Green Mountain and the multi-tasking 8-K…

September 29, 2010

This morning, Green Mountain Coffee Roasters (GMCR) is taking a dive — it’s down about 16% right now. The reason? Yesterday, after the market closed, Green Mountain put out this 8-K that contained several different disclosures, including this one at the very end:

On September 20, 2010, the staff of the SEC’s Division of Enforcement informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information. Based on the request, the Company believes the focus of the inquiry concerns certain revenue recognition practices and the Company’s relationship with one of its fulfillment vendors.

Since the 8-K was filed just after 4:30 yesterday, numerous stories (other than this one which seems to have unusually bad timing) have focused on what they’re calling an SEC investigation (which sounds a lot more serious than an inquiry) and two law firms have already announced that they’re investigating on behalf of shareholders.

Clearly, there’s lots of strong opinions on Green Mountain. For a coffee company based in Vermont, it’s attracted a lot of attention from day-trader types who have run up the stock sharply since May and has generated lots of glowing press like this puff-piece from TheStreet.com from just last month. But it’s also generated a lot of love from the shorts: the stock has a hefty short-interest of over 22%.

But the filing itself is actually pretty vague and it’s not clear whether this is an informal or formal investigation (obviously the latter is more serious) or something else. Still, any time the SEC starts poking around revenue recognition, it’s rarely good news, if for no other reason than it distracts management from actually running the company.

The other thing that caught our attention about the filing was how the company disclosed several different things in the same 8-K, which seems like a lot of multi-tasking for one filing. The filing is seemingly about a private placement with Lavazza. But it also discloses an accounting issue — a non-material overstatement of income related to its Keurig subsidiary. And then there’s the SEC investigation, which the company says it learned about on Sept. 20, but didn’t disclose to investors until Sept. 28.

Image source: Green Mountain Coffee Roasters

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