Keurig Green Mountain, Inc.
Feb 2, 2011
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Green Mountain Coffee Roasters, Inc. Reports First Quarter Fiscal 2011 Results

Strong Keurig® Single-Cup Brewing System Holiday Sales Drive 67% Net Sales Growth

WATERBURY, Vt.--(BUSINESS WIRE)-- Green Mountain Coffee Roasters, Inc., (NASDAQ: GMCR), a leader in specialty coffee and coffeemakers, today announced its fiscal 2011 first quarter results for the thirteen weeks ended December 25, 2010.

First Quarter Fiscal 2011 Performance Highlights1

First Quarter Fiscal 2011 Results1

Net sales for the first quarter of fiscal 2011 increased 67% to $575.0 million as compared to $345.2 million for the first quarter of fiscal 2010. Under Generally Accepted Accounting Principles (GAAP), net income for the first quarter of fiscal 2011 totaled $2.2 million, or $0.02 per diluted share, representing a decrease of 78% as compared to GAAP net income of $10.1 million, or $0.07 per diluted share, for the first quarter of fiscal 2010.

The Company's non-GAAP net income for the first quarter of fiscal 2011 increased 73% to $26.1 million, from non-GAAP net income of $15.1 million in the first quarter of fiscal 2010. Fiscal first quarter 2011 non-GAAP net income excludes pre-tax items of: $11.2 million in Van Houtte transaction-related expenses including the write-off of $2.6 million of deferred financing fees associated with the former credit facility; $6.0 million in legal and accounting-related expenses associated with the SEC inquiry, the Company's internal investigation and pending litigation; $6.2 million in amortization of identifiable intangibles related to the Company's acquisitions; and, $5.3 million in realized and unrealized loss on foreign exchange transactions associated with hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition. First quarter 2010 non-GAAP net income excludes pre-tax items of: $5.1 million in transaction-related expenses for the Timothy's and Diedrich acquisitions and $2.1 million in amortization of identifiable intangibles related to the Company's prior acquisitions.

On the same basis of presentation, GMCR's non-GAAP earnings per diluted share increased 62% to $0.18 in the first quarter of fiscal 2011 from $0.11 in the first quarter of fiscal 2010.

"With sales growth driven by the strong sales of Keurig Single-Cup brewers and K-Cup portion packs during the holiday season, we are off to a very strong start for fiscal year 2011," said Lawrence J. Blanford, GMCR's president and CEO. "With increasing consumer adoption, the Keurig Single-Cup Brewing System, our growing family of brands, and K-Cup portion pack products are changing the way North America prepares and enjoys its coffee and other beverages."

"Looking forward, we are committed to continuing to represent the best of business in terms of our growth and profitability and our ability to make a positive difference in the world. With our continued growth our ability to make a positive difference continues to increase. We appreciate and thank our enthusiastic consumers, as well as our employees, business partners and other stakeholders, all of whom make our accomplishments possible."

Lavazza Development and Distribution Agreement

Consistent with GMCR's announcement on August 10, 2010 of its entering into a Stock Purchase Agreement with Luigi Lavazza S.p.A (Lavazza), on January 28, 2011, GMCR and its Keurig business unit entered into a multi-year Development and Distribution Agreement with Lavazza. Under the terms of the agreement, Keurig will be the exclusive distributor of new co-developed, Lavazza-manufactured single-serve espresso machines and capsules marketed to home consumers in the United States and Canada. While there is much work to do, GMCR and Lavazza are working towards having the new machines and/or capsules available for the 2012 holiday season.

Van Houtte Acquisition

On December 17, 2010, the Company completed its acquisition of LJVH Holdings, Inc. ("Van Houtte") for an aggregate cash purchase price of CAD$915 million, or USD$908 million, subject to future adjustment based on Van Houtte's working capital, net indebtedness and pre-closing taxes as of immediately prior to the acquisition's closing. GMCR financed the Van Houtte acquisition through a combination of cash on hand and new debt financing.

With a goal of bringing focus and expertise to what the Company believes is a strong Canadian opportunity, the former Van Houtte business becomes GMCR's third business unit, GMCR Canada, or the Canadian business unit (CBU), led by former Van Houtte President and CEO, Gérard Geoffrion as its President.

"Since closing the Van Houtte acquisition, we have been working collaboratively with the Van Houtte management team to explore how best to structure and integrate the business into the GMCR family," said Blanford. "We are still in the early stages of integration assessment and planning, but we believe we are building momentum quickly."

Fiscal 2011 First Quarter Financial Review1

Balance Sheet Highlights

Business Outlook and Other Forward-Looking Information

Company Estimates for Fiscal Year 2011

The Company provided the following revised and/or first issuance of estimates for its fiscal year 2011 inclusive of its acquisition of Van Houtte.

Company Estimates for Second Quarter Fiscal Year 2011

The Company also provided its first estimates for its second quarter of fiscal 2011 inclusive of its acquisition of Van Houtte:

Use of Non-GAAP Financial Measures

In addition to reporting financial results in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP operating results that exclude certain charges or credits such as acquisition-related transaction expenses, legal and accounting-related expenses associated with the SEC inquiry, the Company's internal investigation and pending litigation, foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition, and non-cash related items such as amortization of identifiable intangibles. These amounts are not in accordance with, or an alternative to, GAAP. The Company's management believes that these measures provide investors with transparency by helping illustrate the underlying financial and business trends relating to the Company's results of operations and financial condition and comparability between current and prior periods. Management uses the measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company. Please see the "GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations" tables that accompany this press release for a full reconciliation the Company's GAAP to non-GAAP results.

Conference Call and Webcast

Green Mountain Coffee Roasters, Inc. will be discussing these financial results with analysts and investors in a conference call and live webcast available via the Internet at 5:30 p.m. ET today, February 2, 2011. Management's prepared remarks on its quarterly results will be provided via a Current Report on Form 8-K and also posted under the events link in the Investor Relations section of the Company's website at www.GMCR.com. As a result, the conference call will include only brief remarks by management followed by a question and answer session. The call along with accompanying slides is accessible, via live webcast from the events link in the Investor Relations portion of the Company's website at http://investor.gmcr.com/events.cfm. The Company archives the latest conference call for a period of time. A replay of the conference call also will be available by telephone at (719) 457-0820, Passcode 1857433 from 9:00 p.m. ET on February 2, 2011 through 9:00 PM ET on Sunday, February 6, 2011.

GMCR routinely posts information that may be of importance to investors in the Investor Relations section of its website, including news releases and its complete financial statements, as filed with the SEC. The Company encourages investors to consult this section of its website regularly for important information and news. Additionally, by subscribing to the Company's automatic email news release delivery, individuals can receive news directly from GMCR as it is released.

About Green Mountain Coffee Roasters, Inc.

As a leader in specialty coffee and coffee makers, Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR), is recognized for its award-winning coffees, innovative brewing technology, and socially responsible business practices. GMCR's operations are managed through three business units. The Keurig business unit is comprised of Keurig, Incorporated, a wholly owned subsidiary of GMCR. Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems for both at-home and away-from home use, predominantly in North America. The Specialty Coffee business unit produces, markets and sells coffee, tea, hot cocoa and other beverages in a variety of packaging formats, including K-Cup® portion packs for Keurig Single-Cup Brewers. The Specialty Coffee business unit's family of brands includes Green Mountain Coffee®, Tully's Coffee®, Timothy's World Coffee®, Diedrich Coffee®, and Coffee People®, as well as its licensed brands of Bigelow®, Caribou Coffee®, Celestial Seasonings®, Emeril's®, Gloria Jean's®, Kahlua®, Newman's Own® Organics and Twinings®. The Canadian business unit, which is primarily the former Van Houtte business, produces, markets and sells Van Houtte®, Brûlerie St. Denis®, Les Cafés Orient Express Coffee®, and Brûlerie Mont Royal® coffees in K-Cup® portion packs and other packaging formats and is responsible for managing the Van Houtte business as well as the grocery channel for all GMCR coffee brand sales in Canada. GMCR supports local and global communities by offsetting 100% of its direct greenhouse gas emissions, investing in sustainably-grown coffee, and donating at least five percent of its pre-tax profits to social and environmental projects.

Forward-Looking Statements

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. Generally, these statements can be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those stated here. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact on sales and profitability of consumer sentiment in this difficult economic environment, the Company's success in efficiently expanding operations and capacity to meet growth, the Company's success in efficiently and effectively integrating the Company's acquisitions, the Company's success in introducing and producing new product offerings, the ability of lenders to honor their commitments under the Company's credit facility, competition and other business conditions in the coffee industry and food industry in general, fluctuations in availability and cost of high-quality green coffee, any other increases in costs including fuel, Keurig's ability to continue to grow and build profits with its roaster partners in the At Home and Away from Home businesses, the Company experiencing product liability, product recall and higher than anticipated rates of warranty expense or sales returns associated with a product quality or safety issue, the impact of the loss of major customers for the Company or reduction in the volume of purchases by major customers, delays in the timing of adding new locations with existing customers, the Company's level of success in continuing to attract new customers, sales mix variances, weather and special or unusual events, the impact of the inquiry initiated by the SEC and any related litigation or additional governmental investigative or enforcement proceedings, as well as other risks described more fully in the Company's filings with the SEC. Forward-looking statements reflect management's analysis as of the date of this release. The Company does not undertake to revise these statements to reflect subsequent developments, other than in its regular, quarterly earnings releases.

GMCR-C

1All comparisons to prior periods reflect restated financial results for those periods as reported in Annual Report on Form 10-K filed December 9, 2010. A complete reconciliation of the Company's GAAP to non-GAAP results is provided with this announcement.

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Balance Sheets

(Dollars in thousands)

         
 
December 25, September 25,
2010 2010
Assets
Current assets:
Cash and cash equivalents $ 32,921 $ 4,401
Restricted cash and cash equivalents 30,003 355

Receivables, less uncollectible accounts and return allowances
   of $28,989 and $14,056 at December 25, 2010 and
   September 25, 2010, respectively

238,068 172,200
Inventories 269,132 262,478
Income taxes receivable - 5,350
Other current assets 24,211 23,488
Current deferred income taxes, net 24,626 26,997
Current assets held for sale   25,839   -  
Total current assets 644,800 495,269
 
Fixed assets, net 389,608 258,923
Intangibles, net 573,935 220,005
Goodwill 769,401 386,416
Other long-term assets 65,247 9,961
Long-term assets held for sale   96,262   -  
 
Total assets $ 2,539,253 $ 1,370,574  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 8,476 $ 19,009
Accounts payable 148,034 139,220
Accrued compensation costs 24,607 24,236
Accrued expenses 75,750 49,279
Income tax payable 2,922 1,934
Other short-term liabilities 26,097 4,377

Current liabilities related to assets held for sale

  11,181   -  
Total current liabilities 297,067 238,055
 
Long-term debt 1,076,541 335,504
Long-term deferred income taxes, net 167,632 92,579
Other long-term liabilities 32,669 5,191
Long-term liabilities related to assets held for sale 1,977 -
 
Commitments and contingencies
 
Stockholders' equity:

Preferred stock, $0.10 par value: Authorized - 1,000,000 shares;
    No shares issued or outstanding

- -

Common stock, $0.10 par value: Authorized - 200,000,000 shares;
   Issued - 141,569,636 and 132,823,585 shares at December 25, 2010
   and September 25, 2010, respectively

14,157 13,282
Additional paid-in capital 725,984 473,749
Retained earnings 216,073 213,844
Accumulated other comprehensive income (loss)   1,901   (1,630 )
Total parent stockholders' equity 958,115 699,245
 
Noncontrolling interests   5,252   -  
 
Total stockholders' equity   963,367   699,245  
 
Total liabilities and stockholders' equity $ 2,539,253 $ 1,370,574  
 
 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statements of Operations

(Dollars in thousands)

           
Thirteen Thirteen
weeks ended weeks ended
December 25, December 26,
2010 2009
(As Restated)
Net sales $ 575,027 $ 345,152
Cost of sales   430,613     249,575  
Gross profit 144,414 95,577
 
Selling and operating expenses 78,448 53,375
General and administrative expenses   42,887     23,172  
Operating income 23,079 19,030
 
Other income (expense) 137 243
Gain (loss) on financial instruments, net (6,377 ) (354 )
Gain (loss) on foreign currency, net 1,605 -
Interest expense   (6,023 )   (1,048 )
Income before income taxes 12,421 17,871
 
Income tax expense   (10,167 )   (7,811 )
Net Income 2,254 10,060
 
Less: Net income attributable to noncontrolling interests   25     -  
 
Net income attributable to GMCR $ 2,229   $ 10,060  
 
 
Basic income per share:
Basic weighted average shares outstanding 141,374,327 130,969,293
Net income $ 0.02 $ 0.08
 
Diluted income per share:
Diluted weighted average shares outstanding 147,036,072 137,486,331
Net income $ 0.02 $ 0.07
 
 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Cash Flows

(Dollars in thousands)

 
           
Thirteen Thirteen
weeks ended weeks ended
December 25, December 26,
2010 2009
(As Restated)
Cash flows from operating activities:
Net income $ 2,254 $ 10,060
 

Adjustments to reconcile net income to net cash
 provided by operating activities:

Depreciation 12,164 5,853
Amortization of intangibles 6,160 2,143
Amortization of deferred financing fees 2,964 -
Gain on foreign currency exchange transactions (1,605 ) -
Loss on disposal of fixed assets 34 34
Provision for doubtful accounts 384 298
Provision for sales returns 27,521 8,516
Loss on financial instruments, net 6,377 392

Tax benefit from exercise of non-qualified options and
 disqualified dispositions of incentive stock options

- 5
Excess tax benefits from equity-based compensation plans (914 ) (1,124 )
Deferred income taxes 2,260 (578 )
Deferred compensation and stock compensation 2,261 1,977
Changes in assets and liabilities, net of effects of acquisition:
Receivables (52,145 ) (49,422 )
Inventories 29,828 21,885
Income tax receivable, net 6,752 4,624
Other current assets (2,109 ) (834 )
Other long-term assets, net (16,662 ) 145
Accounts payable 3,309 4,662
Accrued compensation costs (8,745 ) (4,923 )
Accrued expenses 16,384 14,707
Other short-term liabilities (375 ) (354 )
Other long-term liabilities   13,560     -  
Net cash provided by operating activities 49,657 18,066
 
Cash flows from investing activities:
Change in restricted cash 117 (120 )
Proceeds from notes receivable 19 -
Acquisition of Timothy's Coffee of the World Inc. - (154,742 )
Advance on acquisition of Diedrich Coffee, Inc. - (8,517 )
Acquisition of LJVH Holdings, Inc. (Van Houtte) (907,895 ) -
Capital expenditures for fixed assets (47,406 ) (23,701 )
Proceeds from disposal of fixed assets   21     145  
Net cash used in investing activities (955,144 ) (186,935 )
 
Cash flows from financing activities:
Net change in revolving line of credit 288,095 -
Proceeds from issuance of common stock under compensation plans 411 384
Proceeds from issuance of common stock 249,524 -
Excess tax benefits from equity-based compensation plans 914 1,124
Capital lease obligations (2 ) (8 )
Proceeds from borrowings of long-term debt 794,500 -
Deferred financing fees (41,438 ) -
Repayment of long-term debt   (354,544 )   (1,250 )
Net cash provided by financing activities 937,460 250
 
Change in cash balances included in short-term assets held for sale (3,638 ) -
 
Effect of exchange rate changes on cash and cash equivalents 185 -
 
Net (decrease) increase in cash and cash equivalents 28,520 (168,619 )
Cash and cash equivalents at beginning of period   4,401     241,811  
Cash and cash equivalents at end of period $ 32,921   $ 73,192  
 
 
Supplemental disclosures of cash flow information:

Fixed asset purchases included in accounts payable
 and not disbursed at the end of each year

$ 11,676 $ 8,350
 
Noncash investing activity:
Liabilities assumed in conjunction with acquisitions $ - $ 1,533
 
 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations

(Dollars in thousands)

               

 

Thirteen weeks ended December 25, 2010
 
GAAP    

Acquisition-related
Transaction
Expenses

   

SEC Inquiry
Expenses

Amortization of
Identifiable
Intangibles

Non-GAAP
 
Net sales $ 575,027 $ - $ - $ - $ 575,027
Cost of sales   430,613     -     -     -     430,613  
Gross profit 144,414 - - - 144,414
 
Selling and operating expenses 78,448 - - - 78,448
General and administrative expenses   42,887     (8,668 )   (5,989 )   (6,160 )   22,070  
Operating income 23,079 8,668 5,989 6,160 43,896
 
Other income (expense) 137 - - - 137
Gain (loss) on financial instruments, net (6,377 ) 6,846 - - 469
Gain (loss) on foreign currency, net 1,605 (1,524 ) - - 81
Interest expense   (6,023 )   2,555     -     -     (3,468 )
Income before income taxes 12,421 16,545 5,989 6,160 41,115
 
Income tax expense   (10,167 )   (163 )   (2,309 )   (2,376 )   (15,015 )
Net Income 2,254 16,382 3,680 3,784 26,100
 
Less: Net income attributable to noncontrolling interests   25     -     -     -     25  
 
Net income attributable to GMCR $ 2,229   $ 16,382   $ 3,680   $ 3,784   $ 26,075  
 
 
Basic income per share:
Weighted average shares outstanding 141,374,327 141,374,327 141,374,327 141,374,327 141,374,327
Net income $ 0.02 $ 0.12 $ 0.03 $ 0.03 $ 0.18
Diluted income per share:
Weighted average shares outstanding 147,036,072 147,036,072 147,036,072 147,036,072 147,036,072
Net income $ 0.02 $ 0.11 $ 0.03 $ 0.03 $ 0.18
 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations

(Dollars in thousands)

         
Thirteen weeks ended December 26, 2009
 
GAAP  

Acquisition-
related
Transaction
Expenses

 

Amortization of
Indentifiable
Intangibles

Non-GAAP
(As Restated)
Net sales $ 345,152 $ - $ - $ 345,152
Cost of sales   249,575     -     -     249,575  
Gross profit 95,577 - - 95,577
 
Selling and operating expenses 53,375 - - 53,375
General and administrative expenses   23,172     (5,058 )   (2,143 )   15,971  
Operating income 19,030 5,058 2,143 26,231
 
Other income (expense) 243 - - 243
Gain (loss) on financial instruments, net (354 ) - - (354 )
Gain (loss) on foreign currency, net - - - -
Interest expense   (1,048 )   -     -     (1,048 )
Income before income taxes 17,871 5,058 2,143 25,072
 
Income tax expense   (7,811 )   (1,239 )   (937 )   (9,987 )
Net Income 10,060 3,819 1,206 15,085
 
Less: Net income attributable to noncontrolling interests   -     -     -     -  
 
Net income attributable to GMCR $ 10,060   $ 3,819   $ 1,206   $ 15,085  
 
 
Basic income per share:
Weighted average shares outstanding 130,969,293 130,969,293 130,969,293 130,969,293
Net income $ 0.08 $ 0.03 $ 0.01 $ 0.12
Diluted income per share:
Weighted average shares outstanding 137,486,331 137,486,331 137,486,331 137,486,331
Net income $ 0.07 $ 0.03 $ 0.01 $ 0.11

Green Mountain Coffee Roasters, Inc.
Suzanne DuLong, 802-882-2100
VP IR & Corporate Comm
Investor.Services@GMCR.com

Source: Green Mountain Coffee Roasters, Inc.

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