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BOOSTING YOUR RETURN:DIGGING INTO THE 10-K

January 10, 2013

Jim Crabill Avi HorwitzDirector, Chicago West Chapter Director, NY Chapter

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Jim CrabillDirector,Chicago West Chapter

Avi HorwitzDirector,NY Chapter

Session developed with: Claire StruthersPresident, Northern Lights Chapter

January 10, 2013

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The information in this presentation is for educational purposes only and is not intended tobe a recommendation to purchase or sell any of the stocks, mutual funds, or othersecurities that may be referenced. The securities of companies referenced or featured inthe seminar materials are for illustrative purposes only and are not to be consideredendorsed or recommended for purchase or sale by BetterInvesting™ National Associationof Investors Corporation (“BI”) or the BetterInvesting Volunteer Advisory Board, itsvolunteer advisory board (“BIVAB”). The views expressed are those of the instructors,commentators, guests and participants, as the case may be, and do not necessarilyrepresent those of BetterInvesting™ or BIVAB. Investors should conduct their own reviewand analysis of any company of interest before making an investment decision.

Securities discussed may be held by the instructors in their own personal portfolios or inthose of their clients. BI presenters and volunteers are held to a strict code of conduct thatprecludes benefiting financially from educational presentations or public activities via anyBetterInvesting programs, events and/or educational sessions in which they participate.Any violation is strictly prohibited and should be reported to the President ofBetterInvesting or the Manager of Volunteer Relations.

This class is being recorded for future use.

DISCLAIMER


January 10, 2013


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Agenda

Management’s Discussion and Analysis (MD&A)

What it is and where to find it

How it can help us boost return

Overview of the Income Statement

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Management’s Discussion andAnalysis (MD&A)

Overview

Purpose

Content


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MD&AWhere to find it

Annual Report – Item 7 in SEC filing (10-K)

Investor Relationswebsite

SEC website

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SEC Website – www.sec.gov


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MD&A

Green Mountain Coffee Roasters (GMCR)

What can we find in GMCR’s MD&A

How it helps with our GMCR stock study


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GMCR’s MD&A

Overview Section

From where has industry growth come?

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GMCR’s MD&A

Overview Section

From where will future growth come?

• Increasing consumer awareness

• Expanding into new regions

• Expanding sales in high-growth segments

• Pursuing synergistic opportunities


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GMCR’s MD&A

Overview Section


• Multi-year agreement with Dunkin’ Brands

• Coffee to Dunkin’ Donuts’ specifications

• Dunkin’ K-Cup® at Dunkin’ Donuts™

This helps us begin to project future growth !

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GMCR’s MD&A

Overview Section


• Multi-year agreement for Starbucks® and Tazo® Tea

• Starbucks K-Cup® packs

– In retail stores in U.S. and Canada

– Through Keurig®’s and Starbucks®’ websites


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GMCR’s MD&A

Overview Section


• Continued innovation

• Co-develop single-serve espresso machine withLavazza

• New brewing platform in development with newportion packs

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GMCR’s MD&A

Overview Section

Drivers of recent sales growth

• K-Cup® pack net sales increase – 104%

• Keurig® brewers net sales increase – 59%

• Price increases to offset higher coffee costs

• Van Houtte acquisition contributed $321.4 million


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QUESTIONS?

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Margins

We need to understand different margins

Gross Margin

Operating Margin

Pre-tax Profit Margin


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GMCR’s MD&A

Overview Section

Drivers of recent profitability

• K-Cup® portions a higher percentage of overall salesmix

• Leverage of selling, operating, and general andadministrative expenses on a higher sales base.

Operating margin improved from 10.2% in 2010 to13.9% in 2011

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GMCR’s MD&A

Business Segments

GMCR breaks up operations into segments or units

• SCBU – Specialty Coffee Business Unit

• KBU – Keurig® Business Unit

• CBU – Canadian Business Unit


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GMCR’s MD&ABusiness Segments

Both sales and profitability can be segmented

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GMCR’s MD&A

Company Segments

We can segment sales by product type


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How to Calculate a Blended Growth Rate

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How to Calculate a Blended Growth Rate


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QUESTIONS?

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GMCR’s MD&ASegment sales fiscal 2011

$2,650.90 million vs. $1356.80 million in 2010

Primary drivers of net sales increase:

• Increase in K-Cup® packs – $869.60 million

• Increase in Keurig® brewers – $193.9 million

• Due to Van Houtte acquisition – $244.4 million


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A Note About Sales Growth

“The Rocket”

From Take $tock ©Copyright 2001Ellis Traub – All Rights Reserved

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GMCR’s MD&A


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GMCR’s MD&A

Additional areas of discussion:

Interest Expense (page 35)

Income Taxes (page 35)

Liquidity and Capital Resources (page 37)

Critical Accounting Policies (page 40)

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QUESTIONS?


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Where Do We Go From Here ?

Covered MD&A information about income andexpenses

Let’s move into the statement showing incomeand expenses…..

The Income Statement

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Three Primary Financial Statements

Income Statement measures how the companyhas performed at creating earnings over aspecified time.

Balance Sheet measures what the companyowns and owes on a specified date.

Statement of Cash Flows measures how cashflows into and out of the business over aspecified period of time and shows how they arepaying for their operations and their futuregrowth.


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This series will focus on the Income Statementand what it can tell us about a company.

The Income Statement may also be referred toas Statement of Earnings or Statement ofOperations.

Disclaimer:

We can’t possibly cover every single line itemon the statements.

We will look at the various sections and somekey items.

Three Primary Financial Statements

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Gives one important perspective on the healthof a business -- its profitability.

Measures a company’s performance over aspecified period of time.

• For example:

– Annual: Fifty-two weeks ended Sept. 24, 2011

– Quarter: Thirteen weeks ended March 24, 2012

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The Income StatementProvides information on:

Growth trends in sales and net income whichare particularly important to watch.

• Flat or falling sales are often a sign oftrouble.

Ability of managers to make sales, controlexpenses, and thereby earn a profit.

How a company performed, where it isheading, and what future cash flow orprofitability might be.

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The Income StatementA company’s health can be improved by eitherenhancing its revenue or reducing its expenses.

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Elements of the Income StatementThe Statement of Operations can be dividedinto two sections:

Operating

Non-Operating

The operating section includes sales revenues,cost of goods sold, and other operatingexpenses.

The non-operating section includes interest andinvestment income.


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How to Read the Income Statement

Designed to be read in a step-down manner,like walking down stairs.

Each step down is a deduction of one ormore expenses.

Final bottom-line profit measure is simply:Sales less all Expenses equals Net Income.

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What Happens Next ?

Next Time:

How our income statement and what welearned from MD&A can help boostour return.

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QUESTIONS?Join us for our next session

Boosting Your Return:Income Statement: Why Do I Care?

Thursday, February 14, 2013 8:30 PM

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