Segment Reporting

3 Months Ended

Dec. 28, 2013

Segment Reporting

Segment Reporting

3.     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.  We have recast all historical segment results in order to provide data that is on a basis consistent with our new structure.

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.

The Domestic segment sells single cup brewers, accessories, and sources, produces and sells coffee, hot cocoa, teas and other beverages in K-Cup® and Vue® packs (“packs”) and coffee in more traditional packaging including bags and fractional packs to retailers including supermarkets, department stores, mass merchandisers, club stores, and convenience stores; to restaurants, hospitality accounts, office coffee distributors, and partner brand owners; and to consumers through Company websites.  The Domestic segment primarily distributes its products in the at-home (“AH”) and away-from-home (“AFH”) channels, as well as to consumers through Company websites.  Substantially all of the Domestic segment’s distribution to major retailers is processed by fulfillment entities which receive and fulfill sales orders and invoice certain retailers primarily in the AH channel.  The Domestic segment also earns royalty income from K-Cup® packs sold by a third-party licensed roaster.

The Canada segment sells single cup brewers, accessories, and sources, produces and sells coffee and teas and other beverages in packs and coffee in more traditional packaging including bags, cans and fractional packs under a variety of brands to retailers including supermarkets, department stores, mass merchandisers, club stores, through office coffee services to offices, convenience stores, restaurants, hospitality accounts, and to consumers through its website.

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.

The following tables summarize selected financial data for segment disclosures for the thirteen weeks ended December 28, 2013 and December 29, 2012:

	Thirteen weeks ended December 28, 2013
	(Dollars in thousands)
	Domestic		Canada		Corporate-Unallocated			Consolidated
Net sales	$	1,191,866	$	194,804	$	—		$	1,386,670
Operating income (loss)	$	232,800	$	31,973	$	(38,147	)	$	226,626
Depreciation and amortization	$	40,126	$	16,688	$	2,334		$	59,148
Stock compensation	$	3,706	$	1,030	$	2,346		$	7,082

	Thirteen weeks ended December 29, 2012
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	1,131,935	$	207,124	$	—		$	1,339,059
Operating income (loss)	$	191,017	$	25,958	$	(34,534	)	$	182,441
Depreciation and amortization	$	38,992	$	16,158	$	195		$	55,345
Stock compensation	$	2,519	$	425	$	3,166		$	6,110

The following table reconciles operating segments and corporate-unallocated operating income (loss) to consolidated income before income taxes, as presented in the Unaudited Consolidated Statements of Operations (in thousands):

	Thirteen weeks ended
	December 28,  2013			December 29,  2012
Operating income	$	226,626		$	182,441
Other income, net	429			188
Gain on financial instruments, net	4,561			1,104
Loss on foreign currency, net	(10,550		)	(2,679		)
Interest expense	(2,620		)	(5,730		)
Income before income taxes	$	218,446		$	175,324