Segment Reporting

6 Months Ended

Mar. 29, 2014

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.

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 Company’s chief operating decision maker (“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 these expenses to its operating segments.

The Company’s Chief Executive Officer (“CEO”) serves as the Company’s CODM and there are two operating and reportable segments, Domestic and Canada.

The Domestic segment designs and sells single cup brewers and accessories and sources, produces and sells coffee, hot cocoa, teas and other beverages in K-Cup®, Vue® and Rivo® 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 licensees under various licensing agreements.

The Canada segment sells single cup brewers and 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, corporate 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 following tables summarize selected financial data for segment disclosures for the thirteen and twenty-six weeks ended March 29, 2014 and March 30, 2013:

	Thirteen weeks ended March 29, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	970,268	$	132,804	$	—		$	1,103,072
Operating income (loss)	$	278,030	$	20,758	$	(38,302	)	$	260,486
Depreciation and amortization	$	49,655	$	15,275	$	2,086		$	67,016
Stock compensation	$	3,945	$	730	$	3,962		$	8,637

	Thirteen weeks ended March 30, 2013
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	865,595	$	139,197	$	—		$	1,004,792
Operating income (loss)	$	239,931	$	20,239	$	(48,066	)	$	212,104
Depreciation and amortization	$	38,600	$	16,279	$	535		$	55,414
Stock compensation	$	2,674	$	930	$	5,358		$	8,962

	Twenty-six weeks ended March 29, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net Sales	$	2,162,134	$	327,608	$	—		$	2,489,742
Operating income (loss)	$	510,830	$	52,731	$	(76,449	)	$	487,112
Depreciation and amortization	$	89,781	$	31,963	$	4,420		$	126,164
Stock compensation	$	7,651	$	1,760	$	6,308		$	15,719

	Twenty-six weeks ended March 30, 2013
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net Sales	$	1,997,530	$	346,321	$	—		$	2,343,851
Operating income (loss)	$	430,948	$	46,197	$	(82,600	)	$	394,545
Depreciation and amortization	$	77,592	$	32,437	$	730		$	110,759
Stock compensation	$	5,193	$	1,355	$	8,524		$	15,072

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						Twenty-six weeks ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013
Operating income	$	260,486		$	212,104		$	487,112		$	394,545
Other income, net	1,253			227			1,682			415
Gain on financial instruments, net	2,900			3,471			7,461			4,575
Loss on foreign currency, net	(8,722		)	(6,115		)	(19,272		)	(8,794		)
Interest expense	(2,995		)	(3,814		)	(5,615		)	(9,544		)
Income before income taxes	$	252,922		$	205,873		$	471,368		$	381,197