GAAP-uccino Version 1.

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Part IIa of III February 16, 2012

Disclaimer
THESE MATERIALS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY INTERESTS IN LONGSHORTTRADER OR ANY OF ITS AFFILIATES. SUCH AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY INTERESTS MAY ONLY BE MADE PURSUANT TO A DEFINITIVE SUBSCRIPTION AGREEMENT BETWEEN LONGSHORTTRADER AND AN INVESTOR. The information contained herein reflects the view of Longshorttrader (LST) as of the date of publication. This presentation was not prepared by Greenlight Capital. These views are subject to change without notice at any time subsequent to the date of issue. LST has no economic interest in the price movement of the securities discussed in this presentation, but LSTs economic interest is subject to change without notice. All information provided in this presentation is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any data presented. In addition, there can be no guarantee that any projection, forecast or opinion in this presentation will be realized. All trade names, trade marks, service marks, and logos herein are the property of their respective owners who retain all proprietary rights over their use. This presentation is confidential and may not be reproduced without prior written permission from LST.

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Table of Contents
Willens Blesses GMCR Accounting Willens Blessed Tyco International The Recent Diamond Foods Debacle GMCR Versus DMND Outstanding Issues

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Willens Blesses GMCR Accounting

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Willens Blesses GMCR Accounting

Robert Willens, a former Lehman Brothers Managing Director & Tax Specialist, has publicly defended Green Mountain Coffee Roasters
"My study suggests that their accounting is not objectionable or questionable. It seems quite sound." Willens said the company might be recording some revenues prematurely, but believes this is not an uncommon issue, given the complexity of revenue recognition rules. I didn't see anything in their revenue recognition policies that made me uncomfortable. I didn't see any evidence that they were recording fictitious revenues.

Sources: Analysis: Roasted Green Mountain Coffee shares can rebound by Mihir Dalal, Reuters, 11/7/2011

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Willens Blesses GMCR Accounting

Why is Robert Willens, a Tax Accounting Expert, Opining onFinancial Accounting Fraud?
Contrary to the fuzzy manner in which he portrays himself, nearly all Willens research pieces at Lehman Brothers were tax-related. Out of the 100s of Lehman Brothers research reports he authored, I only found 2 accounting fraud related ones. Those 2 accounting fraud related research reports were related to Tyco International. Howard Schilit, Off Wall Street Consulting, and other accounting fraud specialists dont seem to opine on tax matters so why does Robert Willens opine on accounting fraud?
Sources: Lehman Brothers Research Reports 45

Willens Blesses GMCR Accounting

It would seem that Willens is a white collar criminals best friend, based on other statements he has made in the past:
Robert Willens, a Lehman Brothers analyst who specializes in accounting & tax issues, said, "Part of what is called fraud is simply companies trying to catch up to changing regulations. "This had been a huge problem at one time, but it has receded over the years," says Robert Willens of Lehman Brothers. "How was this overlooked by people who are supposed to be looking at it?" he asks. These days, just the suggestion that a company may have accounting irregularities is enough to drive down its stock price, notes Robert Willens, an accounting analyst at Lehman Brothers. He cites the case of Tyco International, a well-managed company that makes home-security and alarms systems but which was rumored to have accounting problems by the Tice Report, a markets newsletter published by short-seller David Tice.

Sources: http://www.usatoday.com/educate/college/business/casestudies/20030128-accountingfraud1.pdf
http://articles.latimes.com/2001/feb/28/business/fi-31218 http://www.allbusiness.com/accounting-reporting/fraud/632031-1.html

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What is Robert Willens Track Record When it Comes to Accounting Fraud?

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Willens Blessed Tyco International

Robert Willens Wrote Positively about Tyco Internationals AccountingOnly to Be Proven Wrong In a Matter of Months
Accounting expert Robert Willens, in a recent research note for Lehman Brothers, said Tyco has done nothing improper. March 10, 2002 The Tyco News Keeps Getting Better by Robert Willens, March 18, 2002 Bob Willens, a tax and accounting specialist at Lehman Brothers, insists that Tyco is playing by the rules. "The accounting they employ is of very longstanding validity," he says. - April 1, 2002
Sources: http://lubbockonline.com/stories/031002/bus_0310020016.shtml Lehman Brothers Research Report http://www.cfo.com/article.cfm/3004088/2/c_2984393 48

What Happened to Tyco International?

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Willens Blessed Tyco International

Tycos stock fell as much as 69% within months of Willens March + April Statements
The accounting they employ is of very longstanding validity,". Robert Willens, 4/1/2002

Sources: http://www.cfo.com/article.cfm/3004088/2/c_2984393

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Willens Blessed Tyco International

Timeline of the Tyco International Scandal
Jan. 14, 2002: Business Week magazine lists Tyco CEO L. Dennis Kozlowski as one of the top 25 corporate managers of 2001. Jan. 22, 2002: Kozlowski announces plans to split Tyco into four independent, publicly traded companies. The announcement starts a slide in the price of Tyco shares. Jan. 29, 2002: Tyco shares drop sharply, one day after the company filed a proxy report with the Securities and Exchange Commission disclosing that Walsh got a $10 million fee on the CIT Group deal, and that another $10 million went to a charity where he was a director. Jan. 30, 2002:The New York Times reports that Kozlowski and Tyco CFO Mark Swartz sold more than $100 million of their Tyco stock the previous fiscal year despite public statements that they rarely sold their stock. Kozlowski and Swartz say they will buy 1 million shares with their own money. June 3, 2002: Kozlowski resigns unexpectedly as The New York Times reports he is the subject of a sales tax evasion investigation by Manhattan District Attorney Robert Morgenthau's office. June 4, 2002: Morgenthau announces a criminal indictment accusing Kozlowski of conspiring to evade more than $1 million in state and city sales tax on fine art purchases.
Sources: http://www.usatoday.com/money/industries/manufacturing/2005-06-17-tyco-timeline_x.htm 51

Willens Blessed Tyco International

Timeline of the Tyco International Scandal (continued)
Sept. 12, 2002: Morgenthau announces a criminal indictment accusing Kozlowski and Swartz of enterprise corruption for allegedly stealing more than $170 million from Tyco and obtaining $430 million by fraud in the sale of company shares. Former Tyco corporate counsel Mark Belnick is charged separately with falsifying records to conceal more than $14 million in company loans. Dec. 17, 2002: Former Tyco board member Frank Walsh pleads guilty in an alleged scheme to hide the $20 million in fees for the CIT Group deal. Oct. 7, 2003: The first trial of Kozlowski and Swartz begins with opening statements in which prosecutors characterize them as crime bosses who looted Tyco. Defense lawyers call them honest executives who deserved and disclosed all corporate payments and perks. Oct. 28, 2003: The jury is shown a video of a birthday party Kozlowski threw for his wife at a resort in Sardinia. Tyco paid roughly half the $2 million cost of the event, which featured entertainers clad in togas and an appearance by singer Jimmy Buffett. Nov. 25, 2003: Prosecutors show the jury a video of the $6,000 shower curtain and other lavish furnishings that decorated Kozlowski's Tyco-owned apartment in Manhattan.
Sources: http://www.usatoday.com/money/industries/manufacturing/2005-06-17-tyco-timeline_x.htm 52

Willens Blessed Tyco International

Timeline of the Tyco International Scandal (continued)
April 2, 2004: A mistrial is declared after a juror says she received a letter pressuring her to convict Kozlowski and Swartz. Some observers said the juror, Ruth Jordan, had previously appeared to make an "O.K." sign to defense lawyers. She subsequently denied making any gesture toward the defense team. July 15, 2004: In a separate trial, former Tyco corporate counsel Mark Belnick is acquitted of charges that he received millions in loans from the company and failed to disclose the payments. Jan. 26, 2005: The second trial of Kozlowski and Swartz begins with opening statements in which prosecutors switch tactics to focus on money the two allegedly stole from Tyco. They do not mention Kozlowski's $6,000 shower curtain or the Sardinia birthday party for his wife. April 27, 2005: Kozlowski, who did not testify at his first trial, takes the stand and testifies that the millions of dollars in Tyco payments and perks he received had been properly authorized and disclosed. June 17, 2005: A Manhattan jury finds Kozlowski and Swartz guilty of stealing more than $150 million from Tyco. They each could face 25 years in prison.

Sources: http://www.usatoday.com/money/industries/manufacturing/2005-06-17-tyco-timeline_x.htm

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Robert Willens Tyco International Mistake Must be a FlukeRight?

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The Recent Diamond Foods Debacle

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The Recent Diamond Foods Debacle

Robert Willens Wrote Positively about Diamond Foods Accounting recentlyonly to be Contradicted In a Matter of Weeks
I believe the ongoing investigation will reveal that DMND has properly accounted for the various payments it makes to its growers. December 9, 2011 As far as timing is concerned, I'd like to think, given the controlling nature of the contract and the unambiguity of its terms, that the investigation can be wrapped up rather quickly. December 9, 2011 In a recent interview with Reuters, Willens also said he didn't think Diamond did anything wrong.
Sources: Keybanc Research, Reuters 56

What Happened to Diamond Foods?

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The Recent Diamond Foods Debacle

DMNDs stock is down nearly 45% since Willens December 2011 Statements
I believe the investigation will reveal DMND has properly accounted for the various payments. Robert employ is The accounting they Willens, 12/9/2011 longstanding validity,". of very Robert Willens, 4/1/2002

Sources: KeyBanc Research

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The Recent Diamond Foods Debacle

Timeline of the Diamond Foods Scandal
Sept. 27, 2011 - The Wall Street Journal raises questions about the timing and accounting of Diamond's payments to walnut growers, shortly after Off Wall Street Consulting releases a negative report on DMND. Nov. 1, 2011 - Diamond says it is delaying the closing of its Pringles deal to the first half of 2012 from December 2011 to allow the company time to complete an investigation into its accounting for certain crop payments to walnut growers. Nov. 17, 2011 - Diamond announces death of board member Joseph Silveira. The cause of his death is later reported as a suicide. Silveira had recused himself from the probe since the firm he was president of manages walnutgrowing properties. Dec. 9, 2011 - The stock soars 53% after KeyBanc Analyst Akshay Jagdale and Robert Willens says the probe will wrap up quickly and not jeopardize the acquisition. Dec. 12, 2011 - Diamond says it will delay filing its quarterly report with the U.S. Securities and Exchange Commission due to an audit committee probe, centered on a certain "momentum payment" made to walnut growers on Sept. 2, just days after Diamond's final payment for the 2010 crop.

Sources: http://www.reuters.com/article/2012/02/09/diamond-idUSL2E8D8ILZ20120209

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The Recent Diamond Foods Debacle

Timeline of the Diamond Foods Scandal (continued)
Dec. 15, 2011 - Diamond says the U.S. Securities and Exchange Commission has launched a probe into its accounting of payments to walnut growers, raising concerns that its deal to buy Pringles would be further delayed. Dec. 2011 through Jan 2012 - Various unfounded rumors that David Einhorn is long DMND. Later found untrue, and Einhorn covered DMND short. Stock melts up, apparently to these rumors, and continues melting up even after the truth is revealed. Jan. 12, 2012 - The Wall Street Journal reports that federal prosecutors have launched a criminal inquiry into Diamond's payments to walnut growers. The stock bottoms and continues melting up. Feb. 8, 2012 DMND stock falls 40%, as it changes its top management after its audit committee found that the company would need to restate its results for fiscal 2010 and 2011 due to improper accounting for payments to walnut growers. Feb. 10, 2012 Reuters reports that walnut growers seek to stop sales to Diamond Foods.
Sources: http://www.reuters.com/article/2012/02/09/diamond-idUSL2E8D8ILZ20120209 60

Given Robert Willens Poor Track Record, Can You Trust GMCRs Accounting?

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Bear in mind, the only other entities to defend GMCRs accounting isGMCR and related parties*.

*Related parties include entities, such as Wall Street Analysts, whose economic and reputational interests depend on GMCRs actual or perceived success.

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GMCR Versus DMND

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GMCR Versus DMND

GMCR & DMND share many, disturbing similarities, in addition to the fact that both received Robert Willens blessing: Both are suspected of overstating earnings
Overstated earnings enabled them to raise equity + debt capital. Otherwise, they would have had limited to no access to capital. This (improper) ability to raise capital allowed GMCR + DMND to pursue acquisitions that they otherwise could never afford.

GMCR + DMND behave as if they are serial liars or criminals

The next 2 slides summarizes the above and other similarities

Sources: GAAP-uccino 1.5 Part I , SEC Filings

Both Companies CFOs have issues: One has been lying about being a CPA & the other was CFO and simultaneously an independent directoras well as administrative officer. Both companies had or have conflicted and/or incompetent audit committees. Dont forget the tragic fate of DMNDs committee head. GMCR & DMND are subject to open SEC investigations. There are concerns both companies contributed to insider trading and Regulation FD violations.

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GMCR Versus DMND

CATEGORY M Block & Sons Robert Willens smooth growth Rapid, Blesses Accounting Fundamentals Depend on Stock Price No Free cash flow Red Flags related to the CFO Free Cash Flow, Earnings Discrepancy Sweeping denials Dependence on External Capital aa fulfillment partner, administrator Open SEC Investigation
Skeptics Reports Exposed Fraud High Goodwill + Intangible Assets Growth via Aggressive Acquisitions GMCR Artificial Diamond Foods YES Intermediaries YES YES YES Rapid, smooth growth YES YES No Free cash Flow YES YES Sweeping denials YES YES Last paragraph YES of YES mitch the snitch YES YES YES YES YES YES

Sources: http://people.forbes.com/profile/steven-m-neil/26270 http://www3.cfo.com/article/2012/2/disclosure_diamond-foods-steven-neil-enron-internal-controls-accounting-scandal

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GMCR Versus DMND

CATEGORY M Block & Sons Earnings Overstatements Rapid, smooth growth Suspicion of Stock Price Manipulation Captive Audit Committee flow No Free cash Deep Ties with Chairman or Founder Sweeping denials Sweeping Denial of Fraud Allegations aa fulfillment partner, administrator Conflicted Wall Street Enablers
Product Visibility Comforts Believers Voluntary Independent Investigation Suspicious Options Activity GMCR Artificial Diamond Foods YES YES, Intermediariesbut now No YES YES Rapid, smooth growth YES YES, but now No No Free cash Flow No YES YES, but now Sweeping denials YES No Last paragraph YES of YES mitch the snitch YES YES YES YES YES YES

Sources: Greenlight Capital, Sam Antar, The Grumpy Old Accountants Blog, GMCR & DMND filings

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GMCR Versus DMND

DMND has taken its critics concerns seriously & has taken concrete actions to address them
The CEO & CFO were placed on administrative leave. Their acting replacements appear to be respectable professionals with limited ties to DMND. The Audit Committee concluded that walnut crop payments to farmers were not accounted for in the correct periods. The Committee concluded that the 2 recent 10Ks & recent quarterly statements should no longer be relied upon, and that restatements will be required. Diamond has one or more material weaknesses in its internal control over financial reporting.
Sources: DMND SEC 8K Filings

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GMCR Versus DMND

Unlike DMND, GMCR has largely ignored critics concerns & seems to be digging itself into an even deeper hole
CFO Frances Rathke remains with GMCR & seems immune to any disciplinary actions, despite falsely claiming to be a Certified Public Accountant for at least 9 years. Audit Committee members, unlike DMNDs, remain conflicted & incompetent, as the members lack the skills necessary to address accusations related to improper accounting. The Audit Committees prior claims and investigations , therefore, lack credibility. In fact, Sam Antar has demonstrated that some of the numbers still dont add up, even after the 2010 internal investigation.
Sources: GAAP-uccino 1.5 Part I, Sam Antars White Collar Blog 68

GMCR Versus DMND

Food for thought: How many CFOs have survived
Admission that 4 years of financial statements were unreliable & had to be restated An open SEC Inquiry related to accounting issues Internal Audit Committee Investigation Lying and inflating ones accounting credentials for over 9 years, and trying to quietly sweep this deception under the rug, once caught Ignoring unanswered concerns about possible earnings overstatements ?
Sources: GMCR SEC Filings 69

Outstanding Issues

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Outstanding Issues
The unaddressed, outstanding concerns are troubling. Why hasnt GMCR responded with specificity?
The role of M. Block & Sons remains opaque, at best
GMCR has provided conflicting explanations on the relationship between it and M. Block over the years. GMCR has never explained why its M. Block story and explanations kept changing. It is very peculiar that GMCRs sales + accounts receivable are so concentrated with this Bedford Park, IL based outfit. Why not diversify to reduce concentration risk & possibly get better terms? M. Blocks business relationship with iGo seems virtually identical to its relationship with GMCR. The SEC alleged that iGO overstated revenue, just as many are alleging that GMCR is overstating revenue. iGo settled with the SEC, resulting in fines and banning iGo officers from acting as officers and directors of any public company for 3-5 years. M. Block is at the center of nearly all claims that GMCR is overstating earnings. It is the ignored elephant in the room.
Sources: GAAP-uccino, GAAP-uccino 1.5 part I, www.sec.gov/litigation/complaints/comp19156.pdf , http://www.sec.gov/litigation/litreleases/2008/lr20647.htm 71

Outstanding Issues
GMCR has not addressed the concerns that imply the company is overstating earnings
Questions regarding its revenue recognition remain unanswered; GMCRs Q2 & Q3 2011 reported sales look unusually & unseasonably high, which is a big red flag given that GMCR was under great pressure to report good numbers at any cost, to boost its stock price; the temptation to overstate revenue was very high. GMCR faced this temptation because GMCR badly needed the money, as it was dangerously low in cash, massively burdened with debt (thanks to its recent Van Houtte acquisition), and badly bleeding cash. A high stock price would enable GMCR to issue equity inexpensively, alleviating these problems. GMCR ignored the allegation/implication that GMCR overstated revenue, as it has ignored the allegation it understated Operating Expenses & Cost of Sales. GMCR provided a detailed breakdown on Capital Expenditures, yet it did not provide a single response to David Einhorns questions as to why Capex is so large.
Sources: GAAP-uccino, GAAP-uccino 1.5 part I, 10Qs and 10K 2011 72

Outstanding Issues
Insider Trading Who knew what/where/when?
Certain insiders made some very well-timed stock sales that makes one wonder if they acted on insider information. Correspondences between GMCR and certain entities raise the question: did GMCR share material, non-public information with some entities? This would be in direct violation of Regulation FD. Suspicious activity among certain investment firms, such as very large, concentrated, & well-timed call option purchases, seem worthy of a formal criminal investigation, in light of the above. The call option purchases make Raj Rajaratnam look like a choir boy.

SEC Inquiry and Several Lawsuits are On-going

Contrary to what a few have stated or suggested, the SEC inquiry remains open. Wall Street seems to have all but forgotten. The SEC inquiry + lawsuits may catalyze the uncovering of earnings overstatements & other wrongdoings.
Sources: Sam Antar White Collar Fraud Blog, Various Hedge Fund 13F filings, Roddy Boyd Financial Investigator 73

Outstanding Issues
Timeline of GMCRs non-response to David Einhorns Questions:
October 17th 2011 - David Einhorn Presents GAAP-uccino October 19th 2011 A Green Mountain spokeswoman declined to comment, citing a quiet period before it releases earnings later this month. New York Times. October 28th 2011 GMCR issues a press release, GMCR to Open Manufacturing Facility in Virginia, contradicting the quiet period excuse. November 4th 2011 GMCR issues another positive press release, contradicting the quiet period excuse yet again. November 8th 2011 - It (GMCR) has remained silent since our presentation (Einhorn), citing a self-imposed, artificial quiet period before it announces earnings. CNBC CNBC November 9th 2011 GMCR reports earnings, CEO Larry Blanford makes the following statement: We are confident there is no misconduct, there is no wrongdoing. I did not have sexual relations with that woman & Read my lips: no new taxes were more convincing than this single, non-specific response.
Sources: New York Times, CNBC, GMCR press releases. 74

Outstanding Issues
GMCR faces business, industry, & competition-specific headwinds on top of the already-mentioned accounting + fraud issues
Patent expiration is less than 8 months away; yes it matters, as GMCRs stated profitability depends on k-cup sales. The Rogers One Cup is a small preview of what is yet to come. Cannibalization of Keurig brewers & k-cups is a theme thats only begun to gain traction; GMCRs recent non-answer to question of Starbucks k-cup cannibalization, Its too early to tell, isnt helpful. The viral growth of Ekobrew, Solofill, & other products threaten sales + profitability, as they reduce the appeal of k-cups. Consumers win, GMCR loses. Alternative single-serve brewers, like the recently launched The Scoop made by Hamilton Beach, provides a compelling alternative to the Keurig platform. Consumers win (yet again), GMCR loses. The success of Ekobrew, The Scoop, and other recently introduced products, will ultimately encourage a pro-competition, pro-innovation, and pro-consumer player to show up and destroy the anticompetition, anti-innovation, and anti-consumer GMCR.
Sources: LST analysis, GAAP-uccino, GAAP-uccino 1.5 Part I 75

If the Numerous Allegations Surrounding GMCR are False, Why Doesnt the Company Simply Disprove Them, Once & For All?

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To Be Continued
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