UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 27, 2011
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:
¨ | 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 2.02 Results of Operations and Financial Condition.
On July 27, 2011, Green Mountain Coffee Roasters, Inc. (the Company) issued a press release announcing its third quarter results for the period ending June 25, 2011, together with accompanying prepared remarks, and will hold a live audio webcast to discuss its third quarter results. Copies of the press release and prepared remarks are attached hereto as Exhibit 99.1 and 99.2, respectively, and are incorporated herein by reference.
The information furnished in Item 2.02, including the Exhibits attached hereto, shall not be deemed filed for any purpose, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, regardless of any general incorporation language in any such filing.
Item 7.01 Regulation FD Disclosure.
10b5-1 Plans
As a result of events at the Company over the last several years, including acquisitions and offerings, a number of our senior executives and board members have not had the opportunity to diversify their holdings of the Companys common stock. Accordingly, a number of our executives and board members, in conjunction with the May 2011 equity offering, have executed 10b5-1 plans pursuant to which they will be able to effect sales going forward.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Press Release dated July 27, 2011 regarding Third Quarter 2011 Results.
99.2 Prepared remarks dated July 27, 2011 regarding Third Quarter 2011 Results.
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 | |
Frances G. Rathke | ||
Chief Financial Officer | ||
Date: July 27, 2011 |
Index to Exhibits
Exhibit |
Description | |
99.1 | Press Release dated July 27, 2011 regarding Third Quarter 2011 Results. | |
99.2 | Prepared remarks dated July 27, 2011 regarding Third Quarter 2011 Results. |
Exhibit 99.1
Contact Information:
Suzanne DuLong, VP IR & Corporate Comm
T: 802-882-2100
Investor.Services@GMCR.com
FOR IMMEDIATE RELEASE
Green Mountain Coffee Roasters, Inc. Reports Third Quarter Fiscal 2011 Results
Spring Advertising and Brand Promotion Raise Awareness of the Keurig Single-Cup Brewing System
and Brew Over Ice Beverages
WATERBURY, Vt. (July 27, 2011) Green Mountain Coffee Roasters, Inc., (GMCR) (NASDAQ: GMCR), a leader in specialty coffee and coffeemakers, today announced its fiscal 2011 third quarter results for the thirteen weeks ended June 25, 2011.
Third Quarter Fiscal 2011 Performance Highlights*
| Net sales up 127% over the same period in fiscal 2010 |
| GAAP EPS of $0.37; Non-GAAP EPS of $0.49 |
| GAAP operating income increases 215% over Q310; Non-GAAP operating income improves 185% over the year ago quarter |
| GAAP net income increases 206% over Q310; Non-GAAP net income up 167% over Q310 |
Third Quarter Fiscal 2011 Results*
Net sales for the third quarter of fiscal 2011 increased 127% to $717.2 million as compared to $316.6 million for the third quarter of fiscal 2010. Under Generally Accepted Accounting Principles (GAAP), net income for the third quarter of fiscal 2011 totaled $56.3 million, or $0.37 per diluted share, representing an increase of 206% as compared to GAAP net income of $18.4 million, or $0.13 per diluted share, for the third quarter of fiscal 2010.
The Companys non-GAAP net income for the third quarter of fiscal 2011 increased 167% to $75.7 million, from non-GAAP net income of $28.3 million in the third quarter of fiscal 2010. Third quarter fiscal 2011 non-GAAP net income excludes pre-tax items of $11.8 million in amortization of identifiable intangibles related to the Companys acquisitions, $17.1 million in loss on extinguishment of debt, and $0.8 million in legal and accounting expenses related to the SEC inquiry and pending litigation. Third quarter fiscal 2010 non-GAAP net income excludes pre-tax items of $4.0 million in non-deductible acquisition-related expenses for the Diedrich acquisition and $4.3 million in amortization of identifiable intangibles related to the Companys prior acquisitions.
On the same basis of presentation, GMCRs non-GAAP earnings per diluted share increased 140% to $0.49 in the third quarter of fiscal 2011 from $0.21 in the third quarter of fiscal 2010.
In addition to continued strong consumer adoption of the Keurig® Single-Cup Brewing system, we believe our third quarter benefitted from our first-ever significant spring advertising and brand support programs, designed to raise awareness of the Keurig Single-Cup Brewing system and of our Brew Over Ice Teas and Coffees, perfect for the summer months, said Lawrence J. Blanford, GMCRs president and CEO.
The Keurig® Single-Cup Brewing system brews a perfect cup of coffee, tea, hot cocoa or iced beverage in under one minute at the touch of a button.
Keurig brewing is truly changing the way North America brews and enjoys coffee at home and in the workplace, said Blanford. We have seen awareness of the Keurig Single-Cup Brewing system grow faster and more broadly than we could have imagined just a few years ago. As we head into preparation for Holiday 2011 and planning for our 2012 fiscal year, we are both excited and humbled by the opportunity we see ahead for our Company, our employees and our valued business partners.
Blanford concluded, It is particularly rewarding to think that with our growth, the resources were able to allocate to socially and environmentally focused initiatives grows as well, amplifying the positive change GMCR and its employees continue to bring about in our local communities and in communities around the world.
Fiscal 2011 Third Quarter Financial Review*
| Approximately 82% of consolidated net sales in the third quarter were from the Keurig brewing system and its recurring portion pack sales, including Keurig-related accessory sales with the remainder of total sales consisting primarily of sales of bagged coffee and revenue from our office coffee services business. |
| Net sales from portion packs totaled $485.4 million in the quarter, up 136%, or $279.7 million, over the same period in 2010. |
| Net sales from Keurig brewers and accessories totaled $105.4 million in the quarter, up 66%, or $42.0 million, from the prior year period. |
| Supporting continued growth in portion pack demand, GMCR sold 1.1 million Keurig brewers during the third quarter of fiscal 2011. This brewer shipment number does not account for consumer returns to retailers. We estimate that GMCR brewer shipments represented approximately 92% of total brewers shipped with Keurig technology in the period. |
| The Company announced a price increase in September 2010 that was implemented in the first and second quarters of fiscal 2011, and announced a price increase in May 2011 that was implemented late in the third quarter of fiscal 2011. If calculated based on pricing in effect during the prior year quarter, we believe the price increases improved net sales by approximately 13% compared to net sales for the third quarter of fiscal 2010. |
| The acquisition of Van Houtte completed on December 17, 2010 contributed $111.7 million to consolidated net sales. |
| Third quarter fiscal 2011 gross margin was 36.8% of total net sales compared to 34.4% for the corresponding quarter in fiscal 2010. The improvement of gross margin is due primarily to a shift in the Companys sales mix. |
| The Company increased its GAAP operating income by 215%, to $119.3 million, in the third quarter of fiscal 2011 as compared to $37.9 million in the year ago quarter. |
| GMCRs third quarter fiscal 2011 non-GAAP operating income of $131.9 million increased 185% over non-GAAP operating income of $46.2 million in the third quarter of fiscal 2010. Non-GAAP operating income represented 18.4% of net sales in the third quarter of fiscal 2011 and 14.6% of net sales in the third quarter of fiscal 2010. |
| The Companys tax rate for the third quarter of fiscal 2011 was 35.8% as compared to 49.5% in the prior year quarter. The 49.5% prior year rate included the tax effect of the recognition of the estimated total $12 million non-deductible acquisition-related expenses incurred during the Companys first, second and third quarters of fiscal 2010 for the Diedrich acquisition which closed during the Companys fiscal third quarter of fiscal 2010. |
| Diluted weighted average shares outstanding increased 11% to 153.3 million in the third quarter of fiscal 2011 from 137.9 million in the third quarter of fiscal 2010 largely as a result of the addition of approximately 9.5 million shares issued as part of the Companys common stock offering completed in May 2011 as well as 608,342 shares of common stock sold to Luigi Lavazza S.p.A in a private placement pursuant to preemptive rights under existing agreements, completed on May 11, 2011. The offering raised approximately $688.9 million after deducting underwriting discounts and commissions and estimated offering expenses. |
Balance Sheet Highlights
| Cash and short-term cash investments were $106.8 million at June 25, 2011, up from $64.5 million at March 26, 2011 as a result of the Companys common stock offering closed on May 11, 2011. |
| Accounts receivable increased 78% year-over-year to $229.4 at June 25, 2011, from $128.8 million at June 26, 2010, reflecting continuing sales growth and the addition of Van Houtte-related accounts receivables. |
| Inventories were $417.5 million at June 25, 2011 including $40.1 million of Van Houtte-related inventories. This compares to $177.2 million at June 26, 2010. |
| Debt outstanding decreased to $421.9 million at June 25, 2011 from $1.06 billion at March 26, 2011 as a result of the pay down of debt with proceeds from the Companys common stock offering in May 2011. |
| The Company is pursuing a sale of the Filterfresh U.S.-based coffee services business portion of its Van Houtte acquisition, which is classified as assets held for sale in the Companys financial statements, and expects to use any proceeds from an ultimate sale to reduce debt. |
Business Outlook and Other Forward-Looking Information*
Company Estimates for Fourth Quarter Fiscal Year 2011
With one quarter remaining, the Company has refined its outlook for its fiscal year 2011 and is providing its estimates for its fourth quarter of fiscal 2011. It expects:
| Fiscal fourth quarter consolidated net sales growth of 100% to 105% resulting in total fiscal 2011 consolidated net sales growth of 98% to 100%, compared to the prior estimate of 82% to 87%. |
| Fiscal fourth quarter fully diluted non-GAAP earnings per share in the range of $0.44 to $0.48 per share, resulting in total fiscal 2011 fully diluted non-GAAP earnings per share in the range of $1.63 to $1.67 per share. This excludes any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry, the Companys internal investigation and pending litigation; amortization of identifiable intangibles related to the Companys acquisitions; losses incurred on the extinguishment of debt; foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition; and any gain or loss from sale of the Filterfresh U.S.-based coffee services business. |
| The Companys estimate of non-GAAP earnings per share for fiscal 2011 is greater than the sum of the actual year-to-date third quarter of fiscal 2011 non-GAAP earnings per share and Companys estimate of the non-GAAP earnings per share for the fourth quarter of fiscal 2011 due to the weighted impact of the increase in outstanding shares resulting from the May 2011 equity offering on the fourth quarter as compared to the fiscal year. |
| Capital expenditures for fiscal 2011 in the range of $325 million to $350 million, up from previous capital expenditure guidance of $275 million to $305 million. |
Company Estimates for Fiscal Year 2012
The Company provided the following first estimates for its fiscal year 2012.
| Total consolidated net sales growth of 60% to 65% from fiscal 2011. |
| Fiscal 2012 non-GAAP earnings per diluted share in a range of $2.55 to $2.65 per diluted share, excluding any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry, the Companys internal investigation and pending litigation; amortization of identifiable intangibles related to the Companys acquisitions; and any gain or loss from sale of the Filterfresh U.S.-based coffee services business. |
| Capital expenditures for fiscal 2012 in the range of $650 million to $720 million. In addition, as the Company secures new production facilities for future growth it may incur additional capital expenditures in the range of $50 million to $60 million in fiscal 2012. |
* | All comparisons to prior periods reflect restated financial results for those periods as reported in Annual Report on Form 10-K filed December 9, 2010. A complete reconciliation of the Companys GAAP to non-GAAP results is provided with this announcement. |
Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP operating results that exclude certain charges or credits such as acquisition-related transaction expenses, legal and accounting-related expenses associated with the SEC inquiry, the Companys internal investigation and pending litigation, foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition, and non-cash related items such as amortization of identifiable intangibles, and losses incurred on the extinguishment of debt, each of which include adjustments to show the tax impact of excluding these items. These amounts are not in accordance with, or an alternative to, GAAP. The Companys management believes that these measures provide investors with transparency by helping illustrate the underlying financial and business trends relating to the Companys results of operations and financial condition and comparability between current and prior periods. Management uses the measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company. Please see the GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations tables that accompany this press release for a full reconciliation the Companys GAAP to non-GAAP results.
Conference Call and Webcast
Green Mountain Coffee Roasters, Inc. will be discussing these financial results with analysts and investors in a conference call and live webcast available via the Internet at 5:00 p.m. ET today, July 27, 2011. Managements prepared remarks on its quarterly results will be provided via a Current Report on Form 8-K and also posted under the events link in the Investor Relations section of the Companys website at www.GMCR.com. As a result, the conference call will include only brief remarks by management followed by a question and answer session. The call along with accompanying slides is accessible, via live webcast from the events link in the Investor Relations portion of the Companys website at http://investor.gmcr.com/events.cfm. The Company archives the latest conference call for a period of time. A replay of the conference call also will be available by telephone at (719) 457-0820, Passcode 8608345 from 9:00 p.m. ET on July 27, 2011 through 9:00 p.m. ET on Sunday, July 31, 2011.
About Green Mountain Coffee Roasters, Inc.
As a leader in specialty coffee and coffee makers, Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ: GMCR), is recognized for its award-winning coffees, innovative Keurig Single-Cup brewing technology, and socially responsible business practices. GMCR supports local and global communities by offsetting 100% of its direct greenhouse gas emissions, investing in sustainably-grown coffee, and donating at least five percent of its pre-tax profits to social and environmental projects.
GMCR routinely posts information that may be of importance to investors in the Investor Relations section of its website, including news releases and its complete financial statements, as filed with the SEC. The Company encourages investors to consult this section of its website regularly for important information and news. Additionally, by subscribing to the Companys automatic email news release delivery, individuals can receive news directly from GMCR as it is released.
Forward-Looking Statements
Certain statements contained herein are not based on historical fact and are forward-looking statements within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as anticipate, believe, could, estimate, expect, feel, forecast, intend, may, plan, potential, project, should, would, and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those stated here. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact on sales and profitability of consumer sentiment in this difficult economic environment, the Companys success in efficiently expanding operations and capacity to meet growth, the Companys success in efficiently and effectively integrating the Companys acquisitions, the Companys success in introducing and producing new product offerings, the ability of lenders to honor their commitments under the Companys credit facility, competition and other business conditions in the coffee industry and food industry in general, fluctuations in availability and cost of high-quality green coffee, any other increases in costs including fuel, the Companys ability to continue to grow and build profits in the At Home and Away from Home businesses, the Company experiencing product liability, product recall and higher than anticipated rates of warranty expense or sales returns associated with a product quality or safety issue, the impact of the loss of major customers for the Company or reduction in the volume of purchases by major customers, delays in the timing of adding new locations with existing customers, the Companys level of success in continuing to attract new customers, sales mix variances, weather and special or unusual events, the impact of the inquiry initiated by the SEC and any related litigation or additional governmental investigative or enforcement proceedings, as well as other risks described more fully in the Companys filings with the SEC. Forward-looking statements reflect managements analysis as of the date of this release. The Company does not undertake to revise these statements to reflect subsequent developments, other than in its regular, quarterly earnings releases.
GMCR-C
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)
Thirteen weeks ended 2011 |
Thirteen 2010 |
|||||||
(As Restated) | ||||||||
Net sales |
$ | 717,210 | $ | 316,583 | ||||
Cost of sales |
453,130 | 207,698 | ||||||
Gross profit |
264,080 | 108,885 | ||||||
Selling and operating expenses |
95,512 | 45,687 | ||||||
General and administrative expenses |
49,258 | 25,267 | ||||||
Operating income |
119,310 | 37,931 | ||||||
Other income (expense), net |
(233 | ) | 27 | |||||
Gain on financial instruments, net |
482 | | ||||||
Loss on foreign currency, net |
(981 | ) | | |||||
Interest expense |
(29,830 | ) | (1,495 | ) | ||||
Income before income taxes |
88,748 | 36,463 | ||||||
Income tax expense |
(31,778 | ) | (18,063 | ) | ||||
Net Income |
56,970 | 18,400 | ||||||
Net income attributable to noncontrolling interests |
622 | | ||||||
Net income attributable to GMCR |
$ | 56,348 | $ | 18,400 | ||||
Basic income per share: |
||||||||
Basic weighted average shares outstanding |
147,663,350 | 131,677,459 | ||||||
Net income per common share - basic |
$ | 0.38 | $ | 0.14 | ||||
Diluted income per share: |
||||||||
Diluted weighted average shares outstanding |
153,344,389 | 137,898,253 | ||||||
Net income per common share - diluted |
$ | 0.37 | $ | 0.13 |
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)
Thirty-nine 2011 |
Thirty-nine 2010 |
|||||||
(As Restated) | ||||||||
Net sales |
$ | 1,939,016 | $ | 983,688 | ||||
Cost of sales |
1,288,481 | 671,376 | ||||||
Gross profit |
650,535 | 312,312 | ||||||
Selling and operating expenses |
253,546 | 142,313 | ||||||
General and administrative expenses |
134,788 | 72,903 | ||||||
Operating income |
262,201 | 97,096 | ||||||
Other income (expense), net |
933 | 137 | ||||||
Loss on financial instruments, net |
(11,819 | ) | (354 | ) | ||||
Gain on foreign currency, net |
4,643 | | ||||||
Interest expense |
(52,560 | ) | (3,376 | ) | ||||
Income before income taxes |
203,398 | 93,503 | ||||||
Income tax expense |
(78,171 | ) | (40,988 | ) | ||||
Net Income |
125,227 | 52,515 | ||||||
Net income attributable to noncontrolling interests |
1,095 | | ||||||
Net income attributable to GMCR |
$ | 124,132 | $ | 52,515 | ||||
Basic income per share: |
||||||||
Basic weighted average shares outstanding |
143,606,691 | 131,303,879 | ||||||
Net income per common share - basic |
$ | 0.86 | $ | 0.40 | ||||
Diluted income per share: |
||||||||
Diluted weighted average shares outstanding |
149,357,480 | 137,681,766 | ||||||
Net income per common share - diluted |
$ | 0.83 | $ | 0.38 |
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Balance Sheets
(Dollars in thousands)
June 25, 2011 |
September 25, 2010 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 76,138 | $ | 4,401 | ||||
Restricted cash and cash equivalents |
30,651 | 355 | ||||||
Receivables, less uncollectible accounts and return allowances of $20,432 and $14,056 at June 25, 2011 and September 25, 2010, respectively |
229,420 | 172,200 | ||||||
Inventories |
417,496 | 262,478 | ||||||
Income taxes receivable |
10,736 | 5,350 | ||||||
Other current assets |
25,068 | 23,488 | ||||||
Current deferred income taxes, net |
27,186 | 26,997 | ||||||
Current assets held for sale |
28,303 | | ||||||
Total current assets |
844,998 | 495,269 | ||||||
Fixed assets, net |
499,076 | 258,923 | ||||||
Intangibles, net |
555,416 | 220,005 | ||||||
Goodwill |
806,613 | 386,416 | ||||||
Other long-term assets |
49,137 | 9,961 | ||||||
Long-term assets held for sale |
119,182 | | ||||||
Total assets |
$ | 2,874,422 | $ | 1,370,574 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | 5,238 | $ | 19,009 | ||||
Accounts payable |
209,572 | 139,220 | ||||||
Accrued compensation costs |
40,095 | 24,236 | ||||||
Accrued expenses |
76,895 | 49,279 | ||||||
Income tax payable |
2,924 | 1,934 | ||||||
Current deferred income taxes, net |
1,888 | | ||||||
Other short-term liabilities |
39,601 | 4,377 | ||||||
Current liabilities related to assets held for sale |
19,493 | | ||||||
Total current liabilities |
395,706 | 238,055 | ||||||
Long-term debt |
416,676 | 335,504 | ||||||
Long-term deferred income taxes, net |
195,879 | 92,579 | ||||||
Other long-term liabilities |
27,729 | 5,191 | ||||||
Long-term liabilities related to assets held for sale |
1,039 | | ||||||
Commitments and contingencies |
||||||||
Redeemable noncontrolling interests |
20,747 | | ||||||
Stockholders equity: |
||||||||
Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding |
| | ||||||
Common stock, $0.10 par value: Authorized - 200,000,000 shares; Issued and outstanding - 153,044,445 and 132,823,585 shares at June 25, 2011 and September 25, 2010, respectively |
15,304 | 13,282 | ||||||
Additional paid-in capital |
1,456,662 | 473,749 | ||||||
Retained earnings |
337,000 | 213,844 | ||||||
Accumulated other comprehensive income (loss) |
7,680 | (1,630 | ) | |||||
Total stockholders equity |
$ | 1,816,646 | $ | 699,245 | ||||
Total liabilities and stockholders equity |
$ | 2,874,422 | $ | 1,370,574 | ||||
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
Thirty-nine 2011 |
Thirty-nine weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 125,227 | $ | 52,515 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
50,176 | 20,379 | ||||||
Amortization of intangibles |
29,587 | 9,497 | ||||||
Amortization of deferred financing fees |
4,643 | | ||||||
Loss on extinguishment of debt |
19,732 | | ||||||
Unrealized gain on foreign currency |
(4,956 | ) | | |||||
Loss on disposal of fixed assets |
421 | 522 | ||||||
Provision for doubtful accounts |
2,315 | 372 | ||||||
Provision for sales returns |
48,755 | 26,291 | ||||||
Unrealized loss (gain) on financial instruments, net |
7,671 | (188 | ) | |||||
Tax benefit from exercise of non-qualified options and disqualified dispositions of incentive stock options |
38 | 25 | ||||||
Excess tax benefits from equity-based compensation plans |
(29,175 | ) | (5,626 | ) | ||||
Deferred income taxes |
3,343 | 49 | ||||||
Deferred compensation and stock compensation |
7,686 | 6,061 | ||||||
Changes in assets and liabilities, net of effects of acquisition: |
||||||||
Receivables |
(58,229 | ) | (44,769 | ) | ||||
Inventories |
(118,113 | ) | (31,356 | ) | ||||
Income tax receivable (payable), net |
25,533 | (1,068 | ) | |||||
Other current assets |
2,371 | (4,896 | ) | |||||
Other long-term assets, net |
(11,552 | ) | 421 | |||||
Accounts payable |
49,134 | 21,544 | ||||||
Accrued compensation costs |
(1,106 | ) | (3,851 | ) | ||||
Accrued expenses |
12,054 | 12,119 | ||||||
Other short-term liabilities |
(2,388 | ) | | |||||
Other long-term liabilities |
11,541 | | ||||||
Net cash provided by operating activities |
174,708 | 58,041 | ||||||
Cash flows from investing activities: |
||||||||
Change in restricted cash |
98 | (660 | ) | |||||
Proceeds from sale of short-term investments |
| 50,000 | ||||||
Proceeds from notes receivable |
449 | 1,788 | ||||||
Acquisition of Timothys Coffee of the World Inc. |
| (154,208 | ) | |||||
Acquisition of Diedrich Coffee, Inc., net of cash acquired |
| (305,261 | ) | |||||
Acquisition of LJVH Holdings, Inc. (Van Houtte), net of cash acquired |
(907,835 | ) | | |||||
Capital expenditures for fixed assets |
(175,474 | ) | (84,386 | ) | ||||
Proceeds from disposal of fixed assets |
850 | 253 | ||||||
Other investing activities |
(158 | ) | | |||||
Net cash used in investing activities |
(1,082,070 | ) | (492,474 | ) | ||||
Cash flows from financing activities: |
||||||||
Net change in revolving line of credit |
165,835 | 57,001 | ||||||
Proceeds from issuance of common stock under compensation plans |
9,577 | 4,127 | ||||||
Proceeds from issuance of common stock for private placement |
291,096 | | ||||||
Proceeds from issuance of common stock in public equity offering |
673,048 | | ||||||
Financing costs in connection with public equity offering |
(25,685 | ) | | |||||
Dividends paid to redeemable noncontrolling interests shareholders |
(702 | ) | | |||||
Excess tax benefits from equity-based compensation plans |
29,175 | 5,626 | ||||||
Capital lease obligations |
(7 | ) | (42 | ) | ||||
Proceeds from borrowings of long-term debt |
796,375 | 140,000 | ||||||
Deferred financing fees |
(45,821 | ) | (1,359 | ) | ||||
Repayment of long-term debt |
(906,708 | ) | (3,750 | ) | ||||
Net cash provided by financing activities |
986,183 | 201,603 | ||||||
Change in cash balances included in short-term assets held for sale |
(8,248 | ) | | |||||
Effect of exchange rate changes on cash and cash equivalents |
1,164 | | ||||||
Net increase (decrease) in cash and cash equivalents |
71,737 | (232,830 | ) | |||||
Cash and cash equivalents at beginning of period |
4,401 | 241,811 | ||||||
Cash and cash equivalents at end of period |
$ | 76,138 | $ | 8,981 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Fixed asset purchases included in accounts payable and not disbursed at the end of each year |
$ | 26,970 | $ | 12,549 | ||||
Noncash investing activity: |
||||||||
Liabilities assumed in conjunction with acquisitions |
$ | | $ | 1,533 |
GREEN MOUNTAIN COFFEE ROASTERS, INC.
GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations
(Dollars in thousands)
Thirteen weeks ended June 25, 2011 |
Thirteen weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Operating income |
$ | 119,310 | $ | 37,931 | ||||
Acquisition-related expenses (1) |
| 3,992 | ||||||
SEC inquiry (2) |
799 | | ||||||
Amortization of identifiable intangibles (3) |
11,794 | 4,293 | ||||||
Non-GAAP operating income |
$ | 131,903 | $ | 46,216 | ||||
Thirteen weeks ended June 25, 2011 |
Thirteen weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Net income |
$ | 56,348 | $ | 18,400 | ||||
After tax: |
||||||||
Acquisition-related expenses (5) |
| 7,208 | ||||||
SEC inquiry (2) |
513 | | ||||||
Amortization of identifiable intangibles (3) |
7,859 | 2,729 | ||||||
Loss on extinguishment of debt (4) |
11,027 | | ||||||
Non-GAAP net income |
$ | 75,747 | $ | 28,337 | ||||
Thirteen weeks ended June 25, 2011 |
Thirteen weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Diluted income per share |
$ | 0.37 | $ | 0.13 | ||||
After tax: |
||||||||
Acquisition-related expenses (5) |
$ | | $ | 0.05 | ||||
SEC inquiry (2) |
$ | 0.00 | $ | | ||||
Amortization of identifiable intangibles (3) |
$ | 0.05 | $ | 0.02 | ||||
Loss on extinguishment of debt (4) |
$ | 0.07 | $ | | ||||
Non-GAAP net income per share |
$ | 0.49 | $ | 0.21 | * | |||
* Does not add due to rounding. |
|
(1) | Represents direct acquisition related expenses classified as general and administrative expense. |
(2) | Represents legal and accounting expenses related to the SEC inquiry and pending litigation classified as general and administrative. |
(3) | Represents the amortization of intangibles related to the Companys acquisitions classified as general and administrative expense. |
(4) | Represents the write-off of debt issuance costs and original issue discount primarily associated with the extinguishment of the Term B loan under the Credit Agreement. |
(5) | Third quarter of fiscal 2010 reflects the reversal of $4.0 million non-deductible acquisition related expenses and the resulting $3.2 million tax effect. The tax effect represents the reversal of the tax benefit associated with acquisition related expenses previously incurred during the Companys first and second quarters of fiscal 2010 for the Diedrich acquisition which closed during the Companys third quarter of fiscal 2010. |
GREEN MOUNTAIN COFFEE ROASTERS, INC.
GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations
(Dollars in thousands)
Thirty-nine weeks ended June 25, 2011 |
Thirty-nine weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Operating income |
$ | 262,201 | $ | 97,096 | ||||
Acquisition-related expenses (1) |
10,573 | 13,889 | ||||||
SEC inquiry (2) |
7,193 | | ||||||
Amortization of identifiable intangibles (3) |
29,587 | 9,497 | ||||||
Non-GAAP operating income |
309,554 | $ | 120,482 | |||||
Thirty-nine weeks ended June 25, 2011 |
Thirty-nine weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Net income |
$ | 124,132 | $ | 52,515 | ||||
After tax: |
||||||||
Acquisition-related expenses (5) |
14,524 | 13,889 | ||||||
SEC inquiry (2) |
4,442 | | ||||||
Amortization of identifiable intangibles (3) |
19,514 | 6,090 | ||||||
Loss on extinguishment of debt (4) |
11,027 | | ||||||
Non-GAAP net income |
$ | 173,639 | $ | 72,494 | ||||
Thirty-nine weeks ended |
Thirty-nine weeks ended |
|||||||
(As Restated) | ||||||||
Diluted income per share |
$ | 0.83 | $ | 0.38 | ||||
After tax: |
||||||||
Acquisition-related expenses (5) |
$ | 0.10 | $ | 0.10 | ||||
SEC inquiry (2) |
$ | 0.03 | $ | | ||||
Amortization of identifiable intangibles (3) |
$ | 0.13 | $ | 0.04 | ||||
Loss on extinguishment of debt (4) |
$ | 0.07 | $ | | ||||
Non-GAAP net income per share |
$ | 1.16 | $ | 0.53 | * | |||
* | Does not add due to rounding. |
(1) | Represents direct acquisition related expenses classified as general and administrative expense. |
(2) | Represents legal and accounting expenses related to the SEC inquiry, the Companys internal investigation and pending litigation classified as general and administrative. |
(3) | Represents the amortization of intangibles related to the Companys acquisitions classified as general and administrative expense. |
(4) | Represents the write-off of debt issuance costs and original issue discount, net of tax, primarily associated with the extinguishment of the Term B loan under the Credit Agreement. |
(5) | The 2011 YTD period reflects direct acquisition-related expenses of $10.6 million ($8.9 million after-tax). In addition, the 2011 YTD period represents; the write-off of deferred financing expenses as part of the new debt financing of $2.6 million ($1.6 million after-tax) and the foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition of $5.3 million ($4.0 million after-tax). The 2010 YTD period reflects the reversal of $13.9 million direct acquisition related expenses. The reversal of the acquisition related expenses had no tax effect YTD because the acquisitions were closed as of the third quarter of fiscal 2010 and the expenses are non-deductible for tax purposes. |
Exhibit 99.2
Prepared Remarks for Third Quarter Fiscal 2011 Results
Issued July 27, 2011
Introduction
About These Remarks
As previously announced, Green Mountain Coffee Roasters, Inc. (GMCR) will be discussing its third quarter fiscal 2011 financial results with analysts and investors in a conference call and live webcast available via the Internet beginning at 5:00 p.m. ET today, July 27, 2011. The following commentary is provided by management in conjunction with GMCRs third quarter fiscal 2011 results press release and conference call. These remarks represent managements current views on the Companys financial and operational performance as of the date of these remarks. These remarks are provided in advance of the conference call to make efficient use of investor and analysts time but will not be read on the live conference call. Managements prepared remarks on its quarterly results will be provided via a Current Report on Form 8-K and also posted under the events link in the Investor Relations section of the Companys website at www.GMCR.com.
Conference Call and Live Webcast
The conference call webcast is accessible, via live webcast from the events link in the Investor Relations portion of the Companys website at http://investor.gmcr.com/events.cfm as are accompanying supplemental slides. The Company archives the latest conference call for a period of time on its website. A replay of the conference call also will be available by telephone at (719) 457-0820, Passcode 8608345 from 9:00 p.m. ET on July 27, 2011 through 9:00 p.m. ET on Sunday, July 31, 2011.
Third Quarter Fiscal 2011 Business Overview
(Supplemental to the third quarter fiscal 2011 earnings press release issued July 27, 2011)
GMCR remains focused on our value drivers and our enabling initiatives, which we believe will allow us to continue to build the value of our enterprise. We believe our value drivers include:
1. | Supporting brewer adoption both at home and away from home; |
2. | Increasing the opportunities for portion pack consumption; |
3. | Leveraging our multi-channel distribution; |
4. | Enhancing our geographic presence; and, |
5. | Scaling our business to meet demand. |
Supporting Brewer Adoption
GMCR sold 1.1 million Keurig® Single-Cup Brewers during the third quarter of fiscal 2011. This brewer shipment number does not account for consumer returns to retailers.
We estimate that GMCR brewer shipments represented approximately 92% of total brewers shipped with Keurig technology system wide in the period.
Sell-through data from retailers reporting to NPD Group, a leading global provider of consumer and retail market research information, shows that Keurig and Keurig-system brewers continue to fuel category dollar sale growth in the U.S. According to NPD, for the period April 2011 through June 2011, dollar sales of Keurig® Single-Cup brewers increased 65% over the same period in the prior year, while unit sales increased 54%.
Keurig branded brewers also continue to gain share of total U.S. coffeemakers. According to NPD, in our third quarter of fiscal 2011, Keurig branded brewers (without third party brewers) remained the number one dollar share leader in the U.S. coffeemaker category, with the top four selling brewers by dollar share. For the same third quarter fiscal 2011 period, NPD estimates that Keurig (without third party brewers) remained second in the category in terms of unit sales, with 16.7% unit share up from 11.1% in the same period a year ago.
Increasing Portion Pack Consumption
The goal of our beverage new product development group is a beverage for every occasion. Were pleased with the success weve had thus far with new beverages including our Brew Over Ice varieties and our Green Mountain Naturals Hot Apple Cider, and the team is hard at work on additional new product introductions. The teams focus going forward is on creating beverages that generate additional interest and enthusiasm for the system and that broaden the benefits the system can deliver. The ultimate goal is to enhance customer satisfaction by providing an even broader range of beverage options to surprise and delight consumers. To recap some of our new beverage news in the quarter:
Brew Over Ice
Supported by nationwide television advertising and other brand support spend, Brew Over Ice offerings, which are now available through both grocery and retail channels.
Barista Prima Coffeehouse
During the quarter we expanded availability of Barista Prima, our first super-premium coffee portion pack for the system, with the product now available in Bed, Bath & Beyond stores with additional retailers coming soon. We continue to be pleased with strong positive consumer reaction to this new first-ever premium offering.
Café Escapes
We expect an improved and broader availability of our Café Escapes indulgent dairy-based product line this fall and winter as weve made measurable steps in enhancing our raw materials supply chain.
Leveraging our Multi-Channel Distribution
The goal of our multi-channel distribution strategy is to ensure consumers can purchase portion packs wherever they shop. Following is a summary of some of the progress made during our fiscal third quarter.
Grocery
In our third quarter of fiscal 2011 we estimate were in approximately 15,200 grocery doors with the Keurig Single-Cup Brewing system, an increase of roughly 12% over the year-ago period.
According to IRI data, 12-count portion packs have achieved an ACV (all commodity volume) of 85% nationwide in U.S. grocery stores. (Note: Beginning in calendar 2011, IRI made changes to the methodology it uses to assess ACV so current data is not comparable to past references.)
Our objective in grocery is not only expanding distribution but also increasing the variety within existing stores, and weve been pleased to see an increasing number of accounts accepting our 4-foot merchandising sets.
According to IRI data for the 12 weeks ending June 12, 2011, our portfolio of 12-count portion packs once again outsold all other packaged coffee brands in the Northeast region. On a nationwide basis, sales of our portion packs are second only to one other specialty coffee brand, regardless of form.
Department, Specialty, Mass Retailers and Wholesale Clubs
Additionally, major retailers like Bed, Bath & Beyond, Costco, Kohls, Target and Wal-Mart, representing approximately 20,000 stores, continue to be significant destination retailers for the Keurig Single-Cup Brewer and portion pack product line. We expect continued strong retailer support through the fall and Holiday 2011 seasons. Many retailers continue to expand space to accommodate consumer interest in the Keurig system. We expect to support the Keurig brand at expanded levels of marketing spend. In addition, we expect strong support from our brewer and beverage partners in support of the Keurig Single-Cup Brewing system.
Away From Home
In the third quarter of Fiscal 2011 our Away From Home segment continued the strong year-over-year growth seen in prior fiscal 2011 quarters. Sales from this channel outperformed our plan with all sales channels (traditional Office Coffee Services, retail, and on-line) exhibiting strong results. Away From Home channel growth is being driven by both our own sales/marketing plans and also the increasing strength and awareness of the Keurig brand.
We are very proud of a responsible portion pack disposal program that we launched in our Away From Home Channel during the quarter. The program, called Grounds to Grow On, builds on our experience with two pilot programs from 2010 and is currently being tested in specific regions across 22 states. The program utilizes collection bins provided by Keurig Authorized Distributors to collect brewed K-Cup® portion packs at participating Away From Home locations. Once filled, the bins are sent to our disposal partner to re-purposes the used K-Cup® portion pack, thereby reducing the potential impact to landfills. With Grounds to Grow On, 75% of the waste of a brewed K-Cup® portion pack is
diverted to compost and 25% is used to create energy. Pending the results of our test, we are optimistic that well be able to roll out the program nationwide in 2012.
Hospitality
We also continue to make good progress increasing our penetration of up-market hotel properties. Today we estimate there are more than 175,000 hotel rooms with our B-130 Keurig Single-Cup brewer driving an estimated 15+ million annual demonstrations of the Keurig system.
Consumer Direct
Consumer direct channels continue to be an important part of our business via our two consumer direct websites: GreenMountainCoffee.com and Keurig.com. Of note during the quarter, Keurig.com was acknowledged by ForSee Results as #10 out of the top 100 internet retailers in their Spring 2011 Top 100 Online Retail Satisfaction Index. Customer satisfaction studies were conducted by ForeSee Results from more than 22,000 respondents who had visited top 100 online retail sites and analyzed using the American Customer Satisfaction Index (ACSI), and according to its methodology, a score of 80 has long been considered the threshold for excellence. Notably, the announcement placed Keurig.com in the top ranking list with brand websites such as Amazon.com, QVC.com, and LLBean.com.
Enhancing Our Geographic Presence
Our evolution from a regional coffee roaster to a North American single-serve beverage company continues.
GMCR currently operates production/distribution facilities in Castroville, California; Knoxville, Tennessee; Essex, Waterbury and Williston, Vermont; Sumner, Washington; Toronto, Ontario; and, Montreal, Quebec. The Company also conducts research and development activities in facilities in Reading and Woburn, Massachusetts; and in Waterbury, Vermont. We currently expect to add two additional production/distribution facilities in the U.S. during our 2012 fiscal year.
We believe we have a significant opportunity to leverage assets, brands and people in Canada as a result of our acquisition of Van Houtte. We also are evaluating the potential of opportunities outside North America.
In the meantime, we continue to make excellent progress with brewer adoption in Canada. According to sell-through data from retailers reporting to NPD Group, for the period April 2011 through June 2011, Keurig was the top-ranked coffeemaker brand in Canada based on dollar sales, with dollar sales of Keurig Single-Cup brewers increasing 234% over the same period in the prior year. Keurig was the second rank brewer in the region based on unit sales, with unit sales increasing 287% over the same period in the prior year.
Scaling our Business to Meet Demand
We continue to add capacity across all of our production locations. As a result of the growth weve experienced thus far this year, the addition of new mass-appeal brands to the Keurig Single-Cup Brewing system, and with interest in the system now spanning broader demographics, we expect continued growth of brewers at a rate higher than we previously anticipated.
Given that expectation, we believe we also will need to deploy more portion pack production capacity in 2012 than previously anticipated to support consumer demand.
Enabling Initiatives
Beyond our value drivers, we continue to work on enabling initiatives designed to facilitate growth in the years to come. These initiatives are designed to enhance consumer interest and choice, and as a result, our business value, and are focused in three primary areas:
1. | Expanding into new beverage categories; |
2. | Continuing to work with Lavazza to introduce a single-cup espresso beverage system; and, |
3. | Identifying and evaluating new strategic relationships, which could include potential new brewer or beverage relationships and/or distributors. |
We believe our success with these initiatives will be instrumental to continued earnings growth and improved shareholder value.
Additional Third Quarter Fiscal 2011 Financial Commentary
The information provided here is supplementary to the information provided in our press release issued today and investors are encouraged to view both for a more comprehensive summary.
Note: All comparisons to prior periods reflect restated financial results for those periods as reported in our Annual Report on Form 10-K filed for the year ending September 2010.
Segment Sales Data
| For the Keurig business unit, net sales to unaffiliated customers totaled $305.4 million, up 92% from net sales of $159.4 million in the third quarter of fiscal 2010. |
| For the Specialty Coffee business unit, net sales to unaffiliated customers totaled $296.9 million, up 89% from net sales of $157.2 million, from the prior year period. |
| For the Canadian business unit, net sales to unaffiliated customers totaled $114.9 million. The Canadian business unit was formed with the acquisition of Van Houtte on December 17, 2010. |
Costs, Margins and Income
| Third quarter fiscal 2011 gross margin was 36.8% of total net sales compared to 34.4% for the corresponding quarter in fiscal 2010. |
| The improvement of gross margin is due primarily to a shift in the Companys sales mix. |
| Net sales from Keurig® brewers and related accessories were lower as a percentage of total Company net sales in the third quarter of fiscal 2011 compared to the prior year period. |
| The Company sells the majority of Keurig® brewers approximately at cost, or sometimes at a loss when factoring in the incremental costs related to sales, including fulfillment charges, returns and warranty expense. |
| The decrease in Keurig® brewer and accessory sales as a percentage of total sales positively affected the Companys gross margin by approximately 270 basis points. |
| In addition the Company initiated price increases in the first quarter of fiscal 2011 and late in the third quarter of fiscal 2011 to offset higher green coffee and other input costs. The impact of these price increases was offset by higher green coffee costs in the third quarter of fiscal 2011 compared to the prior year period. |
| Warranty rates in the third quarter of fiscal 2011 were consistent with warranty rates in the second quarter of fiscal 2011. |
| The Company offers a one-year warranty on all Keurig® Single-Cup brewers it sells and continues to experience higher-than-historical rate warranty claims associated with its reservoir brewer models. As we have grown we have added significantly to our product testing, quality control infrastructure and overall quality processes. Nevertheless, as we continue to innovate, and our products become more complex, both in design and componentry, product performance may tend to modulate, causing warranty rates to possibly fluctuate going forward, so that they may be higher or lower than we are currently experiencing and for which we are currently providing. |
| GAAP selling, general and administrative expense totaled $144.8 million or 20% of net sales for the third quarter of fiscal 2011 as compared to $71.0 million or 22% of net sales in the prior year. |
| The increase was attributed to approximately $38.1 million of selling, general and administrative costs incurred in the Canadian business unit segment, as a result of the Van Houtte acquisition, and an increase of $12.4 million in marketing and promotional activities, primarily related to our spring advertising campaign. |
| Third quarter of fiscal 2011 GAAP selling, general and administrative expenses included approximately $11.8 million in amortization of identifiable intangibles related to the Companys acquisitions, and $0.8 million in legal and accounting expenses related to the SEC inquiry and pending litigation. |
| Third quarter of fiscal 2010 GAAP selling, general and administrative expenses included $4.0 million in non-deductible acquisition-related expenses for the Diedrich acquisition and $4.3 million in amortization of identifiable intangibles related to the Companys prior acquisitions. |
| Exclusive of these items, non-GAAP selling, general and administrative expenses totaled $132.2 million or 18% of net sales for the third quarter of fiscal 2011 as compared to $62.7 million or 20% of net sales in the prior year. |
| The Companys tax rate for the third quarter of fiscal 2011 was 35.8% as compared to 49.5% in the prior year quarter when the Companys tax rate reflected the recognition of approximately $12 million of non-deductible acquisition-related expenses incurred during the first, second and third quarters of fiscal 2010 for the Diedrich acquisition, which closed during the third quarter of fiscal 2010. |
| The Companys fiscal 2011 effective tax rate excluding the non-deductible acquisition-related expenses is estimated to be approximately 37.6%. |
Explanation of Accounting and Presentation Changes
Changes to Accounting of Intercompany Transactions
As described in the Companys Annual Report on Form 10-K for the fifty-two weeks ended September 25, 2010 Item 9A. Controls and Procedures, managements planned actions to remediate the material weakness related to the financial consolidation process included a thorough review of the processes and procedures used in the Companys intercompany accounting, including an evaluation of possible methods to simplify and automate certain aspects related to intercompany transactions. As a result of this review, effective with the beginning of the Companys third quarter of fiscal 2011, the Keurig business unit no longer records royalty income from the specialty coffee business unit and the Canadian business unit on shipments of K-Cup® portion packs, thus removing the need to eliminate royalty income during the financial consolidation process.
In addition, while previously the Company recorded intersegment sales and purchases of brewers and K-Cup® portion packs at a markup, during the third quarter of fiscal 2011, the Company unified the standard costs of brewer and K-Cup® portion pack inventories across the segments and began recording intersegment sales and purchases of brewers and K-Cup® portion packs at new unified standard costs. This change simplified intercompany transactions by removing the need to eliminate the markup incorporated in intersegment sales as part of the financial consolidation process.
As a result of the unification of the standard costs of brewers and K-Cup® portion packs during the third quarter of fiscal 2011, the Companys segment inventories were revalued and an adjustment was recorded by the respective segments which resulted in an increase in cost of sales and a decrease in inventories. This adjustment was offset with the reversal of the elimination of intersegment markup in inventories in the consolidation process resulting in no impact to the Companys consolidated results.
Presentation of Cash Flow
After discussion with the Securities and Exchange Commissions Division of Corporation Finance related to a comment letter dated June 1, 2011, the Company has elected to revise its presentation of sales returns and bad debts in the cash flows from operating activities section of the Unaudited Consolidated Statement of Cash Flows for the thirty-nine weeks ended June 25, 2011 from the presentation in the Companys Form 10-Q filed for the twenty-six weeks ended March 26, 2011 (the Q211 Form 10-Q) to conform to its previous presentation as reported in the Companys Form 10-K filed for the fiscal year ended September 25, 2010 (the Fiscal 2010 Form 10-K) and in the Form 10-Q filed for the thirteen-weeks ended December 25, 2010 (the Q111 Form 10-Q). The presentation in the Fiscal 2010 Form 10-K and Q111 Form 10-Q includes separate adjustments for bad debts and sales returns in the reconciliation and represents the total provision charged against net income for the period with the deductions or usage reflected in the change in accounts receivable line item, net of the effects of acquisitions. In the Q211 Form 10-Q Unaudited Consolidated Statement of Cash Flows, the sales returns and bad debts line items to reconcile net income to net cash provided by operating activities reflected the change in reserve for sales returns and the allowance for doubtful accounts. The change in presentation had no impact on net cash provided by operating activities.
The Company has also revised its presentation of the line items for Gains and losses on foreign currency and Gains and losses on financial instruments in the cash flows from operating activities section of the Unaudited Consolidated Statement of Cash Flows. In the Q111 Form 10-Q and the Q211 Form 10-Q, the Company reported both realized and unrealized gains and losses on foreign currency transactions and financial instruments to reconcile net income to net cash provided by operating activities. Only unrealized gains and losses should be reflected as an adjustment to reconcile net income to net cash provided by operating activities. The adjustment for realized gains and losses resulted in a corresponding adjustment to changes in working capital items, namely accounts payable, other current assets and other current liabilities, and did not result in reporting an incorrect net cash provided by operating activities number in the Q111 Form 10-Q and Q211 Form 10-Q Unaudited Consolidated Statements of Cash Flows.
In addition, in the Unaudited Consolidated Statement of Cash Flows, the Company reclassified the write-off of $2.6 million in deferred financing fees related to the extinguishment of debt on its former credit facility, which was previously classified in the line item Amortization of deferred financing fees in the Q111 Form 10-Q and Q211 Form 10-Q to the line item Loss on extinguishment of debt to be consistent with the current quarter presentation. Due to the significance of the loss incurred this quarter on the extinguishment of debt, the Company provided greater transparency in the Unaudited Statement of Cash Flows by reporting separately the loss incurred on the extinguishment of debt. The change in presentation had no impact on net cash provided by operating activities.
Acquisition Accounting
This quarter the Company has finalized the valuation and purchase price allocation for Van Houtte. In the Q111 and Q211 Form 10-Qs, the Company reported provisional amounts as it completed the valuation work and initial accounting for the Van Houtte acquisition. In accordance with ASC 805-10-25, in the Q211 Form 10-Q the Company revised the Q111 results as presented in the Statement of Operations for the twenty-six weeks ended March 26, 2011 to
reflect new information relating to facts and circumstances that existed as of the acquisition date. The revisions did not have a material impact on the Statement of Operations for the thirteen weeks ended December 25, 2011. As a result of these revisions, the Statement of Operations for the thirteen weeks ended December 25, 2011 as presented in the Q111 Form 10-Q when added to the Statement of Operations for the thirteen weeks ended March 26, 2011 as presented in the Q211 Form 10-Q will not total to the Statement of Operations for the twenty-six weeks ended March 26, 2011 as presented in the Q211 Form 10-Q. In the Companys Q311 Form 10-Q, there were no additional adjustments to the Q111 or Q211 results.
Forward-Looking Statements
Certain statements contained herein are not based on historical fact and are forward-looking statements within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as anticipate, believe, could, estimate, expect, feel, forecast, intend, may, plan, potential, project, should, would, and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those stated here. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact on sales and profitability of consumer sentiment in this difficult economic environment, the Companys success in efficiently expanding operations and capacity to meet growth, the Companys success in efficiently and effectively integrating the Companys acquisitions, the Companys success in introducing and producing new product offerings, the ability of lenders to honor their commitments under the Companys credit facility, competition and other business conditions in the coffee industry and food industry in general, fluctuations in availability and cost of high-quality green coffee, any other increases in costs including fuel, the Companys ability to continue to grow and build profits in the At Home and Away from Home businesses, the Company experiencing product liability, product recall and higher than anticipated rates of warranty expense or sales returns associated with a product quality or safety issue, the impact of the loss of major customers for the Company or reduction in the volume of purchases by major customers, delays in the timing of adding new locations with existing customers, the Companys level of success in continuing to attract new customers, sales mix variances, weather and special or unusual events, the impact of the inquiry initiated by the SEC and any related litigation or additional governmental investigative or enforcement proceedings, as well as other risks described more fully in the Companys filings with the SEC. Forward-looking statements reflect managements analysis as of the date of this document. The Company does not undertake to revise these statements to reflect subsequent developments, other than in its regular, quarterly earnings releases.
Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP operating results that exclude certain charges or credits such as acquisition-related transaction expenses, legal and accounting-related expenses associated with the SEC inquiry, the Companys internal investigation and pending litigation, foreign exchange impact of hedging the risk associated with the Canadian dollar
purchase price of the Van Houtte acquisition, and non-cash related items such as amortization of identifiable intangibles, each of which include adjustments to show the tax impact of excluding these items. These amounts are not in accordance with, or an alternative to, GAAP. The Companys management believes that these measures provide investors with transparency by helping illustrate the underlying financial and business trends relating to the Companys results of operations and financial condition and comparability between current and prior periods. Management uses the measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company. Please see the GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations tables that accompany this document for a full reconciliation the Companys GAAP to non-GAAP results.
GAAP to Non-GAAP Reconciliation
Thirteen weeks ended June 25, 2011 |
Thirteen weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Operating income |
$ | 119,310 | $ | 37,931 | ||||
Acquisition-related expenses (1) |
| 3,992 | ||||||
SEC inquiry (2) |
799 | | ||||||
Amortization of identifiable intangibles (3) |
11,794 | 4,293 | ||||||
Non-GAAP operating income |
$ | 131,903 | $ | 46,216 | ||||
Thirteen weeks ended June 25, 2011 |
Thirteen weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Net income |
$ | 56,348 | $ | 18,400 | ||||
After tax: |
||||||||
Acquisition-related expenses (5) |
| 7,208 | ||||||
SEC inquiry (2) |
513 | | ||||||
Amortization of identifiable intangibles (3) |
7,859 | 2,729 | ||||||
Loss on extinguishment of debt (4) |
11,027 | | ||||||
Non-GAAP net income |
$ | 75,747 | $ | 28,337 | ||||
Thirteen weeks ended June 25, 2011 |
Thirteen weeks ended June 26, 2010 |
|||||||
(As Restated) | ||||||||
Diluted income per share |
$ | 0.37 | $ | 0.13 | ||||
After tax: |
||||||||
Acquisition-related expenses (5) |
$ | | $ | 0.05 | ||||
SEC inquiry (2) |
$ | 0.00 | $ | | ||||
Amortization of identifiable intangibles (3) |
$ | 0.05 | $ | 0.02 | ||||
Loss on extinguishment of debt (4) |
$ | 0.07 | $ | | ||||
Non-GAAP net income per share |
$ | 0.49 | $ | 0.21 | * | |||
* Does not add due to rounding. |
|
(1) | Represents direct acquisition related expenses classified as general and administrative expense. |
(2) | Represents legal and accounting expenses related to the SEC inquiry and pending litigation classified as general and administrative. |
(3) | Represents the amortization of intangibles related to the Companys acquisitions classified as general and administrative expense. |
(4) | Represents the write-off of debt issuance costs and original issue discount primarily associated with the extinguishment of the Term B loan under the Credit Agreement. |
(5) | Third quarter of fiscal 2010 reflects the reversal of $4.0 million non-deductible acquisition related expenses and the resulting $3.2 million tax effect. The tax effect represents the reversal of the tax benefit associated with acquisition related expenses previously incurred during the Companys first and second quarters of fiscal 2010 for the Diedrich acquisition which closed during the Companys third quarter of fiscal 2010. |
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