Segment Reporting

12 Months Ended

Sep. 29, 2012

Segment Reporting

Segment Reporting

4.Segment Reporting

The Company manages its operations through three operating segments, SCBU, KBU and CBU.  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 and income before taxes.  Net sales are recorded on a segment basis and intersegment sales are eliminated as part of the financial consolidation process.  Segment income before taxes represents earnings before income taxes and includes intersegment interest income and expense and transfer pricing on intersegment sales.  The Company’s manufacturing operations occur within the SCBU and CBU segments, however, 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 functions are primarily decentralized, but currently maintain some centralization through an enterprise shared services group.  Expenses related to certain centralized administrative functions including Accounting and Information System Technology are allocated to the operating segments.  Expenses not specifically related to an operating segment are recorded in the “Corporate” segment.  Corporate 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 expenses also include depreciation expense, interest expense, foreign exchange gains or losses, certain corporate legal and acquisition-related expenses and compensation of the board of directors.

Identifiable assets by segment are those assets specifically identifiable within each segment and for the SCBU, KBU and CBU segments primarily include accounts receivable, inventories, net property, plant and equipment, goodwill, and other intangible assets.  Corporate assets include primarily cash, short-term investments, deferred tax assets, income tax receivable, certain notes receivable eliminated in consolidation, deferred issuance costs, and fixed assets related to corporate headquarters.  Goodwill and intangibles related to acquisitions are included in their respective segments.

Effective with the beginning of the Company’s third quarter of fiscal 2011, KBU no longer records royalty income from SCBU and CBU on shipments of single serve packs, thus removing the need to eliminate royalty income during the financial consolidation process.  Prior to the third quarter of fiscal 2011, the Company recorded intersegment sales and purchases of brewer and K-Cup® packs at a markup.  During the third quarter of fiscal 2011, the Company unified the standard costs of brewer and K-Cup® pack inventories across the segments and began recording intersegment sales and purchases of brewers and K-Cup® packs at new unified standard costs.  This change simplified intercompany transactions by removing the need to eliminate the markup incorporated in intersegment sales as part of the financial consolidation process.  In addition, effective September 25, 2011, the beginning of fiscal 2012, single serve pack and brewer inventories are transferred directly between SCBU and KBU.  Intersegment sales are no longer transacted between SCBU and KBU.

As a result of the unification of the standard costs of brewers and K-Cup® packs during the third quarter of fiscal 2011, the Company revalued its segment inventories and recorded an adjustment in each segment, which resulted in an increase in cost of sales and a decrease in inventories.  This adjustment was offset by the reversal of the elimination of intersegment markup in inventories in the consolidation process resulting in no impact to the Company’s consolidated results.

The selected financial data for segment disclosures for fiscal years 2011 and 2010 were not recast for the changes described in the two preceding paragraphs.  The net effect represents the mark-up on SCBU and CBU single serve packs sold by KBU and on KBU brewers and accessories sold by SCBU and CBU, as well as the KBU royalty income on the sale of SCBU and CBU single serve packs.  The Company used historical mark-up percentages and royalty rates to calculate the net effect.  The following table summarizes the approximate net effect of the above changes on segment income before taxes for fiscal 2012 and 2011 as a result of the above changes (in thousands).  The effect on segment income before taxes for fiscal 2011 has been recast to reflect Timothy’s and the AH single cup business with retailers in Canada in the CBU segment as discussed in the following paragraph.

Increase (decrease) in income before taxes	Fiscal 2012			Fiscal 2011
SCBU	$	36,332		$	15,473
KBU	(1,072		)	(35,471		)
CBU	(645		)	(7,251		)
Corporate	—			—
Eliminations	(34,615		)	27,249
Consolidated	$	—		$	—

Effective at the beginning of fiscal 2012, the Company changed its organizational structure to align certain portions of its business by geography.  Prior to fiscal 2012, sales and operations associated with the Timothy’s brand were included in the SCBU segment, and a portion of the AH single cup business with retailers in Canada was included in the KBU segment.  Under the new structure, Timothy’s and all of the AH single cup business with retailers in Canada are included in the CBU segment.  This resulted in a re-assignment of goodwill of $17.1 million from the SCBU segment to the CBU segment using a relative fair value approach.

The following tables summarize selected financial data for segment disclosures for fiscal years 2012, 2011 and 2010.  Selected financial data for segment disclosures for fiscal years 2011 and 2010 have been recast to reflect Timothy’s and the AH single cup business with retailers in Canada in the CBU segment.

	For the fiscal year ended September 29, 2012 (Dollars in thousands)
	SCBU		KBU		CBU		Corporate			Eliminations			Consolidated
Sales to unaffiliated customers	$	1,550,347	$	1,683,327	$	625,524	$	—		$	—		$	3,859,198
Intersegment sales	$	9,785	$	13,226	$	100,340	$	—		$	(123,351	)	$	—
Net sales	$	1,560,132	$	1,696,553	$	725,864	$	—		$	(123,351	)	$	3,859,198
Income before taxes	$	371,279	$	153,186	$	116,898	$	(65,222	)	$	—		$	576,141
Total assets	$	1,507,852	$	972,276	$	1,167,736	$	574,031		$	(606,106	)	$	3,615,789
Stock compensation	$	4,211	$	3,597	$	1,890	$	8,170		$	—		$	17,868
Interest expense	$	—	$	—	$	—	$	22,983		$	—		$	22,983
Property additions	$	364,514	$	47,835	$	42,359	$	43,552		$	—		$	498,260
Depreciation and amortization	$	85,433	$	13,817	$	59,735	$	22,662		$	—		$	181,647

	For the fiscal year ended September 24, 2011 (Dollars in thousands)
	SCBU		KBU		CBU		Corporate			Eliminations			Consolidated
Sales to unaffiliated customers	$	963,731	$	1,188,701	$	498,467	$	—		$	—		$	2,650,899
Intersegment sales	$	442,970	$	165,300	$	98,347	$	—		$	(706,617	)	$	—
Net sales	$	1,406,701	$	1,354,001	$	596,814	$	—		$	(706,617	)	$	2,650,899
Income before taxes	$	249,916	$	126,198	$	72,860	$	(121,036	)	$	(25,191	)	$	302,747
Total assets	$	1,354,567	$	622,254	$	1,283,883	$	476,613		$	(539,430	)	$	3,197,887
Stock compensation	$	3,186	$	2,333	$	470	$	4,372		$	—		$	10,361
Interest expense	$	—	$	—	$	—	$	57,657		$	—		$	57,657
Property additions	$	209,412	$	34,759	$	26,447	$	19,693		$	—		$	290,311
Depreciation and amortization	$	44,055	$	10,970	$	45,193	$	13,418		$	—		$	113,636

	For the fiscal year ended September 25, 2010 (Dollars in thousands)
	SCBU		KBU		CBU		Corporate			Eliminations			Consolidated
Sales to unaffiliated customers	$	571,630	$	699,246	$	85,899	$	—		$	—		$	1,356,775
Intersegment sales	$	254,746	$	166,615	$	34,274	$	—		$	(455,635	)	$	—
Net sales	$	826,376	$	865,861	$	120,173	$	—		$	(455,635	)	$	1,356,775
Income before taxes	$	104,900	$	75,737	$	11,287	$	(44,133	)	$	(14,582	)	$	133,209
Total assets	$	795,215	$	417,802	$	150,818	$	70,240		$	(63,501	)	$	1,370,574
Stock compensation	$	2,556	$	2,092	$	23	$	3,278		$	—		$	7,949
Interest expense	$	—	$	—	$	—	$	5,294		$	—		$	5,294
Property additions	$	95,060	$	20,514	$	2,446	$	15,937		$	—		$	133,957
Depreciation and amortization	$	22,689	$	7,713	$	7,188	$	6,867		$	—		$	44,457

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 2012		Fiscal 2011		Fiscal 2010
Net Sales:
United States	$	3,248,543	$	2,248,811	$	1,313,872
Canada	609,828		400,682		42,903
Other	827		1,406		—
	$	3,859,198	$	2,650,899	$	1,356,775

Sales to customers that represented more than 10% of the Company’s net sales included Wal-Mart Stores, Inc. and affiliates (“Wal-Mart”), representing approximately 12% of consolidated net sales for fiscal 2012, and Bed Bath & Beyond, Inc., representing approximately 11% and 14% of consolidated net sales for fiscal years 2011 and 2010, respectively.  Sales to Wal-Mart in fiscal 2012 were through all segments and sales to Bed Bath & Beyond, Inc. in fiscal years 2011 and 2010 were primarily through the KBU segment.

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

	September 29, 2012		September 24, 2011
Fixed Assets, net:
United States	$	783,075	$	443,750
Canada	143,640		121,471
Other	17,581		13,998
	$	944,296	$	579,219

Net Sales by Major Product Category

Net sales by major product category (in thousands):

	Fiscal 2012		Fiscal 2011		Fiscal 2010
Single Serve Packs	$	2,708,886	$	1,704,021	$	834,422
Brewers and Accessories	759,805		524,709		330,772
Other Products and Royalties	390,507		422,169		191,581
	$	3,859,198	$	2,650,899	$	1,356,775