Keurig Green Mountain, Inc.
KEURIG GREEN MOUNTAIN, INC. (Form: 10-Q, Received: 05/06/2015 16:24:05)

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 March 28, 2015

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from                      to                     

 

Keurig Green Mountain, Inc.

 

 

Commission file number 1-12340

 

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 April 30, 2015, 153,968,949 shares of common stock of the registrant were outstanding.

 

 

 



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Form 10-Q

For the Thirteen Weeks Ended March 28, 2015

 

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 Statement 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

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

47

 

 

 

PART II.  OTHER INFORMATION

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 6.

Exhibits

48

Signatures

 

49

 



Table of Contents

 

Part I.  Financial Information

Item 1.  Financial Statements

 

1



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Balance Sheets

(Dollars in thousands, except per share data)

 

 

 

March 28,
2015

 

September 27,
2014

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

97,553

 

$

761,214

 

Restricted cash and cash equivalents

 

29,474

 

378

 

Short-term investment

 

 

100,000

 

Receivables, less uncollectible accounts and return allowances of $48,581 and $66,120 at March 28, 2015 and September 27, 2014, respectively

 

524,327

 

621,451

 

Inventories

 

724,727

 

835,167

 

Income taxes receivable

 

15,548

 

 

Other current assets

 

73,533

 

69,272

 

Deferred income taxes, net

 

60,888

 

58,038

 

Total current assets

 

1,526,050

 

2,445,520

 

 

 

 

 

 

 

Fixed assets, net

 

1,287,640

 

1,171,425

 

Intangibles, net

 

457,719

 

365,444

 

Goodwill

 

764,352

 

755,895

 

Deferred income taxes, net

 

206

 

131

 

Other long-term assets

 

18,718

 

58,892

 

 

 

 

 

 

 

Total assets

 

$

4,054,685

 

$

4,797,307

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

22,159

 

$

19,077

 

Current portion of capital lease and financing obligations

 

2,900

 

2,226

 

Accounts payable

 

279,463

 

411,107

 

Accrued expenses

 

236,328

 

305,677

 

Income tax payable

 

 

53,586

 

Dividend payable

 

44,258

 

40,580

 

Deferred income taxes, net

 

350

 

340

 

Other current liabilities

 

10,430

 

10,395

 

Total current liabilities

 

595,888

 

842,988

 

 

 

 

 

 

 

Long-term debt, less current portion

 

393,293

 

140,937

 

Capital lease and financing obligations, less current portion

 

115,711

 

116,240

 

Deferred income taxes, net

 

200,004

 

202,936

 

Other long-term liabilities

 

52,123

 

23,085

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

4,349

 

12,440

 

 

 

 

 

 

 

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 - 153,941,018 and 162,318,246 shares at March 28, 2015 and September 27, 2014, respectively

 

15,394

 

16,232

 

Additional paid-in capital

 

948,801

 

1,808,881

 

Retained earnings

 

1,894,731

 

1,687,619

 

Accumulated other comprehensive loss

 

(165,609

)

(54,051

)

Total stockholders’ equity

 

2,693,317

 

3,458,681

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

4,054,685

 

$

4,797,307

 

 

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

 

2



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

 

 

March 28,
2015

 

March 29,
2014

 

March 28,
2015

 

March 29,
2014

 

Net sales

 

$

1,127,184

 

$

1,103,072

 

$

2,513,542

 

$

2,489,742

 

Cost of sales

 

668,376

 

645,640

 

1,590,612

 

1,568,263

 

Gross profit

 

458,808

 

457,432

 

922,930

 

921,479

 

 

 

 

 

 

 

 

 

 

 

Selling and operating expenses

 

136,340

 

125,005

 

312,862

 

293,220

 

General and administrative expenses

 

78,491

 

71,941

 

150,164

 

141,147

 

Operating income

 

243,977

 

260,486

 

459,904

 

487,112

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

169

 

1,253

 

350

 

1,682

 

Gain on financial instruments, net

 

3,579

 

2,900

 

6,924

 

7,461

 

Loss on foreign currency, net

 

(8,813

)

(8,722

)

(17,884

)

(19,272

)

Interest expense

 

(281

)

(2,995

)

(1,368

)

(5,615

)

Income before income taxes

 

238,631

 

252,922

 

447,926

 

471,368

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(83,050

)

(90,609

)

(157,666

)

(170,580

)

Net income

 

$

155,581

 

$

162,313

 

$

290,260

 

$

300,788

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests

 

102

 

229

 

202

 

477

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Keurig

 

$

155,479

 

$

162,084

 

$

290,058

 

$

300,311

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Keurig per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.98

 

$

1.05

 

$

1.81

 

$

1.98

 

Diluted

 

$

0.97

 

$

1.03

 

$

1.79

 

$

1.94

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.2875

 

$

0.25

 

$

0.5750

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

158,969,696

 

153,945,441

 

160,575,947

 

151,552,422

 

Diluted

 

160,633,437

 

157,463,096

 

162,362,574

 

154,525,749

 

 

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

 

3



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 

 

 

Thirteen weeks ended

 

Thirteen weeks ended

 

 

 

March 28, 2015

 

March 29, 2014

 

 

 

Pre-tax

 

Tax
(expense)
benefit

 

After-tax

 

Pre-tax

 

Tax
(expense)
benefit

 

After-tax

 

Net income

 

 

 

 

 

$

155,581

 

 

 

 

 

$

162,313

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period

 

$

708

 

$

(262

)

$

446

 

$

18,887

 

$

(7,613

)

$

11,274

 

(Gains) losses reclassified to net income

 

(7,053

)

2,830

 

(4,223

)

1,167

 

(479

)

688

 

Foreign currency translation adjustments

 

(77,021

)

 

(77,021

)

(20,748

)

 

(20,748

)

Other comprehensive loss

 

$

(83,366

)

$

2,568

 

$

(80,798

)

$

(694

)

$

(8,092

)

$

(8,786

)

Total comprehensive income

 

 

 

 

 

74,783

 

 

 

 

 

153,527

 

Total comprehensive income attributable to noncontrolling interests

 

 

 

 

 

504

 

 

 

 

 

(218

)

Total comprehensive income attributable to Keurig

 

 

 

 

 

$

74,279

 

 

 

 

 

$

153,745

 

 

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

 

4



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 

 

 

Twenty-six weeks ended

 

Twenty-six weeks ended

 

 

 

March 28, 2015

 

March 29, 2014

 

 

 

Pre-tax

 

Tax
(expense)
benefit

 

After-tax

 

Pre-tax

 

Tax
(expense)
benefit

 

After-tax

 

Net income

 

 

 

 

 

$

290,260

 

 

 

 

 

$

300,788

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period

 

$

302

 

$

(88

)

$

214

 

$

18,256

 

$

(7,333

)

$

10,923

 

(Gains) losses reclassified to net income

 

(7,618

)

3,066

 

(4,552

)

1,442

 

(581

)

861

 

Foreign currency translation adjustments

 

(107,320

)

 

(107,320

)

(46,244

)

 

(46,244

)

Other comprehensive loss

 

$

(114,636

)

$

2,978

 

$

(111,658

)

$

(26,546

)

$

(7,914

)

$

(34,460

)

Total comprehensive income

 

 

 

 

 

178,602

 

 

 

 

 

266,328

 

Total comprehensive income attributable to noncontrolling interests

 

 

 

 

 

100

 

 

 

 

 

(576

)

Total comprehensive income attributable to Keurig

 

 

 

 

 

$

178,502

 

 

 

 

 

$

266,904

 

 

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

 

5



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

For the Twenty-six Weeks Ended March 28, 2015

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

Common stock

 

Additional paid-

 

Retained

 

comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

in capital

 

earnings

 

loss

 

equity

 

Balance at September 27, 2014

 

162,318,246

 

$

16,232

 

$

1,808,881

 

$

1,687,619

 

$

(54,051

)

$

3,458,681

 

Options exercised

 

387,268

 

39

 

7,076

 

 

 

7,115

 

Restricted stock awards and units

 

193,436

 

19

 

(19

)

 

 

 

Issuance of common stock under employee stock purchase plan

 

82,499

 

8

 

7,932

 

 

 

7,940

 

Repurchase of common stock

 

(9,040,431

)

(904

)

(917,452

)

 

 

(918,356

)

Stock compensation expense

 

 

 

21,491

 

 

 

21,491

 

Tax benefit from equity-based compensation plans

 

 

 

20,493

 

 

 

20,493

 

Deferred compensation expense

 

 

 

399

 

 

 

399

 

Adjustment of redeemable noncontrolling interests to redemption value

 

 

 

 

7,923

 

 

7,923

 

Other comprehensive loss, net of tax

 

 

 

 

 

(111,558

)

(111,558

)

Net income attributable to Keurig

 

 

 

 

290,058

 

 

290,058

 

Cash dividends declared

 

 

 

 

(90,869

)

 

(90,869

)

Balance at March 28, 2015

 

153,941,018

 

$

15,394

 

$

948,801

 

$

1,894,731

 

$

(165,609

)

$

2,693,317

 

 

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

 

6



Table of Contents

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

Twenty-six

 

Twenty-six

 

 

 

weeks ended

 

weeks ended

 

 

 

March 28,

 

March 29,

 

 

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

290,260

 

$

300,788

 

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

 

 

 

 

 

Depreciation and amortization of fixed assets

 

101,721

 

104,222

 

Amortization of intangibles

 

23,168

 

21,942

 

Amortization of deferred financing fees

 

2,826

 

2,826

 

Unrealized loss on foreign currency, net

 

11,439

 

18,089

 

Loss (gain) on disposal of fixed assets

 

469

 

(842

)

Provision for doubtful accounts

 

4,473

 

1,575

 

Provision for sales returns

 

63,301

 

51,747

 

Gain on derivatives, net

 

(9,543

)

(9,954

)

Excess tax benefits from equity-based compensation plans

 

(20,489

)

(46,170

)

Deferred income taxes

 

(141

)

(80

)

Deferred compensation and stock compensation

 

21,890

 

15,882

 

Other

 

2,148

 

(196

)

Changes in assets and liabilities, net of acquisition:

 

 

 

 

 

Receivables

 

23,387

 

(20,697

)

Inventories

 

99,460

 

219,417

 

Income tax receivable/payable, net

 

(49,177

)

27,408

 

Other current assets

 

(4,131

)

3,051

 

Other long-term assets, net

 

887

 

(498

)

Accounts payable and accrued expenses

 

(197,573

)

(83,137

)

Other current liabilities

 

4,252

 

(9,133

)

Other long-term liabilities

 

(662

)

(2,620

)

Net cash provided by operating activities

 

367,965

 

593,620

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Change in restricted cash

 

(272

)

128

 

Maturity of short-term investment

 

100,000

 

 

Acquisition, net of cash acquired

 

(180,698

)

 

Capital expenditures for fixed assets

 

(234,842

)

(118,978

)

Purchase of long-term investment

 

 

(10,000

)

Other investing activities

 

(517

)

1,207

 

Net cash used in investing activities

 

(316,329

)

(127,643

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net change in revolving line of credit

 

265,000

 

 

Proceeds from sale of common stock

 

 

1,243,028

 

Proceeds from issuance of common stock under compensation plans

 

15,055

 

26,441

 

Repurchase of common stock

 

(918,356

)

(880,816

)

Excess tax benefits from equity-based compensation plans

 

20,489

 

46,170

 

Payments on capital lease and financing obligations

 

(1,545

)

(954

)

Repayment of long-term debt

 

(9,381

)

(6,517

)

Dividends paid

 

(87,191

)

(37,220

)

Other financing activities

 

(266

)

(180

)

Net cash (used in) provided by financing activities

 

(716,195

)

389,952

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

898

 

(3,866

)

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(663,661

)

852,063

 

Cash and cash equivalents at beginning of period

 

761,214

 

260,092

 

Cash and cash equivalents at end of period

 

$

97,553

 

$

1,112,155

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

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

 

$

58,991

 

$

43,431

 

Dividends declared not paid at the end of each period

 

$

44,258

 

$

40,483

 

Noncash investing and financing activities:

 

 

 

 

 

Fixed assets acquired under capital lease and financing obligations

 

$

375

 

$

25,930

 

 

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

 

7



Table of Contents

 

Keurig Green Mountain, 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.

 

The September 27, 2014 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 Keurig Green Mountain’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014.  Throughout this presentation, we refer to the consolidated company as the “Company” or “Keurig” and, unless otherwise noted, the information provided is on a consolidated basis.

 

In the opinion of management, all adjustments considered necessary for a fair statement of the interim financial data have been included.  Interim results may not be indicative of results for a full year.  Historically, in addition to variations resulting from the holiday season, sales may vary from quarter-to-quarter due to a variety of other factors including, but not limited to, the cost of green coffee, competitor initiatives, marketing programs and weather.

 

2.               Segment Reporting

 

Segment information is prepared on the same basis that our CEO, who is our chief operating decision maker, manages the business, evaluates financial results, and makes key operating decisions.  The structure includes a Domestic segment containing all U.S. Operations and immaterial operations related to international expansion, and a Canada segment containing all Canadian operations.

 

The Domestic segment sells brewers, accessories, and sources, produces and sells coffee, hot cocoa, teas and other beverages in K-Cup ® , Vue ® , Rivo ® , K-Carafe  and Bolt  pods (“pods”, formerly referred to as portion packs) and coffee in more traditional packaging including bags and fractional packages 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 the Company’s website.  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 At Home (“AH”) channel.  The Domestic segment also earns royalty income from pods sold by a third-party licensed roaster.

 

The Canada segment sells brewers, accessories, and sources, produces and sells coffee and teas and other beverages in pods and coffee in more traditional packaging including bags, cans and fractional packages under a variety of brands to retailers including supermarkets, department stores, mass merchandisers, club stores, through office coffee services to offices, convenience stores, restaurants, hospitality accounts, and to consumers through its website.

 

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 sustainability 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.

 

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The following tables summarize selected financial data for segment disclosures for the thirteen and twenty-six weeks ended March 28, 2015 and March 29, 2014, respectively:

 

 

 

Thirteen weeks ended March 28, 2015

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate-
Unallocated

 

Consolidated

 

Net sales

 

$

1,000,550

 

$

126,634

 

$

 

$

1,127,184

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

268,903

 

$

18,397

 

$

(43,323

)

$

243,977

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

48,052

 

$

12,746

 

$

2,932

 

$

63,730

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

5,456

 

$

525

 

$

5,119

 

$

11,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen weeks ended March 29, 2014

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate-
Unallocated

 

Consolidated

 

Net sales

 

$

970,268

 

$

132,804

 

$

 

$

1,103,072

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

278,030

 

$

20,758

 

$

(38,302

)

$

260,486

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

49,655

 

$

15,275

 

$

2,086

 

$

67,016

 

 

 

 

 

 

 

 

 

 

 

Stock Compensation

 

$

3,945

 

$

730

 

$

3,962

 

$

8,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twenty-six weeks ended March 28, 2015

 

 

 

(Dollars in thousands)

 

 

 

Domestic

 

Canada

 

Corporate-
Unallocated

 

Consolidated

 

Net Sales

 

$

2,216,008

 

$

297,534

 

$

 

$

2,513,542

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

505,504

 

$

39,985

 

$

(85,585

)

$

459,904

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

92,638

 

$

26,605

 

$

5,646

 

$

124,889

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

11,287

 

$

1,248

 

$

8,956

 

$

21,491

 

 

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Twenty-six weeks ended March 29, 2014

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Corporate-

 

 

 

 

 

Domestic

 

Canada

 

Unallocated

 

Consolidated

 

Net Sales

 

$

2,162,134

 

$

327,608

 

$

 

$

2,489,742

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

510,830

 

$

52,731

 

$

(76,449

)

$

487,112

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

89,781

 

$

31,963

 

$

4,420

 

$

126,164

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

7,651

 

$

1,760

 

$

6,308

 

$

15,719

 

 

The following table reconciles operating segments and corporate-unallocated operating income (loss) to consolidated income before income taxes, as presented in the Unaudited Consolidated Statements of Operations (in thousands):

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

 

 

March 28, 2015

 

March 29, 2014

 

March 28, 2015

 

March 29, 2014

 

Operating income

 

$

243,977

 

$

260,486

 

$

459,904

 

$

487,112

 

Other income, net

 

169

 

1,253

 

350

 

1,682

 

Gain on financial instruments, net

 

3,579

 

2,900

 

6,924

 

7,461

 

Loss on foreign currency, net

 

(8,813

)

(8,722

)

(17,884

)

(19,272

)

Interest expense

 

(281

)

(2,995

)

(1,368

)

(5,615

)

Income before income taxes

 

$

238,631

 

$

252,922

 

$

447,926

 

$

471,368

 

 

3.               Inventories

 

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

 

 

 

March 28,

 

September 27,

 

 

 

2015

 

2014

 

Raw materials and supplies

 

$

211,590

 

$

169,858

 

Finished goods

 

513,137

 

665,309

 

 

 

$

724,727

 

$

835,167

 

 

At March 28, 2015, the Company had approximately $426.0 million in green coffee purchase commitments, of which approximately 94% had a fixed price.  These commitments primarily extend through fiscal 2017.  The value of the variable portion of these commitments was calculated using an average “C” price of coffee of $1.52 per pound at March 28, 2015.  In addition to its green coffee commitments, the Company had approximately $94.7 million in fixed price brewer and related accessory purchase commitments and $1,081.0 million in production raw material commitments at March 28, 2015.  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 March 28, 2015, minimum future inventory purchase commitments were as follows (in thousands):

 

 

 

Inventory

 

 

 

Purchase

 

Fiscal Year

 

Obligations(1)

 

Remainder of 2015

 

$

491,387

 

2016

 

380,423

 

2017

 

266,652

 

2018

 

277,349

 

2019

 

120,123

 

Thereafter

 

65,762

 

 

 

$

1,601,696

 

 


(1)          Certain purchase obligations are determined based on a contractual percentage of forecasted volumes.

 

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4.               Acquisition

 

On December 18, 2014, the Company, through its wholly owned subsidiary Keurig International S.à.r.l., acquired all of the outstanding equity of MDS Global Holding p.l.c. (“Bevyz”), a manufacturer and distributor of an all-in-one drink system, for total cash consideration of $180.7 million, net of cash acquired.  The Company currently intends to hold the rights to the technology acquired to prevent others from using such technology.  Such defensive action likely contributes to the value of the Company’s Keurig ®  Kold beverage system.  The goodwill represents the excess value of the purchase price over the aggregate value of the tangible and intangible assets acquired.  The goodwill primarily represents the intangible assets that do not qualify for separate recognition, such as expected synergies from combined operations and assembled workforces, and the future development initiatives of the assembled workforces.  The goodwill and intangible assets recognized in the acquisition are not deductible for tax purposes.

 

Prior to the acquisition, the Company owned approximately 15% of the outstanding equity of Bevyz.  The Company has completed its valuation of the fair value of the business acquired and the acquisition date fair value of the Company’s previously held equity interest in Bevyz with the exception of the tax impact of the transaction.  The valuation was based on the market approach, specifically prior transactions in shares of Bevyz.  As a result, during the second quarter ended March 28, 2015, a $1.5 million loss was recognized on the Company’s previously held equity interest and recognized in other income, net in the accompanying unaudited consolidated statements of operations.  Amortizable intangible assets acquired, valued at the date of acquisition, include approximately $161.7 million for defensive intangible assets, $3.8 million for non-compete agreements and $1.6 million for contractual agreements.  Amortizable intangible assets are amortized on a straight-line basis over their respective useful lives, and the weighted-average amortization period is 12.8 years.

 

The following summarizes the allocation of fair value (in thousands):

 

Accounts receivable

 

$

218

 

Inventories

 

743

 

Other current assets

 

504

 

Fixed assets

 

2,370

 

Other long-term assets

 

247

 

Intangibles

 

167,085

 

Goodwill

 

60,179

 

Accounts payable and accrued expenses

 

(5,911

)

Capital lease obligation

 

(763

)

Deferred tax liability

 

(8,325

)

Other long-term liabilities

 

(1,274

)

Total estimated fair value net assets acquired

 

215,073

 

Less fair value of previously held equity interest in Bevyz

 

(34,375

)

Total cash paid, net of cash acquired

 

$

180,698

 

 

Acquisition costs of $1.5 million were expensed as incurred and recognized in general and administrative expenses in the first quarter of fiscal 2015.  Approximately $28.8 million of the purchase price was held in escrow at March 28, 2015 and is included in restricted cash and other long-term liabilities.  The revenue and earnings of Bevyz since acquisition and the proforma financial statements are immaterial.  For information on the assignment of goodwill to our operating segments, see Note 6, Goodwill and Intangible Assets .

 

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5.               Fixed Assets

 

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

 

 

 

 

 

March 28,

 

September 27,

 

 

 

Useful Life in Years

 

2015

 

2014

 

Production equipment

 

1-15

 

$

786,635

 

$

779,850

 

Coffee service equipment

 

3-7

 

55,349

 

61,029

 

Computer equipment and software

 

1-10

 

228,375

 

177,878

 

Land

 

Indefinite

 

12,256

 

12,767

 

Building and building improvements

 

4-30

 

246,478

 

238,945

 

Furniture and fixtures

 

1-15

 

35,756

 

36,899

 

Vehicles

 

4-5

 

12,161

 

13,032

 

Leasehold improvements

 

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

 

95,960

 

95,373

 

Assets acquired under capital leases

 

5-15

 

41,981

 

41,200

 

Construction-in-progress

 

 

 

424,572

 

308,976

 

Total fixed assets

 

 

 

$

1,939,523

 

$

1,765,949

 

Accumulated depreciation and amortization

 

 

 

(651,883

)

(594,524

)

 

 

 

 

$

1,287,640

 

$

1,171,425

 

 

Assets acquired under capital leases, net of accumulated amortization, were $33.5 million and $34.1 million at March 28, 2015 and September 27, 2014, respectively.

 

Total depreciation and amortization expense relating to all fixed assets was $50.7 million and $56.2 million for the thirteen weeks ended March 28, 2015 and March 29, 2014, respectively.  Total depreciation and amortization expense relating to all fixed assets was $101.7 million and $104.2 million for the twenty-six weeks ended March 28, 2015 and March 29, 2014, respectively.

 

6.               Goodwill and Intangible Assets

 

The following represented the change in the carrying amount of goodwill by segment for the twenty-six weeks ended March 28, 2015 (in thousands):

 

 

 

Domestic

 

Canada

 

Total

 

Balance at September 27, 2014

 

$

369,353

 

$

386,542

 

$

755,895

 

Foreign currency effect

 

(7,086

)

(44,636

)

(51,722

)

Acquisition of Bevyz (see Note 4, Acquisition )

 

60,179

 

 

60,179

 

Balance at March 28, 2015

 

$

422,446

 

$

341,906

 

$

764,352

 

 

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

 

 

 

March 28, 2015

 

September 27, 2014

 

Trade names

 

$

79,835

 

$

90,257

 

 

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Intangible Assets Subject to Amortization

 

Definite-lived intangible assets included in the Domestic segment and Canada segment consisted of the following (in thousands) as of:

 

 

 

 

 

March 28, 2015

 

September 27, 2014

 

 

 

Useful Life in

 

Gross Carrying

 

Accumulated

 

Gross Carrying

 

Accumulated

 

 

 

Years

 

Amount

 

Amortization

 

Amount

 

Amortization

 

Acquired technology

 

4-15

 

$

17,864

 

$

(14,532

)

$

16,501

 

$

(13,713

)

Defensive intangible assets(1)

 

13

 

142,709

 

(2,956

)

 

 

Customer and roaster agreements

 

10-11

 

8,308

 

(5,416

)

8,939

 

(5,303

)

Customer relationships

 

2-16

 

356,271

 

(145,310

)

390,563

 

(141,163

)

Trade names

 

5-11

 

35,514

 

(17,581

)

35,911

 

(16,548

)

Non-compete agreements

 

3

 

3,310

 

(297

)

 

 

Total

 

 

 

$

563,976

 

$

(186,092

)

$

451,914

 

$

(176,727

)

 


(1)          See Note 4, Acquisition for discussion of defensive intangible assets acquired in connection with Bevyz acquisition.

 

Definite-lived intangible assets are amortized on a straight-line basis over the period of expected economic benefit.  Total amortization expense was $13.1 million and $10.7 million for the thirteen weeks ended March 28, 2015 and March 29, 2014, respectively.  Total amortization expense was $23.2 million and $21.9 million for the twenty-six weeks ended March 28, 2015 and March 29, 2014, respectively.

 

The estimated aggregate amortization expense for the remainder of fiscal 2015, for each of the next five years and thereafter, is as follows (in thousands):

 

Fiscal Year

 

Amortization Expense

 

Remainder of 2015

 

$

24,842

 

2016

 

49,028

 

2017

 

47,630

 

2018

 

46,782

 

2019

 

46,427

 

2020

 

42,332

 

Thereafter

 

120,843

 

 

7.               Product Warranties

 

The Company offers a one-year warranty on all Keurig ®  hot beverage system 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.

 

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The changes in the carrying amount of product warranties for the thirteen and twenty-six weeks ended March 28, 2015 and March 29, 2014 are as follows (in thousands):

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

 

 

March 28, 2015

 

March 29, 2014

 

March 28, 2015

 

March 29, 2014

 

Balance, beginning of period

 

$

19,680

 

$

12,791

 

$

12,850

 

$

7,804

 

Provision related to current period

 

5,795

 

4,834

 

19,961

 

15,064

 

Change in estimate

 

1,079

 

(2,425

)

1,079

 

(2,483

)

Usage

 

(8,627

)

(6,675

)

(15,963

)

(11,860

)

Balance, end of period

 

$

17,927

 

$

8,525

 

$

17,927

 

$

8,525

 

 

For the thirteen and twenty-six weeks ended March 28, 2015 the Company recorded recoveries of $0.5 million and $0.7 million, respectively.  For the thirteen and twenty-six weeks ended March 29, 2014 the Company recorded recoveries of $0.2 million and $0.7 million, respectively.  The recoveries are under agreements with suppliers and are recorded as a reduction of warranty expense.  The recoveries are not reflected in the provision charged to income in the table above.

 

8.               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.

 

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 temporary equity attributable to the redeemable NCI for the twenty-six weeks ended March 28, 2015 are as follows (in thousands):

 

 

 

Equity attributable

 

 

 

to redeemable

 

 

 

noncontrolling interest

 

Balance at September 27, 2014

 

$

12,440

 

Net income

 

202

 

Adjustment to redemption value

 

(7,923

)

Cash distributions

 

(268

)

Other comprehensive loss

 

(102

)

Balance at March 28, 2015

 

$

4,349

 

 

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9.               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, commodity price risk and foreign currency exchange rate risk.  The Company uses interest rate swaps to mitigate interest rate risk associated with the Company’s variable-rate borrowings, 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, and uses foreign currency forward contracts to hedge the purchase and payment of green coffee purchase commitments denominated in non-functional currencies.

 

The Company designates these contracts as cash flow hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The effective portion of the derivatives’ gains or losses, resulting from changes in the fair value of these instruments is classified in accumulated other comprehensive income (loss), net of related tax effects and is reclassified from other comprehensive income (“OCI”) into earnings in the same period or periods during which the hedged transaction affects earnings.  Any ineffective portion of the derivatives’ gains or losses is recognized in earnings in the period such ineffectiveness occurs.  If it is determined that a derivative is not highly effective, the gain or loss is reclassified into earnings.

 

Fair Value Hedges

 

The Company occasionally 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.

 

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 March 28, 2015, the Company had approximately 9 months remaining on a CDN $50.0 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 twenty-six weeks ended March 28, 2015 was $0.1 million and $0.4 million, respectively, and for the thirteen and twenty-six weeks ended March 29, 2014 was $0.3 million and $0.7 million, respectively.

 

The Company occasionally enters into foreign currency forward contracts and coffee futures contracts that qualify as derivatives, and 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 is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments, however nonperformance is not anticipated.

 

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

 

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

 

 

 

March 28, 2015

 

September 27, 2014

 

Balance Sheet Classification

 

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

Interest rate swaps

 

$

(2,026

)

$

(3,371

)

Other current liabilities

 

Coffee futures

 

 

3,437

 

Other current assets

 

Foreign currency forward contracts

 

167

 

108

 

Other current assets

 

 

 

$

(1,859

)

$

174

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedges:

 

 

 

 

 

 

 

Cross currency swap

 

$

8,443

 

$

5,951

 

Other current assets

 

 

 

$

8,443

 

$

5,951

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,584

 

$

6,125

 

 

 

 

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Table of Contents

 

Offsetting

 

Generally, all of the Company’s derivative instruments are subject to a master netting arrangement under which either party may offset amounts if the payment amounts are for the same transaction and in the same currency.  By election, the parties may agree to net other transactions.  In addition, the arrangements provide for the net settlement of all contracts through a single payment in a single currency in the event of default or termination of the contract.  The Company’s policy is to net all derivative assets and liabilities in the accompanying Unaudited Consolidated Balance Sheets when allowable by U.S. GAAP.

 

Additionally, the Company has elected to include all derivative assets and liabilities, including those not subject to a master netting arrangement, in the following offsetting tables.

 

Offsetting of financial assets and derivative assets as of March 28, 2015 and September 27, 2014 is as follows (in thousands):

 

 

 

 

 

Gross

 

Net amount of

 

Gross amounts not offset in the

 

 

 

 

 

 

 

amounts offset

 

assets presented

 

Unaudited Consolidated

 

 

 

 

 

Gross

 

in the

 

in the

 

Balance Sheet

 

 

 

 

 

amounts of

 

Unaudited

 

Unaudited

 

 

 

Cash

 

 

 

 

 

recognized

 

Consolidated

 

Consolidated

 

Financial

 

collateral

 

 

 

 

 

assets

 

Balance Sheet

 

Balance Sheet

 

instruments

 

received

 

Net amount

 

Derivative assets, as of March 28, 2015

 

$

8,610

 

$

 

$

8,610

 

$

 

$

 

$

8,610

 

Derivative assets, as of September 27, 2014

 

9,830

 

(334

)

9,496

 

 

 

9,496

 

 

Offsetting of financial liabilities and derivative liabilities as of March 28, 2015 and September 27, 2014 is as follows (in thousands):

 

 

 

 

 

Gross

 

Net amount of

 

Gross amounts not offset in

 

 

 

 

 

 

 

amounts offset

 

liabilities

 

the Unaudited Consolidated

 

 

 

 

 

Gross

 

in the

 

presented in the

 

Balance Sheet

 

 

 

 

 

amounts of

 

Unaudited

 

Unaudited

 

 

 

Cash

 

 

 

 

 

recognized

 

Consolidated

 

Consolidated

 

Financial

 

collateral

 

 

 

 

 

liabilities

 

Balance Sheet

 

Balance Sheet

 

instruments

 

pledged

 

Net amount

 

Derivative liabilities, as of March 28, 2015

 

$

2,026

 

$

 

$

2,026

 

$

 

$

 

$

2,026

 

Derivative liabilities, as of September 27, 2014

 

3,705

 

(334

)

3,371

 

 

 

3,371

 

 

The following table summarizes the amount of unrealized 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

 

Twenty-six weeks ended

 

 

 

March 28, 2015

 

March 29, 2014

 

March 28, 2015

 

March 29, 2014

 

Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

656

 

$

632

 

$

1,345

 

$

1,206

 

Coffee futures

 

(116

)

18,185

 

(1,288

)

16,785

 

Foreign currency forward contracts

 

168

 

70

 

245

 

265

 

Total

 

$

708

 

$

18,887

 

$

302

 

$

18,256

 

 

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Table of Contents

 

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

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

Location of Gains

 

 

 

March 28,

 

March 29,

 

March 28,

 

March 29,

 

(Losses) Reclassified

 

 

 

2015

 

2014

 

2015

 

2014

 

from OCI into Income

 

Coffee futures

 

$

6,935

 

$

(1,235

)

$

7,559

 

$

(1,441

)

Cost of sales

 

Foreign currency forward contracts

 

118

 

45

 

59

 

1

 

Cost of sales

 

Foreign currency forward contracts

 

 

23

 

 

(2

)

Loss on foreign currency, net

 

Total

 

$

7,053

 

$

(1,167

)

$

7,618

 

$

(1,442

)

 

 

 

The Company expects to reclassify $5.7 million of net gains, net of tax, from OCI to earnings for coffee derivatives within the next twelve months.

 

The following table summarizes the amount of net gains (losses), gross of tax, representing ineffectiveness on cash flow hedges recorded in income (in thousands):

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

Location of Net Gains (losses) in

 

 

 

March 28,

 

March 29,

 

March 28,

 

March 29,

 

Unaudited Consolidated

 

 

 

2015

 

2014

 

2015

 

2014

 

Statements of Operations

 

Coffee futures

 

$

 

$

1,322

 

$

(94

)

$

1,322

 

Cost of sales

 

 

See Note 12, Stockholders’ Equity , for a reconciliation of derivatives in beginning accumulated other comprehensive income (loss) to derivatives in ending accumulated other comprehensive income (loss).

 

Net gains on financial instruments not designated as hedges for accounting purposes are as follows (in thousands):

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

Location of Net Gain in

 

 

 

March 28,

 

March 29,

 

March 28,

 

March 29,

 

Unaudited Consolidated

 

 

 

2015

 

2014

 

2015

 

2014

 

Statements of Operations

 

Net gain on cross currency swap

 

$

3,579

 

$

2,900

 

$

6,924

 

$

7,461

 

Gain on financial instruments, net

 

Net gain on coffee futures

 

 

4,051

 

 

6,176

 

Cost of sales

 

Total

 

$

3,579

 

$

6,951

 

$

6,924

 

$

13,637

 

 

 

 

10.        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 (“FASB”) 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 similar assets or liabilities in active markets and quoted prices for identical assets or liabilities in markets that are not active.

 

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

 

19



Table of Contents

 

The following table summarizes the fair values and the levels used in fair value measurements as of March 28, 2015 for the Company’s financial assets (liabilities) (in thousands):

 

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

Level 2

 

Level 3

 

Derivatives:

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

$

(2,026

)

$

 

Cross currency swap

 

 

8,443

 

 

Foreign currency forward contracts

 

 

167

 

 

Total

 

$

 

$

6,584

 

$

 

 

The following table summarizes the fair values and the levels used in fair value measurements as of September 27, 2014 for the Company’s financial liabilities (in thousands):

 

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

Level 2

 

Level 3

 

Derivatives: