Is Green Mountain Coffee Roasters Fudging Its Reserve Numbers?

Updated to include links to follow up articles by Seven Days and Forbes at bottom of blog post

Green Mountain Coffee Roasters (NASDAQ: GMCR) finally released additional information about its accounting for reserves to all investors in its website, in response to my letter to the Securities and Exchange Commission detailing what I believe are violations of Regulation FD  and accounting irregularities by the company. The company admitted its reserve numbers were "misinterpreted" because of inconsistent reporting in its Statement of Cash Flows. However, its numbers still don't add up. See below (Click on image to enlarge):

Note: The change is sales returns reserve is rounded to $5.3 million. The 10-Q report for the period ended March 26, 2011 reflects the exact amount of $5.262 million.

Green Mountain Coffee reported separate balances for its sales returns reserve and its allowance for doubtful accounts in the fiscal year ended September 25, 2010 10-K of $12.742 million and $1.314 million, respectively. However, the company combined the balances of its sales returns reserves and allowance for doubtful accounts in its Balance Sheet disclosures in its subsequent 10-Q reports for the periods ended December 25, 2010 and March 26, 2011.

The 10-Q report for the twenty-six week period ended March 26, 2011 shows a combined beginning balance of both reserves totaling $14.056 million and a combined ending balance totaling $20.565 million. See excerpt from Balance Sheet below (Click image to enlarge):

In its March 26, 2011 10-Q , Green Mountain Coffee reported $5.262 million of "sales returns" and $0.400 million as “Bad debts” in its Statement of Cash Flows for the twenty-six week period ended March 26, 2011. Those amounts reflect the change in their respective reserve balances for the twenty-six week period ended March 26, 2011. See excerpt from Statement of Cash Flows below (Click on image to enlarge):

The total increase in both reserves should be $5.662 million ($5.262 million plus $0.400 million). However, according to the Balance Sheet in the March 26, 2011 10-Q report, the combined amount of both reserves increased $6.509 million during the twenty-six week period (ending balance of $20.565 million minus beginning balance of $14.056 million). Therefore, there is a $0.847 million discrepancy in the company’s reserve numbers.

See my calculations below (Click on image to enlarge):

The numbers add up for the previous year's twenty-six week period ended March 27, 2010, but don't add up for the current year's period ended March 26, 2011.

Other discrepancies

The income statement numbers for the thirteen-weeks ended December 25, 2010 and the thirteen-weeks ended March 26, 2011 don't add up to the totals for the twenty-six weeks ended March 26, 2011 in the latest 10-Q report. See my calculations below (Click on image to enlarge):

Is Green Mountain Coffee fudging the numbers? Numbers are supposed to add up, but at this company they apparently don't. Even small discrepancies raise red flags that there may be deeper problems underneath the surface.

Written by:

Sam E. Antar

Update

June 15, 2011: Seven Days - An Ex-Con Turned Accounting Expert Alleges "Irregularities" at Green Mountain Coffee by Andrew Bromage

June 23, 2011: Forbes - Green Mountain Coffee’s Trouble With Bean Counting by Christopher Faille

Recommended Reading

June 6, 2011: The Financial Investigator - GMCR: From Small Beans Big Trouble One Day Brews by Roddy Boyd

Recommended Video

My appearance today on Fox Business channel's Varney & Company to discuss investor fraud in China

Disclosure

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could.

If it weren't for the heroic efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals. Often, I refer cases to them as an independent whistleblower. I teach about white-collar crime for government entities, professional organizations, businesses, and colleges and universities.

Recently, I exposed GAAP violations by Overstock.com which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

I do not own any Green Mountain Coffee Roasters or Overstock.com securities long or short. My investigations of these companies are a freebie for securities regulators to get me into heaven, though I doubt I will ever get there. My past sins are unforgivable.