The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the interim financial data have been included. Results from operations for the twelve week and forty week periods ended July 6, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending September 28, 2002.

For further information, refer to the consolidated financial statements and the footnotes included in the Annual Report on Form 10-K for Green Mountain Coffee, Inc. for the fiscal year ended September 29, 2001.

Inventory values above are presented net of $183,000 and $149,000 of obsolescence reserves at July 6, 2002 and September 29, 2001, respectively.

The following table illustrates the reconciliation of the numerator and denominator of basic and diluted income per share computations as required by SFAS No. 128 (dollars in thousands, except per share data):

The Company delivered its strongest growth for the quarter in the supermarket channel, where coffee pounds shipped increased 18.7%, due primarily to year-over-year expansion of sales to two customers: Price Chopper Supermarkets and Kings Super Markets, which added the Company's complete bulk, pre-bag and cup coffee program to its 30 locations this past fall. The convenience store channel, usually a steady growth contributor for the Company, grew by only 1.5% due to the inventory build by Mc Lane Company, Inc., the new distributor for ExxonMobil stores, in the 2001 period. The office coffee service channel (OCS) delivered no year-over-year growth in the 2002 period. Management believes this channel continues to be impacted by the slower economy. Management now anticipates full-year fiscal 2002 growth in coffee pounds shipped to be in the range of 9% to 10%, and dollar sales growth in the range of 5% to 6%. Sales growth in fiscal 2003 is expected to be in the range of 10% to 15%, both in pounds sold and dollars.

Gross profit increased by $456,000, or 4.9%, from $9,312,000 for the 2001 period to $9,768,000 for the 2002 period. As a percentage of net sales, gross profit decreased .9 percentage points from 43.4% for the 2001 period to 42.5% for the 2002 period. The decrease in gross profit as a percentage of sales was primarily due to an increase in green coffee costs related to the higher procurement costs of Fair Trade, organic and high quality estate coffees, as well as an increase in supermarket distribution costs. Management expects total fiscal year margins to be in the range of 43% to 44%.

Selling and operating expenses increased by $139,000, or 2.6%, from $5,299,000 for the 2001 period to $5,438,000 for the 2002 period. As a percentage of sales, selling and operating expenses decreased 1.1 percentage points from 24.7% for the 2001 period to 23.6% for the 2002 period. The decrease in selling and operating expense as a percentage of sales was primarily due to reduced marketing expenses and variable compensation costs.

General and administrative expenses increased by $142,000, or 8.3%, from $1,710,000 for the 2001 period to $1,852,000 for the 2002 period. As a percentage of sales, general and administrative expenses increased 0.1 percentage points from 8.0% for the 2001 period to 8.1% for the 2002 period. The increase in general and administrative expenses was primarily due to higher compensation, relocation and training costs, and was offset by lower consulting costs.

As a result of the foregoing, operating income increased by $175,000, or 7.6%, from $2,303,000 for the 2001 period to $2,478,000 for the 2002 period. Management expects selling, general and administrative expenses to be in the range of 32% to 33% of sales for the entire 2002 fiscal year.

Interest expense decreased by $4,000, or 4.2%, from $96,000 for the 2001 period to $92,000 for the 2002 period primarily due to lower interest rates during the 2002 period and due to the capitalization of interest expense. In the 2002 period, the Company capitalized $44,000 of interest expense associated with investments in production equipment currently classified as construction in progress (primarily the installation of the bowl roasters and related conveyance and storage equipment). It is anticipated that interest expense will increase to approximately $150,000 during the fourth quarter due to higher interest rates and a slightly higher borrowing balance.

Income tax expense decreased $9,000, or 1.0%, from $886,000 for the 2001 period to $877,000 for the 2002 period. The decrease in the effective tax rate was due to a $125,000 reduction of the valuation allowance on the Company's Vermont Manufacturer's tax credit in the 2002 period. It is expected that the Company's effective tax rate will approximate 40% to 41% for the fourth quarter of fiscal 2002. This estimate is dependent on the level of book and tax permanent differences and possible further changes in the valuation allowance against the deferred tax asset arising from the Vermont Manufacturer's tax credit. The ultimate amount of this credit that the Company will be able to use is dependent on many factors, including the amount of taxable income being generated; the percentage of income that is allocable to the State of Vermont and; the number of disqualifying dispositions of stock options.

The Company adopted the equity method of accounting for its investment in Keurig, Incorporated ("Keurig") in the 2002 period as its Common Stock ownership percentage grew from under 10% to 49.93% in the course of the period. The Company's percentage ownership of the total voting shares of Keurig was 42.1% at July 6, 2002. Notwithstanding the Company's acquisition of shares of capital stock of Keurig, as a result of contractual limitations and restrictions agreed to by the Company, MD Co., which owns approximately 23% of Keurig's capital stock, effectively controls Keurig - having the ability to elect a majority of Keurig's Board of Directors, cause certain types of amendments to Keurig's Certificate of Incorporation, and approve or reject a sale of Keurig's business.

The equity in the net earnings of Keurig in the 2002 period was a loss of $21,000. The Company currently expects the negative impact of Keurig earnings to range from $75,000 to $150,000 for fiscal 2002 and $500,000 to $750,000 for fiscal 2003. Results from Keurig could be materially different from this estimate. Keurig is a small high-growth private company which can have significant quarterly operating income fluctuations. Further, there will be a high degree of uncertainty around investment spending given Keurig's strategic launch of the Keurig at Home brewer.

Net income increased by $99,000, or 7.4%, from $1,342,000 for the 2001 period to $1,441,000 in the 2002 period. Earnings per diluted share grew from $0.18 in the 2001 period to $0.20 in the 2002 period.

Net sales increased by $3,266,000, or 4.3%, from $75,093,000 for the forty weeks ended July 7, 2001 (the "2001 YTD period") to $78,359,000 for the forty weeks ended July 6, 2002 (the "2002 YTD period"). Coffee pounds shipped increased by approximately 894,000 pounds, or 9.3%, from approximately 9,632,000 pounds in the 2001 YTD period to approximately 10,526,000 pounds in the 2002 YTD period. The difference between coffee pounds growth and dollar sales growth was due primarily to changes in sales mix, driven by the continued successful expansion of the Company's business with Exxon Mobil Corporation convenience stores (ExxonMobil). The Company's sales agreement with ExxonMobil, effective since February 2001, provides for lower coffee sales prices and a reduction in its direct purchases of accessories such as cups and lids, offset by lower delivery and ordering costs for Green Mountain Coffee.

Coffee pounds shipped increases were strongest in the supermarket and convenience store channels with year-over-year pound increases of 424,000 and 283,000, respectively. Coffee pounds sold through the office coffee service channel decreased by $22,000 year-over-year as this channel is impacted by the slower economy.

Selling and operating expenses increased by $1,422,000, or 7.8%, from $18,176,000 for the 2001 YTD period to $19,598,000 for the 2002 YTD period. As a percentage of sales, selling and operating expenses increased 0.8 percentage points from 24.2% for the 2001 YTD period to 25.0% for the 2002 YTD period. The increase in selling and operating expense was primarily due to increases in wholesale sales force compensation costs and higher consumer direct promotional expenses, offset, in part, by lower bad debt expense.

General and administrative expenses increased by $470,000, or 8.8%, from $5,318,000 for the 2001 YTD period to $5,788,000 for the 2002 YTD period. As a percentage of sales, general and administrative expenses increased 0.3 percentage points from 7.1% for the 2001 YTD period to 7.4% for the 2002 YTD period. The increase in general and administrative expenses was primarily due to higher compensation, recruiting and relocation costs, and training costs.

As a result of the foregoing and including a year-to-date reduction of accruals for non-salesperson bonus and ESOP expenses of approximately $898,000, operating income increased by $867,000, or 11.2%, from $7,756,000 for the 2001 YTD period to $8,623,000 for the 2002 YTD period.

Interest expense decreased by $253,000, or 57.5%, from $440,000 for the 2001 YTD period to $187,000 for the 2002 YTD period primarily due to lower year-over-year average debt balances outstanding through the first two quarters, lower interest rates during the 2002 YTD period and the capitalization of $93,000 of interest in the 2002 YTD period.

Income tax expense increased $371,000, or 12.5%, from $2,977,000 for the 2001 YTD period to $3,348,000 for the 2002 YTD period. The Company reduced the valuation allowance on its Vermont manufacturer's tax credit by $155,000 in the 2002 YTD period. The effective tax rate for the 2002 YTD period was 39.9%. It is expected that the Company's effective tax rate will approximate 40% to 41% for the full fiscal 2002 year. This estimate is dependent on the level of book and tax permanent differences and possible changes in the valuation allowance against the deferred tax asset arising from its Vermont manufacturer's investment tax credit during the remainder of fiscal 2002 as noted above.

Net income increased $638,000, or 14.6%, from $4,375,000 in the 2001 YTD period to $5,013,000 in the 2002 YTD period. Earnings per share increased from $0.61 in the 2001 YTD period to $0.69 in the 2002 YTD period. Full-year earnings per share is now expected to be in the range of $0.88 to $0.91, including a negative impact from Keurig amounting to $0.01 to $0.02 per share.

Working capital decreased $2,898,000 to $5,647,000 at July 6, 2002 from $8,545,000 at September 29, 2001. This decrease is primarily due to an increase in the current portion of long-term debt (the new Fleet term debt) and a decrease in income tax receivable and inventories.

In the 2002 YTD period, the Company purchased 628,450 shares of Preferred Stock and 1,642,854 shares of Common Stock of Keurig, Incorporated ("Keurig") from third parties for approximately $14,604,000. In order to finance the Keurig investment, the Company extended its existing $15,000,000 line of credit with Fleet Bank (Fleet) by one year to March 31, 2004 and entered into a new $5,000,000 term loan agreement with Fleet during its second quarter of fiscal 2002. The term loan is to be paid back in quarterly installments of $625,000, beginning on June 30, 2002 and ending in March 31, 2004. The interest rate is 175 basis points above LIBOR rates. At July 6, 2002, the outstanding balance on the Fleet line of credit was $12,340,000 and the amount remaining available was $2,660,000. The Fleet credit facility is subject to certain quarterly covenants, and the Company was in compliance with these covenants at July 6, 2002.

During the 2002 YTD period, besides the investment in Keurig, Green Mountain had capital expenditures of $6,780,000, including $4,341,000 for production and distribution equipment, $998,000 for equipment on loan to wholesale customers, $608,000 for computer equipment and software, $475,000 for leasehold improvements, and $358,000 in fixtures. These capital expenditures include installation costs of $1,320,000 for two roasters purchased at auction in fiscal 2001. Once the installation of these two new roasters is completed, the Company's annual roasting capacity in Waterbury, Vermont, is expected to increase from approximately 15 million pounds to 40 to 50 million pounds of roasted coffee. The installation of the roasters and related equipment is expected to be completed in September and October 2002. The related equipment consists primarily of a green coffee inventory storage system and a new green coffee transport system.

During the 2001 period, the Company acquired the assets related to the coffee business of Frontier Natural Products Co-op of Norway, Iowa in a cash transaction totaling approximately $2,480,000, including transaction costs estimated at $40,000. Besides the acquisition of Frontier assets, Green Mountain had capital expenditures of $5,018,000 during the 2001 YTD period, including $2,129,000 for production and distribution equipment (including the purchase at auction and transportation costs of two roasters amounting to approximately $939,000), $1,525,000 for equipment on loan to wholesale customers, $572,000 for computer equipment and software, and $482,000 in leasehold improvements.

On July 10, 2002, the Company purchased the Keurig^® K-Cup™ production equipment in operation at its Waterbury, VT plant from Keurig. The cost of the equipment was $2,613,000. The Company pays reduced royalties to Keurig on K-Cup production after the date of the equipment purchase. The Company currently plans to make total net capital expenditures in fiscal 2002 of approximately $10,000,000 to $11,000,000. Fiscal 2003 capital expenditures are expected to be in the range of $6,000,000 to $7,000,000. Management continuously reviews capital expenditure needs and actual amounts expended may differ from these estimates.

In the 2002 YTD period, cash flow from financing activities included $603,000 generated from the exercise of employee stock options and the employee stock purchase plan, down from $1,696,000 in the 2001 YTD period. In addition, cash flow from operating activities included a $457,000 tax benefit from the exercise of non-qualified options and disqualifying dispositions of incentive stock options, down from $2,704,000 in the 2001 YTD period. As options granted under the Company's stock option plans are exercised, the Company will continue to receive proceeds and a tax deduction for disqualifying dispositions; however, neither the amounts nor the timing thereof can be predicted.

A summary of the Company's cash requirements related to its outstanding long-term debt (excluding the Company's line of credit which terminates on March 31, 2004), future minimum lease payments and green coffee purchase commitments is as follows:

Management believes that cash flow from operating activities, existing cash, the currently available credit facility and additional borrowings, if available, will provide sufficient liquidity to pay all liabilities in the normal course of business, fund capital expenditures and service debt requirements in the next twelve months. However, a decrease in operating cash flows, due to a decline in earnings or other factors, may impact the Company's ability to self-fund capital expenditures and other investments, or service debt requirements, and may require the Company to seek additional borrowings or undertake an equity offering as sources of funding. Management is presently considering expanding its credit facility in order to position the company for small strategic opportunities similar to last year's Frontier acquisition.

The Company had net deferred tax assets of $291,000 at July 6, 2002. These assets are reported net of a deferred tax asset valuation allowance at that date of $1,687,000 (including $1,617,000 related to a Vermont investment tax credit). Presently, the Company believes that the deferred tax assets, net of deferred tax liabilities and the valuation allowance, are realizable and represent management's best estimate, based on the weight of available evidence as prescribed in SFAS 109, of the amount of deferred tax assets which most likely will be realized. However, management will continue to evaluate the amount of the valuation allowance based on near-term operating results and longer-term projections.

Historically, the Company has experienced variations in sales and earnings from quarter to quarter due to the holiday season and a variety of other factors, including, but not limited to, general economic trends, the cost of green coffee, competition, marketing programs, weather and special or unusual events. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Results from Keurig, a small high growth privately held company, could vary significantly from quarter to quarter given the investment spending and launch of the Keurig at Home brewer.

Green Mountain prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period (see Note 2 to the Company's Consolidated Financial Statements included in the Annual Report on Form 10-K). Actual results could differ from those estimates.

In December, the Securities and Exchange Commission ("SEC") requested that all registrants list their critical accounting policies in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of their Form 10-K. The SEC defined a critical accounting policy as one which is important to the portrayal of the company's financial condition and results of operations and requires management's subjective or complex judgments. In accordance with this request, the Company has described its critical accounting policies below.

Provision for Doubtful Accounts
Periodically, the Company reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. In addition, from time-to-time the Company estimates specific additional allowances based on indications that a specific customer may be experiencing financial difficulties. Actual bad debt results could differ materially from the Company's estimates.

Deferred Tax Valuation Allowance
Periodically, management reviews the adequacy of its deferred tax valuation allowance that is primarily related to a Vermont manufacturer's investment tax credit. This review entails estimating: the Company's future taxable income through fiscal 2004; how much of that taxable income will be allocable to Vermont; and, the levels of disqualifying dispositions of stock options, among other factors. A reduction in the valuation allowance can result in the Company reporting its income tax expense at a lower effective Federal and State tax rate. Conversely, an increase in the valuation allowance can result in the Company reporting its income tax at a higher rate. Since future results may differ materially from those estimated by the Company, the Company's estimate of the amount of deferred tax assets that will be ultimately realized could differ materially.

Impairment of Long-Lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets, including fixed assets, investments in other companies and intangibles, may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. Judgments made by the Company related to the expected useful lives of long-lived assets and the ability of the Company to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge.

There have been no material changes in information relating to commodity price risks since the Company's disclosure included in Item 7A of Form 10-K as filed with the Securities and Exchange Commission on December 24, 2001.

At July 6, 2002, the Company had $16,715,000 of debt subject to variable interest rates ( Fleet Bank's prime rate, LIBOR rates for maturities up to one year or Bankers' Acceptance rates). A hypothetical 100 basis point increase in the Bankers' Acceptance, LIBOR and prime rates would result in additional interest expense of $167,000 on an annualized basis.

A report of Form 8-K was filed on April 19, 2002 to report under Item 2 of Form 8-K the exercise by the Company of options to acquire 2,217,859 shares of capital stock of Keurig, Incorporated (including options previously exercised). An amendment to this report was filed on July 1, 2002 to present financial statements of Keurig, Incorporated and pro forma financial information required under Item 7.