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 10, 1999
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
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GREEN MOUNTAIN COFFEE, INC.
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(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
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(Address of principal executive offices) (zip code)
(802) 244-5621
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(Registrant's telephone number, including area code)
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(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 20, 1999, 3,487,335 shares of common stock of the registrant were
outstanding.
Part I. Financial Information
Item I. Financial Statements
GREEN MOUNTAIN COFFEE, INC.
Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<S> <C> <C>
April 10, September 26,
1999 1998
------------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents.......................................... $ 569 $ 777
Receivables, less allowances of $232 at April 10, 1999
and $378 at September 26, 1998.................................... 5,268 4,789
Inventories....................................................... 5,486 5,636
Other current assets.............................................. 519 489
Loans to officers................................................. 412 185
Deferred income taxes, net........................................ 902 880
------------- -------------
Total current assets......................................... 13,156 12,756
Fixed assets, net..................................................... 10,418 10,800
Other long-term assets................................................ 265 270
Deferred income taxes, net............................................ 487 737
------------- -------------
Total assets.......................................................... $ 24,326 $ 24,563
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt.................................. $ 247 $ 249
Current portion of obligation under capital lease.................. - 12
Accounts payable................................................... 4,156 3,131
Accrued payroll.................................................... 749 827
Accrued expenses................................................... 452 507
Accrued losses and other costs of discontinued operations, net..... 145 178
------------- -------------
Total current liabilities..................................... 5,749 4,904
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Long-term debt........................................................ 4,906 5,041
------------- -------------
Long-term line of credit.............................................. 3,476 5,150
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Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value:
Authorized - 10,000,000 shares; issued- 3,567,453 shares and 3,545,841
shares at April 10, 1999 and September 26, 1998, respectively...... 357 355
Additional paid-in capital......................................... 13,115 13,018
Accumulated deficit................................................ (2,783) (3,868)
Treasury shares, at cost:
80,118 shares and 7,350 shares at April 10, 1999 and September 26,
1998, respectively................................................. (494) (37)
------------- -------------
Total stockholders' equity......................................... 10,195 9,468
------------- -------------
Total liabilities and stockholders' equity.................... $ 24,326 $ 24,563
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
</FN>
</TABLE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Operations
(Dollars in thousands except per share data)
<TABLE>
Twelve weeks ended
--------------------------------
April 10, 1999 April 11, 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Net sales............................................................ $ 14,452 $ 12,826
Cost of sales........................................................ 8,892 8,783
-------------- --------------
Gross profit..................................................... 5,560 4,043
Selling and operating expenses...................................... 3,711 3,291
General and administrative expenses.................................. 1,103 988
-------------- --------------
Operating income (loss).......................................... 746 (236)
Other income......................................................... 7 4
Interest expense..................................................... (175) (193)
-------------- --------------
Income (loss) from continuing operations before income taxes..... 578 (425)
Income tax (expense) benefit......................................... (220) 201
-------------- --------------
Income (loss) from continuing operations......................... 358 (224)
Discontinued operations:
Income (loss) from discontinued retail stores operations,
net of income tax expense of $114,000 for the 1999 period
and net of income tax benefit of $108,000 for the 1998 period... 186 (163)
-------------- --------------
Net income (loss)............................................... $ 544 $ (387)
============== ==============
Basic income (loss) per share:
Weighted average shares outstanding 3,483,044 3,530,818
Income (loss) from continuing operations $ 0.10 $ (0.06)
Income (loss) from discontinued operations $ 0.06 $ (0.05)
-------------- --------------
Net income (loss) $ 0.16 $ (0.11)
============== ==============
Diluted income (loss) per share:
Weighted average shares outstanding 3,537,410 3,530,818
Income (loss) from continuing operations $ 0.10 $ (0.06)
Income (loss) from discontinued operations $ 0.05 $ (0.05)
-------------- --------------
Net income (loss) $ 0.15 $ (0.11)
============== ==============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
</FN>
</TABLE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Operations
(Dollars in thousands except per share data)
<TABLE>
Twenty-eight weeks ended
---------------------------------
April 10, 1999 April 11, 1998
--------------- --------------
(unaudited)
<S> <C> <C>
Net sales............................................................ $ 34,520 $ 29,803
Cost of sales....................................................... 21,432 20,164
-------------- --------------
Gross profit..................................................... 13,088 9,639
Selling and operating expenses....................................... 8,679 7,195
General and administrative expenses.................................. 2,502 2,211
-------------- --------------
Operating income................................................. 1,907 233
Other income......................................................... 11 39
Interest expense..................................................... (475) (407)
-------------- --------------
Income (loss) from continuing operations before income taxes..... 1,443 (135)
Income tax (expense) benefit ........................................ (544) 91
-------------- --------------
Income (loss) from continuing operations......................... 899 (44)
Discontinued operations:
Income (loss) from discontinued retail stores operations,
net of income tax expense of $114 and income tax benefit of $159 for
the 1999 YTD period and the 1998 YTD period, respectively........ 186 (239)
-------------- --------------
Net income (loss)................................................ $ 1,085 $ (283)
============== ==============
Basic income (loss) per share:
Weighted average shares outstanding 3,501,446 3,530,818
Income (loss) from continuing operations $ 0.25 $ (0.01)
Income (loss) from discontinued operations $ 0.06 $ (0.07)
-------------- --------------
Net income (loss) $ 0.31 $ (0.08)
============== ==============
Diluted income (loss) per share:
Weighted average shares outstanding 3,523,955 3,530,818
Income (loss) from continuing operations $ 0.25 $ (0.01)
Income (loss) from discontinued operations $ 0.06 $ (0.07)
-------------- --------------
Net income (loss) $ 0.31 $(0.08)
============== ==============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
</FN>
</TABLE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
Twenty-eight weeks ended
--------------------------------
April 10, 1999 April 11, 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $ 1,085 $ (283)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss (income) from discontinued operations................... (186) 239
Depreciation and amortization................................ 1,587 1,328
Gain on disposal of fixed assets............................. - 52
Provision for doubtful accounts.............................. 157 129
Stock options compensation expense........................... 2 -
Deferred income taxes....................................... 228 (414)
Changes in assets and liabilities:
Receivables............................................. (636) (447)
Inventories............................................. 150 (527)
Other current assets.................................... (283) (282)
Other long-term assets, net............................ (45) (32)
Accounts payable........................................ 1,025 (1,320)
Accrued payroll........................................ (78) 8
Accrued expenses....................................... (55) (52)
-------------- --------------
Net cash provided by (used for) continuing operations... 2,951 (1,601)
Net cash provided by discontinued operations............ 70 48
-------------- --------------
Net cash provided by (used for) operating activities.... 3,021 (1,553)
Cash flows from investing activities:
Capital expenditures for fixed assets............................. (1,262) (2,165)
Capital expenditures for discontinued operations.................. - (244)
Proceeds from disposals of fixed assets........................... 57 105
Proceeds from disposal of discontinued operations................. 158 -
-------------- --------------
Net cash used for investing activities................. (1,047) (2,304)
-------------- --------------
Cash flows from financing activities:
Purchase of treasury shares....................................... (457) -
Proceeds from issuance of common stock............................ 96 -
Proceeds from issuance of long-term debt.......................... - 4,500
Repayment of long-term debt....................................... (135) (1,992)
Principal payments under capital lease obligation................. (12) (75)
Net change in revolving line of credit............................ (1,674) 1,387
-------------- --------------
Net cash provided by (used for) financing activities.... (2,182) 3,820
-------------- --------------
Net decrease in cash and cash equivalents............................ (208) (37)
Cash and cash equivalents at beginning of period..................... 777 831
-------------- --------------
Cash and cash equivalents at end of period........................... $ 569 $ 794
============== ==============
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
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 10, 1999
are not necessarily indicative of the results that may be expected for
the fiscal year ending September 25, 1999.
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 26, 1998.
2. Inventories
Inventories consist of the following:
April 10, September 26,
1999 1998
-------------- ---------------
Raw materials and supplies..... $ 3,074,000 $ 2,832,000
Finished goods................. 2,412,000 2,804,000
------------ ------------
$ 5,486,000 $ 5,636,000
============ ============
3. Discontinued Company-Owned Retail Store Operations
On May 29, 1998, the Company announced that it had adopted a plan to
discontinue its company-owned retail store operations. The Company has
closed all of its retail stores as of April 10, 1999. Accordingly, the
retail stores are reported as discontinued operations for all periods
presented. Under generally accepted accounting principles, the
operating results of such operations are being segregated from the
continuing operations and reported separately on the statement of
operations.
The estimated loss on disposal of the retail store operations of
$1,259,000 (net of a tax benefit of $834,000) was included in the third
quarter of fiscal 1998 results. The pre-tax loss on disposal of
$2,093,000 consisted of an estimated loss on disposal of the business
of $1,692,000 and a provision of $401,000 for anticipated losses from
May 29, 1998 (the measurement date) until disposal. The loss on
disposal includes provisions for estimated lease termination costs,
write-off of leasehold improvements and other fixed assets, severance
and employee benefits. During the second quarter of fiscal 1999, the
Company revised its estimated pre-tax loss on disposal and reversed
$300,000 of the original estimate, primarily due to larger than
expected proceeds from the sale of fixed assets and lower lease
termination costs.
Net sales from the retail store operations were $207,000 and $2,227,000
for the twenty-eight weeks ended April 10, 1999 and April 11, 1998,
respectively. The loss from operations of the discontinued operations
from May 29, 1998 through April 10, 1999 approximated the provision for
anticipated losses recorded in fiscal 1998. Net proceeds from the sale
of retail assets totaled $68,000 in the second quarter of fiscal 1999,
$86,000 in the first quarter of fiscal 1999, and $118,000 in fiscal
1998.
The assets and liabilities of the discontinued retail operations at
April 10, 1999 are reflected as a net current liability in the
accompanying consolidated balance sheet. The net liabilities of the
discontinued operations in the April 10, 1999 accompanying consolidated
balance sheet are summarized as follows:
<TABLE>
<S> <C>
Current assets, net............................................................... $ 87,000
Fixed assets, net................................................................. 46,000
Deferred tax assets, net.......................................................... 155,000
Estimated accrued losses and other costs on disposal of discontinued operations... (433,000)
-----------
Net accrued losses and other costs of discontinued operations, net................ $ (145,000)
===========
</TABLE>
4. Earnings per share
The following table illustrates the reconciliation of the numerator and
denominator of basic and diluted income per share from continuing
operations computations as required by SFAS No. 128 (dollars in
thousands, except share and per share data):
<TABLE>
Twelve weeks ended Twenty-eight weeks ended
---------------------------- ----------------------------
April 10, April 11, April 10, April 11,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator - basic and diluted earnings per
share :
Net income (loss) from continuing operations.... $ 358 $ (224) $ 899 $ (44)
============ ============ ============ ============
Denominator:
Basic earnings per share - weighted average
shares outstanding.............................. 3,483,044 3,530,818 3,501,446 3,530,818
Effect of dilutive securities - stock options... 54,366 - 22,509 -
============ ============ ============ ============
Diluted earnings per share - weighted average
shares outstanding.............................. 3,537,410 3,530,818 3,523,955 3,530,818
============ ============ ============ ============
Basic earnings per share........................ $ 0.10 $ (0.06) $ 0.25 $ (0.01)
Diluted earnings per share...................... $ 0.10 $ (0.06) $ 0.25 $ (0.01)
</TABLE>
For the twelve weeks ended April 10, 1999, options to purchase 291,083
shares of common stock at exercise prices ranging from $7.00 to $10.00
per share were outstanding but were not included in the computation of
diluted income per share because the options' exercise price was
greater than the market price of the common shares. These options were
still outstanding at April 10, 1999.
5. Derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This pronouncement
will require the Company to recognize derivatives on its balance sheet
at fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company
expects that this new standard will not have a significant effect on
its results of operations. SFAS 133 is effective for fiscal years
beginning after June 15, 1999, which is fiscal year 2000 for the
Company.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
--------
For the twenty-eight weeks ended April 10, 1999, Green Mountain Coffee,
Inc. (the "Company" or "Green Mountain") derived approximately 94.0% of
its net sales from its wholesale operation. Green Mountain's wholesale
operation sells coffee to retailers and food service concerns including
supermarkets, restaurants, convenience stores, specialty food stores,
hotels, universities and business offices. The Company's direct mail
operation accounted for approximately 6.0% of net sales during the same
period.
Cost of sales consists of the cost of raw materials including coffee
beans, flavorings and packaging materials, a portion of the Company's
rental expense, the salaries and related expenses of production and
distribution personnel, depreciation on production equipment and
freight and delivery expenses. Selling and operating expenses consist
of expenses that directly support the sales of the Company's wholesale
or direct mail channels, including media and advertising expenses, a
portion of the Company's rental expense, and the salaries and related
expenses of employees directly supporting sales. General and
administrative expenses consist of expenses incurred for corporate
support and administration, including a portion of the Company's rental
expense and the salaries and related expenses of personnel not
elsewhere categorized.
The Company's fiscal year ends on the last Saturday in September. The
Company's fiscal year normally consists of 13 four-week periods with
the first, second and third "quarters" ending 16 weeks, 28 weeks and 40
weeks, respectively, into the fiscal year.
Coffee Prices, Availability and General Risk Factors
----------------------------------------------------
Green coffee commodity prices are subject to substantial price
fluctuations, generally caused by multiple factors including weather,
political and economic conditions in certain coffee-producing countries
and other supply-related concerns. Since May 1997, when it reached
historical highs, the "C" price of coffee (the price per pound quoted
by the Coffee, Sugar and Cocoa Exchange) has generally been declining.
In response to this decline, the Company decreased its selling prices
in the first quarter of fiscal 1998, in the fourth quarter of fiscal
1998 and in the first quarter of fiscal 1999. Green coffee costs
generally continued to decline in the first half of fiscal 1999. The
Company believes that the "C" price of coffee will remain highly
volatile in future periods. In addition to the "C" price, coffee of the
quality sought by Green Mountain also tends to trade on a negotiated
basis at a substantial premium or "differential" above the "C" price.
These differentials are also subject to significant variations. There
can be no assurance that the Company will be successful in passing any
upward green coffee cost fluctuations on to the 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 60 varieties of coffee, if
one type of green coffee bean were to become unavailable or
prohibitively expensive, management believes Green Mountain could
substitute another type of coffee of equal or better quality, meeting a
similar taste profile, in a blend or temporarily remove that particular
coffee from its product line. However, frequent substitutions could
lead to cost increases and fluctuations in gross margins. Furthermore,
a worldwide supply shortage of the high-quality arabica coffees the
Company purchases could have an adverse impact on the Company. The
Company enters into fixed coffee purchase commitments in an attempt to
secure an adequate supply of quality coffees. To further reduce its
exposure to rising coffee costs, the Company, from time to time, enters
into futures contracts and buys options to hedge
price-to-be-established coffee purchase commitments.
Certain statements contained herein are not based on historical fact
and are "forward-looking statements" within the meaning of the
applicable securities laws and regulations. In addition, the Company's
representatives may from time to time make oral forward-looking
statements. Forward-looking statements provide current expectations of
future events based on certain assumptions and include any statements
that do not directly relate to any historical or current fact. Words
such as "anticipates", "believes", "expects", "estimates", "intends",
"plans", "projects", and similar expressions, may identify such
forward-looking statements. Owing to the uncertainties inherent in
forward-looking statements, actual results could differ materially from
those set forth in forward-looking statements. Factors that could cause
actual results to differ materially from those in the forward-looking
statements include, but are not limited to, business conditions in the
coffee industry and food industry in general, fluctuations in the
availability and cost of green coffee, the impact of the loss of one or
more major customers, economic conditions, prevailing interest rates,
the management challenges of rapid growth, variances from budgeted
sales mix and growth rate, consumer acceptance of the Company's new
products, the impact of a tighter job market, Year 2000 issues, 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 26, 1998, and other factors described from time to time in
the Company's other filings with the Securities and Exchange
Commission. Forward-looking statements reflect management's analysis as
of the date of this document. The Company does not undertake to revise
these statements to reflect subsequent developments.
Results of Operations
---------------------
<TABLE>
Twelve weeks ended Twenty-eight weeks ended
--------------------------------- --------------------------------
April 10, 1999 April 11, 1998 April 10, 1999 April 11, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales............................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales........................... 61.5 % 68.5 % 62.1 % 67.7 %
-------------- -------------- -------------- --------------
Gross profit 38.5 % 31.5 % 37.9 % 32.3 %
Selling and operating expenses.......... 25.7 % 25.6 % 25.1 % 24.1 %
General and administrative expenses..... 7.6 % 7.7 % 7.3 % 7.4 %
-------------- -------------- ------------- --------------
Operating income (loss)............ 5.2 % (1.8)% 5.5 % 0.8 %
Other income............................ 0.0 % 0.0 % 0.0 % 0.1 %
Interest expense........................ (1.2)% (1.5)% (1.3)% (1.3)%
--------------- -------------- ------------- --------------
Income (loss) from continuing
operations before taxes............ 4.0 % (3.3)% 4.2 % (0.4)%
Income tax (expense) benefit............ (1.5)% 1.6 % (1.6)% 0.3 %
-------------- -------------- ------------- --------------
Income (loss) from continuing
operations......................... 2.5 % (1.7)% 2.6 % (0.1)%
-------------- -------------- -------------- --------------
Income (loss) from discontinued
operations, net of tax
(expense) benefits...................... 1.3 % (1.3)% 0.5 % (0.8)%
-------------- -------------- -------------- --------------
Net income (loss).................. 3.8 % (3.0)% 3.1 % (0.9)%
=============== ============== ============== ==============
</TABLE>
Twelve Weeks Ended April 10, 1999 Versus Twelve Weeks Ended April 11,
-----------------------------------------------------------------------
1998
----
Net sales from continuing operations increased by $1,626,000, or 12.7%,
from $12,826,000 for the twelve weeks ended April 11, 1998 (the "1998
period") to $14,452,000 for the twelve weeks ended April 10, 1999 (the
"1999 period"). Coffee pounds sold from continuing operations increased
by approximately 244,000 pounds, or 13.7%, from approximately 1,786,000
pounds in the 1998 period to approximately 2,030,000 pounds in the 1999
period. The difference between the percentage increase in net sales and
the percentage increase in coffee pounds sold relates primarily to
decreases in Green Mountain's selling prices for coffee during fiscal
1998 and the first quarter of fiscal 1999 as a result of lower green
coffee costs.
The increase in net sales from continuing operations is attributable to
the wholesale area in which net sales increased by $1,551,000, or
12.7%, from $12,172,000 for the 1998 period to $13,723,000 for the 1999
period. The wholesale net sales increase resulted primarily from the
growth in certain large accounts in the supermarket and convenience
store categories.
Gross profit from continuing operations increased by $1,517,000, or
37.5%, from $4,043,000 for the 1998 period to $5,560,000 for the 1999
period. As a percentage of net sales, gross profit from continuing
operations increased 7.0 percentage points from 31.5% for the 1998
period to 38.5% for the 1999 period. The increase in gross profit as a
percentage of sales was due primarily to the lower green coffee costs.
Selling and operating expenses from continuing operations increased by
$420,000, or 12.8%, from $3,291,000 for the 1998 period to $3,711,000
for the 1999 period. Selling and operating expenses from continuing
operations increased 0.1 percentage point as a percentage of sales from
25.6% in the 1998 period to 25.7% in the 1999 period. The dollar
increase in selling and operating expense was primarily due to
increased sales personnel expenses, as well as increased advertising
and promotional expenses.
General and administrative expenses increased by $115,000, or 11.6%,
from $988,000 for the 1998 period to $1,103,000 for the 1999 period,
but decreased 0.1 percentage points as a percentage of sales from 7.7%
for the 1998 period to 7.6% for the 1999 period.
As a result of the foregoing, operating income from continuing
operations increased by $982,000, from an operating loss of $236,000
for the 1998 period to operating income of $746,000 for the 1999
period.
Interest expense decreased by $18,000, or 9.3%, from $193,000 for the
1998 period to $175,000 for the 1999 period. The decrease is due to the
reduction in long-term debt, which was made possible by positive cash
flows from operations over the past three fiscal quarters.
Income tax expense from continuing operations increased $421,000, from
a tax benefit of $201,000 for the 1998 period to a tax expense of
$220,000 for the 1999 period, as a result of the Company's increased
income from continuing operations. It is expected that the Company's
effective tax rate will approximate 38% for the remaining quarters of
fiscal 1999.
Income from continuing operations increased by $582,000, from a loss of
$224,000 for the 1998 period to income of $358,000 in the 1999 period.
During the 1998 period, the loss from discontinued operations was
$163,000 (net of income tax benefits of $108,000). In the third quarter
of fiscal 1998, the Company announced that it was discontinuing its
unprofitable retail store operation and recorded an estimated charge on
disposal of $1,259,000 (net of income tax benefits of $834,000). As of
April 10, 1999, the Company had closed all its retail stores. The
Company recorded a partial reversal of its original estimated loss on
disposal of $186,000 (net of income tax of $114,000), due to larger
than expected proceeds from the sale of assets and lower lease
termination costs.
Net income increased $931,000, from a net loss of $387,000 in the 1998
period to net income of $544,000 in the 1999 period.
Twenty-eight Weeks Ended April 10, 1999 Versus Twenty-eight Weeks Ended
-----------------------------------------------------------------------
April 11, 1998
--------------
Net sales from continuing operations increased by $4,717,000, or 15.8%,
from $29,803,000 for the twenty-eight weeks ended April 11, 1998 (the
"1998 YTD period") to $34,520,000 for the twenty-eight weeks ended
April 10, 1999 (the "1999 YTD period"). Coffee pounds sold from
continuing operations increased by approximately 731,000 pounds, or
18.0%, from approximately 4,072,000 pounds in the 1998 YTD period to
approximately 4,803,000 pounds in the 1999 YTD period. The difference
between the percentage increase in net sales and the percentage
increase in coffee pounds sold relates primarily to decreases in Green
Mountain's selling prices for coffee during fiscal 1998 and the first
quarter of fiscal 1999 as a result of lower green coffee costs.
The increase in net sales from continuing operations is attributable to
the wholesale area in which net sales increased by $4,487,000, or
16.0%, from $27,977,000 for the 1998 YTD period to $32,464,000 for the
1999 YTD period. The wholesale net sales increase resulted primarily
from the growth in certain large accounts in the supermarket,
convenience store and office coffee categories.
Gross profit from continuing operations increased by $3,449,000, or
35.8%, from $9,639,000 for the 1998 YTD period to $13,088,000 for the
1999 YTD period. As a percentage of net sales, gross profit from
continuing operations increased 5.6 percentage points from 32.3% for
the 1998 YTD period to 37.9% for the 1999 YTD period. The increase in
gross profit as a percentage of sales was due primarily to the lower
green coffee costs.
Selling and operating expenses from continuing operations increased by
$1,484,000, or 20.6%, from $7,195,000 for the 1998 YTD period to
$8,679,000 for the 1999 YTD period. Selling and operating expenses from
continuing operations increased by 1 percentage point as a percentage
of sales from 24.1% in the 1998 YTD period to 25.1% in the 1999 YTD
period. The increase in selling and operating expense was primarily due
to increased sales personnel expenses, as well as increased marketing
and promotional expenses.
General and administrative expenses increased by $291,000, or 13.2%,
from $2,211,000 for the 1998 YTD period to $2,502,000 for the 1999 YTD
period, but decreased 0.1 percentage points as a percentage of sales
from 7.4% for the 1998 YTD period to 7.3% for the 1999 YTD period.
As a result of the foregoing, operating income from continuing
operations increased by $1,674,000, or 718.5%, from $233,000 for the
1998 YTD period to $1,907,000 for the 1999 YTD period.
Interest expense increased by $68,000, or 16.7%, from $407,000 for the
1998 YTD period to $475,000 for the 1999 YTD period. The increase is
due to the increased long-term debt to finance the Company's
infrastructure investments in fiscal 1998.
Income tax expense from continuing operations increased $635,000, from
an income tax benefit of $91,000 for the 1998 YTD period to an income
tax expense of $544,000 for the 1999 YTD period.
Income from continuing operations increased by $943,000, from a loss of
$44,000 for the 1998 YTD period to income of $899,000 in the 1999 YTD
period.
During the 1998 YTD period, the loss from discontinued operations was
$239,000 (net of income tax benefits of $159,000). As explained above,
during the 1999 YTD period, the Company adjusted its original estimate
of the loss on disposal of the retail stores operation, thereby
resulting in income from discontinued operation of $186,000 (net of
income tax expense of $114,000).
Net income increased $1,368,000, from a loss of $283,000 in the 1998
YTD period to income of $1,085,000 in the 1999 YTD period.
Liquidity and Capital Resources
-------------------------------
Working capital decreased $445,000 to $7,407,000 at April 10, 1999 from
$7,852,000 at September 26, 1998. This decrease is primarily
attributable to higher accounts payable. The increase in accounts
payable was due to the timing of green coffee deliveries near the end
of the second quarter of fiscal 1999.
During the 1999 YTD period, Green Mountain had capital expenditures of
$1,262,000, including $903,000 for equipment on loan to wholesale
customers, $148,000 for computer equipment and $118,000 for production
equipment. Cash used for capital expenditures related to continuing
operations aggregated $2,165,000 during the 1998 YTD period, and
included $803,000 for equipment loaned to wholesale customers, $665,000
for leasehold improvements and fixtures, $288,000 for production
equipment, and $342,000 for computer hardware and software. Cash used
to fund the capital expenditures in the 1999 YTD period was obtained
from net cash provided by operating activities.
The Company currently plans to make capital expenditures in fiscal 1999
of approximately $2,650,000. Management continuously reviews capital
expenditure needs and actual amounts expended may differ from these
estimates.
The Company maintains a $9,000,000 line of credit with Fleet Bank - NH,
the availability of which is subject to the Company's accounts
receivable and inventory levels. At April 10, 1999, the outstanding
balance on the Fleet line of credit was $3,476,000 and the amount
remaining available was $3,445,000. The Fleet credit facility also
provides for $4,500,000 of term debt, all of which outstanding at April
10, 1999. The Fleet credit facility is subject to certain quarterly
covenants, which the Company was in compliance with at April 10, 1999.
Management believes that cash flow from operations, existing cash and
available borrowings under its credit facility will provide sufficient
liquidity to pay all liabilities in the normal course of business, fund
capital expenditures and service debt requirements for the remainder of
calendar 1999.
Year 2000
---------
The Year 2000 problem concerns the inability of information systems and
systems with embedded chip technology to properly recognize and process
date-sensitive information beyond December 31, 1999. The Company is in
the continuing process of assessing its Year 2000 readiness and has
identified its Year 2000 risk in three broad categories: internal
business software; manufacturing, facilities and embedded chip
technology; and external noncompliance by customers and suppliers.
COMPANY STATE OF READINESS
Internal business software. In early fiscal 1997, the Company began a
Company-wide business systems replacement project with an
enterprise-system from PeopleSoft, Inc. ("PeopleSoft"). The new system,
which is expected to make approximately 90% of the Company's business
computer systems Year 2000 compliant, is approximately 80% complete and
on schedule. Implementation is scheduled to be completed by the end of
September 1999. The primary motivation to implement PeopleSoft was to
reap the benefits of its enhanced functionality and features to improve
operations and customer service as the Company grows. Besides the
implementation of Peoplesoft, there were no other significant
information technology projects (IT) planned. Therefore, the Year 2000
project has not caused significant delays in other IT projects.
Besides the enterprise-wide information system, software upgrades which
take place in the normal course of business are expected to tend to the
majority of the Year 2000 problems related to internal business
software. The Company plans to migrate its direct mail operation to the
PeopleSoft system by the end of June 1999.
Manufacturing, facilities and embedded chip technology. The Company has
completed the inventory of its computer hardware, manufacturing,
security and communication systems which are vital to its daily
operations and could present a Year 2000 risk. All PC hardware
susceptible to fail after the Year 2000 was replaced in the normal
course of business over the past three years. Major vendors of
manufacturing equipment, security equipment, and communication systems
have been contacted and the Company is presently compiling information
on replacement costs of non-compliant equipment. Although the initial
information gathering phase was completed as of May 15, 1999, the
Company will continue to follow closely through the remainder of 1999
the progress of key vendors who are still in the process of becoming
Year 2000 compliant.
External noncompliance by customers and suppliers. The Company has
contacted its critical suppliers and service providers to determine the
extent to which the Company is vulnerable to those third parties'
failure to remedy their own Year 2000 issues. Although a majority of
key suppliers had informed the Company of their Year 2000 status as of
May 15, 1999, the Company is still in the process of assessing the
status of some vendors. It is expected that this assessment process
will by completed by the end of June 1999. To the extent that responses
to Year 2000 readiness are unsatisfactory, the Company intends to
change suppliers to those who have demonstrated Year 2000 readiness but
cannot be assured that it will be successful in finding such compliant
suppliers and service providers. The Company has also contacted its key
customers and is attempting to assess their Year 2000 readiness.
Although it has received indications that major customers are working
on Year 2000 compliance, the Company expects to receive fewer formal
responses from its customers than its vendors and can give no assurance
that a complete assessment of customers Year 2000 readiness will be
possible.
ACTUAL AND ANTICIPATED COSTS
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's
financial position. The estimated total cost of the Year 2000 Project
is approximately $125,000, excluding internal costs consisting
primarily of payroll and benefits of employees working on Year 2000
issues. This estimate does not include the conversion to PeopleSoft,
since those replacement costs were not due to, or accelerated by, the
Year 2000 Project. Through April 10, 1999, the Company has not incurred
expenses directly related to the Year 2000 Project. The estimated
future costs of the Year 2000 Project is $125,000, of which
approximately (1) $100,000 relates to the replacement costs of
manufacturing, security and communication equipment and (2) $25,000
relates to replacement costs of non-compliant software.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a
material impact on the Company's results of operations, liquidity or
financial condition. The Company's efforts are expected to
significantly reduce the Company's level of uncertainty about the Year
2000 problem. The Company believes that, with the completion of the
implementation of PeopleSoft and the completion of the plan identified
above, the possibility of significant interruptions of normal
operations should be reduced.
CONTINGENCY PLANS
As of May 15, 1999, the Company has not developed a contingency plan
related to Year 2000. The Company is planning on developing a
contingency plan by the end of June 1999.
Deferred Income Taxes
---------------------
The Company had net deferred tax assets of $1,543,000 at April 10,
1999. These assets are reported net of a deferred tax asset valuation
allowance at that date of $2,355,000 (including $2,306,000 primarily
related to a Vermont investment tax credit). Presently, the Company
believes that the deferred tax assets, net of deferred tax liabilities
and the valuation allowance, are realizable and represent management's
best estimate, based on the weight of available evidence as prescribed
in SFAS 109, of the amount of deferred tax assets which most likely
will be realized. However, management will continue to evaluate the
amount of the valuation allowance based on near-term operating results
and longer-term projections.
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. Year over year quarterly earnings comparisons will also show
significant variations due to the discontinuation of the company-owned
retail store operation in the third quarter of fiscal 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information relating to market
risk since the Company's disclosure included in Item 7A of Form 10-K as
filed with the Securities and Exchange Commission on December 18, 1998.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant held its 1999 Annual Meeting of Stockholders on
March 26, 1999 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 matters:
Election of Directors
VOTES
Nominee For Withheld
--------------------------------------------------------------
Robert P. Stiller 3,252,043 16,079
Robert D. Britt 3,251,943 16,179
Stephen J. Sabol 3,251,943 16,179
Jonathan C. Wettstein 3,247,343 20,779
William D. Davis 3,247,714 20,408
Jules A. del Vecchio 3,250,143 17,979
Hinda Miller 3,249,843 18,279
David E. Moran 3,249,143 18,979
Approval of the Green Mountain Coffee, Inc. 1998 Employee Stock
Purchase Plan
For Against Abstain Not voted
--------- ------- ------- ---------
2,510,266 24,678 4,478 728,700
Approval of the Green Mountain Coffee, Inc. 1999 Stock Option Plan
For Against Abstain Not voted
--------- ------- ------- ---------
2,464,128 69,786 5,508 728,700
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 10,
1999.
- ----------
(1) Incorporated by reference to the corresponding exhibit number in the
Registration Statement on Form SB-2 (Registration No. 33-66646) filed on July
28, 1993, and declared effective on September 21, 1993.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREEN MOUNTAIN COFFEE, INC.
Date: 5/24/99 By: /s/ Robert P. Stiller
------------ -----------------------------------------------
Robert P. Stiller,
President and Chief Executive Officer
Date: 5/24/99 By: /s/ Robert D. Britt
------------ ------------------------------------------------
Robert D. Britt,
Chief Financial Officer, Treasurer and Secretary
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This schedule contains summary financial information extracted from the
Balance Sheet dated 4/10/99 and the Statement of Operations for the
twelve weeks ended 4/10/99 and is qualified in its entirety by reference
to such financial statements.
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