Segment Reporting

12 Months Ended

Sep. 28, 2013

Segment Reporting

Segment Reporting

4. Segment Reporting

        The Company has historically managed its operations through three business segments: the Specialty Coffee business unit ("SCBU"), the Keurig business unit ("KBU") and the Canadian business unit. Effective as of and as initially disclosed on May 8, 2013, the Company's Board of Directors authorized and approved a reorganization which consolidated U.S. operations to bring greater organizational efficiency and coordination across the Company. Due to this combination, the results of U.S. operations, formerly reported in the SCBU and KBU segments, are reported in one segment ("Domestic") and the results of Canadian operations are reported in the "Canada" segment. The Company's Chief Executive Officer ("CEO") serves as the Company's chief operating decision maker ("CODM") and there are two operating and reportable segments, Domestic and Canada.

        As a result of the consolidation of U.S. operations, the Company has recast all historical segment results in order to: i) provide data that is on a basis consistent with the Company's new structure; ii) remove total assets from the Company's segment disclosures as only consolidated asset information is provided to and used by the CODM for use in decision making (in connection with the reorganization, segment asset information is neither provided to nor used by the CODM); and iii) reflect all sustainability expenses in Corporate as the Company no longer allocates those expenses to its operating segments.

        For a description of the operating segments, see Note 1, Nature of Business and Organization.

        Management evaluates the performance of the Company's operating segments based on several factors, including net sales to external customers and operating income. Net sales are recorded on a segment basis and intersegment sales are eliminated as part of the financial consolidation process. Operating income represents gross profit less selling, operating, general and administrative expenses. The Company's manufacturing operations occur within both the Domestic and Canada segments, and the costs of manufacturing are recognized in cost of sales in the operating segment in which the sale occurs. Information system technology services are mainly centralized while finance and accounting functions are primarily decentralized. Expenses consisting primarily of compensation and depreciation related to certain centralized administrative functions including information system technology are allocated to the operating segments. Expenses not specifically related to an operating segment are presented under "Corporate Unallocated." Corporate Unallocated expenses are comprised mainly of the compensation and other related expenses of certain of the Company's senior executive officers and other selected employees who perform duties related to the entire enterprise. Corporate Unallocated expenses also include depreciation for corporate headquarters, sustainability expenses, interest expense not directly attributable to an operating segment, the majority of foreign exchange gains or losses, legal expenses and compensation of the Board of Directors. The Company does not disclose assets or property additions by segment as only consolidated asset information is provided to the CODM for use in decision making.

        Effective for the first quarter of fiscal 2013, the Company changed its measure for reporting segment profitability and for evaluating segment performance and the allocation of Company resources from income before taxes to operating income (loss). Prior to the first quarter of fiscal 2013, the Company disclosed each operating and reportable segment's income before taxes to report segment profitability. Segment disclosures for prior periods have been recast to reflect operating income by segment in place of income before taxes. The CODM measures segment performance based upon operating income which excludes interest expense and interest expense is not provided to the CODM by segment. Accordingly, interest expense by segment is no longer presented.

        Effective with the beginning of the Company's third quarter of fiscal 2011, sales between operating segments are recorded at cost and the Domestic segment no longer records royalty income from the Canada segment on shipments of portion packs. Prior to the third quarter of fiscal 2011, the Company recorded intersegment sales and purchases of brewer and K-Cup® packs at a markup. As a result of the change, intersegment sales have no impact on segment operating income (loss) and effective with the first quarter of fiscal 2013, the Company no longer discloses intersegment sales. Each operating segment's net sales for fiscal years 2013 and 2012 include only net sales to external customers.

        The selected financial data for segment disclosures for fiscal 2011 was not recast for the above changes related to intersegment sales and royalty income. The following table summarizes the approximate net effect of the above changes on segment income before taxes for fiscal 2013, 2012 and 2011 as a result of the above changes (in thousands). The net effect represents the net mark-up on sales between the segments as well as the Domestic segment royalty income on the sale of portion packs by the Canada segment. The Company used historical mark-up percentages and royalty rates to calculate the net effect.

Increase (decrease) in operating income (loss)	Fiscal 2013			Fiscal 2012			Fiscal 2011
Domestic	$	(38,755	)	$	20,068		$	(29,584	)
Canada		39,057			(19,084	)		22,157
Corporate—Unallocated		—			—			—
Eliminations		(302	)		(984	)		7,427
Consolidated	$	—		$	—		$	—

        The following tables summarize selected financial data for segment disclosures for fiscal 2013, 2012 and 2011.

	For Fiscal 2013 (Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	3,725,008	$	633,092	$	—		$	4,358,100
Operating income (loss)	$	826,092	$	87,674	$	(148,539	)	$	765,227
Depreciation and amortization	$	162,359	$	65,334	$	1,500		$	229,193
Stock compensation expense	$	9,909	$	2,519	$	13,653		$	26,081

	For Fiscal 2012 (Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	3,233,674	$	625,524	$	—		$	3,859,198
Operating Income (loss)	$	576,949	$	76,198	$	(84,251	)	$	568,896
Depreciation and amortization	$	116,722	$	62,984	$	1,941		$	181,647
Stock compensation expense	$	7,808	$	1,890	$	8,170		$	17,868

	For Fiscal 2011 (Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Eliminations			Consolidated
Sales to unaffiliated customers	$	2,152,432	$	498,467	$	—		$	—		$	2,650,899
Intersegment sales	$	36,855	$	98,347	$	—		$	(135,202	)	$	—
Net sales	$	2,189,287	$	596,814	$	—		$	(135,202	)	$	2,650,899
Operating Income	$	399,638	$	67,727	$	(73,259	)	$	(25,193	)	$	368,913
Depreciation and amortization	$	68,439	$	45,193	$	4		$	—		$	113,636
Stock compensation expense	$	5,519	$	470	$	4,372		$	—		$	10,361

Geographic Information

        Net sales are attributed to countries based on the location of the customer. Information concerning net sales of principal geographic areas is as follows (in thousands):

	Fiscal 2013		Fiscal 2012		Fiscal 2011
Net Sales:
United States	$	3,721,182	$	3,248,543	$	2,248,811
Canada		634,360		609,828		400,682
Other		2,558		827		1,406
	$	4,358,100	$	3,859,198	$	2,650,899

        Sales to customers that represented more than 10% of the Company's net sales included Wal-Mart, representing approximately 14% and 12% of consolidated net sales for fiscal years 2013 and 2012, respectively, Costco, representing approximately 11% of consolidated net sales for fiscal 2013, and Bed Bath & Beyond, representing approximately 11% of consolidated net sales for fiscal 2011. Sales to Wal-Mart in fiscal years 2013 and 2012 were through both segments; sales to Costco in fiscal 2013 were through both segments; and sales to Bed Bath & Beyond, Inc., in fiscal 2011 were primarily through the Domestic segment.

        Information concerning long-lived assets of principal geographic area is as follows (in thousands) as of:

	September 28, 2013		September 29, 2012
Fixed Assets, net:
United States	$	844,471	$	783,075
Canada		135,440		143,640
Other		5,652		17,581
	$	985,563	$	944,296

Net Sales by Major Product Category

        Net sales by major product category (in thousands):

	Fiscal 2013		Fiscal 2012		Fiscal 2011
Portion Packs	$	3,187,350	$	2,708,886	$	1,704,021
Brewers and Accessories		827,570		759,805		524,709
Other Products and Royalties		343,180		390,507		422,169
	$	4,358,100	$	3,859,198	$	2,650,899