Keurig Green Mountain, Inc.
GREEN MOUNTAIN COFFEE ROASTERS INC (Form: 10-Q, Received: 08/07/2013 16:17:48)

Table of Contents

 

 

 

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 thirteen weeks ended June 29, 2013

 

OR

 

o

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 ROASTERS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

03-0339228

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

33 Coffee Lane, Waterbury, Vermont  05676

(Address of principal executive offices)  (zip code)

 

(802) 244-5621

(Registrants’ telephone number, including area code)

 

 

(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  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  x   NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller Reporting Company o

 

Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Exchange Act)  YES  o   NO  x

 

As of August 1, 2013, 150,739,161 shares of common stock of the registrant were outstanding.

 

 

 



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Form 10-Q

For the Thirteen Weeks Ended June 29, 2013

 

Table of Contents

 

 

 

Page

PART I. FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

 

Unaudited Consolidated Balance Sheets

2

 

Unaudited Consolidated Statements of Operations

3

 

Unaudited Consolidated Statements of Comprehensive Income

4

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

6

 

Unaudited Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

42

 

 

 

PART II. OTHER INFORMATION

43

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 6.

Exhibits

45

Signatures

47

 



Table of Contents

 

Part I.  Financial Information

Item 1.  Financial Statements

 

1



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Balance Sheets

(Dollars in thousands, except per share data)

 

 

 

June 29,
2013

 

September 29,
2012

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

352,205

 

$

58,289

 

Restricted cash and cash equivalents

 

713

 

12,884

 

Receivables, less uncollectible accounts and return allowances of $27,649 and $34,517 at June 29, 2013 and September 29, 2012, respectively

 

333,593

 

363,771

 

Inventories

 

586,263

 

768,437

 

Income taxes receivable

 

2,157

 

32,943

 

Other current assets

 

70,410

 

35,019

 

Deferred income taxes, net

 

51,628

 

51,613

 

Total current assets

 

1,396,969

 

1,322,956

 

 

 

 

 

 

 

Fixed assets, net

 

973,246

 

944,296

 

Intangibles, net

 

439,035

 

498,352

 

Goodwill

 

779,639

 

808,076

 

Deferred income taxes, net

 

272

 

 

Other long-term assets

 

34,222

 

42,109

 

 

 

 

 

 

 

Total assets

 

$

3,623,383

 

$

3,615,789

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

9,789

 

$

6,691

 

Current portion of capital lease and financing obligations

 

3,380

 

3,057

 

Accounts payable

 

227,036

 

279,577

 

Accrued compensation costs

 

73,431

 

38,458

 

Accrued expenses

 

145,999

 

132,992

 

Income tax payable

 

 

29,322

 

Deferred income taxes, net

 

229

 

245

 

Other current liabilities

 

12,960

 

29,645

 

Total current liabilities

 

472,824

 

519,987

 

 

 

 

 

 

 

Long-term debt, less current portion

 

228,296

 

466,984

 

Capital lease and financing obligations, less current portion

 

75,801

 

54,794

 

Deferred income taxes, net

 

271,765

 

270,348

 

Other long-term liabilities

 

23,858

 

32,544

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

10,238

 

9,904

 

 

 

 

 

 

 

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 - 500,000,000 shares; Issued and outstanding - 150,526,269 and 152,680,855 shares at June 29, 2013 and September 29, 2012, respectively

 

15,053

 

15,268

 

Additional paid-in capital

 

1,430,104

 

1,464,560

 

Retained earnings

 

1,126,164

 

771,200

 

Accumulated other comprehensive (loss) income

 

(30,720

)

10,200

 

Total stockholders’ equity

 

2,540,601

 

2,261,228

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,623,383

 

$

3,615,789

 

 

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

 

2



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 

 

 

Thirteen weeks ended

 

Thirty-nine weeks ended

 

 

 

June 29,
2013

 

June 23,
2012

 

June 29,
2013

 

June 23,
2012

 

Net sales

 

$

967,072

 

$

869,194

 

$

3,310,923

 

$

2,912,462

 

Cost of sales

 

559,454

 

565,883

 

2,068,996

 

1,959,509

 

Gross profit

 

407,618

 

303,311

 

1,241,927

 

952,953

 

 

 

 

 

 

 

 

 

 

 

Selling and operating expenses

 

136,742

 

117,982

 

433,368

 

370,445

 

General and administrative expenses

 

77,532

 

55,601

 

220,670

 

157,349

 

Operating income

 

193,344

 

129,728

 

587,889

 

425,159

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

237

 

229

 

652

 

1,589

 

Gain (loss) on financial instruments, net

 

4,419

 

3,032

 

8,994

 

(214

)

(Loss) gain on foreign currency, net

 

(10,391

)

(5,068

)

(19,185

)

1,231

 

Gain on sale of subsidiary

 

 

 

 

26,311

 

Interest expense

 

(3,937

)

(6,157

)

(13,481

)

(18,662

)

Income before income taxes

 

183,672

 

121,764

 

564,869

 

435,414

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(67,226

)

(48,244

)

(207,907

)

(163,949

)

Net income

 

$

116,446

 

$

73,520

 

$

356,962

 

$

271,465

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests

 

174

 

224

 

686

 

724

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to GMCR

 

$

116,272

 

$

73,296

 

$

356,276

 

$

270,741

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

149,825,581

 

155,459,690

 

149,307,144

 

155,071,117

 

Net income per common share - basic

 

$

0.78

 

$

0.47

 

$

2.39

 

$

1.75

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

152,869,392

 

159,299,578

 

152,647,767

 

159,364,440

 

Net income per common share - diluted

 

$

0.76

 

$

0.46

 

$

2.33

 

$

1.70

 

 

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

 

3



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 

 

 

Thirteen weeks ended

 

Thirteen weeks ended

 

 

 

June 29, 2013

 

June 23, 2012

 

 

 

Pre-tax

 

Tax (expense)
benefit

 

After-tax

 

Pre-tax

 

Tax (expense)
benefit

 

After-tax

 

Net income

 

 

 

 

 

$

116,446

 

 

 

 

 

$

73,520

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses arising during the period

 

$

(1,694

)

$

684

 

$

(1,010

)

$

(904

)

$

364

 

$

(540

)

Losses (gains) reclassified to net income

 

394

 

(159

)

235

 

(440

)

177

 

(263

)

Foreign currency translation adjustments

 

(20,689

)

 

(20,689

)

(14,278

)

 

(14,278

)

Other comprehensive (loss) income

 

$

(21,989

)

$

525

 

$

(21,464

)

$

(15,622

)

$

541

 

$

(15,081

)

Total comprehensive income

 

 

 

 

 

94,982

 

 

 

 

 

58,439

 

Total comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

(349

)

 

 

 

 

(64

)

Total comprehensive income attributable to GMCR

 

 

 

 

 

$

95,331

 

 

 

 

 

$

58,503

 

 

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

 

4



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 

 

 

Thirty-nine weeks ended

 

Thirty-nine weeks ended

 

 

 

June 29, 2013

 

June 23, 2012

 

 

 

Pre-tax

 

Tax (expense)
benefit

 

After-tax

 

Pre-tax

 

Tax (expense)
benefit

 

After-tax

 

Net income

 

 

 

 

 

$

356,962

 

 

 

 

 

$

271,465

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses arising during the period

 

$

(972

)

$

393

 

$

(579

)

$

(1,634

)

$

659

 

$

(975

)

Losses (gains) reclassified to net income

 

1,122

 

(453

)

669

 

(106

)

42

 

(64

)

Foreign currency translation adjustments

 

(42,044

)

 

(42,044

)

1,931

 

 

1,931

 

Other comprehensive (loss) income

 

$

(41,894

)

$

(60

)

$

(41,954

)

$

191

 

$

701

 

$

892

 

Total comprehensive income

 

 

 

 

 

315,008

 

 

 

 

 

272,357

 

Total comprehensive (loss) income attributable to noncontrolling interests

 

 

 

 

 

(348

)

 

 

 

 

769

 

Total comprehensive income attributable to GMCR

 

 

 

 

 

$

315,356

 

 

 

 

 

$

271,588

 

 

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

 

5



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

For the Thirty-nine Weeks Ended June 29, 2013

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

Common stock

 

Additional paid-in

 

Retained

 

comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

capital

 

earnings

 

income (loss)

 

equity

 

Balance at September 29, 2012

 

152,680,855

 

$

15,268

 

$

1,464,560

 

$

771,200

 

$

10,200

 

$

2,261,228

 

Options exercised

 

2,441,353

 

244

 

16,269

 

 

 

16,513

 

Issuance of common stock under employee stock purchase plan

 

247,593

 

25

 

5,227

 

 

 

5,252

 

Restricted stock awards and units

 

21,061

 

2

 

(2

)

 

 

 

Repurchase of common stock

 

(4,864,593

)

(486

)

(125,195

)

 

 

(125,681

)

Stock compensation expense

 

 

 

21,203

 

 

 

21,203

 

Tax benefit from equity-based compensation plans

 

 

 

47,852

 

 

 

47,852

 

Deferred compensation expense

 

 

 

190

 

 

 

190

 

Adjustment of redeemable noncontrolling interests to redemption value

 

 

 

 

(1,312

)

 

(1,312

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

(40,920

)

(40,920

)

Net income

 

 

 

 

356,276

 

 

356,276

 

Balance at June 29, 2013

 

150,526,269

 

$

15,053

 

$

1,430,104

 

$

1,126,164

 

$

(30,720

)

$

2,540,601

 

 

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

 

6



Table of Contents

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

Thirty-nine

 

Thirty-nine

 

 

 

weeks ended

 

weeks ended

 

 

 

June 29,
2013

 

June 23,
2012

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

356,962

 

$

271,465

 

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

 

 

 

 

 

Depreciation and amortization of fixed assets

 

137,734

 

89,221

 

Amortization of intangibles

 

34,234

 

34,496

 

Amortization of deferred financing fees

 

4,538

 

4,538

 

Unrealized loss (gain) on foreign currency, net

 

15,555

 

(535

)

Loss on disposal of fixed assets

 

222

 

2,103

 

Gain on sale of subsidiary, excluding transaction costs

 

 

(28,914

)

Provision for doubtful accounts

 

68

 

2,084

 

Provision for sales returns

 

59,209

 

83,170

 

(Gain) loss on derivatives, net

 

(7,872

)

112

 

Excess tax benefits from equity-based compensation plans

 

(47,845

)

(12,449

)

Deferred income taxes

 

8,794

 

13,198

 

Deferred compensation and stock compensation

 

21,393

 

13,811

 

Other

 

881

 

4

 

Changes in assets and liabilities:

 

 

 

 

 

Receivables

 

(32,732

)

(37,895

)

Inventories

 

175,532

 

6,464

 

Income tax receivable/payable, net

 

48,905

 

91,032

 

Other current assets

 

(34,634

)

4,014

 

Other long-term assets, net

 

3,311

 

(608

)

Accounts payable, accrued expenses and accrued compensation costs

 

39,082

 

(48,813

)

Other current liabilities

 

(2,469

)

(3,909

)

Other long-term liabilities

 

(8,633

)

5,593

 

Net cash provided by operating activities

 

772,235

 

488,182

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Change in restricted cash

 

2,852

 

(461

)

Proceeds from sale of subsidiary, net of cash transferred

 

 

137,733

 

Capital expenditures for fixed assets

 

(190,388

)

(305,532

)

Other investing activities

 

501

 

580

 

Net cash used in investing activities

 

(187,035

)

(167,680

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net change in revolving line of credit

 

(226,210

)

(208,678

)

Proceeds from issuance of common stock under compensation plans

 

21,764

 

8,392

 

Repurchase of common stock

 

(125,681

)

 

Excess tax benefits from equity-based compensation plans

 

47,845

 

12,449

 

Payments on capital lease and financing obligations

 

(2,596

)

(4,255

)

Repayment of long-term debt

 

(6,640

)

(6,231

)

Other financing activities

 

(1,006

)

(513

)

Net cash used in financing activities

 

(292,524

)

(198,836

)

 

 

 

 

 

 

Change in cash balances included in current assets held for sale

 

 

5,160

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1,240

 

(827

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

293,916

 

125,999

 

Cash and cash equivalents at beginning of period

 

58,289

 

12,989

 

Cash and cash equivalents at end of period

 

$

352,205

 

$

138,988

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

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

 

$

17,998

 

$

34,293

 

Noncash investing and financing activities:

 

 

 

 

 

Fixed assets acquired under capital lease and financing obligations

 

$

23,461

 

$

44,174

 

Settlement of acquisition related liabilities through release of restricted cash

 

$

9,227

 

$

18,788

 

 

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

 

7



Table of Contents

 

Green Mountain Coffee Roasters, Inc.

Notes to Unaudited Consolidated Financial Statements

 

1.               Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP 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 thirteen and thirty-nine week periods ended June 29, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending September 28, 2013.

 

The September 29, 2012 balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.  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 Roasters, Inc. for the fiscal year ended September 29, 2012.  Throughout this presentation, we refer to the consolidated company as the “Company” and, unless otherwise noted, the information provided is on a consolidated basis.

 

2.               Recent Accounting Pronouncements

 

In March 2013, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”).  ASU 2013-05 provides clarification regarding whether Subtopic 810-10, Consolidation - Overall, or Subtopic 830-30, Foreign Currency Matters - Translation of Financial Statements, applies to the release of cumulative translation adjustments into net income when a reporting entity either sells a part or all of its investment in a foreign entity or ceases to have a controlling financial interest in a subsidiary or group of assets that constitute a business within a foreign entity.  The amendments in this ASU are effective prospectively for reporting periods beginning after December 15, 2013, and early adoption is permitted.  The adoption of ASU 2013-05 is not expected to have an impact on the Company’s net income, financial position or cash flows.

 

In February 2013, the FASB issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”).  ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date.  The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors as well as any additional amount the reporting entity expects to pay on behalf of its co-obligors.  ASU 2013-04 also requires an entity to disclose the nature and amount of those obligations.  The amendments in this ASU are effective for reporting periods beginning after December 15, 2013, with early adoption permitted.  Retrospective application is required.  The adoption of ASU 2013-04 is not expected to have a material impact on the Company’s net income, financial position or cash flows.

 

In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Comprehensive Income” (“ASU 2013-02”).  ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.  For significant items not reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts.  The amendments in this ASU are effective for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2012, which for the Company will be the first quarter of fiscal 2014.  The adoption of ASU 2013-02 is not expected to have an impact on the Company’s net income, financial position or cash flows.

 

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” (“ASU 2011-11”) that provides amendments for disclosures about offsetting assets and liabilities.  The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. 

 

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On January 31, 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which clarified that the scope of the disclosures is limited to include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements.  The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  Disclosures required by the amendments should be provided retrospectively for all comparative periods presented.  For the Company, the amendments are effective for the fiscal year ending September 27, 2014 (fiscal year 2014).  The Company has not adopted the amendments and is currently evaluating the impact these amendments may have on its disclosures.

 

3.               Divestiture

 

Fiscal Year 2012

 

On October 3, 2011, all the outstanding shares of Van Houtte USA Holdings, Inc., also known as the Van Houtte U.S. Coffee Service business or the “Filterfresh” business were sold to ARAMARK Refreshment Services, LLC (“ARAMARK”) in exchange for $149.5 million in cash.  Approximately $4.4 million of cash was transferred to ARAMARK as part of the sale and $7.4 million was repaid to ARAMARK upon finalization of the purchase price, resulting in a net cash inflow related to the Filterfresh sale of $137.7 million.  The Company recognized a gain on the sale of $26.3 million during the thirteen weeks ended December 24, 2011.  Filterfresh had been included in the Canada segment.

 

Filterfresh revenues and net income included in the Company’s Unaudited Consolidated Statements of Operations were as follows (dollars in thousands, except per share data):

 

 

 

For the period
September 25, 2011
through
October 3, 2011
(date of sale)

 

Net sales

 

$

2,286

 

 

 

 

 

Net income

 

$

229

 

Less income attributable to noncontrolling interests

 

20

 

Net income attributable to GMCR

 

$

209

 

 

 

 

 

Diluted net income per share

 

$

0.00

 

 

After the disposition, the Company continues to sell coffee and brewers to Filterfresh, which prior to the sale of Filterfresh were eliminated and were not reflected in the Unaudited Consolidated Statements of Operations.  The Company’s sales to Filterfresh for the period September 25, 2011 through October 3, 2011 (date of sale) that were eliminated in consolidation were $0.6 million.

 

4.     Segment Reporting

 

The Company has historically managed its operations through three business segments: the Specialty Coffee business unit (“SCBU”), the Keurig business unit (“KBU”) and the Canadian business unit.  Effective as of and as initially disclosed on May 8, 2013, the Company’s Board of Directors authorized and approved a reorganization which consolidated U.S. operations to bring greater organizational efficiency and coordination across the Company.  Due to this combination, the results of U.S. operations, formerly reported in the SCBU and KBU segments, are reported in one segment (“Domestic”) and the results of Canadian operations are reported in the “Canada” segment.  The Company’s Chief Executive Officer (“CEO”) serves as the Company’s chief operating decision maker (“CODM”) and there are two operating and reportable segments, Domestic and Canada.

 

Effective for the quarter ended June 29, 2013, as a result of the consolidation of U.S. operations, the Company has recast all historical segment results in order to provide data that is on a basis consistent with the Company’s new structure, remove total assets from the Company’s segment disclosures as only consolidated asset information is provided to and used by the CODM for use in decision making (in connection with the reorganization, segment asset information is neither provided to nor used by the CODM), and reflect all corporate social responsibility expenses in Corporate as the Company no longer allocates those expenses to its operating segments.

 

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The Company distributes its products in two channels: at-home (“AH”) and away-from-home (“AFH”). 

 

The Domestic segment sells single cup brewers, accessories, and sources, produces and sells coffee, hot cocoa, teas and other beverages in K-Cup ®  and Vue ®  packs (“single serve packs”) and coffee in more traditional packaging including bags and fractional packs to retailers: including supermarkets, department stores, mass merchandisers, club stores, and convenience stores; to restaurants, hospitality accounts, office coffee distributors and partner brand owners; and to consumers through Company websites.  Substantially all of the Domestic segment’s distribution to major retailers is processed by fulfillment entities which receive and fulfill sales orders and invoice certain retailers primarily in the AH channel.  The Domestic segment also earns royalty income from K-Cup ®  packs sold by a third party licensed roaster.

 

The Canada segment sources, produces and sells coffees and teas and other beverages in a variety of packaging formats, including K-Cup ®  packs, and coffee in more traditional packaging such as bags, cans and fractional packs, and under a variety of brands.  The varieties are sold primarily to supermarkets, club stores and, through office coffee services to offices, convenience stores and restaurants throughout Canada.  In addition, the Canada segment sells the Keurig ®  K-Cup ®  Single Cup brewers, accessories and coffee, tea, and other beverages in K-Cup ®  packs to retailers, department stores and mass merchandisers in Canada for the AH channels; manufactures certain brewing equipment; and is responsible for all of the Company’s coffee brand sales in the grocery channel in Canada.  The Canada segment included Filterfresh through October 3, 2011, the date of sale (see Note 3, Divestitures ).

 

Management evaluates the performance of the Company’s operating segments based on several factors, including net sales to external customers and operating income.  Net sales are recorded on a segment basis and intersegment sales are eliminated as part of the financial consolidation process.  Operating income represents gross profit less selling, operating, general and administrative expenses.  The Company’s manufacturing operations occur within both the Domestic and Canada segments, and the costs of manufacturing are recognized in cost of sales in the operating segment in which the sale occurs.  Information system technology services are mainly centralized while finance and accounting functions are primarily decentralized.  Expenses consisting primarily of compensation and depreciation related to certain centralized administrative functions including information system technology are allocated to the operating segments.  Expenses not specifically related to an operating segment are presented under “Corporate Unallocated.”  Corporate Unallocated expenses are comprised mainly of the compensation and other related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise.  Corporate Unallocated expenses also include depreciation for corporate headquarters, corporate social responsibility expenses, interest expense not directly attributable to an operating segment, the majority of foreign exchange gains or losses, legal expenses and compensation of the Board of Directors.  The Company does not disclose assets or property additions by segment as only consolidated asset information is provided to the CODM for use in decision making.

 

Effective for the first quarter of fiscal 2013, the Company changed its measure for reporting segment profitability and for evaluating segment performance and the allocation of Company resources from income before taxes to operating income (loss).  Prior to the first quarter of fiscal 2013, the Company disclosed each operating and reporting segment’s income before taxes to report segment profitability.  Segment disclosures for prior periods have been recast to reflect operating income by segment in place of income before taxes.  The CODM measures segment performance based upon operating income which excludes interest expense and interest expense is not provided to the CODM by segment. Accordingly, interest expense by segment is no longer presented.

 

Sales between operating segments are transacted at cost.  As a result, intersegment sales have no impact on operating income and effective for the first quarter of fiscal 2013, the Company no longer discloses intersegment sales.  Net sales for the thirteen and thirty-nine weeks ended June 29, 2013 and comparative historical periods include only net sales to external customers.

 

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The following tables summarize selected financial data for segment disclosures for the thirteen and thirty-nine weeks ended June 29, 2013 and June 23, 2012:

 

 

 

Thirteen weeks ended June 29, 2013

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate
Unallocated

 

Consolidated

 

Net sales

 

$

822,593

 

$

144,479

 

$

 

$

967,072

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

213,076

 

$

23,658

 

$

(43,390

)

$

193,344

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

2,615

 

$

515

 

$

3,001

 

$

6,131

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

44,083

 

$

16,501

 

$

625

 

$

61,209

 

 

 

 

Thirteen weeks ended June 23, 2012

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate
Unallocated

 

Consolidated

 

Net sales

 

$

719,771

 

$

149,423

 

$

 

$

869,194

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

125,368

 

$

21,933

 

$

(17,573

)

$

129,728

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

2,011

 

$

379

 

$

2,030

 

$

4,420

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization(1)

 

$

29,452

 

$

15,421

 

$

1

 

$

44,874

 

 


(1)          Reported segment depreciation and amortization has been revised to reflect depreciation expense for Information Systems Technology (“IST”) equipment that was allocated to operating segments in each segment’s income before taxes.  In the Company’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 23, 2012, filed on August 1, 2012, IST equipment depreciation expense was appropriately allocated, recorded and reported on a consolidated basis and in each operating segment’s income before taxes; however, on the depreciation and amortization line, IST equipment depreciation of $5.3 million that should have been reported under the operating segments was reported in Corporate.  The historical issues with the depreciation and amortization lines did not impact the segment reporting for any other line items, including operating income.  Management believes the revision to operating segments’ depreciation and amortization was not material.

 

 

 

Thirty-nine weeks ended June 29, 2013

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate
Unallocated

 

Consolidated

 

Net Sales

 

$

2,820,123

 

$

490,800

 

$

 

$

3,310,923

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

644,024

 

$

69,855

 

$

(125,990

)

$

587,889

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

7,808

 

$

1,870

 

$

11,525

 

$

21,203

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

121,675

 

$

48,938

 

$

1,355

 

$

171,968

 

 

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Thirty-nine weeks ended June 23, 2012

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate
Unallocated

 

Consolidated

 

Net Sales

 

$

2,437,935

 

$

474,527

 

$

 

$

2,912,462

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

423,228

 

$

60,327

 

$

(58,396

)

$

425,159

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

6,147

 

$

1,504

 

$

5,978

 

$

13,629

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization(1)

 

$

78,963

 

$

44,751

 

$

3

 

$

123,717

 

 


(1)          Reported segment depreciation and amortization has been revised to reflect depreciation expense for IST equipment that was allocated to operating segments in each segment’s income before taxes.  In the Company’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 23, 2012, filed on August 1, 2012, IST equipment depreciation expense was appropriately allocated, recorded and reported on a consolidated basis and in each operating segment’s income before taxes; however, on the depreciation and amortization line, IST equipment depreciation of $14.4 million for the thirty-nine weeks ended June 23, 2012 that should have been reported under the operating segments was reported in Corporate.  The historical issues with the depreciation and amortization lines did not impact the segment reporting for any other line items, including operating income.  Management believes the revision to operating segments’ depreciation and amortization was not material.

 

The following table reconciles the total segment operating income to consolidated income before income taxes, as presented in the Unaudited Consolidated Statements of Operations (in thousands):

 

 

 

Thirteen weeks ended

 

Thirty-nine weeks ended

 

 

 

June 29, 2013

 

June 23, 2012

 

June 29, 2013

 

June 23, 2012

 

Operating income

 

$

193,344

 

$

129,728

 

$

587,889

 

$

425,159

 

Other income, net

 

237

 

229

 

652

 

1,589

 

Gain (loss) on financial instruments, net

 

4,419

 

3,032

 

8,994

 

(214

)

(Loss) gain on foreign currency, net

 

(10,391

)

(5,068

)

(19,185

)

1,231

 

Gain on sale of subsidiary

 

 

 

 

26,311

 

Interest expense

 

(3,937

)

(6,157

)

(13,481

)

(18,662

)

Income before income taxes

 

$

183,672

 

$

121,764

 

$

564,869

 

$

435,414

 

 

5.               Inventories

 

Inventories consisted of the following (in thousands) as of:

 

 

 

June 29,
2013

 

September 29,
2012

 

Raw materials and supplies

 

$

177,843

 

$

229,927

 

Finished goods

 

408,420

 

538,510

 

 

 

$

586,263

 

$

768,437

 

 

At June 29, 2013, the Company had approximately $270.4 million in green coffee purchase commitments, of which approximately 86% had a fixed price.  These commitments primarily extend through fiscal 2014.  The value of the variable portion of these commitments was calculated using an average “C” price of coffee of $1.28 per pound at June 29, 2013.  In addition to its green coffee commitments, the Company had approximately $305.0 million in fixed price brewer and related accessory purchase commitments and $508.1 million in production raw material commitments at June 29, 2013.  The Company believes, based on relationships established with its suppliers, that the risk of non-delivery on such purchase commitments is remote.

 

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As of June 29, 2013, minimum future inventory purchase commitments were as follows (in thousands):

 

Fiscal Year

 

Inventory
Purchase
Obligations

 

Remainder of 2013

 

$

484,313

 

2014

 

227,529

 

2015

 

106,311

 

2016

 

109,635

 

2017

 

84,465

 

Thereafter

 

79,577

 

 

 

$

1,091,830

 

 

In order to ensure a continuous supply of high quality raw materials some of the Company’s inventory purchase obligations include long-term purchase commitments for certain strategic raw materials critical for the manufacture of single serve packs.

 

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6.               Fixed Assets

 

Fixed assets consisted of the following (in thousands) as of:

 

 

 

Useful Life in Years

 

June 29,
2013

 

September 29,
2012

 

Production equipment

 

1-15

 

$

638,728

 

$

544,491

 

Coffee service equipment

 

3-7

 

62,071

 

63,722

 

Computer equipment and software

 

1-6

 

142,155

 

111,441

 

Land

 

Indefinite

 

11,426

 

11,740

 

Building and building improvements

 

4-30

 

129,764

 

83,172

 

Furniture and fixtures

 

1-15

 

32,741

 

28,477

 

Vehicles

 

4-5

 

11,239

 

10,306

 

Leasehold improvements

 

1-20 or remaining life of lease, whichever is less

 

92,433

 

72,755

 

Assets acquired under capital leases

 

5-15

 

51,047

 

51,047

 

Construction-in-progress

 

 

 

194,874

 

234,442

 

Total fixed assets

 

 

 

$

1,366,478

 

$

1,211,593

 

Accumulated depreciation and amortization

 

 

 

(393,232

)

(267,297

)

 

 

 

 

$

973,246

 

$

944,296

 

 

Assets acquired under capital leases, net of accumulated amortization, were $43.5 million and $47.0 million at June 29, 2013 and September 29, 2012, respectively.

 

Total depreciation and amortization expense relating to all fixed assets was $49.9 million and $33.4 million for the thirteen weeks ended June 29, 2013 and June 23, 2012, respectively.  Total depreciation and amortization expense relating to all fixed assets was $137.7 million and $89.2 million for the thirty-nine weeks ended June 29, 2013 and June 23, 2012, respectively.

 

7.               Goodwill and Intangible Assets

 

The following represented the change in the carrying amount of goodwill by segment for the thirty-nine weeks ended June 29, 2013 (in thousands):

 

 

 

Domestic

 

Canada

 

Total

 

Balance at September 29, 2012

 

$

369,353

 

$

438,723

 

$

808,076

 

Foreign currency effect

 

 

(28,437

)

(28,437

)

Balance at June 29, 2013

 

$

369,353

 

$

410,286

 

$

779,639

 

 

Effective May 8, 2013, the Company combined the results of its U.S. operations, formerly reported in the SCBU and KBU segments, into one Domestic segment.

 

Indefinite-lived intangible assets included in the Canada operating segment consisted of the following (in thousands) as of:

 

 

 

June 29, 2013

 

September 29, 2012

 

Trade names

 

$

95,745

 

$

102,381

 

 

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Intangible Assets Subject to Amortization

 

Definite-lived intangible assets consisted of the following (in thousands) as of:

 

 

 

 

 

June 29, 2013

 

September 29, 2012

 

 

 

Useful Life in
Years

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Acquired technology

 

4-10

 

$

21,603

 

$

(16,696

)

$

21,622

 

$

(15,433

)

Customer and roaster agreements

 

8-11

 

26,829

 

(18,944

)

27,323

 

(16,796

)

Customer relationships

 

2-16

 

408,366

 

(102,429

)

430,178

 

(79,168

)

Trade names

 

9-11

 

36,856

 

(12,310

)

38,000

 

(9,785

)

Non-compete agreements

 

2-5

 

374

 

(359

)

374

 

(344

)

Total

 

 

 

$

494,028

 

$

(150,738

)

$

517,497

 

$

(121,526

)

 

Definite-lived intangible assets are amortized on a straight-line basis over the period of expected economic benefit.  Total amortization expense was $11.3 million and $11.5 million for the thirteen weeks ended June 29, 2013 and June 23, 2012, respectively.  Total amortization expense was $34.2 million and $34.5 million for the thirty-nine weeks ended June 29, 2013 and June 23, 2012, respectively.

 

The estimated aggregate amortization expense for the remainder of fiscal 2013, for each of the next five years and thereafter, is as follows (in thousands):

 

Remainder of 2013

 

$

11,083

 

2014

 

43,731

 

2015

 

42,182

 

2016

 

41,476

 

2017

 

40,080

 

2018

 

40,080

 

Thereafter

 

124,658

 

 

8.               Product Warranties

 

The Company offers a one-year warranty on all Keurig ®  Single Cup Brewers it sells.  The Company provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized.  Brewer failures may arise in the later part of the warranty period, and actual warranty costs may exceed the reserve.  As the Company has grown, it has added significantly to its product testing, quality control infrastructure and overall quality processes.  Nevertheless, as the Company continues to innovate, and its products become more complex, both in design and componentry, product performance may modulate, causing warranty rates to possibly fluctuate going forward.  As a result, future warranty claims rates may be higher or lower than the Company is currently experiencing and for which the Company is currently providing in its warranty reserve.  At this time, management believes that the warranty rates used and related reserves are appropriate.

 

The changes in the carrying amount of product warranties for the thirteen and thirty-nine weeks ended June 29, 2013 and June 23, 2012 are as follows (in thousands):

 

 

 

Thirteen weeks ended

 

Thirty-nine weeks ended

 

 

 

June 29, 2013

 

June 23, 2012

 

June 29, 2013

 

June 23, 2012

 

Balance, beginning of period

 

$

14,456

 

$

25,740

 

$

20,218

 

$

14,728

 

Provision charged to income

 

(606

)

2,605

 

6,580

 

38,425

 

Usage

 

(3,652

)

(8,962

)

(16,600

)

(33,770

)

Balance, end of period

 

$

10,198

 

$

19,383

 

$

10,198

 

$

19,383

 

 

There were no recoveries for the thirteen weeks ended June 29, 2013.  For the thirteen weeks ended June 23, 2012, the Company recorded recoveries of $0.2 million.  For the thirty-nine weeks ended June 29, 2013 and June 23, 2012, the Company recorded recoveries of $0.6 million and $8.3 million, respectively. 

 

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The recoveries are under an agreement with a supplier and are recorded as a reduction of warranty expense.  The recoveries are not reflected in the provision charged to income in the table above.

 

9.               Noncontrolling Interests

 

Noncontrolling interests (“NCI”) are evaluated by the Company and are shown as either a liability, temporary equity (shown between liabilities and equity) or as permanent equity depending on the nature of the redeemable features at amounts based on formulas specific to each entity.  Generally, mandatorily redeemable NCIs are classified as liabilities and non-mandatorily redeemable NCIs are classified as either temporary or permanent equity.  Redeemable NCIs that are not mandatorily redeemable are classified outside of stockholders’ equity in the Unaudited Consolidated Balance Sheets as temporary equity under the caption, Redeemable noncontrolling interests, and are measured at their redemption values at the end of each period.  If the redemption value is greater than the carrying value, an adjustment is recorded in retained earnings to record the NCI at its redemption value.  Redeemable NCIs that are mandatorily redeemable are classified as a liability in the Unaudited Consolidated Balance Sheets under the caption, Other long-term liabilities , and are measured at the amount of cash that would be paid if settlement occurred at the balance sheet date based on the formula in the Share Purchase and Sale Agreement dated June 22, 2012, with any change from the prior period recognized as interest expense.

 

Net income attributable to NCIs reflects the portion of the net income of consolidated entities applicable to the NCI shareholders in the accompanying Unaudited Consolidated Statements of Operations.  The net income attributable to NCIs is classified in the Unaudited Consolidated Statements of Operations as part of consolidated net income and deducted from total consolidated net income to arrive at the net income attributable to the Company.

 

If a change in ownership of a consolidated subsidiary results in a loss of control or deconsolidation, any retained ownership interests are remeasured with the gain or loss reported to net earnings.

 

The changes in the liability and temporary equity attributable to redeemable NCIs for the thirty-nine weeks ended June 29, 2013 are as follows (in thousands):

 

 

 

Liability attributable to
mandatorily redeemable
noncontrolling interests

 

Equity attributable
to redeemable
noncontrolling interests

 

Balance at September 29, 2012

 

$

4,928

 

$

9,904

 

Net income

 

361

 

325

 

Adjustment to redemption value

 

407

 

1,312

 

Cash distributions

 

(388

)

(618

)

Other comprehensive loss

 

(349

)

(685

)

Balance at June 29, 2013

 

$

4,959

 

$

10,238

 

 

10.        Derivative Financial Instruments

 

Cash Flow Hedges

 

The Company is exposed to certain risks relating to ongoing business operations.  The primary risks that are mitigated by financial instruments are interest rate risk and commodity price risk.  The Company uses interest rate swaps to mitigate interest rate risk associated with the Company’s variable-rate borrowings and enters into coffee futures contracts to hedge future coffee purchase commitments of green coffee with the objective of minimizing cost risk due to market fluctuations.

 

The Company designates these contracts as cash flow hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The changes in the fair value of these instruments are classified in accumulated other comprehensive income (loss).  The gain or loss on these instruments is reclassified from other comprehensive income (“OCI”) into earnings in the same period or periods during which the hedged transaction affects earnings.  If it is determined that a derivative is not highly effective, the gain or loss is reclassified into earnings.

 

Fair Value Hedges

 

The Company enters into foreign currency forward contracts to hedge certain recognized liabilities in currencies other than the Company’s functional currency.  The Company designates these contracts as fair value hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The changes in the fair value of these instruments along with the changes in the fair value of the hedged liabilities are recognized in net gains or losses on foreign currency on the Unaudited Consolidated Statements of Operations.

 

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Other Derivatives

 

The Company is also exposed to certain foreign currency and interest rate risks on an intercompany note with a foreign subsidiary denominated in Canadian currency.  At June 29, 2013, the Company has approximately three years remaining on a CDN $120.0 million cross currency swap to exchange interest payments and principal on the intercompany note.  This cross currency swap is not designated as a hedging instrument for accounting purposes and is recorded at fair value, with the changes in fair value recognized in the Unaudited Consolidated Statements of Operations.  Gains and losses resulting from the change in fair value are largely offset by the financial impact of the re-measurement of the intercompany note.  In accordance with the cross currency swap agreement, on a quarterly basis, the Company pays interest based on the three month Canadian Bankers Acceptance rate and receives interest based on the three month U.S. Libor rate.  Additional interest expense pursuant to the cross currency swap agreement for the thirteen and thirty-nine weeks ended June 29, 2013 was $0.4 million and $1.3 million, respectively.  Additional interest expense pursuant to the cross currency swap agreement for the thirteen and thirty-nine weeks ended June 23, 2012 was $0.4 million and $1.4 million, respectively.

 

The Company occasionally enters into foreign currency forward contracts and coffee futures contracts which are not designated as hedging instruments for accounting purposes, in addition to the foreign currency forward contracts and coffee futures contracts noted above.  Contracts that are not designated as hedging instruments are recorded at fair value with the changes in fair value recognized in the Unaudited Consolidated Statements of Operations.

 

The Company does not hold or use derivative financial instruments for trading or speculative purposes.

 

The Company is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments, however nonperformance is not anticipated.

 

The following table summarizes the fair value of the Company’s derivatives included on the Unaudited Consolidated Balance Sheets (in thousands):

 

 

 

June 29, 2013

 

September 29, 2012

 

Balance Sheet Classification

 

Derivatives designated as hedges:

 

 

 

 

 

 

 

Cash Flow Hedges:

 

 

 

 

 

 

 

Interest rate swaps

 

$

(6,329

)

$

(9,019

)

Other current liabilities

 

Coffee futures

 

(853

)

(342

)

Other current liabilities

 

 

 

$

(7,182

)

$

(9,361

)

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedges:

 

 

 

 

 

 

 

Cross currency swap

 

$

1,752

 

$

(7,242

)

Other current assets (other current liabilities)

 

 

 

$

1,752

 

$

(7,242

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

(5,430

)

$

(16,603

)

 

 

 

The following table summarizes the amount of gain (loss), gross of tax, arising during the period on financial instruments that qualify for hedge accounting included in OCI (in thousands):

 

 

 

Thirteen weeks ended

 

Thirty-nine weeks ended

 

 

 

June 29, 2013

 

June 23, 2012

 

June 29, 2013

 

June 23, 2012

 

Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

1,020

 

$

(366

)

$

2,690

 

$

1,120

 

Coffee futures

 

(2,714

)

(538

)

(3,662

)

(2,754

)

Total

 

$

(1,694

)

$

(904

)

$

(972

)

$

(1,634

)

 

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The following table summarizes the amount of gains (losses), gross of tax, reclassified from OCI to income (in thousands):

 

 

 

Thirteen weeks ended

 

Thirty-nine weeks ended

 

 

 

 

 

June 29,
2013

 

June 23,
2012

 

June 29,
2013

 

June 23,
2012

 

Location of Losses Reclassified
from OCI into Income

 

Coffee futures

 

$

(394

)

$

440

 

$

(1,122

)

$

106

 

Cost of sales

 

Total

 

$

(394

)

$

440

 

$

(1,122

)

$

106

 

 

 

 

The Company expects to reclassify $1.9 million of net losses, net of tax, from OCI to earnings for coffee derivatives within the next twelve months.

 

The amount of gain (loss), gross of tax, on fair value hedges and related hedged items for the thirteen weeks ended June 29, 2013 and June 23, 2012 is as follows (in thousands):

 

 

 

Thirteen weeks ended

 

 

 

 

 

June 29, 2013

 

June 23, 2012

 

 

 

 

 

Gain (loss) on
hedging
derivatives

 

Gain (loss) on
hedged items

 

Gain (loss) on
hedging
derivatives

 

Gain (loss) on
hedged items

 

Location of Gain (Loss) Recognized
in Income on Derivative

 

Foreign currency forwards contracts

 

$

 

$

 

$

(19

)

$

19

 

(Loss) gain on foreign currency, net

 

 

The amount of gain (loss), gross of tax, on fair value hedges and related hedged items for the thirty-nine weeks ended June 29, 2013 and June 23, 2012 is as follows (in thousands):

 

 

 

Thirty-nine weeks ended

 

 

 

 

 

June 29, 2013

 

June 23, 2012

 

 

 

 

 

Gain (loss) on
hedging
derivatives

 

Gain (loss) on
hedged items

 

Gain (loss) on
hedging
derivatives

 

Gain (loss) on
hedged items

 

Location of Gain (Loss) Recognized
in Income on Derivative

 

Foreign currency forwards contracts

 

$

(10

)

$

10

 

$

(48

)

$

48

 

(Loss) gain on foreign currency, net

 

 

Net gains (losses) on financial instruments not designated as hedges for accounting purposes recorded in gain (loss) on financial instruments, net, is as follows (in thousands):

 

 

 

Thirteen weeks ended

 

Thirty-nine weeks ended

 

 

 

June 29, 2013

 

June 23, 2012

 

June 29, 2013

 

June 23, 2012

 

Net gain (loss) on cross currency swap

 

$

4,419

 

$

3,181

 

$

8,994

 

$

(32

)

Net loss on coffee futures

 

 

(148

)

 

(148

)

Net loss on interest rate cap

 

 

(1

)

 

(34

)

Total

 

$

4,419

 

$

3,032

 

$

8,994

 

$

(214

)

 

11.        Fair Value Measurements

 

The Company measures fair value as the selling price that would be received for an asset, or paid to transfer a liability, in the principal or most advantageous market on the measurement date.  The hierarchy established by the Financial Accounting Standards Board prioritizes fair value measurements based on the types of inputs used in the valuation technique.  The inputs are categorized into the following levels:

 

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Inputs other than quoted prices that are observable, either directly or indirectly, which include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical assets or liabilities in markets that are not active.

 

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Level 3 — Unobservable inputs not corroborated by market data, therefore requiring the entity to use the best available information, including management assumptions.

 

The following table summarizes the fair values and the levels used in fair value measurements as of June 29, 2013 for the Company’s financial assets (liabilities) (in thousands):

 

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

Level 2

 

Level 3

 

Derivatives:

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

$

(6,329

)

$

 

Cross currency swap

 

 

1,752

 

 

Coffee futures

 

 

(853

)

 

Total

 

$

 

$

(5,430

)

$

 

 

The following table summarizes the fair values and the levels used in fair value measurements as of September 29, 2012 for the Company’s financial assets (liabilities) (in thousands):

 

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

Level 2

 

Level 3

 

Derivatives:

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

$

(9,019

)

$

 

Cross currency swap

 

 

(7,242

)

 

Coffee futures

 

 

(342

)

 

Total

 

$

 

$

(16,603

)

$

 

 

Derivatives

 

Level 2 derivative financial instruments use inputs that are based on market data of identical (or similar) instruments, including forward prices for commodities, interest rate curves and spot prices that are in observable markets.  Derivatives recorded on the balance sheet are at fair value with changes in fair value recorded in other comprehensive income for cash flow hedges and in the Unaudited Consolidated Statements of Operations for fair value hedges and derivatives that do not qualify for hedge accounting treatment.

 

Derivative financial instruments include coffee futures contracts, interest rate swap agreements, a cross currency swap agreement and foreign currency forward contracts.  The Company has identified significant concentrations of credit risk based on the economic characteristics of the instruments that include interest rates, commodity indexes and foreign currency rates and selectively enters into the derivative instruments with counterparties using credit ratings.

 

To determine fair value, the Company utilizes the market approach valuation technique for coffee futures and foreign currency forward contracts and the income approach for interest rate and cross currency swap agreements.  The Company’s fair value measurements include a credit valuation adjustment for the significant concentrations of credit risk.

 

As of June 29, 2013, the amount of loss estimated by the Company due to credit risk associated with the derivatives for all significant concentrations was not material based on the factors of an industry recovery rate and a calculated probability of default.

 

Long-Term Debt

 

The carrying value of long-term debt was $238.1 million and $473.7 million as of June 29, 2013 and September 29, 2012, respectively.  The inputs to the calculation of the fair value of long-term debt are considered to be Level 2 within the fair value hierarchy, as the measurement of fair value is based on the net present value of calculated interest and principal payments, using an interest rate derived from a fair market yield curve adjusted for the Company’s credit rating.  The carrying value of long-term debt approximates fair value as the interest rate on the debt is based on variable interest rates that reset every 30 days.

 

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Table of Contents

 

12.        Income Taxes

 

The Company recognizes deferred tax assets and liabilities for the expected future tax benefits or consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

 

As of June 29, 2013, the Company had a $17.7 million state capital loss carryforward and an $11.5 million state net operating loss carryforward available to be utilized against future taxable income for years through fiscal 2015 and 2029, respectively, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code of 1986, as amended.  Based upon earnings history, the Company concluded that it is more likely than not that the net operating loss carryforward will be utilized prior to its expiration, but that the capital loss carryforward will not.  The Company has recorded a valuation allowance against the entire deferred tax asset balance for the capital loss carryforward.

 

The total amount of unrecognized tax benefits as of June 29, 2013 and September 29, 2012 was $22.1 million and $24.0 million, respectively.  The amount of unrecognized tax benefits at June 29, 2013 that would impact the effective tax rate if resolved in favor of the Company is $18.5 million.  As a result of prior acquisitions, the Company is indemnified for $14.1 million of the total reserve balance, and the indemnification is capped at CDN $37.9 million.  If these unrecognized tax benefits are resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets, would be reduced accordingly.  The indemnifications have expiration dates through June 2015.

 

As of June 29, 2013 and September 29, 2012, accrued interest and penalties of $1.8 million and $0.6 million, respectively, were included in the Unaudited Consolidated Balance Sheets.  The Company recognizes interest and penalties in income tax expense.  The Company released $2.2 million of unrecognized tax benefits in the second quarter of fiscal 2013 and expects to release an additional $1.5 million during the remainder of fiscal 2013 due to the expiration of the statute of limitations.

 

In the normal course of business, the Company is subject to tax examinations by taxing authorities both inside and outside of the United States.  The Company is currently being examined by the Internal Revenue Service for its fiscal year ended September 25, 2010.  With some exceptions, the Company is generally no longer subject to examinations with respect to returns filed for fiscal years prior to 2006.

 

13.        Stockholders’ Equity

 

Stock Repurchase Program

 

On July 30, 2012, the Board of Directors authorized a program for the Company to repurchase up to $500.0 million of the Company’s common shares over two years, at such times and prices as determined by the Company’s management.  Consistent with Delaware law, any repurchased shares are constructively retired and returned to an unissued status.  Accordingly, the par value of repurchased shares is deducted from common stock and excess repurchase price over the par value is deducted from additional paid-in capital and from retained earnings if additional paid-in capital is depleted.

 

The following table summarizes the shares acquired under the program:

 

 

 

Thirty-nine weeks ended

 

 

 

 

 

 

 

June 29, 2013

 

Fiscal 2012

 

Total

 

Number of shares acquired

 

4,864,593

 

3,120,700

 

7,985,293

 

Average price per share of acquired shares

 

$

25.84

 

$

24.50

 

$

25.32

 

Total cost of acquired shares (in thousands)

 

$

125,681

 

$

76,470

 

$

202,151

 

 

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Table of Contents

 

Accumulated Other Comprehensive Income (Loss)

 

The following table provides the changes in the components of accumulated other comprehensive income (loss), net of tax (in thousands) for the thirty-nine weeks ended June 29, 2013:

 

 

 

Cash Flow Hedges

 

Translation

 

Accumulated Other
Comprehensive Income
(Loss)

 

Balance at September 29, 2012

 

$

(5,792

)

$

15,992

 

$

10,200

 

Current period other comprehensive income (loss)

 

90

 

(41,010

)

(40,920

)

Balance at June 29, 2013

 

$

(5,702

)

$

(25,018

)

$

(30,720

)

 

The unfavorable translation adjustment change during the thirty-nine weeks ended June 29, 2013 was primarily due to the weakening of the Canadian dollar against the U.S. dollar.  See also Note 10, Derivative Financial Instruments .

 

14.        Compensation Plans

 

Stock Option Plans

 

The grant-date fair value of employee stock options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during the thirty-nine weeks ended June 29, 2013 and June 23, 2012:

 

 

 

Thirty-nine weeks ended

 

 

 

June 29,
2013

 

June 23,
2012

 

Average expected life

 

6 years

 

6 years

 

Average volatility

 

81

%

68

%

Dividend yield

 

 

 

Risk-free interest rate

 

1.02

%

1.37

%

Weighted average fair value

 

$

31.17

 

$

32.02

 

 

Restricted Stock Units and Other Awards

 

The Company awards restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and performance stock units (“PSUs”) to eligible employees (“Grantee”) which entitle a Grantee to receive shares of the Company’s common stock.  RSUs and PSUs are awards denominated in units that are settled in shares of the Company’s common stock upon vesting.  RSAs are awards of common stock that are restricted until the shares vest.  In general, RSUs and RSAs vest based on a Grantee’s continuing employment.  The vesting of PSUs is conditioned on the achievement of both a Grantee’s service and the Company’s performance requirements.  The fair value of RSUs, RSAs and PSUs is based on the closing price of the Company’s common stock on the grant date.  Compensation expense for RSUs and RSAs is recognized ratably over a Grantee’s service period.  Compensation expense for PSUs is also recognized over a Grantee’s service period, but only if and when the Company concludes that it is probable (more than likely) the performance condition(s) will be achieved.  The assessment of the probability of achievement is performed each period based on the relevant facts and circumstances at that time, and if the estimated grant-date fair value changes as a result of that assessment, the cumulative effect of the change on current and prior periods is recognized in the period of change.  In addition, the Company awards deferred cash awards (“DCAs”), to Grantees which entitle a Grantee to receive cash paid over time upon vesting.  The vesting of DCAs is conditioned on the achievement of a Grantee’s continued employment.  All awards are reserved for issuance under the Company’s 2006 Incentive Plan and vest over periods determined by the Board of Directors, generally in the range of three to four years for RSUs, RSAs and DCAs, and three years for PSUs.

 

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Table of Contents

 

Employee Stock Purchase Plan

 

The grant-date fair value of employees’ purchase rights under the Company’s Employee Stock Purchase Plan is estimated using the Black-Scholes option-pricing model with the following assumptions for the purchase rights granted during the thirty-nine weeks ended June 29, 2013 and June 23, 2012:

 

 

 

Thirty-nine weeks ended

 

 

 

June 29,
2013

 

June 23,
2012

 

Average expected life

 

6 months

 

6 months

 

Average volatility

 

86

%

61

%

Dividend yield

 

 

 

Risk-free interest rate

 

0.13

%

0.09

%

Weighted average fair value

 

$

14.38

 

$

10.46

 

 

Income before income taxes in the Unaudited Consolidated Statements of Operations includes compensation expense related to the plans described above of $6.1 million and $4.4 million for the thirteen weeks ended June 29, 2013 and June 23, 2012, respectively; and $21.2 million and $13.6 million for the thirty-nine weeks ended June 29, 2013 and June 23, 2012, respectively.

 

Deferred Compensation Plan

 

The Company also maintains a Deferred Compensation Plan (“Plan”) which allows participants to defer compensation until a future date.  Only directors and certain highly compensated employees of the Company selected by the Company’s Board of Directors are eligible to participate in the Plan.  Compensation expense recorded under the Plan was $0.05 million and $0.1 million for the thirteen weeks ended June 29, 2013 and June 23, 2012, respectively; and $0.2 million for each of the thirty-nine weeks ended June 29, 2013 and June 23, 2012.

 

15.        Legal Proceedings

 

On October 1, 2010, Keurig, Incorporated, a wholly-owned subsidiary of the Company (“Keurig”), filed suit against Sturm Foods, Inc. (“Sturm”) in the United States District Court for the District of Delaware (Civil Action No. 1:10-CV-00841-SLR) for patent and trademark infringement, false advertising, and other claims, related to Sturm’s sale of “Grove Square” beverage cartridges that claim to be compatible with Keurig ®  brewers.  On September 13, 2012, the District Court rendered a summary judgment decision in favor of Sturm on the patent side of the suit.  Keurig has since appealed to the United States Federal Circuit Court of Appeals the District Court’s summary judgment decision, and oral argument for that appeal is scheduled to take place before the Federal Circuit on August 6, 2013.  Separately, on February 19, 2013, Keurig and Sturm entered into a settlement agreement with respect to the trademark infringement, false advertising, and other claims at issue in the suit, all of which have now been dismissed.  The settlement agreement did not materially impact our consolidated financial results of operations.

 

On November 2, 2011, Keurig filed suit against JBR, INC., d/b/a Rogers Family Company (“Rogers”) in the United States District Court for the District of Massachusetts (Civil Action No. 1:11-cv-11941-MBB) for patent infringement related to Rogers’ sale of “San Francisco Bay” beverage cartridges for use with Keurig ®  brewers.  The suit alleges that the “San Francisco Bay” cartridges violate Keurig patents (U.S. Patent Nos. D502,362, 7,165,488 and 7,347,138).  Keurig sought an injunction prohibiting Rogers from selling these cartridges, as well as money damages. In late 2012, Rogers moved from summary judgment of no infringement as to all three asserted patents. On May 24, 2013, the District of Massachusetts granted Rogers' summary judgment motions. Keurig has since appealed the Court's ruling to the Federal Circuit, and that appeal is currently pending.

 

On January 24, 2012, Teashot, LLC (“Teashot”) filed suit against the Company, Keurig and Starbucks Corp. (“Starbucks”) in the United States District Court for the District of Colorado (Civil Action No. 12-c v-00189-WJM-KMT) for patent infringement related to the making, using, importing, selling and/or offering for sale of K-Cup ®  packs containing tea.  The suit alleges that the Company, Keurig and Starbucks are violating a Teashot patent (U.S. Patent No. 5,895,672).  Teashot seeks an injunction prohibiting the Company, Keurig and Starbucks from continued infringement, as well as money damages.  Pursuant to its Manufacturing, Sales and Distribution Agreement with Starbucks, the Company is defending and indemnifying Starbucks in connection with the suit.  On March 13, 2012, the Company and Keurig, for themselves and Starbucks, filed an answer with the court, generally denying all of Teashot’s allegations.  The Company and Keurig, for themselves and Starbucks, are vigorously defending this lawsuit.  On May 24, 2013, the Company and Keurig, for themselves and Starbucks, filed a motion for summary judgment of non-infringement. On July 19, 2013, Teashot filed a motion for partial summary judgment on certain other, unrelated issues. No hearing on the summary judgment motions has been scheduled.  At this time, the Company is unable to predict the outcome of this lawsuit, the potential loss or range of loss, if any, associated with the resolution of this lawsuit or any potential effect it may have on the Company or its operations.

 

Securities and Exchange Commission (“SEC”) Inquiry

 

As first disclosed on September 28, 2010, the staff of the SEC’s Division of Enforcement continues to conduct an inquiry into matters at the Company.  The Company is cooperating fully with the SEC staff’s inquiry.

 

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Table of Contents

 

Stockholder Litigation

 

Three putative securities fraud class actions have been filed against the Company and certain of its officers and directors, along with two putative stockholder derivative actions.  The first consolidated putative securities fraud class action was commenced following the Company’s disclosure of the SEC inquiry on September 28, 2010.  The second putative securities fraud class action was filed on November 29, 2011, and the third putative securities fraud class action was filed on May 7, 2012.  A consolidated putative stockholder derivative action pending in the United States District Court for the District of Vermont consists of five separate putative stockholder derivative complaints, the first two were filed after the Company’s disclosure of the SEC inquiry on September 28, 2010, while the others were filed on February 10, 2012, March 2, 2012, and July 23, 2012, respectively.  In addition, a putative stockholder derivative action is pending in the Superior Court of the State of Vermont for Washington County that was commenced following the Company’s disclosure of the SEC inquiry on September 28, 2010.

 

The first consolidated putative securities fraud class action, organized under the caption Horowitz v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:10-cv-00227, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III.  The underlying complaints in the consolidated action allege violations of the federal securities laws in connection with the Company’s disclosures relating to its revenues and its forward guidance.  The complaints include counts for violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants.  The plaintiffs seek to represent all purchasers of the Company’s securities between July 28, 2010 and September 28, 2010 or September 29, 2010.  The complaints seek class certification, compensatory damages, equitable and/or injunctive relief, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until November 29, 2010 to move the court to serve as lead plaintiff of the putative class.  On December 20, 2010, the court appointed Jerzy Warchol, Robert M. Nichols, Jennifer M. Nichols, Marc Schmerler and Mike Shanley lead plaintiffs and approved their selection of Glancy Binkow & Goldberg LLP and Robbins Geller Rudman & Dowd LLP as co-lead counsel and the Law Office of Brian Hehir and Woodward & Kelley, PLLC as liaison counsel.  On December 29, 2010 and January 3, 2011, two of the plaintiffs in the underlying actions in the consolidated proceedings, Russell Blank and Dan M. Horowitz, voluntarily dismissed their cases without prejudice.  Pursuant to a stipulated motion granted by the court on November 29, 2010, the lead plaintiffs filed a consolidated complaint on February 23, 2011, and defendants moved to dismiss that complaint on April 25, 2011.  The court heard argument on the motions to dismiss on January 5, 2012.  On January 27, 2012, the court issued an order granting defendants’ motions and dismissing the consolidated complaint without prejudice and the lead plaintiffs filed a motion for leave to amend the complaint on March 27, 2012.  On April 9, 2012, the parties filed a stipulated motion for filing of the amended complaint and to set a briefing schedule for defendants’ motions to dismiss.  Briefing on defendants’ motions to dismiss was completed on August 29, 2012.  On March 20, 2013, the court granted defendants’ motions to dismiss the amended complaint and dismissed the amended complaint with prejudice.  On April 19, 2013, the plaintiffs filed a notice appealing the court’s ruling to the United States Court of Appeals for the Second Circuit.  On July 24, 2013, plaintiff-appellants filed a motion to voluntarily dismiss the appeal with prejudice, and which the appeals court granted on July 29, 2013.

 

The second putative securities fraud class action, captioned Louisiana Municipal Police Employees’ Retirement System (“LAMPERS”) v. Green Mountain Coffee Roasters, Inc., et al., Civ. No. 2:11-cv-00289, was filed on November 29, 2011 and is also pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. Plaintiffs’ amended complaint alleges violations of the federal securities laws in connection with the Company’s disclosures relating to its revenues and its inventory accounting practices.  The amended complaint seeks class certification, compensatory damages, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  Plaintiffs seek to represent all purchasers of the Company’s securities between February 2, 2011 and November 9, 2011.  The initial complaint filed in the action on November 29, 2011 included counts for alleged violations of (1) Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) against the Company, certain of its officers and directors, and the Company’s underwriters in connection with a May 2011 secondary common stock offering; and (2) Section 10(b) of the Exchange Act and Rule 10b-5 against the Company and the officer defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants.  Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until January 30, 2012 to move the court to serve as lead plaintiff of the putative class.  Competing applications were filed and the Court appointed Louisiana Municipal Police Employees’ Retirement System, Sjunde AP-Fonden, Board of Trustees of the City of Fort Lauderdale General Employees’ Retirements System, Employees’ Retirements System of the Government of the Virgin Islands, and Public Employees’ Retirement System of Mississippi as lead plaintiffs’ counsel on April 27, 2012.  Pursuant to a schedule approved by the court, plaintiffs filed their amended complaint on October 22, 2012, and plaintiffs filed a corrected amended complaint on November 5, 2012.  Plaintiffs’ amended complaint does not allege any claims under the Securities Act against the Company, its officers and directors, or the Company’s underwriters in connection with the May 2011 secondary common stock offering.  Defendants moved to dismiss the amended complaint on March 1, 2013 and the briefing of their motions was completed on June 26, 2013.  An oral argument on the defendant's motions to dismiss is set for August 27, 2013.  The underwriters previously named as defendants notified the Company of their intent to seek indemnification from the Company pursuant to their underwriting agreement dated May 5, 2011 in regard to the claims asserted in this action.

 

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The third consolidated putative securities fraud class action, captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. Plaintiffs’ amended complaint alleges violations of the federal securities laws in connection with the Company’s disclosures relating to its forward guidance.  The amended complaint includes counts for violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants.  The amended complaint seeks class certification, compensatory damages, equitable and/or injunctive relief, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  Plaintiffs seek to represent all purchasers of the Company’s securities between February 2, 2012 and May 2, 2012.  Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until July 6, 2012 to move the court to serve as lead plaintiff of the putative class.  On July 31, 2012, the court appointed Kambiz Golesorkhi as lead plaintiff and approved his selection of Kahn Swick & Foti LLC as lead counsel.  On August 14, 2012, the court granted the parties’ stipulated motion for filing of an amended complaint and to set a briefing schedule for defendants’ motions to dismiss.  Pursuant to a schedule approved by the court, plaintiffs filed their amended complaint on October 23, 2012, adding William C. Daley as an additional lead plaintiff.  Defendants moved to dismiss the amended complaint on January 17, 2013 and the briefing of their motions was completed on May 17, 2013.

 

The first putative stockholder derivative action, a consolidated action captioned In re Green Mountain Coffee Roasters, Inc.  Derivative Litigation, Civ. No. 2:10-cv-00233, premised on the same allegations asserted in the putative securities class action complaints described above, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III.  On November 29, 2010, the federal court entered an order consolidating two actions and appointing the firms of Robbins Umeda LLP and Shuman Law Firm as co-lead plaintiffs’ counsel.  On February 23, 2011, the federal court approved a stipulation filed by the parties providing for a temporary stay of that action until the court rules on defendants’ motions to dismiss the consolidated complaint in the Horowitz putative securities fraud class action.  On March 7, 2012, the federal court approved a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the Horowitz putative securities fraud class action or the Horowitz putative securities fraud class action is dismissed with prejudice.  On April 27, 2012, the federal court entered an order consolidating the stockholder derivative action captioned Himmel v. Robert P. Stiller, et al., with two additional putative derivative actions, Musa Family Revocable Trust v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00029, and Laborers Local 235 Benefit Funds v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00042.  On November 14, 2012, the federal court entered an order consolidating an additional stockholder derivative action, captioned as Henry Cargo v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00161, and granting plaintiffs leave to lift the stay for the limited purpose of filing a consolidated complaint.  The consolidated complaint is asserted nominally on behalf of the Company against certain of its officers and directors.  The consolidated complaint ass