Green Mountain Coffee Roasters, Inc. Announces Restatement of Financials
As discussed below, these errors were discovered by management during
the course of its preparation of the year-end financial statements and
audit, as well as during the course of an internal investigation
initiated by the audit committee of the Company's board of directors in
light of the previously disclosed inquiry by the staff of the Securities
and Exchange Commission's ("SEC")
The amounts disclosed below are the net cumulative effect of these
errors through
The adjustments necessary to correct the errors will have no effect on
reported cash flow from operations, and are not expected to have a
material impact on the balance sheet. The estimated impact of these
items for the restatement periods is expected to reduce cumulative net
income by approximately
The Company has discovered the following errors:
-
A
$7.6 million overstatement of pre-tax income, cumulative over the restated periods, due to the K-Cup inventory adjustment error previously reported in the Company's Form 8-K filed on September 28, 2010. This error is the result of applying an incorrect standard cost to intercompany K-Cup inventory balances in consolidation. This error resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales. Rather than correcting the cumulative amount of the error in the quarter endedSeptember 25, 2010 , as disclosed in theSeptember 28, 2010 Form 8-K, the effect of this error will be recorded in the applicable restated periods. -
A
$1.4 million overstatement of pre-tax income, cumulative over the restated periods, due to the under-accrual of certain marketing and customer incentive program expenses. The Company also has corrected the classification of certain of these amounts as reductions to net sales instead of selling and operating expenses. These programs include, but are not limited to, brewer mark-down support and funds for promotional and marketing activities. Management has determined that miscommunication between the sales and accounting departments resulted in expenses for certain of these programs being recorded in the wrong fiscal periods. -
A
$1.0 million overstatement of pre-tax income, cumulative over the restated periods, due to changes in the timing and classification of the Company's historical revenue recognition of royalties from third party licensed roasters. Because royalties were recognized upon shipment of K-Cups by roasters pursuant to the terms and conditions of the licensing agreements with these roasters, Keurig historically recognized these royalties at the time Keurig purchased the K-Cups from the licensed roasters and classified this royalty in net sales. Management has determined to recognize this royalty as a reduction to the carrying cost of the related inventory. The gross margin benefit of the royalty will then be realized upon the ultimate sale of the product to a third party customer. Due to the Company's completed and, when consummated, pending acquisitions of third party licensed roasters, these purchases and the associated royalties have become less of a factor, since the post-acquisition royalties from these wholly-owned roasters are not included in the Company's consolidated financial statements. -
An
$800,000 overstatement of pre-tax income, cumulative over the restated periods, due to applying an incorrect standard cost to intercompany brewer inventory balances in consolidation. This error was identified during the preparation of the fiscal year 2010 financial statements and resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales. -
A
$700,000 understatement of pre-tax income for the Specialty Coffee business unit, due primarily to a failure to reverse an accrual related to certain customer incentive programs in the second fiscal quarter of 2010. The over-accrual was not identified and corrected until the fourth fiscal quarter of 2010. - In addition to the errors described above, the Company also will include in the restated financial statements certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years' financial statements.
Expected impact of the restatement
The estimated necessary adjustments to the Company's statements of operations are summarized in the tables below (in thousands, except per share amounts). The Company is still in the process of completing its review of the restated financial statements, and, therefore, the estimated adjustments described below are preliminary. While the Company expects to report the estimated adjustments described below, there can be no assurance that the final adjustments that are made as part of the restatement will not differ materially from the estimated adjustments.
| Fiscal year ended | |||||||||||||||||||||
| September 29, 2007 | September 27, 2008 | September 26, 2009 | |||||||||||||||||||
| Increase (decrease) | As Reported | Adjustments | As Restated | As Reported | Adjustments | As Restated | As Reported | Adjustments | As Restated | ||||||||||||
| Pre-tax income | $21,577 |
($467 |
) | $21,110 | $36,472 | ($1,013 | ) | $35,459 | $90,358 | ($2,327 | ) | $88,031 | |||||||||
| Net income | $12,843 | ($285 | ) | $12,558 | $22,299 | ($632 | ) | $21,667 | $55,882 | ($1,445 | ) | $54,437 | |||||||||
| Basic income per share | $0.12 | - | $0.12 | $0.21 | ($0.01 | ) | $0.20 | $0.49 | ($0.01 | ) | $0.48 | ||||||||||
| Diluted income per share | $0.12 | ($0.01 | ) | $0.11 | $0.19 | - | $0.19 | $0.46 | ($0.01 | ) | $0.45 | ||||||||||
| Thirteen weeks ended | ||||||||||||||||||||||||||||
| December 27, 2008 | March 28, 2009 | June 27, 2009 | September 26, 2009 | |||||||||||||||||||||||||
|
Increase (decrease) |
As Reported |
Adjust- |
As Restated | As Reported |
Adjust- |
As Restated | As Reported |
Adjust- |
As Restated | As Reported |
Adjust- |
As Restated | ||||||||||||||||
| Pre-tax income | $23,533 | ($832 | ) | $22,701 | $21,368 | ($944 | ) | $20,424 | $21,657 | ($108 | ) | $21,549 | $23,800 | ($443 | ) | $23,357 | ||||||||||||
| Net income | $14,384 | ($517 | ) | $13,867 | $12,983 | ($586 | ) | $12,397 | $14,140 | ($67 | ) | $14,073 | $14,375 | ($275 | ) | $14,100 | ||||||||||||
| Basic income per share | $0.13 | - | $0.13 | $0.12 | ($0.01 | ) | $0.11 | $0.13 | ($0.01 | ) | $0.12 | $0.12 | - | $0.12 | ||||||||||||||
| Diluted income per share | $0.12 | - | $0.12 | $0.11 | ($0.01 | ) | $0.10 | $0.12 | - | $0.12 | $0.11 | - | $0.11 | |||||||||||||||
| Thirteen weeks ended (1) | Thirty-nine weeks ended (1) | |||||||||||||||||||||||||||
| December 26, 2009 | March 27, 2010 | June 26, 2010 | June 26, 2010 | |||||||||||||||||||||||||
|
Increase (decrease) |
As Reported |
Adjust- |
As Restated | As Reported |
Adjust- |
As Restated | As Reported |
Adjust- |
As Restated | As Reported |
Adjust- |
As Restated | ||||||||||||||||
| Pre-tax income | $21,915 | ($3,762 | ) | $18,153 | $40,243 | ($987 | ) | $39,256 | $36,719 | ($981 | ) | $35,738 | $98,877 | ($5,730 | ) | $93,147 | ||||||||||||
| Net income | $12,494 | ($2,265 | ) | $10,229 | $24,702 | ($594 | ) | $24,108 | $18,554 | ($591 | ) | $17,963 | $55,750 | ($3,450 | ) | $52,300 | ||||||||||||
| Basic income per share | $0.10 | ($0.02 | ) | $0.08 | $0.19 | ($0.01 | ) | $0.18 | $0.14 | - | $0.14 | $0.42 | ($0.02 | ) | $0.40 | |||||||||||||
| Diluted income per share | $0.09 | ($0.02 | ) | $0.07 | $0.18 | - | $0.18 | $0.13 | - | $0.13 | $0.40 | ($0.02 | ) | $0.38 | ||||||||||||||
(1) The tax rate in fiscal year 2010 is an estimate at this time and may change as the Company finalizes its financial statements for fiscal year 2010.
In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the
Company's management has been assessing the effectiveness of the
Company's internal controls over financial reporting and disclosure
controls. Based on this assessment, the Company expects to report a
material weakness in the Company's internal controls over financial
reporting, and, therefore, conclude that internal controls over
financial reporting as of
The audit committee and management have discussed the matters disclosed
in this press release with
As discussed above, the audit committee of the Company's board of
directors initiated an internal investigation in light of the previously
disclosed inquiry by the staff of the
About
As a leader in the specialty coffee industry, Green Mountain Coffee
Roasters, Inc. is recognized for its award-winning coffees, innovative
brewing technology and socially responsible business practices. GMCR's
operations are managed through two business units. The Specialty Coffee
business unit produces coffee, tea and hot cocoa from its family of
brands, including Tully's Coffee®, Green Mountain Coffee®,
Newman's Own® Organics coffee, Timothy's World Coffee®,
Diedrich®, Coffee People® and
GMCR routinely posts information that may be of importance to investors
in the Investor Relations section of its web site, including news
releases and its complete financial statements, as filed with the
Forward-looking statements
Except for historical information, the matters discussed herein are
"forward-looking statements" within the meaning of the applicable
securities laws and regulations. Forward-looking statements, including
statements regarding the Company's intent to restate its prior financial
statements, the estimated adjustments of the restated financials, the
internal investigation by the audit committee of the Company's board of
directors and the expected timing of filing the restated financial
reports, involve risks and uncertainties which may cause actual results
to differ materially from those stated here. Factors that could cause
actual results to differ materially from those in the forward-looking
statements include, but are not limited to, the risk that additional
information may arise from the final conclusion of the audit committee's
internal investigation, the risk that the process of preparing and
auditing the financial statements or other subsequent events would
require the Company to make additional adjustments, the time and effort
required to complete the restatement of the financial reports and the
impact of the inquiry initiated by the
GMCR-C
GMCR
VP IR & Corporate Comm
suzanne.dulong@gmcr.com
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