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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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(Mark One)
[ X ] Annual Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 30, 2000
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to
_____________
Commission file number 1-12340
GREEN MOUNTAIN COFFEE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 03-0339228
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
33 Coffee Lane, Waterbury, Vermont 05676
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(Address of principal executive offices) (Zip code)
Registrant's telephone number: (802) 244-5621
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.10 par value per share
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 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. [ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on November 30, 2000 was approximately
$55,803,000 based upon the closing price of such stock on that date.
As of November 30, 2000, 3,147,480 shares of common stock of the registrant were
outstanding. See "Market for the Registrant's Common Equity and Related
Stockholder Matters."
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant's Annual Meeting
of Shareholders to be held on March 15, 2001 have been incorporated by reference
into Part III of this report. The registrant will file the definitive Proxy
Statement by January 29, 2001.
GREEN MOUNTAIN COFFEE, INC.
Annual Report on Form 10-K
Table of Contents
Page
Part I
Item 1. Business 4
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Executive Officers of the Registrant 18
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 7A Quantitative and Qualitative Disclosures about
Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 30
Part III
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management 31
Item 13. Certain Relationships and Related Transactions 31
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 32
Certain statements contained herein are not based on historical fact
and are "forward-looking statements" within the meaning of the applicable
securities laws and regulations. In addition, the Company's representatives may
from time to time make oral forward-looking statements. Forward-looking
statements provide current expectations of future events based on certain
assumptions and include any statements that do not directly relate to any
historical or current fact. Words such as "anticipates", "believes", "expects",
"will", "feels", "estimates", "intends", "plans", "projects", and similar
expressions, may identify such forward-looking statements. Owing to the
uncertainties inherent in forward-looking statements, actual results could
differ materially from those set forth in forward-looking statements. Factors
that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, business conditions
in the coffee industry and food industry in general, the impact of the loss of a
major customer, fluctuations in availability and cost of green coffee, economic
conditions, prevailing interest rates, competition, the management challenges of
rapid growth, variances from budgeted sales mix and growth rate, consumer
acceptance of the Company's new products, the impact of a tighter job market,
weather and special or unusual events, as well as other risk factors described
in Item 1 of this report on Form 10-K for the year ended September 30, 2000 and
other factors described from time to time in the Company's filings with the
Securities and Exchange Commission. Forward-looking statements reflect
management's analysis as of the date of this document. The Company does not
undertake to revise these statements to reflect subsequent developments.
PART I
Item 1. Business
The Company
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Green Mountain Coffee, Inc. ("the Company" or "Green Mountain" or
"Green Mountain Coffee") roasts over 25 high-quality arabica coffees to produce
over 60 varieties of coffee which it sells through a coordinated multi-channel
distribution network in its wholesale and direct mail operations. This
distribution network is designed to maximize brand recognition and product
availability. The Company is one of the leading specialty coffee companies in
its established markets.
The majority of Green Mountain's revenue is derived from over 6,700
wholesale customer accounts located primarily in the northeastern United States.
The wholesale operation serves supermarket, specialty food store, convenience
store, food service, hotel, restaurant, university, travel and office coffee
service customers. Wholesale customers resell the coffee in whole bean or ground
form for home consumption and/or brew and sell coffee beverages at their place
of business.
The Company is a Delaware holding company formed in July 1993 whose
only asset is the stock of Green Mountain Coffee Roasters, Inc. ("Roasters"), a
Vermont corporation formed in 1981. As used herein, unless the context otherwise
requires, references to "the Company" or "Green Mountain" or "Green Mountain
Coffee" include the Company and Roasters.
The Company's fiscal year ends on the last Saturday in September. The
Company's fiscal year normally consists of 13 four-week periods with the first,
second and third "quarters" ending 16 weeks, 28 weeks and 40 weeks,
respectively, into the fiscal year. As used herein, unless the context otherwise
requires, references to "fiscal 1999" or "fiscal 1998" represent the 52-week
periods ended September 25, 1999 and September 26, 1998, respectively. Fiscal
2000 represents the 53-week period ended September 30, 2000, with its fourth
fiscal quarter consisting of 13 weeks instead of the usual 12.
The Company's corporate offices are located at 33 Coffee Lane,
Waterbury, Vermont 05676. The Company's telephone number is (802) 244-5621, its
fax number is (802) 244-5436, and its e-mail address for investor information is
investor.services@gmcr.com. The address of the Company's Internet Web site is
www.GreenMountainCoffee.com.
The Product
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Green Mountain is committed to providing the highest quality arabica
coffees available from around the world. To achieve this goal, Green Mountain
carefully selects its coffee beans and then "appropriate roasts(R)" the coffees
to maximize their taste and flavor differences. The Company's coffee offerings
include single-origin, estate, certified organic, Fair Trade, proprietary
blends, and flavored coffees that it sells under the Green Mountain Coffee
Roasters(R) brand.
The Company roasts its coffee in small batches to ensure consistency.
Green Mountain varies both the degree of roast and the roasting profile (i.e.,
roast time and temperature) to maximize a particular coffee's taste
characteristics. The Company utilizes state-of-the-art roasting software which
enables it to more exactly duplicate specific roasts, ensuring Green Mountain's
ability to offer consistent taste profiles.
Green Mountain's roasting process is designed to maximize the flavors
inherent in the coffee itself, without letting the flavor of roasting overshadow
a particular coffee's taste subtleties. The Company believes that its
distinctive roasting methods enable it to provide the same coffees at different
roasting degrees to maximize their flavors and thereby satisfy varying consumer
preferences.
The Company uses convection air roasters, which it believes offer a
higher degree of flexibility than other commercially available roasters. In
addition, the Company has developed specific roasting programs for each bean
type to establish a Green Mountain "signature" for that bean type, which the
Company calls its "appropriate roast". The Company believes that this roasting
process distinguishes it from other specialty coffee companies and has resulted
in strong customer brand loyalty.
Green Mountain, unlike some of its competitors, also offers flavored
coffees. The Company believes that flavoring its coffee during the production
process, rather than providing flavor additives after brewing, provides its
customers with taste consistency, convenience and economy.
The Company nitrogen flushes its packaged coffee and employs one-way
valve bag packaging technology that provides a minimum shelf life of six months
for the Company's coffees. This technology enables the Company to expand its
distribution while maintaining its high standards for quality and freshness.
Green Mountain coffee comes in a variety of packages including whole
beans, fractional packages, and one-cup Keurig(R) portions. The packaging
equipment for Keurig K-Cup(TM) portion packs is owned by Keurig, Inc. and
operated by Green Mountain Coffee. Green Mountain pays a royalty to Keurig, Inc.
for each K-Cup sold.
Growth Strategy
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Green Mountain Coffee is focused on building the brand and profitably
growing its business. At present, management believes that it can continue to
grow sales over the next few years at a rate similar to its historical five-year
average growth rate (in the range of 18 to 25 percent), by increasing market
share in existing markets, expanding into new geographic markets, and
selectively pursuing other opportunities. At the same time, management is
working at growing earnings faster than revenue. These statements are
forward-looking, and subject to the risks and uncertainties outlined in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and under the heading, "Forward-looking information," beginning on
page 21.
In recent years, the primary growth in the coffee industry has come
from the specialty coffee category, driven by the wider availability of high
quality coffee, the emergence of upscale coffee shops throughout the country,
and the general level of consumer education. Green Mountain has been benefiting
from the overall market trend plus some carefully developed and distinctive
advantages over its competitors.
Green Mountain coffee is available in many different distribution
channels and customer categories in its primary geographic market, the eastern
United States. This multi-channel strategy provides widespread exposure to the
brand in a variety of settings, ease of access to the products, and many tasting
opportunities for consumer trial. Green Mountain coffee is widely available
throughout the day: at home in the morning, in hotels, on airplanes and trains,
at convenience stores on the way to work, at the office, in restaurants, in
supermarkets, at the movie theatre, and at home again at the end of the day. The
Company also has a special events vehicle that can be seen at ski races,
festivals, customer locations, and other venues on the East Coast. The vehicle
along with many other special event activities provide great sampling
opportunities and visibility to the brand.
The Company believes that its coffee's convenient availability for
consumer trial through convenience stores, office coffee services and food
service establishments is a significant advantage and a key component of its
growth strategy. The Company believes that potential customers who sample its
products by the cup are likely to develop a taste for Green Mountain coffee and
seek it out through other available distribution channels. It has been the
Company's experience that consumer trial of Green Mountain coffee at one level
of distribution often leads to a subsequent purchase at another level of
distribution.
As brand awareness increases through trial by consumers of the
Company's coffee by the cup, demand for whole bean sales of the Company's coffee
for home consumption also increases. The National Coffee Association of USA,
Inc., in its National Coffee Drinking Trends through 2000 study, states that
"over 75% of coffee drinkers drink coffee at home." As brand equity is built,
wholesale expansion typically continues through customers such as supermarkets
and specialty food stores, who in turn, sell the Company's whole bean coffee to
consumers. This expansion process capitalizes upon this cup/whole bean
inter-relationship. The strategy is designed to further increase Green
Mountain's market share in geographic areas in which it already operates in
order to increase sales density and drive operational and brand-equity
efficiencies.
In addition to its efforts to boost sales in its core geographic
markets, the Company also seeks to introduce Green Mountain coffee in selected
new markets across the United States, principally utilizing the Company's office
coffee and convenience store channels. "Flagship" customers, such as General
Cinema, Delta Express, Delta Shuttle and American Skiing Company, are also key
to the Company's geographic expansion strategy, as they provide great visibility
and sampling opportunities.
In the direct mail area, the Company focuses solicitations on catalog
customers who buy regularly from the Company, bed-and-breakfasts and other small
businesses, and from members of the Company's "Coffee Club", a continuity
program with customized standing orders for automatic re-shipment. Recently, a
large portion of the Company's efforts in the direct mail segment have been
directed towards increasing traffic on its Web site
(www.GreenMountainCoffee.com), which is intended to build brand awareness
nationwide and boost direct sales to consumers in the Company's less mature
geographic markets.
Recent Developments
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NEW PRODUCTS. The Company's partnership with Keurig, Inc. continued to develop
into an important growth driver in fiscal 2000, as the unique Keurig one-cup
brewing system gained significant momentum in the marketplace. Sales of K-Cups
made up 15.7% of total company sales in fiscal 2000. The success with the Keurig
system also helped Green Mountain develop relationships with a number of office
coffee distributors, providing it an opportunity to also sell its traditional
line of products through these distributors (primarily pre-ground fractional
coffee). In fiscal 2000, coffee pounds sold to distributors through the office
coffee service channel grew 63.4% over the previous year and Keurig coffee
pounds accounted for 76.4% of that growth. In June of 2000, the Company signed a
10-year manufacturing and distribution agreement with Keurig, Inc.
In November 2000, Green Mountain added two new coffees (Organic House
Blend(TM) and Southern Pecan) to its existing offering of 12 K-Cup coffees and
introduced its new Connoisseur line of Keurig K-Cups, which it expects will
reinforce its position as the premium provider of K-Cup portion packs. The
Connoisseur collection is made of 5 coffee varieties: Lake & Lodge(TM), Kenyan
AA, Organic Sumatran Reserve(TM), Guatemalan Finca Dos Marias, and, soon to be
available, La Esperanza(TM). The Company intends to continue expanding its K-Cup
and fractional package business nationwide through its office coffee products
distributors in fiscal 2001.
In September 1999, the Company introduced a new line of frozen granita
and hot cappuccino beverages, two high-growth areas of the specialty beverage
market. These products, which are marketed under the Monte Verde(TM) brand,
complement the traditional line of specialty coffees and make Green Mountain a
full-service provider to certain channels, such as convenience stores. In fiscal
2000, sales of Monte Verde products made up 1.5 % of total company sales.
In May of 2000, Green Mountain Coffee Roasters signed an agreement with
TransFair USA to promote Fair Trade coffee. Under the agreement, Green Mountain
Coffee Roasters has agreed to purchase coffee at a minimum floor price under
internationally accepted Fair Trade terms from the small farmer cooperatives in
Peru, Mexico, and Sumatra where the Company has long-standing relationships.
Coffee certified by TransFair USA provides an audit trail from the farm to the
cup, which insures that small-scale farmers are paid a Fair Trade price for
their coffee that provides them with a living wage. All of the Company's regular
certified organic coffees have been certified Fair Trade.
CUSTOMERS. In addition to the previously described strong gains in the office
coffee channel, the Company continued to focus on other key channels of its
wholesale business in fiscal 2000 and built stronger relationships with its
major customers.
Growth in the convenience store channel was very strong, with pounds
sold up 21.7% year-over-year. Exxon Mobil Corporation ("ExxonMobil") convenience
stores continue to be Green Mountain's largest customer in the convenience store
channel, with over 1,200 locations at September 30, 2000, including over 480
corporate-owned stores. In November 2000, the Company announced that it had
signed a new five-year exclusive agreement to provide Green Mountain coffee to
all corporate-owned ExxonMobil convenience stores (over 900 stores, including
the 480 existing locations) in the United States including On the Run(R), Mobil
Mart(R), Exxon Shop(R), Tiger Mart(SM), Tiger Express(SM), and
Tigermarket(SM) locations. In addition, Green Mountain coffee is now the
recommended coffee for all ExxonMobil dealer and franchise operators. ExxonMobil
reports a total of 13,680 retail facilities in the United States. It also has
projected new corporate-owned and dealer-owned On the Run stores that fall under
the agreement in excess of 600 locations by the end of 2002.
Under this new agreement, the Company will unbundle its pricing so that
ExxonMobil pays a lower price for purchases of Green Mountain coffee and in
turn, they will use a third party distributor to deliver the coffee to their
convenience stores thereby reducing Green Mountain's delivery cost. ExxonMobil
will pay for all services provided by the Company such as equipment maintenance
and training on a fee-for-service basis.
As this new five-year agreement is implemented, Green Mountain Coffee
Roasters will expand its geographic distribution to new markets. Under the terms
of the agreement, the coffee will be made available in the coming months to an
additional 500 corporate-owned units in the Mid-Atlantic States and in markets
including Memphis, Nashville, San Antonio, Dallas, Houston, and additional
locations in Florida and California.
The supermarket channel continued to show healthy year-over-year
pounds sold growth of 7.4% in fiscal 2000. Green Mountain coffee can now be
purchased at over 760 supermarket locations, up approximately 200 from last
year. The addition of Kash n'Karry, a chain of supermarkets located in Central
Florida, accounted for 135 of those new locations. Among existing supermarket
customers, the increase in coffee pounds sold was especially strong at Stop &
Shop Supermarkets, a supermarket chain in the Northeast, which started to sell
Green Mountain coffee in another 46 former Edwards stores in fiscal 2000.
Coffee pounds sold in fiscal 2000 and fiscal 1999, broken down by sales channel,
are as follows:
.
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53 wks ended 52 wks ended Full Year Y/Y Full Year %
Sales Channel 9/30/00 9/25/99 lb. Increase Y/Y lb. Increase
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Convenience Stores..................... 26.8% 26.6% 520,000 21.7%
Supermarkets........................... 24.9% 28.0% 186,000 7.4%
Office Coffee Service Distributors..... 23.8% 17.6% 1,003,000 63.4%
Restaurants............................ 11.2% 13.3% 20,000 1.7%
Other Food Service..................... 8.1% 8.7% 95,000 12.1%
Other Retail........................... 2.2% 2.6% 8,000 3.4%
Direct Mail, including Internet Sales.. 3.0% 3.2% 35,000 12.1%
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Totals 10,871,000 9,004,000 1,867,000 20.7%
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Corporate Objective and Philosophy
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Green Mountain's objective is to be the leading specialty coffee
company by providing the highest quality coffee and having the largest market
share in its targeted markets while maximizing Company value. The Company
intends to achieve this objective by differentiating and reinforcing the Green
Mountain brand and engendering a high degree of customer and consumer loyalty.
Essential elements of this unique approach include:
HIGH QUALITY COFFEE. Green Mountain buys some of the highest quality arabica
beans available from the world's coffee-producing regions and uses a roasting
process that maximizes each coffee's individual taste and aroma. Green Mountain
has a passion for coffee and believes that its coffees are among the highest
quality coffees sold in the world.
CUSTOMER SERVICE. Green Mountain seeks to create customers for life. The Company
believes that coffee is a convenience purchase and utilizes its multi-channel
distribution network to make its coffee widely and easily available to consumers
for home or away-from-home consumption.
To ensure a high level of customer contact, the Company has established
regional distribution centers to supply coffee to its wholesale customers and
from which customer service calls are dispatched. Green Mountain has also
established relationships with some of its vendors to drop ship items directly
from the vendor to the customer, thereby significantly decreasing shipping times
and costs.
The Company has an on-line inventory system for its central and
regional distribution centers which helps to better serve the Company's
customers and to improve the Company's direct-store-delivery process and
capability. Green Mountain attempts to maintain at all times adequate levels of
inventory to satisfy customer demand. At September 30, 2000, the Company had
$2,557,000 of raw materials and supplies inventory, as well as $2,793,000 worth
of finished goods inventory.
The Company's online ordering application on its Web site
(www.GreenMountainCoffee.com) is fully integrated with the Company's
PeopleSoft(R) Enterprise Resource Planning ("ERP") system and customers receive
instantaneous, electronic shipping confirmations for all online orders.
CUSTOMER COFFEE EDUCATION. The Company educates its wholesale customers and
employees and vendor partners about the origin and preparation of coffee through
a course comprised of a series of on-site training programs, tours, manuals, and
hands-on learning experiences known as "Coffee College." This intensive training
covers growing and harvesting; coffee tasting and cupping; grinding, filtering,
and brewing; roasting and packaging; and preparing coffee beverages. Over 1,200
of the employees of Green Mountain's customers attended Coffee College in fiscal
2000, primarily at the Company's Java University located in Waterbury, Vermont.
Since 1997, Green Mountain Coffee also has been hosting Specialty Coffee
Association of America ("SCAA") Espresso Lab training sessions for consumers and
employees of other coffee companies.
The Company's direct mail catalog and Web site provide an overview of
the differences between the various coffees from around the world and the
various degrees of roast. The Company believes that educational initiatives such
as these help to create advocates for its coffee and thereby engender a loyal
consumer base.
EMPLOYEE DEVELOPMENT. Green Mountain Coffee seeks to be a destination workplace
for its employees. The Company believes that dedication to employee training and
development is vital to attracting and retaining the most highly performing,
qualified, and motivated employees. The Company offers numerous educational
workshops, professional seminars, a leadership development program, a series of
coffee knowledge classes and many other personal and professional development
opportunities including Franklin-Covey time management, Dale Carnegie, and
personal financial planning just to name a few. The staff development plan
provides employees the motivation and ability to offer Green Mountain customers
the very best quality in service, fostering long-term relationships. In
addition, in fiscal 2000, Green Mountain adopted the Appreciative Inquiry method
of business analysis, which incorporates a highly positive, inclusive and
people-centered way of considering business development. The Company also offers
an Educational Assistance Plan providing financial support to employees seeking
to improve their skills through continuing education.
SOCIALLY RESPONSIBLE BUSINESS PRACTICES. Green Mountain is committed to
conducting its business in a socially responsible manner. The Company believes
that doing well financially can go hand in hand with giving back to the
community and protecting the environment. In fiscal 2000, the Company
contributed over 5% of its pre-tax income to various coffee farms, cooperatives
and non-profit organizations in the U.S. and in coffee-producing countries, in
the form of cash, products and paid employee time. Domestically based
organizations benefiting from cash or coffee product donations in 2000 included
Conservation International, Rainforest Alliance, Coffee Kids(TM), and the United
Way, as well as libraries, religious organizations, schools, counseling centers
and soup kitchens in markets where the Company operates. In addition to cash and
product donations, the Company encourages its employees to perform volunteer
work for non-profit and community-based organizations on company time for up to
2.5% of their total hours worked at the Company. In fiscal 2000, 99 employees
were reimbursed by the Company for a total of 1,529 hours of volunteer community
service time. Another 717 hours of unpaid community service were reported.
The Company is committed to improving the quality of life in
coffee-producing countries, and therefore supports projects that foster
self-sufficiency, which it believes yield the best results. For example, since
January of 1998, Green Mountain has been sponsoring a very successful Coffee
Kids micro-lending program in Huatusco, Mexico, to encourage the development of
small family businesses. The program now has over 600 participants. The Company
has also provided funding for computers and libraries in communities where its
Stewardship(R) coffees are produced.
In the Oaxaca region of Mexico, where the Company's Organic Mexican
Select(TM) coffee is grown, the Company funds a variety of projects, including a
Coffee Kids micro-lending project and a women's health care project for the
early detection of cervical cancer. In addition, the Company provides financial
assistance to the FomCafe S.C. cooperative's quality control training program
which helps farmers earn more for their coffee.
In the Aceh region of Indonesia, Green Mountain provided seed funding
to Gayo Organic Coffee Farmer's Association ("GOCFA"), which now produces the
Company's Organic Sumatran Reserve(TM) coffee. That project was started in
partnership with ForesTrade, a Vermont-based supplier of organic oils and
spices. In addition to local quality of life improvements, these programs help
insure that a stable supply of quality organic coffees will be available to
Green Mountain Coffee to satisfy growing consumer demand.
In May of 2000, Green Mountain Coffee Roasters signed an agreement with
TransFair USA to promote Fair Trade coffee. Under the agreement, Green Mountain
Coffee Roasters has agreed to purchase coffee at a minimum floor price under
internationally accepted Fair Trade terms from the small farmer cooperatives in
Peru, Mexico, and Sumatra where the Company has long-standing relationships.
Coffee certified by TransFair USA provides an audit trail from the farm to the
cup, which insures that small-scale farmers are paid a Fair Trade price for
their coffee that provides them with a living wage. All of the Company's regular
certified organic coffees have been certified Fair Trade. Much of the Company's
Stewardship coffees are purchased at prices well above this minimum floor price,
even though they are not certified Fair Trade.
Green Mountain is committed to being environmentally and socially
responsible in all aspects of its business operations. Consistent with this
commitment, the Company has created and supported a variety of innovative
environmental programs and incentives.
Green Mountain encourages sustainable farming practices through its
Stewardship Program. Stewardship coffees are purchased from farms and
cooperatives where herbicide and pesticide use is limited and soil erosion
controls are in place. Additionally, these farms demonstrate higher standards of
support for their workers by providing housing, medical assistance, and an
interest in the welfare of the individual worker. As a continuation and
expansion of the Stewardship Program, Green Mountain offers consumers a choice
of organic coffees, starting with one farm-direct coffee from Peru in 1997 and
growing into a line of seven organic coffees by the end of fiscal 2000. The
Company's roasting and packaging facility is certified as organic by Quality
Assurance International of San Diego, California.
Since 1990, Green Mountain has sold, under the licensed name
Earth-Friendly Coffee Filters(TM), a line of dioxin-free and chlorine-free paper
coffee filters, helping to raise consumer awareness of chlorine-free processing.
In another innovative approach to product design, in 1997, the Company won the
3M Scotchban(R) Innovation Award for the development of a biodegradable coffee
bag used by wholesale customers who bag Green Mountain bulk coffees on their
premises.
The Company's most recent new initiative, to reduce its use of
non-renewable energy sources and the impact on the environment, is the
installation of a 95-kilowatt cogeneration unit in its roasting facility that
started operating in December 1999. The unit is designed to capture heat from
the power generating process to heat and power the Company's building, reducing
its use of both propane and externally generated electricity. The unit is
designed to help reduce the Company's operating expenses as a percent of sales
over time. It has the added benefit of reducing the risk of fire, created by
power outages, that can occur when the roasters, which operate at very high
temperatures, suddenly lose power.
Through responsible operational practices, from purchasing to waste
management, Green Mountain strives to minimize its environmental impact. The
Company uses chemical-free, biodegradable, cornstarch-based foam peanuts and
100% recycled Kraft-style (Geoami) paper to protect products during shipping, as
well as recycled content chip-board containers and reusable containers to store
and ship coffee. In addition, Green Mountain makes every attempt to divert its
manufacturing waste from landfills. For example, the burlap bags which contain
green coffee beans are recycled or donated for use in gardens and crafts, and
pallets used in the production and distribution centers are routinely repaired
and re-used. The Company also has an on-site recycling program which
significantly reduces its landfill refuse volume and is available to employees
for their personal use.
Compliance with federal, state and local environmental laws and
regulations does not materially impact capital expenditures, earnings or the
competitive position of the Company.
Wholesale Operations
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During fiscal 2000, 1999, and 1998, approximately 95%, 95%, and 94%,
respectively, of Green Mountain's sales from continuing operations were derived
from its wholesale operation which services accounts located primarily in the
northeastern United States. Wholesale customers resell the coffee in whole bean
or ground form for home consumption and/or brew and sell coffee beverages at
their place of business. Unlike most of its competitors, Green Mountain's
wholesale operation services a large variety of establishments, from individual
upscale restaurants to major supermarket chains. This strategy enables a deeper
penetration in a given geographic market, exposing consumers to the brand
throughout the day in a variety of contexts. This strategy also has the
advantage of limiting the dependency of the Company on a single distribution
channel.
Notable accounts include:
CONVENIENCE STORES RESTAURANTS
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ExxonMobil convenience stores Aureole Restaurant, NYC
Unimarts Culinary Institute of America
RL Vallee Inc. dba Maplefields New England Culinary Institute
Mirabito Fuel Group dba Quickway The Harvard Club, NYC
SUPERMARKETS OFFICE COFFEE SERVICES
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Hannaford Bros.- 132 stores Bostonbean Coffee Company
Kash `n Karry - 135 stores Coffee Pause Company
Price Chopper - 27 stores Corporate Coffee Systems
Roche Brothers - 13 stores Crystal Rock Water/Vermont Pure
Stop & Shop - 231 stores Springs Company
(primarily coffee by the cup) Perrier's Poland Springs
Shaw's - 107 stores Springtime
U.S. Coffee
OTHER FOOD SERVICE
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Amtrak - Northeast corridor
American Skiing Company
Delta Express and Delta Shuttle
Columbia University
New Jersey State Aquarium
Stowe Mountain Resort
Wholesale operations are coordinated from the Company's headquarters in
Waterbury, Vermont and supplemented by regional distribution centers in
geographies in which the density of customer accounts so warrants. Regional
distribution centers are located in Biddeford, Maine; Latham, New York; Woburn,
Massachusetts; Southington, Connecticut; and Lakeland, Florida. Distribution
facilities are located within a two-hour radius of most customers to expedite
delivery. The Company uses third party carriers such as Federal Express and the
United States Postal Service for shipping to customers not supported by a
regional distribution center.
The wholesale operation primarily uses in-house sales people. However,
in certain sales channels, such as the office coffee service and food service
sectors, the Company utilizes the services of independent distributors who
purchase coffee from the Company for resale to wholesale customers. The Company
believes that the use of such distributors provides access to certain wholesale
customers whose size or geographic location makes it economically inefficient
for the Company to service directly.
The Company generally provides wholesale customers with brewing,
grinding and related equipment and product displays ("loaner equipment") at no
charge, which are usually installed on the customer's premises by the Company's
internal or contracted service personnel. A customer also is assigned a service
technician who services, repairs and provides preventive maintenance and
emergency service on such equipment. Additionally, for supermarket customers,
Green Mountain employs a team of stockers who ensure that supermarket displays
are clean, appropriately stocked, and have promotional items to maximize sales.
Most competitors of Green Mountain in the wholesale segment do not provide such
high levels of sales and equipment service support.
The wholesale operation has 34 area sales managers and regional sales
managers assigned to geographic territories, reporting to a national sales
manager. The wholesale area sales territories are concentrated in the eastern
United States, with an additional presence in Illinois, Michigan and Arizona. In
addition to geographic sales personnel, the Company has a national supermarket
sales manager, a national office coffee service sales manager, a national
convenience store sales manager, a national food service manager, and an
international sales and flagship accounts manager, along with account executives
for major customers, to help provide more focused customer support and service.
Wholesale coffee pounds by geographic region (as a percentage of total wholesale
coffee pounds sold) are as follows:
- -------------------------------------- ------------- ------------ ------------- ----------------
53 wks ended 52 wks ended Full Year Y/Y Full Year %
Region 9/30/00 9/25/99 lb. Increase Y/Y lb. Increase
- -------------------------------------- ------------- ------------ ------------- ----------------
Northern New England (ME, NH & VT)... 33.2% 36.4% 338,000 10.7%
Southern New England (MA, CT & RI).... 24.5% 24.2% 478,000 22.7%
Mid-Atlantic (NY, NJ & PA)............ 21.8% 20.8% 488,000 27.0%
South Atlantic........................ 6.9% 5.3% 257,000 55.2%
Midwest............................... 2.5% 1.9% 101,000 60.5%
South Central & West.................. 2.1% 1.4% 102,000 81.6%
Multi-Regional........................ 7.9% 9.2% 29,000 3.6%
International......................... 1.1% 0.8% 39,000 54.2%
------------- ------------ ------------- ----------------
Totals................................ 10,546,000 8,714,000 1,832,000 21.0%
============= ============ ============= ================
Direct Mail Operations
- ----------------------
The Company publishes catalogs and maintains an Internet Web site to
market over 60 coffees, coffee-related equipment and accessories, as well as
gift assortments and gourmet food items covering a wide range of price points.
Sales from direct mail accounted for approximately 5%, 5%, and 6% of total sales
from continuing operations in fiscal 2000, 1999, and 1998, respectively. Green
Mountain's telemarketing service representatives fulfill the individual coffee
needs of direct mail customers by not only taking orders, but also educating and
consulting with them about the various attributes of different coffee varieties.
In fiscal 2000, approximately 32% of the Company's direct mail revenue
was derived from over 4,700 members of its "Coffee Club", a continuity program
with customized standing orders for re-shipment. In the same period, catalog
sales from non-Coffee Club individual consumers accounted for approximately 38%
of direct mail revenue, and another 2% were derived from the Company's Corporate
Gifting program.
In addition to its direct mail program targeted at the individual
consumer, Green Mountain also uses its direct mail channel to cater to small
businesses, such as bed and breakfast establishments, small retail stores and
offices. These "business to business" sales contributed approximately 14% of
total direct mail revenues in fiscal 2000.
The Green Mountain Web site (www.GreenMountainCoffee.com) generated 14%
of total direct mail revenue in fiscal 2000, up from 4% in fiscal 1999. The
Company's Web site, which runs on PeopleSoft eStore software, allows Green
Mountain Coffee to leverage the Internet, phone, e-mail and mail to provide the
best possible customer fulfillment and service.
Green Coffee Cost and Supply
- ----------------------------
The Company utilizes a combination of outside brokers and direct
relationships with farms, estates, cooperatives and cooperative groups for its
supply of green coffees, with outside brokers providing the larger amount.
Coffee is the world's second largest traded commodity and its supply and price
are subject to high volatility. Although most coffee trades in the commodity
market, coffee of the quality sought by the Company tends to trade on a
negotiated basis at a substantial premium or "differential" above commodity
coffee pricing, depending upon the supply and demand at the time of purchase.
Supply and price can be affected by multiple factors, such as weather, politics
and economics in the producing countries.
Cyclical swings in commodity markets, based upon supply and demand, are
common and it is largely expected that coffee prices and differentials will
remain volatile in the coming years. In addition, a number of factors, such as
pest damage and weather-related crop failure could cause coffee prices to climb.
Furthermore, the Company believes that the low coffee price ranges generally
experienced during the early 1990s are not high enough to support proper farming
and processing practices, impacting the overall supply of the top grade coffees.
With the growth of the specialty coffee segment, it is important that prices
remain high enough to support world consumption of the top grades of coffees.
The Company generally fixes the price of its coffee contracts two to
six months prior to delivery so that it can adjust its sales prices to the
market. Green Mountain believes this approach is the best way to provide its
customers with a fair price for its coffee. The Company believes there is
significant risk in fixing prices further in the future, since the true
available supply of green coffee from around the world is not readily known. At
September 30, 2000, the Company had approximately $9.0 million (for 8.1 million
pounds) in purchase commitments, of which approximately 60% had a fixed price.
These commitments represent approximately 57% of the Company's estimated coffee
requirements through September 29, 2001, the end of its 2001 fiscal year. In
addition, the Company does from time to time purchase coffee futures contracts
and coffee options to provide additional protection when it is not able to enter
into coffee purchase commitments or when the price of a significant portion of
committed contracts has not been fixed.
The Company generally tries to pass on coffee price increases and
decreases to its customers. Since coffee has come down from its 1997 highs, the
Company has decreased its prices several times. In general, there can be no
assurance that the Company will be successful in passing on green coffee price
increases to customers without losses in sales volume or gross margin.
Similarly, rapid sharp decreases in the cost of green coffee could also force
the Company to lower sales prices before realizing cost reductions in its green
coffee inventory and purchase commitments. Green Mountain roasts over 25
different types of green coffee beans to produce its more than 60 different
varieties of coffee. If one type of green coffee bean were to become unavailable
or prohibitively expensive, management believes Green Mountain could substitute
another type of coffee of equal or better quality meeting a similar taste
profile. However, a worldwide supply shortage of the high-quality arabica
coffees the Company purchases could have an adverse impact on the Company.
Green Mountain purchased approximately 20% of its coffee from
specifically identified farms, estates, cooperatives and cooperative groups in
fiscal 2000, and expects to increase this amount to as much as 25% of its total
coffee purchases in fiscal 2001. The Company believes its "farm direct" strategy
will result in improved product quality, product differentiation, and long-term
supply and pricing stability. In addition, the Company believes that its efforts
will have a positive impact on the living and working environment of farm
workers and their families.
Significant Customers
- ---------------------
Convenience stores owned and operated by ExxonMobil, rather than by
franchisees, made up 7.2% of the Company's revenues in fiscal 2000. Sales to the
extensive network of ExxonMobil convenience stores, whether owned by Exxon Mobil
Corporation or by independent dealers and franchisees, accounted for
approximately 17.0% of sales (including the 7.2% referenced above) from
continuing operations in fiscal 2000, and is a key component of the Company's
growth strategy as it provides sampling opportunities for a large number of
potential new consumers throughout the country. As explained in the Recent
Developments section above, the Company signed a new five-year agreement with
Exxon Mobil Corporation in November 2000.
Competition
- -----------
The specialty coffee market is highly competitive, and Green Mountain
competes against all sellers of specialty coffee. Starbucks, a leading
independent specialty coffee retailer, is starting to have a significant
presence in supermarkets nationwide. Starbucks has a distribution agreement with
Phillip Morris/ Kraft Foods to place Starbucks coffee in supermarkets along with
Maxwell House coffee. Additionally, the Company also competes with "commercial"
coffee roasters, to the extent that it is also trying to "upsell" consumers to
the specialty coffee segment. A number of large consumer goods multinationals
have divisions or subsidiaries selling specialty coffees, a significant portion
of them having been developed through the acquisition of independent brands. For
example, Procter & Gamble distributes the premium coffee products Millstone and
Brothers in many supermarkets nationwide, which compete with Green Mountain
coffee.
In the office coffee, convenience store and food service arenas, General Foods,
Sara Lee and Procter & Gamble are large competitors. In fiscal 2000, Keurig,
Inc. signed agreements with three North American roasters other than Green
Mountain to secure a variety of K-Cup coffee providers. Coffee in K-Cup portions
can now be purchased from Diedrich Coffee, Procter & Gamble, and Timothy's. At
this time, Green Mountain continues to enjoy the dominant position in the K-Cup
market. The Company does not expect Keurig to add any additional roasters in
calendar 2001. In the direct mail area, the Company competes with established
suppliers such as Gevalia, a division of General Foods Corporation, as well as
with other direct mail companies.
The Company expects intense competition, both within its primary
geographic territory, the eastern United States, and in other regions of the
United States, as it expands from its current territories. The specialty coffee
market is expected to become even more competitive as regional companies expand
and attempt to build brand awareness in new markets.
The Company competes primarily by providing high quality coffee, easy
access to its products and superior customer service. The Company believes that
its ability to provide a convenient network of outlets from which to purchase
coffee is an important factor in its ability to compete. Through its
multi-channel distribution network of wholesale and direct mail operations and
its dual cup/whole bean strategy, the Company believes it differentiates itself
from many of its larger competitors, who specialize in only one of the
wholesale, retail and direct mail channels of distribution. The Company also
believes that one of the distinctive features of its business is that it is one
of the few coffee companies that roasts its coffees individually, varying both
the degree and timing of the roast to maximize a coffee's particular taste
characteristics. Finally, the Company believes that being an independent roaster
allows it to be better focused and in tune with its wholesale customers' needs
than its larger, diversified competitors. While the Company believes it
currently competes favorably with respect to these factors, there can be no
assurance that it will be able to compete successfully in the future.
Seasonality
- -----------
Historically, the Company has experienced variations in sales from
quarter-to-quarter due to the peak November-December Holiday Season and a
variety of other factors, including, but not limited to, general economic
trends, the cost of green coffee, competition, marketing programs, weather and
special or unusual events.
Intellectual Property
- ---------------------
The Company is the owner of certain trademarks and service marks and
the United States trademark and service mark registrations thereon, including
Green Mountain Coffee(R), Green Mountain Filters(R), Green Mountain Coffee
Roasters(R), Nantucket Blend(R), Rainforest Nut(R), Stewardship(R), Green
Mountain Coffee Roasters and Design (R), Stewardship Coffee and Design(R),
Vermont Country Blend(R), Cafe Vermont(R), Mocha Almond Chiller(R), You're
Following the Leader(R), Tapestry Blend Dark(R), Appropriate Roast(R), Autumn
Harvest Blend(R), Fresh From the Roaster(R). The Company anticipates maintaining
the United States registrations appearing above with the United States Trademark
Office. The Company is also the owner of other trademarks and service marks,
including Lake & Lodge(TM), Organic Sumatran Reserve(TM), La Esperanza(TM),
Monte Verde(TM), Sip and Relax, You're on Green Mountain Time(TM), It's a Jungle
Out There... Let's Keep It That Way(TM), Farm Direct(TM), and The Ultimate
Office Coffee(TM).
The Company has applied for United States registration of certain of
the marks appearing above. In addition, the Company has registered the mark
"Green Mountain Coffee Roasters" in the United Kingdom. The Company has pending
Canadian applications for registration of the marks "Green Mountain Coffee" and
"Green Mountain Coffee Roasters." The Company has a pending European Union
application for registration of the mark "Green Mountain Coffee Roasters," and
pending Brazilian applications for registration of the marks "Green Mountain
Coffee Roasters and Design," and "Green Mountain Coffee." The Company has a
limited, royalty-free license to reproduce a painting by artist Corliss Blakely
on its labels and marketing materials.
The Company has an irrevocable, perpetual royalty-free license to use
the mark "Earth-Friendly Coffee Filters" in connection with coffee filters. The
Company also has a limited license to use the marks "Kona Mountain Coffee" and
"Kona Mountain Estate" in connection with its Kona coffee worldwide (excluding
Hawaii), all subject to the terms of the agreements under which these licenses
are granted. The Company does not hold any patents. The Company believes these
trademarks, service marks and licenses will continue to be important to its
success.
Employees
- ---------
As of September 30, 2000, the Company had 394 full-time employees and
50 part-time employees. The Company supplements its workforce with temporary
workers from time to time, especially in the first quarter of each fiscal year
to service increased customer and consumer demand during the peak
November-December Holiday Season. The Company believes that it maintains good
relations with its employees.
Item 2. Properties
The Company leases one principal manufacturing, warehousing and
distribution facility located at Pilgrim Park in Waterbury, Vermont. The
facility has in total approximately 90,000 square feet of usable space which
includes a 30,000 square foot mezzanine area. The lease on this building expires
in 2007. The Company's other facilities, all of which are leased, are as
follows:
- -------------- ------------------------------- ----------- -------------------
Approximate
Type Location Square Feet Expiration of Lease
- -------------- ------------------------------ ----------- -------------------
Warehouse/ Woburn, MA 10,580 2001
Distribution/ Southington, CT 11,200 2001
Service Space Waterbury, VT 12,000 2003
Waterbury, VT 3,000 month-to-month
Waterbury, VT (Factory Outlet) 1,100 month-to-month
Biddeford, ME 10,000 2001
Latham, NY 7,500 2002
Lakeland, FL 7,200 2003
Administrative Coffee Lane, Waterbury, VT 4,000 2001
Offices Main Street, Waterbury, VT 8,680 2001
Pilgrim Park II, Waterbury, VT 3,000 month-to-month
Pilgrim Park II, Waterbury, VT 8,000 2001
Company-Owned Latham, NY(1) 2,300 2007
Retail Stores Portland, ME(1) 2,300 2002
(Discontinued So. Portland, ME(1) 1,270 2007
Operations)
- ----------
(1) The Company has this entire space subleased as of December 1, 2000.
The Company believes that its facilities are generally adequate for its
current needs and that suitable additional production and administrative space
will be available as needed for the remainder of fiscal 2001.
Item 3. Legal Proceedings
The Company is not currently party to any material pending legal
proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fiscal quarter ended September 30, 2000.
Executive Officers of the Registrant
Certain biographical information regarding each executive officer of
the Company is set forth below:
- --------------------- --- ----------------------------------- -------------
Executive
Name Age Position Officer Since
- --------------------- --- ---------------------------------- -------------
Robert P. Stiller 57 Chairman of the Board, President 1993
and Chief Executive Officer
Robert D. Britt 45 Director, Chief Financial Officer, 1993
Vice President, Treasurer and
Secretary
Paul Comey 50 Vice President 1993
Agnes M. Cook 54 Vice President 1999
Kevin G. McBride 45 Vice President 1999
James K. Prevo 47 Vice President 1997
Stephen J. Sabol 39 Director and Vice President 1993
Jonathan C. Wettstein 52 Director and Vice President 1993
- --------------------- --- ---------------------------------- -------------
ROBERT P. STILLER, founder of Roasters, has served as its President and a
director since its inception in July 1981. In September 1971, Mr. Stiller
co-founded Robert Burton Associates, a company engaged in the development and
sale of E-Z Wider products and served as its President and director until June
1980, when Robert Burton Associates was sold.
ROBERT D. BRITT has served as Chief Financial Officer of Roasters since May
1993. Prior to May 1993, Mr. Britt held financial, managerial and/or consulting
positions at Engineered Coatings, Inc., FCR, Inc., Ernst & Young, CIGNA
Corporation, and KPMG Peat Marwick. Mr. Britt is a Certified Public Accountant
and holds a Master of Business Administration from the Wharton School at the
University of Pennsylvania.
PAUL COMEY has served as Vice President of Facilities and Process Engineering of
Roasters since June 1993. From March 1986 to May 1993, Mr. Comey was the owner
and principal consultant of Baseline Solutions, a company engaged in providing
consulting services to the coffee industry, including the Company.
AGNES M. COOK has served as Vice President of Human Resources of Roasters since
May 1999. From November 1992 to May 1999, Ms. Cook was Roasters' Director of
Human Resources. Prior to her employment with the Company, Ms. Cook was a
Training Consultant for Dale Carnegie and Associates.
KEVIN G. MCBRIDE has served as Vice President of Marketing for Roasters since
August 1999. Prior to this, from March 1998 until May 1999, Mr. McBride was
President of BGC Acquisition Corporation, a private investment company. From
January 1997 until December 1997, he was employed by Sunbeam Corporation as Vice
President of Marketing and Product Development. From January 1994 until June
1996, Mr. McBride was Vice President of Consumer Marketing of Circle K Stores,
Incorporated.
JAMES K. PREVO has served as Chief Information Officer of Roasters since March
1993. Mr. Prevo worked for Digital Equipment Corporation from November 1979
through March 1993. There he held positions as a Software Engineer, Project
Manager (New Product Introduction), Program Manager (Computer Products
Manufacturing and VAXcluster Systems Engineering) and Business Manager (Systems
Integration Services). On May 1, 2000 ComputerWorld magazine recognized Mr.
Prevo as one of the Premier 100 IT Leaders for the year 2000.
STEPHEN J. SABOL has served as Vice President of Sales of Roasters since
September 1996. Mr. Sabol served as Vice President of Branded Sales of Roasters
from August 1992 to September 1996. From September 1986 to August 1992, Mr.
Sabol was the General Manager of Roasters responsible for overall performance of
the wholesale division in Maine and New Hampshire.
JONATHAN C. WETTSTEIN has served as Vice President of Operations of Roasters
since April 1993. From June 1974 to April 1993, Mr. Wettstein was employed by
Digital Equipment Corporation in a variety of positions including Plant Manager,
Marketing Manager, Business and Materials Manager and Product Line Controller.
Mr. Wettstein holds a Master of Business Administration from the Harvard
Business School.
Officers are elected annually and serve at the discretion of the Board
of Directors. None of the Company's directors or officers has any family
relationship with any other director or officer, except for Robert P. Stiller
and one of the Company's outside directors, Jules A. del Vecchio, whose wives
are sisters.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Price Range of Securities
The Company's common stock trades on the NASDAQ National Market under
the symbol GMCR. The following table sets forth the high and low sales prices as
reported by NASDAQ for the periods indicated.
High Low
-------- -------
Fiscal 1999 16 weeks ended January 16, 1999........... $ 6.375 $ 3.875
12 weeks ended April 10, 1999............. $ 7.625 $ 5.875
12 weeks ended July 3, 1999............... $ 8.125 $ 5.875
12 weeks ended September 25, 1999......... $ 8.375 $ 6.469
Fiscal 2000 16 weeks ended January 15, 2000........... $ 9.500 $ 7.000
12 weeks ended April 8, 2000.............. $ 15.375 $ 9.250
12 weeks ended July 1, 2000............... $ 20.000 $ 14.375
13 weeks ended September 30, 2000......... $ 19.125 $ 12.875
Fiscal 2001 October 1, 2000 to November 30, 2000...... $ 42.250 $ 18.875
(b) Number of Equity Security Holders
As of November 30, 2000, the number of record holders of the Company's
common stock was 579.
(c) Dividends
The Company has never paid a cash dividend on its common stock and
anticipates that for the foreseeable future any earnings will be retained for
use in its business and, accordingly, does not anticipate the payment of cash
dividends.
On December 4, 2000, the Company announced that its Board of Directors
had approved a two-for-one Common Stock split effected in the form of a 100%
Common Stock dividend. The record date of the dividend is December 28, 2000, and
the payment date is January 11, 2001. The stock split is intended to benefit
stockholders by placing more shares in the market, thus helping to increase
trading activity and further improve the stock's liquidity.
Item 6. Selected Financial Data
Fiscal Years Ended
--------- --------- --------- --------- ---------
Sept. 30, Sept. 25, Sept. 26, Sept. 27, Sept. 28,
2000(1) 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(In thousands, except per share data)
Coffee pounds sold(2)...... 10,871 9,004 7,739 6,239 5,108
Net sales from
continuing operations(2).. $ 84,001 $ 64,881 $ 55,825 $ 42,908 $ 33,377
Income from
continuing operations(2).. $ 4,153 $ 2,247 $ 340 $ 1,539 $ 1,429
Income per share from
continuing operations -
diluted(2)................ $ 1.19 $ 0.64 $ 0.10 $ 0.44 $ 0.42
Total Assets............... $ 27,174 $ 23,878 $ 24,563 $ 23,544 $ 17,243
Long-term obligations...... $ 8,783 $ 4,964 $ 10,191 $ 5,965 $ 3,563
- ----------
(1) The fiscal year ended September 30, 2000 is a 53-week year. All other fiscal
years represented are 52-week years.
(2) Excludes results of the Company's discontinued company-owned retail stores
operation.
There were no cash dividends paid during the past five fiscal years.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking information
- ---------------------------
Certain statements contained herein are not based on historical fact
and are "forward-looking statements" within the meaning of the applicable
securities laws and regulations. In addition, the Company's representatives may
from time to time make oral forward-looking statements. Forward-looking
statements provide current expectations of future events based on certain
assumptions and include any statements that do not directly relate to any
historical or current fact. Words such as "anticipates", "believes", "expects",
"will", "feels", "estimates", "intends", "plans", "projects", and similar
expressions, may identify such forward-looking statements. Owing to the
uncertainties inherent in forward-looking statements, actual results could
differ materially from those set forth in forward-looking statements. Factors
that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, business conditions
in the coffee industry and food industry in general, fluctuations in
availability and cost of green coffee, the impact of the loss of a major
customer, economic conditions, prevailing interest rates, the management
challenges of rapid growth, variances from budgeted sales mix and growth rate,
consumer acceptance of the Company's new products, the impact of a tighter job
market, weather and special or unusual events, as well as other risk factors
described in Item 1 of this report and other factors described from time to time
in the Company's filings with the Securities and Exchange Commission.
Forward-looking statements reflect management's analysis as of the date of this
document. The Company does not undertake to revise these statements to reflect
subsequent developments.
Overview
- --------
Green Mountain Coffee, Inc., a leader in the specialty coffee industry,
roasts high quality arabica coffees to produce over 60 varieties of coffee that
it sells under the Green Mountain Coffee Roasters(R) brand. For the year ended
September 30, 2000, Green Mountain's wholesale operation contributed 95.1% of
its net sales from continuing operations. Green Mountain's wholesale operation
sells coffee to retailers and food service concerns including supermarkets,
restaurants, convenience stores, specialty food stores, office coffee
distributors, and other food service providers such as hotels, universities and
airlines. The Company also operates a direct mail operation serving customers
nationwide from its Waterbury, Vermont headquarters, which accounted for 4.9% of
net sales from continuing operations in fiscal 2000.
On May 29, 1998, Green Mountain announced that it had adopted a plan to
discontinue its company-owned retail store operations. The Company had sold or
closed all of its retail stores prior to the end of the Company's second fiscal
quarter of 1999.
Cost of sales consists of the cost of raw materials including coffee
beans, flavorings and packaging materials, a portion of the Company's rental
expense, the salaries and related expenses of production and distribution
personnel, depreciation on production equipment, freight and delivery expenses.
Selling and operating expenses consist of expenses that directly support the
sales of the Company's wholesale and direct mail channels, including media and
advertising expenses, a portion of the Company's rental expense, and the
salaries and related expenses of employees directly supporting sales. General
and administrative expenses consist of expenses incurred for corporate support
and administration, including a portion of the Company's rental expense and the
salaries and related expenses of personnel not elsewhere categorized.
The Company's fiscal year ends on the last Saturday in September. The
Company's fiscal year normally consists of 13 four-week periods with the first,
second and third "quarters" ending 16 weeks, 28 weeks and 40 weeks,
respectively, into the fiscal year. Fiscal 2000 represents the 53 week-period
ended September 30, 2000, with the fourth fiscal quarter of fiscal 2000
consisting of 13 weeks instead of the usual 12 weeks. Fiscal 1999 and fiscal
1998 represent the 52 week-periods ended September 25, 1999 and September 26,
1998, respectively.
Coffee Prices, Availability and General Risk Factors
- ----------------------------------------------------
Green coffee commodity prices are subject to substantial price
fluctuations, generally caused by multiple factors including weather, political
and economic conditions in certain coffee-producing countries and other
supply-related concerns. The Company believes that the "C" price of coffee (the
price per pound quoted by the Coffee, Sugar and Cocoa Exchange) will remain
highly volatile in future fiscal years. In addition to the "C" price, coffee of
the quality sought by Green Mountain tends to trade on a negotiated basis at a
substantial premium or "differential" above the "C" price. These differentials
also are subject to significant variations. In the past, the Company generally
has been able to pass increases in green coffee costs to its customers. However,
there can be no assurance that the Company will be successful in passing such
fluctuations on to the customers without losses in sales volume or gross margin
in the future. Similarly, rapid sharp decreases in the cost of green coffee
could also force the Company to lower sales prices before realizing cost
reductions in its green coffee inventory. Because Green Mountain roasts over 25
different types of green coffee beans to produce its more than 60 varieties of
coffee, if one type of green coffee bean were to become unavailable or
prohibitively expensive, management believes Green Mountain could substitute
another type of coffee of equal or better quality, meeting a similar taste
profile. However, frequent substitutions could lead to cost increases and
fluctuations in gross margins. Furthermore, a worldwide supply shortage of the
high-quality arabica coffees the Company purchases could have an adverse impact
on the Company and its profitability.
The Company enters into fixed coffee purchase commitments in an attempt
to secure an adequate supply of quality coffees. To further reduce its exposure
to rising coffee costs, the Company, from time to time, enters into futures
contracts and buys options to hedge price-to-be-established coffee purchase
commitments. The specific risks associated with these activities are described
below in Item 7A "Quantitative and Qualitative Disclosures about Market Risk."
The Company expects to face increasing competition in all its markets,
as competitors improve the quality of their coffees to make them more comparable
to Green Mountain's. In addition, specialty coffee is now more widely available
and a number of competitors benefit from substantially larger promotional
budgets following, among other factors, the acquisition of specialty coffee
companies by large, consumer goods multinationals. The Company expects that the
continued high quality and wide availability of its coffee across a large array
of distribution channels, combined with the added-value of its customer service
processes will enable Green Mountain to successfully compete in this
environment, although there can be no assurance that it will be able to do so.
Results from Operations
- -----------------------
The following table sets forth certain financial data of the Company
expressed as a percentage of net sales for the periods denoted below:
Fiscal years ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
Net Sales:
Wholesale........................... 95.1 % 94.7 % 94.4 %
Direct mail......................... 4.9 % 5.3 % 5.6 %
------------- ------------- -------------
Net sales................................ 100.0 % 100.0 % 100.0 %
Cost of sales............................ 60.1 % 60.5 % 65.5 %
------------- ------------- -------------
Gross profit........................ 39.9 % 39.5 % 34.5 %
Selling and operating expenses........... 24.7 % 25.2 % 24.7 %
General and administrative expenses...... 7.0 % 7.2 % 7.5 %
Loss on abandonment of equipment......... 0.2 % 0.4 % -
------------- ------------- -------------
Operating income.................... 8.0 % 6.7 % 2.3 %
Other income............................. 0.1 % 0.0 % 0.1 %
Interest expense......................... (0.7)% (1.1)% (1.4)%
------------- ------------- -------------
Income from continuing operations
before income taxes................. 7.4 % 5.6 % 1.0 %
Income tax expense....................... (2.5)% (2.1)% (0.4)%
------------- -------------- -------------
Income from continuing operations... 4.9 % 3.5 % 0.6 %
------------- ------------- -------------
Discontinued operations:
Loss from discontinued operations, net
of tax benefits.......................... - - (0.5)%
Income (loss) on disposal, net of tax
benefits................................. 0.1 % 0.3 % (2.3)%
------------- ------------- -------------
Net income (loss)................... 5.0 % 3.8 % (2.2)%
============= ============= =============
Fiscal 2000 versus Fiscal 1999
- ------------------------------
Net sales from continuing operations increased by $19,120,000, or
29.5%, from $64,881,000 in fiscal 1999 to $84,001,000 in fiscal 2000. Coffee
pounds sold increased by approximately 1,867,000 pounds, or 20.7%, from
9,004,000 pounds in fiscal 1999 to 10,871,000 pounds in fiscal 2000. The
percentage increase in net sales was higher than the percentage increase in
coffee pounds, due to increased sales of convenience coffee products (such as
the Keurig K-Cups) with higher sales prices per pound and increased sales of
non-coffee items, such as the new Monte Verde line of frozen granita and hot
cappuccino beverages. It is estimated that without the extra week in the 2000
fiscal year, the year-over-year increases in sales dollars and coffee pounds
sold would have been 26.9% and 18.4%, respectively.
The year-over-year increase in net sales from continuing operations
occurred primarily in the wholesale area in which net sales increased by
$18,437,000, or 30.0%, from $61,418,000 in fiscal 1999 to $79,855,000 in fiscal
2000. The wholesale net sales increase resulted primarily from sales growth in
the office coffee service and convenience store channels. Direct mail sales
increased $683,000, or 19.7%, from $3,463,000 in fiscal 1999 to $4,146,000 in
fiscal 2000.
Green Mountain's gross profit from continuing operations increased by
$7,916,000, or 30.9%, from $25,620,000 in fiscal 1999 to $33,536,000 in fiscal
2000. Gross profit as a percentage of net sales increased 0.4 percentage points
from 39.5% in fiscal 1999 to 39.9% in fiscal 2000. Gross profit as a percentage
of sales remained relatively unchanged as lower green coffee costs and improved
distribution costs were partially offset by increased sales of items in product
categories with lower gross margins, such as the single-cup Keurig line of
coffees. Due to continued product sales mix changes and anticipated competitive
pressures, full-year gross profit as a percentage of sales is expected to
decrease in fiscal 2001.
Selling and operating expenses from continuing operations increased by
$4,366,000, or 26.7%, from $16,381,000 in fiscal 1999 to $20,747,000 in fiscal
2000, and decreased 0.5 percentage points as a percentage of net sales from
25.2% in fiscal 1999 to 24.7% in fiscal 2000. The dollar increase was primarily
caused by increased wholesale sales and sales support personnel expenditures
($2,129,000) and advertising and promotional expenses ($1,038,000).
General and administrative expenses from continuing operations
increased by $1,226,000, or 26.3%, from $4,661,000 in fiscal 1999 to $5,887,000
in fiscal 2000. As a percentage of net sales, this change represents a 0.2
percentage point decrease from 7.2% in fiscal 1999 to 7.0% in fiscal 2000. The
dollar increase is primarily due to personnel expenses (including bonuses and a
contribution to the new Employee Stock Ownership Plan), as well as educational
and management consulting expenses.
In fiscal 2000, following a thorough review of its production fixed
assets, the Company recorded a $135,000 loss on abandonment of production
equipment and software. In fiscal 1999, the Company recorded a $229,000 loss on
abandonment of loaner equipment, when the Company identified a small portion of
its old equipment on loan to customers that would never be retrieved from
customers sites and was in effect given away to customers.
For the reasons outlined above, operating income increased by
$2,418,000, or 55.6%, from $4,349,000 in fiscal 1999 to $6,767,000 in fiscal
2000. As a percentage of sales, operating income increased 1.3 percentage points
from 6.7% in fiscal 1999 to 8.0% in fiscal 2000. It is anticipated that
operating expenses as a percentage of sales will continue to decrease in fiscal
2001, as the Company continues to grow sales and leverage expenses.
Interest expense from continuing operations decreased $153,000, or
20.8%, from $736,000 in fiscal 1999 to $583,000 in fiscal 2000 due to the
reduction in the Company's average long-term debt made possible by strong cash
flows from operations over the past two fiscal years. The Company expects
interest expense in fiscal 2001 to be approximately 50% higher than in fiscal
2000 due to higher interest rates and, more importantly, higher average debt
balances related to fiscal 2000 repurchases of its common stock described under
"Liquidity and Capital Resources".
Income tax expense from continuing operations increased $703,000, or
51.1%, from $1,376,000 in fiscal 1999 to $2,079,000 in fiscal 2000. The decrease
in the Company's effective tax rate, from 38% for fiscal 1999 to 33% for fiscal
2000, is due to a reduction during the fourth quarter of fiscal 2000 of the
deferred tax asset valuation allowance previously recorded on a manufacturer's
investment tax credit from the State of Vermont. The reduction was based upon
management's best estimate of future taxable income and that portion which is
expected to be allocable to Vermont on which the credit could be applied. It is
expected that the Company's effective tax rate in future periods will
approximate 40%.
For the reasons outlined above, income from continuing operations
increased $1,906,000, or 84.8%, from $2,247,000 in fiscal 1999 to $4,153,000 in
fiscal 2000.
During the third quarter of fiscal 1998, the Company recorded a loss of
$1,259,000 (net of a tax benefit of $834,000) on disposal of its company-owned
retail stores operation. During the second quarter of fiscal 1999, after having
sold or closed all of its stores, the Company revised its estimated pre-tax loss
on disposal and reversed $300,000 ($186,000 net of tax) of the original
estimate, primarily due to larger than expected proceeds from the sale of fixed
assets and lower lease termination costs. In the fourth quarter of fiscal 2000,
the Company reduced its estimate by another $100,000 ($60,000 net of tax), due
to lower than expected lease termination costs.
Net income increased $1,780,000, or 73.2%, from $2,433,000 in fiscal
1999 to $4,213,000 in fiscal 2000. The net income earned during the 2000 fiscal
year put the Company in a positive retained earnings position of $2,778,000 at
September 30, 2000, compared to an accumulated deficit of $1,435,000 at
September 25, 1999.
Fiscal 1999 versus Fiscal 1998
- ------------------------------
Net sales from continuing operations increased by $9,056,000, or 16.2%,
from $55,825,000 in fiscal 1998 to $64,881,000 in fiscal 1999. Coffee pounds
sold increased by approximately 1,265,000 pounds, or 16.3%, from 7,739,000
pounds in fiscal 1998 to 9,004,000 pounds in fiscal 1999. The percentage
increase in net sales and the percentage increase in coffee pounds sold were
very similar, as the decrease in average selling prices of Green Mountain's
coffee during fiscal 1999 was offset by increased sales of convenience coffee
products with higher sales prices per pound.
The year-over-year increase in net sales from continuing operations
occurred primarily in the wholesale area in which net sales increased by
$8,708,000, or 16.5%, from $52,710,000 in fiscal 1998 to $61,418,000 in fiscal
1999. The wholesale net sales increase resulted primarily from the growth of
certain accounts in the office coffee service, supermarket and convenience store
channels. Direct mail sales increased $348,000, or 11.2%, from $3,115,000 in
fiscal 1998 to $3,463,000 in fiscal 1999.
Green Mountain's gross profit from continuing operations increased by
$6,353,000, or 33.0%, from $19,267,000 in fiscal 1998 to $25,620,000 in fiscal
1999. Gross profit as a percentage of net sales increased 5.0 percentage points
from 34.5% in fiscal 1998 to 39.5% in fiscal 1999. Expressed in dollars per
coffee pound sold, gross profit increased 14.0% to $2.85 in fiscal 1999 from
$2.50 in fiscal 1998. The increase of gross profit as a percentage of sales was
primarily attributable to sharply lower green coffee costs, which was partially
offset by decreases in average sales prices.
Selling and operating expenses from continuing operations increased by
$2,576,000, or 18.7%, from $13,805,000 in fiscal 1998 to $16,381,000 in fiscal
1999, and increased 0.5 percentage points as a percentage of net sales from
24.7% in fiscal 1998 to 25.2% in fiscal 1999. This increased was primarily
caused by higher wholesale sales and sales support personnel expenditures
($1,086,000) and advertising and promotional expenses ($838,000).
General and administrative expenses from continuing operations
increased by $492,000, or 11.8%, from $4,169,000 in fiscal 1998 to $4,661,000 in
fiscal 1999. As a percentage of net sales, this change represents a 0.3
percentage point decrease from 7.5% in fiscal 1998 to 7.2% in fiscal 1999. The
dollar increase is primarily due to increased management consulting and
personnel expenses.
For the reasons outlined above, operating income increased by
$3,056,000, or 236.4%, from $1,293,000 in fiscal 1998 to $4,349,000 in fiscal
1999. As a percentage of sales, operating income increased 4.4 percentage points
from 2.3% in fiscal 1998 to 6.7% in fiscal 1999.
Interest expense from continuing operations decreased $85,000, or
10.4%, from $821,000 in fiscal 1998 to $736,000 in fiscal 1999 due to the
reduction in the Company's long-term debt made possible by strong cash flows
from operations in fiscal 1999.
Income tax expense from continuing operations increased from $198,000
in fiscal 1998 to $1,376,000 in fiscal 1999. The increase in the Company's
effective tax rate, to 38% for fiscal 1999 from 37% for fiscal 1998, is
attributable to changes in certain permanent differences.
For the reasons outlined above, income from continuing operations
increased $1,907,000, or 560.9%, from $340,000 in fiscal 1998 to $2,247,000 in
fiscal 1999.
During the third quarter of fiscal 1998, the Company recorded a loss of
$1,259,000 (net of a tax benefit of $834,000) on disposal of its company-owned
retail stores operation. During the second quarter of fiscal 1999, after having
sold or closed all of its stores, the Company revised its estimated pre-tax loss
on disposal and reversed $300,000 ($186,000 net of tax) of the original
estimate, primarily due to larger than expected proceeds from the sale of fixed
assets and lower lease termination costs.
Net income increased $3,649,000 from a net loss of $1,216,000 in fiscal
1998 to a net income of $2,433,000 in fiscal 1999.
Liquidity and Capital Resources
- -------------------------------
Working capital increased $629,000 to $6,681,000 at September 30, 2000
from $6,052,000 at September 25, 1999. This increase is primarily due to higher
accounts receivable and a decrease in the current portion of long-term debt, and
was partially offset by higher accounts payable and accrued expenses.
Net cash provided by operating activities from continuing operations
increased by $832,000, or 12.6%, from $6,587,000 in fiscal 1999 to $7,419,000 in
fiscal 2000. This increase is primarily due to the net income and accounts
payable increases, and was offset by increases in accounts receivable due to
high sales volumes near the end of the fiscal year. Cash flows from operations
were partially used to fund capital expenditures in fiscal 2000.
During the 2000 fiscal year, the Company made capital expenditures of
$4,597,000, including $2,025,000 for equipment on loan to wholesale customers;
$1,330,000 for computer equipment and software; $766,000 for production and
distribution equipment; $331,000 for leasehold improvements and fixtures; and
$145,000 for vehicles.
In fiscal 1999, Green Mountain Coffee made capital expenditures related
to continuing operations of $2,655,000, which included $1,605,000 for equipment
on loan to customers; $533,000 for leasehold improvements, production equipment
and fixtures; $389,000 for computer hardware and software; and $128,000 for
vehicles.
The Company currently plans to make capital expenditures in fiscal 2001
in the range of $5,500,000 to $6,000,000. The expected increase in capital
expenditures over fiscal 2000 is due to the planned purchase of a new coffee
roaster and the related green and roasted bean storage bin system, as well as a
new fractional ground coffee packager. However, management continuously reviews
capital expenditure needs and actual amounts expended may differ from these
estimates.
In the 2000 fiscal year, the Company used $1,852,000 of its cash flow
from operations to repurchase 189,486 of its outstanding shares in the open
market. In addition, on May 22, 2000, the Company concluded a Dutch Auction
self-tender offer and accepted for purchase all 278,658 shares tendered at a
purchase price of $16 per share. The total cost of this self-tender offer
amounted to approximately $4,523,000, including $64,000 of associated
transaction costs. At September 30, 2000, the Company held 568,753 shares of
treasury stock at an average per share cost of $12.36.
To finance the cost of the Dutch Auction self-tender offer referenced
above and other general corporate purposes, the Company amended its credit
facility with Fleet Bank -NH ("Fleet") on April 7, 2000. The amendment provides
for an expanded revolving line of credit of $15,000,000, which matures on March
31, 2003 and is not subject to a borrowing base formula. The interest paid on
the line of credit varies with the prime, LIBOR and Bankers Acceptance rates,
plus a margin based on a performance price structure. On September 30, 2000, a
total of $8,500,000 was outstanding under the new line of credit and the average
interest rate was 7.88%. The new facility is subject to certain quarterly
covenants, and the Company was in compliance with these covenants at September
30, 2000.
Management believes that cash flow from operations, existing cash, and
available borrowings under its credit facility will provide sufficient liquidity
to pay all liabilities in the normal course of business, fund capital
expenditures and service debt requirements for the next twelve months.
Factors Affecting Quarterly Performance
- ---------------------------------------
Historically, the Company has experienced variations in sales from
quarter to quarter due to the holiday season and a variety of other factors,
including, but not limited to, general economic trends, the cost of green
coffee, competition, marketing programs, weather and special or unusual events.
Because of the seasonality of the Company's business, results for any quarter
are not necessarily indicative of the results that may be achieved for the full
fiscal year. Year-over-year quarterly earnings comparisons will also show
significant variations due to the reduction in the allowance on the State of
Vermont manufacturer's investment tax credit in the fourth quarter of fiscal
2000. Another factor that will impact historical comparisons is the fact that
the fourth quarter of fiscal 2000 includes thirteen weeks instead of the usual
twelve weeks.
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to the Company's operations result primarily from
changes in interest rates and commodity prices (the "C" price of coffee). To
address these risks, the Company enters into hedging transactions as described
below. The Company does not use financial instruments for trading purposes.
For purposes of specific risk analysis, the Company uses sensitivity
analysis to determine the impacts that market risk exposures may have on the
Company's financial position or earnings.
Interest rate risks
- -------------------
At September 30, 2000, the Company had $8,508,000 of debt subject to
variable interest rates (Fleet Bank's prime rate, Banker's Acceptance or LIBOR
rates) plus a margin based on a performance price structure. A 100 basis point
increase in interest rates would increase annual interest expense by
approximately $85,000.
On May 29, 1998, the Company entered into a standard International Swap
Dealers Association Inc. interest rate swap agreement with Fleet National Bank
in order to limit the effect of increases in the interest rates on up to $6
million of its floating debt. The effect of this agreement was to convert
underlying variable-rate debt based on LIBOR to fixed rate debt with an interest
rate of 5.84% plus a margin based on a performance price structure (between 175
and 200 basis points at September 25, 1999). At September 25, 1999, this
agreement left the Company with no variable-rate debt and therefore no interest
rate risk. During the first quarter of fiscal 2000, the Company received $34,000
from Fleet National Bank for the termination of its interest rate swap
agreement. This payment was netted against interest expense for the fiscal
quarter. Due to the termination of this agreement, at September 30, 2000, the
Company had $8,508,000 of debt subject to variable interest rates as described
above.
Commodity price risks
- ---------------------
Green coffee prices are subject to substantial price fluctuations,
generally caused by multiple factors including weather, political and economic
conditions in certain coffee-producing countries and other supply-related
concerns. The Company's gross profit margins can be significantly impacted by
changes in the price of green coffee. The Company enters into fixed coffee
purchase commitments in an attempt to secure an adequate supply of coffee. These
agreements are tied to specific market prices (defined by both the origin of the
coffee and the time of delivery) but the Company has significant flexibility in
selecting the date of the market price to be used in each contract. The Company
generally fixes the price of its coffee contracts two to six months prior to
delivery so that it can adjust its sales prices to the market. At September 30,
2000, the Company had approximately $9.0 million (for 8.1 million pounds) in
purchase commitments, of which approximately 60% had a fixed price. These
commitments represent approximately 57% of the Company's estimated coffee
requirements through September 29, 2001, the end of its 2001 fiscal year.
In addition, from time to time, the Company uses commodity-based
financial instruments to hedge price-to-be-established coffee purchase
commitments with the objective of minimizing cost risk due to market
fluctuations. Gains and losses relating to qualifying hedges of anticipated
inventory transactions or firm commitments are deferred in current assets and
are included in the basis of the underlying transactions. At September 30, 2000,
the Company held call options covering an aggregate of 562,500 pounds of green
coffee beans which are exercisable in fiscal 2001 at prices ranging from $1.20
to $1.50 per pound. Additionally, the Company held a short position on put
options covering 187,500 pounds of green coffee exercisable in fiscal 2001 at a
price of $1.00. At September 30, 2000, the "C" price of coffee was $0.83. If the
price of coffee remains under $1.00 when these options come to term, the loss
incurred will be approximately $57,000. However, this loss, if realized, would
be offset by lower costs of coffee purchased during fiscal 2001. Additionally,
the Company had futures contracts outstanding of approximately $743,000 at
September 30, 2000. The fair market value of these futures at September 30, 2000
was $706,000. If the settlement price of these futures drops on average by 10%,
the additional loss incurred will be approximately $71,000.
Item 8. Financial Statements and Supplementary Data
See dated Financial Statements on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
================================================================================
PART III
================================================================================
Item 10. Directors and Executive Officers of the Registrant
Except for information regarding the Company's executive officers, the
information called for by this Item is incorporated in this report by reference
to the Company's definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on March 15, 2001, which will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Company's fiscal year ended September 30, 2000 (the "Definitive Proxy
Statement").
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this report.
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference to the information contained in the Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the information contained in the Definitive Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the information contained in the Definitive Proxy Statement.
================================================================================
PART IV
================================================================================
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements are filed as part of this
report:
Page
----
Index to Consolidated Financial Statements.......................... F-1
Report of Independent Accountants................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 2000 and
September 25, 1999............................................... F-3
Consolidated Statement of Operations for each of the three
years in the period ended September 30, 2000..................... F-4
Consolidated Statement of Changes in Stockholders' Equity for
each of the three years in the period ended September 30, 2000... F-5
Consolidated Statement of Cash Flows for each of the three
years in the period ended September 30, 2000..................... F-6
Notes to Consolidated Financial Statments........................... F-7
(a) 2. Financial Statement Schedules
The following financial statement schedule is filed as part of this
report:
Report of Independent Accountants on Financial
Statement Schedules.......................................... F-25
Schedule II: Valuation and Qualifying Accounts.................. F-26
All other schedules are omitted because they are not required or the
required information is shown in the financial statements or notes
thereto.
(a) 3. Exhibits
The exhibits listed below are filed as part of, or incorporated by
reference into, this report. The Company shall furnish copies of exhibits
for a reasonable fee (covering the expense of furnishing copies) upon
request in writing to: Green Mountain Coffee, Inc., Investor Services,
33 Coffee Lane, Waterbury, VT 05676.
Exhibit No. Exhibit Title
- ----------- -------------
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
10.2 (b) Term Loan Promissory Note, dated August 11, 1993,
from Green Mountain Coffee Roasters, Inc. to Fleet
Bank - NH(1)
(f) Collateral Assignment of Leasehold Interest, dated
August 11, 1993, between Green Mountain Coffee
Roasters, Inc. and Fleet Bank - NH(1)
(y) Seventh Amendment and First Restatement of Commercial
Loan Agreement, dated April 12, 1996, among Green
Mountain Coffee Roasters, Inc., as borrower, and Fleet
Bank - NH as lender(10)
(aa) Note Modification Agreement, dated April 12, 1996, to
modify Term Promissory Note dated August 11, 1993 from
Green Mountain Coffee Roasters, Inc. to Fleet
Bank - NH(10)
(bb) Eighth Amendment to Commercial Loan Agreement, dated
February 19, 1997, among Green Mountain Coffee
Roasters, Inc., as borrower, and Fleet Bank - NH as
lender(12)
(ee) Ninth Amendment to Commercial Loan Agreement, Fleet
Bank, dated June 9, 1997 among Green Mountain Coffee
Roasters, Inc. as borrower, and Fleet Bank - NH, as
lender(13)
(gg) Eleventh Amendment to Commercial Loan Agreement, dated
February 19, 1998, from Green Mountain Coffee Roasters,
Inc., to Fleet Bank - NH(14)
(hh) Replacement Revolving Line of Credit Promissory Note,
dated February 19, 1998, from Green Mountain Coffee
Roasters, Inc., to Fleet Bank - NH(14)
(ii) Revolving Line of Credit/Term Promissory Note, dated
February 19, 1998, from Green Mountain Coffee Roasters,
Inc., to Fleet Bank - NH(14)
(jj) Twelfth Amendment to Fleet Bank - NH Commercial Loan
Agreement and Loan Documents dated April 7, 2000(22)
10.10 (g) First Restatement of Security Agreement, dated April
12, 1996, between Green Mountain Coffee Roasters, Inc.
and Fleet Bank - NH(10)
10.15 Assignment of Trademarks from Green Mountain Coffee, Inc. in
connection with the Fleet Bank - NH financing(1)
10.22 U.S. Small Business Administration ("SBA") Authorization and
Debenture Guaranty relating to $766,000 loan to Green Mountain
Coffe, Inc. together with Letters dated 7/14/93 and 7/19/93
from SBA to Central Vermont Economic Development Corporation
relating thereto(1)
(a) Small Business Administration Guaranty dated September
30, 1993 from Robert P. Stiller to Central Vermont
Economic Development Corporation(4)
(b) Assignment, dated September 30, 1993, by Central
Vermont Economic Development Corporation to Small
Business Administration of Small Business
Administration Guaranty dated September 30, 1993 from
Robert P. Stiller to Central Vermont Economic
Development Corporation(4)
(c) Mortgage, dated September 30, 1993, between Green
Mountain Coffee Roasters, Inc. and Central Vermont
Economic Development Corporation(4)
(d) Assignment, dated September 30, 1993, by Central
Vermont Economic Development Corporation to Small
Business Administration of Mortgage, dated September
30, 1993, between Green Mountain Coffee Roasters, Inc.
and Central Vermont Economic Development Corporation(4)
(e) "504" Note, dated September 30, 1993, in the amount of
$766,000, from Green Mountain Coffee Roasters, Inc. to
Central Vermont Economic Development Corporation, as
amended, including Servicing Agent Agreement among
Green Mountain Coffee Roasters, Inc. and Colson
Services Corp.(5)
(f) Assignment, dated September 30, 1993, by Central
Vermont Economic Development Corporation to Small
Business Administration of "504" Note, dated September
30, 1993, in the amount of $766,000, from Green
Mountain Coffee Roasters, Inc. to Central Vermont
Economic Development Corporation(4)
(g) Security Agreement from Green Mountain Coffee Roasters,
Inc. to Central Vermont Economic Corporation(4)
(h) Assignment, dated September 30, 1993, by Central
Vermont Economic Development Corporation to Small
Business Administration of Security Agreement from
Green Mountain Coffee Roasters, Inc. to Central Vermont
Economic Development Corporation(4)
(i) Letter Agreement, dated October 1, 1993, among Central
Vermont Economic Development Corporation, Green
Mountain Coffee Roasters, Inc. and Small Business
Administration, amending the Authorization and
Debenture Guaranty among Small Business Administration.
Central Vermont Economic Development Corporation, and
Green Mountain Coffee Roasters, Inc.(4)
(j) Development Company 504 Debenture, issued October
14, 1993, for principal amount of as Trustee(4)
10.33 Lease Agreement, dated 4/28/93, between Pilgrim Partnership
and Green Mountain Coffee, Inc.(1)
(a) Addendum to Lease Agreement, dated 4/28/93(1)
(b) Lease Amendment dated August 16, 1993(4)
(c) Letter Agreement dated July 30, 1997(16)
10.36 1993 Stock Option Plan of the Company, as revised(15)*
10.37 1998 Employee Stock Purchase Plan with Form of Participation
Agreement(17)*
10.38 1999 Stock Option Plan of the Company(18)*
10.40 Employment Agreement of Robert D. Britt dated March 26,
1993(1)*
10.41 Employment Agreement of Stephen J. Sabol dated as of July 1,
1993(1)*
10.42 Employment Agreement of Paul Comey dated as of July 1,
1993(1)*
10.44 Employment Agreement of Jonathan C. Wettstein dated as of
July 1, 1993(1)*
10.45 Stock Option Agreement, dated July 21, 1993, between the
Company and Robert D. Britt(1)*
10.46 Stock Option Agreement, dated July 21, 1993, between the
Company and Agnes M. Cook(1)*
10.48 Stock Option Agreement, dated July 21, 1993, between the
Company and Paul Comey(1)*
10.50 Stock Option Agreement, dated July 21, 1993, between the
Company and James K. Prevo(1)*
10.51 Stock Option Agreement, dated July 21, 1993, between the
Company and Stephen J. Sabol(1)*
10.52 Stock Option Agreement, dated July 21, 1993, between the
Company and Jonathan C. Wettstein(1)*
10.59 Stock Option Agreement, dated July 22, 1994, between the
Company and William D. Davis(8)*
10.60 Stock Option Agreement, dated July 22, 1994, between the
Company and Jules A. del Vecchio(8)*
10.61 Stock Option Agreement, dated July 22, 1994, between the
Company and Ian W. Murray(8)*
10.62 Stock Option Agreement, dated December 30, 1994, between
the Company and Robert D. Britt(9)*
10.63 Stock Option Agreement, dated December 30, 1994, between
the Company and Stephen J. Sabo(l9)*
10.64 Stock Option Agreement, dated December 30, 1994, between
the Company and Jonathan C. Wettstein(9)*
10.65 Stock Option Agreement, dated December 30, 1994, between
the Company and Paul Comey(9)*
10.66 Stock Option Agreement, dated November 27, 1995, between
the Company and David E. Moran(11)*
10.68 First Amendment to Stock Option Agreement, dated July 21, 1993
between the Company and Robert D. Britt(11)*
10.69 First Amendment to Stock Option Agreement, dated July 21, 1993
between the Company and Paul Comey(11)*
10.70 First Amendment to Stock Option Agreement, dated July 21, 1993
between the Company and Jonathan C. Wettstein(11)*
10.75 Stock Option Agreement, dated July 31, 1997 between the
Company and James K. Prevo(16)*
10.76 Stock Option Agreement, dated October 21, 1997 between the
Company and Robert D. Britt(14)*
10.77 Stock Option Agreement, dated October 21, 1997 between the
Company and Paul Comey (14)*
10.78 Stock Option Agreement, dated October 21, 1997 between the
Company and Jonathan C. Wettstein(14)*
10.80 Stock Option Agreement, dated October 21, 1997 between the
Company and Stephen J. Sabol(14)*
10.81 Stock Option Agreement, dated January 8, 1999 between the
Company and Robert D. Britt(18)*
10.82 Stock Option Agreement, dated January 8, 1999 between the
Company and Paul Comey(18)*
10.83 Stock Option Agreement, dated January 8, 1999 between the
Company and Paul Comey(18)*
10.84 Stock Option Agreement, dated January 8, 1999 between the
Company and Jonathan C. Wettstein(18)*
10.85 Stock Option Agreement, dated January 8, 1999 between the
Company and Jonathan C. Wettstein(18)*
10.87 Stock Option Agreement, dated January 8, 1999 between the
Company and Stephen J. Sabol(18)*
10.89 Stock Option Agreement, dated January 8, 1999 between the
Company and James K. Prevo(18)*
10.90 Stock Option Agreement, dated January 8, 1999 between the
Company and James K. Prevo(18)*
10.91 Stock Option Agreement, dated April 13, 1999 between the
Company and David E. Moran(19)*
10.92 Stock Option Agreement, dated April 13, 1999 between the
Company and William D. Davis(19)*
10.93 Stock Option Agreement, dated April 13, 1999 between the
Company and Jules A. del Vecchio(19)*
10.94 Stock Option Agreement, dated April 13, 1999 between the
Company and Hinda Miller(19)*
10.95 Stock Option Agreement, dated September 13, 1999 between the
Company and Kevin G. McBride*(20)
10.96 Stock Option Agreement, dated November 1, 1999 between the
Company and Agnes M. Cook*(20)
10.97 Promissory note from Robert P. Stiller to the Company, dated
September 24, 1999(20)
10.98 Promissory note from Robert P. Stiller to the Company, dated
October 18, 1999(20)
10.99 Promissory note from Robert P. Stiller to the Company, dated
November 3, 1999(20)
10.100 Stock Option Agreement, dated as of December 21, 1999, by and
between Robert D. Britt and the Company*(21)
10.101 Stock Option Agreement, dated as of December 21, 1999, by and
between Agnes M. Cook and the Company*(21)
10.102 Stock Option Agreement, dated as of December 21, 1999, by and
between Jonathan C. Wettstein and the Company*(21)
10.103 Stock Option Agreement, dated as of December 21, 1999, by and
between James K. Prevo and the Company*(21)
10.104 Stock Option Agreement, dated as of December 21, 1999, by and
between Paul Comey and the Company*(21)
10.105 2000 Stock Option Plan of the Company
10.106 Stock Option Agreement, dated as of October 2, 2000, by and
between Robert D. Britt and the Company*
10.107 Stock Option Agreement, dated as of October 2, 2000, by and
between Agnes M. Cook and the Company*
10.108 Stock Option Agreement, dated as of October 2, 2000, by and
between Jonathan C. Wettstein and the Company*
10.109 Stock Option Agreement, dated as of October 2, 2000, by and
between Paul Comey and the Company*
10.110 Stock Option Agreement, dated as of October 2, 2000, by and
between James K. Prevo and the Company*
10.111 Stock Option Agreement, dated as of October 2, 2000, by and
between Stephen Sabol and the Company*
10.112 Stock Option Agreement, dated as of October 2, 2000, by and
between Kevin McBride and the Company*
10.113 Green Mountain Coffee, Inc. Employee Stock Ownership Plan
10.114 Green Mountain Coffee, Inc. Employee Stock Ownership Trust
10.115 Chef Express.net, Inc. Series A Convertible Preferred Stock
Purchase Agreement
10.116 Promissory note from Robert P. Stiller, dated April 12, 2000
21 List of Subsidiaries of the Company
23 Consent of PricewaterhouseCoopers LLP
24 Powers of Attorney
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 2000.
Notes to exhibits listed above
* Management contract or compensatory plan
1. Incorporated by reference to the corresponding exhibit number in the
Registration Statement on Form SB-2 (Registration No. 33-66646) filed
on July 28, 1993 and declared effective September 21, 1993
2. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-QSB for the 12 weeks ended April 9, 1994,
filed on May 24, 1994
3. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-KSB for the fiscal year ended September 24,
1994, filed December 8, 1994
4. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-KSB for the fiscal year ended September 25,
1993, filed on December 23, 1993
5. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-QSB for the 16 weeks ended January 15,
1994, filed on February 25, 1994
6. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-QSB for the 16 weeks ended January 14, 1995,
filed on February 25, 1995
7. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-QSB for the 12 weeks ended April 8, 1995,
filed on May 23, 1995
8. Incorporated by reference to the corresponding exhibit number in
Amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal
year ended September 24, 1994, filed on December 16, 1994
9. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-KSB for the fisca year ended September 30, 1995
10. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-QSB for the 12 weeks ended April 13, 1996
11. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-KSB for the fiscal year ended September 26,
1996
12. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 16 weeks ended January 18, 1997
13. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 12 weeks ended April 12, 1997
14. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 12 weeks ended July 5, 1997
15.. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-K for the fiscal year September 27, 1997
16. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 16 weeks January 17, 1998
17. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-K for the fiscal year September 26, 1998
18. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 16 weeks January 18, 1999
19. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 12 weeks July 3, 1999
20. Incorporated by reference to the corresponding exhibit number in the
Annual Report on Form 10-K for the year ended September 25, 1999
21. Incorporated by reference to the corresponding exhibit number in the
Quarterly Report on Form 10-Q for the 12 weeks ended January 15, 2000
22. Incorporated by reference to the corresponding exhibit number in the
Schedule TO filed on April 17, 2000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREEN MOUNTAIN COFFEE, INC.
By: /s/ Robert P. Stiller
-------------------------------------
ROBERT P. STILLER
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert P. Stiller Chairman of the Board of Directors, December 27, 2000
- --------------------- President and Chief Executive Officer
(Principle Executive Officer)
/s/ Robert D. Britt Chief Financial Officer, Treasurer, December 27, 2000
- --------------------- Secretary and Director (Principal
Financial and Accounting Officer)
STEPHEN J. SABOL* Director December 27, 2000
JONATHAN C. WETTSTEIN* Director December 27, 2000
WILLIAM D. DAVIS* Director December 27, 2000
JULES A. DEL VECCHIO* Director December 27, 2000
HINDA MILLER* Director December 27, 2000
DAVID E. MORAN* Director December 27, 2000
*By: /s/ Robert P. Stiller
-----------------------------------
Robert P. Stiller, Attorney-in-fact
GREEN MOUNTAIN COFFEE, INC.
Index to Consolidated Financial Statements
Page
----
Report of Independent Accountants........................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 2000 and
September 25, 1999.................................................... F-3
Consolidated Statement of Operations for each of the
three years in the period ended September 30, 2000.................... F-4
Consolidated Statement of Changes in Stockholders'
Equity for each of the three years in the period
ended September 30, 2000.............................................. F-5
Consolidated Statement of Cash Flows for each of the
three years in the period ended September 30, 2000.................... F-6
Notes to Consolidated Financial Statements............................ F-7
Report of Independent Accountants
To the Board of Directors and Stockholders of Green Mountain Coffee, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Green
Mountain Coffee, Inc. at September 30, 2000 and September 25, 1999 and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 2000
Green Mountain Coffee, Inc.
Consolidated Balance Sheet
(Dollars in thousands)
September 30, September 25,
2000 1999
------------- -------------
Assets
Current assets:
Cash and cash equivalents........................... $ 489 $ 415
Receivables, less allowances of $320 at
September 30, 2000 and $190 at September 25, 1999... 8,454 6,223
Inventories......................................... 5,350 5,409
Other current assets................................ 580 497
Loans to officers................................... - 250
Deferred income taxes, net.......................... 182 490
------------- -------------
Total current assets............................. 15,055 13,284
Fixed assets, net...................................... 11,274 10,183
Other long-term assets................................. 348 250
Deferred income taxes, net............................. 497 161
------------- --------------
$ 27,174 $ 23,878
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt................... $ 135 $ 1,127
Accounts payable.................................... 6,125 4,551
Accrued compensation costs.......................... 1,381 1,005
Accrued expenses.................................... 614 357
Accrued losses and other costs of discontinued
operations, net..................................... 119 192
------------- -------------
Total current liabilities..................... 8,374 7,232
------------- -------------
Long-term debt......................................... 283 1,908
------------- -------------
Long-term line of credit............................... 8,500 3,056
------------- -------------
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock, $0.10 par value:
Authorized - 10,000,000 shares; Issued -
3,671,005 and 3,615,404 shares at September
30, 2000 and September 25, respectively............. 367 362
Additional paid-in capital.......................... 13,901 13,409
Retained earnings (accumulated deficit)............. 2,778 (1,435)
Treasury shares, at cost - 568,753 and
100,609 shares at September 30, 2000 and
September 25, 1999, respectively.................... (7,029) (654)
------------- -------------
Total stockholders' equity.......................... 10,017 11,682
------------- -------------
$ 27,174 $ 23,878
============= =============
[FN]
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
GREEN MOUNTAIN COFFEE, INC.
Consolidated Statement of Operations
(Dollars in thousands except per share data)
Year Ended
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
Net sales...................................... $ 84,001 $ 64,881 $ 55,825
Cost of sales.................................. 50,465 39,261 36,558
------------- ------------- -------------
Gross profit.............................. 33,536 25,620 19,267
Selling and operating expenses................. 20,747 16,381 13,805
General and administrative expenses............ 5,887 4,661 4,169
Loss on abandonment of equipment............... 135 229 -
------------- -------------- -------------
Operating income.......................... 6,767 4,349 1,293
Other income................................... 48 10 66
Interest expense............................... (583) (736) (821)
------------- ------------- -------------
Income from continuing operations
before income taxes....................... 6,232 3,623 538
Income tax expense............................. (2,079) (1,376) (198)
------------- ------------- -------------
Income from continuing operations......... 4,153 2,247 340
Discontinued operations:
Loss from discontinued retail stores operations,
net of income tax benefits of $196............. - - (297)
Income (loss) on disposal of retail stores,
net of income tax expense of $40 and $114 for
the years ended September 30, 2000 and September
25, 1999, respectively, and income tax benefit
of $834 for the year ended September 26, 1998.. 60 186 (1,259)
------------- ------------- -------------
Net income (loss).............................. $ 4,213 $ 2,433 $ (1,216)
============= ============= =============
Basic income (loss) per share:
Weighted average shares outstanding............ 3,293,422 3,503,412 3,530,657
Income from continuing operations.............. $ 1.26 $ 0.64 $ 0.10
Income (loss) from discontinued operations..... $ 0.02 $ 0.05 $ (0.44)
Net income (loss).............................. $ 1.28 $ 0.69 $ (0.34)
Diluted income (loss) per share:
Weighted average shares outstanding............ 3,489,622 3,547,155 3,539,231
Income from continuing operations.............. $ 1.19 $ 0.64 $ 0.10
Income (loss) from discontinued operations..... $ 0.02 $ 0.05 $ (0.44)
Net income (loss).............................. $ 1.21 $ 0.69 $ (0.34)
[FN]
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
GREEN MOUNTAIN COFFEE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended September 30, 2000, September 25, 1999, and September 26, 1998
(Dollars in thousands)
Retained
Additional earnings Total
Common stock paid-in (accumulated Treasury stock stockholders'
Shares Amount capital deficit) Shares Amount equity
---------- ------ ---------- ------------ -------- -------- -------------
Balance at September 27, 1997..... 3,530,818 $ 353 $ 12,954 $ (2,652) - - $ 10,655
Issuance of common stock under
employee stock purchase plan... 15,023 2 64 - - - 66
Purchase of treasury shares....... - - - - (7,350) $ (37) (37)
Net loss.......................... - - - (1,216) - - (1,216)
---------- ------ ---------- ------------ -------- -------- -------------
Balance at September 26, 1998..... 3,545,841 355 13,018 (3,868) (7,350) (37) 9,468
Issuance of common stock under
employee stock purchase plan... 37,263 4 186 - - - 190
Options exercised................. 32,300 3 205 - - - 208
Purchase of treasury shares....... - - - - (93,259) (617) (617)
Net income........................ - - - 2,433 - - 2,433
---------- ------ ---------- ------------ -------- -------- -------------
Balance at September 25, 1999..... 3,615,404 362 13,409 (1,435) (100,609) (654) 11,682
Issuance of common stock under
employee stock purchase plan... 32,309 3 276 - - - 279
Options exercised................. 23,292 2 167 - - - 169
Purchase of treasury shares....... - - - - (468,144) (6,375) (6,375)
Non cash compensation expense..... - - 49 - - - 49
Net income........................ - - - 4,213 - - 4,213
---------- ------ ---------- ------------ -------- -------- -------------
Balance at September 30, 2000..... 3,671,005 $ 367 $ 13,901 $ 2,778 (568,753) $ (7,029) $ 10,017
========== ====== ========== ============ ======== ======== =============
[FN]
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
GREEN MOUNTAIN COFFEE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Year ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
Cash flows from operating activities:
Net income (loss)................................... $ 4,213 $ 2,433 $ (1,216)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
(Income) loss from discontinued operations..... (60) (186) 1,556
Depreciation and amortization.................. 2,968 2,943 2,754
Loss on disposal and abandonment of
fixed assets................................ 173 240 63
Provision for doubtful accounts................ 361 241 577
Non-cash compensation.......................... 49 3 -
Deferred income taxes.......................... (28) 966 (70)
Changes in assets and liabilities:
Receivables.................................... (2,592) (1,675) (1,247)
Inventories.................................... 59 227 (565)
Other current assets........................... 167 (73) (325)
Other long-term assets......................... (98) 20 63
Accounts payable............................... 1,574 1,420 (1,823)
Accrued compensation costs..................... 376 178 211
Accrued expenses............................... 257 (150) 228
------------- ------------- -------------
Net cash provided by continuing operations............. 7,419 6,587 206
Net cash (used for) provided by discontinued
operations....................................... (13) 42 (406)
------------- ------------- -------------
Net cash provided by (used for) operating activities... 7,406 6,629 (200)
------------- ------------- -------------
Cash flows from investing activities:
Expenditures for fixed assets........................ (4,597) (2,655) (3,375)
Proceeds from disposals of fixed assets.............. 365 89 170
Capital expenditures for discontinued operations..... - - (208)
Proceeds from disposal of discontinued operations.... - 158 118
------------- ------------- -------------
Net cash used for investing activities (4,232) (2,408) (3,295)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock............... 448 395 66
Purchase of treasury shares.......................... (6,375) (617) (37)
Proceeds from issuance of long-term debt............. 123 - 4,500
Repayment of long-term debt.......................... (2,740) (2,255) (2,121)
Borrowings under (repayment of) revolving
line of credit................................... 5,444 (2,094) 1,165
Principal payments under capital lease obligation.... - (12) (132)
------------- ------------- -------------
Net cash (used for) provided by financing activities... (3,100) (4,583) 3,441
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents... 74 (362) (54)
Cash and cash equivalents at beginning of year......... 415 777 831
------------- ------------- -------------
Cash and cash equivalents at end of year............... $ 489 $ 415 $ 777
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid for interest.............................. $ 607 $ 719 $ 786
Cash paid for income taxes.......................... $ 1,896 $ 248 $ 56
[FN]
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
GREEN MOUNTAIN COFFEE, INC.
Notes to Consolidated Financial Statements
1. Nature of Business and Organization
The accompanying consolidated financial statements include the accounts of
Green Mountain Coffee, Inc. (the "Company") and its wholly-owned
subsidiary, Green Mountain Coffee Roasters, Inc. All significant
inter-company transactions and balances have been eliminated.
The Company purchases high-quality arabica coffee beans for roasting, then
packages and distributes the roasted coffee primarily in the northeastern
United States. The majority of the Company's revenue is derived from its
wholesale operation which serves supermarket, specialty food store,
convenience store, food service, hotel, restaurant, university, travel and
office coffee service customers. The Company also has a direct mail
operation serving customers nationwide.
The Company's fiscal year ends on the last Saturday in September. Fiscal
2000, fiscal 1999 and fiscal 1998 represent the years ended September 30,
2000, September 25, 1999, and September 26, 1998, respectively. Fiscal
2000 consists of 53 weeks, whereas fiscal 1999 and 1998 consist of 52
weeks each.
2. Significant Accounting Policies
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include money market funds which are carried at cost, plus
accrued interest, which approximates market. The Company does not believe
that it is subject to any unusual credit and market risk.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined by the first-in, first-out method. Inventories consist
primarily of green and roasted coffee, packaging materials and purchased
finished goods.
HEDGING
The Company uses futures and options contracts to hedge the effects of
fluctuations in the price of green coffee beans. These transactions meet
the requirements for hedge accounting, including designation and
correlation. To obtain a proper matching of revenue and expense, gains or
losses arising from open and closed hedging transactions are included in
inventory as a cost of the commodity and reflected in the statement of
operations when the hedged coffee purchase contract is fixed and the
hedging instrument is closed. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
the price of green coffee. The overall exposure to credit risk is
considered to be minimal.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This pronouncement will
require the Company to recognize derivatives on its balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value will be immediately recognized in
earnings. In June 1999, Statement of Financial Accounting Standards No.
137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137") was
issued. SFAS 137 deferred the effective date of SFAS 133 until the first
quarter of fiscal 2001. The Company will adopt SFAS 133 as of October 1,
2000. The adoption of SFAS 133 is expected to have an immaterial impact on
the Company's financial position and results from operations. The Company
does not believe the adoption of SFAS 133 will significantly alter the
Company's hedging strategies or cause a significant change in normal
business practices.
OTHER LONG-TERM ASSETS
Other long-term assets consist of deposits, debt issuance costs and
minority investments in Keurig, Inc and ChefExpress.net, Inc. Debt
issuance costs represent those costs incurred in connection with the
issuance of debt. Amortization is calculated using the straight-line
method over the respective original lives of the applicable issue.
Amortization calculated using the straight-line method is not materially
different from amortization that would have resulted from using the
interest method. Debt issuance costs included in other long-term assets in
the accompanying consolidated balance sheet at September 30, 2000 and
September 25, were $22,000 and $32,000, respectively. The minority
investments, which represent less than 5% interests, are accounted for
under the cost method. The balance in the investment in Keurig, Inc.
included in other long-term assets in the accompanying consolidated
balance sheet at September 30, 2000 and September 25, 1999 is $151,000.
The balance in the investment in ChefExpress.net, Inc. (an entity whose
Chief Executive Officer and President is also a member of the Company's
Board of Directors- see note 18) included in other long-term assets in the
accompanying consolidated balance sheet at September 30, 2000 is $104,000.
ADVERTISING COSTS
The Company expenses the costs of advertising the first time the
advertising takes place. At September 30, 2000 and September 25, 1999
prepaid advertising costs of $83,000 and $81,000, respectively, were
recorded in other current assets in the accompanying consolidated balance
sheet. Advertising expense totaled $4,553,000, $3,499,000, and $2,791,000
for the years ended September 30, 2000, September 25, 1999, and September
26, 1998, respectively.
FIXED ASSETS
Fixed assets are carried at cost, net of accumulated depreciation.
Expenditures for maintenance, repairs and renewals of minor items are
charged to expense as incurred. Depreciation is calculated using the
straight-line method over the assets' estimated useful lives. The cost and
accumulated depreciation for fixed assets sold, retired, or otherwise
disposed of are relieved from the accounts, and the resultant gains and
losses are reflected in income.
In order to facilitate sales, the Company follows an industry-wide
practice of purchasing and loaning coffee brewing and related equipment to
wholesale customers. These assets are also carried at cost, net of
accumulated depreciation.
REVENUE RECOGNITION
Revenue from wholesale and direct mail sales is recognized upon product
shipment.
In December 1999, the Securities and Exchange Commission ("SEC"), released
Staff Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. In June 2000, the SEC released SAB
101B,which postponed the effective date of SAB 101 to the fourth quarter
of fiscal years beginning after December 15, 1999. Green Mountain Coffee
will be required to be in conformity with the provisions of SAB 101 in the
fourth quarter of fiscal 2001. The Company does not expect the adoption of
SAB 101 will have a material impact on the Company's financial position or
results of operations.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes, as set forth in Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
recognition of deferred tax assets and liabilities for the expected future
tax 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.
INCOME (LOSS) PER SHARE
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). This pronouncement supersedes the previous methodology for the
calculation of earnings per share as promulgated under APB Opinion No. 15.
SFAS 128 requires presentation of "basic" earnings per share and "diluted"
earnings per share. The Company adopted SFAS 128 in fiscal 1998.
FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. Fair values are estimated based on assumptions
concerning the amount and timing of estimated future cash flows and
assumed discount rates reflecting varying degrees of perceived risk. The
fair values of cash, cash equivalents, accounts receivable, accounts
payable, accrued expenses and debt approximate their carrying value at
September 30, 2000. It was not practicable to estimate the fair value of
minority investments representing less than 5% of the preferred stock of
two untraded companies. The investment in Keurig, Inc. is carried at its
original cost of $151,000 at September 30, 2000 and September 25, 1999,
respectively. The investment in ChefExpress.net, Inc. is carried at its
original cost of $104,000 at September 30, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the accompanying consolidated
financial statements. Actual results could differ from those estimates.
SIGNIFICANT CUSTOMER CREDIT RISK AND SUPPLY RISK
The extensive network of Exxon Mobil Corporation convenience stores,
corporate-owned or managed by independent franchisees, accounted for
approximately 17.0%, 18.6%, and 17.7% of net sales from continuing
operations in the years ended September 30, 2000, September 25, 1999, and
September 26, 1998, respectively. During the same periods,
corporate-owned Exxon Mobil convenience stores made up less than 10% of
the Company's revenues. Exxon Mobil Corporation is a customer of the
wholesale segment (see footnote 17 on Segment Reporting). The majority of
the Company's customers are located in the northeastern part of the
United States. Concentration of credit risk with respect to accounts
receivable is limited due to the large number of customers in various
channels comprising the Company's customer base. The Company does not
require collateral from customers as ongoing credit evaluations of
customers' payment history are performed. The Company maintains reserves
for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.
SEGMENT REPORTING
In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), the Company's business is comprised of two distinct business
segments determined by the distribution channel. The direct mail segment
is comprised of all consumer-direct sales and sales to small businesses
which are solicited via catalogs and the Company's online store -
www.GreenMountainCoffee.com. The wholesale segment is comprised of sales
to customers who resell Green Mountain coffee either as coffee beans or
brewed coffee by the cup, such as supermarkets, office coffee
distributors, convenience stores, restaurants, and others. Wholesale sales
are generated through the Company's direct sales force and a limited
number of distributors.
RECLASSIFICATIONS
Certain reclassifications of prior year balances have been made to conform
to the current presentation.
3. Inventories
Inventories consist of the following:
September 30, 2000 September 25, 1999
------------------ ------------------
Raw materials and supplies... $ 2,557,000 $ 2,809,000
Finished goods............... 2,793,000 2,600,000
------------------ ------------------
$ 5,350,000 $ 5,409,000
================== ==================
Inventory values above are presented net of $127,000 and $136,000 of
obsolescence reserves at September 30, 2000 and September 25, 1999,
respectively.
As of September 30, 2000, the Company had inventory purchase commitments
for green coffee totaling approximately $9.0 million, of which
approximately 60% had a fixed price. The value of the variable portion of
these commitments was calculated using the March 2001 C price of coffee at
September 30, 2000 or $0.8775. The Company believes, based on
relationships established with its suppliers, that the risk of
non-delivery on such purchase commitments is remote.
4. Fixed Assets
Fixed assets consist of the following:
Useful
Life in September 30, September 25,
Years 2000 1999
------- ------------- -------------
Leasehold improvements...................... 2 - 10 $ 2,339,000 $ 2,216,000
Production equipment........................ 2 - 10 5,323,000 5,539,000
Office equipment and software............... 2 - 10 7,050,000 5,581,000
Equipment on loan to wholesale customers.... 3 - 5 5,849,000 4,133,000
Vehicles.................................... 4 - 5 657,000 512,000
Construction-in-progress.................... 247,000 162,000
------------- -------------
Total fixed assets........................ 21,465,000 18,143,000
Accumulated depreciation...................... (10,191,000) (7,960,000)
------------- -------------
$ 11,274,000 $ 10,183,000
============= =============
Total depreciation and amortization expense from continuing operations
relating to all fixed assets was $2,968,000, $2,943,000 and $2,754,000 for
fiscal 2000, 1999, and 1998, respectively.
During fiscal 2000, following a thorough review of its production fixed
assets, the Company recorded a $135,000 loss on disposal and abandonment
of production equipment and software. The original aggregate cost of this
equipment was $908,000 and its related accumulated depreciation was
$573,000.
During fiscal 1999, the Company disposed of assets with a cost of
$5,012,000 and related accumulated depreciation of $4,683,000 resulting in
a loss on disposal and abandonment of fixed assets of $240,000. As part of
this loss, the Company recorded a $229,000 loss on abandonment of loaner
equipment. This resulted from a thorough review of its brewing and other
equipment on loan to customers, through which it identified a small
portion of its old equipment that would not be retrieved.
5. Income Taxes
The provision for income taxes from continuing operations for the years
ended September 30, 2000, September 25, 1999, and September 26, 1998
consists of the following:
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
Current tax expense:
Federal...................... $ 2,029,000 $ 862,000 -
State........................ 348,000 186,000 $ 17,000
Benefit of net operating
loss carryforwards........ (272,000) (948,000) -
------------- ------------- -------------
Total current................... 2,105,000 100,000 17,000
------------- ------------- -------------
Deferred tax expense:
Federal...................... 217,000 1,098,000 187,000
State........................ 291,000 178,000 30,000
------------- ------------- -------------
Total deferred.................. 508,000 1,276,000 217,000
Tax asset valuation allowance... (534,000) - (36,000)
------------- ------------- -------------
Total tax expense............... $ 2,079,000 $ 1,376,000 $ 198,000
============= ============= =============
SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers expected future events other
than enactments of changes in the tax law or rates.
Deferred tax assets (liabilities), including temporary differences related
to discontinued operations (see Note 6), consist of the following:
September 30, September 25,
2000 1999
------------- ------------
Deferred tax assets:
Net operating loss carryforwards......... - $ 272,000
Federal investment tax credits........... - 3,000
Vermont state manufacturers investment
tax credit............................ $ 2,440,000 2,627,000
Section 263A adjustment.................. 3,000 4,000
Other reserves and temporary differences. 277,000 467,000
------------- -------------
Gross deferred tax assets................ 2,720,000 3,373,000
Deferred tax asset valuation allowance... (1,821,000) (2,355,000)
Deferred tax liability:
Depreciation............................... (140,000) (239,000)
------------- -------------
Net deferred tax assets.................. $ 759,000 $ 779,000
============= =============
In November 1996, the Company received notification from the State of
Vermont that it had approved a $4,041,000 manufacturers investment tax
credit pertaining to certain fixed assets purchased between July 1, 1993
and June 30, 1996, which will expire in 2004. During fiscal 2000, the
Company utilized $185,000 of this credit. The resulting deferred tax
asset, which is substantially offset by a valuation allowance, is
reflected in the above table net of the federal tax effect.
During fiscal 2000, the deferred tax asset valuation allowance was reduced
by $534,000, based primarily upon estimates of future taxable income and
that portion which is expected to be allocable to Vermont on which the
credit could be applied. Although realization is not assured, management
believes that the net deferred tax asset represents management's best
estimate, based upon the weight of available evidence as prescribed in
SFAS 109, of the amount which is more likely than not to be realized. If
such evidence were to change, based upon near-term operating results and
longer-term projections, the amount of the valuation allowance recorded
against the gross deferred tax asset may be decreased or increased. Also,
if certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of loss carryforwards
which could be utilized, and restrictions on the utilization of investment
tax credit carryforwards.
A reconciliation for continuing operations between the amount of reported
income tax expense and the amount computed using the U.S. Federal
Statutory rate of 34% is as follows:
September 30, September 25, September 26,
2000 1999 1998
------------- ------------ -------------
Tax at U.S. Federal Statutory rate.... $ 2,120,000 $ 1,231,000 $ 183,000
Increase (decrease) in rates
resulting from:
Other nondeductible items....... 42,000 28,000 22,000
State taxes, net of federa
benefit..................... 447,000 217,000 42,000
Deferred tax asset valuation
allowance and other......... (530,000) (100,000) (49,000)
------------- ------------- -------------
Tax at effective rates................ $ 2,079,000 $ 1,376,000 $ 198,000
============= ============= ============
6. Discontinued Operations
During the third fiscal quarter of 1998, the Company announced that it was
discontinuing its company-owned retail store operations and estimated its
loss on disposal at $1,259,000 (net of a tax benefit of $834,000). The
pre-tax loss on disposal of $2,093,000 in 1998 consisted of an estimated
loss on disposal of the business of $1,692,000 and a provision of $401,000
for anticipated losses from May 29, 1998 (the measurement date) until
disposal. The loss on disposal included provisions for estimated lease
termination costs, write-off of leasehold improvements and other fixed
assets, severance and employee benefits. During the second quarter of
fiscal 1999, the Company revised its estimated pre-tax loss on disposal and
reversed $300,000 ($186,000 net of tax) of the original estimate, primarily
due to larger than expected proceeds from the sale of fixed assets and
lower lease termination costs. During the fourth quarter of fiscal 2000,
the Company further revised its estimated pre-tax loss on disposal and
reversed $100,000 ($60,000 net of tax) of the original estimate, due to
lower lease termination costs.
The assets and liabilities of the discontinued retail operations at
September 30, 2000 and September 25, 1999 are reflected as a net current
liability in the accompanying consolidated balance sheet. The net
liabilities of the discontinued operations in the September 30, 2000 and
September 25, 1999 consolidated balance sheet are summarized as follows:
September 30, September 25,
2000 1999
------------- -------------
Fixed assets, net......................... $ 36,000 $ 46,000
Deferred tax assets, net.................. 80,000 128,000
Estimated accrued losses and other costs
on disposal of discontinued operations... (235,000) (366,000)
------------- -------------
Net accrued losses and other costs of
discontinued operations.................. $ (119,000) $ (192,000)
============= =============
7. Credit Facility
The Company maintains a credit facility (the "Credit Facility") with Fleet
Bank -NH ("Fleet"). Borrowings are collateralized by substantially all of
the Company's assets. During fiscal 1999, the Credit Facility provided for
a $9,000,000 revolving line of credit maturing March 31, 2001 as well as
term debt with a limit of $4,500,000 maturing March 31, 2003. On April 7,
2000, the Company consolidated its credit facilities with Fleet. The
amended debt agreement provides for a revolving line of credit of
$15,000,000, which matures on March 31, 2003 and is not subject to a
borrowing base formula. The purpose of the new facility is to fund the
Company's ordinary working capital requirements, planned repurchases of
shares of stock and other general corporate purposes. The Fleet term debt
facility was extinguished on April 7, 2000 using new borrowings under the
line of credit. The terms of the Credit Facility also provide for the
maintenance of specified financial ratios and restrict certain transactions
without prior bank approval. The Company was in compliance with these
covenants at September 30, 2000.
The principal amounts outstanding on the revolving line of credit at
September 30, 2000 and September 25, 1999 were $8,500,000 and 3,056,000,
respectively. The outstanding balance on the term debt at September 25,
1999 was $2,500,000.
The interest paid on the credit facility varies with the prime, LIBOR and
Bankers Acceptance rates, plus a margin based on a performance price
structure. Interest rates on September 30, 2000 for each portion of the
line of credit were as follows: 6.56% plus 135 basis points on $2,200,000;
6.57% plus 110 basis points on $2,500,000; 6.56% plus 110 basis points on
$2,000,000; 6.53% plus 135 basis points on $1,000,000; 6.62% plus 150 basis
points on $400,000; and the prime rate or 9.5% on $400,000.
Interest on the Bankers Acceptance loans is paid in advance and amortized
over the duration of the loans. Interest on LIBOR loans and the variable
portion of the Credit Facility accrues daily and is paid monthly, in
arrears.
At September 25, 1999, the interest rate on $2,500,000 of the principal
amount outstanding on the revolving line of credit was at the one-month
LIBOR rate plus 175 basis points or 7.11% while the interest on the
remaining portion (equal to $556,000) was at the prime rate or 8.25%. At
September 25, 1999, the interest rate on the $2,500,000 term debt was equal
to LIBOR plus 200 basis points or 7.36%.
On May 29, 1998, the Company entered into a standard International Swap
Dealers Association Inc. interest rate swap agreement with Fleet National
Bank to manage the interest rate risk associated with its Credit Facility.
The swap agreement had a notional amount of $6,000,000 and maturity of May
2001. The effect of the swap agreement was to limit the interest rate
exposure to a fixed rate of 5.84% (versus the 30-day LIBOR rate). Under the
agreement, interest expense was calculated on a monthly basis. If interest
expense as calculated was greater based on the 30-day LIBOR rate, Fleet
National Bank paid the difference to the Company; if interest expense as
calculated was greater based on the fixed rate, the Company paid the
difference to Fleet National Bank. For the year ended September 25, 1999,
the Company paid $43,000 in additional interest expense pursuant to the
swap agreement. The fair value of the interest rate swap is the estimated
amount that the Company would receive or pay to terminate the agreement at
the reporting date. At September 25, 1999, the Company estimated that it
would have paid $14,000 to terminate the agreement. During the first
quarter of fiscal 2000, the Company received $34,000 from Fleet National
Bank for the termination of its interest rate swap agreement with a
$6,000,000 nominal amount. This payment was netted against interest expense
for the fiscal quarter. Due to the termination of this agreement, at
September 30, 2000, the Company had $8,500,000 of debt subject to variable
interest rates as described above.
8. Long-term Debt
September 30, September 25,
2000 1999
------------- -------------
Fleet line of credit (Note 7)......... $ 8,500,000 $ 3,056,000
Fleet term debt (Note 7).............. - 2,500,000
Facility and equipment term loans..... 8,000 101,000
Central Vermont Economic Development
Coporation Debenture............... 307,000 382,000
Vermont Economic Development Authority
Promissory Note.................... - 42,000
Service vehicle installment loans..... 103,000 10,000
------------- -------------
8,918,000 6,091,000
Less current portion.................. 135,000 1,127,000
------------- -------------
$ 8,783,000 $ 4,964,000
============= =============
FACILITY AND EQUIPMENT TERM LOANS
This loan is expiring on October 15, 2000 and bears an interest rate equal
to the lesser of 25 basis points above Fleet's variable base rate or 275
basis points above the LIBOR rate for maturities of up to one year. At
September 30, 2000, this loan had an outstanding balance of $8,000 and
bore interest at 9.37%.
CENTRAL VERMONT ECONOMIC DEVELOPMENT CORPORATION DEBENTURE
The debenture from the Central Vermont Economic Development Corporation
(CVEDC) is guaranteed by the U.S. Small Business Administration. The
debenture matures on January 1, 2004 and requires equal monthly principal
and interest payments of approximately $8,500 and carries a fixed interest
rate of 5.812%. The debenture is secured by a secondary security interest
in the related fixed assets and is guaranteed by the majority stockholder
of the Company. Additional guarantees will be required of any stockholder
obtaining more than 20% ownership of the Company.
SERVICE VEHICLE INSTALLMENT LOANS
The service vehicle installment loans represent several loans to financing
institutions for the purchase of service vehicles. At September 30, 2000,
the notes bear interest at a rate of varying from 2.9% to 3.9% and require
monthly installments of principal and interest totaling approximately
$3,700. Maturities vary from January to March 2003.
MATURITIES
Maturities of long-term debt for years subsequent to September 30, 2000
are as follows:
Fiscal Year
-----------
2001...................... $ 135,000
2002...................... 133,000
2003...................... 8,616,000
2004...................... 34,000
2005...................... -
-------------
$ 8,918,000
=============
9. Dutch Auction Self-Tender Offer and Open-Market Stock Repurchases
On April 17, 2000, the Company commenced a Dutch Auction self-tender offer
for up to 300,000 shares of the Company's Common Stock at a price range of
$14.50 to $16 per share. Effective May 22, 2000, the Company accepted for
purchase all 278,658 shares tendered at a purchase price of $16 per share.
The costs associated with this transaction totaled $64,000.
In fiscal 2000, the Company also repurchased 189,486 shares of its common
stock in open-market transactions at a cost of $1,852,000, or an average of
$9.77 per share. In fiscal 1999, the Company repurchased 93,259 shares for
$617,000, or an average of $6.62 per share.
The stock repurchases were made because the Company deemed its stock
undervalued by the market at the time.
10. Hedging
The Company uses futures and options contracts to hedge the effects of
fluctuations in the price of green coffee beans. At September 30, 2000,
the Company held call options covering an aggregate of 562,500 pounds of
green coffee beans which are exercisable in fiscal 2001 at prices ranging
from $1.20 to $1.50 per pound. In addition, the Company held a short
position on put options covering 187,500 pounds of green coffee beans
which are exercisable in fiscal 2001 at a price of $1.00 per pound. At
September 25, 1999, the Company held call options covering an aggregate of
863,000 pounds of green coffee beans which were exercisable in fiscal 2000
at prices ranging from $1.80 to $2.00 per pound. The fair market value of
these options was approximately $(33,000) at September 30, 2000. The fair
market value of the options outstanding at September 25, 1999 was not
material. Additionally, the Company had futures contracts outstanding of
approximately $743,000 at September 30, 2000. The fair market value of
these futures at September 30, 2000 was $706,000. The fair market value
for the futures and options was obtained from a major financial
institution based on the market value of those financial instruments at
September 30, 2000 and September 25, 1999. At September 30, 2000 and
September 25, 1999, $70,000 and $48,000, respectively, of deferred hedging
losses were included in the value of the inventory in the accompanying
consolidated balance sheet.
11. Employee Compensation Plans
STOCK OPTION PLANS
Prior to the establishment on September 21, 1993 of the Company's first
employee stock option plan (the "1993 Plan"), the Company granted to
certain key management employees individual non-qualified stock option
agreements to purchase shares of the Company's common stock. These options
had a maximum life of 10 years and vested immediately. On December 21,
1999, all options outstanding under these individual agreements were
amended to extend the expiration date of these options from April 15, 2003
to April 15, 2008. At the time of this amendment, the exercise price of
the options exceeded the fair market value of the stock, and as such, no
compensation expense was recognized. At September 30, 2000, 140,444
options were outstanding under these individual agreements.
The 1993 Plan provides for the granting of both incentive and
non-qualified stock options, with an aggregate number of 75,000 shares of
common stock to be made available under the 1993 Plan. Effective July 26,
1996, the total number of shares of authorized common stock to be made
available under the 1993 Plan was increased to 275,000. Grants under the
1993 Plan expire 10 years after the grant date, or earlier if employment
terminates. At September 30, 2000 and September 25, 1999, options for
41,768 shares and 43,611 shares of common stock were available for grant
under the plan, respectively.
On May 20, 1999, the Company registered on Form S-8 the 1999 Stock Option
Plan (the "1999 Plan"). Under this plan, 250,000 shares of common stock
are available for grants of both incentive and non-qualified stock
options. Grants under the 1999 Plan expire 10 years after the grant date,
or earlier if employment terminates. At September 30, 2000 and September
25, 1999, options for 7,621 shares and 57,321 shares of common stock were
available for grant under the plan, respectively.
Under both the 1993 Plan and the 1999 Plan, the option price for each
incentive stock option shall not be less than the fair market value per
share of common stock on the date of grant, with certain provisions which
increase the option price to 110% of the fair market value of the common
stock if the grantee owns in excess of 10% of the Company's common stock
at the date of grant. The option price for each non-qualified stock option
shall not be less than 85% of the fair market value of the common stock at
the date of grant. Options under the 1993 Plan and the 1999 Plan become
exercisable over periods determined by the Board of Directors.
Option activity is summarized as follows:
Weighted-
average
Number of Exercise
Shares Option Price Price
--------- ------------------ ---------
Outstanding at September 27, 1997... 258,240 $ 6.00 - 9.625 $ 7.73
Granted.......................... 100,834 6.375 - 10.00 9.00
Exercised........................ - - -
Canceled......................... (9,261) 6.25 - 8.50 7.60
--------- ------------------ ---------
Outstanding at September 26, 1998... 349,813 6.00 - 10.00 8.10
Granted.......................... 290,212 4.375 - 7.625 5.95
Exercised........................ (32,300) 6.00 - 7.00 6.30
Canceled......................... (74,513) 4.375 - 10.00 7.14
--------- ------------------ ---------
Outstanding at September 25, 1999... 533,212 4.375 - 10.00 7.18
Granted.......................... 61,300 7.00 - 17.938 9.88
Exercised........................ (23,292) 4.375 - 8.50 7.25
Canceled......................... (9,757) 4.375 - 12.75 6.28
--------- ------------------ ---------
Outstanding at September 30, 2000... 561,463 $ 4.375 - 17.938 $ 7.48
========
Exercisable at September 30, 2000... 299,310 $ 4.375 - 10.00 $ 7.76
=========
Options outstanding Options exercisable
--------------------- ------------------------
Weighted
average
Number remaining Weighted Number Weighted
outstanding at contractual average exercisable at average
Range of September 30, life exercise September 30, exercise
exercise price 2000 (in years) price 2000 price
- -------------- -------------- ----------- -------- -------------- --------
$ 4.38 - 6.00 163,660 8 $ 5.26 47,510 $ 5.41
6.25 - 7.00 64,005 8 6.82 21,703 6.65
7.44 - 7.63 80,000 9 7.61 26,250 7.62
8.02 140,444 8 8.02 140,444 8.02
8.13 - 8.50 28,754 5 8.44 25,570 8.48
9.13 - 10.00 65,600 7 9.84 37,833 9.96
10.25 - 13.31 9,000 10 12.51 - -
15.69 - 17.94 10,000 10 16.81 - -
-------------- --------------
561,463 299,310
============== ==============
EMPLOYEE STOCK PURCHASE PLAN
On October 5, 1998, the Company registered on Form S-8 the 1998 Employee
Stock Purchase Plan. Under this plan, eligible employees may purchase
shares of the Company's common stock, subject to certain limitations, at
not less than 85 percent of the lower of the beginning or ending
withholding period fair market value as defined in the plan. A total of
150,000 shares of common stock have been reserved for issuance under the
plan. There are two six-month withholding periods in each fiscal year.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees". Accordingly,
except for two grants to outside consultants in fiscal 1999 and fiscal
2000, no compensation expense has been recognized for its stock option
awards and its stock purchase plan because the exercise price of the
Company's stock options equals or exceeds the market price of the
underlying stock on the date of the grant. The Company has adopted the
disclosure-only provision of Statement of Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"). Had compensation
cost for the Company's stock option awards and the stock purchase plan
been determined based on the fair value at the grant dates for the awards
under those plans, consistent with the provisions of SFAS No. 123, the
Company's net income (loss) and net income (loss) per share for the years
ended September 30, 2000, September 25, 1999, and September 26, 1998 would
have decreased to the pro forma amounts indicated below:
Fiscal 2000 Fiscal 1999 Fiscal 1998
Net income (loss):
As reported $ 4,213 $ 2,433 $ (1,216)
Pro forma 3,812 2,160 (1,336)
Diluted net income
(loss) per share:
As reported 1.21 0.69 (0.34)
Pro forma 1.09 0.61 (0.38)
The fair value of each stock option under the 1993 and 1999 Plans are
estimated on the date of the grant using the Black-Scholes option-pricing
model with the following assumptions: an expected life of 6 years, 7
years, and 7 years in fiscal 2000, 1999, and 1998, respectively; an
average volatility of 59%, 70%, and 64% for fiscal 2000, 1999, and 1998
respectively; no dividend yield; and a risk-free interest rate of 6.32%,
6.35%, and 4.56% for fiscal 2000, 1999, and 1998 grants, respectively. The
weighted-average fair values of options granted during 2000, 1999, and
1998 are $6.05, $4.57, and $5.97, respectively.
The fair value of the employees' purchase rights under the Purchase Plan
was estimated using the Black-Scholes model with the following assumptions
for fiscal 2000, 1999, and 1998: an expected life of six months, six
months and one year respectively; expected volatility of 59%, 70%, and 64%
respectively; and a risk-free interest rate of 6.04%, 5.33%; and 4.59%,
respectively. The weighted average fair value of those purchase rights
granted in fiscal 2000, fiscal 1999, and fiscal 1998 was $3.71, $2.31, and
$1.98 respectively.
12. Defined Contribution Plan
The Company has a defined contribution plan which meets the requirements of
section 401(k) of the Internal Revenue Code. All employees of the Company
with one year or more of service who are at least twenty-one years of age
are eligible to participate in the plan. The plan allows employees to defer
a portion of their salary on a pre-tax basis and the Company contributes
50% of amounts contributed by employees up to 6% of their salary. Company
contributions to the plan amounted to $276,000, $204,000, and $160,000 for
the years ended September 30, 2000, September 25, 1999, and September 26,
1998, respectively.
13. Employee Stock Ownership Plan
On September 14, 2000, the Board of Directors of the Company adopted a
resolution establishing the Green Mountain Coffee Inc. Employee Stock
Ownership Plan ("ESOP"). The ESOP is qualified under sections 401(a) and
4975(e)(7) of the Internal Revenue Code. All employees of the Company with
one year or more of service who are at least twenty-one years of age are
eligible to participate in the Plan, in accordance with the terms of the
Plan. The Company may, at its discretion, contribute shares of Company
stock or cash that is used to purchase shares of Company stock. Company
contributions are credited to eligible participants' accounts pro-rata
based on their compensation. Plan participants become vested in their Plan
benefits ratably over five years from the date of hire of the employee. The
Company made a contribution of $200,000 to the ESOP for the fiscal year
ended on September 30, 2000. No shares had been purchased by the Plan at
September 30, 2000.
14. Loans to Officers
During fiscal 2000 and fiscal 1999, certain executive officers delivered
promissory notes to the Company in the principal amount of $430,000 and
$650,000, respectively. Interest accrued on the unpaid principal at the
prime rate as reported in the Wall Street Journal and was payable upon the
maturity of the note. During fiscal 2000, the prime rate ranged from 8.25%
to 9.50%. During fiscal 1999, the prime rate ranged from 7.75% to 8.50%.
The balance on loans to officers at September 25, 1999 was $250,000. All
principal and accrued interest amounts were paid to the Company and there
was no balance outstanding on September 30, 2000.
15. Commitments, Lease Contingencies and Contingent Liabilities
LEASES
The Company leases office and retail space, production, distribution and
service facilities and certain equipment under various non-cancelable
operating leases, with terms ranging from one to ten years. Property
leases normally require payment of a minimum annual rental plus a pro-rata
share of certain landlord operating expenses. Total rent expense under all
operating leases was $1,616,000, $1,628,000, and $1,599,000 in fiscal
2000, 1999, and 1998, respectively (net of sublease income of $137,000,
$196,000, and $67,000 in fiscal 2000, 1999, and 1998, respectively).
Minimum future lease payments (net of committed sublease agreements of
$135,000 for fiscal 2001, $80,000 for fiscal 2002, $53,000 for fiscal
2003, $54,000 for fiscal 2004, $55,000 for fiscal 2005 and $119,000
thereafter) under non-cancelable operating leases for years subsequent to
September 30, 2000 are as follows:
Fiscal Year Operating Leases
----------- ----------------
2001............................ $ 1,425,000
2002............................ 932,000
2003............................ 696,000
2004............................ 571,000
2005............................ 514,000
Thereafter...................... 778,000
----------------
Total minimum lease payments........ $ 4,916,000
================
In addition to the minimum operating future lease payments in the table
above, on November 3, 2000, the Company entered into a ten-year lease
commitment for 10,000 square feet of warehouse space with total minimum
annual lease payments of $70,000.
16. Earnings per share
The following table illustrates the reconciliation of the numerator and
denominator of basic and diluted income per share from continuing
operations computations as required by SFAS No. 128 (dollars in thousands,
except share and per share data):
Year ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
Numerator - basic and diluted
earnings per share:
Net income from continuing
operations.............................. $ 4,153 $ 2,247 $ 340
============= ============= =============
Denominator:
Basic earnings per share - weighted
average share outstanding............... 3,293,422 3,503,412 3,530,657
Effect of dilutive securities - stock
options................................. 196,200 43,743 8,574
------------- ------------- -------------
Diluted earnings per share - weighted
average shares outstanding.............. 3,489,622 3,547,155 3,539,231
============= ============= =============
Basic earnings per share................ $ 1.26 $ 0.64 $ 0.10
Diluted earnings per share.............. $ 1.19 $ 0.64 $ 0.10
For the fiscal years ended September 30, 2000, September 25, 1999, and
September 26, 1998 anti-dilutive options of 5,000, 345,967, and 341,239
respectively, have been excluded from the calculation of EPS because the
options' exercise price was greater than the market price of the common
shares.
17. Segment Reporting
Business conducted by the Company can be segmented into two distinct areas
determined by the distribution channel. The direct mail segment is
comprised of all consumer-direct sales and sales to small businesses which
are solicited via catalogs and the Company's online store -
www.GreenMountainCoffee.com. The wholesale segment is comprised of all
sales to customers who resell Green Mountain coffee either as coffee beans
or brewed coffee by the cup, such as supermarkets, office coffee
distributors, convenience stores, restaurants, and others. Wholesale sales
are generated through the Company's direct sales force and a limited number
of distributors.
Both segments of the Company sell similar products, although the entire
Company product range is not fully available to both segments, and direct
mail customers do not have access to the same range of equipment service,
delivery and merchandising support as wholesale customers.
Selling and operating costs directly attributable to the direct mail
segment are charged accordingly while all remaining selling, operating,
general and administrative expenses (including depreciation and
amortization) are charged to the wholesale segment. The Company's
management does not review assets by segment.
The table below discloses segment net sales and pre-tax income from
continuing operations for fiscal 2000, 1999, and 1998 (in thousands):
2000 1999 1998
------------ ------------ ------------
Net sales from continuing operations
Reportable segments:
Wholesale.............. $ 79,855 $ 61,418 $ 52,710
Direct mail............ 4,146 3,463 3,115
------------ ------------ ------------
Total net sales........ $ 84,001 $ 64,881 $ 55,825
============ ============ ============
Pre-tax income from continuing operations
Reportable segments:
Wholesale.............. $ 6,316 $ 4,084 $ 1,255
Direct mail............ 451 265 38
------------ ------------ ------------
Operating income....... 6,767 4,349 1,293
Reconciling items:
Other income........... 48 10 66
Interest expense....... (583) (736) (821)
------------ ------------ ------------
Pre-tax income......... $ 6,232 $ 3,623 $ 538
============ ============ ============
International sales make up less than one percent of wholesale sales in
all periods presented.
18. ChefExpress.net, Inc. Promissory Note
On March 21, 2000, ChefExpress.net, Inc. delivered a promissory note to
the Company in the principal amount of $100,000 bearing an annual
interest rate of 8%. In the fourth quarter of fiscal 2000, The Company
converted this loan into an equity investment. In addition to a
minority ownership interest, the investment in the ChefExpress.net
venture represents an opportunity for the Company to be prominently
featured in an e-procurement website that targets to chefs in
restaurants and the high-end sector of the food service channel. A
board member of Green Mountain Coffee is the Chief Executive Officer
and President of ChefExpress.net.
19. Subsequent Event - Stock Split (Unaudited)
On December 4, 2000, the Company announced that its Board of Directors
had approved a two-for-one Common Stock split effected in the form of a
100% Common Stock dividend. The record date of the dividend is December
28, 2000, and the payment date is January 11, 2001. The par value of
the Common Stock remains unchanged at $0.10 per share. The tables below
display the effect of the two-for-one stock split on a proforma basis
on the Company's stockholders' equity as of September 30, 2000 as well
as on earnings per share (dollars in thousands):
September 30, Proforma
2000 (unaudited)
------------- -----------
Common Stock, $0.10 par value: authorized -
10,000,000 shares, issued 3,671,005 at
September 30, 2000, proforma 7,342,010..... $ 367 $ 734
Additional paid-in capital................. 13,901 13,534
Retained earnings.......................... 2,778 2,778
Treasury stock............................. (7,029) (7,029)
------------- -----------
Total stockholders' equity................. $ 10,017 $ 10,017
============= ===========
Fiscal 2000 Fiscal 1999 Fiscal 1998
----------- ----------- -----------
Basic net income (loss) per share
As reported.......................... $ 1.28 $ 0.69 $ (0.34)
Proforma (unaudited)................. $ 0.64 $ 0.35 $ (0.17)
Diluted net income (loss) per share
As reported.......................... $ 1.21 $ 0.69 $ (0.34)
Proforma (unaudited)................. $ 0.60 $ 0.34 $ (0.17)
20. Unaudited Quarterly Financial Data
The following table presents the quarterly information for fiscal 2000
and fiscal 1999 (dollars in thousands, except per share data). All
quarters presented are made of 12 weeks except for the first fiscal
quarters of fiscal 2000 and fiscal 1999 which comprise 16 weeks each,
and the fourth fiscal quarter of fiscal 2000 which includes 13 weeks.
Fiscal quarters ended
------------------------------------------------
January 15, April 8, July 1, September 30,
Fiscal 2000 2000 2000 2000 2000
----------- ----------- --------- --------- -------------
Net sales........................... $ 24,742 $ 18,259 $ 19,668 $ 21,332
Gross profit........................ $ 10,046 $ 7,269 $ 7,759 $ 8,462
Income from continuing operations... $ 1,300 $ 615 $ 802 $ 1,436
Net income.......................... $ 1,300 $ 615 $ 802 $ 1,496
Earnings per share
Basic.......................... $ 0.38 $ 0.18 $ 0.25 $ 0.49
Diluted........................ $ 0.37 $ 0.17 $ 0.23 $ 0.45
January 16, April 10, July 3, September 25,
Fiscal 1999 1999 1999 1999 1999
----------- ----------- --------- --------- -------------
Net sales........................... $ 20,068 $ 14,452 $ 14,973 $ 15,388
Gross profit........................ $ 7,528 $ 5,560 $ 6,152 $ 6,380
Income from continuing operations... $ 541 $ 358 $ 515 $ 833
Net income.......................... $ 541 $ 544 $ 515 $ 833
Earnings per share
Basic.......................... $ 0.15 $ 0.16 $ 0.15 $ 0.24
Diluted........................ $ 0.15 $ 0.15 $ 0.14 $ 0.23
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of Green Mountain Coffee, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated November 10, 2000 appearing in this Form 10-K also included an audit of
the financial statement schedules listed in Item 14(a)(2) of this Form 10-K.
In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 2000
Schedule II - Valuation and Qualifying Accounts
for the fiscal years ended
September 30, 2000, September 25, 1999, and September 26, 1998
Additions
----------------------------
Balance at Charged to
Beginning of Costs and Charged to Balance at
Description Period Expenses Other Accounts Deductions End of Period
- ----------- ------------ ---------- -------------- ---------- -------------
Allowance for doubtful accounts:
Fiscal 2000............................ $ 190,000 $ 361,000 - $ 231,000 $ 320,000
Fiscal 1999............................ $ 378,000 $ 241,000 - $ 429,000 $ 190,000
Fiscal 1998............................ $ 116,000 $ 577,000 - $ 315,000 $ 378,000
Obsolete inventory valuation allowance:
Fiscal 2000............................ $ 136,000 $ 77,000 - $ 86,000 $ 127,000
Fiscal 1999............................ $ 75,000 $ 151,000 - $ 90,000 $ 136,000
Fiscal 1998............................ $ 10,000 $ 101,000 - $ 36,000 $ 75,000
Deferred tax asset valuation allowance:
Fiscal 2000............................ $ 2,355,000 - - $ 534,000 $ 1,821,000
Fiscal 1999............................ $ 2,355,000 - - - $ 2,355,000
Fiscal 1998............................ $ 2,391,000 - - $ 36,000 $ 2,355,000