XFRA:GM2 Keurig Green Mountain Inc Quarterly Report 10-Q Filing - 3/24/2012

Effective Date 3/24/2012

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FORM 10-Q

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

(Mark One)

 

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

 

For the thirteen weeks ended March 24, 2012

 

OR

 

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

 

For the transition period from                      to                      

 

Commission file number 1-12340

 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

03-0339228

(State or other jurisdiction of
incorporation or organization)

 

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

 

33 Coffee Lane, Waterbury, Vermont  05676

(Address of principal executive offices)  (zip code)

 

(802) 244-5621

(Registrants’ telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller Reporting Company o

 

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

 

As of April 25, 2012, 155,350,001 shares of common stock of the registrant were outstanding.

 

 

 



 

Part I.  Financial Information
Item 1.  Financial Statements

 

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

 

 

 

March 24,

 

September 24,

 

 

 

2012

 

2011

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

146,003

 

$

12,989

 

Restricted cash and cash equivalents

 

9,202

 

27,523

 

Receivables, less uncollectible accounts and return allowances of $48,393 and $21,407 at March 24, 2012 and September 24, 2011, respectively

 

300,713

 

310,321

 

Inventories

 

602,121

 

672,248

 

Income taxes receivable

 

2,576

 

18,258

 

Other current assets

 

45,856

 

28,072

 

Deferred income taxes, net

 

46,251

 

36,231

 

Current assets held for sale

 

 

25,885

 

Total current assets

 

1,152,722

 

1,131,527

 

 

 

 

 

 

 

Fixed assets, net

 

793,293

 

579,219

 

Intangibles, net

 

516,491

 

529,494

 

Goodwill

 

801,690

 

789,305

 

Other long-term assets

 

45,011

 

47,759

 

Long-term assets held for sale

 

 

120,583

 

 

 

 

 

 

 

Total assets

 

$

3,309,207

 

$

3,197,887

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

9,742

 

$

6,669

 

Accounts payable

 

246,899

 

265,511

 

Accrued compensation costs

 

36,796

 

43,260

 

Accrued expenses

 

120,436

 

92,120

 

Income tax payable

 

48,012

 

9,617

 

Deferred income taxes, net

 

 

243

 

Other current liabilities

 

27,181

 

34,613

 

Current liabilities related to assets held for sale

 

 

19,341

 

Total current liabilities

 

489,066

 

471,374

 

 

 

 

 

 

 

Long-term debt

 

431,471

 

575,969

 

Deferred income taxes, net

 

211,013

 

189,637

 

Other long-term liabilities

 

18,229

 

27,184

 

Long-term liabilities related to assets held for sale

 

 

474

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

11,252

 

21,034

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding

 

 

 

Common stock, $0.10 par value: Authorized - 500,000,000 shares; Issued and outstanding - 155,213,176 and 154,466,463 shares at March 24, 2012 and September 24, 2011, respectively

 

15,521

 

15,447

 

Additional paid-in capital

 

1,522,283

 

1,499,616

 

Retained earnings

 

609,307

 

411,727

 

Accumulated other comprehensive income (loss)

 

1,065

 

(14,575

)

Total stockholders’ equity

 

2,148,176

 

1,912,215

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,309,207

 

$

3,197,887

 

 

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

 

1



 

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

 

 

 

Thirteen

 

Thirteen

 

 

 

weeks ended

 

weeks ended

 

 

 

March 24,

 

March 26,

 

 

 

2012

 

2011

 

Net sales

 

$

885,052

 

$

647,658

 

Cost of sales

 

572,014

 

404,803

 

Gross profit

 

313,038

 

242,855

 

 

 

 

 

 

 

Selling and operating expenses

 

111,105

 

79,745

 

General and administrative expenses

 

52,340

 

43,499

 

Operating income

 

149,593

 

119,611

 

 

 

 

 

 

 

Other income (expense), net

 

669

 

1,078

 

Loss on financial instruments, net

 

(2,112

)

(5,959

)

Gain on foreign currency, net

 

3,613

 

4,045

 

Interest expense

 

(6,042

)

(16,672

)

Income before income taxes

 

145,721

 

102,103

 

 

 

 

 

 

 

Income tax expense

 

(52,458

)

(36,295

)

Net Income

 

$

93,263

 

$

65,808

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests

 

232

 

436

 

 

 

 

 

 

 

Net income attributable to GMCR

 

$

93,031

 

$

65,372

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

Basic weighted average shares outstanding

 

155,049,294

 

141,784,994

 

Net income per common share - basic

 

$

0.60

 

$

0.46

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

Diluted weighted average shares outstanding

 

159,374,545

 

147,558,595

 

Net income per common share - diluted

 

$

0.58

 

$

0.44

 

 

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

 

2



 

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

 

 

 

Twenty-six

 

Twenty-six

 

 

 

weeks ended

 

weeks ended

 

 

 

March 24,

 

March 26,

 

 

 

2012

 

2011

 

Net sales

 

$

2,043,268

 

$

1,221,806

 

Cost of sales

 

1,393,626

 

835,351

 

Gross profit

 

649,642

 

386,455

 

 

 

 

 

 

 

Selling and operating expenses

 

252,463

 

158,034

 

General and administrative expenses

 

101,748

 

85,530

 

Operating income

 

295,431

 

142,891

 

 

 

 

 

 

 

Other income (expense), net

 

1,360

 

1,166

 

Loss on financial instruments, net

 

(3,246

)

(12,301

)

Gain on foreign currency, net

 

6,299

 

5,624

 

Gain on sale of subsidiary

 

26,311

 

 

Interest expense

 

(12,505

)

(22,730

)

Income before income taxes

 

313,650

 

114,650

 

 

 

 

 

 

 

Income tax expense

 

(115,705

)

(46,393

)

Net Income

 

$

197,945

 

$

68,257

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests

 

500

 

473

 

 

 

 

 

 

 

Net income attributable to GMCR

 

$

197,445

 

$

67,784

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

Basic weighted average shares outstanding

 

154,876,465

 

141,579,543

 

Net income per common share - basic

 

$

1.27

 

$

0.48

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

Diluted weighted average shares outstanding

 

159,368,142

 

147,310,364

 

Net income per common share - diluted

 

$

1.24

 

$

0.46

 

 

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

 

3



 

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

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

 

 

March 24,

 

March 26,

 

March 24,

 

March 26,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income

 

$

93,263

 

$

65,808

 

$

197,945

 

$

68,257

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Deferred loss on derivatives designated as cash flow hedges, net of tax benefit of $0.8 million and $1.0 million for the thirteen weeks ended March 24, 2012 and March 26, 2011, respectively, and net of tax benefit of $0.3 million and $0.7 million for the twenty-six weeks ended March 24, 2012 and March 26, 2011, respectively

 

(1,109

)

(1,424

)

(435

)

(1,039

)

Loss on derivatives designated as cash flow hedges reclassified to net income, net of tax benefit of $0.03 million and $0.1 million for the thirteen and twenty-six weeks ended March 24, 2012, respectively

 

51

 

 

199

 

 

Foreign currency translation adjustment

 

11,818

 

12,694

 

16,209

 

15,890

 

Other comprehensive gain

 

10,760

 

11,270

 

15,973

 

14,851

 

Total comprehensive income

 

104,023

 

77,078

 

213,918

 

83,108

 

Total comprehensive income attributable to redeemable noncontrolling interests, net of tax

 

473

 

696

 

833

 

794

 

Total comprehensive income attributable to GMCR

 

$

103,550

 

$

76,382

 

$

213,085

 

$

82,314

 

 

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

 

4



 

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Unaudited Consolidated Statement Of Changes In Redeemable Noncontrolling Interests And Stockholders’ Equity

For the Period Ended March 24, 2012 (Dollars in thousands)

 

 

 

Equity Attributable

 

 

 

 

 

 

Additional

 

 

 

Accumulated

 

 

 

 

 

to Redeemable

 

 

Common stock

 

paid-in

 

Retained

 

other compre-

 

Stockholders’

 

 

 

Noncontrolling Interests

 

 

Shares

 

Amount

 

capital

 

earnings

 

hensive loss

 

Equity

 

Balance at September 24, 2011

 

$

21,034

 

 

154,466,463

 

$

15,447

 

$

1,499,616

 

$

411,727

 

$

(14,575

)

$

1,912,215

 

Options exercised

 

 

 

691,045

 

69

 

2,159

 

 

 

2,228

 

Restricted stock awards and units

 

 

 

55,668

 

5

 

(5

)

 

 

 

Stock compensation expense

 

 

 

 

 

9,209

 

 

 

9,209

 

Tax benefit from equity-based compensation plans

 

 

 

 

 

11,177

 

 

 

11,177

 

Deferred compensation expense

 

 

 

 

 

127

 

 

 

127

 

Disposition of noncontrolling interests

 

(10,331

)

 

 

 

 

 

 

 

Adjustment of redeemable noncontrolling interests to redemption value

 

(135

)

 

 

 

 

135

 

 

135

 

Cash distributions

 

(149

)

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

333

 

 

 

 

 

 

15,640

 

15,640

 

Net income

 

500

 

 

 

 

 

197,445

 

 

197,445

 

Balance at March 24, 2012

 

$

11,252

 

 

155,213,176

 

$

15,521

 

$

1,522,283

 

$

609,307

 

$

1,065

 

$

2,148,176

 

 

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

 

5



 

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

 

 

 

Twenty-six

 

Twenty-six

 

 

 

weeks ended

 

weeks ended

 

 

 

March 24,

 

March 26,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

197,945

 

$

68,257

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation

 

55,822

 

30,991

 

Amortization of intangibles

 

23,021

 

17,793

 

Amortization deferred financing fees

 

3,025

 

2,620

 

Loss on extinguishment of debt

 

 

2,555

 

Unrealized gain of foreign currency

 

(4,547

)

(5,207

)

Loss (gain) on disposal of fixed assets

 

1,265

 

(75

)

Gain on sale of subsidiary, excluding transaction costs

 

(28,914

)

 

Provision for doubtful accounts

 

1,656

 

872

 

Provision for sales returns

 

67,402

 

39,316

 

Unrealized loss on financial instruments, net

 

3,580

 

9,087

 

Tax benefit from exercise of non-qualified options and disqualified dispositions of incentive stock options

 

5

 

6

 

Excess tax benefits from equity-based compensation plans

 

(11,172

)

(5,838

)

Deferred income taxes

 

8,325

 

2,862

 

Deferred compensation and stock compensation

 

9,336

 

4,633

 

Changes in assets and liabilities, net of effects of acquisition:

 

 

 

 

 

Receivables

 

(55,546

)

(45,723

)

Inventories

 

72,671

 

(889

)

Income tax receivable/payable, net

 

65,050

 

2,562

 

Other current assets

 

(17,871

)

(4,700

)

Other long-term assets, net

 

(436

)

(11,300

)

Accounts payable

 

(38,424

)

8,690

 

Accrued compensation costs

 

(6,402

)

(8,487

)

Accrued expenses

 

27,352

 

8,128

 

Other current liabilities

 

(2,878

)

(2,173

)

Other long-term liabilities

 

(109

)

11,401

 

Net cash provided by operating activities

 

370,156

 

125,381

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Change in restricted cash

 

665

 

150

 

Proceeds from notes receivable

 

229

 

103

 

Acquisition of LJVH Holdings, Inc. (Van Houtte), net of cash acquired

 

 

(907,835

)

Proceeds from sale of subsidiary, net of cash transferred

 

137,733

 

 

Capital expenditures for fixed assets

 

(204,556

)

(99,040

)

Proceeds from disposal of fixed assets

 

215

 

280

 

Other investing activities

 

 

(158

)

Net cash used in investing activities

 

(65,714

)

(1,006,500

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net change in revolving line of credit

 

(182,814

)

257,923

 

Proceeds from issuance of common stock under compensation plans

 

2,228

 

4,784

 

Proceeds from issuance of common stock for private placement

 

 

249,524

 

Cash distributions to redeemable noncontrolling interests shareholders

 

(149

)

(386

)

Excess tax benefits from equity-based compensation plans

 

11,172

 

5,838

 

Principal payments under capital lease obligations

 

(3,148

)

(5

)

Proceeds from borrowings of long-term debt

 

 

794,500

 

Deferred financing fees

 

 

(41,628

)

Repayment of long-term debt

 

(4,552

)

(354,773

)

Net cash (used in) provided by financing activities

 

(177,263

)

915,777

 

 

 

 

 

 

 

Change in cash balances included in current assets held for sale

 

5,160

 

(6,510

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

675

 

1,188

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

133,014

 

29,336

 

Cash and cash equivalents at beginning of period

 

12,989

 

4,401

 

Cash and cash equivalents at end of period

 

$

146,003

 

$

33,737

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

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

 

$

44,672

 

$

11,051

 

 

 

 

 

 

 

Non cash financing and investing activities:

 

 

 

 

 

Fixed Assets acquired under capital lease obligations/vendor notes

 

$

44,174

 

$

 

 

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

 

6



 

Green Mountain Coffee Roasters, Inc.
Notes to Unaudited Consolidated Financial Statements

 

1.              Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements.

 

In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial data have been included.  Results from operations for the thirteen and twenty-six week periods ended March 24, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending September 29, 2012.

 

The September 24, 2011 balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.  For further information, refer to the consolidated financial statements and the footnotes included in the Annual Report on Form 10-K for Green Mountain Coffee Roasters, Inc. for the fiscal year ended September 24, 2011.  Throughout this presentation, we refer to the consolidated company as the “Company” and, unless otherwise noted, the information provided is on a consolidated basis.

 

The Unaudited Consolidated Statement of Cash Flows for the twenty-six weeks ended March 24, 2012 included in this Quarterly Report on Form 10-Q (the “Q2’12 Form 10-Q”), includes an immaterial reclassification between the line items Gain on sale of subsidiary, included in adjustments to reconcile net income to net cash provided by operating activities, and Proceeds from sale of subsidiary, net of cash transferred, included in cash flows from investing activities, from its presentation in the Unaudited Consolidated Statement of Cash Flows for the thirteen weeks ended December 24, 2011 included in the Company’s Quarterly Report on Form 10-Q for the first fiscal quarter of 2012 (the “Q1’12 Form 10-Q”). The reclassification reflects $2.6 million of transaction costs incurred on the sale of subsidiary as a reduction in net cash provided by operating activities in the Company’s Q2’12 Form 10-Q. In the Company’s Q1’12 Form 10-Q, the transaction costs were included in cash used in investing activities.

 

The Company has revised the classification of certain information presented in its fiscal 2011 consolidated financial statements to conform to its fiscal 2012 presentation.

 

In the Unaudited Consolidated Statement of Cash Flows for the twenty-six weeks ended March 26, 2011 included in the Company’s Quarterly Report on Form 10-Q for the second fiscal quarter of 2011 (the “Q2’11 Form 10-Q”), the line items sales returns and bad debts included in adjustments to reconcile net income to net cash provided by operating activities reflected the change in the reserve for sales returns and the allowance for doubtful accounts.  As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the third fiscal quarter of 2011, the Company has revised its presentation of the adjustment for sales returns and bad debts, which represents the total provision charged against net income for the period with the deductions or usage, reflected in the change in accounts receivable line item, net of the effects of acquisitions.  The change in presentation had no impact on net cash provided by operating activities.

 

The Company has also revised its presentation of the line items for gains and losses on foreign currency and gains and losses on financial instruments in the cash flows from operating activities section of the Unaudited Consolidated Statement of Cash Flows.  In the Company’s Q2’11 Form 10-Q, the Company reported both realized and unrealized gains and losses on foreign currency transactions and financial instruments to reconcile net income to net cash provided by operating activities.  As previously disclosed, only unrealized gains and losses should be reflected as an adjustment to reconcile net income to net cash provided by operating activities.  The adjustment for realized gains and losses resulted in a corresponding adjustment to changes in working capital items; accounts payable, other current assets and other current liabilities, as well as the effect of exchange rate changes on cash and cash equivalents.

 

7



 

In addition, in the Unaudited Consolidated Statement of Cash Flows, the Company revised the presentation of the write-off of $2.6 million in deferred financing fees related to the extinguishment of debt on its former credit facility, which was previously classified in the line item Amortization of deferred financing fees in the Q2’11 Form 10-Q to the line item Loss on extinguishment of debt to be consistent with the current presentation. The change in presentation had no impact on net cash provided by operating activities.

 

2.     Acquisitions and Divestitures

 

Fiscal Year 2012

 

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

 

As of September 24, 2011, all the assets and liabilities relating to the Filterfresh business were reported in the Consolidated Balance Sheets as assets and liabilities held-for-sale.

 

Filterfresh revenues and net income included in the Company’s consolidated statement of operations were as follows (dollars in thousands, except per share data):

 

 

 

Thirteen weeks ended
March 24, 2012

 

Thirteen weeks ended
March 26, 2011

 

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

 

For the period
December 17, 2010
(date of acquisition)
through
March 26, 2011

 

Net sales

 

$

 

$

30,829

 

$

2,286

 

$

33,267

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

$

4,997

 

$

229

 

$

5,329

 

Less income attributable to noncontrolling interests

 

$

 

$

367

 

$

20

 

$

394

 

Net income attributable to GMCR

 

$

 

$

4,630

 

$

209

 

$

4,935

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

 

$

0.03

 

$

0.00

 

$

0.03

 

 

After the disposition, the Company continues to sell coffee and brewers to Filterfresh, which prior to the sale of Filterfresh have been eliminated and are not reflected in the Consolidated Statement of Operations.  For the thirteen weeks ended March 26, 2011, the Company’s sales to Filterfresh that were eliminated in consolidation were $7.1 million.  For the twenty-six weeks ended March 24, 2012, the Company’s sales to Filterfresh during the period September 25, 2011 through October 3, 2011 (date of sale) that were eliminated in consolidation were $0.6 million. For the twenty-six weeks ended March 26, 2011, the Company’s sales to Filterfresh during the period December 17, 2010 (date of acquisition) through March 26, 2011 that were eliminated in consolidation were $7.8 million.

 

Fiscal Year 2011

 

On December 17, 2010, the Company acquired all of the outstanding capital stock of LJVH Holdings, Inc. (“LJVH” and together with its subsidiaries, “Van Houtte”), a specialty coffee roaster headquartered in Montreal, Quebec, for approximately USD $907.8 million, net of

 

8



 

cash acquired. The acquisition was financed with cash on hand and a $1,450.0 million credit facility. Van Houtte’s functional currency is the Canadian dollar.  Van Houtte’s operations are included in the CBU segment.

 

At the time of the acquisition, the Company accounted for all the assets relating to the Filterfresh business as held-for-sale.

 

The Company finalized the valuation and purchase price allocation for Van Houtte during the third quarter of fiscal 2011.  The Van Houtte acquisition was accounted for under the acquisition method of accounting. The total purchase price was USD $907.8 million, net of cash acquired.  The total purchase price was allocated to Van Houtte’s net tangible assets and identifiable intangible assets based on their estimated fair values as of December 17, 2010.  The fair value assigned to identifiable intangible assets acquired was determined primarily by using an income approach. The allocation of the purchase price is based upon a valuation determined using management’s and the Company’s estimates and assumptions.  The table below represents the allocation of the purchase price to the acquired net assets of Van Houtte (in thousands):

 

 

 

 

 

Van Houtte

 

Filterfresh

 

 

 

 

 

Canadian

 

Assets Held

 

 

 

Total

 

Operations

 

For Sale

 

Restricted cash

 

$

500

 

$

500

 

$

 

Accounts receivable

 

61,130

 

47,554

 

13,576

 

Inventories

 

42,958

 

36,691

 

6,267

 

Income taxes receivable

 

2,260

 

2,190

 

70

 

Deferred income taxes

 

4,903

 

3,577

 

1,326

 

Other current assets

 

5,047

 

4,453

 

594

 

Fixed assets

 

143,928

 

110,622

 

33,306

 

Intangible assets

 

375,099

 

355,549

 

19,550

 

Goodwill

 

472,331

 

409,493

 

62,838

 

Other long-term assets

 

1,577

 

962

 

615

 

Accounts payable and accrued expenses

 

(54,502

)

(46,831

)

(7,671

)

Other short-term liabilities

 

(4,330

)

(3,404

)

(926

)

Income taxes payable

 

(1,496

)

(1,496

)

 

Deferred income taxes

 

(117,086

)

(104,866

)

(12,220

)

Notes payable

 

(2,914

)

(1,770

)

(1,144

)

Other long-term liabilities

 

(2,452

)

(1,683

)

(769

)

Non-controlling interests

 

(19,118

)

(9,529

)

(9,589

)

 

 

 

 

 

 

 

 

 

 

$

907,835

 

$

802,012

 

$

105,823

 

 

The purchase price allocated to Filterfresh was the fair value, less the estimated direct costs to sell Filterfresh established at the acquisition date. The fair value of Filterfresh was estimated using an income approach, specifically the discounted cash flow (“DCF”) method. Under the DCF method the fair value is calculated by discounting the projected after-tax cash flows for the business to present value. The income approach includes assumptions about the amount and timing of future cash flows using projections and other estimates. A discount rate based on an appropriate weighted average cost of capital was applied to the estimated future cash flows to estimate the fair value.

 

9



 

An income approach, specifically the DCF method, was used to value the noncontrolling interests.

 

Amortizable intangible assets acquired, valued at the date of acquisition, include approximately $263.1 million for customer relationships, $10.9 million for trademarks and trade names, $1.4 million for franchises and $0.3 million for technology.  Indefinite-lived intangible assets acquired include approximately $99.4 million for the Van Houtte trademark which is not amortized.  The definite lived intangible assets classified as held-for-sale are not amortized and approximated $19.5 million. Amortizable intangible assets are amortized on a straight-line basis over their respective useful live, and the weighted-average amortization period is 10.8 years.

 

The cost of the acquisition in excess of the fair market value of the tangible and intangible assets acquired less liabilities assumed represents acquired goodwill. The acquisition provides the Company with an expanded Canadian presence and manufacturing and distribution synergies, which provide the basis of the goodwill recognized with respect to the Van Houtte Canadian operations. As discussed in the paragraph above, the purchase price allocated to Filterfresh was the fair value, less the estimated direct costs to sell Filterfresh established at the acquisition date.  The excess of the purchase price (fair value) allocated to Filterfresh over the fair value of the net tangible and identifiable intangible assets represents goodwill.  Goodwill and intangible assets are reported in the CBU segment. The goodwill and intangible assets recognized are not deductible for tax purposes.

 

Acquisition costs were expensed as incurred and totaled approximately $1.9 million and $10.7 million for the thirteen and twenty-six week periods ended March 26, 2011 and are included in general and administrative expenses for the Company.

 

At March 24, 2012, approximately $9.2 million of the purchase price is held in escrow and is included in restricted cash with the corresponding amount in other current liabilities.

 

The acquisition was completed on December 17, 2010 and accordingly results of operations from such date have been included in the Company’s Statement of Operations. For the thirteen weeks ended March 24, 2012, the Van Houtte acquisition resulted in an additional $92.0 million of consolidated revenue and $6.6 million of consolidated income before income taxes. For the thirteen weeks ended March 26, 2011, the Van Houtte acquisition resulted in an additional $100.5 million of consolidated revenue and $1.2 million of consolidated loss before income taxes. For the twenty-six weeks ended March 24, 2012, the Van Houtte acquisition resulted in an additional $203.9 million of consolidated revenue and $20.1 million of consolidated income before income taxes. For the twenty-six weeks ended March 26, 2011, the Van Houtte acquisition resulted in an additional $109.3 million of consolidated revenue and $2.7 million of consolidated loss before income taxes.

 

Supplemental Pro Forma Information

 

The following information reflects the Company’s acquisition of Van Houtte as if the transaction had occurred as of the beginning of the Company’s fiscal 2011. The pro forma information does not necessarily reflect the actual results that would have occurred had the acquisitions been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies.

 

The following table represents select pro forma data (dollars in thousands except per share data):

 

10



 

 

 

Thirteen

 

Twenty-six

 

 

 

weeks ended

 

weeks ended

 

 

 

March 26,

 

March 26,

 

 

 

2011

 

2011

 

Unaudited Consolidated proforma revenue

 

$

647,658

 

$

1,320,636

 

Unaudited Consolidated proforma net income

 

$

69,947

 

$

92,137

 

Unaudited Consolidated proforma diluted earnings per common share

 

$

0.47

 

$

0.63

 

 

3.     Segment Reporting

 

The Company manages its operations through three business segments, the Specialty Coffee business unit (“SCBU”), the Keurig business unit (“KBU”) and the Canadian business unit (“CBU”).

 

SCBU sources, produces and sells coffee, hot cocoa, teas and other beverages, to be prepared hot or cold, in K-Cup® and Vue TM packs (“single serve packs”) and coffee in more traditional packaging including whole bean and ground coffee selections in bags and ground coffee in fractional packs. These varieties are sold to supermarkets, club stores and convenience stores, restaurants and hospitality, office coffee distributors and also directly to consumers in the United States. In addition, SCBU sells Keurig® Single Cup Brewing systems and other accessories to supermarkets and directly to consumers.

 

KBU targets its premium patented single cup brewing systems for use both at-home (“AH”) and away-from-home (“AFH”), in the United States. KBU sells AH single cup brewers, accessories and coffee, tea, cocoa and other beverages in single serve packs produced mainly by SCBU and CBU primarily to retailers, department stores and mass merchandisers principally processing its sales orders through fulfillment entities for the AH channels. KBU sells AFH single cup brewers to distributors for use in offices. KBU also sells AH brewers, a limited number of AFH brewers and single serve packs directly to consumers. KBU earns royalty income from K-Cup® packs when shipped by its third party licensed roasters, except for shipments of K-Cup® packs to KBU, for which the royalty is recognized as a reduction to the carrying cost of the inventory and as a reduction to cost of sales when sold through to third parties by KBU. In addition, through the second quarter of fiscal 2011, KBU earned royalty income from K-Cup® packs when shipped by SCBU and CBU.

 

CBU sources, produces and sells coffees and teas and other beverages in a variety of packaging formats, including K-Cup® packs, and coffee in more traditional packaging such as bags, cans and fractional packs, and under a variety of brands.  The varieties are sold primarily to supermarkets, club stores and, through office coffee services to offices, convenience stores and restaurants throughout Canada. CBU began selling the Keurig® K-Cup® Single Cup Brewing system, accessories and coffee, tea, cocoa, and other beverages in K-Cup® packs to retailers, department stores and mass merchandisers in Canada for the AH channels in the first quarter of 2012.  CBU also manufactures brewing equipment and is responsible for all the Company coffee brand sales in the grocery channel in Canada.  The CBU segment included the Van Houtte U.S. Coffee Service business (“Filterfresh”) through October 3, 2011, the date of sale (see Note 2, Acquisitions and Divestitures).

 

Management evaluates the performance of the Company’s operating segments based on several factors, including net sales and income before taxes. Net sales are recorded on a segment basis and intersegment sales are eliminated as part of the financial consolidation process.  Income before taxes represents earnings before income taxes and includes intersegment interest income and expense and transfer pricing on intersegment sales.  The Company’s manufacturing operations occur within the SCBU and CBU segments, however, the costs of manufacturing are recognized in cost of sales in the operating segment in which the sale occurs.  Information system technology services are mainly centralized while finance

 

11



 

functions are primarily decentralized, but currently maintain some centralization through an enterprise shared services group. Expenses related to certain centralized administrative functions including Accounting and Information System Technology are allocated to the operating segments. Expenses not specifically related to an operating segment are recorded in the “Corporate” segment. Corporate expenses are comprised mainly of the compensation and other related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise. Corporate expenses also include depreciation expense, interest expense, foreign exchange gains or losses, certain corporate legal and acquisition-related expenses and compensation of the board of directors.

 

Identifiable assets by segment are those assets specifically identifiable within each segment and for the SCBU, KBU and CBU segments primarily include accounts receivable, inventories, net property, plant and equipment, goodwill, and other intangible assets. Corporate assets include primarily cash, short-term investments, deferred tax assets, income tax receivable, certain notes receivable eliminated in consolidation, deferred issuance costs and fixed assets related to corporate headquarters.  Goodwill and intangibles related to acquisitions are included in their respective segments.

 

Effective with the beginning of the Company’s third quarter of fiscal 2011, KBU no longer records royalty income from SCBU and CBU on shipments of single serve packs, thus removing the need to eliminate royalty income during the financial consolidation process.  Prior to the third quarter of fiscal 2011, the Company recorded intersegment sales and purchases of brewer and K-Cup® packs at a markup.  During the third quarter of fiscal 2011, the Company unified the standard costs of brewer and K-Cup® pack inventories across the segments and began recording intersegment sales and purchases of brewers and K-Cup® packs at new unified standard costs. This change simplified intercompany transactions by removing the need to eliminate the markup incorporated in intersegment sales as part of the financial consolidation process.

 

As a result of the unification of the standard costs of brewers and K-Cup® packs during the third quarter of fiscal 2011, the Company revalued its segment inventories and recorded an adjustment in each segment, which resulted in an increase in cost of sales and a decrease in inventories. This adjustment was offset by the reversal of the elimination of intersegment markup in inventories in the consolidation process resulting in no impact to the Company’s consolidated results.

 

The changes described in the two preceding paragraphs were not retrospectively applied.

 

Effective at the beginning of fiscal year 2012, the Company changed its organizational structure to align certain portions of its business by geography. Prior to fiscal 2012, sales and operations associated with the Timothy’s brand were included in the SCBU segment and a portion of the AH single cup business with retailers in Canada was included in the KBU segment.  Under the new structure, Timothy’s and all of the AH single cup business with retailers in Canada are included in the CBU segment. This resulted in a re-assignment of goodwill of $17.1 million from the SCBU segment to the CBU segment using a relative fair value approach.  In addition, effective September 25, 2011, K-Cup® pack and brewer inventories and, beginning in the second quarter of fiscal 2012, Vue TM pack and brewer inventories, are now transferred directly between SCBU and KBU.  Intersegment sales are no longer transacted between SCBU and KBU.

 

The following tables summarize selected financial data for segment disclosures for the thirteen and twenty-six week periods ended March 24, 2012 and March 26, 2011. Selected financial data for segment disclosures for the thirteen and twenty-six weeks ended March 26, 2011 have been recast to reflect Timothy’s and the AH single cup business with retailers in Canada in the CBU segment.

 

12



 

 

 

For the thirteen weeks ended March 24, 2012

 

 

 

(Dollars in thousands)

 

 

 

SCBU

 

KBU

 

CBU

 

Corporate

 

Eliminations

 

Consolidated

 

Sales to unaffiliated customers

 

$

385,263

 

$

362,844

 

$

136,945

 

$

 

$

 

$

885,052

 

Intersegment sales

 

$

2,803

 

$

2,280

 

$

21,884

 

$

 

$

(26,967

)

$

 

Net sales

 

$

388,066

 

$

365,124

 

$

158,829

 

$

 

$

(26,967

)

$

885,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

$

92,935

 

$

52,690

 

$

13,115

 

$

(13,019

)

$

 

$

145,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,383,754

 

$

716,069

 

$

1,129,883

 

$

653,369

 

$

(573,868

)

$

3,309,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

1,146

 

$

1,105

 

$

800

 

$

2,642

 

$

 

$

5,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

 

$

 

$

 

$

6,042

 

$

 

$

6,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property additions

 

$

106,354

 

$

8,599

 

$

8,280

 

$

23,825

 

$

 

$

147,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

19,341

 

$

3,314

 

$

14,180

 

$

4,944

 

$

 

$

41,779

 

 

 

 

For the thirteen weeks ended March 26, 2011

 

 

 

(Dollars in thousands )

 

 

 

SCBU

 

KBU

 

CBU

 

Corporate

 

Eliminations

 

Consolidated

 

Sales to unaffiliated customers

 

$

230,627

 

$

271,246

 

$

145,785

 

$

 

$

 

$

647,658

 

Intersegment sales

 

$

137,152

 

$

85,503

 

$

31,992

 

$

 

$

(254,647

)

$

 

Net sales

 

$

367,779

 

$

356,749

 

$

177,777

 

$

 

$

(254,647

)

$

647,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

$

74,097

 

$

54,481

 

$

12,180

 

$

(21,609

)

$

(17,046

)

$

102,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

913,336

 

$

401,534

 

$

1,290,096

 

$

541,699

 

$

(476,905

)

$

2,669,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

693

 

$

515

 

$

94

 

$

1,015

 

$

 

$

2,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

 

$

 

$

 

$

16,672

 

$

 

$

16,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property additions

 

$

34,538

 

$

5,230

 

$

9,013

 

$

2,398

 

$

 

$

51,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

10,717

 

$

2,401

 

$

14,030

 

$

3,505

 

$

 

$

30,653

 

 

 

 

For the twenty-six weeks ended March 24, 2012

 

 

 

(Dollars in thousands )

 

 

 

SCBU

 

KBU

 

CBU

 

Corporate

 

Eliminations

 

Consolidated

 

Sales to unaffiliated customers

 

$

753,850

 

$

964,314

 

$

325,104

 

$

 

$

 

$

2,043,268

 

Intersegment sales

 

$

6,763

 

$

5,197

 

$

55,575

 

$

 

$

(67,535

)

$

 

Net sales

 

$

760,613

 

$

969,511

 

$

380,679

 

$

 

$

(67,535

)

$

2,043,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

$

177,256

 

$

96,095

 

$

74,863

 

$

(34,564

)

$

 

$

313,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,383,754

 

$

716,069

 

$

1,129,883

 

$

653,369

 

$

(573,868

)

$

3,309,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

2,261

 

$

1,875

 

$

1,125

 

$

3,948

 

$

 

$

9,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

 

$

 

$

 

$

12,505

 

$

 

$

12,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property additions

 

$

193,783

 

$

15,652

 

$

25,415

 

$

32,937

 

$

 

$

267,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

35,414

 

$

6,410

 

$

27,900

 

$

9,119

 

$

 

$

78,843

 

 

13



 

 

 

For the twenty-six weeks ended March 26, 2011

 

 

 

(Dollars in thousands )

 

 

 

SCBU

 

KBU

 

CBU

 

Corporate

 

Eliminations

 

Consolidated

 

Sales to unaffiliated customers

 

$

430,221

 

$

597,361

 

$

194,224

 

$

 

$

 

$

1,221,806

 

Intersegment sales

 

$

260,881

 

$

154,156

 

$

47,979

 

$

 

$

(463,016

)

$

 

Net sales

 

$

691,102

 

$

751,517

 

$

242,203

 

$

 

$

(463,016

)

$

1,221,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

$

126,813

 

$

53,388

 

$

17,156

 

$

(57,629

)

$

(25,078

)

$

114,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

913,336

 

$

401,534

 

$

1,290,096

 

$

541,699

 

$

(476,905

)

$

2,669,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

$

1,412

 

$

1,016

 

$

113

 

$

1,976

 

$

 

$

4,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

 

$

 

$

 

$

22,730

 

$

 

$

22,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property additions

 

$

55,883

 

$

10,313

 

$

10,292

 

$

12,340

 

$

 

$

88,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

20,540

 

$

4,664

 

$

17,441

 

$

6,139

 

$

 

$

48,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.     Inventories

 

Inventories consisted of the following (in thousands):

 

 

 

March 24,
2012

 

September 24,
2011

 

Raw materials and supplies

 

$

244,410

 

$

182,811

 

Finished goods

 

357,711

 

489,437

 

 

 

$

602,121

 

$

672,248

 

 

At March 24, 2012 the Company had approximately $440.7 million in green coffee purchase commitments, of which approximately 82% had a fixed price. These commitments primarily extend through fiscal 2013. The value of the variable portion of these commitments was calculated using an average “C” price of coffee of $1.89 per pound at March 24, 2012. In addition to its green coffee commitments, the Company had approximately $276.0 million in fixed price brewer inventory purchase commitments and $591.7 million in production raw materials commitments at March 24, 2012. The Company believes based on relationships established with its suppliers that the risk of non-delivery on such purchase commitments is remote.

 

At March 24, 2012, minimum future inventory purchase commitments are as follows (in thousands):

 

Fiscal Year

 

Inventory
Purchase
Obligations

 

Remainder of 2012

 

$

651,389

 

2013

 

180,018

 

2014

 

101,191

 

2015

 

104,211

 

2016

 

107,535

 

Thereafter

 

164,041

 

 

 

$

1,308,385

 

 

5.         Fixed Assets

 

Fixed assets consist of the following (in thousands):

 

14



 

 

 

Useful Life in

 

March 24,

 

September 24,

 

 

 

Years

 

2012

 

2011

 

Production equipment

 

1-15

 

$

425,034

 

$

314,149

 

Coffee service equipment

 

3-7

 

59,073

 

53,319

 

Computer equipment and software

 

1-6

 

100,782

 

78,377

 

Land

 

Indefinite

 

11,667

 

8,790

 

Building and building improvements

 

4-30

 

76,844

 

54,648

 

Furniture and fixtures

 

1-15

 

25,872

 

21,619

 

Vehicles

 

4-5

 

8,902

 

7,860

 

Leasehold improvements

 

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

 

51,317

 

35,496

 

Assets acquired under capital leases

 

5-15

 

43,047

 

 

Construction-in-progress

 

 

 

181,819

 

147,860

 

 

 

 

 

 

 

 

 

Total fixed assets

 

 

 

$

984,357

 

$

722,118

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

(191,064

)

(142,899

)

 

 

 

 

$

793,293

 

$

579,219

 

 

Assets acquired under capital leases, net of accumulated depreciation, were $41.2 million at March 24, 2012.

 

Total depreciation and amortization expense relating to all fixed assets was $30.2 million and $19.0 million for the thirteen weeks ended March 24, 2012 and March 26, 2011, respectively.  Total depreciation and amortization expense relating to all fixed assets was $55.8 million and $31.0 million for the twenty-six weeks ended March 24, 2012 and March 26, 2011, respectively.

 

Assets classified as construction-in-progress are not depreciated, as they are not ready for productive use. All assets classified as construction-in-progress on March 24, 2012 are expected to be in productive use within the next twelve months.

 

6.              Goodwill and Intangible Assets

 

The following represents the change in the carrying amount of goodwill by segment for the twenty-six weeks ended March 24, 2012 (in thousands):

 

 

 

SCBU

 

KBU

 

CBU

 

Total

 

Balance at September 24, 2011

 

$

314,042

 

$

72,374

 

$

402,889

 

$

789,305

 

Reassignment of Timothy’s goodwill

 

(17,063

)

 

 

17,063

 

 

Foreign currency effect

 

 

 

12,385

 

12,385

 

Balance at March 24, 2012

 

$

296,979

 

$

72,374

 

$

432,337

 

$

801,690

 

 

Effective September 25, 2011, Timothy’s is included in the CBU segment. Prior to September 25, 2011, Timothy’s was included in the SCBU segment. This resulted in a re-assignment of goodwill of $17.1 million from the SCBU segment to the CBU segment using a relative fair value approach.  The amount of goodwill reassigned was determined based on the relative fair values of Timothy’s and SCBU.

 

Indefinite-lived intangible assets included in the CBU operating segment consist of the following (in thousands):

 

 

 

March 24, 2012

 

September 24, 2011

 

Trade names

 

$

100,831

 

$

97,824

 

 

15



 

Intangible Assets Subject to Amortization

 

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

 

 

 

 

 

March 24, 2012

 

September 24, 2011

 

 

 

Useful Life in

 

Gross Carrying

 

Accumulated