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 July 1, 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 August 1, 2000, 3,081,140 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>
July 1, September 25,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $ 574 $ 415
Receivables, less allowances of $235 at July 1, 2000
and $190 at September 25, 1999................................... 8,138 6,223
Inventories...................................................... 5,768 5,409
Income tax receivable............................................ - 233
Other current assets............................................. 461 264
Loans to officers................................................ - 250
Deferred income taxes, net....................................... 179 490
------------- -------------
Total current assets....................................... $ 15,120 $ 13,284
Fixed assets, net................................................... 10,564 10,183
Other long-term assets.............................................. 248 250
Deferred income taxes, net.......................................... 239 161
-------------- -------------
Total assets........................................................ $ 26,171 $ 23,878
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt................................ $ 161 $ 1,127
Accounts payable................................................. 4,814 4,551
Accrued payroll.................................................. 1,484 1,005
Accrued expenses................................................. 1,221 357
Income tax payable............................................... 173 -
Accrued losses and other costs of discontinued operations, net... 179 192
------------- -------------
Total current liabilities................................... 8,032 7,232
------------- -------------
Long-term debt...................................................... 308 1,908
------------- -------------
Long-term line of credit............................................ 9,400 3,056
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value: authorized - 10,000,000 shares;
issued- 3,649,454 shares at July 1, 2000 and 3,615,404 shares
at September 25, 1999............................................ 365 362
Additional paid-in capital....................................... 13,651 13,409
Retained earnings (accumulated deficit).......................... 1,282 (1,435)
Treasury shares, at cost: 558,853 shares at July 1, 2000 and
100,609 shares at September 25, 1999, respectively............... (6,867) (654)
------------- -------------
Total stockholders' equity....................................... 8,431 11,682
------------- -------------
Total liabilities and stockholders' equity................. $ 26,171 $ 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
----------------------------
July 1, 2000 July 3, 1999
------------ ------------
(unaudited)
<S> <C> <C>
Net sales................................................... $ 19,668 $ 14,973
Cost of sales............................................... 11,909 8,821
------------ -------------
Gross profit............................................ 7,759 6,152
Selling and operating expenses.............................. 4,912 3,914
General and administrative expenses......................... 1,403 1,164
Loss on abandonment of fixed assets......................... - 75
------------ ------------
Operating income........................................ 1,444 999
Other income (expense)...................................... 30 (5)
Interest (expense).......................................... (141) (164)
------------ ------------
Income from continuing operations before income taxes... 1,333 830
Income tax expense.......................................... (531) (315)
------------ ------------
Net income............................................. $ 802 $ 515
============ ============
Basic income per share:
Weighted average shares outstanding.................... 3,226,415 3,494,399
Net income............................................. $ 0.25 $ 0.15
Diluted income per share:
Weighted average shares outstanding.................... 3,511,282 3,552,574
Net income............................................. $ 0.23 $ 0.14
<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>
Forty weeks ended
----------------------------
July 1, 2000 July 3, 1999
------------ -------------
(unaudited)
<S> <C> <C>
Net sales...................................................... $ 62,669 $ 49,493
Cost of sales.................................................. 37,595 30,253
------------ ------------
Gross profit............................................... 25,074 19,240
Selling and operating expenses................................. 15,603 12,568
General and administrative expenses............................ 4,459 3,666
Loss on abandonment of fixed assets............................ 135 100
------------- ------------
Operating income........................................ 4,877 2,906
Other income................................................... 40 6
Interest (expense)............................................. (389) (639)
------------ ------------
Income from continuing operations before income taxes... 4,528 2,273
Income tax expense............................................. (1,811) (859)
------------ ------------
Income from continuing operations....................... $ 2,717 $ 1,414
Discontinued operations:
Income from discontinued retail stores operations, net
of income tax expense of $114........................... - 186
------------ ------------
Net income.............................................. $ 2,717 $ 1,600
============ ============
Basic income per share:
Weighted average shares outstanding....................... 3,361,789 3,499,299
Income from continuing operations......................... $ 0.81 $ 0.40
Income from discontinued operations....................... $ - $ 0.06
------------ ------------
Net income................................................ $ 0.81 $ 0.46
============= ============
Diluted income per share:
Weighted average shares outstanding....................... 3,534,517 3,532,541
Income from continuing operations......................... $ 0.77 $ 0.40
Income from discontinued operations....................... $ - $ 0.05
------------ ------------
Net income................................................ $ 0.77 $ 0.45
============ ============
<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>
Forty weeks ended
----------------------------
July 1, 2000 July 3, 1999
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 2,717 $ 1,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations............................. - (186)
Depreciation and amortization................................... 2,288 2,261
Loss on disposal and abandonment of fixed assets................ 171 116
Provision for doubtful accounts................................. 227 207
Deferred income taxes........................................... 233 513
Changes in assets and liabilities:
Receivables............................................... (2,142) (868)
Inventories............................................... (359) 294
Other current assets...................................... 286 (411)
Other long-term assets, net............................... 2 (34)
Accounts payable.......................................... 263 416
Accrued payroll........................................... 479 51
Accrued expenses.......................................... 1,037 5
------------ ------------
Net cash provided by continuing operations................ 5,202 3,964
Net cash (used for) provided by discontinued operations... (13) 111
------------ ------------
Net cash provided by operating activities................. 5,189 4,075
------------ ------------
Cash flows from investing activities:
Capital expenditures for fixed assets.............................. (3,137) (1,801)
Proceeds from disposals of fixed assets.............................. 297 60
Proceeds from disposal of discontinued operations.................... - 158
------------ ------------
Net cash used for investing activities.................... (2,840) (1,583)
------------ ------------
Cash flows from financing activities:
Purchase of treasury shares.......................................... (6,213) (457)
Proceeds from issuance of common stock............................... 245 273
Proceeds from issuance of long-term debt............................. 122 -
Repayment of long-term debt.......................................... (2,688) (1,199)
Principal payments under capital lease obligation.................... - (12)
Net change in revolving line of credit............................... 6,344 (916)
------------ ------------
Net cash used for financing activities.................... (2,190) (2,311)
------------ ------------
Net increase in cash and cash equivalents............................... 159 181
Cash and cash equivalents at beginning of period........................ 415 777
------------ ------------
Cash and cash equivalents at end of period.............................. $ 574 $ 958
============ ============
<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 forty week periods ended
July 1, 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:
July 1, September 25,
2000 1999
------------- -------------
Raw materials and supplies........ $ 2,778,000 $ 2,809,000
Finished goods.................... 2,990,000 2,600,000
------------- -------------
$ 5,768,000 $ 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 Forty weeks ended
---------------------------- ----------------------------
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator - basic and diluted earnings per
share :
Net income from continuing operations........... $ 802 $ 515 $ 2,717 $ 1,414
============ ============ ============ ============
Denominator:
Basic earnings per share - weighted average
shares outstanding.............................. 3,226,415 3,494,399 3,361,789 3,499,299
Effect of dilutive securities - stock options... 284,867 58,175 172,728 33,242
--------------- ------------ ------------ ------------
Diluted earnings per share - weighted average
shares outstanding.............................. 3,511,282 3,552,574 3,534,517 3,532,541
=============== ============ ============ ============
Basic earnings per share........................ $ 0.25 $ 0.15 $ 0.81 $ 0.40
Diluted earnings per share...................... $ 0.23 $ 0.14 $ 0.77 $ 0.40
</TABLE>
For the twelve weeks ended July 1, 2000, all options outstanding had an
exercise price less than the market price of the common shares and were
therefore included in the computation of diluted income per share. For
the twelve weeks ended July 3, 1999 options to purchase 262,326 shares
of common stock 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 forty weeks ended July 1, 2000 and July 3, 1999 options to
purchase 2,300 and 299,519 shares of common stock, respectively, 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 forty weeks
ended July 1, 2000 and July 3, 1999 (in thousands):
<TABLE>
Twelve weeks ended Forty weeks ended
---------------------------- ----------------------------
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
------------ ------------ ------------ ------------
Net sales
<S> <C> <C> <C> <C>
Reportable segments:
Wholesale................. $ 18,898 $ 14,254 $ 59,406 $ 46,718
Direct mail............... 770 719 3,263 2,775
------------ ------------ ------------ ------------
Total net sales........... $ 19,668 $ 14,973 $ 62,669 $ 49,493
============ ============ ============ ============
Pre-tax income
Reportable segments:
Wholesale................. $ 1,311 $ 899 $ 4,502 $ 2,675
Direct mail............... 133 100 375 231
------------ ------------ ------------ ------------
Operating income.......... 1,444 999 4,877 2,906
Reconciling items:
Other income (expense).... 30 (5) 40 6
Interest (expense)........ (141) (164) (389) (639)
------------- ------------ ------------ ------------
Pre-tax income............ $ 1,333 $ 830 $ 4,528 $ 2,273
============ ============ ============ ============
</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 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. The interest paid on the
new line of credit varies with the prime, LIBOR and Bankers Acceptance
rates, plus a margin based on a performance price structure. On July 1,
2000, $9,400,000 was outstanding on the new line of credit. This credit
facility is subject to certain quarterly covenants, and the Company was
in compliance with these covenants on July 1, 2000.
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. In the third quarter of fiscal 2000, due to
a delay in the private placement, the Company recorded a 50% reserve on
this promissory note. The investment in the ChefExpress.net venture
represents an opportunity for the Company to be prominently featured in
an e-procurement website that targets to chefs in restaurants and the
high-end sector of the food service channel. A board member of Green
Mountain Coffee is the Chief Executive Officer and President of
ChefExpress.net.
8. Dutch Auction Self-Tender Offer and Open-Market Stock Repurchases
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. The costs associated with this transaction totaled
$61,000. During the forty weeks ended July 1, 2000, the Company also
repurchased 179,586 shares of its common stock in open-market
transactions at a cost of $1,694,000, or an average of $9.43 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
For the forty weeks ended July 1, 2000, Green Mountain Coffee, Inc.
(the "Company" or "Green Mountain") derived approximately 94.8% 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 5.2% 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, 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.
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
Twelve weeks ended Forty weeks ended
---------------------------- ----------------------------
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales............................ 60.6 % 58.9 % 60.0 % 61.1 %
------------ ------------ ------------ ------------
Gross profit........................ 39.4 % 41.1 % 40.0 % 38.9 %
Selling and operating expenses........... 25.0 % 26.1 % 24.9 % 25.4 %
General and administrative expenses...... 7.1 % 7.8 % 7.1 % 7.4 %
Loss on abandonment of fixed assets...... - 0.5 % 0.2 % 0.2 %
------------ ------------ ------------ ------------
Operating income.................... 7.3 % 6.7 % 7.8 % 5.9 %
Other income (expense)................... 0.2 % (0.0)% 0.0 % 0.0 %
Interest (expense)....................... (0.7)% (1.2)% (0.6)% (1.3)%
------------ ------------ ------------ ------------
Income from continuing operations
before taxes........................ 6.8 % 5.5 % 7.2 % 4.6 %
Income tax expense....................... (2.7)% (2.1)% (2.9)% (1.7)%
------------ ------------ ------------ ------------
Income from continuing operations... 4.1 % 3.4 % 4.3 % 2.9 %
------------ ------------ ------------ ------------
Income from discontinued operations, net
of tax expense........................... - - - 0.3 %
------------ ------------ ------------ ------------
Net income.......................... 4.1 % 3.4 % 4.3 % 3.2 %
============ ============ ============ ============
</TABLE>
TWELVE WEEKS ENDED JULY 1, 2000 VERSUS TWELVE WEEKS ENDED JULY 3, 1999
Net sales increased by $4,695,000, or 31.4%, from $14,973,000 for the
twelve weeks ended July 3, 1999 (the "1999 period") to $19,668,000 for
the twelve weeks ended July 1, 2000 (the "2000 period"). Coffee pounds
sold increased by approximately 431,000 pounds, or 20.5%, from
approximately 2,101,000 pounds in the 1999 period to approximately
2,532,000 pounds in the 2000 period. Sales of of the single-cup
Keurig-BrewedTM line of coffees accounted for 214,000 pounds or 49.7%
of the pounds growth. 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 Keurig(R) K-cupsTM, 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 $4,644,000, or 32.6%, from
$14,254,000 for the 1999 period to $18,898,000 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 $1,607,000, or 26.1%, from $6,152,000 for the
1999 period to $7,759,000 for the 2000 period. As a percentage of net
sales, gross profit decreased 1.7 percentage points from 41.1% for the
1999 period to 39.4% for the 2000 period. The decrease in gross profit
as a percentage of sales was due primarily to the increased sales of
Keurig coffees which carry a lower percentage gross margin but also
lower operating expenses.
Selling and operating expenses increased by $998,000, or 25.5%, from
$3,914,000 for the 1999 period to $4,912,000 for the 2000 period.
Selling and operating expenses decreased 1.1 percentage points as a
percentage of sales from 26.1% for the 1999 period to 25.0% for the
2000 period. The dollar increase in selling and operating expense was
primarily due to increased sales and sales support personnel expenses,
as well as increased marketing expenses.
General and administrative expenses increased by $239,000, or 20.5%,
from $1,164,000 for the 1999 period to $1,403,000 for the 2000 period,
but decreased 0.7 percentage points as a percentage of sales from 7.8%
for the 1999 period to 7.1% for the 2000 period.
During the 1999 period, the Company recorded a $75,000 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
customer sites and was in effect given away to customers.
As a result of the foregoing, operating income increased by $445,000,
or 44.5%, from $999,000 for the 1999 period to $1,444,000 for the 2000
period.
Interest expense decreased by $23,000, or 14.0%, from $164,000 for the
1999 period to $141,000 for the 2000 period. 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 quarter of fiscal 2000.
Income tax expense increased $216,000, or 68.6%, from $315,000 for the
1999 period to $531,000 for the 2000 period. Net income increased by
$287,000, or 55.7%, from $515,000 for the 1999 period to $802,000 in
the 2000 period.
FORTY WEEKS ENDED JULY 1, 2000 VERSUS FORTY WEEKS ENDED JULY 3, 1999
Net sales increased by $13,176,000, or 26.6%, from $49,493,000 for the
forty weeks ended July 3, 1999 (the "1999 YTD period") to $62,669,000
for the forty weeks ended July 1, 2000 (the "2000 YTD period"). Coffee
pounds sold increased by approximately 1,252,000 pounds, or 18.1%, from
approximately 6,904,000 pounds in the 1999 YTD period to approximately
8,156,000 pounds in the 2000 YTD period. Sales of of the single-cup
Keurig-BrewedTM line of coffees accounted for 579,000 pounds or 46.2%
of the pounds growth. 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 non-coffee products such as 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 $12,688,000, or 27.2%, from $46,718,000
for the 1999 YTD period to $59,406,000 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 $5,834,000, or 30.3%, from $19,240,000 for
the 1999 YTD period to $25,074,000 for the 2000 YTD period. As a
percentage of net sales, gross profit from continuing operations
increased 1.1 percentage points from 38.9% for the 1999 YTD period to
40.0% for the 2000 YTD period. The increase in gross profit as a
percentage of sales was due primarily to lower distribution costs,
lower green coffee costs, offset in part by increased sales of products
with lower gross margin percentages such as the Keurig line of coffees.
Selling and operating expenses increased by $3,035,000, or 24.1%, from
$12,568,000 for the 1999 YTD period to $15,603,000 for the 2000 YTD
period, but decreased by 0.5 percentage point as a percentage of sales
from 25.4% 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 $793,000, or 21.6%,
from $3,666,000 for the 1999 YTD period to $4,459,000 for the 2000 YTD
period, but decreased 0.3 percentage points as a percentage of sales
from 7.4% for the 1999 YTD period to 7.1% for the 2000 YTD period.
During the 2000 YTD 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 roaster control
system, which, following a series of upgrades and modifications, had
been substantially replaced over time. During the 1999 YTD period, the
Company recorded a $100,000 loss on abandonment of loaner equipment
(see above).
After the losses on abandonment of fixed assets referenced to above,
operating income increased by $1,971,000, or 67.8%, from $2,906 ,000
for the 1999 YTD period to $4,877,000 for the 2000 YTD period.
Interest expense decreased by $250,000, or 39.1%, from $639,000 for the
1999 YTD period to $389,000 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 $952,000, or 110.8%, from $859,000 for the
1999 YTD period to $1,811,000 for the 2000 YTD period.
Income from continuing operations increased by $1,303,000, or 92.1%,
from $1,414,000 for the 1999 YTD period to $2,717,000 in the 2000 YTD
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 YTD 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 $1,117,000, or 69.8%, from $1,600,000 in the 1999
YTD period to $2,717,000 in the 2000 YTD period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $1,036,000 to $7,088,000 at July 1, 2000 from
$6,052,000 at September 25, 1999. This increase is primarily due to
higher accounts receivable and a decrease in the current portion of
long-term debt, and was partially offset by higher accrued expenses.
During the 2000 YTD period, Green Mountain had capital expenditures of
$3,137,000, including $1,477,000 for equipment on loan to wholesale
customers, $623,000 for production and distribution equipment and
$634,000 for computer equipment and software. During the 1999 YTD
period, Green Mountain had capital expenditures of $1,801,000,
including $1,196,000 for equipment on loan to wholesale customers,
$291,000 for computer equipment and $219,000 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 $4,000,000. 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. On July 1, 2000, a total of $9,400,000 was
outstanding under the new line of credit. The new Fleet credit facility
is subject to certain quarterly covenants, and the Company was in
compliance with these covenants at July 1, 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 May 22, 2000,
the Company concluded a Dutch Auction self-tender offer and accepted
for purchase all 278,658 shares tendered at a purchase price of $16 per
share. The total cost of this self-tender offer amounted to
approximately $4,519,000. 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 and the currently available credit facility will provide
sufficient liquidity to pay all liabilities in the normal course of
business, fund capital expenditures and service debt requirements
through the remainder of calendar 2000.
DEFERRED INCOME TAXES
The Company had net deferred tax assets of $538,000 at July 1, 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 July 1, 2000, the Company had
$9,485,000 of debt subject to variable interest rates. A hypothetical
100 basis points increase in the LIBOR rate, Bankers Acceptance rate
and prime rate would result in additional interest expense of $95,000
on an annualized basis.
<PAGE>
Part II. Other Information
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
July 1, 2000.
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(1) Incorporated by reference to the corresponding exhibit number in the
Registration Statement on Form SB-2 (Registration No. 33-66646) filed on July
28, 1993, and declared effective on September 21, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREEN MOUNTAIN COFFEE, INC.
Date: 8/14/2000 By: /s/ Robert P. Stiller
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Robert P. Stiller,
President and Chief Executive Officer
Date: 8/14/2000 By: /s/ Robert D. Britt
--------- ------------------------------------------------
Robert D. Britt,
Chief Financial Officer, Treasurer and Secretary
