Green Mountain Coffee Roasters (GMCR)

The demand for K-Cups is expected to continue to increase rapidly driven by the growth in sales of Keurig brewers to offices and homes and by continued success of teas in K-Cups. The Company has reached maximum K-Cup manufacturing capacity at its Waterbury facility and is currently adding additional K-cup manufacturing capacity. Although the Company is in the process of adding additional K-cup manufacturing capacity that would be adequate to meet the anticipated demand, there is a risk that K-cup manufacturing capacity will not be brought fully online to meet short-term sales demand.

Coffee pounds shipped to customers in New England accounted for 43% of the Company's total pounds shipped in 2004. The Company expects that its New England operations will continue to generate a substantial portion of its revenue. An economic downturn or other decrease in consumer spending in New England may not only lead to a substantial decrease in revenue, but may also adversely impact the Company's ability to market its brand, build customer loyalty, or otherwise implement its business strategy and further diversify the geographical concentration of its operations.

     The Company is in the process of implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management to assess the effectiveness of the Company's internal controls over financial reporting and include an assertion in the Company's annual report as to the effectiveness of its controls.  Subsequently, the Company's Registered Public Accounting Firm, PricewaterhouseCoopers LLP, will be required to attest to whether the Company's assessment of the effectiveness of its internal controls over financial reporting is fairly stated in all material respects and separately report on whether it believes the Company maintained, in all material respects, effective internal controls over financial reporting as of September 24, 2005. 

The table below provides information about Green Mountain's debt obligations that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates.

At July 2, 2005, the Company had no debt subject to variable interest rates.

Interest rate derivatives

The Company has entered into an interest rate swap agreement with Fleet National Bank ("Fleet") to effectively convert the variable interest rate exposure to a fixed rate of 3.94% versus the 30-day LIBOR rate. On a monthly basis, payments under the swap agreement are calculated based on the floating 30-day LIBOR rate and the fixed rate. If the fixed rate is less than the 30-day LIBOR rate, Fleet pays the difference to the Company; if the fixed rate is greater than the 30-day LIBOR rate, the Company pays the difference to Fleet.

On May 31, 2005, the swap agreement was amended to lower the notional amount by $5,000,000 in conjunction with a prepayment of the term debt being hedged. In addition, the termination date of the swap was changed from June 2009 to December 2007. All other terms of the swap remained unchanged.

The fair market value of the interest rate swap is the estimated amount that the Company would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates and the credit worthiness of the counterparty. At July 2, 2005, the Company estimated it would have received $1,000 (gross of tax) if the agreement were to be terminated. The Company designates the swap agreement as a cash flow hedge and the fair value of the swap is classified in accumulated other comprehensive income.

Coffee Derivatives

The Company regularly enters into coffee futures contracts to hedge price-to-be-established purchase commitments of green coffee and therefore designates these contracts as cash flow hedges. At July 2, 2005, the Company held outstanding futures contracts with a fair market value of ($46,000). The average settlement price used to calculate the fair value of the contracts outstanding was $1.15. If the settlement price drops on average by 10%, the loss incurred will be approximately $56,000. However, this loss, if realized, would be offset by lower costs of coffee purchased.

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act (the "Exchange Act") as of the end of the period covered by this Report. Based upon that evaluation, the Company's management including the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in this report has been properly recorded, processed, summarized and reported within the required time periods.

There has been no change in the Company's internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting.

31.1 Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.