Restatement of Previously Issued Financial Statements

9 Months Ended

Jun. 25, 2011

Restatement of Previously Issued Financial Statements

Restatement of Previously Issued Financial Statements

2. Restatement of Previously Issued Financial Statements

As described in our Fiscal 2010 Form 10-K, we have restated our financial statements and other information. For additional details on the effects of the restatements on certain line items within our previously reported Statement of Operations for the thirteen and thirty-nine weeks ended June 26, 2010 please refer to the following sections in our Fiscal 2010 Form 10-K: Overview of Restatement; Part II, Item 8, Financial Statements and Supplementary Data, Note 3, Restatement of Previously Issued Financial Statements and Note 24, Unaudited Quarterly Financial Data.

The restatements reflect adjustments to correct errors in the Company's intercompany eliminations; the classification and timing of the recognition of certain royalty revenues from unrelated third party roasters; the over or under accrual of certain marketing and customer incentive programs as well as the correction of the classification of certain customer incentives from selling and operating expenses to a reduction in sales; and other miscellaneous adjustments. The nature and impact of these adjustments are described below and detailed in the tables below.

Intercompany Eliminations

During the fourth quarter of fiscal 2010, the Company identified an error as a result of applying an incorrect standard cost to intercompany K-Cup^® portion pack inventory balances in consolidation. The Specialty Coffee business unit ("SCBU") standard cost of K-Cup^® portion packs included the royalty fee due to the Keurig business unit ("KBU"), and management discovered that this royalty fee was not eliminated from K-Cup^® portion pack inventory balances. This error resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales. During the close of the fiscal 2010 year, the Company also discovered an error in the application of an incorrect standard cost to intercompany Keurig^® Single-Cup Brewer inventory balances held by SCBU in consolidation, which also resulted in an overstatement of consolidated inventory and an understatement of cost of sales. In addition, certain intercompany sales transactions were not properly eliminated resulting in an understatement of both sales and cost of sales of an equal amount and did not affect net income. The cumulative effect of the errors as of the fiscal year ended September 26, 2009 resulted in a reduction to net income of approximately $1.8 million after income taxes.

Timing of Recognition and Classification of Certain Royalties from Third Party Licensed Roasters

The Company receives royalties on K-Cup^® portion packs sold by third party roasters at the time of shipment in accordance with the terms and conditions of the licensing agreements with these roasters. The Company's KBU business segment purchases K-Cup^® portion packs directly from the third party licensed roasters to sell to its customers. Because royalties on K-Cup^® portion packs sold by third party roasters were earned at the time of shipment pursuant to the terms and conditions of the licensing agreements with these roasters, KBU historically recorded these royalties at the time KBU purchased the K-Cup^® portion packs from the licensed roasters and included them in net sales. Management has determined that the royalty should be recognized as a reduction to the carrying value of the related inventory which will reduce cost of sales when the K-Cup^® portion packs are sold to a third-party customer. As of the fiscal year ended September 26, 2009, the cumulative effect of the timing of the recognition of the royalty resulted in a reduction to net income of approximately $1.3 million after income taxes, with a cumulative reduction in sales and cost of sales as of September 26, 2009 of approximately $27.1 million and $24.9 million, respectively.

Timing of Recognition and Classification of Certain Marketing and Customer Incentive Programs

Management discovered errors in recording certain marketing and customer incentive programs, which were generally accounted for as a selling and operating expense in the Company's consolidated statements of operations. These programs include, but are not limited to, brewer mark-down support and funds for promotional and marketing activities. Management determined that a lack of adequate communication between the accounting function to gather the appropriate information from the sales and marketing functions resulted in expenses for certain of these programs being recorded in the wrong fiscal periods. The cumulative effect as of fiscal year ended September 26, 2009 of the under-accrual of certain marketing and customer incentive program expenses resulted in a reduction to net income of approximately $47,000 after income taxes. In addition, the Company has corrected the classification of certain of these amounts as reductions to net sales instead of selling and operating expenses. Cumulatively, as of September 26, 2009, approximately $4.5 million has been classified as a reduction to net sales from selling and operating expenses.

The Company also identified an over-accrual of a liability related to certain customer incentive programs for SCBU resulting in a $0.5 million understatement of net income after income taxes, cumulative, as of September 26, 2009.

Other Adjustments

During fiscal years 2008 through the third quarter of fiscal 2010, the Company adjusted for the deferral of certain sales and costs related to a sales contract for which risk of loss had not yet transferred to the customer. The adjustment resulted in timing differences in when the sales and related cost of sales were recognized and resulted in a reduction to net income of approximately $0.2 million after income taxes, cumulative, as of September 26, 2009.

The restated Consolidated Statement of Operations for the thirteen and thirty-nine weeks ended June 26, 2010 are presented below (dollars in thousands, except per share data):

Green Mountain Coffee Roasters, Inc.

Consolidated Statement of Operations

Thirteen weeks ended June 26, 2010

(Dollars in thousands, except per share data)

	As Prevously Reported on Form 10-Q			Inter-Company Elimination Adjustments			Third Party Royalty Adjustments			Marketing and Customer Incentive Expense Adjustments			Other Adjustments			As Restated
Net sales	$	311,514		$	5,488		$	(2,756	)	$	(820	)	$	3,157		$	316,583
Cost of sales		201,783			6,657			(3,695	)		—			2,953			207,698
Gross profit		109,731			(1,169	)		939			(820	)		204			108,885
Selling and operating expenses		46,277			—			—			(590	)		—			45,687
General and administrative expenses		25,267			—			—			—			—			25,267
Patent litigation (settlement) expense		—			—			—			—			—			—
Operating income		38,187			(1,169	)		939			(230	)		204			37,931
Other income (expense)		27			—			—			—			—			27
Gain (loss) on financial instruments, net		—			—			—			—			—			—
Gain (loss) on foreign currency, net		—			—			—			—			—			—
Interest expense		(1,495	)		—			—			—			—			(1,495	)
Income before income taxes		36,719			(1,169	)		939			(230	)		204			36,463
Income tax expense		(18,165	)		465			(374	)		92			(81	)		(18,063	)
Net income	$	18,554		$	(704	)	$	565		$	(138	)	$	123		$	18,400
Basic income per share:
Basic weighted average shares outstanding		131,677,459			131,677,459			131,677,459			131,677,459			131,677,459			131,677,459
Net income per common share - basic	$	0.14		$	(0.01	)	$	0.00		$	(0.00	)	$	0.00		$	0.14	*
Diluted income per share:
Diluted weighted average shares outstanding		137,898,253			137,898,253			137,898,253			137,898,253			137,898,253			137,898,253
Net income per common share - diluted	$	0.13		$	(0.01	)	$	0.00		$	(0.00	)	$	0.00		$	0.13	*

* Does not add due to rounding.

Green Mountain Coffee Roasters, Inc.

Consolidated Statement of Operations

Thirty-nine weeks ended June 26, 2010

(Dollars in thousands, except per share data)

	As Prevously Reported on Form 10-Q			Inter-Company Elimination Adjustments			Third Party Royalty Adjustments			Marketing and Customer Incentive Expense Adjustments			Other Adjustments			As Restated
Net sales	$	985,792		$	13,669		$	(12,632	)	$	(4,059	)	$	918		$	983,688
Cost of sales		665,584			18,771			(13,765	)		—			786			671,376
Gross profit		320,208			(5,102	)		1,133			(4,059	)		132			312,312
Selling and operating expenses		144,835			—			—			(2,522	)		—			142,313
General and administrative expenses		72,903			—			—			—			—			72,903
Patent litigation (settlement) expense		—			—			—			—			—			—
Operating income		102,470			(5,102	)		1,133			(1,537	)		132			97,096
Other income (expense)		137			—			—			—			—			137
Gain (loss) on financial instruments, net		(354	)		—			—			—			—			(354	)
Gain (loss) on foreign currency, net		—			—			—			—			—			—
Interest expense		(3,376	)		—			—			—			—			(3,376	)
Income before income taxes		98,877			(5,102	)		1,133			(1,537	)		132			93,503
Income tax expense		(43,127	)		2,030			(451	)		612			(52	)		(40,988	)
Net income	$	55,750		$	(3,072	)	$	682		$	(925	)	$	80		$	52,515
Basic income per share:
Basic weighted average shares outstanding		131,303,879			131,303,879			131,303,879			131,303,879			131,303,879			131,303,879
Net income per common share - basic	$	0.42		$	(0.02	)	$	0.01		$	(0.01	)	$	0.00		$	0.40
Diluted income per share:
Diluted weighted average shares outstanding		137,681,766			137,681,766			137,681,766			137,681,766			137,681,766			137,681,766
Net income per common share - diluted	$	0.40		$	(0.02	)	$	0.00		$	(0.01	)	$	0.00		$	0.38	*

* Does not add due to rounding.

The restated Consolidated Statement of Cash Flows for the thirty-nine weeks ended June 26, 2010 is presented below (dollars in thousands):

Green Mountain Coffee Roasters, Inc.

Consolidated Statement of Cash Flows

Thirty-nine weeks ended June 26, 2010

(Dollars in thousands)

	As Previously Reported on Form 10-Q			Inter-Company Elimination Adjustments			Third Party Royalty Adjustments			Marketing and Customer Incentive Expense Adjustments			Other Adjustments			As Restated
Cash flows from operating activities:
Net income	$	55,750		$	(3,072	)	$	682		$	(925	)	$	80		$	52,515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		20,379			—			—			—			—			20,379
Amortization of intangibles		9,497															9,497
Loss on disposal of fixed assets		522			—			—			—			—			522
Provision for doubtful accounts		372			—			—			—			—			372
Provision for sales returns		26,291															26,291
Unrealized (Gain) Loss on futures derivatives		(188	)		—			—			—			—			(188	)
Tax benefit (expense) from exercise of non-qualified options and disqualified dispositions of incentive stock options		25			—			—			—			—			—   25
Excess tax benefits from equity-based compensation plans		(5,626	)		—			—			—			—			(5,626	)
Tax expense from allocation of ESOP shares		—			—			—			—			—			—
Deferred income taxes		49			—			—			—			—			49
Deferred compensation and stock compensation		6,061			—			—			—			—			6,061
Contributions to the ESOP		—			—			—			—			—			—
Changes in assets and liabilities, net of effects of acquisition:
Receivables		(44,769	)		—			—			—						(44,769	)
Inventories		(35,325	)		5,102			(1,133	)		—			—			(31,356	)
Income tax payable, net		1,071			(2,030	)		451			(612	)		52			(1,068	)
Other current assets		(5,682	)		—			—			—			786			(4,896	)
Other long-term assets, net		421			—			—			—			—			421
Accounts payable		21,544			—			—			—			—			21,544
Accrued compensation costs		(3,851	)		—			—						—			(3,851	)
Accrued expenses		11,500			—			—			1,537			(918	)		12,119
Other short-term liabilities		—			—			—			—			—			—
Other long-term liabilities		—			—			—			—			—			—
Net cash provided by operating activities		58,041			—			—			—			—			58,041
Cash flows from investing activities:
Change in restricted cash		(660	)		—			—			—			—			(660	)
Proceeds from sale of short-term investments		50,000			—			—			—			—			50,000
Proceeds from receipt of note receivable		1,788			—			—			—			—			1,788
Acquisition of Timothy's Coffee of the World Inc.		(154,208	)		—			—			—			—			(154,208	)
Acquisition of Tully's Coffee Corporation		—			—			—			—			—			—
Acquisition of Diedrich Coffee, Inc.		(305,261	)		—			—			—			—			(305,261	)
Purchases of short-term investments		—			—			—			—			—			—
Capital expenditures for fixed assets		(84,386	)		—			—			—			—			(84,386	)
Proceeds from disposal of fixed assets		253			—			—			—			—			253
Net cash used for investing activities		(492,474	)		—			—			—			—			(492,474	)
Cash flows from financing activities:
Net change in revolving line of credit		57,001			—			—			—			—			57,001
Proceeds from issuance of common stock under compensation plans		4,127			—			—			—			—			4,127
Proceeds from issuance of common stock for public equity offering		—			—			—			—			—			—
Financing costs in connection with public equity offering		—			—			—			—			—			—
Excess tax benefits from equity-based compensation plans		5,626			—			—			—			—			5,626
Capital lease obligations		(42	)		—			—			—			—			(42	)
Proceeds from borrowings of long-term debt		140,000			—			—			—			—			140,000
Deferred financing fees		(1,359	)		—			—			—			—			(1,359	)
Repayment of long-term debt		(3,750	)		—			—			—			—			(3,750	)
Net cash provided by financing activities		201,603			—			—			—			—			201,603
Net (decrease) in cash and cash equivalents		(232,830	)		—			—			—			—			(232,830	)
Cash and cash equivalents at beginning of period		241,811			—			—			—			—			241,811
Cash and cash equivalents at end of period	$	8,981		$	—		$	—		$	—		$	—		$	8,981
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable and not disbursed at the end of each year	$	12,549		$	—		$	—		$	—		$	—		$	12,549
Noncash investing activity:
Liabilities assumed in conjunction with acquisitions	$	1,533		$	—		$	—		$	—		$	—		$	1,533