Wednesday, December 14, 2011

Green Mountain Coffee Roasters: Where are the missing beans?

Just about every time I take a look at financial reports issued by Green Mountain Coffee Roasters (NASDAQ: GMCR), I found troubling discrepancies in its numbers. In the past, I’ve described how certain so-called restated numbers which purportedly corrected accounting errors in its Timothy’s subsidiary don’t appear to add up. Now, I’ve found even more puzzling numbers which raise more questions of whether its restatements of financial reports were actually correct.

On September 28, 2010, Green Mountain disclosed that the SEC started an informal inquiry into its revenue accounting practices and relationship with a certain fulfillment vendor eight days earlier. On that same day, the company coincidently reported that it discovered an accounting error involving its K-Cup margin percentages during the preparation of its financial report for the period ended September 25, 2010. On November 19, 2010, Green Mountain disclosed that it found four new accounting errors. On that date, the company said it would restate its financial reports issued from 2007 to the period ended June 26, 2010 to correct its errors and conceded that there were material weaknesses in internal controls.

On December 9, 2010, Green Mountain Coffee issued its 10-K report for the year ended September 25, 2010. That 10-K report included details of its restatements for various periods. For example, the company reported the following restated segment numbers for the quarter ended March 27, 2010 (See page F-64 and click on image to enlarge):

Future financial reports issued in the following fiscal year 2011 should reflect those same restated numbers. They don't. Furthermore, the revision of the restated numbers don’t seem to add up.

In the quarter ended March 26, 2011 10-Q report, showed the following restated segment numbers for the previous year’s thirteen week period ended March 27, 2010 (See page 14 and click on image to enlarge):

In the above 10-Q report, Green Mountain Coffee reduced the depreciation and amortization amount for the SCBU unit to $6.388 from the restated $8.062 million amount in the previous 10-K report. It increased the depreciation and amortization amount for the Corporate unit to $1.674 million from the restated $0 amount in the previous 10-K report. In other words, the company shifted $1.674 million of depreciation and amortization from its SCBU unit to its Corporate unit.

However, there were no changes income before taxes reported in any segment. Furthermore, there were no changes in any other income statement line items for its segments or in intercompany eliminations affecting those income statement line items. There were revisions in certain balance sheet line items. However, those balance sheet item revisions don’t explain why income before taxes were not changed in the SCBU unit or corporate unit. Therefore, if the company reduced depreciation and amortization expense in the SCBU segment and increased it in the corporate segment, its income before taxes should have increased in the SCBU segment and decreased in the corporate segment. I didn’t. The same issue continues to appear in subsequent 10-Q reports and even the annual audited 10-K report for fiscal year 2011.

Tracy Coenen, author of several forensic accounting books, once told me, "If a company cannot complete a simple task such as correctly adding or subtracting numbers, investors cannot trust anything in their financial reports." Historical numbers are supposed to be consistent from report to report, and the totals must be correct. At Green Mountain Coffee we continue to find the opposite - inconsistent historical numbers and numbers that don't add up.

Can anyone at Green Mountain Coffee explain the missing beans? Does the company add fudge to its coffee?

Written by,

Sam E. Antar

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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. Further, I teach white-collar crime classes for various government entities, professional organizations, businesses, and colleges and universities.

I do not own any Green Mountain Coffee Roasters securities long or short.

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