FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the twelve weeks ended April 11, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to ____________
Commission file number 1-12340
GREEN MOUNTAIN COFFEE, INC.
(Exact name of registrant as specified in its charter)
Delaware 03-0339228
----------------------------------- ----------------------------------
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
33 Coffee Lane, Waterbury,
Vermont 05676 (Address of principal
executive offices) (zip code)
(802) 244-5621
-----------------------------------------------------
(Registrant's telephone number, including area code)
____________________________________________________________________
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
As of May 15, 1998, 3,530,818 shares of common stock of the registrant were
outstanding.
<PAGE>
Part I. Financial Information
Item I. Financial Statements
GREEN MOUNTAIN COFFEE, INC.
Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
April 11, September 27,
1998 1997
----------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................................. $ 794 $ 831
Receivables, less allowances of $115 at April 11, 1998
and $116 at September 27,1997 ................................... 4,437 4,119
Inventories............................................................... 5,751 5,224
Other current assets...................................................... 658 376
Deferred income taxes,net ................................................ 866 865
-------- --------
Total current assets ............................................ 12,506 11,415
Fixed assets, net......................................................... 12,054 11,258
Other long-term assets.................................................... 417 385
Deferred income taxes,net ................................................ 740 486
-------- --------
$ 25,717 $ 23,544
======== ========
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt ..................................... $ 265 $ 943
Current portion of obligation under capital lease ..................... 69 132
Accounts payable....................................................... 3,634 4,954
Accrued payroll........................................................ 624 616
Accrued expenses....................................................... 227 279
-------- --------
Total current liabilities......................................... 4,819 6,924
-------- --------
Long-term debt............................................................ 5,154 1,968
-------- --------
Obligation under capital lease ........................................... - 12
-------- --------
Long-term line of credit.................................................. 5,372 3,985
-------- --------
Commitments
Stockholders' equity:
Common stock, $0.10 par value: 353 353
Authorized - 10,000,000 shares; issued and outstanding -
3,530,818 shares at April 11, 1998 and September 27, 1997.
Additional paid-in capital............................................. 12,954 12,954
Accumulated deficit.................................................... (2,935) (2,652)
-------- --------
Total stockholders'equity.............................................. 10,372 10,655
-------- --------
$ 25,717 $ 23,544
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Operations
(Dollars in thousands except per share data)
<TABLE>
Twelve weeks ended
---------------------------------------
April 11, April 12,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
Net sales.............................................. $ 13,660 $ 10,063
Cost of sales.......................................... 9,152 5,881
----------- -----------
Gross profit....................................... 4,508 4,182
Selling and operating expenses......................... 3,946 3,063
General and administrative expenses ................... 988 765
Loss on abandonment of fixed assets ................... 81 218
----------- -----------
Income (loss) from operations ..................... (507) 136
Other income (expense)................................. 4 (2)
Interest expense....................................... (193) (107)
----------- -----------
Income (loss) before income taxes ................. (696) 27
Income tax benefit .................................... 309 552
----------- -----------
Net income (loss) ..................................... $ (387) $ 579
=========== ===========
Net income (loss) per share - basic .................... $ (0.11) $ 0.17
=========== ===========
Weighted average shares ............................... 3,530,818 3,417,306
=========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Operations
(Dollars in thousands except per share data)
<TABLE>
Twenty-eight weeks ended
-------------------------------------------
April 11, April 12,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
Net sales............................................. $ 32,136 $ 24,475
Cost of sales.......................................... 21,231 14,526
----------- -----------
Gross profit...................................... 10,905 9,949
Selling and operating expenses........................ 8,778 6,846
General and administrative expenses................... 2,211 1,738
Loss on abandonment of fixed assets .................. 81 218
----------- -----------
Income (loss) from operations..................... (165) 1,147
Other income (expense)................................. 39 (2)
Interest expense....................................... (407) (251)
----------- -----------
Income (loss) before income taxes................. (533) 894
Income tax benefit..................................... 250 407
----------- -----------
Net income (loss)...................................... $ (283) $ 1,301
=========== ===========
Net income (loss) per share - basic.................... $ (0.08) $ 0.38
=========== ===========
Weighted average shares................................ 3,530,818 3,417,306
=========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements are anintegral part of these financial statements.
</FN>
</TABLE>
<PAGE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
Twenty-eight weeks ended
--------------------------------------
April 11, April 12,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ (283) $1,301
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................... 1,456 1,274
Loss on disposal of fixed assets ................................ 52 254
Provision for doubtful accounts ................................. 129 72
Deferred income taxes ........................................... (255) (461)
Changes in assets and liabilities:
Receivables ................................................. (447) (260)
Inventories ................................................ (527) (364)
Other current assets ....................................... (282) (141)
Other long-term assets, net ................................ (32) (134)
Accounts payable ........................................... (1,320) 43
Accrued payroll ............................................ 8 (11)
Accrued expenses ........................................... (52) 232
------ ------
Net cash provided by (used for) operating activities ....... (1,553) 1,805
------ ------
Cash flows from investing activities:
Expenditures for fixed assets ...................................... (2,409) (2,954)
Proceeds from disposals of fixed assets ............................ 105 43
------ ------
Net cash used for investing activities ..................... (2,304) (2,911)
------ ------
Cash flows from financing activities:
Issuance of long-term debt ......................................... 4,500 -
Repayment of long-term debt ........................................ (1,992) (552)
Principal payments under capital lease obligation .................. (75) (64)
Net change in revolving line of credit ............................. 1,387 2,112
------ ------
Net cash provided by financing activities 3,820 1,496
------ ------
Net increase (decrease) in cash and cash equivalents ................. (37) 390
Cash and cash equivalents at beginning of period ..................... 831 551
------ ------
Cash and cash equivalents at end of period ........................... $ 794 $ 941
====== ======
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Green Mountain Coffee, Inc.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-Q, and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements.
In the opinion of management, all adjustments considered necessary for
a fair statement of the interim financial data have been included.
Results from operations for the twelve week period ended April 11, 1998
are not necessarily indicative of the results that may be expected for
the fiscal year ending September 26, 1998.
For further information, refer to the consolidated financial statements
and the footnotes included in the annual report on Form 10-K for Green
Mountain Coffee, Inc. for the year ended September 27, 1997.
Basic net income per share is computed based upon the weighted average
number of common shares outstanding during the period.
2. Inventories
Inventories consist of the following:
<TABLE>
April 11, September 27,
1998 1997
-------------- --------------
<S> <C> <C>
Raw materials and supplies $ 2,922,000 $ 2,148,000
Finished goods 2,829,000 3,076,000
----------- ------------
$ 5,751,000 $ 5,224,000
=========== ============
</TABLE>
3. Fixed Assets
The Company recently closed one of its company-owned retail stores and
moved two other stores to other available space nearby. These events
led to the abandonment of certain fixed assets with a net book value
of $81,000 (net of cash proceeds of $10,000) during the twelve week
period ended April 11, 1998. During the same fiscal quarter last year,
the Company embarked on an expansion of its central plant and
distribution facility in order to increase capacity and streamline
operations. In connection with that program, certain fixed assets with
a net book value of $218,000 were abandoned for no proceeds.
At the end of fiscal 1996, the Company began a project to implement an
enterprise information system to support its information processing and
access needs. Capitalized costs are amortized over the estimated useful
life beginning when each site installation or module is complete and
ready for its intended use. In connection with the implementation of
the enterprise information system, certain costs considered to be
business process reengineering were expensed as incurred.
4. Line of Credit
On February 20, 1998, the Company amended its credit facility with
Fleet Bank - NH ("Fleet"). Under the revised facility, the line of
credit has been expanded from $6,000,000 to $9,000,000 (the
availability of which is subject to the Company's accounts receivable
and inventory levels) and the term was extended to March 31, 2001.
Under the amended facility, the Company was also able to borrow up to
$4,500,000 in term debt with a maturity of March 31, 2003. Borrowings
under this term revolver do not require principal repayments until
October 31, 1999, at which time monthly principal payments of $75,000
will commence. Interest rates for the entire facility will be equal to
the lower of Fleet's base rate or a margin added to LIBOR rates based
on a performance pricing structure. At April 11, 1998, the outstanding
balances on the line of credit and on the term revolver were $5,372,000
and $4,500,000, respectively. The Company's agreement with Fleet
contains various financial covenants. At April 11, 1998, the Company
was in violation of a maximum funded debt to cash flow ratio covenant.
This covenant was waived by Fleet for the second fiscal quarter of
1998. The Company believes that it will comply with all of its
covenants beginning with the third quarter of fiscal 1998.
5. Earnings per share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share". SFAS 128 establishes new standards for computing
and presenting earnings per share and was effective beginning with the
Company's first 1998 fiscal quarter. SFAS 128 requires restatement of
all previously reported earnings per share data that are presented.
SFAS 128 replaces primary and fully diluted earnings per share with
basic and diluted earnings per share. Diluted earnings per share, based
upon 3,447,999 shares and 3,445,838 shares for the twelve weeks and
twenty-eight weeks ended April 12, 1997 respectively, are not
materially different from basic earnings per share information
presented herein. Diluted earnings per share information for the twelve
and twenty-eight weeks ended April 11, 1998 is not presented as the
shares underlying outstanding options and warrants, 8,967 and 14,456
respectively, would have an anti-dilutive effect because of the net
loss.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
For the twenty-eight weeks ended April 11, 1998, Green Mountain Coffee, Inc.
(the "Company" or "Green Mountain") derived approximately 87.1% of its net sales
from its wholesale operation. Green Mountain's wholesale operation sells coffee
to retailers and food service concerns including supermarkets, restaurants,
convenience stores, specialty food stores, hotels, universities and business
offices. The Company also operated eleven retail stores and a direct mail
operation, which accounted for approximately 7.2% and 5.7% of net sales,
respectively, during the same period.
Cost of sales consists of the cost of raw materials including coffee beans,
flavorings and packaging materials, a portion of the Company's rental expense,
the salaries and related expenses of production and distribution personnel,
depreciation on production equipment and freight and delivery expenses. Selling
and operating expenses consist of expenses that directly support the sales of
the Company's wholesale, retail or direct mail channels, including media and
advertising expenses, a portion of the Company's rental expense, and the
salaries and related expenses of employees directly supporting sales. General
and administrative expenses consist of expenses incurred for corporate support
and administration, including a portion of the Company's rental expense and the
salaries and related expenses of personnel not elsewhere categorized.
The Company's fiscal year ends on the last Saturday in September. The Company's
fiscal year normally consists of 13 four-week periods with the first, second and
third "quarters" ending 16 weeks, 28 weeks and 40 weeks, respectively, into the
fiscal year.
Coffee Prices, Availability and General Risk Factors
Green coffee commodity prices are subject to substantial price fluctuations
caused by multiple factors. During fiscal 1997, the "C" price of coffee (the
price per pound quoted by the Coffee, Sugar and Cocoa Exchange) increased
dramatically. In May 1997, the "C" price reached a record high of over $3.00, up
from $1.04 on December 6, 1996. Since then, the "C" price of coffee has
generally declined, but remains high relative to historical levels. At April 9,
1998, the "C" price of coffee for May delivery was $1.46. In addition to the "C"
price, coffee of the quality sought by Green Mountain also tends to trade on a
negotiated basis at a substantial premium or "differential." Since December
1996, differentials have been volatile and generally rising.
The Company believes that the cost of green coffee will continue to be volatile
throughout fiscal 1998. Because Green Mountain holds coffee inventories and
fixes the price of some of its green coffee in advance, the effect of "C" price
fluctuations on the Company's cost of goods is generally delayed. There can be
no assurance that the Company will be successful in passing any increases in the
cost of green coffee on to customers without losses in sales volume or gross
margin. Similarly, rapid sharp decreases in the cost of green coffee could also
force the Company to lower sales prices before realizing cost reductions in its
green coffee inventory. Because Green Mountain roasts over 25 different types of
green coffee beans to produce its more than 50 varieties of coffee, if one type
of green coffee bean were to become unavailable or prohibitively expensive,
management believes Green Mountain could substitute another type of coffee of
equal or better quality, meeting a similar taste profile, in a blend or
temporarily remove that particular coffee from its product line. However,
frequent substitutions could lead to cost increases and fluctuations in gross
margins. Furthermore, a worldwide supply shortage of the high-quality arabica
coffees the Company purchases could have an adverse impact on the Company.
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. Owing to the uncertainties inherent in forward-looking
statements, actual results could differ materially from those set forth in
forward-looking statements. Factors that could cause actual results to differ
materially from those in the forward-looking statements include, but are not
limited to, business conditions in the coffee industry and food industry in
general, fluctuations in availability and cost of green coffee, economic
conditions, prevailing interest rates, competition, the management challenges of
rapid growth, variances from budgeted sales mix and growth rate, consumer
acceptance of the Company's new products, weather and special or unusual events,
as well as other risk factors described in the Company's Annual Report on Form
10-K for the year ended September 27, 1997 and other factors described from time
to time in the Company's filings with the Securities and Exchange Commission.
Forward-looking statements reflect management's analysis as of the date of this
document. The Company does not undertake to revise these statements to reflect
subsequent developments.
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
Twelve weeks ended Twenty-eight weeks ended
------------------------------- ----------------------------------
April 11, April 12, April 11, April 12,
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales:
Wholesale 89.1% 83.7% 87.1% 81.3%
Company-owned retail stores 6.1% 10.3% 7.2% 11.6%
Direct mail 4.8% 6.0% 5.7% 7.1%
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 67.0% 58.4% 66.1% 59.4%
Gross profit 33.0% 41.6% 33.9% 40.6%
Selling and operating expenses 28.9% 30.4% 27.3% 27.9%
General and administrative expenses 7.2% 7.6% 6.9% 7.1%
Loss on abandonment of fixed assets 0.6% 2.2% 0.2% 0.9%
Income (loss) from operations (3.7)% 1.4% (0.5)% 4.7%
Other income (expense) 0.0% 0.0% 0.1% 0.0%
Interest expense (1.4)% (1.1)% (1.3)% (1.0)%
Income (loss) before taxes (5.1)% 0.3% (1.7)% 3.7%
Income tax benefit 2.3% 5.5% 0.8% 1.7%
Net income (loss) (2.8)% 5.8% (0.9)% 5.4%
</TABLE>
TWELVE WEEKS ENDED APRIL 11, 1998 VERSUS TWELVE WEEKS ENDED APRIL 12, 1997
Net sales increased by $3,597,000, or 35.7%, from $10,063,000 for the twelve
weeks ended April 12, 1997 (the "1997 period") to $13,660,000 for the twelve
weeks ended April 11, 1998 (the "1998 period"). Coffee pounds sold, excluding
coffee pounds sold as beverages through Green Mountain's company-owned retail
stores, increased by approximately 420,000 pounds, or 30.0%, from approximately
1,398,000 pounds in the 1997 period to approximately 1,818,000 pounds in the
1998 period.
The net sales increase is attributable to the wholesale area in which net sales
increased by $3,748,000, or 44.5%, from $8,424,000 for the 1997 period to
$12,172,000 for the 1998 period. The wholesale net sales increase resulted from
growth in the number of wholesale accounts as well as the growth of certain
large accounts in the office coffee service, convenience store and supermarket
categories.
Company-owned retail stores net sales decreased $203,000, or 19.6%, from
$1,036,000 for the 1997 period to $833,000 for the 1998 period. The sales
decrease was primarily due to the loss of revenues from the Plattsburgh, New
York store, as the lease expired during the second quarter of fiscal 1998 and
was not renewed; the temporary closing, for half of the 1998 period, of the
Latham, New York store due to the redevelopment of the retail center in which it
is situated; and general year-over-year decline in same stores sales due to the
cannibalization of sales by the Company's wholesale operation and other
competitive factors. The Company is in the process of re-assessing the role of
its remaining eleven company-owned retail locations in the context of its
overall growth strategy.
Net sales in the direct mail area increased $52,000, or 8.6%, from $603,000 for
the 1997 period to $655,000 for the 1998 period.
Gross profit increased by $326,000, or 7.8%, from $4,182,000 for the 1997 period
to $4,508,000 for the 1998 period. As a percentage of net sales, gross profit
decreased 8.6 percentage points from 41.6% for the 1997 period to 33.0% for the
1998 period. Changes in sales channel mix and wholesale customer category mix,
as well as the mathematical impact of higher green coffee costs and higher sales
prices contributed to the decrease of the gross margin as a percentage of sales.
Company-owned retail sales, which generate a higher gross margin than the
wholesale operation, decreased substantially, as indicated above, in the 1998
period. Within the wholesale operation, the Company has also experienced a
customer category mix change with a higher percentage of sales to office coffee
distributors which carry lower gross margins. Although sales increased
significantly in the 1998 period, the volume increase was not sufficient to
offset the expected drop in gross profit as a percentage of sales and the
increase in operating expenses.
Selling and operating expenses increased by $883,000, or 28.8%, from $3,063,000
for the 1997 period to $3,946,000 for the 1998 period, in support of the
Company's strategic effort to increase its growth rate. The increase in selling
and operating expense was primarily due to increased sales and sales support
personnel expenses, as well as increased marketing and promotional expenses.
Selling and operating expenses decreased 1.5% as a percentage of sales from
30.4% for the 1997 period to 28.9% for the 1998 period.
General and administrative expenses increased by $223,000, or 29.2%, from
$765,000 for the 1997 period to $988,000 for the 1998 period, but decreased 0.4%
as a percentage of sales from 7.6% for the 1997 period to 7.2% for the 1998
period. The increase in general and administrative expenses is primarily related
to expenses in support of the Company's new enterprise information system.
At the beginning of the 1998 fiscal year, the Company started to re-evaluate the
role of its retail operation in the context of its overall growth strategy.
Although the retail operation generates a higher gross profit as a percentage of
sales than Green Mountain's wholesale business, it does not benefit from the
same economies of scale in selling and operating expenses, and no longer
generates positive cash flow for the Company. It was decided that one of the
stores, for which the lease was expiring in the 1998 period, would be closed.
Two other stores have been relocated since the beginning of the fiscal year to
nearby locations in an effort to enhance their long-term competitiveness. These
events led the Company to abandon certain fixed assets with a net book value of
$81,000 (net of cash proceeds of $10,000) during the 1998 period.
During the 1997 period, Green Mountain commenced the expansion of its central
production and distribution facility in Waterbury, Vermont. The Company recorded
a loss on abandonment of equipment of $218,000 during the 1997 period due to the
demolition of an old, adjacent office building and the redesign of the
production flow to be used in the expanded facility. This 45,000 square foot
expansion is now complete, and has been used for expanded warehousing and
distribution space since the beginning of the 1998 period, with roasting and
packaging machinery being added as needed. It is estimated that the addition
carries incremental annual occupancy costs of approximately $400,000.
Green Mountain is presently implementing an enterprise information system which
it expects to use to facilitate growth and improve operations and customer
service. This new enterprise information system also addresses Green Mountain's
core "Year 2000" issues. The additional project related personnel, depreciation
and software maintenance expenses (of approximately $1,000,000 for fiscal 1998)
is expected to continue to impact cost of goods sold as well as operating
expenses.
As a result of the foregoing, income from operations decreased by $643,000, or
472.8%, from $136,000 in income from operations for the 1997 period to a loss
from operations of $507,000 for the 1998 period.
Interest expense increased by $86,000, or 80.4%, from $107,000 for the 1997
period to $193,000 for the 1998 period as a result of additional borrowings to
fund working capital needs and capital expenditures in support of the Company's
growth. As part of the working capital needs, the Company made a decision during
the 1998 period to purchase a larger supply of its green coffee directly from
farms on a "due upon receipt" basis to guarantee supply and quality, thereby
reducing the level of accounts payable.
The income tax benefit recognized under SFAS 109 was $309,000 in the 1998 period
compared to $552,000 for the 1997 period. The Company reduced its deferred tax
asset valuation allowance by $562,000 during the 1997 period because based on
the weight of available evidence, as prescribed by SFAS 109, Green Mountain was
more likely than not to realize a large amount of its deferred tax assets.
Net income decreased by $966,000, or 166.8%, from a net income of $579,000 for
the 1997 period to a net loss of $387,000 in the 1998 period.
TWENTY-EIGHT WEEKS ENDED APRIL 11, 1998 VERSUS TWENTY-EIGHT WEEKS ENDED APRIL
12, 1997
Net sales increased by $7,661,000, or 31.3%, from $24,475,000 for the
twenty-eight weeks ended April 12, 1997 (the "1997 YTD period") to $32,136,000
for the twenty-eight weeks ended April 11, 1998 (the "1998 YTD period"). Coffee
pounds sold, excluding coffee pounds sold as beverages through the Company's
company-owned retail stores, increased by approximately 759,000 pounds, or
22.3%, from approximately 3,398,000 pounds in the 1997 YTD period to
approximately 4,157,000 pounds in the 1998 YTD period. The difference between
the percentage increase in net sales and the percentage increase in coffee
pounds relates primarily to increases in Green Mountain's selling prices for
coffee during the second and third quarters of fiscal 1997.
The net sales increase is attributable to the wholesale area in which net sales
increased by $8,086,000, or 40.7%, from $19,891,000 for the 1997 YTD period to
$27,977,000 for the 1998 YTD period. The wholesale net sales increase resulted
from growth in the number of wholesale accounts as well as the growth of certain
large accounts in the office coffee service, convenience store and supermarket
categories.
Gross profit increased by $956,000, or 9.6%, from $9,949,000 for the 1997 YTD
period to $10,905,000 for the 1998 YTD period. As a percentage of net sales,
gross profit declined 6.7 percentage points from 40.6% for the 1997 YTD period
to 33.9% for the 1998 YTD period. The decrease as a percentage of sales is
primarily due to the mathematical impact of higher prices and higher green
coffee costs as well as a change in sales channel mix and wholesale customer
category mix.
Selling and operating expenses increased by $1,932,000, or 28.2%, from
$6,846,000 for the 1997 YTD period to $8,778,000 for the 1998 YTD period.
Selling and operating expenses decreased 0.6 percentage points as a percentage
of sales from 27.9% for the 1997 YTD period to 27.3% for the 1998 YTD period.
The increase in selling and operating expense as a percentage of sales was
primarily due to added personnel expenses and promotional expenses to support
the Company's increased growth plans.
General and administrative expenses increased by $473,000, or 27.2%, from
$1,738,000 for the 1997 YTD period to $2,211,000 for the 1998 YTD period,
representing a decrease of 0.2 percentage points as a percentage of sales from
7.1% for the 1997 YTD period to 6.9% for the 1998 YTD period. The increase in
general and administrative expenses was primarily due to added personnel and
expenses related to the implementation of the Company's new enterprise
information system.
Income from operations decreased by $1,312,000, or 114.4%, from $1,147,000 in
income from operations for the 1997 YTD period to a loss from operations of
$165,000 for the 1998 YTD period.
The income tax benefit recognized under SFAS 109 was $250,000 in the 1998 YTD
period compared to $407,000 in the 1997 YTD period. The income tax benefit in
the 1997 YTD period occurred due to the reduction in the Company's deferred tax
asset valuation allowance as discussed above.
Net income decreased by $1,584,000, or 121.8%, from a net income of $1,301,000,
or $0.38 per share for the 1997 YTD period to a net loss of $283,000, or $(0.08)
per share, for the 1998 YTD period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $3,196,000 from $4,491,000 at September 27, 1997 to
$7,687,000 at April 11, 1998. This increase is primarily related to higher
inventories due to increased sales; lower accounts payable due to the prepayment
of certain green coffee purchases; and the reduction of the current portion of
long-term debt due to the amendment of the Company's credit facility (see
below).
Cash used for capital expenditures aggregated $2,409,000 during the 1998 YTD
period, and included $803,000 for equipment loaned to wholesale customers,
$909,000 for leasehold improvements and fixtures, $288,000 for production
equipment, and $342,000 for computer hardware and software. During the 1997 YTD
period, Green Mountain had capital expenditures of $2,954,000, including
$557,000 for equipment on loan to wholesale customers, $479,000 for production
and distribution equipment and $1,517,000 for computer hardware and software.
Cash used to fund capital expenditures in the 1998 period was obtained from net
cash provided by financing activities.
The Company currently plans to make capital expenditures in fiscal 1998 of
approximately $4,200,000. Management continuously reviews capital expenditure
needs and actual amounts expended may differ from these estimates.
On February 20, 1998, the Company amended its credit facility with Fleet Bank -
NH ("Fleet"). Under the revised facility, the line of credit has been expanded
from $6,000,000 to $9,000,000 (the availability of which is subject to the
Company's accounts receivable and inventory levels) and the term was extended to
March 31, 2001. At April 11, 1998, the total availability under the line of
credit was $6,219,000 and the outstanding balance was $5,372,000. Under the
amended facility, the Company was also able to borrow up to $4,500,000 in term
debt with a maturity of March 31, 2003. Borrowings under this term revolver do
not require principal repayments until October 31, 1999, at which time monthly
principal payments of $75,000 will commence. At April 11, 1998, $4,500,000 of
this term debt was outstanding. Interest rates for the entire facility will be
equal to the lower of Fleet's base rate or a margin (of 2.5% for the line of
credit and 2.75% for the term debt at April 11, 1998) added to LIBOR rates based
on a quarterly performance pricing structure. The Company's agreement with Fleet
contains various financial covenants. At April 11, 1998, the Company was in
violation of a maximum funded debt to cash flow ratio covenant. This covenant
was waived by Fleet for the second fiscal quarter of 1998. The Company believes
that it will comply with all of its covenants beginning with the third quarter
of fiscal 1998.
Management believes that cash flow from operations, existing cash and available
borrowings under its credit facility and other sources will provide sufficient
liquidity to pay its liabilities in the normal course of business, fund capital
expenditures and service debt requirements in fiscal 1998.
YEAR 2000
Management has assembled a task force and is in the process of completing its
assessment of the impact of the Year 2000 problem on its operational and
financial reporting systems and has developed a plan to correct critical systems
before they fail. Management expects to have addressed most issues pertaining to
the Year 2000 issue by the beginning of fiscal 1999. However, the Company can
give no assurance that this will occur, and failure to make appropriate systems
changes successfully and on time could have a material adverse impact on the
Company's operations. The Company is also assessing the possible effects of Year
2000 issues on its significant vendors and customers, which could in turn affect
the Company's operations.
DEFERRED INCOME TAXES
The Company had net deferred tax assets of $1,606,000 at April 11, 1998. These
assets are reported net of a deferred tax asset valuation allowance at that date
of $2,380,000 (including $2,306,000 primarily related to a Vermont investment
tax credit). Presently, the Company believes that the deferred tax assets, net
of deferred tax liabilities and the valuation allowance, are realizable and
represent management's best estimate, based on the weight of available evidence
as prescribed in SFAS 109, of the amount of deferred tax assets which most
likely will be realized. However, management will continue to evaluate the
amount of the valuation allowance based on near-term operating results and
longer-term projections.
FACTORS AFFECTING QUARTERLY PERFORMANCE
Historically, the Company has experienced significant variations in sales from
quarter to quarter due to the holiday season and a variety of other factors,
including, but not limited to, general economic trends, the cost of green
coffee, competition, marketing programs, weather and special or unusual events.
Because of the seasonality of the Company's business, results for any quarter
are not necessarily indicative of the results that may be achieved for the full
fiscal year.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Registrant held its 1998 Annual Meeting of Stockholders on
March 20, 1998 at its offices in Waterbury, Vermont. The Board of Directors of
the Registrant solicited proxies for this meeting pursuant to a proxy statement
filed under Regulation 14A.
(b-c) At the Annual Meeting the stockholders voted as follows on the
following matter:
Election of Directors
VOTES
Nominee For Withheld Broker Nonvotes
Robert P. Stiller 3,328,957 14,178 0
Robert D. Britt 3,329,172 13,963 0
Stephen J. Sabol 3,328,957 14,178 0
Jonathan C. Wettstein 3,328,898 14,237 0
Jules del Vecchio 3,326,608 16,527 0
David F. Moran 3,330,172 12,963 0
William D. Davis 3,327,772 15,363 0
Ms. Debra J. Kelly-Ennis, named in the Company's 1998 Proxy Statement
as a nominee for the Board of Directors, withdrew her name from nomination
shortly before the Annual Meeting. She withdrew owing to a potential conflict of
interest which service as a Director of the Company might have posed with new
employment (with an unrelated company) she accepted after the Company
distributed the Proxy Statement. The Board of Directors has begun a search for
another candidate to fill the vacancy left by Mr. Ian A. Murray's resignation
from the Board earlier this year. The Board expects to use its authority under
the Company's Bylaws to fill the vacancy until the 1999 Annual Meeting of
Stockholders.
(d) None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the twelve weeks ended April 11,
1998.
(1)Incorporated by reference to the corresponding exhibit number in the
Registration Statement on Form SB-2 (Registration No. 33-66646) filed on July
28, 1993, and declared effective on September 21, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREEN MOUNTAIN COFFEE, INC.
Date: 5/22/98 By: /s/ Robert P. Stiller
---------------- ----------------------------------------------
Robert P. Stiller,
President and Chief Executive Officer
Date: 5/22/98 By: /s/ Robert D. Britt
-------------- ----------------------------------------------
Robert D. Britt,
Chief Financial Officer,
Treasurer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet dated 4/11/98 and the Statement of Operations for the twelve
weeks ended 4/11/98 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> JAN-12-1998
<PERIOD-END> APR-11-1998
<CASH> 794
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<DEPRECIATION> 9,547
<TOTAL-ASSETS> 25,717
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<BONDS> 10,526
0
0
<COMMON> 353
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<INCOME-PRETAX> (696)
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