237, No. 333-141567, No. 333-150929 and No. 333-163544) and on Form S-3 (No. 333-160974) of Green Mountain Coffee Roasters, Inc. of our report dated March 3, 2011, with respect to the consolidated balance sheets of LJVH Holdings Inc. as of April 3, 2010 and March 28, 2009 and the related consolidated statements of earnings, comprehensive income and shareholders equity, and cash flows for the years ended April 3, 2010 and March 28, 2009, the 254-day period ended March 29, 2008, and the 112-day period ended July 18, 2007 of the Predecessor of LJVH Holdings Inc., which report appears in the Form 8-K/A of Green Mountain Coffee Roasters, Inc. dated March 3, 2011.
/s/ KPMG LLP |
Chartered Accountants |
Montréal, Canada
March 3, 2011
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
Exhibit 99.2
Consolidated Financial Statements of
LJVH HOLDINGS INC.
Years ended April 3, 2010 and March 28, 2009 and
the 254-day period ended March 29, 2008 and
the 112-day period ended July 18, 2007 of the Predecessor
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||||||
KPMG LLP | Telephone | (514) 840-2100 | ||||
Chartered Accountants | Fax | (514) 840-2187 | ||||
600 de Maisonneuve Blvd. West | Internet | www.kpmg.ca | ||||
Suite 1500 | ||||||
Tour KPMG | ||||||
Montréal (Québec) H3A 03A |
INDEPENDENT AUDITORS REPORT
To the Board of Directors of Van Houtte Holding Company Limited
(previously LJVH Holdings Inc.)
We have audited the accompanying consolidated balance sheets of LJVH Holdings Inc. (the Company) as of April 3, 2010 and March 28, 2009, and the related consolidated statements of earnings, comprehensive income, shareholders equity and cash flows for the years ended April 3, 2010 and March 28, 2009, the 254-day period ended March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor of the Company. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 3, 2010 and March 28, 2009, and the results of its operations and its cash flows for the years ended April 3, 2010 and March 28, 2009, the 254-day period ended March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor of the Company, in conformity with generally accepted accounting principles in the United States of America.
/s/ KPMG LLP
Chartered Accountants
Montréal, Canada
March 3, 2011
*CA Auditor permit no 13892 | ||
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative («KPMG International»), a Swiss entity. KPMG Canada provides services to KPMG LLP. |
LJVH HOLDINGS INC.
Consolidated Financial Statements
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
Financial Statements |
||||
Consolidated Statement of Earnings |
4 | |||
Consolidated Statement of Comprehensive Income |
5 | |||
Consolidated Balance Sheets |
6 | |||
Consolidated Statement of Shareholders Equity |
7 | |||
Consolidated Statement of Cash Flows |
8 | |||
Notes to Consolidated Financial Statements |
10 |
LJVH HOLDINGS INC.
Consolidated Statement of Earnings
(In thousands of U.S. dollars)
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||||||
(254 days) | (112 days) | |||||||||||||||||||
Net sales of coffee and related items |
$ | 341,519 | $ | 320,091 | $ | 228,885 | $ | 90,461 | ||||||||||||
Rental income (note 3) |
37,356 | 39,184 | 35,943 | 12,250 | ||||||||||||||||
Other revenues |
2,159 | 2,190 | 2,238 | 593 | ||||||||||||||||
Total revenues |
381,034 | 361,465 | 267,066 | 103,304 | ||||||||||||||||
Cost of sales (including $23,844, $22,451, $16,182 and $7,131 of depreciation) |
190,039 | 173,698 | 140,770 | 50,221 | ||||||||||||||||
190,995 | 187,767 | 126,296 | 53,083 | |||||||||||||||||
Selling and operating expenses |
107,144 | 104,958 | 70,200 | 28,858 | ||||||||||||||||
General and administrative expenses |
49,245 | 49,684 | 38,154 | 16,440 | ||||||||||||||||
Operating profit |
34,606 | 33,125 | 17,942 | 7,785 | ||||||||||||||||
Financial expenses (note 4) |
29,146 | 39,694 | 40,321 | 1,006 | ||||||||||||||||
Goodwill impairment loss (note 5) |
| | | 5,036 | ||||||||||||||||
Other expenses (note 5) |
| | | 6,756 | ||||||||||||||||
Earnings (loss) before income taxes |
5,460 | (6,569 | ) | (22,379 | ) | (5,013 | ) | |||||||||||||
Income tax (recovery) expense (note 6) |
(6,287 | ) | 4,363 | (11,322 | ) | 14,326 | ||||||||||||||
Net earnings (loss) |
11,747 | (10,932 | ) | (11,057 | ) | (19,339 | ) | |||||||||||||
Net earnings attributable to redeemable non-controlling interest |
1,863 | 2,295 | 1,576 | 553 | ||||||||||||||||
Net earnings (loss) attributable to LJVH Holdings Inc. |
$ | 9,884 | $ | (13,227 | ) | $ | (12,633 | ) | $ | (19,892 | ) | |||||||||
See accompanying notes to consolidated financial statements.
4
LJVH HOLDINGS INC.
Consolidated Statement of Comprehensive Income
(In thousands of U.S. dollars)
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||||||
(254 days) | (112 days) | |||||||||||||||||||
Net earnings (loss) |
$ | 11,747 | $ | (10,932 | ) | $ | (11,057 | ) | $ | (19,339 | ) | |||||||||
Other comprehensive income (loss), net of income tax: |
||||||||||||||||||||
Unrealized gain (loss) on foreign currency translation adjustment |
7,097 | (6,753 | ) | 1,187 | (10,976 | ) | ||||||||||||||
Pension benefits |
(122 | ) | (45 | ) | 20 | 90 | ||||||||||||||
Contractual termination benefits |
| | | (381 | ) | |||||||||||||||
Other comprehensive income (loss) |
6,975 | (6,798 | ) | 1,207 | (11,267 | ) | ||||||||||||||
Total comprehensive income (loss) |
18,722 | (17,730 | ) | (9,850 | ) | (30,606 | ) | |||||||||||||
Total comprehensive income (loss) attributed to redeemable non-controlling interest |
5,233 | (929 | ) | 1,921 | (16 | ) | ||||||||||||||
Total comprehensive income (loss) attributed to LJVH Holdings Inc. |
$ | 13,489 | $ | (16,801 | ) | $ | (11,771 | ) | $ | (30,590 | ) | |||||||||
See accompanying notes to consolidated financial statements.
5
LJVH HOLDINGS INC.
Consolidated Balance Sheets
(In thousands of U.S. dollars)
April 3, 2010 |
March 28, 2009 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 39,828 | $ | 25,173 | ||||
Restricted cash (note 21 (d)) |
500 | 1,500 | ||||||
Accounts receivable, net |
52,682 | 40,488 | ||||||
Inventories, net (note 10) |
29,476 | 27,200 | ||||||
Income taxes receivable |
3,117 | 3,565 | ||||||
Derivative financial instruments (note 21) |
164 | 3,743 | ||||||
Deferred income taxes (note 6) |
1,797 | 1,806 | ||||||
Prepaid expenses |
4,465 | 3,125 | ||||||
Total current assets |
132,029 | 106,600 | ||||||
Fixed assets, net (note 11) |
104,587 | 96,875 | ||||||
Intangible assets, net (note 12) |
258,978 | 218,503 | ||||||
Deferred income taxes (note 6) |
2,070 | 1,202 | ||||||
Goodwill (note 13) |
244,603 | 209,900 | ||||||
Derivative financial instruments (note 21) |
| 35,476 | ||||||
Other long-term assets |
8,001 | 8,712 | ||||||
$ | 750,268 | $ | 677,268 | |||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 22,444 | $ | 21,808 | ||||
Accrued compensation |
12,250 | 8,278 | ||||||
Accrued customer incentives |
10,157 | 3,742 | ||||||
Accrued interest |
5,766 | 9,892 | ||||||
Income taxes payable |
266 | | ||||||
Deferred revenue |
1,078 | 667 | ||||||
Deferred income taxes (note 6) |
213 | 122 | ||||||
Derivative financial instruments (note 21) |
10,974 | 7,435 | ||||||
Current portion of long-term debt (note 14) |
11,960 | 4,502 | ||||||
Total current liabilities |
75,108 | 56,446 | ||||||
Long-term debt (note 14) |
358,592 | 369,663 | ||||||
Subordinated note to parent company (note 15) |
90,309 | 69,870 | ||||||
Derivative financial instruments (note 21) |
27,793 | 5,993 | ||||||
Other long-term liabilities (note 16) |
9,462 | 6,705 | ||||||
Deferred income taxes (note 6) |
74,712 | 66,807 | ||||||
Redeemable non-controlling interest (note 8) |
14,415 | 21,216 | ||||||
Shareholders equity: |
||||||||
Capital stock (note 17) |
117,038 | 114,928 | ||||||
Accumulated deficit |
(18,054 | ) | (31,648 | ) | ||||
Accumulated other comprehensive income (note 18) |
893 | (2,712 | ) | |||||
Total equity attributable to LJVH Holdings Inc. |
99,877 | 80,568 | ||||||
Commitments and guarantees (note 19) |
||||||||
Contingencies (note 20) |
||||||||
Subsequent events (note 22) |
||||||||
$ | 750,268 | $ | 677,268 | |||||
See accompanying notes to consolidated financial statements.
6
LJVH HOLDINGS INC.
Consolidated Statement of Shareholders Equity
(In thousands of U.S. dollars)
Equity attributable to redeemable non-controlling interest |
Capital stock |
Contributed surplus |
Accumulated deficit |
Accumulated other comprehensive income |
Total shareholders equity |
|||||||||||||||||||
Balance, as at March 31, 2007 |
$ | 20,019 | $ | 111,268 | $ | 1,645 | $ | 100,919 | $ | 8,939 | $ | 222,771 | ||||||||||||
(Predecessor) |
||||||||||||||||||||||||
Net earnings (loss) |
553 | | | (19,892 | ) | | (19,892 | ) | ||||||||||||||||
Other comprehensive loss |
(570 | ) | | | (10,698 | ) | (10,698 | ) | ||||||||||||||||
Acquisition of non-controlling interest |
(260 | ) | | | | | | |||||||||||||||||
Adjustment of redeemable non-controlling interest to redemption value |
(1,459 | ) | | | 1,459 | | 1,459 | |||||||||||||||||
Dividends |
(533 | ) | | | | | | |||||||||||||||||
Issuance of shares (note 17) |
| 735 | (181 | ) | | | 554 | |||||||||||||||||
Stock-based compensation |
| | 30 | | | 30 | ||||||||||||||||||
Cash-out option (note 17) |
| | (1,494 | ) | (1,313 | ) | | (2,807 | ) | |||||||||||||||
Balance as at July 18, 2007 |
17,750 | 112,003 | | 81,173 | (1,759 | ) | 191,417 | |||||||||||||||||
(Predecessor) |
||||||||||||||||||||||||
Cancellation of Predecessor |
||||||||||||||||||||||||
Capital, deficit and accumulated other comprehensive (loss) income |
| (112,003 | ) | | (81,173 | ) | 1,759 | (191,417 | ) | |||||||||||||||
Issuance of shares (note 17) |
| 112,608 | | | | 112,608 | ||||||||||||||||||
Balance as at July 19, 2007 |
17,750 | 112,608 | | | | 112,608 | ||||||||||||||||||
Net earnings (loss) |
1,576 | | | (12,633 | ) | | (12,633 | ) | ||||||||||||||||
Other comprehensive income |
345 | | | | 862 | 862 | ||||||||||||||||||
Acquisition of non-controlling interest |
(243 | ) | | | | | | |||||||||||||||||
Adjustment of redeemable non-controlling interest to redemption value |
2,153 | | | (2,153 | ) | | (2,153 | ) | ||||||||||||||||
Dividends |
(1,251 | ) | | | | | | |||||||||||||||||
Issuance of shares (note 17) |
| 119 | | | | 119 | ||||||||||||||||||
Balance as at March 29, 2008 |
20,330 | 112,727 | | (14,786 | ) | 862 | 98,803 | |||||||||||||||||
Net earnings (loss) |
2,295 | | | (13,227 | ) | | (13,227 | ) | ||||||||||||||||
Other comprehensive loss |
(3,224 | ) | | | | (3,574 | ) | (3,574 | ) | |||||||||||||||
Adjustment of redeemable non-controlling interest to redemption value |
3,635 | | | (3,635 | ) | | (3,635 | ) | ||||||||||||||||
Issuance of shares (note 17) |
| 2,214 | | | | 2,214 | ||||||||||||||||||
Redemption of shares |
| (13 | ) | | | | (13 | ) | ||||||||||||||||
Dividends paid |
(1,820 | ) | | | | | | |||||||||||||||||
Balance as at March 28, 2009 |
21,216 | 114,928 | | (31,648 | ) | (2,712 | ) | 80,568 | ||||||||||||||||
Net earnings |
1,863 | | | 9,884 | | 9,884 | ||||||||||||||||||
Other comprehensive income |
3,370 | | | | 3,605 | 3,605 | ||||||||||||||||||
Acquisition of redeemable non-controlling interest (note 8) |
(6,956 | ) | | | | | | |||||||||||||||||
Adjustment of redeemable non-controlling interest to redemption value |
(3,710 | ) | | | 3,710 | | 3,710 | |||||||||||||||||
Issuance of shares (note 17) |
| 2,110 | | | | 2,110 | ||||||||||||||||||
Dividends paid |
(1,368 | ) | | | | | | |||||||||||||||||
Balance as at April 3, 2010 |
$ | 14,415 | $ | 117,038 | $ | | $ | (18,054 | ) | $ | 893 | $ | 99,877 | |||||||||||
See accompanying notes to consolidated financial statements.
7
LJVH HOLDINGS INC.
Consolidated Statement of Cash Flows
(In thousands of U.S. dollars)
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||||||
(254 days) | (112 days) | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net earnings (loss) |
$ | 11,747 | $ | (10,932 | ) | $ | (11,057 | ) | $ | (19,339 | ) | |||||||||
Adjustments for: |
||||||||||||||||||||
Depreciation of fixed assets |
32,677 | 31,373 | 23,061 | 9,353 | ||||||||||||||||
Amortization of intangible and other long-term assets |
8,116 | 8,010 | 6,046 | 435 | ||||||||||||||||
Amortization of financing costs (note 4) |
1,432 | 1,393 | 1,072 | 242 | ||||||||||||||||
Deferred income taxes (note 6) |
(4,802 | ) | 2,624 | (15,053 | ) | 10,734 | ||||||||||||||
Pension expense and post-employment benefits |
281 | (1,925 | ) | 860 | 325 | |||||||||||||||
Change in fair value of derivative financial instruments and unrealized foreign exchange loss (gain) on translation of long-term debt (note 4) |
(6,486 | ) | 2,115 | 10,165 | | |||||||||||||||
Gain on disposal of businesses |
| (845 | ) | | | |||||||||||||||
Loss on disposal of investment |
| | | 294 | ||||||||||||||||
Goodwill impairment loss |
| | | 5,036 | ||||||||||||||||
(Gain) loss on disposal of fixed assets |
(185 | ) | 545 | (60 | ) | (114 | ) | |||||||||||||
Other |
(6 | ) | 2,287 | 3,685 | 31 | |||||||||||||||
Net change in non-cash balances related to working capital items (note 7) |
(1,946 | ) | (9,480 | ) | 22,603 | (5,526 | ) | |||||||||||||
40,828 | 25,165 | 41,322 | 1,471 |
8
LJVH HOLDINGS INC.
Consolidated Statement of Cash Flows, Continued
(In thousands of U.S. dollars)
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||
Issuance of common shares and Class B preferred shares (note 17) |
$ | 2,110 | $ | 2,200 | $ | 119 | $ | 553 | ||||||||
Increase in subordinated note to parent company |
4,218 | 3,883 | | | ||||||||||||
Repayment of long-term debt |
(4,299 | ) | (3,084 | ) | (1,798 | ) | (22,145 | ) | ||||||||
Dividends paid to redeemable non-controlling shareholders of subsidiaries |
(1,368 | ) | (1,820 | ) | (1,251 | ) | (533 | ) | ||||||||
Dividends |
| | | (4,932 | ) | |||||||||||
Purchase of redeemable non-controlling interests (note 8) |
(6,555 | ) | | | | |||||||||||
Premium paid on redemption of options (note 17) |
| | | (2,807 | ) | |||||||||||
Increase in long-term debt |
| | | 27,112 | ||||||||||||
(5,894 | ) | 1,179 | (2,930 | ) | (2,752 | ) | ||||||||||
Cash flows from investing activities: |
||||||||||||||||
Business and asset acquisitions and disposals (note 2) |
(2,603 | ) | 126 | (2,045 | ) | (1,418 | ) | |||||||||
Additions to fixed assets |
(24,961 | ) | (25,070 | ) | (18,631 | ) | (8,691 | ) | ||||||||
Proceeds from disposal of fixed assets |
757 | 1,666 | 821 | 252 | ||||||||||||
Proceeds from disposal on an investment |
| | | 7,330 | ||||||||||||
Decrease (increase) in other long-term assets |
707 | (156 | ) | 164 | (2 | ) | ||||||||||
(26,100 | ) | (23,434 | ) | (19,691 | ) | (2,529 | ) | |||||||||
Effect of exchange rate changes on cash |
5,821 | (4,488 | ) | 419 | 187 | |||||||||||
Net increase (decrease) in cash and cash equivalents |
14,655 | (1,578 | ) | 19,120 | (3,623 | ) | ||||||||||
Cash and cash equivalents, beginning of year |
25,173 | 26,751 | 7,631 | 4,179 | ||||||||||||
Cash and cash equivalents, end of year |
$ | 39,828 | $ | 25,173 | $ | 26,751 | $ | 556 | ||||||||
See accompanying notes to consolidated financial statements.
9
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
LJVH Holdings Inc. (the Company) is a gourmet coffee roaster, marketer and distributor. It markets its gourmet coffees across Canada and the United States through distribution channels that include coffee services, retail stores, bistros, on-line shopping and food service networks.
The Company was incorporated under the Business Corporations Act of British Columbia. The headquarters of the Company is located in Montréal, Québec, Canada.
1. | Significant accounting policies: |
(a) | Basis of presentation: |
These consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). These consolidated financial statements include the accounts of LJVH Holdings Inc. as formed by virtue of the acquisition of Van Houtte for the period from July 19, 2007 (date of acquisition) to April 3, 2010 (the Successor Period).
The Consolidated Statements of Earnings, Comprehensive Income, Shareholders Equity, and Cash Flows present the results of the Predecessor and its wholly-owned subsidiaries for the 112-day period from March 31, 2007 to July 18, 2007 (the 2007 Predecessor Period), for information purposes.
The significant accounting policies adopted by the Company are described below. These accounting policies are consistent with those followed by the Predecessor during the relevant periods presented. The consolidated financial statements presented for the 2007 Predecessor Period are not comparable, in all material respects, to the financial statements for the Successor Period as a result of the transaction described in note 2.
The Companys functional currency is the Canadian (CDN) dollar. The Companys reporting currency is the U.S. dollar. For reporting purposes, the Company uses the current rate method to translate the CDN dollar results into U.S. dollars for all periods.
The Companys fiscal year ends on the Saturday closest to March 31. Fiscal years 2010 and 2009 had 53 and 52 weeks, respectively.
10
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(b) | Consolidation: |
These consolidated financial statements include the accounts of LJVH Holdings Inc. and its subsidiaries. All significant transactions and balances between these companies have been eliminated. All consolidated subsidiaries are wholly-owned as of April 3, 2010 with the exception of the following:
Consolidated subsidiary |
Business purpose |
Ownership | ||||
LAuthentique Pose Café, Inc. |
Coffee Services | 50 | % | |||
Automates Alouette, Inc. |
Coffee Services | 75 | % | |||
Pause Café Estrie, Inc. |
Coffee Services | 50 | % | |||
Corporate Coffee Systems, LLC |
U.S. Coffee Services | 56 | % |
The major subsidiaries of LJVH Holdings Inc. are Van Houtte Group Inc., including its principal subsidiaries Van Houtte L.P. and Van Houtte Coffee Services L.P., Van Houtte Coffee Services Inc., VKI Technologies Inc., and Filterfresh Coffee Service, Inc., including its principal subsidiary, Corporate Coffee Services, LLC.
The Company does not hold investment in affiliated companies where it is deemed to have significant influence.
(c) | Use of estimates: |
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the related amounts of revenues and expenses and the disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to the determination of the useful life of assets for depreciation and amortization and evaluation of net recoverable amounts, the determination of the fair value of assets acquired and liabilities assumed in business combinations, the implied fair value of goodwill, the provisions for income taxes and determination of deferred income tax assets and liabilities that take into account the estimate of taxable benefits in the various jurisdictions, and the determination of the fair value of financial instruments. Actual results could differ from those estimates.
(d) | Cash and cash equivalents: |
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents include money market funds.
11
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(e) | Restricted cash: |
The restricted cash consists of cash posted as collateral for settlement of future coffee contracts.
(f) | Accounts receivable, net: |
Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses and current receivables aging. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of April 3, 2010 and March 28, 2009, the allowance for doubtful accounts was $1,020,000 and $1,093,000, respectively.
(g) | Inventories, net: |
Inventories consist primarily of green and roasted coffees as well as coffee brewers and packaging materials.
Finished goods, work-in-process and raw material are valued at the lower of cost and market; cost is mainly determined on a first in, first out basis.
(h) | Fixed assets, net: |
Fixed assets are stated at cost, net of any investment tax credits, which are accounted for when qualified expenditures are incurred.
The Company follows an industry-wide practice of purchasing and renting coffee brewing and related equipment to customers. These assets are also carried at cost, net of accumulated depreciation.
Expenditures for maintenance, repairs and renewals of minor items are expensed as incurred.
12
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(h) | Fixed assets, net (continued): |
Depreciation is calculated using the straight-line method over the following periods:
Asset |
Period | |
Buildings |
20 to 30 years | |
Coffee service equipment |
2 to 7 years | |
Vending equipment |
12 years | |
Machinery and equipment |
5 to 15 years | |
Furniture |
10 years | |
Computer equipment |
3 years | |
Software |
5 years | |
Vehicles |
3 to 15 years | |
Leasehold improvements |
Lesser of term of lease and useful life |
Depreciation of roasting plants, machinery and equipment, coffee service equipment and vending equipment is included in cost of sales. Depreciation of other fixed assets is included in selling and administrative expenses.
(i) | Impairment of long-lived assets: |
The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss is recognized when the carrying amount of a group of assets held for use exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. Measurement of an impairment loss is based on the amount by which the group of assets carrying amount exceeds its fair value. Fair value is determined using quoted market prices, when available, or using accepted valuation techniques such as the discounted cash flows method.
13
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(j) | Goodwill: |
Goodwill represents the excess of the purchase price over the fair values assigned to identifiable net assets acquired. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is not required. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting units goodwill is compared with its carrying amount to measure the amount of the impairment loss. When the carrying amount of the reporting units goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the statement of earnings.
The Company carried out the test as at April 3, 2010 and March 28, 2009, and concluded it was not required to record an impairment to the carrying value of goodwill.
(k) | Intangible assets: |
Intangible assets are stated at cost.
(i) | Customer relations are amortized on the straight-line basis over periods between 15 and 25 years. |
(ii) | Trade name and trademarks acquired as part of business acquisitions are considered to have an indefinite life and are therefore not subject to amortization. They are tested annually for impairment, or more frequently when events or changes in circumstances indicate that the asset might be impaired. The impairment test compares the carrying amount of the trade name and trademarks with their fair values. |
(iii) | Non-compete agreements and franchise agreements are primarily amortized over a period of three to five years in accordance with terms of underlying agreement. |
(iv) | Patents and licenses are recorded at cost and are amortized using the straight-line method over 17 years. |
The amortization of intangible assets is included in selling and operating expenses.
14
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(l) | Deferred financing cost: |
The deferred financing costs related to long-term financing are being amortized over the respective life of the applicable debt using a method that approximates the effective interest rate method. Deferred financing costs included in other long-term assets in the accompanying consolidated balance sheet as at April 3, 2010 and March 28, 2009 amount to $6,681,000 and $6,709,000, respectively.
(m) | Income taxes: |
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply when the assets are realized or the liabilities settled. Deferred income tax assets are recognized and, if realization is not considered more likely than not, a valuation allowance is provided. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in earnings in the period during which that enactment occurs.
The Company accounts for tax uncertainties under a two-step approach to determine the amount of tax benefit to be recognized. First, the recognition threshold is evaluated to determine the likelihood a tax position will be sustained upon examination. If the position is determined to be more-likely-than-not to be sustained, then the tax position is measured to determine the amount of benefit to be recognized in the Companys financial statements.
(n) | Employee future benefits: |
(i) | Contractual termination benefits: |
The Company accrues the estimated cost of the contractual termination benefits that do not vest, when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. For vesting contractual termination benefits, the liability and expense are recognized in the period in which employees render services to the entity in return for the benefits, i.e. as defined benefit plans.
15
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(n) | Employee future benefits (continued): |
(ii) | Pension plan: |
The Company grants certain employees a supplementary defined benefit retirement plan and grants a retirement program for management. The cost of the supplementary employee retirement plans (SERP) is calculated according to actuarial methods that encompass managements best estimate regarding the future evolution of salary levels, the age of retirement of salaried employees and other actuarial factors. These plans are not funded, and the payment of future benefits will be done from the funds of the Company.
The pension expense is applied against earnings and includes the following items:
| The cost of pension benefits provided in exchange for employees services rendered during the year. |
| The amortization of cumulative unrecognized net actuarial gains and losses in excess of 10% of the benefit obligation over the expected average remaining service life of active employees covered by the plan. |
| The amortization of prior service cost over the expected average remaining service life of active employees covered by the plan. |
The Company also offers to certain of its employees defined contribution plans. Under these plans, employees can contribute a certain percentage of their salary and the Company can also make annual contributions to the plan.
(o) | Foreign currency translation: |
The Companys functional currency is the Canadian (CDN) dollar. The Companys reporting currency is the U.S. dollar. For reporting purposes, the Company uses the current rate method to translate the CDN dollar results into U.S. dollars for both the current and prior periods. Under the current rate method, the assets and liabilities are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates; revenue and expenses, as well as cash flow items, are translated at average exchange rates for the periods. Any resulting exchange gain or loss on translation is charged or credited to the foreign currency translation adjustment account included as a separate component of accumulated other comprehensive income (loss).
16
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(o) | Foreign currency translation (continued): |
U.S. subsidiaries designated the U.S. dollar currency as their functional currency.
In respect of other transactions denominated in currencies other than the functional currency, monetary assets and liabilities of the Company are translated at the period-end rates, and non-monetary assets and liabilities are translated at historical rates. Revenue and expenses are translated at average rates of exchange for the period. All of the exchange gains or losses resulting from these other transactions are recognized in earnings.
(p) | Derivative financial instruments: |
The Company uses various derivative financial instruments to manage its exposure to fluctuations in interest rates, foreign currency exchange rates and commodity pricing. The Company does not hold or use any derivative instruments for trading purposes and does not apply hedge accounting.
Coffee purchases are generally denominated in U.S. dollars. The Company uses foreign exchange forward contracts and coffee futures contracts to manage its risks on the purchase of raw materials.
The Company also uses cross currency swap and interest rate swaps to manage its exposure to fluctuations in the foreign exchange rate between the U.S. dollar and the Canadian dollar and the interest rate risk related to its foreign denominated and variable interest rate borrowing namely its first and second lien credit facilities.
Changes in the fair value of coffee futures contracts are recorded in cost of goods sold, while the changes in fair value of interest rate swaps, cross currency swaps and forward foreign exchange contracts are recorded in financial expenses.
17
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(p) | Derivative financial instruments (continued): |
Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date, and it is based on the principal or most advantageous market for the specific asset or liability. The Company considers the risk of non-performance of the obligor, which in some cases reflects its own credit risk, in determining fair value. In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. This fair value hierarchy is as follows:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities as derived from various stock exchanges;
Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Quoted prices of inputs are obtained from such sources as matrix pricing and corroborated pricing or yield curves and indices; and
Level 3 Unobservable inputs for the asset or liability are obtained from assumptions derived from such sources as investment manager pricing for private placements, private equities, hedge funds, etc.
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used in the determination of fair value of the Companys assets and liabilities, when required, maximize the use of observable inputs and minimize the use of unobservable inputs.
18
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(q) | Revenue recognition: |
The Company recognizes revenue from its sales of coffee, coffee services and related products to both direct and wholesale customers, including franchisees, when persuasive evidence of an arrangement exists, the sales prices are fixed or determinable, products are shipped or when services are provided and the customer takes ownership and assumes the risk of loss and collection of the relevant receivable is probable.
Rental income is billed on a periodic or a monthly basis and recognized when services are provided and all obligations have been met. When customers are invoiced, the portion of unearned revenues is recorded as deferred revenues.
The Companys customers can receive certain incentives and allowances which are recorded as a reduction of sales when the sales incentive is offered and committed to or, if the incentive relates to specific sales, at the later of when that revenue is recognized or the date at which the sales incentive is offered. These incentives include volume based incentive programs and other sales related incentives.
(r) | Cost of sales: |
Cost of sales for the Company consists of the cost of raw materials including green coffee inclusive of flavorings and packaging materials; production, warehousing and distribution center costs consisting of direct labor, production overhead, lease of premises and equipment used in production, the cost of brewing equipment manufacturers, fulfillment charges (including those paid to third parties), royalty to third parties, warranty expense, duties, shipping and handling expenses.
(s) | Advertising costs: |
The Company expenses the costs of advertising the first time the advertising takes place, except for direct mail campaigns targeted directly at consumers, which are expensed over the period during which they are expected to generate sales. At April 3, 2010 and March 28, 2009, prepaid advertising costs of $187,865 and $123,940, respectively, were recorded in prepaid expenses in the accompanying consolidated balance sheet.
Advertising expense totaled $7,652,042, $6,216,707, $3,982,697 and $1,543,522, for the years ended April 3, 2010 and March 28, 2009, and the 254-day period ended March 29, 2008 and 112-day period ended July 18, 2007, respectively.
19
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(t) | Research and development costs: |
Research and development expenses are charged to income as incurred. These expenses amounted to $667,194, $551,139, $531,822 and $255,599, for the years ended April 3, 2010 and March 28, 2009 and the 254-day period ended March 29, 2008 and the 112-day period ended July 18, 2007, respectively. These costs primarily consist of salary and consulting expenses.
(u) | Leasing arrangements: |
The Company leases premises from a third party and also leases brewing equipment to customers. Franchisees lease space and the Company has guaranteed certain of those leases. See note note 19 (c) (ii).
(v) | Stock-based compensation and other stock-based payments: |
The fair value of stock options to employees and directors is determined at the date of grant using the Black-Scholes option pricing model, and the compensation cost is expensed, on a straight-line basis, over the vesting period of the options with a corresponding increase in contributed surplus. The Company estimates forfeiture rates based on historical experience and future expectations and accrues compensation costs accordingly. When the stock options are exercised, capital stock is credited by the sum of the consideration paid and the related amount previously recorded to the contributed surplus for rendered services.
20
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(w) | Recently adopted accounting pronouncements: |
| In July 2006, the Financial Accounting Standards Board (FASB) issued guidance in ASC 710, Income Taxes (formerly Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109). This guidance clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a companys financial statements. It prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. The provisions of FIN 48 are applicable for fiscal years beginning after December 15, 2006, which is at the beginning of fiscal year ended July 18, 2007 for the Company. |
| In December 2007, the FASB issued ASC 805, Business Combinations, which changed the accounting for business acquisitions. ASC 805, as amended by FSP No. FAS 141-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies, issued in April 2009, requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this guidance impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration), exclude transaction costs from acquisition accounting and change accounting practices for acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. The Company adopted this guidance at the beginning of its fiscal year ended April 3, 2010. As a result of this new guidance, a tax valuation allowance of $2,704,000 was reversed to income tax recovery in the statement of earnings for the year ended April 3, 2010 instead of against goodwill. |
21
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(w) | Recently adopted accounting pronouncements (continued): |
| In March 2008, the FASB issued ASC 815, Derivatives and Hedging (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB 133). This guidance is intended to enhance the current disclosure framework. The guidance requires that objectives for using derivative instruments be disclosed in terms of underlying risks and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risk that the entity is intending to manage and amends and expands the disclosure requirements with the intent to provide users of financial statements with an enhanced understanding of: (a) How and why an entity uses financial instruments; (b) How derivative instruments and related hedged items are accounted for and its related interpretations; and, (c) How derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. This guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The Company adopted this guidance in its fiscal year ended April 3, 2010. |
| In September 2006, FASB issued guidance in ASC 820 (formerly FASB No. 157, Fair Value Measurements), which establishes the authoritative definition of fair value, sets out a framework for measuring fair value, and expands the required disclosures about fair value measurement. The provisions of ASC 820 adopted at the beginning of its fiscal year ended March 28, 2009, related to financial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis and did not have a material impact on the Companys consolidated financial statements. The provisions of ASC 820 related to other non-financial assets and liabilities were effective at the beginning of its fiscal year ended April 3, 2010 and have been applied prospectively. These provisions did not have an impact on the Companys consolidated financial statements. |
22
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Significant accounting policies (continued): |
(w) | Recently accounting pronouncements (continued): |
| In May 2009, the FASB issued guidance in the ASC Topic 855 - Subsequent Events (formerly SFAS No. 165) of the Codification, which establishes the accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The guidance was effective for interim or annual periods ending after June 15, 2009. In February 2010, the FASB issued Accounting Standards Update No. 2010-09 - Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements, which provides amendments to Subtopic 855-10 to alleviate potential conflicts with the SECs requirements in regard to subsequent event disclosures. An entity that is an SEC filer is required to evaluate subsequent events through the date on which the financial statements are issued and is not required to disclose the date through which subsequent events have been evaluated. This guidance is effective for financial statements issued for interim and annual periods ending after February 2010. The Company adopted this guidance at the beginning of its fiscal year ended April 3, 2010. This guidance did not impact the Companys consolidated financial statements. |
| In December 2007, the FASB issued guidance in the ASC Subtopic 810-10 (formerly SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements - an amendment of ARB No. 51). ASC Subtopic 810-10 requires an entity to clearly identify and present ownership interests in subsidiaries held by parties other than the entity in the consolidated financial statements within the equity section, but separate from the entitys equity. It also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; changes in ownership interest be accounted for as equity transactions; and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. The presentation and disclosure requirements of ASC Subtopic 810-10 were applied retrospectively. The Company adopted this guidance at the beginning of its fiscal year ended April 3, 2010. The adoption of ASC Subtopic 810-10 changed the presentation of previously reported line items of non-controlling interests and other changes described in note 8. |
23
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
2. | Business acquisitions: |
(a) | Business and asset acquisitions for the year ended April 3, 2010: |
During the year, the Company had several business acquisitions. Results of the businesses acquired are included from the date of the acquisition in the consolidated financial statements of the Company. The total consideration was approximately $3,131,253. The Company also acquired the non-controlling interest in two of its consolidated subsidiaries for $6,956,000 ($6,555,000 in cash) (note 8).
The acquisitions are summarized as follows:
Acquisitions 2010 |
||||
Assets acquired: |
||||
Non-cash operating working capital |
$ | 519 | ||
Fixed assets |
748 | |||
Non-compete agreements |
77 | |||
Customer relations |
1,565 | |||
Goodwill |
222 | |||
$ | 3,131 | |||
Consideration: |
||||
Cash |
$ | 2,109 | ||
Portion of purchase price unpaid at the acquisition date |
1,022 | |||
$ | 3,131 | |||
(b) | Business acquisitions and disposals for the year ended March 28, 2009: |
During the previous year, the Company made several business acquisitions and disposals. Results of the businesses acquired are included from the date of the acquisition in the consolidated financial statements of the Company. The total net consideration was approximately $385,000.
24
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
2. | Business acquisitions (continued): |
(b) | Business acquisitions and disposals for the year ended March 28, 2009 (continued): |
The acquisitions and disposals are summarized as follows:
Acquisitions | Disposal | Net 2009 |
||||||||||
Assets acquired and disposed of: |
||||||||||||
Non-cash operating working capital |
$ | 257 | $ | 257 | $ | | ||||||
Fixed assets |
342 | 520 | (178 | ) | ||||||||
Non-compete agreements |
148 | | 148 | |||||||||
Customer relations |
1,260 | | 1,260 | |||||||||
2,007 | 777 | 1,230 | ||||||||||
Liabilities assumed: |
||||||||||||
Gain on disposal |
| 845 | (845 | ) | ||||||||
$ | 2,007 | $ | 1,622 | $ | 385 | |||||||
Consideration: |
||||||||||||
Cash |
$ | 1,412 | $ | 1,622 | $ | (210 | ) | |||||
Portion of purchase price unpaid at the acquisition date |
595 | | 595 | |||||||||
$ | 2,007 | $ | 1,622 | $ | 385 | |||||||
25
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
2. | Business acquisitions (continued): |
(c) | Business acquisitions and disposals for the 254-day period ended March 29, 2008: |
Acquisitions | Disposal | Net 2008 |
||||||||||
Assets acquired and disposed of: |
||||||||||||
Non-cash operating working capital |
$ | 373 | $ | 568 | $ | (195 | ) | |||||
Fixed assets |
544 | 222 | 322 | |||||||||
Non-compete agreements |
751 | 4 | 747 | |||||||||
Customer relations |
957 | 16 | 941 | |||||||||
Goodwill |
163 | 78 | 85 | |||||||||
2,788 | 888 | 1,900 | ||||||||||
Liabilities assumed: |
||||||||||||
Non-controlling interest |
(237 | ) | | (237 | ) | |||||||
Gain on disposal |
| 188 | (188 | ) | ||||||||
$ | 3,025 | $ | 1,076 | $ | 2,325 | |||||||
Consideration: |
||||||||||||
Cash |
$ | 2,783 | $ | 901 | $ | 1,882 | ||||||
Portion of purchase price unpaid at the acquisition date |
242 | 175 | 67 | |||||||||
$ | 3,025 | $ | 1,076 | $ | 1,949 | |||||||
(d) | Business acquisition of Van Houtte Inc. on July 19, 2007: |
On July 19, 2007, the Company completed the acquisition of Van Houtte Inc. Each share of Van Houtte Inc. was acquired at a price of CDN$25. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition. The purchase price allocation is based upon managements best estimate of the fair value of the assets acquired and liabilities assumed and the Company has engaged a third party valuation firm to assist in determining the fair values of the assets and liabilities acquired particularly in the area of intangible assets. The excess of the fair value of the acquired net assets over cost was recorded to goodwill. These fair values have been reflected in these consolidated financial statements.
26
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
2. | Business acquisitions (continued): |
(d) | Business acquisition of Van Houtte Inc. on July 19, 2007 (continued): |
Fair value | ||||
Assets: |
||||
Cash |
$ | 556 | ||
Accounts receivable |
42,956 | |||
Inventories |
35,172 | |||
Prepaid expenses |
3,029 | |||
Deferred income taxes |
728 | |||
Investments |
2,246 | |||
Fixed assets |
123,135 | |||
Intangible and other assets |
264,707 | |||
Goodwill |
233,877 | |||
706,406 | ||||
Liabilities and shareholders equity: |
||||
Accounts payable and accrued liabilities |
27,405 | |||
Income taxes payable |
11,346 | |||
Deferred income |
679 | |||
Long-term debt |
2,239 | |||
Deferred income taxes |
81,774 | |||
Other long-term liability |
5,687 | |||
Non-controlling interest in a subsidiary |
6,826 | |||
135,956 | ||||
Net assets acquired |
$ | 570,450 | ||
Consideration: |
||||
Cash |
$ | 565,391 | ||
Common shares |
1,299 | |||
Cost related to the acquisition |
3,760 | |||
$ | 570,450 | |||
The cash consideration includes the reimbursement of the outstanding debt of Van Houtte Inc. of $47,417,229 at the time of the acquisition and options cashed out of $2,807,000.
27
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
2. | Business acquisition (continued): |
(e) | Business acquisitions and disposals for the 112-day period ended July 18, 2007 (Predecessor): |
During the 112-day period, the Company made several business acquisitions and disposals. Results of the businesses acquired are included from the date of the acquisition in the consolidated financial statements of the Company. The total net consideration was $1,371,000.
The acquisitions and disposals are summarized as follows:
Acquisitions | Disposal | Net 2008 |
||||||||||
Assets acquired and disposed of: |
||||||||||||
Non-cash operating working capital |
$ | | $ | 33 | $ | (33 | ) | |||||
Fixed assets |
935 | 67 | 868 | |||||||||
Non-compete agreements |
164 | | 164 | |||||||||
Customer relations |
179 | | 179 | |||||||||
1,278 | 100 | 1,178 | ||||||||||
Liabilities assumed: |
||||||||||||
Non-controlling interest |
(260 | ) | | (260 | ) | |||||||
Gain on disposal |
| 67 | (67 | ) | ||||||||
$ | 1,538 | $ | 167 | $ | 1,371 | |||||||
Consideration: |
||||||||||||
Cash |
$ | 1,539 | $ | 121 | $ | 1,417 | ||||||
Portion of purchase price unpaid at the acquisition date |
| 46 | (46 | ) | ||||||||
$ | 1,539 | $ | 167 | $ | 1,371 | |||||||
28
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
3. | Rental income: |
Rental income includes the income from the coffee service equipment for rental under lease agreements. It also includes an estimation of the implicit rental income included in the coffee services agreements which provide customers the right to use the coffee service equipment for a consideration which is implicitly included in the selling price of coffee.
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Income under lease agreements |
$ | 20,737 | $ | 21,247 | $ | 22,564 | $ | 6,761 | ||||||||
Implicit rental income |
16,619 | 17,937 | 13,379 | 5,489 | ||||||||||||
$ | 37,356 | $ | 39,184 | $ | 35,943 | $ | 12,250 | |||||||||
4. | Financial expenses: |
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Interest on long-term debt |
$ | 24,757 | $ | 29,553 | $ | 22,118 | $ | 781 | ||||||||
Interest on subordinated note to parent company |
6,660 | 6,030 | 4,863 | | ||||||||||||
Unrealized change in fair value of derivative financial instruments |
64,804 | (64,819 | ) | 19,419 | 122 | |||||||||||
Unrealized foreign exchange (gain) loss on translation of long-term debt |
(71,291 | ) | 66,933 | (9,253 | ) | | ||||||||||
Realized loss (gain) on derivative financial instruments |
1,141 | (418 | ) | 2,422 | | |||||||||||
Amortization of deferred financing costs |
1,432 | 1,393 | 1,072 | 242 | ||||||||||||
Other |
1,643 | 1,022 | (320 | ) | (139 | ) | ||||||||||
$ | 29,146 | $ | 39,694 | $ | 40,321 | $ | 1,006 | |||||||||
29
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
5. | Goodwill impairment loss and other expenses: |
During the 112-day period ended July 18, 2007, the Company concluded that the goodwill of its subsidiary VKI Technologies Inc. was impaired. Accordingly, an impairment charge of $5,036,000 was recorded. The enterprise value of the reporting unit has been determined using the discounted cash flow method and comparable trading and transaction multiples.
During the 112-day period ended July 18, 2007, the Company incurred expenses in the amount of $6,756,000 related to the strategy review of value enhancement. Those expenses were charged to the statement of earnings.
6. | Income taxes: |
Income tax expense (recovery) is detailed as follows:
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Earnings (loss) before income taxes: |
||||||||||||||||
Canada |
$ | 13,189 | $ | (13,077 | ) | $ | (22,506 | ) | $ | (4,670 | ) | |||||
US Federal |
(7,729 | ) | 6,508 | 127 | (343 | ) | ||||||||||
5,460 | (6,569 | ) | (22,379 | ) | (5,013 | ) | ||||||||||
Current: |
||||||||||||||||
Canada |
(1,681 | ) | 1,833 | 3,591 | 3,126 | |||||||||||
US Federal |
196 | (94 | ) | 140 | 466 | |||||||||||
(1,485 | ) | 1,739 | 3,731 | 3,592 | ||||||||||||
Deferred: |
||||||||||||||||
Canada |
(3,645 | ) | 1,979 | (15,755 | ) | 1,020 | ||||||||||
US Federal |
(1,157 | ) | 645 | 702 | 9,714 | |||||||||||
(4,802 | ) | 2,624 | (15,053 | ) | 10,734 | |||||||||||
Income tax expense (recovery) |
$ | (6,287 | ) | $ | 4,363 | $ | (11,322 | ) | $ | 14,326 | ||||||
30
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
6. | Income taxes (continued): |
The following table reconciles the statutory tax rate with the effective tax rate:
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Combined statutory tax rate |
30.65 | % | 30.90 | % | 31.63 | % | 32.80 | % | ||||||||
Earnings (losses recovered) taxed at a different rate than the statutory rate |
2.72 | (0.98 | ) | (0.35 | ) | 0.24 | ||||||||||
Permanent differences: |
||||||||||||||||
Non-deductible portion of capital losses |
8.54 | 7.75 | 7.18 | (26.54 | ) | |||||||||||
Other non-deductible expenses |
3.41 | (5.23 | ) | (5.10 | ) | | ||||||||||
Valuation allowance: |
||||||||||||||||
Increase in valuation allowance |
(127.48 | ) | (98.42 | ) | (16.52 | ) | (113.10 | ) | ||||||||
Adjustment to deferred income tax assets and liabilities for enacted changes in tax laws and rates |
(21.70 | ) | 7.61 | 34.39 | 0.15 | |||||||||||
Other items |
(11.24 | ) | (8.03 | ) | (0.64 | ) | (53.37 | ) | ||||||||
Effective tax rate |
(115.10 | )% | (66.40 | )% | 50.59 | % | (159.82 | )% | ||||||||
31
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
6. | Income taxes (continued): |
The tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities are as follows:
April 3, 2010 |
March 28, 2009 |
|||||||
Deferred income tax assets: |
||||||||
Deductible reserve |
$ | 1,746 | $ | 1,851 | ||||
Pension benefit liability and post-employment benefits |
1,157 | 849 | ||||||
Tax losses carried forward |
12,024 | 10,110 | ||||||
Differences between book and tax bases of fixed assets and other long-term assets |
1,745 | 937 | ||||||
Long-term debt and financial instruments |
1,706 | 3,485 | ||||||
Valuation allowance |
(8,415 | ) | (14,367 | ) | ||||
Total deferred income tax assets |
9,963 | 2,865 | ||||||
Deferred income tax liabilities: |
||||||||
Differences between book and tax bases of fixed assets |
5,628 | 5,364 | ||||||
Differences between book and tax bases of goodwill, intangible and other assets |
75,127 | 61,254 | ||||||
Other |
266 | 168 | ||||||
Total deferred income tax liabilities |
81,021 | 66,786 | ||||||
Net deferred income tax liability |
$ | (71,058 | ) | $ | (63,921 | ) | ||
These deferred tax assets and liabilities are presented in the consolidated balance sheets as follows:
April 3, 2010 |
March 28, 2009 |
|||||||
Deferred income tax assets: |
||||||||
Current |
$ | 1,797 | $ | 1,806 | ||||
Non-current |
2,070 | 1,202 | ||||||
3,867 | 3,008 | |||||||
Deferred income tax liabilities: |
||||||||
Current |
213 | 122 | ||||||
Non-current |
74,712 | 66,807 | ||||||
74,925 | 66,929 | |||||||
$ | (71,058 | ) | $ | (63,921 | ) | |||
32
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
6. | Income taxes (continued): |
On an annual basis, the Company assesses the need to establish a valuation allowance for its deferred income tax assets and, if it is deemed more likely than not, its deferred income tax assets will not be realized based on its taxable income projections, and a valuation allowance is recorded. As at April 3, 2010, the Company has recorded a valuation allowance of $8,415,000 relating to loss carryforwards and other tax benefits since the realization is not more likely than not ($14,367,000 as at March 28, 2009).
As at April 3, 2010, the Company had net operating loss carryforwards for income tax purposes, available to reduce future Canadian federal, Canadian provincial and US federal taxable income of approximately $9,302,000 (2009 - $7,687,000), $47,215,000 (2009 - $32,951,000) and $28,591,000 (2009 - $29,969,000), respectively.
These losses will expire as follows:
April 3, 2010 | ||||||||||||
Federal | Provincial | US Federal | ||||||||||
2022 |
$ | | $ | | $ | 6,610 | ||||||
2023 |
| | 6,811 | |||||||||
2024 |
| | 4,483 | |||||||||
2025 |
| | 4,001 | |||||||||
2026 |
| 28,130 | 4,414 | |||||||||
2027 |
| | 687 | |||||||||
2028 |
3,715 | 3,715 | 1,585 | |||||||||
2029 |
1,682 | 10,378 | | |||||||||
2030 |
3,905 | 4,993 | | |||||||||
$ | 9,302 | $ | 47,216 | $ | 28,591 | |||||||
33
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
6. | Income taxes (continued): |
March 29, 2009 | ||||||||||||
Federal | Provincial | US Federal | ||||||||||
2021 |
$ | | $ | | $ | 1,127 | ||||||
2022 |
| | 6,939 | |||||||||
2023 |
| | 6,810 | |||||||||
2024 |
| | 4,483 | |||||||||
2025 |
| | 4,001 | |||||||||
2026 |
| 18,169 | 4,414 | |||||||||
2027 |
3,175 | 3,183 | 40 | |||||||||
2028 |
3,141 | 3,141 | 647 | |||||||||
2029 |
1,371 | 8,457 | 1,508 | |||||||||
$ | 7,687 | $ | 32,950 | $ | 29,969 | |||||||
The Company recognized tax credits of $669,000 in the year ended April 3, 2010 and $436,000 in the year ended March 28, 2009 for eligible research and development expenditures, which reduced the cost of equipment.
34
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
6. | Income taxes (continued): |
The following table provides a reconciliation for unrecognized tax benefits for tax positions:
April 3, 2010 |
March 28, 2009 |
|||||||
Gross unrecognized tax benefits at the beginning of the year |
$ | 9,682 | $ | 9,242 | ||||
Additions: |
||||||||
Tax positions related to the current year |
625 | 2,132 | ||||||
Interest and penalties accrued on tax positions |
97 | 402 | ||||||
Deductions: |
||||||||
Tax positions related to prior years due to expiration of statute of limitations |
(1,826 | ) | (242 | ) | ||||
Gross unrecognized tax benefits, end of year |
8,578 | 11,534 | ||||||
Translation adjustment |
2,106 | (1,852 | ) | |||||
Net unrecognized tax benefits, end of year |
$ | 10,684 | $ | 9,682 | ||||
As at April 3, 2010, the gross amount of the unrecognized tax benefits was $10,684,000, of which $1,061,000 related to accrued interest. If recognized, a net amount of $5,232,000 of unrecognized tax benefits would affect the effective tax rate, and the remaining amount will not have an impact as it relates to temporary differences.
The Company does not anticipate any reversal of unrecognzied tax benefits in the next twelve months.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense in the Companys consolidated statement of earnings.
In Canada, both the Companys federal and provincial tax returns filed for the years 2005 to 2010 remain subject to examination by the taxation authorities. In the U.S., the income tax returns filed for the years 2007 to 2010 remain subject to examination by the taxation authorities.
As at April 3, 2010, the total amount of unrecognized tax benefits classified as other long-term liabilities is $5,232,000 (2009 - $3,658,000).
35
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
7. | Additional information on cash flows: |
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Operating activities: |
||||||||||||||||
Changes in non-cash operating working capital items: |
||||||||||||||||
Accounts receivable |
$ | (2,767 | ) | $ | (1,651 | ) | $ | (3,731 | ) | $ | 4,064 | |||||
Inventories |
3,598 | (5,769 | ) | 9,433 | (676 | ) | ||||||||||
Prepaid expenses |
655 | (2,142 | ) | (155 | ) | 147 | ||||||||||
Accounts payable and accrued liabilities |
1,657 | 5,663 | 3,116 | (6,872 | ) | |||||||||||
Accrued interest |
(5,879 | ) | (1,073 | ) | 13,350 | | ||||||||||
Deferred income |
| | | (35 | ) | |||||||||||
Income taxes payable/receivable |
301 | (4,526 | ) | 801 | (2,121 | ) | ||||||||||
Working capital acquired/disposed |
489 | 18 | (211 | ) | (33 | ) | ||||||||||
$ | (1,946 | ) | $ | (9,480 | ) | $ | 22,603 | $ | (5,526 | ) | ||||||
Cash payments of interest and income taxes were as follows: |
||||||||||||||||
Interest paid |
$ | 31,342 | $ | 30,254 | $ | 16,659 | $ | 998 | ||||||||
Interest paid on the subordinated note |
7,118 | 6,569 | | | ||||||||||||
Income taxes (received) paid |
(2,863 | ) | 3,665 | 492 | (2,836 | ) | ||||||||||
Additions to fixed assets financed by accounts payable |
$ | 1,007 | $ | 952 | $ | 1,437 | $ | 983 | ||||||||
Additions to fixed assets financed by capital lease obligations |
$ | | $ | 23 | $ | 102 | $ | 39 | ||||||||
36
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
7. | Additional information on cash flows (continued): |
The opening balance sheet as at July 19, 2007 presents the financial situation immediately after the acquisition of Van Houtte Inc. The following transactions occurred simultaneously at the time of inception of the Company and the acquisition of Van Houtte Inc.:
Issuance of capital stock (note 17) |
$ | 112,608 | ||
Issuance of the first and second lien credit and the subordinated note to the parent company (notes 14 and 15) |
474,035 | |||
Reimbursement of outstanding debt of Van Houtte Inc. (note 2) |
(47,329 | ) | ||
Deferred financing costs incurred |
(10,431 | ) | ||
Acquisition of outstanding shares of Van Houtte Inc. |
(514,068 | ) | ||
Options cashed out |
(2,807 | ) | ||
Cost related to the acquisition |
(3,342 | ) |
37
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
8. | Redeemable non-controlling interest: |
Net earnings attributable to redeemable non-controlling interest reflects the portion of the earnings (losses) of consolidated entities applicable to the redeemable non-controlling interest partners in the consolidated statement of earnings. The Companys redeemable non-controlling interests are redeemable at amounts based on formulas specific to each entity. The Company classifies its redeemable non-controlling interest outside of shareholders equity in the consolidated balance sheet and measures it at the redemption value at each period-end. The difference between the carrying values of the redeemable non-controlling interest and the redemption values at each period-end is recorded in deficit.
During the year ended April 3, 2010, the Company acquired the redeemable non-controlling interests in two of its consolidated subsidiaries for $6,956,000 ($6,555,000 in cash).
9. | Related party transaction: |
During the year ended April 3, 2010, the Company expensed interest related to the subordinated loan to parent company for $6,659,836 (March 28, 2009 - $6,029,722 and the 254-day period ended March 29, 2008 - $4,862,697). As at April 3, 2010, $5,500,201 (March 28, 2009 - $4,151,983) of interest due to parent company is included in accounts payable and accrued liabilities.
During the year ended April 3, 2010, the Company paid management fees and expenses of $1,064,842 (March 28, 2009 - $1,028,966 and the 254-day period ended March 29, 2008 - $1,279,709) to its controlling shareholder, which are classified in general and administrative expenses.
These transactions were conducted on non-arms length terms.
38
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
10. | Inventories, net: |
April 3, 2010 |
March 28, 2009 |
|||||||
Raw material |
$ | 8,211 | $ | 8,863 | ||||
Goods in process |
584 | 595 | ||||||
Finished goods |
20,681 | 17,742 | ||||||
$ | 29,476 | $ | 27,200 | |||||
The amount of inventories recognized as an expense during the year ended April 3, 2010 is $148,770,492 ($135,254,307 for the year ended March 28, 2009, $96,936,243 for the 254-day period ended March 29, 2008 and $39,766,323 for the 112-day period ended July 18, 2007). As at April 3, 2010, inventories included a provision for obsolescence of $537,485 ($460,643 as at March 29, 2009).
The inventories as at July 19, 2007 were recorded at their estimated selling price less the cost of disposal and a reasonable profit allowance for the selling effort of the acquirer. Consequently, as at July 19, 2007, the value of goods in process and finished goods manufactured by the Company included an amount of $6,076,882, representing the excess value assigned to inventory, compared to their manufacturing cost at which these manufactured goods would have been otherwise recorded.
39
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
11. | Fixed assets, net: |
April 3, 2010 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
Land |
$ | 2,139 | $ | | $ | 2,139 | ||||||
Building |
13,438 | 1,635 | 11,803 | |||||||||
Retail equipment |
9,740 | 5,550 | 4,190 | |||||||||
Vending equipment |
1,814 | 577 | 1,237 | |||||||||
Coffee service equipment (i) |
103,412 | 54,432 | 48,980 | |||||||||
Machinery and equipment |
23,528 | 5,485 | 18,043 | |||||||||
Furniture, computer equipment and leasehold improvements |
15,167 | 8,380 | 6,787 | |||||||||
Vehicles |
14,178 | 7,576 | 6,602 | |||||||||
Software |
8,910 | 4,104 | 4,806 | |||||||||
$ | 192,326 | $ | 87,739 | $ | 104,587 | |||||||
March 28, 2009 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
Land |
$ | 1,743 | $ | | $ | 1,743 | ||||||
Building |
10,512 | 824 | 9,688 | |||||||||
Retail equipment |
7,044 | 3,273 | 3,771 | |||||||||
Vending equipment |
1,262 | 321 | 941 | |||||||||
Coffee service equipment (i) |
78,911 | 29,383 | 49,529 | |||||||||
Machinery and equipment |
16,105 | 2,870 | 13,235 | |||||||||
Furniture, computer equipment and leasehold improvements |
10,924 | 4,614 | 6,310 | |||||||||
Vehicles |
11,206 | 4,180 | 7,026 | |||||||||
Software |
6,598 | 1,966 | 4,632 | |||||||||
$ | 144,305 | $ | 47,431 | $ | 96,875 | |||||||
(i) | The coffee service equipment is for rental or provided to customers, pursuant to coffee services agreements. |
40
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
12. | Intangible assets, net: |
April 3, 2010 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
Customer relations |
$ | 153,678 | $ | 21,244 | $ | 132,434 | ||||||
Trade name and trademarks |
125,079 | | 125,079 | |||||||||
Non-compete agreements |
2,226 | 1,327 | 899 | |||||||||
Franchise agreement |
866 | 584 | 282 | |||||||||
Patents and licenses |
474 | 190 | 284 | |||||||||
$ | 282,323 | $ | 23,345 | $ | 258,978 | |||||||
March 28, 2009 | ||||||||||||
Cost | Accumulated depreciation |
Net book value |
||||||||||
Customer relations |
$ | 125,537 | $ | 10,918 | $ | 114,619 | ||||||
Trade name and trademarks |
101,931 | | 101,931 | |||||||||
Non-compete agreements |
1,972 | 780 | 1,192 | |||||||||
Franchise agreement |
865 | 368 | 497 | |||||||||
Patents and licenses |
370 | 106 | 264 | |||||||||
$ | 230,675 | $ | 12,172 | $ | 218,503 | |||||||
Total amortization expense amounted to $8,115,639, $8,007,962, $6,045,012 and $435,128, for the years ended April 3, 2010 and March 28, 2009 and the 254-day period ended March 29, 2008 and the 112-day period ended July 18, 2007, respectively.
41
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
12. | Intangible assets, net (continued): |
Estimated amortization expense for each of the next five years is as follows:
2011 |
$ | 8,178 | ||
2012 |
8,178 | |||
2013 |
8,178 | |||
2014 |
8,178 | |||
2015 |
8,178 | |||
Total |
$ | 40,890 | ||
13. | Goodwill: |
The changes in the carrying amount of goodwill are as follows:
Balance as at March 29, 2008 |
$ | 246,462 | ||
Translation adjustments |
(33,660 | ) | ||
Recognition of the tax benefits relating to the valuation allowance (note 4) |
(2,902 | ) | ||
Balance as at March 28, 2009 |
209,900 | |||
Business acquisitions, net |
222 | |||
Translation adjustments |
34,481 | |||
Balance as at April 3, 2010 |
$ | 244,603 | ||
42
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
14. | Long-term debt: |
April 3, 2010 |
March 28, 2009 |
|||||||
Senior Secured first and second lien credit (a) |
$ | 367,824 | $ | 371,250 | ||||
Other |
2,728 | 2,915 | ||||||
370,552 | 374,165 | |||||||
Current portion of long-term debt (b) |
11,960 | 4,502 | ||||||
$ | 358,592 | $ | 369,663 | |||||
(a) | As at July 19, 2007, the Company has contracted Senior Secured Credit Facilities amounting to $425,000,000. This consists of a $220,000,000 aggregate amount of Tranche B term loans, a $30,000,000 amount of Tranche C, up to $50,000,000 aggregate principal amount of revolving commitments, and second lien Senior Secured Credit Facilities totaling $125,000,000. These loans bear interest at base rate plus applicable margin which is dependent on the leverage ratio of the Company, payable every three months. The effective rate for the year ended April 3, 2010 was 6.62% (2009 - 7.97%). The term B and C loans are repaid in consecutive quarterly installments of $532,000 and $73,000, respectively, maturing in July 2014. The second lien is repayable entirely at the maturity date, which is January 2015. The Company is also subject to additional mandatory prepayments from the net assets sale proceeds, excess cash flow for each fiscal year and from net proceeds of any issuance of debt. Issuance fees of $10,809,203 have been capitalized and are being amortized using the effective interest rate method. These first and second lien credit facilities contain covenants, such as maintaining certain financial ratios and some restrictions on the payment of dividends and asset acquisitions and dispositions. Certain of the Companys subsidiaries, as guarantors, have agreed to guarantee the Companys obligations and to secure their obligations by granting a first and second lien, respectively, on substantially all their respective assets, including a pledge of all the capital stock of each of their respective subsidiaries. |
As part of the share purchase transaction that occurred on December 17, 2010, the first and second lien credits and the related cross-currency swaps and interest rate agreements have been repaid and settled by the purchaser, including prepayment penalties for an aggregate amount of CDN$407,592,000 (note 22).
43
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
14. | Long-term debt (continued): |
(b) | In accordance with the contractual terms of various borrowing agreements, the Company would make the following repayments over the next five years: |
2011 |
$ | 11,033 | ||
2012 |
2,795 | |||
2013 |
2,554 | |||
2014 |
2,400 | |||
2015 |
2,134 |
The above amount for 2011 includes managements estimate of excess cash flows, while further years exclude it as the amount cannot be estimated reliably.
15. | Subordinated note to parent company: |
As at July 19, 2007, the Company contracted a subordinated loan of CDN$82,079,207 from LJVH Investment L.P. (the parent company), bearing interest at a rate of 9%, interest payable annually beginning on July 31, 2008, and maturing on July 31, 2037.
On July 19, 2007, the Company entered into a continuing subscription agreement on or before the first business day of August prior to the maturity of the subordinated notes for so long as the subordinated notes are outstanding, beginning August 1, 2008 (each such date, the closing date), the parent company will purchase from the Company or will cause one or more of its subsidiaries to subscribe for and purchase from the Company additional notes and/or Class B preferred shares with a principal amount or aggregate Class B liquidation price (in the case of the Class B preferred shares) equal to 8% of the principal amount of the notes owned by the parent company or its subsidiaries on such closing date (note 17 (a)).
On August 1, 2009, under this agreement, LJVH Investment L.P. subscribed for an additional note of CDN$4,611,026 (CDN$4,377,558 on August 1, 2008). As at April 3, 2010, the total subordinated note is $90,309,401 ($69,869,888 on March 28, 2009).
Subsequent to year-end, as part of the Share Purchase transaction, these notes have been converted into Class B preferred shares (note 22).
44
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
16. | Other long-term liabilities: |
April 3, 2010 |
March 28, 2009 |
|||||||
Accrued pension benefit |
$ | 4,049 | $ | 2,803 | ||||
Less portion classified in accrued liabilities |
(148 | ) | (138 | ) | ||||
Contractual termination benefits |
329 | 382 | ||||||
Unrecognized tax benefit (note 6) |
5,232 | 3,658 | ||||||
Other long-term liabilities |
$ | 9,462 | $ | 6,705 | ||||
The Company grants, to certain employees in Canada, a supplementary final career defined benefit retirement plan and a retirement plan for the management employees.
Contractual termination benefits are vesting benefits and as such are accounted for as defined benefit pension plans.
The following table reconciles the variation of the accumulated benefit obligations for pension plans as at:
April 3, 2010 |
March 28, 2009 |
|||||||
Accumulated pension benefit obligations, beginning of year |
$ | 2,803 | $ | 6,371 | ||||
Current benefit costs |
286 | 338 | ||||||
Interest expense on accumulated benefit obligations |
223 | 157 | ||||||
Benefits paid |
(87 | ) | (3,073 | ) | ||||
Actuarial loss (gain) |
139 | (101 | ) | |||||
Translation adjustment |
685 | (889 | ) | |||||
Accumulated pension benefit obligations, end of year |
$ | 4,049 | $ | 2,803 | ||||
45
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
16. | Other long-term liabilities (continued): |
Amounts recognized in accumulated other comprehensive income for pension plans consist of:
July 18, | March 31, | |||||||||||||||||||
April 3, | March 28, | March 29, | 2007 | 2007 | ||||||||||||||||
2010 | 2009 | 2008 | Predecessor | Predecessor | ||||||||||||||||
Net loss (gain) on pension defined benefits (net of tax of $66, $12, $(8), $142 and $130, respectively) |
$ | (147 | ) | $ | (25 | ) | $ | 20 | $ | (320 | ) | $ | (286 | ) | ||||||
Prior service costs transitional obligation (net of tax of $263 and $275, respectively) |
| | | (593 | ) | (605 | ) | |||||||||||||
Amortization of transition pension obligation (net of tax of $102 and $97, respectively) |
| | | (230 | ) | (213 | ) | |||||||||||||
Total recognized in accumulated other comprehensive income for pension plans |
$ | (147 | ) | $ | (25 | ) | $ | 20 | $ | (1,143 | ) | $ | (1,104 | ) | ||||||
46
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
16. | Other long-term liabilities (continued): |
Components of net periodic pension benefit costs and other amounts recognized in other comprehensive income are as follows:
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Cost of services rendered during the year |
$ | 286 | $ | 338 | $ | 198 | $ | 117 | ||||||||
Interest expense on accumulated benefit obligations |
223 | 157 | 227 | 62 | ||||||||||||
Amortization of transition obligation |
| | | 15 | ||||||||||||
Net periodic cost |
$ | 509 | $ | 495 | $ | 425 | $ | 194 | ||||||||
Other changes in pension benefit obligations recognized in other comprehensive income:
Period ended | ||||||||||||||||
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Unrealized gain (loss) on pension benefits (net of tax of $54, $23, $(9) and $(1), respectively) |
$ | (122 | ) | $ | (45 | ) | $ | 20 | $ | 3 | ||||||
Prior service cost on pension benefits (net of tax of $67) |
| | | 77 | ||||||||||||
Amortization of transition pension obligation (net of tax of $5) |
| | | 10 | ||||||||||||
Total recognized in other comprehensive income |
$ | (122 | ) | $ | (45 | ) | $ | 20 | $ | 90 | ||||||
47
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
16. | Other long-term liabilities (continued): |
The assumptions used to determine the pension expense during the period were as follows:
Year ended April 3, 2010 |
Year ended March 28, 2009 |
Period ended March 29, 2008 |
Period ended July 18, 2007 Predecessor |
|||||||||||||
(254 days) | (112 days) | |||||||||||||||
Accrued benefit obligation assumptions: |
||||||||||||||||
Discount rate |
5.50 | % | 5.00 | % | 5.25 | % | 5.00 | % | ||||||||
Rate of compensation increase |
5.00 | % | 5.25 | % | 5.00 | % | 3.00 | % | ||||||||
Benefit cost assumptions: |
||||||||||||||||
Discount rate |
5.00 | % | 5.25 | % | 5.00 | % | 5.00 | % | ||||||||
Rate of compensation increase |
5.25 | % | 5.00 | % | 3.00 | % | 3.00 | % |
The following benefit payments are expected to be paid for the management retirement plan:
2011 |
$ | 366 | ||
2012 |
366 | |||
2013 |
366 | |||
2014 |
366 | |||
2015 |
366 | |||
2016 - 2020 |
1,820 |
Following the closing of the share purchase transaction described in the note 22, the main SERP plan was terminated, which resulted in lump-sum payments of CDN$3,110,000.
48
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
16. | Other long-term liabilities (continued): |
For the SERP, the Company issued letters of guarantee of $2,179,495 and $227,457.
As part of the defined contribution plans, the following contributions were paid:
| $270,546 for the year ended April 3, 2010; |
| $291,703 for the year ended March 28, 2009; |
| $216,429 for the 254-day period ended March 29, 2008; and |
| $88,888 for the 112-day period ended July 18, 2007. |
17. | Capital stock: |
Authorized:
An unlimited number of common shares, voting
An unlimited number of Class A preferred shares, non-voting, non-participating except in a case of liquidation event (i); the holders of the Class A preferred shares shall be entitled to receive, in priority to any payment or distribution in respect of shares of any other class, an amount per share equal to the initial subscription price plus an annual yield of 8.5%, compounded annually.
An unlimited number of Class B preferred shares, non-voting, non-participating except in a case of liquidation event ( i); the holders of the Class B preferred shares shall be entitled to receive, in preference and priority to any payment or distribution of the assets of the Company to the holders of common shares, an amount per share equal to the initial subscription price plus an annual yield of 8%, compounded annually.
(i) | A liquidation event is defined as a wind-up, liquidation or dissolution of the Company, whether voluntary or involuntary, or any other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs or otherwise. As at April 3, 2010, the liquidation price of the Class A preferred shares and the Class B preferred shares are $74,176,914 and $68,722,729, respectively. |
As part of the share purchase transaction, Class A and Class B preferred shares were purchased by Green Mountain Coffee Roasters, Inc. on December 17, 2010 (note 22).
49
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
17. | Capital stock (continued): |
April 3, 2010 |
March 28, 2009 |
March 29, 2008 |
July 19, 2007 |
|||||||||||||
Issued and paid: |
||||||||||||||||
1,420,762 common shares (1,420,762 as at March 28, 2009, 1,418,144 as at March 29, 2008 and 1,396,985 as at July 19, 2007) |
$ | 1,364 | $ | 1,364 | $ | 1,361 | $ | 1,340 | ||||||||
60,000,000 Class A preferred shares |
57,546 | 57,546 | 57,546 | 57,546 | ||||||||||||
60,581,548 Class B preferred shares (58,604,942 as at March 28, 2009, 56,319,012 as at March 29, 2008 and 56,222,238 as at July 19, 2007) |
58,128 | 56,018 | 53,820 | 53,722 | ||||||||||||
$ | 117,038 | $ | 114,928 | $ | 112,727 | $ | 112,608 | |||||||||
July 18, 2007 |
March 31, 2007 |
|||||||
Predecessor | Predecessor | |||||||
Issued and paid: |
||||||||
5,300,000 multiple voting shares |
$ | 302 | $ | 302 | ||||
16,234,083 subordinate voting shares (2007 - 16,202,831 shares) |
111,701 | 110,966 | ||||||
$ | 112,003 | $ | 111,268 | |||||
(a) | Shares issuance: |
(i) | During the year ended April 3, 2010: |
On July 31, 2009, as part of the continuing subscription agreement (note 10), the Company issued 1,976,606 Class B preferred shares for a total cash consideration of CDN$2,305,514.
50
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
17. | Capital stock (continued): |
(a) | Shares issuance (continued): |
(ii) | During the year ended March 28, 2009: |
On July 31, 2008, as per the continuing subscription agreement, the Company issued 2,026,647 Class B preferred shares for a cash consideration of CDN$2,188,779.
On August 19, 2008, the Company issued 2,768 common shares and 274,133 Class B preferred shares for a cash consideration of CDN $300,000.
On January 22, 2009, the Company cancelled 150 common shares and 14,850 Class B preferred shares for a cash consideration of CDN$15,000.
(iii) | During the 254-day period ended March 29, 2008: |
On November 15, 2007, the Company issued 977 common shares and 96,774 Class B preferred shares for a total cash consideration of CDN$100,000.
On September 20, 2007, the Company issued 20,182 restricted common shares for a total consideration of CDN$20,182.
(iv) | At inception of the Company on July 19, 2007: |
On July 19, 2007, 1,383,449 common voting shares, 60,000,000 Class A preferred shares and 54,882,149 Class B preferred shares have been issued for a cash consideration of CDN$116,300,000.
(v) | At the time of the acquisition of Van Houtte Inc. on July 18, 2007: |
As a consideration of the acquisition of Van Houtte Inc., 13,536 common voting shares and 1,340,089 Class B preferred shares have been issued in exchange of the investment of 54,145 subordinated voting shares of Van Houtte Inc.
(vi) | For the 112-day period ended July 18, 2007: |
During the period, 31,252 subordinate voting shares were issued upon the exercise of stock options, for a cash consideration of CDN$603,998. Following the exercise of those options, CDN$197,823 was transferred from the contributed surplus to the capital stock.
51
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
17. | Capital stock (continued): |
(b) | Omnibus stock incentive plan: |
Under the Companys omnibus stock incentive plan, a maximum of 15% of the common shares are reserved for employees of the Company. The exercise price of each option shall be the fair market value at the time the option is granted as determined in good faith by the Board. Each option may be exercised during a period not exceeding 10 years from the date it is granted. Options generally vest at a rate of 20% per year on each of the first four years and the remaining 20% after 10 years.
The following table provides details regarding changes to outstanding options for the periods ended:
April 3, 2010 | Mach 28, 2009 | |||||||||||||||
Options | Weighted average exercise price |
Options | Weighted average exercise price |
|||||||||||||
(CDN$ - in dollars) |
(CDN$ - in dollars) |
|||||||||||||||
Balance at the beginning of the period |
103,983 | $ | 1.00 | 100,160 | $ | 1.00 | ||||||||||
Granted |
14,532 | 20.00 | 21,054 | 1.00 | ||||||||||||
1,500 | 40.00 | | | |||||||||||||
Cancelled |
(3,494 | ) | 1.00 | (17,231 | ) | (1.00 | ) | |||||||||
Balance at end of period |
116,521 | 3.87 | 103,983 | 1.00 | ||||||||||||
Vested options at end of year |
43,113 | $ | 1.00 | 26,090 | $ | 1.00 | ||||||||||
52
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
17. | Capital stock (continued): |
(b) | Omnibus stock incentive plan (continued): |
254-day period ended March 29, 2008 |
112-day period ended July 18, 2007 |
|||||||||||||||
Options | Weighted average exercise price |
Options | Weighted average exercise price |
|||||||||||||
(CDN$ - in dollars) |
(CDN$ - in dollars) |
|||||||||||||||
Balance at the beginning of the period |
| $ | | 706,047 | $ | 21.09 | ||||||||||
Granted |
104,818 | 1.00 | | | ||||||||||||
Cancelled |
(4,658 | ) | 1.00 | (217,817 | ) | 27.19 | ||||||||||
Exercised |
| | (31,252 | ) | 19.33 | |||||||||||
Expired |
| | | | ||||||||||||
Cash-out option |
| | (456,978 | ) | | |||||||||||
Balance at end of period |
100,160 | $ | 1.00 | | $ | | ||||||||||
Vested options at end of year |
11,880 | $ | 1.00 | | $ | | ||||||||||
53
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
17. | Capital stock (continued): |
(b) | Omnibus stock incentive plan (continued): |
The following table summarizes information about stock options outstanding as at April 3, 2010:
Exercise price |
Number of options outstanding |
Weighted average remaining contractual life (in years) |
||||||
(CDN$ - in dollars) |
||||||||
$1 |
100,489 | 7.5 | ||||||
$20 |
14,532 | 9.4 | ||||||
$40 |
1,500 | 9.9 |
The following table summarizes information about stock options exercisable as at April 3, 2010:
Exercise price |
Number of options outstanding |
Weighted average remaining contractual life (in years) |
||||||
(CDN$ - in dollars) |
||||||||
$1 |
43,113 | 7.8 |
Of the total options granted since the acquisition of Van Houtte by LJVH Holdings Inc. on July 19, 2007 approximately 85% were granted when the fair value of the underlying shares was determined by the Board to be CDN$1.00, Accordingly the total fair value of options (as determined on the respective grant dates) granted since July 19, 2007 is nominal and no compensation cost has been recognized in the statement of earnings.
54
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
17. | Capital stock (continued): |
(b) | Omnibus stock incentive plan (continued): |
In addition to the above, as part of an Executive Option Agreement concluded on September 20, 2007, the Company also granted to certain employees 1,176,120 options to purchase Class B preferred shares, for an exercise price of CDN$1.00. The options on Class B preferred shares have been granted when the fair value of such shares was determined by the Board to be CDN$1.00. These options vest only upon a liquidity event, as defined in the agreement, and have a life of 10 years. No compensation cost has been recognized in relation to the above grant.
As part of the share purchase transaction described in note 22, all of the outstanding options have vested and have been exercised for common and preferred shares for an aggregate amount of CDN$451,131.
(c) | Restricted shares: |
On July 19, 2007, certain U.S. employees subscribed to 20,182 restricted common shares of the Company by paying the fair value of such shares in cash. Under the terms of the subscription agreement, these shares shall become vested by a tranche of 20% on each of the first four anniversaries of the subscription. The remaining shares will vest upon the earlier of a liquidity event or the 10-year anniversary. The owners of these shares can exercise any voting and other rights as a shareholder for all the vested shares.
As at April 3, 2010, 12,109 common shares are unvested (16,146 in 2009 and 20,182 in 2008). As part of the share purchase transaction described in note 22, unvested shares become vested and were purchased by Green Mountain Roasters, Inc.
(d) | Stock options for the 112-day period ended July 18, 2007: |
Following the announcement of the acquisition of the Company by Littlejohn & Co LLC (Littlejohn), the Company cashed out the vested options as at July 18, 2007 just before the acquisition and terminated the stock option plan.
55
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
18. | Accumulated other comprehensive income: |
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Accumulated other comprehensive income (loss) attributable to LJVH Holdings Inc. |
Accumulated other compre- hensive income (loss) attributable to non-controlling interest |
|||||||||||||||
Defined benefits |
Foreign currency translation |
Accumulated comprehensive income |
Foreign currency translation |
|||||||||||||
Balance as at March 31, 2007 |
$ | (1,104 | ) | $ | 10,043 | $ | 8,939 | $ | 2,128 | |||||||
(Predecessor) |
||||||||||||||||
Other comprehensive income, net of tax |
(292 | ) | (10,406 | ) | (10,698 | ) | (570 | ) | ||||||||
Balance as at July 18, 2007 |
$ | (1,396 | ) | $ | (363 | ) | $ | (1,759 | ) | $ | 1,558 | |||||
(Predecessor) |
||||||||||||||||
Cancellation of Predecessor other comprehensive income, net of tax |
1,396 | 363 | 1,759 | | ||||||||||||
Balance as at July 19, 2007 |
$ | | $ | | $ | | $ | 1,558 | ||||||||
(Successor) |
||||||||||||||||
Other comprehensive income, net of tax |
20 | 842 | 862 | 345 | ||||||||||||
Balance as at March 29, 2008 |
$ | 20 | $ | 842 | $ | 862 | $ | 1,903 | ||||||||
(Successor) |
||||||||||||||||
Other comprehensive income, net of tax |
(45 | ) | (3,529 | ) | (3,574 | ) | (3,224 | ) | ||||||||
Balance as at March 28, 2009 |
$ | (25 | ) | $ | (2,687 | ) | $ | (2,712 | ) | $ | (1,321 | ) | ||||
(Successor) |
||||||||||||||||
Other comprehensive income, net of tax |
(122 | ) | 3,727 | 3,605 | 3,370 | |||||||||||
Balance as at April 3, 2010 (Successor) |
$ | (147 | ) | $ | 1,040 | $ | 893 | $ | 2,049 | |||||||
56
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
19. | Commitments and guarantees: |
(a) | Lease commitments: |
The Company rents premises and equipment under operating leases which expire at various dates up to 2024 and for which gross rents total $26,477,422. Of this amount, $6,680,877 is assumed by the franchisees of the Company. Annual payments under these leases for the next five years and thereafter are as follows:
Gross | Franchisee | Net | ||||||||||
2011 |
$ | 6,563 | $ | 822 | $ | 5,741 | ||||||
2012 |
5,873 | 810 | 5,063 | |||||||||
2013 |
4,652 | 787 | 3,865 | |||||||||
2014 |
3,066 | 788 | 2,278 | |||||||||
2015 |
2,196 | 751 | 1,445 | |||||||||
2016 and thereafter |
4,128 | 2,723 | 1,405 |
Lease expenses related to the operating leases amounted to $6,831,821 for the year ended April 3, 2010, $6,653,149 for the year ended March 28, 2009, $4,914,322 for the 254-day period ended March 29, 2008 and $2,107,675 for the 112-day period ended July 18, 2007, respectively.
(b) | Coffee commitments: |
As at April 3, 2010, the Company had green coffee purchase commitments, totaling approximately $9,794,000, of which approximately 95% had a fixed price. These commitments extend through September 2010. The value of the variable portion of these commitments was calculated using an average C price of coffee of $1.3818 per pound as at April 3, 2010.
57
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
19. | Commitments and guarantees (continued): |
(c) | Guarantees: |
(i) | Directors and officers indemnification agreements: |
The Company indemnifies its directors and officers, former directors and officers and individuals who act or who have acted at the Companys request as directors or officers of an entity in which the Company is a shareholder or creditor, to the extent permitted by law, against any and all charges, costs, expenses, amounts paid in settlement or investigative damages incurred by the directors and officers as a result of any lawsuit, or any judicial, administrative or investigating proceeding in which the directors and officers are used as a result of their service. These indemnification claims are subject to any statutory or other legal limitation period. The nature of the indemnification agreements prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties.
(ii) | Operating leases: |
The Company has guaranteed lease obligations for its franchisees up to 2012. If a franchisee defaults under its contractual obligation, the Company must, under certain conditions, compensate the lessor for the default. The maximum exposure in respect of these guarantees approximates $95,000 ($328,000 as at March 28, 2009). As at April 3, 2010, the Company has not recorded a liability associated with these guarantees since it is not probable that a franchisee will default under the agreement and management believes that the stand-by liability is negligible.
20. | Contingencies: |
The Company is involved in some lawsuits and claims. While it is not possible to estimate the outcome of such proceedings at this time, management is of the opinion that the outcome of these uncertainties will not have a material adverse effect on the Companys financial position and results of operations.
58
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
21. | Financial instruments: |
(a) | Fair value of financial instruments: |
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates their fair value because of the near-term maturity of these instruments. The fair value of the long-term debt approximates their carrying values as the term and conditions of the borrowing arrangements are comparable to current market terms and conditions. The fair value of subordinated note to parent company is not determinable due to its related party nature.
As at April 3, 2010 and March 28, 2009, the estimated fair values of derivative financial instruments are as follows:
April 3, 2010 | ||||||||||||
Short-term | Long-term | Total | ||||||||||
Financial assets: |
||||||||||||
Coffee contracts (d) |
$ | 164 | $ | | $ | 164 | ||||||
Financial liabilities: |
||||||||||||
Cross currency swaps (b) |
$ | (4,103 | ) | $ | (27,793 | ) | $ | (31,896 | ) | |||
Forward foreign exchange contracts (b) |
(1,049 | ) | | (1,049 | ) | |||||||
Interest rate swaps (c) |
(5,822 | ) | | (5,822 | ) | |||||||
$ | (10,974 | ) | $ | (27,793 | ) | $ | (38,767 | ) | ||||
March 28, 2009 | ||||||||||||
Short-term | Long-term | Total | ||||||||||
Financial assets: |
||||||||||||
Coffee contracts (d) |
$ | 237 | $ | | $ | 237 | ||||||
Cross currency swaps (b) |
2,682 | 35,476 | 38,158 | |||||||||
Forward foreign exchange contracts (b) |
824 | | 824 | |||||||||
3,743 | 35,476 | 39,219 | ||||||||||
Financial liabilities: |
||||||||||||
Interest rate swaps (c) |
$ | (7,435 | ) | $ | (5,993 | ) | $ | (13,428 | ) | |||
The above assets and liabilities are the only ones measured at fair value on a recurring basis and are all measured at level 2 in the fair value hierarchy.
The Company does not hold asset or liabilities measured using level 3 inputs.
59
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
21. | Financial instruments (continued): |
(a) | Fair value of financial instruments (continued): |
The fair value of the coffee contracts has been determined using published quoted values for these commodities. The fair value of foreign exchange forward contracts has been determined using rates published by the financial institution which is counterparty to these contracts. The fair value of the interest rate swap and cross currency swaps has been determined using rates published on financial capital markets.
Effect of derivative instruments on earnings (gross of tax) for the following periods:
Classification of (gain) loss in the consolidated statement of earnings |
(Gain) loss realized and unrealized | |||||||||||||||
Year ended April 3, 2010 |
Year ended March 28, 2009 |
254-day period ended March 29 2008 |
||||||||||||||
Coffee contracts |
Cost of sales | $ | 1,089 | $ | (2,594 | ) | $ | 426 | ||||||||
Forward foreign exchange contracts |
Financial expenses | 2,770 | (1,096 | ) | 212 | |||||||||||
Interest rate swaps |
Financial expenses | (9,537 | ) | 6,112 | 11,438 | |||||||||||
Cross currency swaps |
Financial expenses | 72,596 | (69,453 | ) | 4,618 | |||||||||||
Total derivatives |
$ | 66,918 | $ | (67,031 | ) | $ | 16,694 | |||||||||
(b) | Foreign exchange risk: |
Gains and losses on foreign exchange transactions related to the long-term debt are recorded in financial expenses (see note 4).
Gains and losses on foreign exchange transactions other than for the long-term debt are recorded in the cost of goods sold and operating expenses in the consolidated statement of earnings. For the year ended April 3, 2010, this amounted to a loss of $2,417,446 (a gain of $3,447,052 for the year ended March 28, 2009, a gain of $613,543 for the 254-day period ended March 29, 2008 and a gain of $670,790 for the 112-period ended July 18, 2007).
60
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
21. | Financial instruments (continued): |
(b) | Foreign exchange risk (continued): |
Derivative financial instruments:
On July 19, 2007, the Company has entered into cross-currency swaps to hedge the foreign exchange fluctuations related to its US first and second lien credit by fixing the US/Canadian dollar exchange rate at 1.1016 on a notional amount of $375,000,000 and on the payments of the interest. These swaps expire from July 2014 to January 2015.
The Company makes purchases in US dollars and enters into foreign exchange forward contracts in order to manage its foreign exchange risk. The Company does not hold nor issue such financial instruments for trading purposes. As at April 3, 2010, there were forward foreign exchange contracts outstanding with an average exchange rate of one US dollar for CDN 1.07622 (2009 - CDN 1.1776) for a notional amount of $15,600,000. These contracts expire from April 15, 2010 to March 3, 2011.
(c) | Interest rate risk: |
The Company has entered into interest rate swaps to manage its interest rate exposure on a portion of the first and second lien credit. The Company is committed to exchange, at specific intervals, the difference between the fixed and floating interest rates calculated based on notional principal amounts. The Company pays a fixed interest rate of 4.773% on an average notional amount of $224,020,688 and receives floating interest rates based on bankers acceptances having a three-month maturity. The swap will expire on December 31, 2010.
(d) | Price risk: |
The Company also has significant exposure toward the fluctuation of the price of green coffee. The Company purchases coffee futures contracts on a public commodities market in order to manage its price risk. As at April 3, 2010, the Company had contracts for 7.1 million pounds (2009 - 9.3 million pounds) of green coffee at an average price of $1.3587 (2009 - $1.13) per pound outstanding. As at April 3, 2010, the Companys outstanding contracts expire in May, July and September 2010, and $500,000 (2009 - $1,500,000) was set aside in a restricted margin account in order to protect the counterparty from non-performance.
61
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
21. | Financial instruments (continued): |
(e) | Credit risk: |
Management believes the Company does not have a significant exposure to any individual customer nor counterparty. The Company reviews a new customers credit history before extending credit and conducts regular reviews of its existing customers credit performance. An allowance for doubtful accounts is established based upon factors such as the credit risk for specific customers, historical trends and other information.
22. | Subsequent events: |
Subsequent events have been evaluated until March 3, 2011, which corresponds to the date on which the financial statements were available to be issued.
(a) | In connection with the acquisition described below, on December 14, 2010, the Company, its holding company and two wholly-owned subsidiaries, Van Houtte Group Inc. and Van Houtte Filterfresh Holdings Inc., were amalgamated to form LJVH Holdings Inc. (Merged LJVH). The shareholders respective pre-amalgamation ownership has been preserved after the amalgamation. Options to acquire common shares and Class B preferred shares of LJVH have been exchanged for options to acquire the equivalent number of common shares and Class B preferred shares of Merged LJVH at equivalent exercise prices. Merged LJVH is continued as a corporation under the laws of the Province of New Brunswick, under the name LJVH Holdings Inc. |
62
LJVH HOLDINGS INC.
Notes to Consolidated Financial Statements, Continued
Years ended April 3, 2010 and March 28, 2009 and the 254-day period ended
March 29, 2008 and the 112-day period ended July 18, 2007 of the Predecessor
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
22. | Subsequent events (continued): |
(b) | On December 17, 2010, all of the outstanding shares of the Company were acquired by SSR Acquisition Corp, a wholly-owned subsidiary of Green Mountain Coffee Roasters, Inc. (the share purchase transaction), for an aggregate cash purchase price of CDN$915,000,000, subject to future adjustments based on the working capital, net indebtedness and closing tax adjustment, as of immediately prior to the share purchase transactions closing, as defined in the Share Purchase Agreement (the Agreement). |
Pursuant to the closing of the share purchase transaction, the following transactions occurred:
| Accelerated vesting and exercise of all outstanding options to convert them into common and preferred shares for an amount of CDN$451,131. |
| The subordinated notes to the parent company have been converted into Class B preferred shares of LJVH based on the accreted value of the Class B preferred shares on the conversion date. At the closing date, the liquidation price of the Class A preferred shares and the Class B preferred shares was CDN$79,100,000 and CDN$179,900,000, respectively. Subsequently, they were purchased by the purchaser. |
| Repayment of the first and second lien credit and the related cross-currency and interest swap agreements in the amount of CDN$407,592,000. |
| Lump-sum payment of CDN$3,110,000 for termination of the main SERP plan on December 23, 2010. |
The Agreement contains customary representations and warranties and covenants. Subject to certain limitations, each party has agreed to indemnify the other for certain breaches of representations, warranties and covenants and other specified matters.
(c) | Following the closing of the share purchase transaction described herein, the Company and SSR Acquisition Corp. were amalgamated. As a result, the Company continuing the business was renamed Van Houtte Holding Company Limited. |
63
Exhibit 99.3
Condensed Consolidated Financial Statements of
(Unaudited)
LJVH HOLDINGS INC.
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
LJVH HOLDINGS INC.
Condensed Consolidated Financial Statements
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
Financial Statements
Condensed Consolidated Statement of Earnings |
3 | |||
Condensed Consolidated Statement of Comprehensive Income |
4 | |||
Condensed Consolidated Balance Sheets |
5 | |||
Condensed Consolidated Statement of Shareholders Equity |
7 | |||
Condensed Consolidated Statement of Cash Flows |
8 | |||
Notes to Condensed Consolidated Financial Statements |
9 |
LJVH HOLDINGS INC.
Condensed Consolidated Statement of Earnings
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(in thousands of U.S. dollars)
October 16, 2010 |
October 10, 2009 |
|||||||
Net sales of coffee and related items |
$ | 201,122 | $ | 166,093 | ||||
Rental income |
20,137 | 19,874 | ||||||
Other revenues |
1,280 | 1,049 | ||||||
Total revenues |
222,539 | 187,016 | ||||||
Cost of sales (including $14,198 and $12,263 of depreciation) |
114,566 | 92,927 | ||||||
107,973 | 94,089 | |||||||
Selling and operating expenses |
61,198 | 55,150 | ||||||
General and administrative expenses |
27,864 | 26,644 | ||||||
Operating profit |
18,911 | 12,295 | ||||||
Financial expenses (note 4) |
16,291 | 15,552 | ||||||
Earnings (loss) before income taxes |
2,620 | (3,257 | ) | |||||
Income tax recovery (note 7) |
(575 | ) | (4,260 | ) | ||||
Net earnings |
3,195 | 1,003 | ||||||
Net earnings attributable to redeemable non-controlling interest |
737 | 981 | ||||||
Net earnings attributable to LJVH Holdings Inc. |
$ | 2,458 | $ | 22 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
LJVH HOLDINGS INC.
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(In thousands of U.S. dollars)
October 16, 2010 |
October 10, 2009 |
|||||||
Net earnings |
$ | 3,195 | $ | 1,003 | ||||
Other comprehensive (loss) income, net of tax: |
||||||||
Unrealized loss on foreign currency translation adjustment |
(18 | ) | (1,062 | ) | ||||
Other comprehensive loss |
(18 | ) | (1,062 | ) | ||||
Total comprehensive income (loss) |
3,177 | (59 | ) | |||||
Total comprehensive income attributed to redeemable non-controlling interest |
693 | 3,560 | ||||||
Total comprehensive income (loss) attributed to LJVH Holdings Inc. |
$ | 2,484 | $ | (3,619 | ) | |||
See accompanying notes to unaudited condensed consolidated financial statements.
4
LJVH HOLDINGS INC.
Condensed Consolidated Balance Sheets
(Unaudited)
October 16, 2010, with comparative figures as at April 3, 2010
(In thousands of U.S. dollars)
October 16, 2010 |
April 3, 2010 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 32,217 | $ | 39,828 | ||||
Restricted cash |
500 | 500 | ||||||
Accounts receivable, net |
56,101 | 52,682 | ||||||
Inventories, net (note 3) |
35,837 | 29,476 | ||||||
Income taxes receivable |
2,316 | 3,117 | ||||||
Derivative financial instruments (note 13) |
823 | 164 | ||||||
Deferred income taxes |
1,690 | 1,797 | ||||||
Prepaid expenses |
6,896 | 4,465 | ||||||
Total current assets, net |
136,380 | 132,029 | ||||||
Fixed assets, net (note 5) |
103,448 | 104,587 | ||||||
Intangible assets, net (note 6) |
253,939 | 258,978 | ||||||
Deferred income taxes |
4,623 | 2,070 | ||||||
Goodwill |
243,962 | 244,603 | ||||||
Other long-term assets |
6,998 | 8,001 | ||||||
$ | 749,350 | $ | 750,268 | |||||
5
October 16, 2010 |
April 3, 2010 |
|||||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 33,342 | $ | 22,444 | ||||
Accrued compensation |
11,880 | 12,250 | ||||||
Accrued customer incentives |
5,785 | 10,157 | ||||||
Accrued interest |
2,960 | 5,766 | ||||||
Income taxes payable |
266 | 266 | ||||||
Deferred revenue |
557 | 1,078 | ||||||
Deferred income taxes |
60 | 213 | ||||||
Derivative financial instruments (note 13) |
7,658 | 10,974 | ||||||
Current portion of long-term debt |
3,749 | 11,960 | ||||||
Total current liabilities |
66,257 | 75,108 | ||||||
Long-term debt |
358,051 | 358,592 | ||||||
Subordinated note to parent company |
94,806 | 90,309 | ||||||
Derivative financial instruments (note 13) |
26,538 | 27,793 | ||||||
Other long-term liabilities |
9,624 | 9,462 | ||||||
Deferred income taxes |
75,120 | 74,712 | ||||||
Redeemable non-controlling interest |
14,234 | 14,415 | ||||||
Shareholders equity: |
||||||||
Capital stock (note 9) |
119,365 | 117,038 | ||||||
Accumulated deficit |
(15,564 | ) | (18,054 | ) | ||||
Accumulated other comprehensive income |
919 | 893 | ||||||
Total equity attributable to LJVH Holdings Inc. |
104,720 | 99,877 | ||||||
Commitments and guarantees (note 11) |
||||||||
Contingencies (note 12) |
||||||||
Subsequent events (note 14) |
||||||||
$ | 749,350 | $ | 750,268 | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
LJVH HOLDINGS INC.
Condensed Consolidated Statement of Shareholders Equity
(Unaudited)
Twenty-eight weeks ended October 16, 2010
(In thousands of U.S. dollars)
Equity attributable to redeemable non-controlling interest |
Capital stock |
Contributed surplus |
Accumulated deficit |
Accumulated other comprehensive income |
Total shareholders equity |
|||||||||||||||||||
Balance as at April 3, 2010 |
$ | 14,415 | $ | 117,038 | $ | | $ | (18,054 | ) | $ | 893 | $ | 99,877 | |||||||||||
Net earnings |
737 | | | 2,458 | | 2,458 | ||||||||||||||||||
Other comprehensive (loss) income |
(44 | ) | | | | 26 | 26 | |||||||||||||||||
Adjustment of redeemable non-controlling interest to redemption value |
(32 | ) | | | 32 | | 32 | |||||||||||||||||
Issuance of shares (note 9) |
| 2,327 | | | | 2,327 | ||||||||||||||||||
Dividend paid |
(842 | ) | | | | | | |||||||||||||||||
Balance as at October 16, 2010 |
$ | 14,234 | $ | 119,365 | $ | | $ | (15,564 | ) | $ | 919 | $ | 104,720 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
LJVH HOLDINGS INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(In thousands of U.S. dollars)
October 16, 2010 |
October 10, 2009 |
|||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 3,195 | $ | 1,003 | ||||
Adjustments for: |
||||||||
Depreciation of fixed assets |
18,953 | 16,918 | ||||||
Amortization of intangible and other long-term assets |
4,484 | 4,276 | ||||||
Amortization of financing costs |
816 | 744 | ||||||
Deferred income taxes |
(1,996 | ) | (3,482 | ) | ||||
Pension expense and post-employment benefits |
338 | 194 | ||||||
Change in fair value of derivative financial instruments and unrealized foreign exchange (gain) loss on translation of long-term debt |
(3,695 | ) | (2,748 | ) | ||||
Gain on disposal of fixed assets |
(103 | ) | (74 | ) | ||||
Other |
(2,266 | ) | (384 | ) | ||||
Net change in non-cash balances related to working capital items (note 10) |
(7,115 | ) | (12,287 | ) | ||||
12,611 | 4,160 | |||||||
Cash flows from financing activities: |
||||||||
Issue of common shares and Class B preferred shares (note 9) |
2,351 | 2,038 | ||||||
Increase in subordinated note to parent company |
4,853 | 4,075 | ||||||
Repayment of long-term debt |
(9,309 | ) | (2,877 | ) | ||||
Dividends paid to redeemable non-controlling shareholders of subsidiaries |
(842 | ) | (869 | ) | ||||
Purchase of redeemable non-controlling interests |
| (6,555 | ) | |||||
(2,947 | ) | (4,188 | ) | |||||
Cash flows from investing activities: |
||||||||
Business and asset acquisitions and disposals (note 2) |
(795 | ) | (298 | ) | ||||
Additions to fixed assets |
(16,855 | ) | (13,351 | ) | ||||
Proceeds from disposal of fixed assets |
396 | 367 | ||||||
Increase in other long-term assets |
143 | 601 | ||||||
(17,111 | ) | (12,681 | ) | |||||
Effect of exchange rate changes on cash |
(164 | ) | 3,095 | |||||
Net decrease in cash and cash equivalents |
(7,611 | ) | (9,614 | ) | ||||
Cash and cash equivalents, beginning of year |
39,828 | 25,173 | ||||||
Cash and cash equivalents, end of period |
$ | 32,217 | $ | 15,559 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
8
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
LJVH Holdings Inc. (the Company) is a gourmet coffee roaster, marketer and distributor. It markets its gourmet coffees across Canada and the United States through distribution channels that include coffee services, retail stores, bistros, on-line shopping and food service networks.
The Company was incorporated under the Business Corporations Act of British Columbia. The headquarters of the Company is located in Montréal, Québec, Canada.
1. | Basis of presentation: |
These condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). These condensed consolidated financial statements include the accounts of LJVH Holdings Inc. as formed by virtue of the acquisition of Van Houtte Inc. on July 19, 2007 (date of acquisition).
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles and methods of application disclosed in the financial statements for the year ended April 3, 2010. They do not include all of the information and footnotes required by GAAP for annual financial statements and should be read in conjunction with the financial statements for the period ended April 3, 2010.
In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial data have been included. Results of operations for the twenty-eight weeks ended October 16, 2010 are not necessarily indicative of the results that may be expected for the 2011 fiscal year.
The October 16, 2010 balance sheet data is derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and the footnotes for the fiscal year ended April 3, 2010.
9
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
1. | Basis of presentation (continued): |
These condensed consolidated financial statements include the accounts of LJVH Holdings Inc. and its subsidiaries. All significant transactions and balances between these companies have been eliminated. All consolidated subsidiaries are wholly-owned as of October 16, 2010 with the exception of the following:
Consolidated subsidiary |
Business purpose | Ownership | ||||
LAuthentique Pose café, Inc. |
Coffee Services | 50 | % | |||
Automates Alouette, Inc. |
Coffee Services | 75 | % | |||
Pause Café Estrie, Inc. |
Coffee Services | 50 | % | |||
Corporate Coffee Systems, LLC |
U.S. Coffee Services | 56 | % |
The major subsidiaries of LJVH Holdings Inc. are Van Houtte Group Inc., including its principal subsidiaries Van Houtte L.P. and Van Houtte Coffee Services L.P., Van Houtte Coffee Service Inc., VKI Technologies Inc., and Filterfresh Coffee Service, Inc., including its principal subsidiary, Corporate Coffee Services, LLC.
The Company does not hold investments in affiliated companies where it is deemed to have significant influence.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the related amounts of revenues and expenses and the disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to the determination of the useful life of assets for depreciation and amortization and evaluation of net recoverable amounts, the determination of the fair value of assets acquired and liabilities assumed in business combinations, the implied fair value of goodwill, the provisions for income taxes and determination of deferred income tax assets and liabilities that take into account the estimate of taxable benefits in the various jurisdictions, and the determination of the fair value of financial instruments. Actual results could differ from those estimates.
10
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
2. | Business acquisitions: |
During the periods, the Company made several acquisitions. Results of the businesses acquired are included from the date of the acquisition in the consolidated financial statements of the Company. The total consideration was approximately $795,000 (2009 - $568,000). During the period ended October 10, 2009, the Company also acquired the minority interest in two of its consolidated subsidiaries for $6,956,000 ($6,555,000 in cash).
The acquisitions are summarized as follows:
October 16, 2010 |
October 10, 2009 |
|||||||
Assets acquired: |
||||||||
Non-cash operating working capital |
$ | 103 | $ | 19 | ||||
Fixed assets |
282 | 93 | ||||||
Non-compete agreements |
266 | 19 | ||||||
Customer relations |
107 | 437 | ||||||
Other assets |
20 | | ||||||
Goodwill |
17 | | ||||||
$ | 795 | $ | 568 | |||||
Consideration: |
||||||||
Cash |
$ | | $ | 298 | ||||
Portion of purchase price unpaid at the acquisition date |
795 | 270 | ||||||
$ | 795 | $ | 568 | |||||
11
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
3. | Inventories, net: |
October 16, 2010 |
April 3, 2010 |
|||||||
Raw material |
$ | 11,018 | $ | 8,211 | ||||
Goods in process |
590 | 584 | ||||||
Finished goods |
24,229 | 20,681 | ||||||
$ | 35,837 | $ | 29,476 | |||||
The amount of inventories recognized as an expense during the twenty-eight weeks ended October 16, 2010 is $88,716,000 ($71,815,000 as at October 10, 2009). As at October 16, 2010, inventories included a provision for obsolescence of $455,000 ($537,000 as at April 3, 2010).
4. | Financial expenses: |
Period ended October 16, 2010 |
Period end October 10, 2009 |
|||||||
Interest on long-term debt |
$ | 13,154 | $ | 13,384 | ||||
Interest on subordinated note to parent company |
3,869 | 3,349 | ||||||
Unrealized change in fair value of derivative financial instruments |
(4,999 | ) | 55,349 | |||||
Unrealized foreign exchange (gain) loss on translation of long-term debt |
1,303 | (58,098 | ) | |||||
Realized loss (gain) on derivative financial instruments |
1,035 | (46 | ) | |||||
Amortization of deferred financing costs |
816 | 744 | ||||||
Other |
1,113 | 870 | ||||||
$ | 16,291 | $ | 15,552 | |||||
12
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
5. | Fixed assets, net: |
October 16, 2010 | ||||||||||||
Cost | Accumulated depreciation |
Net book value |
||||||||||
Land |
$ | 2,132 | $ | | $ | 2,132 | ||||||
Building |
13,624 | 1,970 | 11,654 | |||||||||
Retail equipment |
9,088 | 5,403 | 3,685 | |||||||||
Vending equipment |
1,903 | 730 | 1,173 | |||||||||
Coffee service equipment (i) |
112,425 | 67,842 | 44,583 | |||||||||
Machinery and equipment |
27,850 | 6,623 | 21,227 | |||||||||
Furniture, computer equipment and leasehold improvements |
11,126 | 5,507 | 5,619 | |||||||||
Vehicles |
15,270 | 8,849 | 6,421 | |||||||||
Software development cost |
16,339 | 9,385 | 6,954 | |||||||||
$ | 209,757 | $ | 106,309 | $ | 103,448 | |||||||
April 3, 2010 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
Land |
$ | 2,139 | $ | | $ | 2,139 | ||||||
Building |
13,438 | 1,635 | 11,803 | |||||||||
Retail equipment |
9,740 | 5,550 | 4,190 | |||||||||
Vending equipment |
1,814 | 577 | 1,237 | |||||||||
Coffee service equipment (i) |
103,412 | 54,432 | 48,980 | |||||||||
Machinery and equipment |
23,528 | 5,485 | 18,043 | |||||||||
Furniture, computer equipment and leasehold improvements |
15,167 | 8,380 | 6,787 | |||||||||
Vehicles |
14,178 | 7,576 | 6,602 | |||||||||
Software development cost |
8,910 | 4,104 | 4,806 | |||||||||
$ | 192,326 | $ | 87,739 | $ | 104,587 | |||||||
(i) | The coffee service equipment is for rental or provided to customers, pursuant to coffee services agreements. |
13
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
6. | Intangible assets, net: |
October 16, 2010 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
Customer relations |
$ | 153,661 | $ | 25,491 | $ | 128,170 | ||||||
Trade name and trademarks |
124,659 | | 124,659 | |||||||||
Non-compete agreements |
2,250 | 1,561 | 689 | |||||||||
Franchise agreement |
862 | 696 | 166 | |||||||||
Patents and licenses |
478 | 223 | 255 | |||||||||
$ | 281,908 | $ | 27,971 | $ | 253,939 | |||||||
April 3, 2010 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
Customer relations |
$ | 153,678 | $ | 21,244 | $ | 132,434 | ||||||
Trade name and trademarks |
125,079 | | 125,079 | |||||||||
Non-compete agreements |
2,226 | 1,327 | 899 | |||||||||
Franchise agreement |
866 | 584 | 282 | |||||||||
Patents and licenses |
474 | 190 | 284 | |||||||||
$ | 282,323 | $ | 23,345 | $ | 258,978 | |||||||
14
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
7. | Income taxes: |
The Company recorded income tax recovery of $575,000 for the twenty-eight weeks ended October 16, 2010 and $4,260,000 for the twenty-eight weeks ended October 10, 2009.
Income tax recovery is detailed as follows:
Period ended October 16, 2010 |
Period ended October 10, 2009 |
|||||||
Current |
1,415 | (778 | ) | |||||
Deferred |
(1,990 | ) | (3,482 | ) | ||||
Income tax recovery |
$ | (575 | ) | $ | (4,260 | ) | ||
The Company has net operating loss carryforwards for Canadian federal and provincial and U.S. Federal and states taxes, as well as capital losses carryforward available to be utilized against future taxable income. As the Company has concluded that it is not more likely than not that these losses will be utilized, a valuation allowance has been recorded.
The total amount of unrecognized tax benefits at October 16, 2010 and April 3, 2010 was $10,500,000 and $10,684,000 respectively. The amount of unrecognized tax benefits at October 16, 2010 that would impact the effective tax rate if resolved in favor of the Company is $5,100,000.
8. | Related party transactions: |
During the twenty-eight weeks ended October 16, 2010, the Company expensed interest related to the subordinated loan to parent company of $3,868,500 (2009 - $3,347,180). As at October 16, 2010, $1,823 of interest due to parent company is included in accounts payable and accrued liabilities.
During the twenty-eight weeks ended October 16, 2010, the Company paid management fees and expenses of $596,000 (2009 - $537,000) to its controlling shareholder.
These transactions were conducted on non-arms length terms.
15
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
9. | Capital stock: |
(a) | Shares issuance: |
(i) | During the period ended October 16, 2010: |
On July 31, 2010, as part of the continuing subscription agreement with its parent, the Company issued 1,927,801 Class B preferred shares for a total cash consideration of CDN$2,428,474.
(ii) | During the period ended October 10, 2009: |
On July 31, 2009, as part of the continuing subscription agreement with its parent, the Company issued 1,976,606 Class B preferred shares for a total cash consideration of CDN$2,305,514.
(b) | Omnibus stock incentive plan: |
The following table provides details regarding changes to outstanding options for the periods ended:
Twenty-eight weeks ended October 16, 2010 |
Twenty-eight weeks ended October 10, 2009 |
|||||||||||||||
Options | Weighted average exercise price |
Options | Weighted average exercise price |
|||||||||||||
(CDN$ - in dollars) | (CDN$ - in dollars) | |||||||||||||||
Balance at the beginning of the period |
116,521 | $ | 3.87 | 103,983 | $ | 1.00 | ||||||||||
Granted |
| | 14,432 | 20.00 | ||||||||||||
Cancelled |
| | (2,329 | ) | 1.00 | |||||||||||
Balance at end of period |
116,521 | $ | 3.87 | 116,186 | $ | 3.36 | ||||||||||
Vested options at end of period |
59,665 | 1.93 | 37,239 | $ | 1.0 | |||||||||||
16
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
9. | Capital stock (continued): |
(b) | Omnibus stock incentive plan (continued): |
The following table summarizes information about stock options outstanding as at October 16, 2010:
Exercise price |
Number of options outstanding |
Weighted average remaining contractual life (in years) |
||||||
(CDN$ - in dollars) |
||||||||
$1 |
100,489 | 7.0 | ||||||
$20 |
14,532 | 8.8 | ||||||
$40 |
1,500 | 9.4 |
The following table summarizes information about stock options exercisable as at October 16, 2010:
Exercise price |
Number of options outstanding |
Weighted average remaining contractual life (in years) |
||||||
(CDN$ - in dollars) |
||||||||
$1 |
56,759 | 7.3 | ||||||
$20 |
2,906 | 8.9 |
The fair value of these options (as determined on respective grant dates) is considered by management to be nominal for the periods ending October 16, 2010 and October 10, 2009, and accordingly, no expense has been recorded in the statement of earnings.
17
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
10. | Non-cash working capital items: |
2010 | 2009 | |||||||
Operating activities: |
||||||||
Changes in non-cash operating working capital items: |
||||||||
Accounts receivable |
$ | (3,524 | ) | $ | 221 | |||
Inventories |
(6,329 | ) | (444 | ) | ||||
Prepaid expenses |
(2,399 | ) | 2,236 | |||||
Accounts payable and accrued liabilities |
2,931 | (15,677 | ) | |||||
Income taxes payable/receivable |
2,103 | 1,358 | ||||||
Working capital acquired/disposed |
103 | 19 | ||||||
$ | (7,115 | ) | $ | (12,287 | ) | |||
11. | Commitments and guarantees: |
(a) | Lease commitments: |
The Company rents premises and equipment under operating leases which expire at various dates up to 2024 and for which gross rents total $31,491,000. Of this amount, $6,572,000 is assumed by the franchisees of the Company. Annual payments under these leases for the next five years and thereafter are as follows:
Gross | Franchisee | Net | ||||||||||
2011 |
$ | 7,455 | $ | 847 | $ | 6,608 | ||||||
2012 |
6,794 | 875 | 5,919 | |||||||||
2013 |
4,825 | 887 | 3,939 | |||||||||
2014 |
3,670 | 883 | 2,787 | |||||||||
2015 |
2,551 | 858 | 1,693 | |||||||||
2016 and thereafter |
6,197 | 2,224 | 3,973 |
Lease expenses related to the operating leases amounted to $4,164,811 for the twenty-eight weeks ended October 16, 2010 and $3,965,883 for the twenty-eight weeks ended October 10, 2009, respectively.
18
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
11. | Commitments and guarantees (continued): |
(b) | Coffee commitments: |
As at October 16, 2010, the Company had green coffee purchase commitments totaling approximately $8,250,000, of which approximately 95% had a fixed price. These commitments extend through December 2010. The value of the variable portion of these commitments was calculated using an average C price of coffee of $1.8645 per pound as at October 16, 2010.
(c) | Guarantees: |
(i) | Directors and officers indemnification agreements: |
The Company indemnifies its directors and officers, former directors and officers and individuals who act or who have acted at the Companys request as directors or officers of an entity in which the Company is a shareholder or creditor, to the extent permitted by law, against any and all charges, costs, expenses, amounts paid in settlement or investigative damages incurred by the directors and officers as a result of any lawsuit, or any judicial, administrative or investigating proceeding in which the directors and officers are used as a result of their service. These indemnification claims are subject to any statutory or other legal limitation period. The nature of the indemnification agreements prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties.
(ii) | Operating leases: |
The Company has guaranteed lease obligations for its franchisees up to 2012. If a franchisee defaults under its contractual obligation, the Company must, under certain conditions, compensate the lessor for the default. The maximum exposure in respect of these guarantees approximates $102,000 ($95,000 as at April 3, 2010). As at October 16, 2010, the Company has not recorded a liability associated with these guarantees since it is not probable that a franchisee will default under the agreement and management believes that the stand-by liability is negligible.
12. | Contingencies: |
The Company is involved in several lawsuits and claims. While it is not possible to estimate the outcome of such proceedings at this time, management is of the opinion that the outcome of these uncertainties will not have a material adverse effect on the Companys financial position and results of operations.
19
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
13. | Financial instruments: |
(a) | Fair value of financial instruments: |
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates their fair value because of the near-term maturity of these instruments. The fair value of the long-term debt approximates their carrying values as the term and conditions of the borrowing arrangements are comparable to current market terms and conditions. The fair value of the subordinated debt to parent company is not determinable due to its related party nature.
As at October 16, 2010 and April 3, 2010, the estimated fair values of derivative financial instruments are as follows:
October 16, 2010 | ||||||||||||
Short-term | Long-term | Total | ||||||||||
Financial assets: |
||||||||||||
Coffee contracts (d) |
$ | 823 | $ | | $ | 823 | ||||||
Financial liabilities: |
||||||||||||
Cross currency swaps (b) |
$ | (5,706 | ) | $ | (26,538 | ) | $ | (32,244 | ) | |||
Forward foreign exchange contracts (b) |
(200 | ) | | (200 | ) | |||||||
Interest rate swaps (c) |
(1,750 | ) | | (1,750 | ) | |||||||
$ | (7,656 | ) | $ | (26,538 | ) | $ | (34,194 | ) | ||||
April 3, 2010 | ||||||||||||
Short-term | Long-term | Total | ||||||||||
Financial assets: |
||||||||||||
Coffee contracts (d) |
$ | 164 | $ | | $ | 164 | ||||||
Financial liabilities: |
||||||||||||
Cross-currency swaps (b) |
$ | (4,103 | ) | $ | (27,793 | ) | $ | (31,896 | ) | |||
Forward foreign exchange contracts (b) |
(1,049 | ) | | (1,049 | ) | |||||||
Interest rate swaps (c) |
(5,822 | ) | | (5,822 | ) | |||||||
$ | (10,974 | ) | $ | (27,793 | ) | $ | (38,767 | ) | ||||
20
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
13. | Financial instruments (continued): |
(a) | Fair value of financial instruments (continued): |
The above asset and liabilities are the only ones measured at fair value on a recurring basis and are all measured at level 2 in the fair value hierarchy.
The Company does not hold assets or liabilities measured using level 3 inputs.
The fair value of the coffee contracts has been determined using published quoted values for these commodities. The fair value of foreign exchange forward contracts has been determined using rates published by the financial institution which is counterparty to these contracts. The fair value of the interest rate swap and cross currency swaps has been determined using rates published on financial capital markets.
Effect of derivative instruments on earnings (gross of tax) for the following periods:
Classification of (gain) loss in the consolidated statement of earnings |
Gain (loss) realized and unrealized |
|||||||||
Twenty-eight weeks ended October 16, 2010 |
Twenty-eight weeks ended October 16, 2009 |
|||||||||
Coffee contracts |
Cost of sales | $ | (209 | ) | $ | (6 | ) | |||
Forward foreign exchange contracts |
Financial expenses | (811 | ) | 2,819 | ||||||
Interest rate swaps |
Financial expenses | (3,445 | ) | (6,353 | ) | |||||
Cross currency swaps |
Financial expenses | 941 | 59,159 | |||||||
Total derivatives |
$ | (3,524 | ) | $ | 55,619 | |||||
(b) | Foreign exchange risk: |
Gains and losses on foreign exchange transactions related to the long-term debt are recorded in financial expenses (note 4).
Gains and losses on foreign exchange transactions other than for the long-term debt are recorded in the cost of goods sold and operating expenses in the consolidated statement of earnings. For the twenty-eight weeks ended October 16, 2010, this amounted to a loss of $443,000 ($1,307,000 for the twenty-eight weeks ended October 10, 2009).
21
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
13. | Financial instruments (continued): |
(b) | Foreign exchange risk (continued): |
Derivative financial instruments:
On July 19, 2007, the Company entered into cross-currency swaps to hedge the foreign exchange fluctuations related to its US first and second lien credit by fixing the US/Canadian dollar exchange rate at 1.1016 on a notional amount of $375,000,000 and on the payments of the interest. These swaps expire from July 2014 to January 2015.
The Company makes purchases in US dollars and enters into foreign exchange forward contracts in order to manage its foreign exchange risk. The Company does not hold nor issue such financial instruments for trading purposes. As at October 16, 2010, there were forward foreign exchange contracts outstanding with an average exchange rate of one US dollar for CDN 1.05182 for a notional amount of $5,050,000. These contracts expire from November 2010 to July 2011.
(c) | Interest rate risk: |
The Company has entered into interest rate swaps to manage its interest rate exposure on a portion of the first and second lien credit. The Company is committed to exchange, at specific intervals, the difference between the fixed and floating interest rates calculated based on notional principal amounts. The Company pays a fixed interest rate of 4.773% on an average notional amount of $224,020,688 and receives floating interest rates based on bankers acceptances having a three-month maturity. The swap will expire on December 31, 2010.
(d) | Price risk: |
The Company also has a significant exposure toward the fluctuation of the price of green coffee. The Company purchases coffee futures contracts on a public commodities market in order to manage its price risk. As at October 16, 2010, the Company had contracts for 4.4 million pounds (October 10, 2009 4.4 million pounds) of green coffee at an average price of $1.6784 (October 10, 2009 1.2136) per pound outstanding. The Companys outstanding contracts expire in December 2010.
22
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
13. | Financial instruments (continued): |
(e) | Credit risk: |
Management believes the Company does not have a significant exposure to any individual customer nor counterparty. The Company reviews a new customers credit history before extending credit and conducts regular reviews of its existing customers credit performance. An allowance for doubtful accounts is established based upon factors such as the credit risk for specific customers, historical trends and other information.
14. | Subsequent events: |
Subsequent events have been evaluated until March 3, 2011, which corresponds to the date on which the financial statements were available to be issued.
(a) | In connection with the acquisition described below, on December 14, 2010, the Company, its holding company and two wholly-owned subsidiaries, Van Houtte Group Inc. and Van Houtte Filterfresh Holdings Inc., were amalgamated to form LJVH Holdings Inc. (Merged LJVH). The shareholders respective pre-amalgamation ownership has been preserved after the amalgamation. Options to acquire common shares and Class B preferred shares of LJVH have been exchanged for options to acquire the equivalent number of common shares and Class B preferred shares of Merged LJVH at equivalent exercise prices. Merged LJVH is continued as a corporation under the laws of the Province of New Brunswick under the name LJVH Holdings Inc. |
(b) | On December 17, 2010, all of the outstanding shares of the Company were acquired by SSR Acquisition Corp., a wholly-owned subsidiary of Green Mountain Coffee Roasters, Inc. (the share purchase transaction), for an aggregate cash purchase price of CDN$915,000,000, subject to future adjustments based on the working capital, net indebtedness and closing tax adjustments, as of immediately prior to the share purchase transactions closing, as defined in the Share Purchase Agreement (the Agreement). |
23
LJVH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
Twenty-eight weeks ended October 16, 2010 and October 10, 2009
(Tabular amounts are in thousands of U.S. dollars unless otherwise noted.)
14. | Subsequent events (continued): |
(b) | (continued): |
Pursuant to the closing of the share purchase transaction, the following transactions occurred:
| Accelerated vesting and exercise of all outstanding options to convert them into common and preferred shares for an amount of CDN$451,131. |
| The subordinated notes to parent company have been converted into Class B preferred shares of LJVH based on the accreted value of the Class B preferred shares on the conversion date. At the closing date, the liquidation price of the Class A preferred shares and the Class B preferred shares was CDN$79,100,000 and CDN$179,900,000, respectively. Subsequently, they were purchased by the purchaser. |
| Repayment of the first and second lien credit and the related cross-currency and interest swap agreements in the amount of CDN$407,592,000. |
| Lump-sum payment of CDN$3,110,000 for termination of the main SERP plan on December 23, 2010. |
The Agreement contains customary representations and warranties and covenants. Subject to certain limitations, each party has agreed to indemnify the other for certain breaches of representations, warranties and covenants and other specified matters.
(c) | Following the closing of the share purchase transaction described herein, the Company and SSR Acquisition Corp. were amalgamated. As a result, the Company continuing the business was renamed Van Houtte Holding Company Limited. |
24
Exhibit 99.4
Green Mountain Coffee Roasters, Inc.
Index to Pro Forma Condensed Combined Financial Information (Unaudited)
Pages | ||||
Pro Forma Condensed Combined Financial Statements: |
||||
Introduction to Pro Forma Condensed Combined Financial Statements (Unaudited) |
1 | |||
Pro Forma Condensed Combined Statement of Operations (Unaudited) For the Thirteen Weeks ended December 25, 2010 |
3 | |||
Pro Forma Condensed Combined Statement of Operations (Unaudited) For the Fifty-Two Weeks ended September 25, 2010 |
4 | |||
Notes to Pro Forma Condensed Combined Financial Statements (Unaudited) |
5-9 |
Green Mountain Coffee Roasters, Inc.
Introduction to Pro Forma Condensed Combined Financial Information (Unaudited)
On December 17, 2010, Green Mountain Coffee Roasters, Inc. (GMCR) acquired all of the outstanding capital stock of LJVH Holdings Inc. (LJVH and together with its subsidiaries, Van Houtte) for approximately $947.6 million ($907.9 million, net of $39.7 million cash acquired). The transaction was financed with cash on hand and borrowings under a $1.45 billion credit facility. Van Houtte will be maintained as a wholly-owned subsidiary, with operations managed in the Canadian Business Unit segment of GMCR. In addition, on May 11, 2010, GMCR acquired all of the outstanding common stock of Diedrich Coffee, Inc. (Diedrich) for a total purchase price of approximately $313.5 million ($305.3 million, net of $8.2 cash acquired) and on November 13, 2009, GMCR entered into a Share Purchase Agreement pursuant to which it acquired all of Timothys Coffees of the World Inc. (Timothys) issued and outstanding stock for a purchase price of $155.7 million. The accompanying unaudited pro forma condensed combined financial information is based on the historical financial statements of GMCR, Van Houtte, Diedrich and Timothys. The information attempts to illustrate the effect that GMCRs acquisitions of Van Houtte, Diedrich and Timothys would have had on GMCRs financial statements if the transactions had been consummated at earlier dates as described below. This information is hypothetical and does not necessarily reflect the financial performance that would have actually resulted if the acquisitions of Van Houtte, Diedrich and Timothys had been completed on the dates assumed.
The Van Houtte acquisition is included in GMCRs historical results since December 17, 2010, as reflected in GMCRs Quarterly Report on Form 10-Q for the quarter ended December 25, 2010. As a result, an Unaudited Pro Forma Condensed Combined Balance Sheet has not been presented. The Unaudited Pro Forma Condensed Combined Statements of Operations present the historical results of operations of GMCR for the thirteen weeks ended December 25, 2010 and the fifty-two weeks ended September 25, 2010 and reflect pro forma adjustments for Van Houtte, Diedrich and Timothys as though the acquisitions were consummated on September 27, 2009, the beginning of GMCRs 2010 fiscal year.
GMCRs historical results for the thirteen weeks ended December 25, 2010 are derived from GMCRs unaudited consolidated financial statements included in its Quarterly Report on Form 10-Q for the thirteen weeks ended December 25, 2010. GMCRs historical results for the fifty-two weeks ended September 25, 2010 are derived from GMCRs audited consolidated financial statements included in its Annual Report on Form 10-K for the fifty-two weeks ended September 25, 2010. The Unaudited Pro Forma Condensed Combined Statement of Operations for the thirteen weeks ended December 25, 2010 was prepared using Van Houttes historical results of operations for the twelve weeks ended December 16, 2010, the period prior to the acquisition. For the thirteen weeks ended December 25, 2010, Diedrichs and Timothys results of operations are included in GMCRs historical results. The Unaudited Pro Forma Condensed Combined Statement of Operations for the fifty-two weeks ending September 25, 2010 was prepared using Van Houttes historical results of operations for the fifty-three weeks ending October 16, 2010; Diedrichs historical results of operations for the thirty-two weeks ended May 11, 2010; and Timothys historical results of operations for the six weeks ended November 12, 2009, the periods prior to the acquisitions. Van Houttes, Diedrichs and Timothys results of operations for the periods from the dates of the respective acquisitions through September 25, 2010 and December 25, 2010, respectively, are included in GMCRs historical results.
In conjunction with the acquisition of Van Houtte, GMCR is conducting a strategic review of the Van Houtte U.S. Coffee Service business (Filterfresh) in contemplation of a potential divestiture of Filterfresh. As a result, GMCR has also presented in the accompanying unaudited pro forma information consolidated results of operations excluding Filterfresh as reflected in a separate pro forma adjustment column. The Unaudited Pro Forma Condensed Combined Statement of Operations, excluding Filterfresh, for the thirteen weeks ended December 25, 2010 and for the fifty two weeks ended September 25, 2010 was prepared using Filterfresh historical results of operations for the thirteen weeks ended December 25, 2010 and for the fifty-three weeks ended October 16, 2010, respectively.
The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting. The allocation of the purchase price to the fair values of the identified tangible and intangible assets acquired and liabilities assumed was based upon a valuation and management estimates. The historical financial
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information has been adjusted to give effect to matters that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the operating results of the combined company.
The accompanying unaudited pro forma condensed combined financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included on GMCRs 2010 Annual Report on Form 10-K, Quarterly Report on Form 10-Q for the thirteen weeks ended December 25, 2010, Current Reports on Form 8-K for the Diedrichs and Timothys acquisitions filed on July 13, 2010 and January 12, 2010, as amended, respectively and; Diedrichs Quarterly Report on Form 10-Q for the twelve weeks ended March 3, 2010. GMCRs management believes that the assumptions used in preparing these unaudited pro forma condensed combined financial statements provide a reasonable basis for presenting all of the significant effects of the acquisitions. These unaudited pro forma condensed combined financial statements presented are for informational purposes only and do not purport to be indicative of the results that would have actually occurred if the acquisitions had been consummated on the dates indicated or of those results that may be achieved in the future. In addition, the allocation of the Van Houtte purchase price is preliminary and, accordingly, the purchase accounting adjustments made in the preparation of the unaudited pro forma condensed combined financial statements may be subject to adjustment which could have a material impact on the accompanying unaudited pro forma condensed combined financial statements.
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GREEN MOUNTAIN COFFEE ROASTERS, INC.
Pro Forma Condensed Combined Statement of Operations
(Dollars in thousands except per share data)
(Unaudited)
Thirteen weeks ended December 25, 2010 | ||||||||||||||||||||||||||
GMCR Historical |
(C) Van Houtte |
Pro Forma Adjustments |
Pro Forma (Including Filterfresh) |
(M) Filterfresh |
Pro Forma (Excluding Filterfresh) |
|||||||||||||||||||||
Net sales |
$ | 575,027 | $ | 115,306 | $ | (17,355 | ) | (D) | $ | 672,978 | $ | 29,514 | $ | 643,464 | ||||||||||||
Cost of sales |
430,613 | 58,944 | (16,226 | ) | (E) | 473,331 | 14,629 | 458,702 | ||||||||||||||||||
Gross profit |
144,414 | 56,362 | (1,129 | ) | 199,647 | 14,885 | 184,762 | |||||||||||||||||||
Selling and operating expenses |
78,448 | 27,592 | (2,269 | ) | (F) | 103,771 | 6,584 | 97,187 | ||||||||||||||||||
General and administrative expenses |
42,887 | 13,205 | (3,260 | ) | (G) | 52,832 | 5,349 | 47,483 | ||||||||||||||||||
Operating income |
23,079 | 15,565 | 4,400 | 43,044 | 2,952 | 40,092 | ||||||||||||||||||||
Other income (expense) |
137 | | | 137 | | 137 | ||||||||||||||||||||
Gain (loss) on financial instruments, net |
(6,377 | ) | (631 | ) | 6,290 | (H) | (718 | ) | | (718 | ) | |||||||||||||||
Gain (loss) on foreign currency, net |
1,605 | 5,336 | (5,336 | ) | (I) | 1,605 | | 1,605 | ||||||||||||||||||
Interest expense |
(6,023 | ) | (19,816 | ) | 12,981 | (J) | (12,858 | ) | (5 | ) | (12,853 | ) | ||||||||||||||
Income before income taxes |
12,421 | 454 | 18,335 | 31,210 | 2,947 | 28,263 | ||||||||||||||||||||
Income tax (expense) benefit |
(10,167 | ) | 2,441 | (579 | ) | (L) | (8,305 | ) | 717 | (9,022 | ) | |||||||||||||||
Net income |
2,254 | 2,895 | 17,756 | 22,905 | 3,664 | 19,241 | ||||||||||||||||||||
Less: Net income attributable to noncontrolling interest |
25 | 690 | | 715 | 279 | 436 | ||||||||||||||||||||
Net income |
$ | 2,229 | $ | 2,205 | $ | 17,756 | $ | 22,190 | $ | 3,385 | $ | 18,805 | ||||||||||||||
Basic income per share: |
||||||||||||||||||||||||||
Weighted average shares outstanding |
141,374,327 | 141,374,327 | ||||||||||||||||||||||||
Net income |
$ | 0.02 | $ | 0.13 | ||||||||||||||||||||||
Diluted income per share: |
||||||||||||||||||||||||||
Weighted average shares outstanding |
147,036,072 | 147,036,072 | ||||||||||||||||||||||||
Net income |
$ | 0.02 | $ | 0.13 |
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GREEN MOUNTAIN COFFEE ROASTERS, INC.
Pro Forma Condensed Combined Statement of Operations
(Dollars in thousands except per share data)
(Unaudited)
Fifty-two weeks ended September 25, 2010 | ||||||||||||||||||||||||||||||||||
GMCR Historical |
(A) Timothys Historical |
(B) Diedrich Historical |
(C) Van Houtte Historical |
Pro Forma Adjustments |
Pro Forma (Including Filterfresh) |
(M) Filterfresh |
Pro Forma (Excluding Filterfresh) |
|||||||||||||||||||||||||||
Net sales |
$ | 1,356,775 | $ | 13,004 | $ | 73,348 | $ | 416,557 | $ | (94,316 | ) | (D) | $ | 1,765,368 | $ | 113,097 | $ | 1,652,271 | ||||||||||||||||
Cost of sales |
931,017 | 9,576 | 54,540 | 211,678 | (88,701 | ) | (E) | 1,118,110 | 55,297 | 1,062,813 | ||||||||||||||||||||||||
Gross profit |
425,758 | 3,428 | 18,808 | 204,879 | (5,615 | ) | 647,258 | 57,800 | 589,458 | |||||||||||||||||||||||||
Selling and operating expenses |
186,418 | 234 | 4,136 | 113,192 | (6,975 | ) | (F) | 297,005 | 28,367 | 268,638 | ||||||||||||||||||||||||
General and administrative expenses |
100,568 | 1,260 | 11,192 | 50,465 | 9,958 | (G) | 173,443 | 22,929 | 150,514 | |||||||||||||||||||||||||
Operating income |
138,772 | 1,934 | 3,480 | 41,222 | (8,598 | ) | 176,810 | 6,504 | 170,306 | |||||||||||||||||||||||||
Other income (expense) |
185 | | | | | 185 | | 185 | ||||||||||||||||||||||||||
Gain (loss) on financial instruments, net |
(454 | ) | | | (6,678 | ) | 8,289 | (H) | 1,157 | | 1,157 | |||||||||||||||||||||||
Gain (loss) on foreign currency, net |
| | | 11,890 | (11,890 | ) | (I) | | | | ||||||||||||||||||||||||
Interest expense |
(5,294 | ) | (395 | ) | (647 | ) | (35,097 | ) | (13,923 | ) | (J) | (55,356 | ) | (6 | ) | (55,350 | ) | |||||||||||||||||
Merger related expenses |
| | (9,751 | ) | | 9,751 | (K) | | | | ||||||||||||||||||||||||
Income before income taxes |
133,209 | 1,539 | (6,918 | ) | 11,337 | (16,371 | ) | 122,796 | 6,498 | 116,298 | ||||||||||||||||||||||||
` | ||||||||||||||||||||||||||||||||||
Income tax (expense) benefit |
(53,703 | ) | (477 | ) | 4,401 | 2,602 | 10,840 | (L) | (36,337 | ) | (2,006 | ) | (34,331 | ) | ||||||||||||||||||||
Net income (loss) |
79,506 | 1,062 | (2,517 | ) | 13,939 | (5,531 | ) | 86,459 | 4,492 | 81,967 | ||||||||||||||||||||||||
Less: Net income attributable to noncontrolling interest |
| | | 1,619 | | 1,619 | 1,113 | 506 | ||||||||||||||||||||||||||
Net income (loss) |
$ | 79,506 | $ | 1,062 | $ | (2,517 | ) | $ | 12,320 | $ | (5,531 | ) | $ | 84,840 | $ | 3,379 | $ | 81,461 | ||||||||||||||||
Basic income per share: |
||||||||||||||||||||||||||||||||||
Weighted average shares outstanding |
131,529,412 | 131,529,412 | ||||||||||||||||||||||||||||||||
Net income |
$ | 0.60 | $ | 0.62 | ||||||||||||||||||||||||||||||
Diluted income per share: |
||||||||||||||||||||||||||||||||||
Weighted average shares outstanding |
137,834,123 | 137,834,123 | ||||||||||||||||||||||||||||||||
Net income |
$ | 0.58 | $ | 0.59 |
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Green Mountain Coffee Roasters, Inc.
Notes to Pro Forma Condensed Combined Financial Information (Unaudited)
(A) Timothys Historical represents the operations of Timothys World Coffee brand and wholesale business acquired on November 13, 2009. The Unaudited Pro Forma Condensed Combined Statement of Operations for the fifty-two weeks ended September 25, 2010 includes six weeks of Timothys operations prior to the acquisition on November 13, 2009. Subsequent to the acquisition date, Timothys operations are included in GMCRs historical consolidated statement of operations.
(B) Diedrich Historical represents the operations of Diedrich Coffee, Inc. acquired on May 11, 2010. The Unaudited Pro Forma Condensed Combined Statement of Operations for the fifty-two weeks ending September 25, 2010 was prepared using Diedrich historical statements of operations for the thirty-two weeks ended May 11, 2010. Subsequent to the acquisition date, Diedrichs operations are included in GMCRs historical consolidated statement of operations.
(C) Van Houtte Historical represents the operations of LJVH Holdings Inc., acquired on December 17, 2010. The Unaudited Pro Forma Condensed Combined Statement of Operations for the thirteen weeks ended December 25, 2010 includes the results of LJVH Holdings Inc. from September 26, 2010 to December 16, 2010. The Unaudited Pro Forma Condensed Combined Statement of Operations for the fifty-two weeks ended September 25, 2010 was prepared using Van Houtte historical statements of operations for the fifty-three weeks ended October 16, 2010. Subsequent to the acquisition date, Van Houttes operations are included in GMCRs historical consolidated statement of operations. Van Houtte historical results for the three weeks ended October 16, 2010 are included in both the statements of operations for the thirteen weeks ended December 25, 2010 and for the fifty-two weeks ended September 25, 2010.
The total preliminary purchase price was $947.6 million ($907.9 million, net of $39.7 million cash acquired). The total preliminary estimated purchase price was allocated to Van Houttes net tangible assets and identifiable intangible assets based on their estimated fair values as of December 17, 2010. The purchase price is subject to working capital, net indebtedness and closing tax adjustments based upon a balance sheet audit prepared as of December 17, 2010. GMCR does not anticipate material changes to the purchase price or the preliminary fair values assigned to the net assets acquired. The table below represents the preliminary allocation of the preliminary purchase price to the acquired net assets of Van Houtte (in thousands):
Fair value of: |
||||
Tangible assets acquired |
$ | 287,298 | ||
Intangible assets |
381,220 | |||
Goodwill |
418,585 | |||
Less Fair Value of: |
||||
Liabilities assumed |
(134,248 | ) | ||
Non-controlling interests |
(5,206 | ) | ||
Total purchase price |
$ | 947,649 | ||
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(D) Represents the elimination of coffee and brewer sales amongst GMCR, Van Houtte, Diedrich and Timothys, as well as the elimination of royalties earned by GMCR from Van Houtte, Diedrich and Timothys on sales of K-Cup portion packs to third-party customers, as follows (in thousands):
Thirteen weeks ended December 25, 2010 |
Fifty-two weeks ended September 25, 2010 |
|||||||
GMCR Sales |
$ | 6,408 | $ | 28,253 | ||||
Van Houtte Sales |
10,834 | 26,265 | ||||||
Diedrich Sales |
| 34,380 | ||||||
Timothys Sales |
113 | 5,418 | ||||||
Total Sales |
$ | 17,355 | $ | 94,316 | ||||
(E) Represents cost of sales adjustments that consist of:
1) | The elimination of coffee and brewer cost of sales amongst GMCR, Van Houtte, Diedrich and Timothys, as well as the elimination of royalties paid to GMCR from Van Houtte, Diedrich and Timothys on sales of K-Cup portion packs to third-party customers, as follows (in thousands): |
Thirteen weeks ended December 25, 2010 |
Fifty-two weeks ended September 25, 2010 |
|||||||
GMCR COS |
$ | 10,833 | $ | 65,420 | ||||
Van Houtte COS |
5,489 | 19,075 | ||||||
Diedrich COS |
| 8,489 | ||||||
Timothys COS |
| 2,123 | ||||||
Total COS |
$ | 16,322 | $ | 95,107 | ||||
2) | An adjustment for the reduction in (additional) depreciation related to the valuation of fixed assets used in production, as follows (in thousands): |
Thirteen weeks ended December 25, 2010 |
Fifty-two weeks ended September 25, 2010 |
|||||||
Timothys |
$ | | $ | 18 | ||||
Diedrich |
| 127 | ||||||
Van Houtte |
(2,114 | ) | (8,114 | ) | ||||
Total |
$ | (2,114 | ) | $ | (7,969 | ) | ||
The weighted-average depreciable life for Van Houtte fixed assets related to cost of sales is 5.2 years.
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3) | The add-back of the amortization resulting from the one-time inventory mark-up to fair value. |
Thirteen weeks ended December 25, 2010 |
Fifty-two weeks ended September 25, 2010 |
|||||||
Timothys |
$ | | $ | 658 | ||||
Diedrich |
| 905 | ||||||
Van Houtte |
2,018 | | ||||||
Total |
$ | 2,018 | $ | 1,563 | ||||
Total Cost of Sales Adjustment |
$ | 16,226 | $ | 88,701 | ||||
(F) Represents the reversal of historical amortization incurred by Van Houtte on intangibles of $2.6 million and $8.3 million for the thirteen weeks ended December 25, 2010 and fifty-two weeks ended September 25, 2010, respectively. In addition, represents additional depreciation of $0.3 million and $1.3 million related to the date of acquisition fair valuation for Van Houtte fixed assets, including Filterfresh, for the thirteen weeks ended December 25, 2010 and the fifty-two weeks ended September 25, 2010, respectively.
The weighted-average depreciable life for Van Houtte fixed assets related to selling and operating activities is 5.1 years.
(G) Represents the elimination of expenses related to the Van Houtte, Diedrich and Timothys acquisitions incurred by all parties including GMCR, for stock-related compensation as well as an adjustment for depreciation and amortization expense (including Filterfresh) related to date of acquisition fair valuation of fixed assets and intangibles as follows (in thousands):
Thirteen weeks ended December 25, 2010 | ||||||||||||||||
Van Houtte | Diedrich | Timothys | Total | |||||||||||||
Acquisition-related expenses |
$ | (10,049 | ) | $ | | $ | | $ | (10,049 | ) | ||||||
Amortization |
6,482 | | | 6,482 | ||||||||||||
Depreciation |
307 | | | 307 | ||||||||||||
Total |
$ | (3,260 | ) | $ | | $ | | $ | (3,260 | ) | ||||||
Fifty-two weeks ended September 25, 2010 | ||||||||||||||||
Van Houtte | Diedrich | Timothys | Total | |||||||||||||
Acquisition-related expenses |
$ | (5,341 | ) | $ | (11,693 | ) | $ | (2,325 | ) | $ | (19,359 | ) | ||||
Amortization |
27,580 | 6,263 | 314 | 34,157 | ||||||||||||
Depreciation |
1,191 | (30 | ) | (4 | ) | 1,157 | ||||||||||
Stock compensation |
| (5,997 | ) | | (5,997 | ) | ||||||||||
Total |
$ | 23,430 | $ | (11,457 | ) | $ | (2,015 | ) | $ | 9,958 | ||||||
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The weighted-average depreciable life for Van Houtte fixed assets related to general and administrative activities is 16.7 years. The weighted-average amortizable life for Van Houtte intangible assets is 10.6 years.
(H) Represents the elimination of gains and losses incurred by GMCR on derivatives not designated as hedging instruments for accounting purposes used to hedge the Canadian dollar purchase price of the Timothys and Van Houtte acquisitions and Van Houtte incurred gains and losses on derivatives related to the Van Houtte debt that was not assumed as part of the acquisition (in thousands):
Thirteen weeks ended December 25, 2010 |
Fifty-two weeks ended September 25, 2010 |
|||||||
GMCR |
$ | 6,846 | $ | 100 | ||||
Timothys |
| 354 | ||||||
Van Houtte |
(556 | ) | 7,835 | |||||
Total |
$ | 6,290 | $ | 8,289 | ||||
(I) Represents the elimination of the gain resulting from the remeasurement of foreign currency denominated debt that was not assumed as part of the Van Houtte acquisition.
(J) Represents an adjustment for additional interest and amortization of deferred financing fees that would have been incurred on the new $1.45 billion credit facility used to finance the Van Houtte acquisition and to re-pay GMCRs indebtedness outstanding under its previous credit facility, using the rates that would have been in effect during the applicable periods The adjustment also represents the elimination of interest expense incurred for Van Houtte, Diedrich and Timothys long-term debt that was not assumed in the acquisitions and an adjustment to eliminate the amortization of deferred financing fees incurred by GMCR and Van Houtte under terminated credit facilities and the amortization of deferred financing fees incurred under the new $1.45 billion credit facility.
Thirteen weeks ended December 25, 2010 | ||||||||||||||||||||
GMCR | Van Houtte | Diedrich | Timothys | Total | ||||||||||||||||
Deferred financing |
$ | (1,973 | ) | $ | 5,896 | $ | | $ | | $ | 3,923 | |||||||||
Interest expense |
(5,191 | ) | 14,249 | | | 9,058 | ||||||||||||||
Total |
$ | (7,164 | ) | $ | 20,145 | $ | | $ | | $ | 12,981 | |||||||||
Fifty-two weeks ended September 25, 2010 | ||||||||||||||||||||
GMCR | Van Houtte | Diedrich | Timothys | Total | ||||||||||||||||
Deferred financing |
$ | (7,891 | ) | $ | 1,477 | $ | | $ | | $ | (6,414 | ) | ||||||||
Interest expense |
(41,748 | ) | 33,197 | 647 | 395 | (7,509 | ) | |||||||||||||
Total |
$ | (49,639 | ) | $ | 34,674 | $ | 647 | $ | 395 | $ | (13,923 | ) | ||||||||
Debt incurred to finance the acquisition that was subject to variable interest rates was $671.5 million for the thirteen weeks ended December 25, 2010 and $1.0 billion for the fifty-two weeks ended September 25, 2010. Had interest rates increased by 125 basis points, the effect
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on net income would have been additional interest expense of $1.1 million during the thirteen weeks ended December 25, 2010 and $4.7 million during the fifty-two weeks ended September 25, 2010.
(K) Represents elimination of acquisition-related expenses incurred by Diedrich.
(L) Represents the benefit from (provision for) income taxes associated with the pro forma adjustments computed based upon an estimated combined federal and state statutory rates as follows:
Thirteen weeks ended December 25, 2010 |
Fifty-two weeks ended September 25, 2010 |
|||||||
United States |
40.35 | % | 40.35 | % | ||||
Canada, Quebec |
28.40 | % | 29.90 | % | ||||
Canada, Ontario |
28.50 | % | 30.00 | % |
The pro forma adjustments include the add-back of acquisition-related expenses, some of which are not tax deductible. The pro forma adjustment for the income tax expense (benefit) excludes the effect of the add-back of the non-deductible acquisition-related expenses. For tax purposes, these non-deductible expenses were recognized in the historical quarters in which the acquisitions occurred and therefore do not require adjustment for pro forma presentation.
(M) GMCR is conducting a strategic review of the Van Houtte U.S. Coffee Service business (Filterfresh) in contemplation of a potential divestiture of Filterfresh. As a result, all the assets and liabilities relating to the Filterfresh business were recorded at estimated fair value less costs to sell and reported as held-for-sale as of the date of the acquisition in GMCRs Quarterly Form 10-Q for the quarter ended December 25, 2010.
The column entitled, Pro Forma, including Filterfresh, represents consolidated pro forma results of operations which include the Filterfresh operations. GMCR has eliminated the results of operations for Filterfresh as reflected in the column titled Filterfresh, which include pro forma adjustment related to Filterfresh included in the column titled Pro Forma Adjustments. GMCRs sales to Filterfresh have been eliminated and are not reflected in the consolidated pro forma results column excluding Filterfresh. Although GMCR expects to continue to sell to Filterfresh after the potential divestiture, there is no assurance such sales will occur and if they do occur, if the sales will be for the same amounts. For the thirteen weeks ended December 25, 2010, GMCR sales to Filterfresh were approximately $6.6 million and cost of sales were approximately $4.7 million. For the fifty-two weeks ended September 25, 2010, GMCR sales to Filterfresh were approximately $25.9 million and cost of sales were approximately $18.0 million.
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