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 8, 2000
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.
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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 18, 2000, 3,358,822 shares of common stock of the registrant were
outstanding.
<PAGE>
Part I. Financial Information
Item I. Financial Statements
GREEN MOUNTAIN COFFEE, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
April 8, September 25,
2000 1999
---------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................................... $ 819 $ 415
Receivables, less allowances of $225 at April 8,
2000 and $190 at September 25, 1999.............................. 7,794 6,223
Inventories....................................................... 5,379 5,409
Income tax receivable............................................. - 233
Other current assets.............................................. 555 264
Loans to officers................................................. 214 250
Deferred income taxes, net........................................ 220 490
---------- -------------
Total current assets........................................ 14,981 13,284
Fixed assets, net.................................................... 10,208 10,183
Other long-term assets............................................... 238 250
Deferred income taxes, net........................................... 298 161
---------- -------------
Total assets......................................................... $ 25,725 $ 23,878
========== =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt................................. $ 169 $ 1,127
Accounts payable.................................................. 5,110 4,551
Accrued payroll................................................... 1,301 1,005
Accrued expenses.................................................. 942 357
Income tax payable................................................ 233 -
Accrued losses and other costs of discontinued operations, net.... 180 192
---------- -------------
Total current liabilities.................................... 7,935 7,232
---------- -------------
Long-term debt....................................................... 276 1,908
---------- -------------
Long-term line of credit............................................. 5,475 3,056
---------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value: authorized - 10,000,000
shares; issued- 3,635,167 shares at April 8, 2000 and
3,615,404 shares at September 25, 1999............................ 364 362
Additional paid-in capital........................................ 13,543 13,409
Accumulated earnings (deficit).................................... 480 (1,435)
Treasury shares, at cost: 280,195 shares at April 8, 2000
and 100,609 shares at September 25, 1999, respectively........... (2,348) (654)
---------- -------------
Total stockholders' equity........................................ 12,039 11,682
---------- -------------
Total liabilities and stockholders' equity.................. $ 25,725 $ 23,878
========== =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
</FN>
</TABLE>
<PAGE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statements of Operations
(Dollars in thousands except per share data)
<TABLE>
Twelve weeks ended
--------------------------------
April 8, 2000 April 10, 1999
------------- --------------
(unaudited)
<S> <C> <C>
Net sales....................................................... $ 18,259 $ 14,452
Cost of sales................................................... 10,990 8,892
------------- --------------
Gross profit.................................................. 7,269 5,560
Selling and operating expenses.................................. 4,642 3,686
General and administrative expenses............................. 1,372 1,103
Loss on abandonment of fixed assets............................. 135 25
------------- --------------
Operating income.............................................. 1,120 746
Other income.................................................... 14 7
Interest expense................................................ (107) (175)
------------- --------------
Income from continuing operations before income taxes......... 1,027 578
Income tax expense.............................................. (412) (220)
------------- --------------
Income from continuing operations............................. 615 358
Discontinued operations:
Income from discontinued retail stores operations, net of
income tax expense of $114................................... - 186
------------- --------------
Net income.................................................... $ 615 $ 544
============= ==============
Basic income per share:
Weighted average shares outstanding......................... 3,359,978 3,483,044
Income from continuing operations........................... $ 0.18 $ 0.10
Income from discontinued operations......................... - $ 0.06
------------- --------------
Net income.................................................. $ 0.18 $ 0.16
============= ==============
Diluted income per share:
Weighted average shares outstanding......................... 3,546,884 3,537,410
Income from continuing operations........................... $ 0.17 $ 0.10
Income from discontinued operations......................... - $ 0.05
------------- --------------
Net income.................................................. $ 0.17 $ 0.15
============= ==============
<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 8, 2000 April 10, 1999
------------- --------------
(unaudited)
<S> <C> <C>
Net sales....................................................... $ 43,001 $ 34,520
Cost of sales................................................... 25,686 21,432
------------- --------------
Gross profit.................................................. 17,315 13,088
Selling and operating expenses.................................. 10,691 8,654
General and administrative expenses............................. 3,056 2,502
Loss on abandonment of fixed assets............................. 135 25
------------- --------------
Operating income............................................. 3,433 1,907
Other income.................................................... 10 11
Interest expense................................................ (248) (475)
------------- --------------
Income from continuing operations before income taxes........ 3,195 1,443
Income tax expense.............................................. (1,280) (544)
------------- --------------
Income from continuing operations............................. 1,915 899
Discontinued operations:
Income from discontinued retail stores operations, net of
income tax expense of $114.................................... - 186
------------- --------------
Net income.................................................... $ 1,915 $ 1,085
============= ==============
Basic income per share:
Weighted average shares outstanding......................... 3,419,445 3,501,446
Income from continuing operations........................... $ 0.56 $ 0.25
Income from discontinued operations......................... - $ 0.06
------------- --------------
Net income.................................................. $ 0.56 $ 0.31
============= ==============
Diluted income per share:
Weighted average shares outstanding......................... 3,544,475 3,523,955
Income from continuing operations........................... $ 0.54 $ 0.25
Income from discontinued operations......................... - $ 0.06
------------- --------------
Net income.................................................. $ 0.54 $ 0.31
============= ==============
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
Twenty-eight weeks ended
--------------------------------
April 8, 2000 April 10, 1999
------------- --------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 1,915 $ 1,085
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations......................... - (186)
Depreciation and amortization............................... 1,596 1,587
Loss on disposal and abandonment of fixed assets............ 194 -
Provision for doubtful accounts............................. 138 157
Deferred income taxes....................................... 133 228
Changes in assets and liabilities:
Receivables............................................... (1,709) (636)
Inventories............................................... 30 150
Other current assets...................................... (22) (283)
Other long-term assets, net............................... 12 (45)
Accounts payable.......................................... 559 1,025
Accrued payroll........................................... 296 (78)
Accrued expenses.......................................... 818 (55)
------------- --------------
Net cash provided by continuing operations...... 3,960 2,949
Net cash (used for) provided by discontinued operations... (12) 70
------------- --------------
Net cash provided by operating activities................. 3,948 3,019
Cash flows from investing activities:
Capital expenditures for fixed assets......................... (2,070) (1,262)
Proceeds from disposals of fixed assets....................... 255 57
Proceeds from disposal of discontinued operations............. - 158
------------- --------------
Net cash used for investing activities.................... (1,815) (1,047)
------------- --------------
Cash flows from financing activities:
Purchase of treasury shares................................... (1,694) (457)
Proceeds from issuance of common stock........................ 136 98
Proceeds from issuance of long-term debt...................... 43 -
Repayment of long-term debt................................... (2,633) (135)
Principal payments under capital lease obligation............. - (12)
Net change in revolving line of credit........................ 2,419 (1,674)
------------- --------------
Net cash used for financing activities............. (1,729) (2,180)
------------- --------------
Net increase (decrease) in cash and cash equivalents............. 404 (208)
Cash and cash equivalents at beginning of period................. 415 777
------------- --------------
Cash and cash equivalents at end of period....................... $ 819 $ 569
============= ==============
<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 and twenty-eight week periods
ended April 8, 2000 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 2000.
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. (the "Company") for the fiscal year ended
September 25, 1999.
Certain reclassifications of prior year balances have been made to
conform to the current presentation.
2. Inventories
Inventories consist of the following:
April 8, September 25,
2000 1999
------------- -------------
Raw materials and supplies....... $ 2,816,000 $ 2,809,000
Finished goods................... 2,563,000 2,600,000
------------- -------------
$ 5,379,000 $ 5,409,000
============= =============
3. 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 8, April 10, April 8, April 10,
2000 1999 2000 1999
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator - basic and diluted earnings
per share :
Net income from continuing operations... $ 615 $ 358 $ 1,915 $ 899
========== =========== =========== ==========
Denominator:
Basic earnings per share - weighted
average shares outstanding.............. 3,359,978 3,483,044 3,419,445 3,501,446
Effect of dilutive securities - stock
options................................. 186,906 54,366 125,030 22,509
---------- ----------- ----------- ----------
Diluted earnings per share - weighted
average shares outstanding.............. 3,546,884 3,537,410 3,544,475 3,523,955
========== =========== =========== ==========
Basic earnings per share................ $ 0.18 $ 0.10 $ 0.56 $ 0.25
Diluted earnings per share............. $ 0.17 $ 0.10 $ 0.54 $ 0.25
</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.
For the twelve weeks ended April 8, 2000, options to purchase 2,300
shares of common stock at an exercise price of $12.75 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.
4. Segment reporting
Business conducted by the Company can be segmented into two distinct
areas determined by the distribution channel. The direct mail segment
is comprised of all consumer-direct sales and sales to small businesses
which are solicited via catalogs and the Company's online store -
www.GreenMountainCoffee.com. The wholesale segment is comprised of all
sales to customers who resell Green Mountain coffee either as coffee
beans or brewed coffee by the cup, such as supermarkets, office coffee
distributors, convenience stores, restaurants, and others. Wholesale
sales are generated through the Company's direct sales force and a
limited number of distributors.
Both segments of the Company sell similar products, although the entire
Company product range is not fully available to both segments, and
direct mail customers do not have access to the same range of equipment
service, delivery and merchandising support as wholesale customers.
Selling and operating costs directly attributable to the direct mail
segment are charged accordingly while all remaining selling, operating,
general and administrative expenses (including depreciation and
amortization) are charged to the wholesale segment. The Company's
management does not review assets by segment. The table below discloses
segment net sales and pre-tax income for the twelve and twenty-eight
weeks ended April 8, 2000 and April 10, 1999 (in thousands):
<TABLE>
Twelve weeks ended Twenty-eight weeks ended
------------------------ ------------------------
April 8, April 10, April 8, April 10,
2000 1999 2000 1999
---------- ----------- ----------- ----------
Net sales
<S> <C> <C> <C> <C>
Reportable segments:
Wholesale $ 17,481 $ 13,723 $ 40,508 $ 32,464
Direct mail 778 729 2,493 2,056
---------- ----------- ----------- ----------
Total net sales $ 18,259 $ 14,452 $ 43,001 $ 34,520
========== =========== =========== ==========
Pre-tax income
Reportable segments:
Wholesale $ 1,033 $ 647 $ 3,191 $ 1,776
Direct mail 87 99 242 131
---------- ----------- ----------- ----------
Operating income 1,120 746 3,433 1,907
Reconciling items:
Other income 14 7 10 11
Interest expense (107) (175) (248) (475)
---------- ----------- ----------- ----------
Pre-tax income $ 1,027 $ 578 $ 3,195 $ 1,443
========== =========== =========== ==========
</TABLE>
5. New Debt Agreement
On April 7, 2000, the Company consolidated its credit facilities with
Fleet Bank -NH ("Fleet"). The amended debt agreement provides for a
revolving line of credit of $15,000,000, which matures on March 31,
2003 and is not subject to a borrowing base formula. The purpose of
this new facility is to fund the Company's ordinary working capital
requirements, planned repurchases of shares of stock and other general
corporate purposes. The interest paid on the line of credit varies with
the prime, LIBOR and Bankers Acceptance rates, plus a margin based on a
performance price structure. At April 8, 2000, a total of $5,475,000
was outstanding under the new line of credit. At April 8, 2000 interest
rate charged on 5,050,000 equaled one-month LIBOR plus 125 basis points
(7.63% on $1,000,000 and 7.55% on $4,050,000) and the remaining
$425,000 was charged interest at the prime rate or 9%. The new Fleet
credit facility is subject to certain quarterly covenants, and the
Company was in compliance with these covenants at April 8, 2000. The
Fleet term debt facility, which had an outstanding balance of
$2,050,000 on April 7, 2000, was extinguished using new borrowings
under the line of credit.
6. Discontinued Company-Owned Retail Store Operations
During the third fiscal quarter of 1998, the Company announced that it
was discontinuing its company-owned retail store operations and
estimated its loss on disposal at $1,259,000 (net of a tax benefit of
$834,000). 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 included
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 ($186,000
net of tax) of the original estimate, primarily due to larger than
expected proceeds from the sale of fixed assets and lower lease
termination costs.
7. ChefExpress.net, Inc. Promissory Note
On March 21, 2000, ChefExpress.net, Inc. delivered a promissory note to
the Company in the principal amount of $100,000 and bearing an annual
interest rate of 8%. The Company has the option to convert this loan
into an equity investment at the time of ChefExpress.net's initial
private placement offering. This investment in the ChefExpress.net
venture represents an opportunity for the Company to be prominently
featured in an e-procurement website that targets chefs in restaurants
and the high-end sector of the food service channel. William D. Davis,
a board member of Green Mountain Coffee, is the Chief Executive Officer
and President of ChefExpress.net.
8. Dutch Auction Self-Tender Offer
On April 17, 2000, the Company commenced a Dutch Auction self-tender
offer for up to 300,000 shares of the Company's Common Stock at a price
range of $14.50 to $16 per share. Effective May 22, 2000, the
Company accepted for purchase all 278,658 shares tendered at a purchase
price of $16 per share.
9. 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. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company expects that this new
standard will not have a significant effect on its results of
operations. SFAS 137 deferred the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000, which is fiscal year 2001 for the
Company.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
For the twenty-eight weeks ended April 8, 2000, Green Mountain Coffee,
Inc. (the "Company" or "Green Mountain") derived approximately 94.2% 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 5.8% 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, after the commencement of the fiscal year. Fiscal
2000, which began on September 26, 1999 and ends on September 30, 2000,
will consist of 53 weeks with the thirteenth fiscal period having 5
weeks.
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. The Company believes that the "C"
price of coffee (the price per pound quoted by the Coffee, Sugar and
Cocoa Exchange) will remain highly volatile in Fiscal 2000 and beyond.
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. In the past, the Company has
generally been able to pass increases in green coffee costs to its
customers. However, there can be no assurance that the Company will be
successful in passing such fluctuations on to the customers without
losses in sales volume or gross margin in the future. 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.
The Company expects to face increasing competition in all its markets,
as competitors improve the quality of their coffees to make them more
comparable to Green Mountain's. In addition, specialty coffee is now
more widely available and a number of competitors benefit from
substantially larger promotional budgets following, among other
factors, the acquisition of specialty coffee companies by large,
consumer goods multinationals. The Company expects that the continued
high quality and wide availability of its coffee across a large array
of distribution channels and the added-value of its customer service
processes will enable Green Mountain to successfully compete in this
environment, although there can be no assurance that it will be able to
do so.
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", "may", 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
availability and cost of green coffee, the impact of the loss of a
major customer, 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 fiscal year ended
September 25, 1999 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.
RESULTS OF OPERATIONS
<TABLE>
Twelve weeks ended Twenty-eight weeks ended
------------------------ ------------------------
April 8, April 10, April 8, April 10,
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales................................ 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales............................ 60.2 % 61.5 % 59.7 % 62.1 %
---------- ----------- ---------- -----------
Gross profit........................ 39.8 % 38.5 % 40.3 % 37.9 %
Selling and operating expenses........... 25.4 % 25.5 % 24.9 % 25.1 %
General and administrative expenses...... 7.5 % 7.6 % 7.1 % 7.2 %
Loss on abandonment of fixed assets...... 0.8 % 0.2 % 0.3 % 0.1 %
---------- ----------- ---------- -----------
Operating income.................... 6.1 % 5.2 % 8.0 % 5.5 %
Other income............................. 0.1 % 0.0 % 0.0 % 0.0 %
Interest expense......................... (0.6)% (1.2)% (0.6)% (1.3)%
---------- ----------- ---------- -----------
Income from continuing operations
before taxes........................ 5.6 % 4.0 % 7.4 % 4.2 %
Income tax expense....................... (2.2)% (1.5)% (2.9)% (1.6)%
---------- ----------- ---------- -----------
Income from continuing operations... 3.4 % 2.5 % 4.5 % 2.6 %
---------- ----------- ---------- -----------
Income from discontinued operations, net
of tax expense........................... - 1.3 % - 0.5 %
---------- ----------- ---------- -----------
Net income......................... 3.4 % 3.8 % 4.5 % 3.1 %
========== =========== ========== ===========
</TABLE>
TWELVE WEEKS ENDED APRIL 8, 2000 VERSUS TWELVE WEEKS ENDED APRIL 10,
1999
Net sales increased by $3,807,000, or 26.3%, from $14,452,000 for the
twelve weeks ended April 10, 1999 (the "1999 period") to $18,259,000
for the twelve weeks ended April 8, 2000 (the "2000 period"). Coffee
pounds sold increased by approximately 351,000 pounds, or 17.3%, from
approximately 2,031,000 pounds in the 1999 period to approximately
2,382,000 pounds in the 2000 period. The difference between the
percentage increase in net sales and the percentage increase in coffee
pounds sold is primarily due to the increased sales of single-cup
Keurig-Brewed TM line of coffees, whose sales price per coffee pound is
greater than the Company's traditional product line.
The increase in net sales is primarily attributable to the wholesale
segment in which net sales increased by $3,758,000, or 27.4%, from
$13,723,000 for the 1999 period to $17,481,000 for the 2000 period. The
wholesale net sales increase resulted primarily from the growth in the
office coffee service and, to a lesser extent, convenience store
channels.
Gross profit increased by $1,709,000, or 30.7%, from $5,560,000 for the
1999 period to $7,269,000 for the 2000 period. As a percentage of net
sales, gross profit increased 1.3 percentage points from 38.5% for the
1999 period to 39.8% for the 2000 period. The increase in gross profit
as a percentage of sales was due primarily to certain efficiencies and
economies of scale in distribution costs.
Selling and operating expenses increased by $956,000, or 25.9%, from
$3,686,000 for the 1999 period to $4,642,000 for the 2000 period.
Selling and operating expenses decreased 0.1 percentage points as a
percentage of sales from 25.5% for the 1999 period to 25.4% for the
2000 period. The dollar increase in selling and operating expense was
primarily due to increased sales and marketing personnel expenses, as
well as increased promotional expenses.
General and administrative expenses increased by $269,000, or 24.4%,
from $1,103,000 for the 1999 period to $1,372,000 for the 2000 period,
but decreased 0.1 percentage points as a percentage of sales from 7.6%
for the 1999 period to 7.5% for the 2000 period. The dollar increase in
general and administrative expenses was primarily due to higher
personnel and consulting expenses.
During the 1999 period, the Company recorded a $25,000 loss on
abandonment of loaner equipment. Throughout fiscal 1999, the Company
reviewed its inventory of brewing and other equipment on loan to
wholesale customers. In the course of this review, a small portion of
old equipment was identified which would never be retrieved from
customers sites and was in effect given away to customers.
During the 2000 period, following a thorough review of its production
fixed assets, the Company recorded a $135,000 loss on abandonment of
production equipment and software. A large portion of the equipment and
software writen-off was the coffee roasters control system, which,
following a series of upgrades and modifications, had been
substantially replaced over time.
As a result of the foregoing, operating income increased by $374,000,
or 50.1%, from $746,000 for the 1999 period to $1,120,000 for the 2000
period.
Interest expense decreased by $68,000, or 38.9%, from $175,000 for the
1999 period to $107,000 for the 2000 period. The decrease is due to the
reduction in the Company's long-term debt year over year. Due to recent
successive increases in interest rates and repurchases of outstanding
shares of the Company's common stock (through the Dutch Auction and
other open market transactions - see "Liquidity and Other Resources"
below), interest expense is not expected to continue decreasing year
over year in the last two quarters of fiscal 2000.
Income tax expense increased $192,000, or 87.3%, from $220,000 for the
1999 period to $412,000 for the 2000 period. It is expected that the
Company's effective tax rate will continue to approximate 40%
throughout fiscal 2000.
Income from continuing operations increased by $257,000, or 71.8%, from
$358,000 for the 1999 period to $615,000 in the 2000 period.
During the third quarter of fiscal 1998, the Company recorded a loss of
$1,259,000 (net of a tax benefit of $834,000) on disposal of its
company-owned retail stores operation. During the 1999 period, after
having sold or closed all of its stores, the Company revised its
estimated pre-tax loss on disposal and reversed $300,000 ($186,000 net
of tax) of the original estimate, primarily due to larger than expected
proceeds from the sale of fixed assets and lower lease termination
costs.
Net income increased by $71,000, or 13.1%, from $544,000 for the 1999
period to $615,000 in the 2000 period.
TWENTY-EIGHT WEEKS ENDED APRIL 8, 2000 VERSUS TWENTY-EIGHT WEEKS ENDED
APRIL 10, 1999
Net sales increased by $8,481,000, or 24.6%, from $34,520,000 for the
twenty-eight weeks ended April 10, 1999 (the "1999 YTD period") to
$43,001,000 for the twenty-eight weeks ended April 8, 2000 (the "2000
YTD period"). Coffee pounds sold increased by approximately 821,000
pounds, or 17.1%, from approximately 4,803,000 pounds in the 1999 YTD
period to approximately 5,624,000 pounds in the 2000 YTD period. The
difference between the percentage increase in net sales and the
percentage increase in coffee pounds sold relates primarily to changes
in Green Mountain's product sales mix. Sales are increasing fastest
with products whose sales price per coffee pound is greater than the
Company's traditional product line, such as single-cup Keurig-Brewed TM
line of coffees and the Company's new Monte Verde TM powdered hot
cappuccino and frozen granita products.
The increase in net sales is attributable to the wholesale segment in
which net sales increased by $8,044,000, or 24.8%, from $32,464,000 for
the 1999 YTD period to $40,508,000 for the 2000 YTD period. The
wholesale net sales increase resulted primarily from the growth in the
office coffee service and, to a lesser extent, convenience store
channels.
Gross profit increased by $4,228,000, or 32.3%, from $13,088,000 for
the 1999 YTD period to $17,315,000 for the 2000 YTD period. As a
percentage of net sales, gross profit from continuing operations
increased 2.4 percentage points from 37.9% for the 1999 YTD period to
40.3% for the 2000 YTD period. The increase in gross profit as a
percentage of sales was due primarily to lower distribution costs and
lower green coffee costs, offset in part by increased sales of products
with lower margins such as the Keurig line of coffees.
Selling and operating expenses increased by $2,037,000, or 23.5%, from
$8,654,000 for the 1999 YTD period to $10,691,000 for the 1999 YTD
period, but decreased by 0.2 percentage point as a percentage of sales
from 25.1% in the 1999 YTD period to 24.9% in the 2000 YTD period. The
dollar 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 $554,000, or 22.1%,
from $2,502,000 for the 1999 YTD period to $3,056,000 for the 2000 YTD
period, but decreased 0.1 percentage points as a percentage of sales
from 7.2% for the 1999 YTD period to 7.1% for the 2000 YTD period.
After the loss on abandonment of fixed assets referenced to above,
operating income increased by $1,526,000, or 80.1%, from $1,907,000 for
the 1999 YTD period to $3,433,000 for the 2000 YTD period.
Interest expense decreased by $227,000, or 47.8%, from $475,000 for the
1999 YTD period to $248,000 for the 2000 YTD period. The decrease is
due to the drop in long-term debt made possible by strong operating
cash flows.
Income tax expense increased $736,000, or 135.3%, from $544,000 for the
1999 YTD period to $1,280,000 for the 2000 YTD period.
Income from continuing operations increased by $1,016,000, or 113.0%,
from $899,000 for the 1999 YTD period to $1,915,000 in the 2000 YTD
period.
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 $830,000, or 76.5%, from $1,085,000 in the 1999
YTD period to $1,915,000 in the 2000 YTD period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $994,000 to $7,046,000 at April 8, 2000 from
$6,052,000 at September 25, 1999. This increase is primarily due to
higher accounts receivable, and was partially offset by higher accounts
payable and accrued expenses.
During the 2000 YTD period, Green Mountain had capital expenditures of
$2,070,000, including $929,000 for equipment on loan to wholesale
customers, $823,000 for production equipment and $447,000 for computer
equipment and software. 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 to fund the capital
expenditures in the 2000 YTD period was obtained from net cash provided
by operating activities.
The Company currently plans to make capital expenditures in fiscal 2000
of approximately $4,500,000. Management continuously reviews capital
expenditure needs and actual amounts expended may differ from these
estimates.
On April 7, 2000, the Company amended its credit facility with Fleet
Bank -NH ("Fleet"). The amendment provides for an expanded revolving
line of credit of $15,000,000, which matures on March 31, 2003 and is
not subject to a borrowing base formula. The purpose of this new
facility is to fund the Company's ordinary working capital
requirements, planned repurchases of shares of stock and other general
corporate purposes. The interest paid on the line of credit varies with
the prime, LIBOR and Bankers Acceptance rates, plus a margin based on a
performance price structure. At April 8, 2000, a total of $5,475,000
was outstanding under the new line of credit. At April 8, 2000
interest rate charged on 5,050,000 equaled one-month LIBOR plus 125
basis points (7.63% on $1,000,000 and 7.55% on $4,050,000) and the
remaining $425,000 was charged interest at the prime rate or 9%. The
new Fleet credit facility is subject to certain quarterly covenants,
and the Company was in compliance with these covenants at April 8,2000.
The Fleet term debt facility, which had an outstanding balance of
$2,050,000 on April 7, 2000, was extinguished using new borrowings
under the line of credit.
In the 2000 YTD period, the Company also used $1,694,000 of its cash
flow from operations to repurchase approximately 180,000 of its
outstanding shares in the open market. In addition, on April 17, 2000,
the Company commenced a Dutch Auction self-tender offer for up to
300,000 shares of the Company's Common Stock at a price range of $14.50
to $16 per share. Effective May 22, 2000, Green Mountain Coffee
accepted for purchase all 278,658 shares tendered at a purchase price
of $16 per share. As Management believes the market is still
undervaluing the Company's stock, Green Mountain intends to repurchase
additional shares in fiscal 2000.
Management believes that cash flow from operating activities, existing
cash, the currently available credit facility and additional borrowings
will provide sufficient liquidity to pay all liabilities in the normal
course of business, fund capital expenditures and service debt
requirements in fiscal 2000.
DEFERRED INCOME TAXES
The Company had net deferred tax assets of $638,000 at April 8, 2000.
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.
YEAR 2000
In anticipation of the January 1, 2000 date change, Green Mountain
developed and implemented a Year 2000 plan to address possible Year
2000 disruptions. The Company had assessed its Year 2000 readiness and
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.
During the December 31, 1999 to January 1, 2000 date change, Green
Mountain monitored its operations and computer systems and has
experienced no apparent problems to date. Since January 1, 2000, the
Company has also noted no significant Year 2000 problems with its
customers and suppliers.
The total cost associated with required modifications to become Year
2000 compliant did not have a material effect on Green Mountain's
results of operations or financial condition. The Company spent
approximately $100,000 on a telephone switching and voice mail system
replacement project that was accelerated because of the Year 2000
project and approximately $250,000 on a co-generation project which was
partly motivated by Year 2000 concerns related to possible power supply
problems.
Although Green Mountain believes that its Year 2000 plan successfully
eliminated potential problems associated with the Year 2000 date
change, it cannot guarantee that the plans, work and funds expended
corrected all Year 2000 errors or that the information systems will not
generate Year 2000 errors in the future, particularly when operating
with third party computer systems or data. In addition, the Company
cannot reliably predict the effect future third party disruptions may
have on Green Mountain, its operations or financial condition.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information relating to
commodity price risks since the Company's disclosure included in Item
7A of Form 10-K as filed with the Securities and Exchange Commission on
December 22, 1999.
During the first quarter of fiscal 2000, the Company received $34,000
from Fleet National Bank for the termination of its interest rate swap
agreement with a $6,000,000 notional amount. This payment was netted
against interest expense for the first fiscal quarter. Due to the
termination of this agreement, at April 8, 2000, the Company had
$5,530,000 of debt subject to variable interest rates (the lower of
Fleet bank's prime rate or LIBOR rates for maturities up to one year).
A hypothetical 100 basis points increase in the LIBOR rate and prime
rate would result in additional interest expense of $55,000 on an
annualized basis.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant held its 2000 Annual Meeting of Stockholders on
March 9, 2000 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
-------------------------------------------------------------
Robert P. Stiller 3,160,691 13,133
Robert D. Britt 3,161,049 12,775
Stephen J. Sabol 3,160,849 12,975
Jonathan C. Wettstein 3,161,049 12,775
William D. Davis 3,160,749 13,075
Jules A. del Vecchio 3,161,049 12,775
Hinda Miller 3,160,949 12,875
David E. Moran 3,161,049 12,775
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation(1)
3.2 Bylaws(1)
10.2 (jj) Twelfth Amendment to Fleet Bank -NH Commercial Loan
Agreement and Loan Documents dated April 7, 2000(2)
10.100 ChefExpress.net, Inc. Promissory Note dated March 21, 2000
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the twelve weeks ended
April 8, 2000.
- ----------
(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.
(2) Incorporated by reference to the corresponding exhibit number in the
Schedule TO filed on April 17, 2000.
<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: 5/23/2000 By: /s/ Robert P. Stiller
--------- ------------------------------------------------
Robert P. Stiller,
President and Chief Executive Officer
Date: 5/23/2000 By: /s/ Robert D. Britt
--------- ------------------------------------------------
Robert D. Britt,
Chief Financial Officer, Treasurer and Secretary
PROMISORY NOTE
$100,000 Waterbury Vermont
March 21, 2000
1. ChefExpress.net, Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter Borrower"), for value received, hereby
promises to pay to Green Mountain Coffee Roasters, Inc. (hereinafter "Holder")
on or before May 31, 2000, the principal sum of One Hundred Thousand Dollars
($100,000), and to pay such interest on the principal sum from the date hereof
at the rate of eight percent (8%) per annum (based on a 365 day year) until
payment in full of principal.
2. Principal and interest under this Note shall be in lawful money of the United
States. Borrower waives diligence, presentment, protest, demand and notice of
protest, demand, dishonor, and nonpayment of this Note.
3. Borrower may extend this Note one time only for a period not exceeding ninety
(90) days without cost or penalty. To extend this Note, Borrower must notify
Holder in writing at least ten (10) days prior to the payment date specified
herein of its exercise of this right. The notice must specify the new day for
payment of principal and interest.
4.
a. Borrower agrees that at least thirty (30) days prior to the
maturity date of this Note (as may be extended pursuant to
Paragraph 3 above), it shall offer to Holder the opportunity
to purchase fully paid, non-assessable common stock of
Borrower ("the Shares") at the same price per share and on the
same other terms and conditions as those provided to all other
potential investors in Borrower's initial private placement
offering, and subject to the following additional terms and
conditions:
b. No fractional Shares shall be issuable on any purchase in
consideration for the cancellation of principal owing on this
Note. In lieu of issuing fractional Shares, Borrower shall pay
Holder the cash portion of the indebtedness not so cancelled.
c. Upon such surrender of the Note, interest owing on this Note
shall cease. All accrued interest shall be paid in cash at
the time the Shares are issued to Holder.
d. Nothing herein shall obligate Holder to accept Borrower's
offer of Shares, in which case all of the terms and conditions
of this Note shall remain in full force and effect.
5. Holder shall not transfer, sell, or assign Holder's interest in this Note, or
any portion thereof, without the express written consent of Borrower.
6. All notices or other communications required or permitted by this Note or by
law to be served on or given either party by the other party shall be in writing
and shall be deemed duly served and given when personally delivered to the party
to whom it is directed or in lieu of personal service when mailed by first class
mail, postage prepaid, addressed to the parties as follows:
a. Borrower: ChefExpress.net, Inc.
Attn: Stephen G. Schimoler
92 Stowe Street
Waterbury, VT 05676
b. Holder Green Mountain Coffee Roasters, Inc.
Attn: Bob Stiller, Chairman/CEO
33 Coffee Lane
Waterbury, VT 05676
Telephone: (802) 244-5621
Either party may change that party's address by giving written
notice of the change to the other party in the manner provided in this section.
7. Whether or not suit is filed, Borrower agrees to pay all reasonable
attorney's fees, cost of collection, costs, and expenses incurred by Holder in
connection with the enforcement or collection of this Note. Borrower further
agrees to pay all costs of suit and the sum adjudged as attorneys' fees in any
action to enforce payment of this Note or any part of it.
8. This Note shall be governed by and construed in accordance with the laws of
the State of Vermont without regard to the laws as to choice of or conflict of
laws.
ChefExpress.net, Inc.
By: /s/ Stephen G. Schimoler
----------------------------
Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet dated 4/8/00 and the Statement of Operations for the twenty-eight weeks
ended 4/8/00 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000909954
<NAME> GREEN MOUNTAIN COFFEE, INC.
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