How Much Cash Does Green Mountain Really Need? (GMCR)

Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) today filed an automatic shelf registration statement with the SEC.  It also filed to sell 4 million shares of common stock as a result.  This existing shelf will allow it to sell any combination of Common Stock, Preferred Stock, Warrants, and Debt Securities if it sees fit.

The 4 million shares of stock are being sold by the company to pay down debt under its credit facility and the rest is for general corporate purposes.  BofA Merrill Lynch is the sole book-runner and Canaccord Adams is serving as co-lead manager.  Co-managers are listed as William Blair & Company, SunTrust Robinson Humphrey and Janney Montgomery Scott.

It appears that all securities under the shelf are for the company itself.  Net proceeds received from the sale of the securities covered by the S-3ASR are listed as ‘for general corporate purposes,’ such as general corporate purposes may include, among other things, repayment of debt, additions to working capital, capital expenditures, investments in a subsidiary of ours and possible acquisitions.

One possible reason this is being filed is to give the company a buffer against the dependence of total revenue attributable to royalties and other revenue from sales of K-Cups for use with its Keurig® single-cup brewing systems. In fiscal 2008, the company’s total consolidated net sales of K-Cups and Keurig brewers and royalties earned upon shipment of K-Cups by licensed roasters represented approximately 70% of Green Mountain’s consolidated net sales. This relative percentage continued to increase through the first three quarters of fiscal 2009.

In the ‘risks’ section, the company further noted, “Continued acceptance of Keurig single-cup brewing systems and sales of K-Cups to our installed base of brewers are significant factors in our growth plans. Any substantial or sustained decline in the acceptance of Keurig single-cup brewing systems or sales of our K-Cups would materially adversely affect us.”

So what this boils down to is that the company might be able to diversify some dependence here.  Not on the product, but on beffering operations if the market peaks, stalls, or gets a new competitor.  We noted at its last earnings that shares were starting to see some competition between its value and performance.

Green Mountain has a total authorization for 60,000,000 shares of common stock, and as of July 28, 2009 it had 37,710,494 shares of common stock outstanding.  Green Mountain has also been running on a very low cash balance and its market cap is now well over $2 billion after its stellar performance as a stock.  If we get a stock offering, a small amount of dilution could drastically add a cash buffer of size.  That might create a sell-off, but it might be the best thing that Green Mountain could do after the stock has performed so well.

Shares are down 4.4% to $67.31 in late-afternoon trading.

Jon C. Ogg
August 3, 2009