Segment Reporting

9 Months Ended

Jun. 28, 2014

Segment Reporting

Segment Reporting

3.Segment Reporting

Segment information is prepared on the same basis that our CEO, who is our chief operating decision maker, manages the business, evaluates financial results, and makes key operating decisions.  The structure includes a Domestic segment containing all U.S. Operations and immaterial start-up operations related to international expansion, and a Canada segment containing all Canadian operations.

The Domestic segment designs and sells hot beverage system brewers and accessories and sources, produces and sells coffee, hot cocoa, teas and other beverages under a variety of brands in K-Cup®, Vue®, Rivo® and Bolt™   portion packs (“portion 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 third party 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 hot beverage system brewers and accessories, and sources, produces and sells coffee and teas and other beverages in portion 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, office coffee distributors, and, through its office coffee services business, 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 thirty-nine weeks ended June 28, 2014 and June 29, 2013:

	Thirteen weeks ended June 28, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	881,102	$	141,269	$	—		$	1,022,371
Operating income (loss)	$	250,486	$	24,781	$	(43,920	)	$	231,347
Depreciation and amortization	$	48,205	$	15,329	$	2,119		$	65,653
Stock compensation	$	3,417	$	476	$	3,713		$	7,606

	Thirteen weeks ended June 29, 2013
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	822,593	$	144,479	$	—		$	967,072
Operating income (loss)	$	213,076	$	23,658	$	(43,390	)	$	193,344
Depreciation and amortization	$	44,083	$	16,501	$	625		$	61,209
Stock compensation	$	2,615	$	515	$	3,001		$	6,131

	Thirty-nine weeks ended June 28, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net Sales	$	3,043,236	$	468,877	$	—		$	3,512,113
Operating income (loss)	$	761,316	$	77,512	$	(120,369	)	$	718,459
Depreciation and amortization	$	137,986	$	47,292	$	6,539		$	191,817
Stock compensation	$	11,068	$	2,236	$	10,021		$	23,325

	Thirty-nine weeks ended June 29, 2013
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net Sales	$	2,820,123	$	490,800	$	—		$	3,310,923
Operating income (loss)	$	644,024	$	69,855	$	(125,990	)	$	587,889
Depreciation and amortization	$	121,675	$	48,938	$	1,355		$	171,968
Stock compensation	$	7,808	$	1,870	$	11,525		$	21,203

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						Thirty-nine weeks ended
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013
Operating income	$	231,347		$	193,344		$	718,459		$	587,889
Other income, net	253			237			1,935			652
(Loss) gain on financial instruments, net	(2,843		)	4,419			4,618			8,994
Gain (loss) on foreign currency, net	8,849			(10,391		)	(10,423		)	(19,185		)
Interest expense	(2,441		)	(3,937		)	(8,056		)	(13,481		)
Income before income taxes	$	235,165		$	183,672		$	706,533		$	564,869