Keurig Green Mountain, Inc.
May 3, 2011
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Green Mountain Coffee Roasters, Inc. Reports Second Quarter Fiscal 2011 Results

Strong Consumer Adoption Powering Keurig Single-Cup Brewing System Sales

WATERBURY, Vt.--(BUSINESS WIRE)-- Green Mountain Coffee Roasters, Inc., (NASDAQ: GMCR), a leader in specialty coffee and coffeemakers, today announced its fiscal 2011 second quarter results for the thirteen weeks ended March 26, 2011.

Second Quarter Fiscal 2011 Performance Highlights*

Second Quarter Fiscal 2011 Results*

Net sales for the second quarter of fiscal 2011 increased 101% to $647.7 million as compared to $322.0 million for the second quarter of fiscal 2010. Under Generally Accepted Accounting Principles (GAAP), net income for the second quarter of fiscal 2011 totaled $65.4 million, or $0.44 per diluted share, representing an increase of 172% as compared to GAAP net income of $24.1 million, or $0.17 per diluted share, for the second quarter of fiscal 2010.

The Company's non-GAAP net income for the second quarter of fiscal 2011 increased 147% to $71.5 million, from non-GAAP net income of $28.9 million in the second quarter of fiscal 2010. Second quarter fiscal 2011 non-GAAP net income excludes pre-tax items of: $1.9 million in Van Houtte transaction-related expenses, $11.7 million in amortization of identifiable intangibles related to the Company's acquisitions, $0.4 million in legal and accounting expenses related to the SEC inquiry and pending litigation, and a $3.0 million tax benefit related to the reversal of certain non-deductible acquisition-related expenses incurred in prior quarters which are now deemed deductible in accordance with recently enacted tax regulations. Second quarter fiscal 2010 non-GAAP net income excludes pre-tax items of: $4.8 million in transaction-related expenses for the Diedrich acquisition and $3.1 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 131% to $0.48 in the second quarter of fiscal 2011 from $0.21 in the second quarter of fiscal 2010.

"We believe healthy post-holiday in-store brewer inventory levels and positive word of mouth from enthusiastic Keurig owners combined to help drive a very strong fiscal second quarter for GMCR," said Lawrence J. Blanford, GMCR's president and CEO.

The Keurig® Single-Cup Brewing system brews a perfect cup of coffee, tea, hot cocoa or iced beverage in under one minute at the touch of a button.

"We believe we are in the early stages of potential Keurig system adoption in North America and continue to work to scale our operations, processes and workforce to meet both the current and expected demands of the business," said Blanford. "The addition of leading, nationally recognized brands like Dunkin' Donuts, Starbucks and Swiss Miss to the Keurig Single-Cup Brewing system expands customer choice within the system, fuels new excitement by current Keurig owners and users, raises system awareness, and has the potential to attract new consumers to the system."

Fiscal 2011 Second Quarter Financial Review*

Balance Sheet Highlights

Business Outlook and Other Forward-Looking Information*

Company Estimates for Fiscal Year 2011

The Company provided the following revised estimates for its fiscal year 2011.

Company Estimates for Third Quarter Fiscal Year 2011

The Company also provided its first estimates for its third quarter of fiscal 2011:

*All 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.

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, each of which include adjustments to show the tax impact of excluding these items. 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 5:00 p.m. ET today, May 3, 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 6217671 from 9:00 p.m. ET on May 3, 2011 through 9:00 PM ET on Sunday, May 8, 2011.

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 Keurig Single-Cup brewing technology, and socially responsible business practices. 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.

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.

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.

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GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)

 
Thirteen Thirteen
weeks ended weeks ended
March 26, March 27,
2011 2010
(As Restated)
Net sales $ 647,658 $ 321,953
Cost of sales   404,803     214,103  
Gross profit 242,855 107,850
 
Selling and operating expenses 79,745 43,251
General and administrative expenses   43,499     24,464  
Operating income 119,611 40,135
 
Other income (expense) 1,078 (133 )
Loss on financial instruments, net (5,959 ) -
Gain on foreign currency, net 4,045 -
Interest expense   (16,672 )   (833 )
Income before income taxes 102,103 39,169
 
Income tax expense   (36,295 )   (15,114 )
Net Income 65,808 24,055
 
Less: Net income attributable to noncontrolling interests   436     -  
 
Net income attributable to GMCR $ 65,372   $ 24,055  
 
 
Basic income per share:
Basic weighted average shares outstanding 141,784,994 131,263,638
Net income $ 0.46 $ 0.18
 
Diluted income per share:
Diluted weighted average shares outstanding 147,558,595 137,831,574
Net income $ 0.44 $ 0.17
 
   

GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)

 
Twenty-six Twenty-six
weeks ended weeks ended
March 26, March 27,
2011 2010
(As Restated)
Net sales $ 1,221,806 $ 667,105
Cost of sales   835,351     463,678  
Gross profit 386,455 203,427
 
Selling and operating expenses 158,034 96,626
General and administrative expenses   85,530     47,636  
Operating income 142,891 59,165
 
Other income (expense) 1,166 110
Loss on financial instruments, net (12,301 ) (354 )
Gain on foreign currency, net 5,624 -
Interest expense   (22,730 )   (1,881 )
Income before income taxes 114,650 57,040
 
Income tax expense   (46,393 )   (22,925 )
Net Income 68,257 34,115
 
Less: Net income attributable to noncontrolling interests   473     -  
 
Net income attributable to GMCR $ 67,784   $ 34,115  
 
 
Basic income per share:
Basic weighted average shares outstanding 141,579,543 131,116,251
Net income $ 0.48 $ 0.26
 
Diluted income per share:
Diluted weighted average shares outstanding 147,310,364 137,628,396
Net income $ 0.46 $ 0.25
 
   

GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Balance Sheets
(Dollars in thousands)

 
March 26, September 25,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 33,737 $ 4,401
Restricted cash and cash equivalents 30,765 355
Receivables, less uncollectible accounts and return allowances
of $20,565 and $14,056 at March 26, 2011 and
September 25, 2010, respectively 226,773 172,200
Inventories 300,760 262,478
Income taxes receivable 10,526 5,350
Other current assets 32,407 23,488
Current deferred income taxes, net 23,713 26,997
Current assets held for sale   27,229   -  
Total current assets 685,910 495,269
 
Fixed assets, net 429,595 258,923
Intangibles, net 569,016 220,005
Goodwill 808,881 386,416
Other long-term assets 58,914 9,961
Long-term assets held for sale   117,444   -  
 
Total assets $ 2,669,760 $ 1,370,574  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 11,328 $ 19,009
Accounts payable 154,697 139,220
Accrued compensation costs 31,899 24,236
Accrued expenses 72,837 49,279
Income tax payable 3,088 1,934
Other short-term liabilities 36,876 4,377
Current liabilities related to assets held for sale   19,786   -  
Total current liabilities   330,511   238,055  
 
Long-term debt 1,048,399 335,504
Long-term deferred income taxes, net 195,952 92,579
Other long-term liabilities 27,651 5,191
Long-term liabilities related to assets held for sale 1,378 -
 
Commitments and contingencies
 
Redeemable noncontrolling interests 20,220 -
 
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 - 141,999,856 and 132,823,585 shares at March 26, 2011
and September 25, 2010, respectively 14,200 13,282
Additional paid-in capital 737,616 473,749
Retained earnings 280,934 213,844
Accumulated other comprehensive income (loss)   12,899   (1,630 )
Total stockholders' equity   1,045,649   699,245  
 
Total liabilities and stockholders' equity $ 2,669,760 $ 1,370,574  
 
     

GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)

 
Twenty-six Twenty-six
weeks ended weeks ended
March 26, March 27,
2011 2010
(As Restated)
Cash flows from operating activities:
Net income $ 68,257 $ 34,115
 
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 30,991 12,667
Amortization of intangibles 17,793 5,204
Amortization of deferred financing fees 5,175 -
Gain on foreign currency exchange transactions (5,624 ) -
(Gain) loss on disposal of fixed assets (75 ) 451
Bad debts 400 342
Sales returns 5,262 3,334
Loss (gain) on financial instruments, net 12,281 (112 )
Tax benefit from exercise of non-qualified options and
disqualified dispositions of incentive stock options 6 22
Excess tax benefits from equity-based compensation plans (5,839 ) (4,492 )
Deferred income taxes 2,862 (2,444 )
Deferred compensation and stock compensation 4,633 3,926
Changes in assets and liabilities, net of effects of acquisition:
Receivables (11,197 ) (31,583 )
Inventories (889 ) 38,016
Income tax receivable (payable), net 2,562 (6,758 )
Other current assets (9,538 ) (7,935 )
Other long-term assets, net (11,300 ) 102
Accounts payable 8,987 6,547
Accrued compensation costs (8,487 ) (1,151 )
Accrued expenses 8,129 15,043
Other short-term liabilities (529 ) -
Other long-term liabilities   11,401     -  
Net cash provided by operating activities 125,261 65,294
 
Cash flows from investing activities:
Change in restricted cash 150 210
Proceeds from sale of short-term investments - 50,000
Proceeds from notes receivable 103 -
Acquisition of Timothy's Coffee of the World Inc. - (154,208 )
Advance on acquisition of Diedrich Coffee, Inc., net of cash acquired - (8,500 )
Acquisition of LJVH Holdings, Inc. (Van Houtte), net of cash acquired (907,835 ) -
Capital expenditures for fixed assets (99,040 ) (53,175 )
Proceeds from disposal of fixed assets 280 183
Other investing activities   (158 )   -  
Net cash used in investing activities (1,006,500 ) (165,490 )
 
Cash flows from financing activities:
Net change in revolving line of credit 257,923 (3,000 )
Proceeds from issuance of common stock under compensation plans 4,784 3,553
Proceeds from issuance of common stock 249,524 -
Dividends paid to redeemable noncontrolling interests shareholders (386 ) -
Excess tax benefits from equity-based compensation plans 5,838 4,492
Capital lease obligations (5 ) (25 )
Proceeds from borrowings of long-term debt 794,500 -
Deferred financing fees (41,628 ) -
Repayment of long-term debt   (354,773 )   (2,500 )
Net cash provided by financing activities 915,777 2,520
 
Change in cash balances included in short-term assets held for sale (6,510 ) -
 
Effect of exchange rate changes on cash and cash equivalents 1,308 -
 
Net (decrease) increase in cash and cash equivalents 29,336 (97,676 )
Cash and cash equivalents at beginning of period   4,401     241,811  
Cash and cash equivalents at end of period $ 33,737   $ 144,135  
 
 
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable
and not disbursed at the end of each year $ 11,051 $ 8,870
 
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
March 26, 2011

Thirteen weeks
ended
March 27, 2010

 

Operating income $ 119,611 $ 40,135
Acquisition-related expenses (1) 1,905 4,839
SEC inquiry (2) 405 -
Amortization of identifiable intangibles (3)   11,658     3,061
Non-GAAP operating income $ 133,579   $ 48,035
 
 

Thirteen weeks
ended
March 26, 2011

Thirteen weeks
ended
March 27, 2010

 

Net income $ 65,372 $ 24,055
After tax:
Acquisition-related expenses (4) (1,858 ) 2,886
SEC inquiry (2) 249 -
Amortization of identifiable intangibles (3)   7,763     1,998
Non-GAAP net income $ 71,526   $ 28,939
 
 

Thirteen weeks
ended
March 26, 2011

Thirteen weeks
ended
March 27, 2010

 

Diluted income per share $ 0.44 $ 0.17
After tax:
Acquisition-related expenses (4) $ (0.01 ) $ 0.02
SEC inquiry (2) $ 0.00 $ -
Amortization of identifiable intangibles (3) $ 0.05   $ 0.01
Non-GAAP net income per share $ 0.48   $ 0.21 *
*Does not add due to rounding.
 

(1) Represents direct acquisition-related expenses of $1.9 million ($1.2 million after-tax) and $4.8 million ($2.9 million after-tax) for the second quarter of fiscal 2011 and fiscal 2010, respectively.

(2) Represents legal and accounting expenses, net of tax, related to the SEC inquiry and pending litigation classified as general and administrative.

(3) Represents the amortization of intangibles, net of tax, related to the Company's acquisitions classified as general and administrative expense.

(4) Represents direct acquisition-related expenses of $1.9 million ($1.2 million after-tax) and $4.8 million ($2.9 million after-tax) for the second quarter of fiscal 2011 and fiscal 2010, respectively. In the second quarter of fiscal 2011, the Company recognized a tax benefit of $3.0 million related to the reversal of certain nondeductible acquisition-related expenses incurred during the Company's fourth quarter of fiscal 2010 and the first quarter of fiscal 2011 that are now deemed deductible in accordance with recently enacted tax regulations. This tax benefit was reversed for purposes of this non-GAAP table.

 
 

GREEN MOUNTAIN COFFEE ROASTERS, INC.
GAAP to Non-GAAP Reconciliation of Unaudited Consolidated Statements of Operations
(Dollars in thousands)

 

Twenty-six weeks
ended
March 26, 2011

 

Twenty - six weeks
ended
March 27, 2010

 

Operating income $ 142,891 $ 59,165
Acquisition-related expenses (1) 10,573 9,897
SEC inquiry (2) 6,394 -
Amortization of identifiable intangibles (3)   17,793   5,204
Non-GAAP operating income $ 177,651 $ 74,266
 
 

Twenty-six weeks
ended
March 26, 2011

 

Twenty-six weeks
ended
March 27, 2010

 

Net income $ 67,784 $ 34,115
After tax:
Acquisition-related expenses (4) 14,524 6,681
SEC inquiry (2) 3,929 -
Amortization of identifiable intangibles (3)   11,655   3,361
Non-GAAP net income $ 97,892 $ 44,157
 
 

Twenty-six weeks
ended
March 26, 2011

 

Twenty-six weeks
ended
March 27, 2010

 

Diluted income per share $ 0.46 $ 0.25
After tax:
Acquisition-related expenses (4) $ 0.10 $ 0.05
SEC inquiry (2) $ 0.03 $ -
Amortization of identifiable intangibles (3) $ 0.08 $ 0.02
Non-GAAP net income per share $ 0.66 * $ 0.32
*Does not add due to rounding.
 

(1) Represents direct acquisition-related expenses of $10.6 million ($9.8 million after-tax) and $9.9 million ($6.7 million after-tax) for the 2011 YTD period and the prior YTD period, respectively; and for the 2011 YTD period, the write-off of deferred financing expenses as part of the new debt financing of $2.6 million ($1.6 million after-tax) and the foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition of $5.3 million ($4.0 million after-tax).

(2) Represents legal and accounting expenses related to the SEC inquiry, the Company's internal investigation and pending litigation classified as general and administrative.

(3) Represents the amortization of intangibles related to the Company's acquisitions classified as general and administrative expense.

(4) Represents direct acquisition-related expenses of $10.6 million ($9.8 million after-tax) and $9.9 million ($6.7 million after-tax) for the 2011 YTD period and the prior YTD period, respectively; and for the 2011 YTD period, the write-off of deferred financing expenses as part of the new debt financing of $2.6 million ($1.6 million after-tax) and the foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition of $5.3 million ($4.0 million after-tax). In the 2011 YTD period, the Company recognized a $2.1 million tax expense related to the reversal of nondeductible acquisition-related expenses incurred during the Company's fourth quarter of fiscal 2010 and a $3.0 million tax benefit related to the reversal of certain nondeductible acquisition-related expenses incurred during the Company's fourth quarter of fiscal 2010 and the first quarter of fiscal 2011 that are now deemed deductible in accordance with recently enacted tax regulations. This combined tax affect was reversed for purposes of this non-GAAP table.

 

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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