10-Q

FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the thirteen weeks ended December 27, 2014

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                      to             

Keurig Green Mountain, Inc.

Commission file number 1-12340

Delaware	03-0339228
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

33 Coffee Lane, Waterbury, Vermont 05676

(Address of principal executive offices)  (zip code)

(802) 244-5621

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x  NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller Reporting Company o

Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Exchange Act)  YES o NO x

As of January 29, 2015, 161,675,100 shares of common stock of the registrant were outstanding.

KEURIG GREEN MOUNTAIN, INC.

Form 10-Q

For the Thirteen Weeks Ended December 27, 2014

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Unaudited Consolidated Balance Sheets	2
	Unaudited Consolidated Statements of Operations	3
	Unaudited Consolidated Statements of Comprehensive Income	4
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	45
PART II. OTHER INFORMATION		46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.	Exhibits	46
Signatures		47

Part I.  Financial Information

Item 1.  Financial Statements

1

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	December 27, 2014			September 27, 2014
Assets
Current assets:
Cash and cash equivalents	$	506,359		$	761,214
Restricted cash and cash equivalents	30,177			378
Short-term investment	100,000			100,000
Receivables, less uncollectible accounts and return allowances of $76,265 and $66,120 at December 27, 2014 and September 27, 2014, respectively	643,029			621,451
Inventories	780,794			835,167
Income taxes receivable	42,780			—
Other current assets	75,290			69,272
Deferred income taxes, net	52,388			58,038
Total current assets	2,230,817			2,445,520
Fixed assets, net	1,222,569			1,171,425
Intangibles, net	344,856			365,444
Goodwill	957,771			755,895
Deferred income taxes, net	129			131
Other long-term assets	19,723			58,892
Total assets	$	4,775,865		$	4,797,307
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	20,624		$	19,077
Current portion of capital lease and financing obligations	2,916			2,226
Accounts payable	396,667			411,107
Accrued expenses	326,337			305,677
Income tax payable	—			53,586
Dividend payable	46,594			40,580
Deferred income taxes, net	362			340
Other current liabilities	11,938			10,395
Total current liabilities	805,438			842,988
Long-term debt, less current portion	134,637			140,937
Capital lease and financing obligations, less current portion	116,440			116,240
Deferred income taxes, net	193,312			202,936
Other long-term liabilities	52,828			23,085
Commitments and contingencies
Redeemable noncontrolling interests	11,666			12,440
Stockholders’ equity:
Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding	—			—
Common stock, $0.10 par value: Authorized - 500,000,000 shares; Issued and outstanding - 162,066,179 and 162,318,246 shares at December 27, 2014 and September 27, 2014, respectively	16,207			16,232
Additional paid-in capital	1,753,913			1,808,881
Retained earnings	1,775,832			1,687,619
Accumulated other comprehensive loss	(84,408		)	(54,051		)
Total stockholders’ equity	3,461,544			3,458,681
Total liabilities and stockholders’ equity	$	4,775,865		$	4,797,307

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

2

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Operations

(Dollars in thousands, except per share data)

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Net sales	$	1,386,358		$	1,386,670
Cost of sales	922,236			922,623
Gross profit	464,122			464,047
Selling and operating expenses	176,522			168,215
General and administrative expenses	71,673			69,206
Operating income	215,927			226,626
Other income, net	181			429
Gain on financial instruments, net	3,345			4,561
Loss on foreign currency, net	(9,071		)	(10,550		)
Interest expense	(1,087		)	(2,620		)
Income before income taxes	209,295			218,446
Income tax expense	(74,616		)	(79,971		)
Net income	$	134,679		$	138,475
Net income attributable to noncontrolling interests	100			248
Net income attributable to Keurig	$	134,579		$	138,227
Net income attributable to Keurig per common share:
Basic	$	0.83		$	0.93
Diluted	$	0.82		$	0.91
Cash dividends declared per common share	$	0.2875		$	0.25
Weighted-average common shares outstanding:
Basic	162,181,332			149,162,600
Diluted	164,075,038			151,581,897

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

3

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Comprehensive Income

(Dollars in thousands)

	Thirteen weeks ended								Thirteen weeks ended
	December 27, 2014								December 28, 2013
	Pre-tax			Tax (expense) benefit		After-tax			Pre-tax			Tax (expense) benefit			After-tax
Net income						$	134,679								$	138,475
Other comprehensive income (loss):
Cash flow hedges:
Unrealized losses arising during the period	$	(406	)	$	174	$	(232	)	$	(631	)	$	280		$	(351	)
(Gains) losses reclassified to net income	(565		)	236		(329		)	275			(102		)	173
Foreign currency translation adjustments	(30,299		)	—		(30,299		)	(25,496		)	—			(25,496		)
Other comprehensive loss	$	(31,270	)	$	410	$	(30,860	)	$	(25,852	)	$	178		$	(25,674	)
Total comprehensive income						103,819									112,801
Total comprehensive loss attributable to noncontrolling interests						(404		)							(358		)
Total comprehensive income attributable to Keurig						$	104,223								$	113,159

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

4

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

For the Thirteen Weeks Ended December 27, 2014

(Dollars in thousands)

	Common stock					Additional paid-			Retained			Accumulated other comprehensive			Stockholders’
	Shares		Amount			in capital			earnings			loss			equity
Balance at September 27, 2014	162,318,246		$	16,232		$	1,808,881		$	1,687,619		$	(54,051	)	$	3,458,681
Options exercised	179,269		18			3,152			—			—			3,170
Restricted stock awards and units	154,372		15			(15		)	—			—			—
Repurchase of common stock	(585,708	)	(58		)	(80,840		)	—			—			(80,898		)
Stock compensation expense	—		—			10,391			—			—			10,391
Tax benefit from equity-based compensation plans	—		—			12,328			—			—			12,328
Deferred compensation expense	—		—			16			—			—			16
Adjustment of redeemable noncontrolling interests to redemption value	—		—			—			228			—			228
Other comprehensive loss, net of tax	—		—			—			—			(30,357		)	(30,357		)
Net income attributable to Keurig	—		—			—			134,579			—			134,579
Cash dividends declared	—		—			—			(46,594		)	—			(46,594		)
Balance at December 27, 2014	162,066,179		$	16,207		$	1,753,913		$	1,775,832		$	(84,408	)	$	3,461,544

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

5

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)

	Thirteen			Thirteen
	weeks ended			weeks ended
	December 27, 2014			December 28, 2013
Cash flows from operating activities:
Net income	$	134,679		$	138,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets	51,049			47,996
Amortization of intangibles	10,110			11,152
Amortization of deferred financing fees	1,413			1,413
Unrealized loss on foreign currency, net	8,981			11,932
Loss (gain) on disposal of fixed assets	217			(983		)
Provision for doubtful accounts	2,479			862
Provision for sales returns	42,856			38,237
Gain on derivatives, net	(3,462		)	(6,830		)
Excess tax benefits from equity-based compensation plans	(12,324		)	(4,509		)
Deferred income taxes	3			(33		)
Deferred compensation and stock compensation	10,407			7,087
Other	617			(225		)
Changes in assets and liabilities:
Receivables	(69,245		)	(99,310		)
Inventories	51,001			205,602
Income tax receivable/payable, net	(84,205		)	1,185
Other current assets	(3,654		)	(3,443		)
Other long-term assets, net	1,297			(86		)
Accounts payable and accrued expenses	(3,912		)	(71,430		)
Other current liabilities	(24,498		)	(5,094		)
Other long-term liabilities	28,599			678
Net cash provided by operating activities	142,408			272,676
Cash flows from investing activities:
Change in restricted cash	(158		)	(537		)
Acquisition, net of cash acquired	(180,698		)	—
Capital expenditures for fixed assets	(100,303		)	(60,822		)
Other investing activities	(1,273		)	770
Net cash used in investing activities	(282,432		)	(60,589		)
Cash flows from financing activities:
Proceeds from issuance of common stock under compensation plans	3,170			1,683
Repurchase of common stock	(80,898		)	(122,464		)
Excess tax benefits from equity-based compensation plans	12,324			4,509
Payments on capital lease and financing obligations	(853		)	(462		)
Repayment of long-term debt	(4,690		)	(3,154		)
Dividends paid	(40,580		)	—
Other financing activities	(140		)	26
Net cash used in financing activities	(111,667		)	(119,862		)
Effect of exchange rate changes on cash and cash equivalents	(3,164		)	(3,652		)
Net (decrease) increase in cash and cash equivalents	(254,855		)	88,573
Cash and cash equivalents at beginning of period	761,214			260,092
Cash and cash equivalents at end of period	$	506,359		$	348,665
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable and not disbursed at the end of each period	$	68,292		$	21,112
Dividends declared not paid at the end of each period	$	46,594		$	37,188
Noncash investing and financing activities:
Fixed assets acquired under capital lease and financing obligations	$	375		$	12,148

The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.

6

Keurig Green Mountain, Inc.

Notes to Unaudited Consolidated Financial Statements

1.Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

The September 27, 2014 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  For further information, refer to the consolidated financial statements and the footnotes included in Keurig Green Mountain’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014.  Throughout this presentation, we refer to the consolidated company as the “Company” or “Keurig” and, unless otherwise noted, the information provided is on a consolidated basis.

In the opinion of management, all adjustments considered necessary for a fair statement of the interim financial data have been included.  Interim results may not be indicative of results for a full year.  Historically, in addition to variations resulting from the holiday season, sales may vary from quarter-to-quarter due to a variety of other factors including, but not limited to, the cost of green coffee, competitor initiatives, marketing programs and weather.

2.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 operations related to international expansion, and a Canada segment containing all Canadian operations.

The Domestic segment sells brewers, accessories, and sources, produces and sells coffee, hot cocoa, teas and other beverages in K-Cup®, Vue®, Rivo®, K-Carafe™ and Bolt™ 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 the Company’s website.  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 At Home (“AH”) channel.  The Domestic segment also earns royalty income from portion packs sold by a third-party licensed roaster.

The Canada segment sells brewers, 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, 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.

7

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 weeks ended December 27, 2014 and December 28, 2013:

	Thirteen weeks ended December 27, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	1,215,458	$	170,900	$	—		$	1,386,358
Operating income (loss)	$	236,601	$	21,588	$	(42,262	)	$	215,927
Depreciation and amortization	$	44,586	$	13,859	$	2,714		$	61,159
Stock compensation	$	5,831	$	723	$	3,837		$	10,391

	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

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 27, 2014			December 28, 2013
Operating income	$	215,927		$	226,626
Other income, net	181			429
Gain on financial instruments, net	3,345			4,561
Loss on foreign currency, net	(9,071		)	(10,550		)
Interest expense	(1,087		)	(2,620		)
Income before income taxes	$	209,295		$	218,446

8

3.Inventories

Inventories consisted of the following (in thousands) as of:

	December 27, 2014		September 27, 2014
Raw materials and supplies	$	202,504	$	169,858
Finished goods	578,290		665,309
	$	780,794	$	835,167

At December 27, 2014, the Company had approximately $375.1 million in green coffee purchase commitments, of which approximately 87% had a fixed price.  These commitments primarily extend through fiscal 2016.  The value of the variable portion of these commitments was calculated using an average “C” price of coffee of $1.75 per pound at December 27, 2014.  In addition to its green coffee commitments, the Company had approximately $103.8 million in fixed price brewer and related accessory purchase commitments and $1,129.0 million in production raw material commitments at December 27, 2014.  The Company believes, based on relationships established with its suppliers, that the risk of non-delivery on such purchase commitments is remote.

As of December 27, 2014, minimum future inventory purchase commitments were as follows (in thousands):

Fiscal Year	Inventory Purchase Obligations(1)
Remainder of 2015	$	612,262
2016	269,691
2017	262,952
2018	277,095
2019	120,123
Thereafter	65,762
	$	1,607,885

(1)Certain purchase obligations are determined based on a contractual percentage of forecasted volumes.

9

4.Acquisition

On December 18, 2014, the Company, through its wholly owned subsidiary Keurig International S.à.r.l., acquired all of the outstanding equity of MDS Global Holding p.l.c. (“Bevyz”), a manufacturer and distributor of an all-in-one drink system, for total cash consideration of $180.7 million, net of cash acquired.  The Company will utilize Bevyz’s complementary and unique technology and research and development capabilities in its own beverage platforms and products.

Prior to the acquisition, the Company owned approximately 15% of the outstanding equity of Bevyz.  As of December 27, 2014, the Company had not completed its valuation of fair value of the business acquired and the acquisition date fair value of the Company’s previously held equity interest in Bevyz.  As a result, for the fiscal quarter ended December 27, 2014, no gain or loss was recognized on the Company’s previously held equity interest.  No amounts were allocated to identifiable intangible assets or favorable or unfavorable contracts for purposes of the preliminary allocation.  The Company currently anticipates finalizing its valuation and the allocation of the purchase price, along with required retrospective adjustments, if any, in the second quarter of fiscal 2015.

The following summarizes the preliminary allocation as recorded as of December 27, 2014 (in thousands):

Accounts receivable	$	218
Inventories	743
Other current assets	504
Fixed assets	2,370
Other long-term assets	247
Goodwill	220,468
Accounts payable and accrued expenses	(5,911		)
Capital lease obligation	(763		)
Other long-term liabilities	(1,273		)
Total estimated fair value net assets acquired	216,603
Less previously held equity interest in Bevyz	(35,905		)
Total cash paid, net of cash acquired	$	180,698

Acquisition costs of $1.5 million were expensed as incurred and recognized in general and administrative expenses in the accompanying Unaudited Consolidated Statements of Operations.  Approximately $28.8 million of the purchase price was held in escrow at December 27, 2014 and is included in restricted cash and other long-term liabilities.  The revenue and earnings of Bevyz since acquisition and the proforma financial statements are immaterial.  For information on the assignment of goodwill to our operating segments, see Note 6, Goodwill and Intangible Assets.

10

5.Fixed Assets

Fixed assets consisted of the following (in thousands) as of:

	Useful Life in Years	December 27, 2014			September 27, 2014
Production equipment	1-15	$	787,530		$	779,850
Coffee service equipment	3-7	59,508			61,029
Computer equipment and software	1-10	244,980			177,878
Land	Indefinite	12,576			12,767
Building and building improvements	4-30	248,908			238,945
Furniture and fixtures	1-15	37,863			36,899
Vehicles	4-5	12,467			13,032
Leasehold improvements	1-20 or remaining life of lease, whichever is less	96,752			95,373
Assets acquired under capital leases	5-15	42,073			41,200
Construction-in-progress		315,744			308,976
Total fixed assets		$	1,858,401		$	1,765,949
Accumulated depreciation and amortization		(635,832		)	(594,524		)
		$	1,222,569		$	1,171,425

Assets acquired under capital leases, net of accumulated amortization, were $34.3 million and $34.1 million at December 27, 2014 and September 27, 2014, respectively.

Total depreciation and amortization expense relating to all fixed assets was $51.0 million and $48.0 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively.

6.Goodwill and Intangible Assets

The following represented the change in the carrying amount of goodwill by segment for the thirteen weeks ended December 27, 2014 (in thousands):

	Domestic			Canada			Total
Balance at September 27, 2014	$	369,353		$	386,542		$	755,895
Foreign currency effect	(2,894		)	(15,698		)	(18,592		)
Acquisition of Bevyz (see Note 4, Acquisition)	220,468			—			220,468
Balance at December 27, 2014	$	586,927		$	370,844		$	957,771

Indefinite-lived intangible assets included in the Canada segment consisted of the following (in thousands) as of:

	December 27, 2014		September 27, 2014
Trade names	$	86,592	$	90,257

11

Intangible Assets Subject to Amortization

Definite-lived intangible assets included in the Domestic segment and Canada segment consisted of the following (in thousands) as of:

		December 27, 2014					September 27, 2014
	Useful Life in Years	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired technology	4-10	$	16,490	$	(14,122	)	$	16,501	$	(13,713	)
Customer and roaster agreements	8-11	8,717		(5,410		)	8,939		(5,303		)
Customer relationships	2-16	378,502		(145,427		)	390,563		(141,163		)
Trade names	9-11	36,679		(17,165		)	35,911		(16,548		)
Total		$	440,388	$	(182,124	)	$	451,914	$	(176,727	)

Definite-lived intangible assets are amortized on a straight-line basis over the period of expected economic benefit.  Total amortization expense was $10.1 million and $11.2 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively.

The estimated aggregate amortization expense for the remainder of fiscal 2015, for each of the next five years and thereafter, is as follows (in thousands):

Fiscal Year	Amortization Expense
Remainder of 2015	$	29,716
2016	38,898
2017	37,502
2018	37,502
2019	37,402
2020	33,299
Thereafter	43,945

7.Product Warranties

The Company offers a one-year warranty on all Keurig® hot beverage system brewers it sells.  The Company provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized.  Brewer failures may arise in the later part of the warranty period, and actual warranty costs may exceed the reserve.  As the Company has grown, it has added significantly to its product testing, quality control infrastructure and overall quality processes.  Nevertheless, as the Company continues to innovate, and its products become more complex, both in design and componentry, product performance may modulate, causing warranty rates to possibly fluctuate going forward.  As a result, future warranty claims rates may be higher or lower than the Company is currently experiencing and for which the Company is currently providing in its warranty reserve.

The changes in the carrying amount of product warranties for the thirteen weeks ended December 27, 2014 and December 28, 2013 are as follows (in thousands):

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Balance, beginning of period	$	12,850		$	7,804
Provision related to current period	14,166			10,230
Change in estimate	—			(58		)
Usage	(7,336		)	(5,185		)
Balance, end of period	$	19,680		$	12,791

12

For the thirteen weeks ended December 27, 2014 and December 28, 2013, the Company recorded recoveries of $0.2 million and $0.5 million, respectively.  The recoveries are under agreements with suppliers and are recorded as a reduction of warranty expense.  The recoveries are not reflected in the provision charged to income in the table above.

8.Noncontrolling Interests

Noncontrolling interests (“NCI”) are evaluated by the Company and are shown as either a liability, temporary equity (shown between liabilities and equity) or as permanent equity depending on the nature of the redeemable features at amounts based on formulas specific to each entity.  Generally, mandatorily redeemable NCIs are classified as liabilities and non-mandatorily redeemable NCIs are classified as either temporary or permanent equity.  Redeemable NCIs that are not mandatorily redeemable are classified outside of stockholders’ equity in the Unaudited Consolidated Balance Sheets as temporary equity under the caption, Redeemable noncontrolling interests, and are measured at their redemption values at the end of each period.  If the redemption value is greater than the carrying value, an adjustment is recorded in retained earnings to record the NCI at its redemption value.

Net income attributable to NCIs reflects the portion of the net income of consolidated entities applicable to the NCI shareholders in the accompanying Unaudited Consolidated Statements of Operations.  The net income attributable to NCIs is classified in the Unaudited Consolidated Statements of Operations as part of consolidated net income and deducted from total consolidated net income to arrive at the net income attributable to the Company.

If a change in ownership of a consolidated subsidiary results in a loss of control or deconsolidation, any retained ownership interests are remeasured with the gain or loss reported to net earnings.

The changes in the temporary equity attributable to the redeemable NCI for the thirteen weeks ended December 27, 2014 are as follows (in thousands):

	Equity attributable to redeemable noncontrolling interest
Balance at September 27, 2014	$	12,440
Net income	100
Adjustment to redemption value	(228		)
Cash distributions	(141		)
Other comprehensive loss	(505		)
Balance at December 27, 2014	$	11,666

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9.Derivative Financial Instruments

Cash Flow Hedges

The Company is exposed to certain risks relating to ongoing business operations.  The primary risks that are mitigated by financial instruments are interest rate risk, commodity price risk and foreign currency exchange rate risk.  The Company uses interest rate swaps to mitigate interest rate risk associated with the Company’s variable-rate borrowings, enters into coffee futures contracts to hedge future coffee purchase commitments of green coffee with the objective of minimizing cost risk due to market fluctuations, and uses foreign currency forward contracts to hedge the purchase and payment of green coffee purchase commitments denominated in non-functional currencies.

The Company designates these contracts as cash flow hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The effective portion of the derivatives’ gains or losses, resulting from changes in the fair value of these instruments is classified in accumulated other comprehensive income (loss), net of related tax effects and is reclassified from other comprehensive income (“OCI”) into earnings in the same period or periods during which the hedged transaction affects earnings.  Any ineffective portion of the derivatives’ gains or losses is recognized in earnings in the period such ineffectiveness occurs.  If it is determined that a derivative is not highly effective, the gain or loss is reclassified into earnings.

Fair Value Hedges

The Company occasionally enters into foreign currency forward contracts to hedge certain recognized liabilities in currencies other than the Company’s functional currency.  The Company designates these contracts as fair value hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The changes in the fair value of these instruments along with the changes in the fair value of the hedged liabilities are recognized in net gains or losses on foreign currency on the Unaudited Consolidated Statements of Operations.

Other Derivatives

The Company is also exposed to certain foreign currency and interest rate risks on an intercompany note with a foreign subsidiary denominated in Canadian currency.  At December 27, 2014, the Company had approximately one year remaining on a CDN $90.0 million cross currency swap to exchange interest payments and principal on the intercompany note.  This cross currency swap is not designated as a hedging instrument for accounting purposes and is recorded at fair value, with the changes in fair value recognized in the Unaudited Consolidated Statements of Operations.  Gains and losses resulting from the change in fair value are largely offset by the financial impact of the re-measurement of the intercompany note.  In accordance with the cross currency swap agreement, on a quarterly basis, the Company pays interest based on the three month Canadian Bankers Acceptance rate and receives interest based on the three month U.S. Libor rate.  Additional interest expense pursuant to the cross currency swap agreement for the thirteen weeks ended December 27, 2014 and for the thirteen weeks ended December 28, 2013 was $0.3 million and $0.4 million, respectively.

The Company occasionally enters into foreign currency forward contracts and coffee futures contracts that qualify as derivatives, and are not designated as hedging instruments for accounting purposes in addition to the foreign currency forward contracts and coffee futures contracts noted above.  Contracts that are not designated as hedging instruments are recorded at fair value with the changes in fair value recognized in the Unaudited Consolidated Statements of Operations.

The Company does not hold or use derivative financial instruments for trading or speculative purposes.

The Company is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments, however nonperformance is not anticipated.

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The following table summarizes the fair value of the Company’s derivatives included on the Unaudited Consolidated Balance Sheets (in thousands):

	December 27, 2014			September 27, 2014			Balance Sheet Classification
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(2,682	)	$	(3,371	)	Other current liabilities
Coffee futures	—			3,437			Other current assets
Coffee futures	(701		)	—			Other current liabilities
Foreign currency forward contracts	130			108			Other current assets
	$	(3,253	)	$	174
Derivatives not designated as hedges:
Cross currency swap	$	9,296		$	5,951		Other current assets
	$	9,296		$	5,951
Total	$	6,043		$	6,125

Offsetting

Generally, all of the Company’s derivative instruments are subject to a master netting arrangement under which either party may offset amounts if the payment amounts are for the same transaction and in the same currency.  By election, the parties may agree to net other transactions.  In addition, the arrangements provide for the net settlement of all contracts through a single payment in a single currency in the event of default or termination of the contract.  The Company’s policy is to net all derivative assets and liabilities in the accompanying Unaudited Consolidated Balance Sheets when allowable by U.S. GAAP.

Additionally, the Company has elected to include all derivative assets and liabilities, including those not subject to a master netting arrangement, in the following offsetting tables.

Offsetting of financial assets and derivative assets as of December 27, 2014 and September 27, 2014 is as follows (in thousands):

								Gross amounts not offset in the
			Gross amounts			Net amount of		Unaudited Consolidated Balance
	Gross		offset in the			assets presented		Sheet
	amounts of		Unaudited			in the Unaudited				Cash
	recognized		Consolidated			Consolidated		Financial		collateral
	assets		Balance Sheet			Balance Sheet		instruments		received		Net amount
Derivative assets, as of December 27, 2014	$	9,426	$	—		$	9,426	$	—	$	—	$	9,426
Derivative assets, as of September 27, 2014	9,830		(334		)	9,496		—		—		9,496

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Offsetting of financial liabilities and derivative liabilities as of December 27, 2014 and September 27, 2014 is as follows (in thousands):

						Net amount of		Gross amounts not offset in the
			Gross amounts			liabilities		Unaudited Consolidated
	Gross		offset in the			presented in the		Balance Sheet
	amounts of		Unaudited			Unaudited				Cash
	recognized		Consolidated			Consolidated		Financial		collateral
	liabilities		Balance Sheet			Balance Sheet		instruments		pledged		Net amount
Derivative liabilities, as of December 27, 2014	$	3,383	$	—		$	3,383	$	—	$	—	$	3,383
Derivative liabilities, as of September 27, 2014	3,705		(334		)	3,371		—		—		3,371

The following table summarizes the amount of unrealized gain (loss), gross of tax, arising during the period on financial instruments that qualify for hedge accounting included in OCI (in thousands):

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Cash Flow Hedges:
Interest rate swaps	$	689		$	574
Coffee futures	(1,172		)	(1,400		)
Foreign currency forward contracts	77			195
Total	$	(406	)	$	(631	)

The following table summarizes the amount of gains (losses), gross of tax, reclassified from OCI to income (in thousands):

	Thirteen weeks ended						Location of Gains
	December 27, 2014			December 28, 2013			(Losses) Reclassified from OCI into Income
Coffee futures	$	624		$	(206	)	Cost of sales
Foreign currency forward contracts	(59		)	(44		)	Cost of sales
Foreign currency forward contracts	—			(25		)	Loss on foreign currency, net
Total	$	565		$	(275	)

The Company expects to reclassify $9.9 million of net gains, net of tax, from OCI to earnings for coffee derivatives within the next twelve months.

See Note 12, Stockholders’ Equity, for a reconciliation of derivatives in beginning accumulated other comprehensive income (loss) to derivatives in ending accumulated other comprehensive income (loss).

Net (losses) gains on financial instruments not designated as hedges for accounting purposes are as follows (in thousands):

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	Thirteen weeks ended				Location of net (loss) gain in
	December 27,  2014		December 28,  2013		Unaudited Consolidated Statements of Operations
Net gain on cross currency swap	$	3,345	$	4,561	Gain on financial instruments, net
Net gain on coffee futures	—		2,125		Cost of sales
Total	$	3,345	$	6,686

In addition, for the thirteen weeks ended December 27, 2014, the Company recognized $0.1 million in net losses as a cost of sale representing the ineffective portion on coffee futures designated as cash flow hedges.  No amounts were recognized for the thirteen weeks ended December 28, 2013 for ineffectiveness.

10.Fair Value Measurements

The Company measures fair value as the selling price that would be received for an asset, or paid to transfer a liability, in the principal or most advantageous market on the measurement date.  The hierarchy established by the Financial Accounting Standards Board (“FASB”) prioritizes fair value measurements based on the types of inputs used in the valuation technique.  The inputs are categorized into the following levels:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than quoted prices that are observable, either directly or indirectly, which include quoted prices for similar assets or liabilities in active markets and quoted prices for identical assets or liabilities in markets that are not active.

Level 3 — Unobservable inputs not corroborated by market data, therefore requiring the entity to use the best available information, including management assumptions.

The following table summarizes the fair values and the levels used in fair value measurements as of December 27, 2014 for the Company’s financial assets (liabilities) (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2			Level 3
Derivatives:
Interest rate swaps	$	—	$	(2,682	)	$	—
Cross currency swap	—		9,296			—
Coffee futures	—		(701		)	—
Foreign currency forward contracts	—		130			—
Total	$	—	$	6,043		$	—

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The following table summarizes the fair values and the levels used in fair value measurements as of September 27, 2014 for the Company’s financial liabilities (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2			Level 3
Derivatives:
Interest rate swaps	$	—	$	(3,371	)	$	—
Cross currency swap	—		5,951			—
Coffee futures	—		3,437			—
Forward currency forward contracts	—		108			—
Total	$	—	$	6,125		$	—

Derivatives

Level 2 derivative financial instruments use inputs that are based on market data of identical (or similar) instruments, including forward prices for commodities, interest rate curves and spot prices that are in observable markets.  Derivatives recorded on the balance sheet are at fair value with changes in fair value recorded in other comprehensive income for cash flow hedges and in the Unaudited Consolidated Statements of Operations for fair value hedges and derivatives that do not qualify for hedge accounting treatment.

Derivative financial instruments include coffee futures contracts, interest rate swap agreements, a cross currency swap agreement and foreign currency forward contracts.  The Company has identified significant concentrations of credit risk based on the economic characteristics of the instruments that include interest rates, commodity indexes and foreign currency rates and selectively enters into the derivative instruments with counterparties using credit ratings.

To determine fair value, the Company utilizes the market approach valuation technique for coffee futures and foreign currency forward contracts and the income approach for interest rate and cross currency swap agreements.  The Company’s fair value measurements include a credit valuation adjustment for the significant concentrations of credit risk.

As of December 27, 2014, the amount of loss estimated by the Company due to credit risk associated with the derivatives for all significant concentrations was not material based on the factors of an industry recovery rate and a calculated probability of default.

Long-Term Debt

The carrying value of long-term debt was $155.3 million and $160.0 million as of December 27, 2014 and September 27, 2014, respectively.  The inputs to the calculation of the fair value of long-term debt are considered to be Level 2 within the fair value hierarchy, as the measurement of fair value is based on the net present value of calculated interest and principal payments, using an interest rate derived from a fair market yield curve adjusted for the Company’s credit rating.  The carrying value of long-term debt approximates fair value as the interest rate on the debt is based on variable interest rates that reset every 30 days.

Long-Term Investment

The Company had a long-term investment of approximately $35.9 million included in other long-term assets in the accompanying Unaudited Consolidated Balance Sheet as of September 27, 2014, that was not publicly traded.  This investment was carried at cost and reviewed quarterly for indicators of other-than-temporary impairment.  During the first quarter of fiscal 2015, the Company acquired the remaining equity interests of this investment.  See Note 4, Acquisition.

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11.Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax benefits or consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

As of December 27, 2014, the Company had a $17.7 million state capital loss carryforward and a state net operating loss carryforward of $11.5 million available to be utilized against future taxable income for years through fiscal 2015 and 2029, respectively, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code of 1986, as amended.  Based upon earnings history, the Company concluded that it is more likely than not that the net operating loss carryforward will be utilized prior to its expiration, but that the capital loss carryforward will not.  The Company has recorded a valuation allowance against the entire deferred tax asset balance for the capital loss carryforward.

As of each of the periods ending December 27, 2014 and September 27, 2014, the total amount of unrecognized tax benefits was $14.8 million.  The amount of unrecognized tax benefits at December 27, 2014 that would impact the effective tax rate if resolved in favor of the Company is $14.8 million.  As a result of prior acquisitions, the Company is indemnified for $7.2 million of the total reserve balance, and the indemnification is capped at $47.4 million.  If these unrecognized tax benefits are resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets, would be reduced accordingly.  The indemnifications have expiration dates through June 2016.

As of December 27, 2014 and September 27, 2014, accrued interest and penalties of $2.3 million and $2.4 million, respectively, were included in the Unaudited Consolidated Balance Sheets.  The Company recognizes interest and penalties in income tax expense.  The Company released $1.0 million of unrecognized tax benefits in the current quarter of fiscal 2015 and expects to release an additional $7.8 million over the next twelve months due to the expiration of the statute of limitations.

In the normal course of business, the Company is subject to tax examinations by taxing authorities both inside and outside of the United States.  The Company is generally not subject to examination with respect to returns filed for fiscal years prior to 2010.

12.Stockholders’ Equity

Stock Repurchase Program

At various times during fiscal 2012, 2013, and 2014, Keurig’s Board of Directors authorized the Company to repurchase a total of $2.5 billion of the Company’s common stock.

Under its existing repurchase programs, on February 28, 2014, the Company entered into an accelerated share repurchase (“ASR”) agreement with a major financial institution (“Bank”).  The ASR allows the Company to buy a large number of shares immediately at a purchase price determined by an average market price over a period of time.  Under the ASR, the Company agreed to purchase $700.0 million of its common stock, in total, with an initial delivery to the Company of 4,340,508 shares (“Initial Shares”) of the Company’s common stock by the Bank.  The Initial Shares represent the number of shares at the current market price equal to 70% of the total fixed purchase price of $700.0 million.  The repurchased shares were retired and returned to an unissued status.  The par value of the repurchased shares of $0.4 million was deducted from common stock and the excess repurchase price over the par value of $489.6 million was deducted from additional paid-in capital.  The remainder of the total purchase price of $210.0 million reflects the value of the stock held by the Bank pending final settlement and, accordingly, was recorded as a reduction to additional paid-in capital.  Final settlement of the ASR will occur no later than February 27, 2015 at the Bank’s discretion.  Upon settlement of the ASR, the total shares repurchased by the Company will be determined based on a share price equal to the daily volume weighted-average price (“VWAP”) of the Company’s common stock during the term of the ASR, less a fixed per share discount amount.  At settlement, the Bank will deliver additional shares to the Company in the event total shares are greater than the 4,340,508 shares initially delivered, and the Company will issue additional shares to the Bank in the event total shares are less than the shares initially delivered.  The receipt or issuance of additional shares will result in a reclassification between additional paid-in capital and common stock equal to the par value of the additional shares received or issued.  The number of shares that may be required to be issued by the Company to the Bank is limited to 10.0 million shares under the ASR.

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The Company reflected the unsettled portion of the ASR ($210.0 million) as a repurchase of common stock for purposes of calculating earnings per share and as a forward contract indexed to its own common stock.  The forward contract met all of the applicable criteria for equity classification, and, therefore, was not accounted for as a derivative instrument.

As of December 27, 2014, based on the VWAP of the Company’s common stock for the period February 28, 2014 through December 27, 2014, settlement of the ASR would have resulted in 1.5 million additional shares delivered by the Bank to the Company.

An aggregate amount of $1,101.9 million remained authorized for common stock repurchase as of December 27, 2014.

Summary of share repurchase activity:

	Thirteen weeks ended
	December 27, 2014		Fiscal 2014(1)
Number of shares acquired	585,708		8,138,592
Average price per share of acquired shares	$	138.12	$	103.51
Total cost of acquired shares (in thousands)	$	80,898	$	1,052,430

(1)Number of shares acquired and average price per share reflect Initial Shares at then current market price, subject to change pending final settlement, and total cost of acquired shares includes total purchase price of $700.0 million under the ASR.

Accumulated Other Comprehensive Income (Loss)

The following table provides the changes in the components of accumulated other comprehensive income (loss), net of tax (in thousands) for the thirteen weeks ended December 27, 2014:

	Cash Flow Hedges			Translation			Accumulated Other Comprehensive Income (Loss)
Balance at September 27, 2014	$	8,952		$	(63,003	)	$	(54,051	)
Other comprehensive loss, before reclassifications	(232		)	(29,794		)	(30,026		)
Amounts reclassified from accumulated other comprehensive income (loss)	(329		)	—			(329		)
Foreign currency exchange impact on cash flow hedges	(2		)	—			(2		)
Net current period other comprehensive loss	(563		)	(29,794		)	(30,357		)
Balance at December 27, 2014	$	8,389		$	(92,797	)	$	(84,408	)

The unfavorable translation adjustment change during the thirteen weeks ended December 27, 2014 was primarily due to the weakening of the Canadian dollar against the U.S. dollar.  See also Note 9, Derivative Financial Instruments.

Common Stock Dividends

During the first quarter of fiscal 2015, the Company declared a quarterly dividend of $0.2875 per common share, or $46.6 million in the aggregate, payable on February 12, 2015 to shareholders of record on January 13, 2015.  During the thirteen weeks ended December 27, 2014, the Company paid dividends of approximately $40.6 million.

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On January 30, 2015, the Company’s Board of Directors declared the Company’s next regular quarterly cash dividend of $0.2875 per common share, payable on April 30, 2015, to shareholders of record as of the close of business on March 31, 2015.

13.Compensation Plans

Stock Options

The grant-date fair value of employee stock options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during the thirteen weeks ended December 27, 2014 and December 28, 2013:

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Average expected life	5.5 years			5.5 years
Average volatility	57		%	75		%
Dividend yield	0.83		%	1.33		%
Risk-free interest rate	1.62		%	1.69		%
Weighted average fair value	$	67.11		$	40.98

Restricted Stock Units, Performance Stock Units and Other Awards

The Company awards restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible employees (each, a “Grantee”) which entitle a Grantee to receive shares of the Company’s common stock.  RSUs and PSUs are awards denominated in units that are settled in shares of the Company’s common stock upon vesting.  In general, RSUs vest over a period of three or four years based on a Grantee’s continuing employment.  The vesting of PSUs follows a two or three year measurement period and is conditioned on the achievement of both a Grantee’s service and the Company’s performance requirements during the measurement period.  In the past the Company has also granted restricted stock awards (“RSAs”) which are awards of common stock that are restricted until the shares vest (generally over a period of three or four years).  The fair value of RSUs, RSAs and PSUs is based on the closing price of the Company’s common stock on the grant date.  Compensation expense for RSUs and RSAs is recognized ratably over a Grantee’s service period.  Compensation expense for PSUs is also recognized over a Grantee’s service period, but only if and when the Company concludes that it is probable (more than likely) the performance condition(s) will be achieved.  The assessment of the probability of achievement is performed each period based on the relevant facts and circumstances at that time, and if the estimated grant-date fair value changes as a result of that assessment, the cumulative effect of the change on current and prior periods is recognized in the period of change.  All awards are reserved for issuance under the Company’s Amended and Restated 2006 Incentive Plan (the “2006 Plan”) and the Company’s 2014 Omnibus Incentive Plan (which replaced the 2006 Plan).  In addition, the Company has awarded deferred cash awards (“DCAs”) to Grantees which entitle a Grantee to receive cash over time upon vesting.  The vesting of DCAs is conditioned on a Grantee’s continued employment.

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Employee Stock Purchase Plan

The grant-date fair value of employees’ purchase rights under the Company’s Employee Stock Purchase Plan is estimated using the Black-Scholes option-pricing model with the following assumptions for the purchase rights granted during the thirteen weeks ended December 27, 2014 and December 28, 2013:

	Thirteen weeks ended
	December 27,  2014			December 28,  2013
Average expected life	6 months			6 months
Average volatility	40		%	55		%
Dividend yield	0.88		%	1.34		%
Risk-free interest rate	0.05		%	0.04		%
Weighted average fair value	$	33.94		$	22.57

Income before income taxes in the Unaudited Consolidated Statements of Operations includes compensation expense related to the plans described above of $10.4 million and $7.1 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively.

14.Commitments and Contingencies

Legal Proceedings

On May 9, 2011, an organization named Council for Education and Research on Toxics (“CERT”), purporting to act in the public interest, filed suit in Los Angeles Superior Court (Council for Education and Research on Toxics v. Brad Barry LLC, et al., Case No. BC461182) against several companies, including the Company, that roast, package, or sell coffee in California.  The Brad Barry complaint alleges that coffee contains the chemical acrylamide and that the Company and the other defendants are required to provide warnings under section 25249.6 of the California Safe Drinking Water and Toxics Enforcement Act, better known as Proposition 65.  Acrylamide is not added to coffee, but forms in trace amounts (parts per billion) as part of a chemical reaction that occurs in the coffee bean when it is roasted.  Therefore it is present in all roasted coffee.  To date, the Company is unaware of any reliable method for reducing acrylamide levels in coffee without adversely affecting the quality of the product.  The Brad Barry action has been consolidated for all purposes with another Proposition 65 case filed by CERT on April 13, 2010 over allegations of acrylamide in “ready to drink” coffee sold in restaurants, convenience stores, and donut shops.  (Council for Education and Research on Toxics v. Starbucks Corp., et al., Case No. BC 415759).  The Company was not named in the Starbucks complaint.  The Company has joined a joint defense group (“JDG”) organized to address CERT’s allegations, and the Company intends to vigorously defend against these allegations.  The Court ordered the case phased for discovery and trial.  Trial of the first phase of the case commenced on September 8, 2014 and was limited to three affirmative defenses shared by all defendants in both cases.  Other affirmative defenses, plaintiff’s prima facie case, and remedies are deferred for subsequent phases if defendants do not prevail on the three Phase 1 defenses.  Testimony in Phase 1 was completed on November 3, 2014, and final post-trial briefing of Phase 1 issues was completed on January 23, 2015.  The Court will entertain closing arguments on February 26, 2015, after which the matter will be submitted.

At this stage of the proceedings, the Company is unable to predict its outcome, the potential loss or range of loss, if any, associated with its resolution or any potential effect it may have on the Company or its operations.

On January 24, 2012, Teashot, LLC (“Teashot”) filed suit against the Company, Keurig and Starbucks Corp. (“Starbucks”) in the United States District Court for the District of Colorado (Civil Action No. 12-cv-00189-WJM-KMT) for infringement of Teashot’s U.S. Patent No. 5,895,672 (the ‘672 patent).  On February 6, 2014, the district court granted the Company’s motion for summary judgment of non-infringement.  Following an appeal by Teashot, on January 5, 2015 the United States Court of Appeals for the Federal Circuit unanimously affirmed the district court’s decision on summary judgment of non-infringement.

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Stockholder Litigation

One putative securities fraud class action is presently pending against the Company and certain of its officers and directors, along with two putative stockholder derivative actions.  The pending putative securities fraud class action was filed on November 29, 2011.  The first putative stockholder derivative action is a consolidated action pending in the United States District Court for the District of Vermont that consists of five separate putative stockholder derivative complaints, the first two were filed after the Company’s disclosure of the SEC inquiry on September 28, 2010, while the others were filed on February 10, 2012, March 2, 2012, and July 23, 2012, respectively.  The second putative stockholder derivative action is pending in the Superior Court of the State of Vermont for Washington County and was commenced following the Company’s disclosure of the SEC inquiry on September 28, 2010.

The putative securities fraud class action, captioned Louisiana Municipal Police Employees’ Retirement System (“LAMPERS”) v. Green Mountain Coffee Roasters, Inc., et al., Civ. No. 2:11-cv-00289, was filed in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III.  Plaintiffs’ amended complaint alleged violations of the federal securities laws in connection with the Company’s disclosures relating to its revenues and its inventory accounting practices.  The amended complaint sought class certification, compensatory damages, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  Plaintiffs sought to represent all purchasers of the Company’s securities between February 2, 2011 and November 9, 2011.  The initial complaint filed in the action on November 29, 2011 included counts for alleged violations of (1) Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) against the Company, certain of its officers and directors, and the Company’s underwriters in connection with a May 2011 secondary common stock offering; and (2) Section 10(b) of the Exchange Act and Rule 10b-5 against the Company and the officer defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants.  Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until January 30, 2012 to move the court to serve as lead plaintiff of the putative class.  Competing applications were filed and the Court appointed Louisiana Municipal Police Employees’ Retirement System, Sjunde AP-Fonden, Board of Trustees of the City of Fort Lauderdale General Employees’ Retirement System, Employees’ Retirement System of the Government of the Virgin Islands, and Public Employees’ Retirement System of Mississippi as lead plaintiffs’ counsel on April 27, 2012.  Pursuant to a schedule approved by the court, plaintiffs filed their amended complaint on October 22, 2012, and plaintiffs filed a corrected amended complaint on November 5, 2012.  Plaintiffs’ amended complaint did not allege any claims under the Securities Act against the Company, its officers and directors, or the Company’s underwriters in connection with the May 2011 secondary common stock offering.  Defendants moved to dismiss the amended complaint on March 1, 2013 and on December 20, 2013, the court issued an order dismissing the amended complaint with prejudice.  On January 21, 2014, plaintiffs filed a notice of intent to appeal the court’s December 20, 2013 order to the United States Court of Appeals for the Second Circuit.  Pursuant to a schedule entered by the appeals court, briefing on the appeal was completed on June 23, 2014.  The Second Circuit heard oral argument on the appeal on December 1, 2014.  The underwriters previously named as defendants notified the Company of their intent to seek indemnification from the Company pursuant to their underwriting agreement dated May 5, 2011 in regard to the claims asserted in this action.

The first putative stockholder derivative action, a consolidated action captioned In re Green Mountain Coffee Roasters, Inc.  Derivative Litigation, Civ. No. 2:10-cv-00233, premised on the same allegations asserted in the now dismissed Horowitz v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:10-cv-00227 securities class action complaint, the LAMPERS action described above, and the now dismissed action captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III.  On November 29, 2010, the federal court entered an order consolidating two actions and appointing the firms of Robbins Umeda LLP and Shuman Law Firm as co-lead plaintiffs’ counsel.  On February 23, 2011, the federal court approved a stipulation filed by the parties providing for a temporary stay of that action until the court rules on defendants’ motions to dismiss the consolidated complaint in the Horowitz putative securities fraud class action.  On March 7, 2012, the federal court approved a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the Horowitz putative securities fraud class action or the Horowitz putative securities fraud class action is dismissed with prejudice.  On April 27, 2012, the federal court entered an order consolidating the stockholder derivative action captioned Himmel v. Robert P. Stiller, et al., with two additional putative derivative actions, Musa Family Revocable Trust v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00029, and Laborers Local 235 Benefit Funds v. Robert P.  Stiller, et al., Civ. No. 2:12-cv- 00042.  On November 14, 2012, the federal court entered an order consolidating an additional stockholder derivative action, captioned Henry Cargo v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00161, and granting plaintiffs leave to lift the stay for the limited purpose of filing a consolidated complaint.  The consolidated complaint is asserted nominally on behalf of the Company against certain of its officers and directors.  The consolidated complaint asserts claims for breach of fiduciary duty, waste of corporate assets, unjust enrichment, contribution, and indemnification and seeks compensatory damages, injunctive relief, restitution, disgorgement, attorney’s fees, costs, and such other relief as the court should deem just and proper.  On May 14, 2013, the court approved a joint stipulation filed by the parties providing for a temporary stay of the proceedings until the conclusion of the appeal in the Horowitz putative securities fraud class action.  On August 1, 2013, the parties filed a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the LAMPERS putative securities fraud class action or the LAMPERS putative securities fraud class action is dismissed with prejudice, which the court approved on August 2, 2013.  On February 24, 2014, the court approved a further joint stipulation filed by the parties continuing the temporary stay until the appeals court rules on the pending appeal in the LAMPERS putative securities fraud class action.

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The second putative stockholder derivative action, M. Elizabeth Dickinson v. Robert P. Stiller, et al., Civ. No. 818-11-10, is pending in the Superior Court of the State of Vermont for Washington County.  On February 28, 2011, the court approved a stipulation filed by the parties similarly providing for a temporary stay of that action until the federal court rules on defendants’ motions to dismiss the consolidated complaint in the Horowitz putative securities fraud class action.  As a result of the federal court’s ruling in the Horowitz putative securities fraud class action, the temporary stay was lifted.  On June 25, 2013, plaintiff filed an amended complaint in the action, which is asserted nominally on behalf of the Company against certain current and former directors and officers.  The amended complaint is premised on the same allegations alleged in the Horowitz, LAMPERS, and Fifield putative securities fraud class actions.  The amended complaint asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and alleged insider selling by certain of the named defendants.  The amended complaint seeks compensatory damages, injunctive relief, restitution, disgorgement, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  On August 7, 2013, the parties filed a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the LAMPERS putative securities fraud class action or the LAMPERS putative securities fraud class action is dismissed with prejudice, which the court approved on August 21, 2013.  On April 21, 2014, the court approved a joint stipulation filed by the parties continuing the temporary stay until the appeals court rules on the pending appeal in the LAMPERS putative securities fraud class action.

The Company and the other defendants intend to vigorously defend all the pending lawsuits.  Additional lawsuits may be filed and, at this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

Antitrust Litigation

On February 11, 2014, TreeHouse Foods, Inc., Bay Valley Foods, LLC, and Sturm Foods, Inc. filed suit against Green Mountain Coffee Roasters, Inc. and Keurig, Inc. in the U.S. District Court for the Southern District of New York (TreeHouse Foods, Inc. et al. v. Green Mountain Coffee Roasters, Inc. et al., No. 1:14-cv-00905-VSB).  The TreeHouse complaint asserts claims under the federal antitrust laws and various state laws, contending that the Company has monopolized alleged markets for single serve coffee brewers and single serve coffee portion packs, including through its contracts with suppliers and distributors and in connection with the launch of its next generation coffee brewer.  The TreeHouse complaint seeks monetary damages, declaratory relief, injunctive relief, and attorneys’ fees.

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On March 13, 2014, JBR, Inc. (d/b/a Rogers Family Company) filed suit against Keurig Green Mountain, Inc. in the U.S. District Court for the Eastern District of California (JBR, Inc. v. Keurig Green Mountain, Inc., No. 2:14-cv-00677-KJM-CKD).  The claims asserted and relief sought in the JBR complaint are substantially similar to the claims asserted and relief sought in the TreeHouse complaint.

Additionally, beginning on March 10, 2014, twenty-seven putative class actions asserting similar claims and seeking similar relief have been filed on behalf of purported direct and indirect purchasers of the Company’s products in various federal district courts.  On June 3, 2014, the Judicial Panel on Multidistrict Litigation granted a motion to transfer these various actions, including the TreeHouse and JBR actions, to a single judicial district for coordinated or consolidated pre-trial proceedings.  The actions are now pending before Judge Vernon S. Broderick in the Southern District of New York (In re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation, No. 1:14-md-02542-VSB).

On June 23, 2014, TreeHouse and JBR filed a joint motion to expedite discovery, which the Court granted in part and denied in part on July 23, 2014.  On August 11, 2014, JBR filed a motion for a preliminary injunction, which the Company opposed.  The Court held a hearing on September 3-4, 2014, and by order dated September 19, 2014, denied JBR’s motion for a preliminary injunction.  On September 24, 2014, JBR filed a notice of appeal of the denial of the preliminary injunction.  On October 28, 2014, JBR moved to expedite its appeal, which the Company opposed, and on November 13, 2014, the Court of Appeals denied the motion for expedited treatment.  JBR filed its opening appeal brief on November 17, 2014.  The Company’s brief is due February 17, 2015, and JBR’s reply brief will be due March 3, 2015.

Consolidated putative class action complaints by direct purchaser and indirect purchaser plaintiffs were filed on July 24, 2014.  The Company filed motions to dismiss these complaints and the complaints in the TreeHouse and JBR actions on October 6, 2014.  On October 27, 2014, all plaintiffs informed the Company of their decision to amend their complaints rather than oppose the Company’s motions to dismiss.  Plaintiffs’ amended complaints were filed November 25, 2014.  The Company moved to dismiss the amended complaints on February 2, 2015.  Under the current briefing schedule, plaintiffs’ opposition briefs will be due April 10, 2015, and the Company’s reply briefs will be due May 11, 2015.

On September 30, 2014, a statement of claim was filed against the Company and Keurig Canada Inc. in Ontario, Canada by Club Coffee L.P. (“Club Coffee”), a Canadian manufacturer of single-serve beverage packs, claiming damages of $600 million and asserting a breach of competition law and false and misleading statements by the Company.  On October 21, 2014, Club Coffee filed an amended statement of claim against the Company and Keurig Canada Inc. claiming the same amount of damages as in the original statement of claim and asserting essentially the same breaches of competition law and false and misleading statements by the Company.  On January 12, 2015, the Company and Keurig Canada Inc. served Club Coffee with notice of motion for a motion to strike the claims made by Coffee Club for failure to state a reasonable cause of action.

The Company intends to vigorously defend all of the pending lawsuits.  At this time, the Company is unable to predict the outcome of these lawsuits, the potential loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

Product Liability

In November 2014, the Company informed the U.S. Consumer Product Safety Commission and Health Canada that it identified a potential issue involving certain Keurig MINI Plus (non-reservoir) brewers (K10 and B31 models), where on very rare occasions, hot liquid could escape the brewer.  As a result, the Company recorded a net charge in fiscal 2014 of approximately $10.0 million in its statement of operations which represented the Company’s best estimate, based on a number of assumptions, of the cost to remediate this issue and related expenses.  Included in this charge is the recovery that the Company expects to receive from its insurance carriers where the Company has a legally enforceable contract that stipulates the terms of the insurance coverage and where the terms are not in or expected to be in dispute.  On December 23, 2014 the Company issued a recall for its Keurig MINI Plus brewers.  This action did not change our estimate for the reserve or the anticipated insurance recovery; however, as such charge is based on estimates, the Company’s ultimate liability and recovery may exceed or be less than the amounts recorded.  Based on current information known to the Company, the Company believes that this issue will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

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15.Earnings Per Share

The following table illustrates the reconciliation of the numerator and denominator of basic and diluted earnings per share computations (dollars in thousands, except per share data):

	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Numerator for basic and diluted earnings per share:
Net income attributable to Keurig	$	134,579	$	138,227
Denominator:
Basic weighted-average shares outstanding	162,181,332		149,162,600
Effect of dilutive securities	1,893,706		2,419,297
Diluted weighted-average shares outstanding	164,075,038		151,581,897
Basic net income per common share	$	0.83	$	0.93
Diluted net income per common share	$	0.82	$	0.91

For the thirteen weeks ended December 27, 2014 and December 28, 2013, shares related to equity-based compensation of approximately 74,000 and 483,000 respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help you understand the results of operations and financial condition of Keurig Green Mountain, Inc. (together with its subsidiaries, the “Company”, “Keurig”, “we”, “our”, or “us”).  You should read the following discussion and analysis in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this report.

Overview

We believe that we are a leader in specialty coffee, coffeemakers, teas and other beverages in the United States and Canada.  We consider ourselves an innovative, technology-driven, values-based personal beverage system company.  Our multi-brand beverage and brewer portfolio is aimed at changing the way consumers prepare and enjoy coffee and other beverages both at home and away from home.  We develop and sell a variety of Keurig® brewers and produce and sell specialty coffee and other specialty beverages in portion packs including hot apple cider, hot and iced teas, iced coffees, iced fruit brews, hot cocoa and other beverages for use with our Keurig® hot brewing systems.  We also offer traditional whole bean and ground coffee in other package types including bags, fractional packages and cans.

Products

Portion Packs

We offer portion packs of varying sizes including single-serve K-Cup®, Vue® and Rivo® packs as well as multi-serve K-Carafe™ packs capable of producing a three to four cup carafe and Bolt™ packs capable of producing a 64 ounce carafe.  We offer high-quality Arabica bean coffee including single-origin, Fair Trade Certified™, Rain Forest Alliance Certified™, organic, flavored, limited edition and proprietary blends.  We also procure Robusta bean coffee for use in certain blends.  We carefully select our coffee beans and appropriately roast the coffees to optimize their taste and flavor differences.  We manufacture and sell portion packs of our own brands and participating brands through licensing and manufacturing agreements.  We offer brand choice such as Caribou Coffee®, Dunkin’ Donuts™, Eight O’Clock®, Emeril’s®, Folgers®, Folgers Gourmet Selections®, Gloria Jean’s®, Kirkland Signature™, Krispy Kreme®, Lavazza®, Millstone®, Newman’s Own® Organics Peet’s Coffee & Tea, and Starbucks®.

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The Company has licensing agreements for tea with Unilever North America (Lipton®), Celestial Seasonings, Inc. (Celestial Seasonings® branded teas and Perfect Iced Tea®), Good Earth® Corporation and Tetley® USA, Inc. (Good Earth® and Tetley® branded teas), R. C. Bigelow, Inc. (Bigelow® branded teas), Snapple Beverage Corp. (Snapple® branded teas), Starbucks Corporation (Tazo® and Teavana®) and Associated British Foods plc (Twinings of London®) for manufacturing, distribution, and sale of portion packs.  In addition to coffee and tea, we also produce and sell portion packs for lemonade and hot apple cider under our Green Mountain Naturals™ brand, iced fruit brews under our Vitamin Burst™ brand, cocoa and other dairy-based beverages under our Café Escapes™ brand, and cocoa under the Swiss Miss® brand.

Brewers and Accessories

We are a leader in sales of coffeemakers in the U.S. and Canada.  As of the end of our 2014 fiscal year, we had the top four best-selling at-home coffeemakers by dollar volume in the United States according to the NPD Group for consumer market research data in the United States.  Under the Keurig® K-Cup®, Keurig® Vue®, Keurig Bolt™, Keurig® 2.0 and co-branded Keurig® Rivo® brand names, we offer a variety of commercial and home use brewers for the away from home (“AFH”) and at home (“AH”) channels differentiated by features and size.

In addition, we have license agreements under which licensees manufacture, market and sell coffeemakers co-branded with “Keurig® Brewed”.  Licensees include Breville PTY Limited selling a “Breville®” branded brewer; Jarden Consumer Solutions selling a “Mr. Coffee®” branded brewer, Conair Corporation selling a “Cuisinart®” branded brewer and GE Appliances selling a “GE Café™” series refrigerator with Keurig® K-Cup® brewing system branded brewer.

We offer a variety of accessories for the Keurig® Brewing platforms including K-Cup®, Vue®, Rivo®, K-Carafe™, and Bolt™ pack storage racks, baskets, and brewer carrying cases.  We also sell other coffee-related equipment and accessories, gift assortments, hand-crafted items from coffee-source countries and gourmet food items covering a wide range of price points.

Other Products and Royalties

We sell coffee in other package types in addition to portion packs such as bagged coffee and cans (for the grocery and mass channels) and fractional packages and ancillary products (for the office coffee and food service channels).  We also earn royalties from licensees under various licensing agreements.

In recent years, growth in the coffee industry has come from the specialty coffee category fueled by the emergence of specialty coffee shops throughout the U.S. and Canada.  Single-serve has been the fastest growing segment of the specialty coffee category. Concurrently, consumers are more frequently seeking to enjoy premium experiences within the comfort and convenience of their own homes, including the consumption of specialty coffee.  We have benefited from these broad consumer trends and believe we will continue to be a leader in the hot beverage marketplace because of our carefully developed and distinctive advantages over our competitors, including quality, convenience and choice.

Our growth strategy involves using our consumer insights to develop innovative new brewing systems and beverages; continually improving and refining our current systems and beverages; and, developing and managing marketing programs to drive Keurig® Brewing system adoption in order to generate ongoing demand for portion packs.  We currently target opportunities primarily in American and Canadian households, foodservice, educational and office locations.  Over the longer term, we also will work to expand our addressable opportunity globally.  As part of our strategy, we work to sell our at-home hot system brewers at attractive price points which are approximately at cost, or at a loss when factoring in the incremental costs related to sales, in order to drive the sales of profitable portion packs.  As we introduce new innovative beverage systems such as the Keurig® 2.0 Beverage System or Keurig cold beverage system, we expect to experience higher appliance costs as we scale the related manufacturing processes followed by lower appliance cost structures as the supply chain creates more efficient manufacturing processes.  During the early years of the launch of these innovative new beverage systems, we will continue to sell the at-home appliances at attractive price points which we expect will result in selling these new innovative at-home appliances at a loss prior to factoring in the incremental costs related to these sales.

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In addition, we have license agreements with Breville PTY Limited (producer of Breville® brand coffeemakers), Jarden Consumer Solutions (producer of Mr. Coffee® brand coffeemakers) and Conair Corporation (producer of Cuisinart® brand coffeemakers), under which each produce, market and sell coffeemakers co-branded with Keurig®.

In recent years, our growth has been driven predominantly by an increase in adoption of Keurig® hot brewing systems, which include both the brewer and the related portion packs.  In fiscal 2014, approximately 94% of our consolidated net sales were attributed to the combination of portion packs and Keurig® brewers and related accessories.

We believe the primary consumer benefits delivered by our Keurig® hot beverage brewing system are as follows:

1Quality—expectations of the quality of coffee consumers drink has increased over the last several years and, we believe, with the Keurig® system, consumers can be certain they will get a high-quality, consistently produced beverage every time.

2Convenience—the Keurig® system prepares beverages generally in less than a minute at the touch of a button with no mess, no fuss.

3Choice—with many single serve beverage brands across multiple beverage categories, Keurig offers more than 290 individual varieties, allowing consumers to enjoy and explore a wide range of beverages.  In addition to a variety of brands of coffee and tea, we also produce and sell iced teas, iced coffees, hot and iced fruit brews, hot cocoa and other dairy-based beverages, in portion packs.

We see these benefits as being our competitive advantage and believe it’s the combination of these attributes that make the Keurig® hot beverage brewing system appealing to consumers.

We are focused on building our brands, diversifying our product lines and profitably growing our business.  We believe we can continue to grow sales by increasing consumer awareness of the Keurig® brand in the United States and Canada; expanding into new geographic regions; expanding consumer choice of coffee, tea and other beverages in our existing brewing systems; developing and introducing new brewing platforms; expanding sales in adjacent beverage industry segments; and/or selectively pursuing other synergistic opportunities.

The key elements of our business strategy are as follows:

·Increasing adoption of the Keurig® hot brewing systems in the United States and Canada;

·Expanding beverage choice through both our owned and partner brand offerings;

·Expanding in current channels;

·Launching new, innovative beverage system technologies and platforms; and

·Continuing international expansion.

Increasing adoption of the Keurig® hot brewing systems in the United States and Canada.  While we are positioned as a leader in the hot beverage marketplace, we have opportunities in the United States and Canada to increase brand awareness and household penetration.  In our fiscal year 2014 we launched our Keurig® 2.0 Beverage System - the first Keurig® brewer to brew both a single cup and a carafe.  Extending the Keurig® value proposition to include a carafe option for at-home users allows us to target an incremental need of consumers for brewing larger volumes quickly and simply.  We are also implementing measures to improve the shopping experience at retail to further distinguish the Keurig® brand and enhance brand recognition.  Additionally, we are launching targeted marketing campaigns to increase regional household penetration in certain geographic areas through increased awareness, trial and conversion.  As we continue to introduce the new Keurig® 2.0 Beverage System in fiscal 2015, we anticipate that we will continue to incur transition costs through the first year of launch including higher brewer costs for the new 2.0 appliances as compared to the earlier reservoir model appliances leading to lower gross margins.

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Expanding beverage choice through both our owned and partner brand offerings.  We have continued expanding consumer choice in the Keurig® Brewing system by entering into or extending a number of business relationships across multiple channels and geographies for use with Keurig® brewers.  Expanded or new brand offerings and partnerships in fiscal 2015 include a partnership with Community Coffee Company to bring Community® coffee to Keurig® portion pack formats for consumer and commercial Keurig® hot brewing systems, an acquisition of the Laughing Man Coffee and Tea brand from Laughing Man Worldwide, LLC to bring a selection of gourmet coffees and teas to Keurig® brand packs for use in the Keurig® hot brewing system beginning in spring 2015, and an expanded ten year partnership with Caribou Coffee for the manufacturing, marketing, distribution, and sale of Caribou Coffee in Keurig® portion pack formats for use in Keurig® consumer and commercial hot brewing systems.  We believe these new brand and product offerings fuel excitement for current Keurig® brewer owners and users; raise system awareness; attract new consumers to the system; and promote expanded use of the Keurig® Brewing system.  These relationships are established with careful consideration of potential economics.  We expect to continue to enter into these mutually beneficial relationships in our efforts to expand choice and diversify our portfolio of brands with the expectation that they will lead to increased Keurig® Brewing system awareness and household adoption, in part through the participating brands’ advertising and merchandising activities.

Expanding in current channels.  We have identified and are targeting specific opportunities within our existing channels, specifically the AFH channel, including food service, workplace, higher education and hospitality locations.  These are areas where we have substantial room to grow, considering we are currently in less than one percent of food service outlets.

Launching new, innovative beverage system technologies and platforms.  We are also focused on continued innovation in both hot and cold beverage systems.  Some of our recent initiatives and planned product introductions include:

·The introduction of Keurig® 2.0, our next generation at-home hot beverage system.  Keurig® 2.0 is the first Keurig® brewer to brew both a single cup and up to a four-cup carafe from a Keurig® brand pack providing Keurig® consumers with even greater beverage choice with the same Keurig simplicity and convenience they expect from Keurig.  Keurig® 2.0 is also the first Keurig® brewer to feature Keurig® 2.0 Brewing Technology™, which enables the brewer to recognize the inserted Keurig® pack and optimize to the recommended, customized setting for that particular beverage.  The Keurig® 2.0 Brewing Technology™ ensures that the Keurig® 2.0 system delivers on the promise of excellent quality beverages, produced simply and consistently, every single time;

·An estimated launch of the Keurig cold beverage system in fiscal 2015.  Keurig cold will deliver freshly prepared cold carbonated, sparkling and still beverages.  During the first quarter of fiscal 2015, we announced an agreement with Dr Pepper Snapple Group to develop and manufacture a selection of Dr Pepper Snapple Group’s iconic brands for use in the Keurig cold beverage system in the United States and Canada.

·During fiscal 2014, we announced the first significant partnership related to the Keurig cold beverage system: a ten-year agreement to collaborate on the development and introduction of The Coca-Cola Company’s® global brand portfolio for use in the Keurig cold at-home beverage system.  Under the global strategic agreement, Keurig and The Coca-Cola Company will cooperate to bring the Keurig cold beverage system to consumers around the world.

Continuing international expansion.  Continuing into fiscal 2015, we are planning to launch our Keurig® hot system global platform in targeted countries outside of North America.  In fiscal 2014, we launched a Keurig® brewer in the AFH channel in the United Kingdom.

Our business relationships with participating brands are generally established through licensing or manufacturing arrangements.

Under licensing arrangements, we license the right to manufacture, distribute and sell the finished products through our distribution channels using the brand owners’ marks.  For the right to use a brand owner’s mark, we pay a royalty to the brand owner based on our sales of finished products that contain the brand owner’s mark.

Under manufacturing arrangements, we manufacture finished beverage products using raw materials sourced by us or provided by the brand owner.  In both instances, once the manufacturing process is complete, we sell the finished product either to the brand owner or to our customers. 

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Under certain manufacturing arrangements, our sole customer is the brand owner and we are prohibited from selling the beverage products to other types of customers through our distribution channels.  Under other manufacturing arrangements, in addition to manufacturing the beverage for sale to the brand owner, we have the right to sell the beverages using the brand owner’s marks in certain of our channels through a licensing arrangement, as described above.

No individual licensing or manufacturing arrangement (including arrangements covering multiple brands) has accounted for more than 10% of our consolidated net sales in any period.  We analyze the impact of each arrangement on consolidated net sales on an individual basis.  We have determined that it is unlikely that we would lose our licensing or manufacturing rights to multiple brands at the same time.  Each of our licensing and manufacturing arrangements are separately negotiated with unrelated parties, and each has distinct terms and conditions, including the duration of agreement and termination rights.  Further, based upon the number of business relationships as well as the depth of our owned-brands, it is our belief that no individual business relationship is critical to the execution of our growth strategy.

Management is focused on executing our growth strategy to drive Keurig® hot beverage brewer adoption in households and offices in the U.S. and Canada in order to generate ongoing demand for portion packs.

We compete not only with other widely advertised branded products, but also with private label or generic products that generally are sold at lower prices.

For the first quarter of fiscal 2015, our net sales of $1,386.4 million as compared to net sales of $1,386.7 million in the first quarter of fiscal 2014 (“the prior year period”) were roughly even.  Gross profit for the first quarter of fiscal 2015 was $464.1 million, or 33.5% of net sales, as compared to $464.0 million, or 33.5% of net sales for the prior year period.  For the first quarter of fiscal 2015, selling, operating, and general and administrative expenses (“SG&A”) increased 4.5% to $248.2 million from $237.4 million for the prior year period.  As a percentage of sales, SG&A expenses increased to 17.9% in the first quarter of fiscal 2015 from 17.1% in the prior year period.  Our operating margin declined to 15.6% in the first quarter of fiscal 2015 from 16.3% in the prior year period.

We continually monitor all costs, including coffee, as we review our pricing structure, as cyclical swings in commodity markets are common.  The recent years have seen significant volatility in the “C” price of coffee (i.e. the price per pound quoted by the Intercontinental Exchange).  We expect coffee prices to remain volatile in the coming years.

We offer a one-year warranty on all Keurig® hot beverage brewers we sell and provide for the estimated cost of product warranties, primarily using historical information and current repair or replacement costs, at the time product revenue is recognized.  In addition, sales of Keurig® hot beverage brewers are recognized net of an allowance for returns using an average return rate based on historical experience and an evaluation of contractual rights or obligations.  We focus some of our research and development efforts on improving brewer reliability, strengthening its quality controls and product testing procedures.  As we have grown, we have added significantly to our product testing, quality control infrastructure and overall quality processes.  As we continue to innovate, and our products become more complex, both in design and componentry, product performance may modulate, causing warranty or sales returns rates to possibly fluctuate going forward.  As a result, future warranty claims rates may be higher or lower than we are currently experiencing and for which we are currently providing for in our warranty or sales return reserves.

We generated $142.4 million in cash from operating activities during the thirteen weeks ended December 27, 2014 as compared to $272.7 million during the thirteen weeks ended December 28, 2013.  We used cash during the thirteen weeks ended December 27, 2014 primarily to acquire Bevyz for $180.7 million, net of cash acquired, fund capital expenditures of $100.3 million, repurchase shares of our common stock for $80.9 million, and pay dividends of $40.6 million.

We consistently analyze our short-term and long-term cash requirements to continue to grow the business.  We expect that most of our cash generated from operations will continue to be used to fund cash dividends, share repurchases, capital expenditures and the working capital required for our growth over the next few years.

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Business Segments

We manage our operations through two operating segments, a Domestic segment including all U.S. Operations and immaterial operations related to international expansion, and a Canada segment including all Canadian operations.  See Note 2, Segment Reporting, of the Notes to Unaudited Consolidated Financial Statements included in this Quarterly Report.

We evaluate the performance of our 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.  Our 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 our 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, certain corporate legal expenses and compensation of the Board of Directors.

Basis of Presentation

Included in this presentation are discussions and reconciliations of income before taxes, net income and diluted earnings per share in accordance with accounting principles generally accepted in the United States of America (“GAAP”) to income before taxes, net income and diluted earnings per share excluding certain expenses and losses.  We refer to these performance measures as non-GAAP net income and non-GAAP net income per share.  These non-GAAP measures exclude legal and accounting expenses related to antitrust litigation, the SEC inquiry and associated pending securities and stockholder derivative class action litigation; and non-cash related item related to the amortization of identifiable intangibles, each of which include adjustments to show the tax impact of excluding these items.  Each of these adjustments was selected because management uses these non-GAAP measures in discussing and analyzing its results of operations and because we believe the non-GAAP measures provide investors with greater transparency by helping to illustrate the underlying financial and business trends relating to our results of operations and financial condition and comparability between current and prior periods.  For example, we excluded antitrust litigation expenses because these expenses can vary from period to period and transaction to transaction and expenses associated with these activities are not considered a key measure of our operating performance.

We use the non-GAAP measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company.  These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute or superior to, the other measures of financial performance prepared in accordance with GAAP.  Using only the non-GAAP financial measures to analyze our performance would have material limitations because their calculation is based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant.  We compensate for these limitations by presenting both the GAAP and non-GAAP measures of its results.

Acquisition

On December 18, 2014, we completed the acquisition of 100% of the outstanding equity of MDS Global Holding p.l.c. (“Bevyz”), a manufacturer and distributor of an all-in-one drink system, for total cash consideration of $180.7 million, net of cash acquired.  Prior to the acquisition we owned approximately 15% of the outstanding equity of Bevyz.  We plan to utilize Bevyz’s complementary and unique technology and research and development capabilities in our beverage platforms and products.

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Results of Operations

Summary financial data of the Company

The following table presents certain financial data of the Company expressed as a percentage of net sales for the periods denoted below:

	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Net sales	100.0	%	100.0	%
Cost of sales	66.5	%	66.5	%
Gross profit	33.5	%	33.5	%
Selling and operating expenses	12.7	%	12.1	%
General and administrative expenses	5.2	%	5.0	%
Operating income	15.6	%	16.3	%*
Other income, net	0.0	%	0.0	%
Gain on financial instruments, net	0.2	%	0.3	%
Loss on foreign currency, net	(0.7	)%	(0.8	)%
Interest expense	(0.1	)%	(0.2	)%
Income before income taxes	15.1	%*	15.8	%*
Income tax expense	(5.4	)%	(5.8	)%
Net income	9.7	%	10.0	%
Net income attributable to noncontrolling interests	0.0	%	0.0	%
Net income attributable to Keurig	9.7	%	10.0	%

* Does not sum due to rounding.

Segment Summary

Net sales and operating income (loss) for each of our operating segments and corporate-unallocated are summarized in the tables below:

	Net sales (in millions)
	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Domestic	$	1,215.5	$	1,191.9
Canada	170.9		194.8
Total net sales	$	1,386.4	$	1,386.7

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	Operating income (loss) (in millions)
	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Domestic	$	236.6		$	232.8
Canada	21.6			32.0
Corporate-Unallocated	(42.3		)	(38.2		)
Total operating income	$	215.9		$	226.6

Thirteen weeks ended December 27, 2014 as compared to the thirteen weeks ended December 28, 2013

Revenue

Company Summary

The following table presents consolidated net sales by major product category:

	Net sales (in millions)
	Thirteen weeks ended
	December 27, 2014		December 28, 2013		$ Increase (Decrease)			% Increase (Decrease)
Portion packs	$	1,012.3	$	931.4	$	80.9		9	%
Brewers and accessories	307.6		375.1		(67.5		)	(18	)%
Other products	66.5		80.2		(13.7		)	(17	)%
Total net sales	$	1,386.4	$	1,386.7	$	(0.3	)	0	%

Net sales for the first quarter of fiscal 2015 of $1,386.4 million as compared to $1,386.7 million in the prior year period were roughly even.  Net sales growth as compared to the prior year period was negatively impacted by an approximate 3 percentage point decrease due to certain retail customers purchasing portion packs more aggressively in the fourth quarter ahead of our SAP implementation and the unfavorable impact of foreign currency exchange rates which reduced net sales by approximately 1 percentage point.

The primary drivers of the change in our net sales for the first quarter of fiscal 2015 as compared to the prior year period was (i) a $67.5 million, or 18%, decrease in Keurig® brewer and accessory net sales and (ii) a $13.7 million, or 17%, decrease in other product net sales, both of which were offset by an $80.9 million, or 9%, increase in total portion pack net sales.

The increase in portion pack net sales for the first quarter of fiscal 2015 as compared to the prior year period was driven by (i) an approximate 13 percentage point increase due to volume (based on equivalent servings used to reflect our physical volume with respect to portion packs as we now offer different portion pack sizes) and (ii) an approximate 2 percentage point increase due to net price realization, both of which were partially offset by (i) an approximate 6 percentage point decrease due to portion pack mix, and (ii) an approximate 1 percentage point decrease due to impact of foreign exchange rates.  During the first quarter of fiscal 2015, the negative mix was attributable to the fact that we sold proportionately more packs to brand owners, where there is a lower wholesale selling price, than to retailers and consumers, where there is a higher wholesale average selling price.  We anticipate the change in net sales due to portion pack mix to fluctuate over time, and, as we anticipate adding more brand owners, we believe this negative mix trend may continue.

The $67.5 million decrease in brewer and accessory net sales for the first quarter of fiscal 2015 period as compared to the prior year period was primarily driven by a $64.7 million decrease in brewer net sales and a $2.8 million decrease in accessory net sales.  The decrease in brewer net sales was primarily driven by (i) an approximate 12 percentage point decrease due to lower volume driven largely by weaker sales of MINI Plus brewers, (ii) an approximate 8 percentage point decrease due to brewer net price realization, and (iii) an approximate 1 percentage point decrease due to the impact of foreign currency exchange rates partially offset by an approximate 3 percentage point increase due to brewer product mix.

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Net sales of other products decreased $13.7 million, or 17%, for the first quarter of fiscal 2015 as compared to the prior year period primarily due to the continuing demand shift from traditional coffee package format to portion packs.

Domestic

Domestic segment net sales increased by $23.6 million, or 2%, to $1,215.5 million in the first quarter of fiscal 2015 as compared to $1,191.9 million in the prior year period.  The increase is due primarily to a $79.0 million, or 9% increase related to net sales of portion packs, partially offset by (i) a $48.9 million, or 15%, decrease related to net sales of brewers and accessories and (ii) a $6.5 million or 25% decrease related to net sales of other products.

Canada

Canada segment net sales decreased by $23.9 million, or 12%, to $170.9 million in the first quarter of fiscal 2015 as compared to $194.8 million in the prior year period.  Excluding a $12.7 million, or 7%, decrease related to the unfavorable impact of foreign currency exchange rates, net sales decreased by $11.2 million primarily due to (i) a $16.7 million, or 38% decrease in net sales of brewers and accessories and (ii) a $3.7 million, or 7% decrease in net sales of other products such as coffee sold in traditional package formats, driven by a demand shift from coffee sold in traditional package formats to portion packs, both of which were partially offset by a $9.2 million, or 10%, increase related to net sales of portion packs.

Gross Profit

Gross profit for the first quarter of fiscal 2015 was $464.1 million, or 33.5% of net sales as compared to $464.0 million, or 33.5% of net sales, in the prior year period.  The change in gross margin in the first quarter of fiscal 2015 compared to the prior year period was primarily attributable to (i) an increase of approximately 340 basis points related to a shift in sales mix between portion packs, brewers and accessories and other products, (ii) an increase of approximately 90 basis points related to net price realization associated with portion packs, and (iii) an increase of approximately 80 basis points due to supply chain productivity which were partially offset by (i) a decrease of approximately 270 basis points related to brewer product mix, (ii) a decrease of approximately 130 basis points related to net price realization associated with brewers, and (iii) a decrease of approximately 120 basis points related to portion pack product mix.

Selling, Operating, General and Administrative Expenses

SG&A expenses increased by 5% to $248.2 million in the first quarter of fiscal 2015 from $237.4 million in the prior year period.  SG&A expenses as a percentage of net sales increased to 17.9% in the first quarter of fiscal 2015 from 17.1% in the prior year period.  The increase in SG&A over the prior year period was driven by higher research and development expenses including significant investments in the forth coming Keurig cold platform.

Segment Operating Income (Loss)

Operating income for the Domestic segment increased by $3.8 million, or 2%, for the first quarter of fiscal 2015 as compared to the prior year period which was primarily attributable to a shift in sales mix between portion packs, brewers and accessories and other products, offset by increases in SG&A.  Operating income for the Canada segment decreased by $10.4 million, or 33%, for the first quarter of fiscal 2015 as compared to the prior year period which was primarily attributable to the unfavorable impact of foreign exchange rates, a decrease in brewer volumes, and a decrease net price realization on brewers.  The operating loss for Corporate - Unallocated increased by $4.1 million, or 11%, for the first quarter of fiscal 2015 as compared to the prior year period.

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Gain on Financial Instruments, Net

We recorded $3.3 million in net gains on financial instruments not designated as hedges for accounting purposes during the first quarter of fiscal 2015 as compared to $4.6 million in net gains during the prior year period.  The net gains were primarily attributable to our cross currency swap, which hedges the risk in currency movements on an intercompany note denominated in Canadian currency.

Loss on Foreign Currency, Net

We have certain assets and liabilities that are denominated in Canadian currency.  During the first quarter of fiscal 2015, we incurred net foreign currency losses of approximately $9.1 million as compared to net losses of $10.6 million during the prior year period.  The net foreign currency losses were primarily related to re-measurement of certain intercompany notes with our foreign subsidiaries which fluctuate due to the relative strength or weakness of the U.S. dollar against the Canadian dollar.

Interest Expense

Interest expense was $1.1 million in the first quarter of fiscal 2015, as compared to $2.6 million in the prior year period.  The decrease in interest expense was primarily due to lower average outstanding debt in the first quarter of fiscal 2015 as compared to the average outstanding debt during the prior year period.

Income Taxes

Our effective income tax rate was 35.7% for the first quarter of fiscal 2015 as compared to a 36.6% effective tax rate for the prior year period.  The decrease in the effective rate was primarily due to an increase in domestic production activities qualifying for deduction under IRS Section 199, a research and development tax credit adjustment from fiscal 2014 due to the enactment of the Tax Increase Prevention Act on December 19, 2014, and state tax credits.

Net Income, Non-GAAP Net Income and Diluted Earnings Per Share (“EPS”)

The following tables show a reconciliation of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS for the thirteen weeks ended December 27, 2014 and December 28, 2013 (in thousands, except per share data):

	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Net income attributable to Keurig	$	134,579	$	138,227
After tax:
Expenses related to SEC inquiry (1)	896		236
Amortization of identifiable intangibles (2)	6,908		7,642
Expenses related to antitrust litigation (3)	1,480		—
Non-GAAP net income attributable to Keurig	$	143,863	$	146,105

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	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Diluted income per share (EPS)	$	0.82	$	0.91
After tax:
Expenses related to SEC inquiry (1)	0.01		0.00
Amortization of identifiable intangibles (2)	0.04		0.05
Expenses related to antitrust litigation (3)	0.01		—
Non-GAAP EPS	$	0.88	$	0.96

(1)Represents legal and accounting expenses, net of income taxes of $0.5 million and $0.1 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively, related to the SEC inquiry and pending securities and stockholder derivative class action litigation classified as general and administrative expense.  See Note 14, Commitments and Contingencies, of the Notes to Unaudited Consolidated Financial Statements included in this Quarterly Report.  Income taxes were calculated at our effective tax rate.

(2)Represents the amortization of intangibles, net of income taxes of $3.2 million and $3.5 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively, related to our acquisitions classified as general and administrative expense.  Income taxes were calculated at our deferred tax rates.

(3)Represents legal expenses, net of income taxes of $0.8 million and $0.0 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively, related to antitrust litigation classified as general and administrative expense.  See Note 14, Commitments and Contingencies, of the Notes to Unaudited Consolidated Financial Statements included in this Quarterly Report.  Income taxes were calculated at our effective tax rate.

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Liquidity and Capital Resources

We have principally funded our operations, working capital needs, capital expenditures and share repurchases from net cash flows from operating activities, proceeds from sales of our common stock, borrowings under our credit facilities and capital lease and financing obligations.  At December 27, 2014, we had $274.6 million in outstanding debt and capital lease and financing obligations and $1,425.4 million of working capital (including cash assets of $636.5 million representing cash and cash equivalents, restricted cash and cash equivalents and a short-term investment in a certificate of deposit).  At September 27, 2014, we had $278.5 million in outstanding debt and capital lease and financing obligations and $1,602.5 million of working capital (including cash assets of $861.6 million representing cash and cash equivalents, restricted cash and cash equivalents and a short-term investment in a certificate of deposit).

Our cash and cash equivalents total $506.4 million and $761.2 million as of December 27, 2014, and September 27, 2014, respectively.  We actively manage our cash and cash equivalents and short-term investment in order to internally fund our operating needs, make scheduled interest and principal payments on our borrowings, invest in our innovation pipeline and business growth opportunities, and return cash to shareholders through common stock cash dividend payments and share repurchases.

With the exception of the repayment of intercompany debt, all earnings of our foreign subsidiaries are considered indefinitely reinvested and no U.S. deferred taxes have been provided on those earnings.  If these amounts were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional U.S. income taxes, which could be material.  Determination of the amount of any unrecognized deferred income tax on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.  As of December 27, 2014, we had $103.2 million of cash and cash equivalents held in international jurisdictions which will be used to fund capital and other cash requirements of international operations, primarily held by our Canadian business.

Operating Activities:

Net cash provided by operating activities is principally comprised of net income and is primarily affected by the net change in working capital and non-cash items relating to depreciation and amortization.

Net cash provided by operating activities during the thirteen weeks ended December 27, 2014 was $142.4 million as compared to $272.7 million for the prior year period.  We generated $134.7 million in net income for the thirteen weeks ended December 27, 2014.  We incurred non-cash expenses of $61.2 million related to depreciation and amortization and $42.9 million in charges related to our provision for sales returns.  Other significant changes in working capital affecting net cash provided by operating activities were a change in income tax receivable/payable, net resulting in a decrease in net cash provided by operating activities of $84.2 million and an increase in receivables of $69.2 million, offset by a decrease in inventories of $51.0 million due to seasonal holiday selling activity.

Investing Activities:

Investing activities primarily included $180.7 million of cash used in the acquisition of Bevyz, net of cash acquired, and $100.3 million of capital expenditures primarily related to supporting new product platforms.

Capital expenditures were $100.3 million for the thirteen weeks ended December 27, 2014 as compared to $60.8 million for the prior year period.  Capital expenditures incurred on an accrual basis during the thirteen weeks ended December 27, 2014 consisted primarily of $67.9 million related to new product platforms, $12.4 million related to increasing packaging capabilities for Keurig® beverage platforms, $11.7 million related to facilities and related infrastructure and $6.5 million related to information technology infrastructure and systems.  In fiscal 2015, we currently expect to invest between $425.0 million to $475.0 million in capital expenditures to support our future growth.

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Financing Activities:

Cash used in financing activities for the thirteen weeks ended December 27, 2014 totaled $111.7 million.  We used $80.9 million of cash to fund share repurchase activity under our existing authorized share repurchase programs, $40.6 million to pay common stock dividends and $4.7 million for repayments of long-term debt during the thirteen weeks ended December 27, 2014.

Cash flows from operating and financing activities included a $12.3 million tax benefit primarily from the exercise of non-qualified options and disqualifying dispositions of incentive stock options.  As stock is issued from the exercise of options and the vesting of restricted stock units and performance stock units, we will continue to receive proceeds and a tax deduction where applicable; however we cannot predict either the amounts or the timing of any such proceeds or tax benefits.

Long Term Debt

Under our Amended and Restated Credit Agreement (“Restated Credit Agreement”), we maintain senior secured credit facilities consisting of (i) an $800.0 million U.S. revolving credit facility, (ii) a $200.0 million alternative currency revolving credit facility, and (iii) a term loan A facility.  At December 27, 2014, we had $155.3 million outstanding under the term loan A facility, no balances outstanding under the revolving credit facilities and $5.3 million in letters of credit with $994.7 million available for borrowing.  The Restated Credit Agreement also provides for an increase option for an aggregate amount of up to $500.0 million.

The term loan A facility requires quarterly principal repayments.  The term loan and revolving credit borrowings bear interest at a rate equal to an applicable margin plus, at our option, either (a) a eurodollar rate determined by reference to the cost of funds for deposits for the interest period and currency relevant to such borrowing, adjusted for certain costs, or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 0.50%, (2) the prime rate announced by Bank of America, N.A. from time to time and (3) the eurodollar rate plus 1.00%.  The applicable margin under the Restated Credit Agreement with respect to the term loan A and revolving credit facilities is a percentage per annum varying from 0.5% to 1.0% for base rate loans and 1.5% to 2.0% for eurodollar rate loans, based upon our leverage ratio.  Our average effective interest rate on debt outstanding as of December 27, 2014 and September 27, 2014 was 3.6% and 3.7%, respectively, excluding amortization of deferred financing charges and interest on capital leases and financing obligations, and including the effect of interest rate swap agreements.  We also pay a commitment fee on the average daily unused portion of the revolving credit facilities.

All of our assets and the assets of our wholly owned material subsidiaries are pledged as collateral under the Restated Credit Agreement.  The Restated Credit Agreement contains customary negative covenants, subject to certain exceptions, including limitations on: liens; investments; indebtedness; mergers and consolidations; asset sales; dividends and distributions or repurchases of our capital stock; transactions with affiliates; certain burdensome agreements; and changes in our lines of business.

The Restated Credit Agreement requires us to comply on a quarterly basis with a consolidated leverage ratio and a consolidated interest coverage ratio.  At December 27, 2014, we were in compliance with these covenants.  In addition, the Restated Credit Agreement contains certain mandatory prepayment requirements and customary events of default.

Interest Rate Swaps

We are party to interest rate swap agreements, the effect of which is to limit the interest rate exposure on a portion of the loans under our credit facilities to a fixed rate versus the 30-day Libor rate.  The total notional amount of these swaps at December 27, 2014 was $130.0 million.

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The fair market value of the interest rate swaps is the estimated amount that we would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the credit worthiness of the counterparty.  At December 27, 2014, we estimate we would have paid $2.7 million (gross of tax), if we terminated the interest rate swap agreements.  We designate the interest rate swap agreements as cash flow hedges and the changes in the fair value of these derivatives are classified in accumulated other comprehensive income (a component of equity).  During each of the thirteen weeks ended December 27, 2014 and December 28, 2013, we incurred $0.8 million in additional interest expense pursuant to interest rate swap agreements.

Share Repurchases and Dividends

At various times our Board of Directors authorized the Company to repurchase a total of $2.5 billion of the Company’s common stock.  As of December 27, 2014, $1,101.9 million remained available for common stock repurchases.  Additional repurchases will be made with cash on hand, cash from operations and funds available through our existing credit facility.  See Note 12, Stockholders’ Equity, of the Notes to Unaudited Consolidated Financial Statements included in this Quarterly Report.

On February 28, 2014, we entered into an accelerated share repurchase (“ASR”) agreement with a major financial institution (“Bank”) pursuant to board authorized share repurchase programs.  The ASR allows us to buy a large number of shares immediately at a purchase price determined by an average market price over a period of time.  Under the ASR, we agreed to purchase $700.0 million of our common stock, in total, with an initial delivery to us of 4,340,508 shares (“Initial Shares”) of our common stock by the Bank.  The Initial Shares represent the number of shares at the current market price equal to 70% of the total fixed purchase price of $700.0 million.  The repurchased shares were retired and returned to an unissued status.  The remainder of the total purchase price of $210.0 million reflects the value of the stock held by the Bank pending final settlement and, accordingly, was recorded as a reduction to additional paid-in capital.  Final settlement of the ASR will occur no later than February 27, 2015 at the Bank’s discretion.  Upon settlement of the ASR, the total shares repurchased by us will be determined based on a share price equal to the daily volume weighted-average price (“VWAP”) of our common stock during the term of the ASR, less a fixed per share discount amount.  At settlement, the Bank will deliver additional shares to us in the event total shares are greater than the 4,340,508 shares initially delivered, and we will issue additional shares to the Bank in the event total shares are less than the shares initially delivered.  The receipt or issuance of additional shares will result in a reclassification between additional paid-in capital and common stock equal to the par value of the additional shares received or issued.  The number of shares that we may be required to issue to the Bank is limited to 10.0 million shares under the ASR.

During the first quarter of fiscal 2015, we declared a quarterly dividend of $0.2875 per common share, or $46.6 million in the aggregate, payable on February 12, 2015 to shareholders of record on January 13, 2015.

On January 30, 2015, our Board of Directors declared the next regular quarterly cash dividend of $0.2875 per common share, payable on April 30, 2015, to shareholders of record as of the close of business on March 31, 2015.

We believe that our cash flows from operating activities, existing cash and our credit facilities will provide sufficient liquidity to pay all liabilities in the normal course of business, fund anticipated capital expenditures, service debt requirements through the next 12 months, fund any purchases of our common shares under the repurchase programs authorized by the Board of Directors and pay dividends.  We continuously evaluate our capital requirements and access to capital.  We may opt to raise additional capital through equity and/or debt financing to provide flexibility to assist with managing several risks and uncertainties inherent in a growing business including potential future acquisitions or increased capital expenditure requirements.

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A summary of cash requirements related to our outstanding long-term debt, future minimum lease payments and purchase commitments is as follows (in thousands):

	Long-Term Debt		Interest Expense (1)		Operating Lease Obligations		Capital Lease Obligations(2)		Financing Obligations(3)		Purchase Obligations(4)		Total
Remainder of 2015	$	14,374	$	4,222	$	11,950	$	2,893	$	7,146	$	647,103	$	687,688
FY 2016 - FY 2017	140,343		1,997		21,510		8,253		19,546		532,643		724,292
FY 2018 - FY 2019	544		29		10,938		7,676		19,814		397,218		436,219
Thereafter	—		—		26,607		28,142		106,027		65,762		226,538
Total	$	155,261	$	6,248	$	71,005	$	46,964	$	152,533	$	1,642,726	$	2,074,737

(1)Based on rates in effect at December 27, 2014.

(2)Includes principal and interest payments under capital lease obligations.

(3)Represents portion of the future minimum lease payments allocated to the building which will be recognized as reductions to the financing obligation and interest expense upon completion of construction.

(4)Certain purchase obligations are determined based on a contractual percentage of forecasted volumes.

In addition, we have $14.8 million in unrecognized tax benefits primarily as the result of acquisitions of which we are indemnified for $7.2 million expiring through June 2016.  We are unable to make reasonably reliable estimates of the period of cash settlement, if any, due to the uncertain nature of the unrecognized tax benefits.

Factors Affecting Quarterly Performance

Our business is subject to seasonal fluctuations, including fluctuations resulting from the holiday season.  As a result, total inventory, and specifically, brewers and accessories finished goods inventory is considerably higher during the last fiscal quarter than other quarters during the fiscal year, as we prepare for the holiday season.  Due to the shift in product mix toward brewers and accessories in the first quarter of our fiscal year, gross margin, as a percentage of net sales, is typically lower in the first fiscal quarter than in the remainder of the fiscal year.  Historically, in addition to variations resulting from the holiday season, we have experienced variations in sales from quarter-to-quarter due to a variety of other factors including, but not limited to, the cost of green coffee, competitor initiatives, marketing programs and weather.  Because of the seasonality of our business, the results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Forward-Looking Statements

Certain information in this filing constitutes “forward-looking statements.”  Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.  They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.”  However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.  These statements may relate to: the expected impact of raw material costs and our pricing actions on our results of operations and gross margins, expected trends in net sales and earnings performance and other financial measures, the expected productivity and working capital improvements, the success of introducing and producing new product offerings, the impact of foreign exchange fluctuations, the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing, the expected results of operations of businesses acquired by us, our ability to issue debt or additional equity securities, projections for future capital expenditures, our expectations regarding purchasing shares of our common stock under the existing authorizations, projections of payment of dividends, the impact of pending shareholder litigation, and the impact of antitrust litigation pending against the Company in the United States and Canada. 

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A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.  Management believes that these forward-looking statements are reasonable as and when made.  However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.  We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections.  These risks and uncertainties include, but are not limited to, those described in Part I, “Item 1A. Risk Factors” and Part II “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2014 Annual Report filed on Form 10-K, elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risks relating to our operations result primarily from changes in interest rates and the commodity “C” price of coffee (the price per pound quoted by the Intercontinental Exchange).  To address these risks, we enter into hedging transactions as described below.  We do not use financial instruments for trading or speculative purposes.

For purposes of specific risk analysis, we use sensitivity analysis to determine the impacts that market risk exposures may have on our financial position or earnings.

Interest Rate Risks

The table below provides information about our debt obligations, some of which are sensitive to changes in interest rates.  The table presents principal cash flows and weighted average interest rates by fiscal year:

	Remainder																		Total Debt Outstanding and average effective interest rate at
	of 2015			2016			2017			2018			2019			Thereafter			December 27, 2014
Long-term debt:
Variable rate (in thousands)	$	14,066		$	9,689		$	—		$	—		$	—		$	—		$	23,755
Average interest rate	1.7		%	1.7		%	—		%	—		%	—		%	—		%	1.7		%
Fixed rate (in thousands)	$	308		$	130,320		$	334		$	350		$	194		$	—		$	131,506
Average interest rate	4.0		%	4.0		%	3.9		%	3.9		%	3.9		%	—		%	4.0		%

At December 27, 2014, we had $23.8 million of outstanding debt obligations subject to variable interest rates.  Should all our variable interest rates increase by 100 basis points, we would incur additional interest expense of $0.2 million annually.  Additionally, should Canadian Bankers’ Acceptance Rates increase by 100 basis points over US Libor rates, we would incur additional interest expense of $0.9 million annually, pursuant to the cross-currency swap agreement (see Foreign Currency Exchange Risk below).  As discussed further under the heading Liquidity and Capital Resources, we are party to interest rate swap agreements.  On December 27, 2014, the effect of our interest rate swap agreements was to limit the interest rate exposure on $130.0 million of the outstanding balance of the term loan A facility under the Restated Credit Agreement to a fixed rate versus the 30-day Libor rate.  The total notional amount covered by these swaps will terminate in November 2015.

Commodity Price Risks

The “C” price of coffee is subject to substantial price fluctuations caused by multiple factors, including weather and political and economic conditions in coffee-producing countries.  Our gross profit margins can be significantly impacted by changes in the “C” price of coffee.  We enter into fixed coffee purchase commitments in an attempt to secure an adequate supply of coffee.  These agreements are tied to specific market prices (defined by both the origin of the coffee and the time of delivery) but we have significant flexibility in selecting the date of the market price to be used in each contract.  We generally fix the price of our coffee contracts nine to twelve months prior to delivery, so that we can adjust our sales prices to the marketplace.  At December 27, 2014, we had approximately $375.1 million in green coffee purchase commitments, of which approximately 87% had a fixed price.

42

In addition, we regularly use commodity-based financial instruments to hedge price-to-be-established coffee purchase commitments with the objective of minimizing cost risk due to market fluctuations.  These hedges generally qualify as cash flow hedges.  The effective portion of the hedges’ gains or losses resulting from changes in the fair value of the hedges are deferred in other comprehensive income, net of tax effects, until the hedged inventory sale is recognized in earnings, at which point the gains and losses are recognized as a cost of sales.  Any ineffective portion of the hedges’ gains or losses are recognized in the cost of sales in the period they occur.  When these commodity-based financial instruments are not classified as cash flow hedges, gain and losses are immediately recognized into cost of sales.  At December 27, 2014, we held outstanding futures contracts covering 1.9 million pounds of coffee with a net fair market value of $(0.7) million, gross of tax.  At September 27, 2014, we held outstanding futures contracts covering 7.5 million pounds of coffee with a fair market value of $3.4 million, gross of tax.

At December 27, 2014, we were exposed to approximately $49.0 million in un-hedged green coffee purchase commitments that do not have a fixed price as compared to $47.2 million in un-hedged green coffee purchase commitments that did not have a fixed price at September 27, 2014.  A hypothetical 10% movement in the “C” price would increase or decrease our financial commitment for these purchase commitments outstanding at December 27, 2014 by approximately $4.9 million.

We are also subject to commodity price risk as our manufacturing and transportation costs are affected by various market factors including the availability of supplies of particular forms of energy and energy prices, as well as price risk for utilities and various manufacturing inputs which are used in our manufacturing operations.  Derivative instruments have not been used to manage these risks.

Foreign Currency Exchange Rate Risk

Currently our foreign operations are primarily related to our Canada segment, which is subject to risks, including, but not limited to, unique economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility.  Accordingly, our future results could be materially adversely affected by changes in these or other factors.  We also source our green coffee, certain production equipment, and components of our brewers and manufacturing of our brewers from countries outside the United States, which are subject to the same risks described for Canada above; however, most of our green coffee and brewer purchases are transacted in the United States dollar.

The majority of the transactions conducted by our Canada segment are in the Canadian dollar.  As a result, our revenues are adversely affected when the United States dollar strengthens against the Canadian dollar and are positively affected when the United States dollar weakens against the Canadian dollar.  Conversely, our expenses are positively affected when the United States dollar strengthens against the Canadian dollar and adversely affected when the United States dollar weakens against the Canadian dollar.

As described in Note 9, Derivative Financial Instruments, in the Notes to Unaudited Consolidated Financial Statements contained in Item 1 of this Quarterly Report on Form 10-Q, from time to time we engage in transactions involving various derivative instruments to mitigate our foreign currency rate exposures.  More specifically, we hedge, on a net basis, the foreign currency exposure of a portion of our assets and liabilities that are denominated in Canadian dollars.  These contracts are recorded at fair value and are not designated as hedging instruments for accounting purposes.  As a result, the changes in fair value are recognized in the Gain on financial instruments, net line in the Unaudited Consolidated Statements of Operations.  We do not engage in speculative transactions, nor do we hold derivative instruments for trading purposes.

At December 27, 2014, we had approximately one year remaining on a CDN $90.0 million cross-currency swap that was not designated as a hedging instrument for accounting purposes, which largely offsets the financial impact of the re-measurement of an intercompany note receivable denominated in Canadian dollars for the same amount.  Principal payments on the cross-currency swap are settled on an annual basis to match the repayments on the note receivable and the cross-currency swap is adjusted to fair value each period.  Increases or decreases in the cross-currency swap are generally offset by corresponding decreases or increases in the U.S. dollar value of the Canadian dollar intercompany note.

43

Movements in foreign currency exchange rates expose us to market risk resulting from the re-measurement of our net assets that are denominated in a currency different from the functional currency of the entity in which they are held.  The market risk associated with the foreign currency exchange rate movements on foreign exchange contracts is expected to mitigate the market risk of the underlying obligation being hedged.  Our net unhedged assets (liabilities) denominated in a currency other than the functional currency were approximately $97.9 million at December 27, 2014.  Based on our net un-hedged assets that are affected by movements in foreign currency exchange rates as of December 27, 2014, a hypothetical 10% movement in the foreign currency exchange rate would result in a charge or credit to earnings of approximately $9.8 million.  In addition, at December 27, 2014 our net investment in our foreign subsidiaries with a functional currency different from our reporting currency was approximately $881.5 million.  A hypothetical 10% movement in the foreign currency exchange rate would increase or decrease our net investment in our foreign subsidiaries by approximately $88.2 million with a corresponding charge to other comprehensive income (loss).

Item 4.  Controls and Procedures

As of December 27, 2014, our management with the participation of our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15 of the Exchange Act) are effective.

During our first fiscal quarter of 2015, we began migrating certain of our systems in the U.S. to SAP software.  This software implementation is part of an ongoing business transformation initiative, and we plan to continue implementing such software throughout our business over the course of the next few years.  In connection with the SAP implementation and resulting business process changes, we modified the design and documentation of our internal control processes to ensure suitable controls over our financial reporting.

Except as described above, there were no changes in our internal control over financial reporting during our first fiscal quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

44

Part II.  Other Information

Item 1. Legal Proceedings

Information required by this Item is contained in Note 14, Commitments and Contingencies, of the Notes to Unaudited Consolidated Financial Statements included within Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have no material changes to the risk factors disclosed in our fiscal 2014 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities:

Period(1)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans(2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (Dollars in thousands)
September 28, 2014 to October 25, 2014	369,400	$	139.07	369,400	$	1,131,451
October 26, 2014 to November 22, 2014	—	—		—	1,131,451
November 23, 2014 to December 27, 2014	216,308	136.50		216,308	1,101,924
Total	585,708	138.12		585,708

(1)Monthly information corresponds to our fiscal months during the first quarter of fiscal 2015.

(2)All shares purchased during the period were made as part of plans approved by the Board of Directors in November 2013, to purchase up to $1.0 billion in Company shares, and in May 2014 to purchase up to an additional $1.0 billion in Company shares.

See Note 12, Stockholders’ Equity, of the Notes to Unaudited Consolidated Financial Statements included in this Quarterly Report.

Item 6.  Exhibits

(a) Exhibits:

31.1Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

31.2Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

32Principal Executive Officer and Financial Officer Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101The following financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 2014 formatted in eXtensible Business Reporting Language (XBRL): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations, (iii) the Unaudited Consolidated Statement of Changes in Stockholders’ Equity, (iv) the Unaudited Consolidated Statements of Comprehensive Income, (v) the Unaudited Consolidated Statements of Cash Flows and (vi) related notes.

45

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KEURIG GREEN MOUNTAIN, INC.

Date:	2/4/2015	By:	/s/ Brian P. Kelley
			Brian P. Kelley,
			President and Chief Executive Officer
Date:	2/4/2015	By	/s/ Frances G. Rathke
			Frances G. Rathke,
			Chief Financial Officer and Treasurer

46

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian P. Kelley, President and Chief Executive Officer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Keurig Green Mountain, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 4, 2015

/s/ Brian P. Kelley

Brian P. Kelley

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Frances G. Rathke, Chief Financial Officer and Treasurer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Keurig Green Mountain, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 4, 2015

/s/ Frances G. Rathke

Frances G. Rathke

Chief Financial Officer and Treasurer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Keurig Green Mountain, Inc. (the “Company”) on Form 10-Q for the period ending December 27, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian P. Kelley, President and Chief Executive Officer, and I, Frances G. Rathke, as the Chief Financial Officer and Treasurer, of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: February 4, 2015

/s/ Brian P. Kelley

Brian P. Kelley

President and Chief Executive Officer

Date: February 4, 2015

/s/ Frances G. Rathke

Frances G. Rathke

Chief Financial Officer and Treasurer

XML

Acquisition (Details) (USD $)	3 Months Ended	0 Months Ended
	Dec. 27, 2014	Dec. 18, 2014	Sep. 27, 2014
Preliminary allocation of the purchase price
Goodwill	$ 957,771,000		$ 755,895,000
Total cash paid, net of cash acquired	180,698,000
Bevyz
Acquisitions
Outstanding equity owned prior to the acquisition (as a percent)		15.00%
Gain or loss recognized on previously held equity interest		0
Preliminary allocation of the purchase price
Accounts receivable		218,000
Inventories		743,000
Other current assets		504,000
Fixed assets		2,370,000
Other long-term assets		247,000
Goodwill		220,468,000
Accounts payable and accrued expenses		(5,911,000)
Capital lease obligation		(763,000)
Other long-term liabilities		(1,273,000)
Total estimated fair value net assets acquired		216,603,000
Less previously held equity interest in Bevyz		(35,905,000)
Total cash paid, net of cash acquired		180,698,000
Acquisition costs incurred		1,500,000
Purchase price held in escrow	$ 28,800,000

XML

Income Taxes (Details 2) (State and local, USD $) In Millions, unless otherwise specified	Dec. 27, 2014
State and local
Income Taxes
Net operating loss carryforward	$ 11.5

XML

Derivative Financial Instruments (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Fair value of derivatives
Total fair value of derivatives	$ 6,043	$ 6,125
Fair value of derivative liabilities	(3,383)	(3,371)
Fair value of derivative assets	9,426	9,496
Derivatives designated as hedges
Fair value of derivatives
Total fair value of derivatives	(3,253)	174
Derivatives designated as hedges | Interest rate swaps | Other current liabilities
Fair value of derivatives
Fair value of derivative liabilities	(2,682)	(3,371)
Derivatives designated as hedges | Coffee futures | Other current liabilities
Fair value of derivatives
Fair value of derivative liabilities	(701)
Derivatives designated as hedges | Coffee futures | Other current assets
Fair value of derivatives
Fair value of derivative assets		3,437
Derivatives designated as hedges | Foreign currency forward contracts | Other current assets
Fair value of derivatives
Fair value of derivative assets	130	108
Derivatives not designated as hedges
Fair value of derivatives
Total fair value of derivatives	9,296	5,951
Derivatives not designated as hedges | Cross currency swap | Other current assets
Fair value of derivatives
Fair value of derivative assets	$ 9,296	$ 5,951

XML

Income Taxes (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Sep. 27, 2014
Income Taxes
Unrecognized tax benefits	$ 14.8	$ 14.8
Unrecognized tax benefits that would impact effective tax rate	14.8
Indemnification receivable associated with unrecognized tax benefits	7.2
Maximum amount of unrecognized tax benefit indemnification	47.4
Accrued interest and penalties	2.3	2.4
Unrecognized tax benefits released due to the expiration of the statute of limitations	1.0
Unrecognized tax benefits expected to be released in next 12 months due to expiration of statutes of limitations	$ 7.8

XML

Noncontrolling Interests (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Changes in the liability and temporary equity attributable to redeemable NCIs
Balance at the beginning of the period	$ 12,440
Net income	100	248
Adjustment to redemption value	(228)
Cash distributions	(141)
Other comprehensive loss	(505)
Balance at the end of the period	$ 11,666

XML

Compensation Plans (Tables)

3 Months Ended

Dec. 27, 2014

Compensation Plans

Schedule of assumptions used in estimating the grant-date fair value of employee stock options and similar instruments

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Average expected life	5.5 years			5.5 years
Average volatility	57		%	75		%
Dividend yield	0.83		%	1.33		%
Risk-free interest rate	1.62		%	1.69		%
Weighted average fair value	$	67.11		$	40.98

Schedule of assumptions used in estimating the grant-date fair value of employees' purchase rights under the Employee Stock Purchase Plan

	Thirteen weeks ended
	December 27,  2014			December 28,  2013
Average expected life	6 months			6 months
Average volatility	40		%	55		%
Dividend yield	0.88		%	1.34		%
Risk-free interest rate	0.05		%	0.04		%
Weighted average fair value	$	33.94		$	22.57

XML

Stockholders' Equity (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014
Accumulated Other Comprehensive Income (Loss)
Balance at the beginning of the period	$ (54,051)
Other comprehensive loss, before reclassifications	(30,026)
Amounts reclassified from accumulated other comprehensive income (loss)	(329)
Foreign currency exchange impact on cash flow hedges	(2)
Net current period other comprehensive loss	(30,357)
Balance at the end of the period	(84,408)
Cash Flow Hedges
Accumulated Other Comprehensive Income (Loss)
Balance at the beginning of the period	8,952
Other comprehensive loss, before reclassifications	(232)
Amounts reclassified from accumulated other comprehensive income (loss)	(329)
Foreign currency exchange impact on cash flow hedges	(2)
Net current period other comprehensive loss	(563)
Balance at the end of the period	8,389
Translation
Accumulated Other Comprehensive Income (Loss)
Balance at the beginning of the period	(63,003)
Other comprehensive loss, before reclassifications	(29,794)
Net current period other comprehensive loss	(29,794)
Balance at the end of the period	$ (92,797)

XML

Acquisition (Tables)

3 Months Ended

Dec. 27, 2014

Acquisition

Summary of preliminary allocation of the purchase price

The following summarizes the preliminary allocation as recorded as of December 27, 2014 (in thousands):

Accounts receivable	$	218
Inventories	743
Other current assets	504
Fixed assets	2,370
Other long-term assets	247
Goodwill	220,468
Accounts payable and accrued expenses	(5,911		)
Capital lease obligation	(763		)
Other long-term liabilities	(1,273		)
Total estimated fair value net assets acquired	216,603
Less previously held equity interest in Bevyz	(35,905		)
Total cash paid, net of cash acquired	$	180,698

XML

Derivative Financial Instruments (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Derivatives
Gross amounts of recognized liabilities	$ 3,383	$ 3,705
Gross amounts offset in the Unaudited Consolidated Balance Sheet		(334)
Net amount of liabilities presented in the Unaudited Consolidated Balance Sheet	3,383	3,371
Net amount	$ 3,383	$ 3,371

XML

Goodwill and Intangible Assets (Details 2) (Trade names, Canada, USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Trade names | Canada
Indefinite-lived intangible assets
Indefinite-lived intangible assets	$ 86,592	$ 90,257

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Inventories
Raw materials and supplies	$ 202,504	$ 169,858
Finished goods	578,290	665,309
Inventories	780,794	835,167
Green coffee purchase commitments
Purchase commitments
Amount of purchase commitment	375,100
Percentage of purchase commitment that has a fixed price	87.00%
Average C price of coffee per pound used to calculate variable portion of purchase commitment (in dollars per pound)	1.75
Brewer and related accessory purchase commitments
Purchase commitments
Amount of purchase commitment	103,800
Production raw material commitments
Purchase commitments
Amount of purchase commitment	$ 1,129,000

XML

Fair Value Measurements (Details) (USD $)	3 Months Ended
	Dec. 27, 2014	Sep. 27, 2014
Fair Value Measurements
Total fair value of derivatives	$ 6,043,000	$ 6,125,000
Carrying value of long-term debt	155,300,000	160,000,000
Period of reset of debt variable interest rates	30 days
Long-term investments carried at cost		35,900,000
Recurring | Level 2
Fair Value Measurements
Total fair value of derivatives	6,043,000	6,125,000
Recurring | Level 2 | Interest rate swaps
Fair Value Measurements
Total fair value of derivatives	(2,682,000)	(3,371,000)
Recurring | Level 2 | Cross currency swap
Fair Value Measurements
Total fair value of derivatives	9,296,000	5,951,000
Recurring | Level 2 | Coffee futures
Fair Value Measurements
Total fair value of derivatives	(701,000)	3,437,000
Recurring | Level 2 | Foreign currency forward contracts
Fair Value Measurements
Total fair value of derivatives	$ 130,000	$ 108,000

XML

Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Numerator for basic and diluted earnings per share:
Net income attributable to Keurig	$ 134,579	$ 138,227
Denominator:
Basic weighted-average shares outstanding	162,181,332	149,162,600
Effect of dilutive securities (in shares)	1,893,706	2,419,297
Diluted weighted-average shares outstanding	164,075,038	151,581,897
Basic and diluted net income per common share
Basic net income per common share (in dollars per share)	$ 0.83	$ 0.93
Diluted net income per common share (in dollars per share)	$ 0.82	$ 0.91

XML

Derivative Financial Instruments (Details) (Derivatives not designated as hedges, Cross currency swap) In Millions, unless otherwise specified	3 Months Ended
	Dec. 27, 2014 USD ($)	Dec. 28, 2013 USD ($)	Dec. 27, 2014 CAD
Other Derivatives
Period of derivative	1 year
Notional amount			90.0
Variable interest rate basis payable	Three month Canadian Bankers Acceptance rate
Variable interest rate basis receivable	Three month U.S. Libor rate
Additional interest expense	$ 0.3	$ 0.4

XML

Segment Reporting

3 Months Ended

Dec. 27, 2014

Segment Reporting

Segment Reporting

2.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 operations related to international expansion, and a Canada segment containing all Canadian operations.

The Domestic segment sells brewers, accessories, and sources, produces and sells coffee, hot cocoa, teas and other beverages in K-Cup®, Vue®, Rivo®, K-Carafe™ and Bolt™ 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 the Company’s website.  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 At Home (“AH”) channel.  The Domestic segment also earns royalty income from portion packs sold by a third-party licensed roaster.

The Canada segment sells brewers, 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, 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 weeks ended December 27, 2014 and December 28, 2013:

	Thirteen weeks ended December 27, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	1,215,458	$	170,900	$	—		$	1,386,358
Operating income (loss)	$	236,601	$	21,588	$	(42,262	)	$	215,927
Depreciation and amortization	$	44,586	$	13,859	$	2,714		$	61,159
Stock compensation	$	5,831	$	723	$	3,837		$	10,391

	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

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 27, 2014			December 28, 2013
Operating income	$	215,927		$	226,626
Other income, net	181			429
Gain on financial instruments, net	3,345			4,561
Loss on foreign currency, net	(9,071		)	(10,550		)
Interest expense	(1,087		)	(2,620		)
Income before income taxes	$	209,295		$	218,446

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Earnings Per Share (Details 2) (Equity-based compensation)	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Equity-based compensation
Antidilutive securities
Antidilutive securities excluded from computation of earnings per share (in shares)	74,000	483,000

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Goodwill and Intangible Assets (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013	Sep. 27, 2014
Intangible assets subject to amortization
Gross Carrying Amount	$ 440,388		$ 451,914
Accumulated Amortization	(182,124)		(176,727)
Total amortization expense	10,110	11,152
Acquired technology
Intangible assets subject to amortization
Gross Carrying Amount	16,490		16,501
Accumulated Amortization	(14,122)		(13,713)
Acquired technology | Minimum
Intangible assets subject to amortization
Useful Life in Years	4 years
Acquired technology | Maximum
Intangible assets subject to amortization
Useful Life in Years	10 years
Customer and roaster agreements
Intangible assets subject to amortization
Gross Carrying Amount	8,717		8,939
Accumulated Amortization	(5,410)		(5,303)
Customer and roaster agreements | Minimum
Intangible assets subject to amortization
Useful Life in Years	8 years
Customer and roaster agreements | Maximum
Intangible assets subject to amortization
Useful Life in Years	11 years
Customer relationships
Intangible assets subject to amortization
Gross Carrying Amount	378,502		390,563
Accumulated Amortization	(145,427)		(141,163)
Customer relationships | Minimum
Intangible assets subject to amortization
Useful Life in Years	2 years
Customer relationships | Maximum
Intangible assets subject to amortization
Useful Life in Years	16 years
Trade names
Intangible assets subject to amortization
Gross Carrying Amount	36,679		35,911
Accumulated Amortization	$ (17,165)		$ (16,548)
Trade names | Minimum
Intangible assets subject to amortization
Useful Life in Years	9 years
Trade names | Maximum
Intangible assets subject to amortization
Useful Life in Years	11 years

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Noncontrolling Interests (Tables)

3 Months Ended

Dec. 27, 2014

Noncontrolling Interests

Schedule of changes in the temporary equity attributable to redeemable NCIs

The changes in the temporary equity attributable to the redeemable NCI for the thirteen weeks ended December 27, 2014 are as follows (in thousands):

	Equity attributable to redeemable noncontrolling interest
Balance at September 27, 2014	$	12,440
Net income	100
Adjustment to redemption value	(228		)
Cash distributions	(141		)
Other comprehensive loss	(505		)
Balance at December 27, 2014	$	11,666

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Product Warranties (Tables)

3 Months Ended

Dec. 27, 2014

Product Warranties

Schedule of changes in the carrying amount of product warranties

The changes in the carrying amount of product warranties for the thirteen weeks ended December 27, 2014 and December 28, 2013 are as follows (in thousands):

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Balance, beginning of period	$	12,850		$	7,804
Provision related to current period	14,166			10,230
Change in estimate	—			(58		)
Usage	(7,336		)	(5,185		)
Balance, end of period	$	19,680		$	12,791

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Stockholders' Equity (Details) (USD $)	3 Months Ended		12 Months Ended	0 Months Ended
	Dec. 27, 2014	Dec. 28, 2013	Sep. 27, 2014	Feb. 28, 2014
Stockholders' equity
Amount authorized for repurchase of common stock	$ 2,500,000,000
Fixed price of share repurchase	80,898,000	122,464,000
Value of shares available for repurchase under the current authorization	1,101,900,000
Number of shares acquired	585,708		8,138,592
Average price per share of acquired shares (in dollars per share)	$ 138.12		$ 103.51
Total cost of acquired shares	80,898,000		1,052,430,000
ASR | Bank
Stockholders' equity
Fixed price of share repurchase				700,000,000
Value of initial shares as percent of total fixed purchase price				70.00%
Value of stock held back pending final settlement				210,000,000
Maximum number of shares that may be required to be issued on settlement				10.0
Additional shares that would have been issued if ASR was settled	1,500,000
Number of shares acquired				4,340,508
Common stock
Stockholders' equity
Number of shares acquired	585,708
Total cost of acquired shares	58,000
Common stock | ASR | Bank
Stockholders' equity
Value of initial shares				400,000
Additional paid-in capital
Stockholders' equity
Total cost of acquired shares	80,840,000
Additional paid-in capital | ASR | Bank
Stockholders' equity
Value of initial shares				$ 489,600,000

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Goodwill and Intangible Assets (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014
Estimated aggregate amortization expense over each of the next five years and thereafter
Remainder of 2015	$ 29,716
2016	38,898
2017	37,502
2018	37,502
2019	37,402
2020	33,299
Thereafter	$ 43,945

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Derivative Financial Instruments (Tables)

3 Months Ended

Dec. 27, 2014

Derivative Financial Instruments

Summary of fair value of derivatives

The following table summarizes the fair value of the Company’s derivatives included on the Unaudited Consolidated Balance Sheets (in thousands):

	December 27, 2014			September 27, 2014			Balance Sheet Classification
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(2,682	)	$	(3,371	)	Other current liabilities
Coffee futures	—			3,437			Other current assets
Coffee futures	(701		)	—			Other current liabilities
Foreign currency forward contracts	130			108			Other current assets
	$	(3,253	)	$	174
Derivatives not designated as hedges:
Cross currency swap	$	9,296		$	5,951		Other current assets
	$	9,296		$	5,951
Total	$	6,043		$	6,125

Schedule of offsetting of financial assets and derivative assets

Offsetting of financial assets and derivative assets as of December 27, 2014 and September 27, 2014 is as follows (in thousands):

								Gross amounts not offset in the
			Gross amounts			Net amount of		Unaudited Consolidated Balance
	Gross		offset in the			assets presented		Sheet
	amounts of		Unaudited			in the Unaudited				Cash
	recognized		Consolidated			Consolidated		Financial		collateral
	assets		Balance Sheet			Balance Sheet		instruments		received		Net amount
Derivative assets, as of December 27, 2014	$	9,426	$	—		$	9,426	$	—	$	—	$	9,426
Derivative assets, as of September 27, 2014	9,830		(334		)	9,496		—		—		9,496

Schedule of offsetting of financial liabilities and derivative liabilities

Offsetting of financial liabilities and derivative liabilities as of December 27, 2014 and September 27, 2014 is as follows (in thousands):

						Net amount of		Gross amounts not offset in the
			Gross amounts			liabilities		Unaudited Consolidated
	Gross		offset in the			presented in the		Balance Sheet
	amounts of		Unaudited			Unaudited				Cash
	recognized		Consolidated			Consolidated		Financial		collateral
	liabilities		Balance Sheet			Balance Sheet		instruments		pledged		Net amount
Derivative liabilities, as of December 27, 2014	$	3,383	$	—		$	3,383	$	—	$	—	$	3,383
Derivative liabilities, as of September 27, 2014	3,705		(334		)	3,371		—		—		3,371

Summary of unrealized gain (loss), gross of tax, on financial instruments that qualify for hedge accounting included in OCI

The following table summarizes the amount of unrealized gain (loss), gross of tax, arising during the period on financial instruments that qualify for hedge accounting included in OCI (in thousands):

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Cash Flow Hedges:
Interest rate swaps	$	689		$	574
Coffee futures	(1,172		)	(1,400		)
Foreign currency forward contracts	77			195
Total	$	(406	)	$	(631	)

Summary of gains (losses), gross of tax, reclassified from OCI to income

The following table summarizes the amount of gains (losses), gross of tax, reclassified from OCI to income (in thousands):

	Thirteen weeks ended						Location of Gains
	December 27, 2014			December 28, 2013			(Losses) Reclassified from OCI into Income
Coffee futures	$	624		$	(206	)	Cost of sales
Foreign currency forward contracts	(59		)	(44		)	Cost of sales
Foreign currency forward contracts	—			(25		)	Loss on foreign currency, net
Total	$	565		$	(275	)

Schedule of net (losses) gains on financial instruments not designated as hedges for accounting purposes

Net (losses) gains on financial instruments not designated as hedges for accounting purposes are as follows (in thousands):

	Thirteen weeks ended				Location of net (loss) gain in
	December 27,  2014		December 28,  2013		Unaudited Consolidated Statements of Operations
Net gain on cross currency swap	$	3,345	$	4,561	Gain on financial instruments, net
Net gain on coffee futures	—		2,125		Cost of sales
Total	$	3,345	$	6,686

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Fair Value Measurements (Tables)

3 Months Ended

Dec. 27, 2014

Fair Value Measurements

Summary of the fair values and the levels used in fair value measurements for financial assets (liabilities)

The following table summarizes the fair values and the levels used in fair value measurements as of December 27, 2014 for the Company’s financial assets (liabilities) (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2			Level 3
Derivatives:
Interest rate swaps	$	—	$	(2,682	)	$	—
Cross currency swap	—		9,296			—
Coffee futures	—		(701		)	—
Foreign currency forward contracts	—		130			—
Total	$	—	$	6,043		$	—

The following table summarizes the fair values and the levels used in fair value measurements as of September 27, 2014 for the Company’s financial liabilities (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2			Level 3
Derivatives:
Interest rate swaps	$	—	$	(3,371	)	$	—
Cross currency swap	—		5,951			—
Coffee futures	—		3,437			—
Forward currency forward contracts	—		108			—
Total	$	—	$	6,125		$	—

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Basis of Presentation

3 Months Ended

Dec. 27, 2014

Basis of Presentation

Basis of Presentation

1.Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

The September 27, 2014 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  For further information, refer to the consolidated financial statements and the footnotes included in Keurig Green Mountain’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014.  Throughout this presentation, we refer to the consolidated company as the “Company” or “Keurig” and, unless otherwise noted, the information provided is on a consolidated basis.

In the opinion of management, all adjustments considered necessary for a fair statement of the interim financial data have been included.  Interim results may not be indicative of results for a full year.  Historically, in addition to variations resulting from the holiday season, sales may vary from quarter-to-quarter due to a variety of other factors including, but not limited to, the cost of green coffee, competitor initiatives, marketing programs and weather.

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Stockholders' Equity (Tables)

3 Months Ended

Dec. 27, 2014

Stockholders' Equity

Summary of share repurchase activity

	Thirteen weeks ended
	December 27, 2014		Fiscal 2014(1)
Number of shares acquired	585,708		8,138,592
Average price per share of acquired shares	$	138.12	$	103.51
Total cost of acquired shares (in thousands)	$	80,898	$	1,052,430

(1)Number of shares acquired and average price per share reflect Initial Shares at then current market price, subject to change pending final settlement, and total cost of acquired shares includes total purchase price of $700.0 million under the ASR.

Changes in components of accumulated other comprehensive income (loss), net of tax

The following table provides the changes in the components of accumulated other comprehensive income (loss), net of tax (in thousands) for the thirteen weeks ended December 27, 2014:

	Cash Flow Hedges			Translation			Accumulated Other Comprehensive Income (Loss)
Balance at September 27, 2014	$	8,952		$	(63,003	)	$	(54,051	)
Other comprehensive loss, before reclassifications	(232		)	(29,794		)	(30,026		)
Amounts reclassified from accumulated other comprehensive income (loss)	(329		)	—			(329		)
Foreign currency exchange impact on cash flow hedges	(2		)	—			(2		)
Net current period other comprehensive loss	(563		)	(29,794		)	(30,357		)
Balance at December 27, 2014	$	8,389		$	(92,797	)	$	(84,408	)

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Fixed Assets (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013	Sep. 27, 2014
Fixed Assets
Total fixed assets	$ 1,858,401		$ 1,765,949
Accumulated depreciation and amortization	(635,832)		(594,524)
Fixed assets, net	1,222,569		1,171,425
Depreciation and amortization	51,049	47,996
Production equipment
Fixed Assets
Total fixed assets	787,530		779,850
Production equipment | Minimum
Fixed Assets
Useful life in years	1 year
Production equipment | Maximum
Fixed Assets
Useful life in years	15 years
Coffee service equipment
Fixed Assets
Total fixed assets	59,508		61,029
Coffee service equipment | Minimum
Fixed Assets
Useful life in years	3 years
Coffee service equipment | Maximum
Fixed Assets
Useful life in years	7 years
Computer equipment and software
Fixed Assets
Total fixed assets	244,980		177,878
Computer equipment and software | Minimum
Fixed Assets
Useful life in years	1 year
Computer equipment and software | Maximum
Fixed Assets
Useful life in years	10 years
Land
Fixed Assets
Total fixed assets	12,576		12,767
Building and building improvements
Fixed Assets
Total fixed assets	248,908		238,945
Building and building improvements | Minimum
Fixed Assets
Useful life in years	4 years
Building and building improvements | Maximum
Fixed Assets
Useful life in years	30 years
Furniture and fixtures
Fixed Assets
Total fixed assets	37,863		36,899
Furniture and fixtures | Minimum
Fixed Assets
Useful life in years	1 year
Furniture and fixtures | Maximum
Fixed Assets
Useful life in years	15 years
Vehicles
Fixed Assets
Total fixed assets	12,467		13,032
Vehicles | Minimum
Fixed Assets
Useful life in years	4 years
Vehicles | Maximum
Fixed Assets
Useful life in years	5 years
Leasehold improvements
Fixed Assets
Total fixed assets	96,752		95,373
Leasehold improvements | Minimum
Fixed Assets
Useful life in years	1 year
Leasehold improvements | Maximum
Fixed Assets
Useful life in years	20 years
Assets acquired under capital leases
Fixed Assets
Total fixed assets	42,073		41,200
Fixed assets, net	34,300		34,100
Assets acquired under capital leases | Minimum
Fixed Assets
Useful life in years	5 years
Assets acquired under capital leases | Maximum
Fixed Assets
Useful life in years	15 years
Construction-in-progress
Fixed Assets
Total fixed assets	$ 315,744		$ 308,976

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Income Taxes (Details) (State and local, Capital loss carryforward, USD $) In Millions, unless otherwise specified	Dec. 27, 2014
State and local | Capital loss carryforward
Income Taxes
Carryforward amount	$ 17.7

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Current assets:
Cash and cash equivalents	$ 506,359	$ 761,214
Restricted cash and cash equivalents	30,177	378
Short-term investment	100,000	100,000
Receivables, less uncollectible accounts and return allowances of $76,265 and $66,120 at December 27, 2014 and September 27, 2014, respectively	643,029	621,451
Inventories	780,794	835,167
Income taxes receivable	42,780
Other current assets	75,290	69,272
Deferred income taxes, net	52,388	58,038
Total current assets	2,230,817	2,445,520
Fixed assets, net	1,222,569	1,171,425
Intangibles, net	344,856	365,444
Goodwill	957,771	755,895
Deferred income taxes, net	129	131
Other long-term assets	19,723	58,892
Total assets	4,775,865	4,797,307
Current liabilities:
Current portion of long-term debt	20,624	19,077
Current portion of capital lease and financing obligations	2,916	2,226
Accounts payable	396,667	411,107
Accrued expenses	326,337	305,677
Income tax payable		53,586
Dividend payable	46,594	40,580
Deferred income taxes, net	362	340
Other current liabilities	11,938	10,395
Total current liabilities	805,438	842,988
Long-term debt, less current portion	134,637	140,937
Capital lease and financing obligations, less current portion	116,440	116,240
Deferred income taxes, net	193,312	202,936
Other long-term liabilities	52,828	23,085
Commitments and contingencies
Redeemable noncontrolling interests	11,666	12,440
Stockholders' equity:
Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding
Common stock, $0.10 par value: Authorized - 500,000,000 shares; Issued and outstanding - 162,066,179 and 162,318,246 shares at December 27, 2014 and September 27, 2014, respectively	16,207	16,232
Additional paid-in capital	1,753,913	1,808,881
Retained earnings	1,775,832	1,687,619
Accumulated other comprehensive loss	(84,408)	(54,051)
Total stockholders' equity	3,461,544	3,458,681
Total liabilities and stockholders' equity	$ 4,775,865	$ 4,797,307

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Product Warranties (Details) (USD $)	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Product Warranties
Period of warranty on Keurig hot beverage system brewers	1 year
Changes in carrying amount of product warranties
Balance, beginning of period	$ 12,850,000	$ 7,804,000
Provision related to current period	14,166,000	10,230,000
Change in estimate	0	(58,000)
Usage	(7,336,000)	(5,185,000)
Balance, end of period	19,680,000	12,791,000
Recoveries	$ 200,000	$ 500,000

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Consolidated Statement of Changes in Stockholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Common stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Total
Balance at Sep. 27, 2014	$ 16,232	$ 1,808,881	$ 1,687,619	$ (54,051)	$ 3,458,681
Balance (in shares) at Sep. 27, 2014	162,318,246				162,318,246
Increase (Decrease) in Stockholders' Equity
Options exercised	18	3,152			3,170
Options exercised (in shares)	179,269
Restricted stock awards and units	15	(15)
Restricted stock awards and units (in shares)	154,372
Repurchase of common stock	(58)	(80,840)			(80,898)
Repurchase of common stock (in shares)	(585,708)				(585,708)
Stock compensation expense		10,391			10,391
Tax benefit from equity-based compensation plans		12,328			12,328
Deferred compensation expense		16			16
Adjustment of redeemable noncontrolling interests to redemption value			228		228
Other comprehensive income (loss), net of tax				(30,357)	(30,357)
Net income attributable to Keurig			134,579		134,579
Cash dividends declared			(46,594)		(46,594)
Balance at Dec. 27, 2014	$ 16,207	$ 1,753,913	$ 1,775,832	$ (84,408)	$ 3,461,544
Balance (in shares) at Dec. 27, 2014	162,066,179				162,066,179

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Compensation Plans (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Compensation Plans
Stock compensation	$ 10,391	$ 7,082
Employee Stock Purchase Plan
Compensation Plans
Average expected life	6 months	6 months
Average volatility (as a percent)	40.00%	55.00%
Dividend yield (as a percent)	0.88%	1.34%
Risk-free interest rate (as a percent)	0.05%	0.04%
Weighted average fair value (in dollars per share)	$ 33.94	$ 22.57
Employee stock options
Compensation Plans
Average expected life	5 years 6 months	5 years 6 months
Average volatility (as a percent)	57.00%	75.00%
Dividend yield (as a percent)	0.83%	1.33%
Risk-free interest rate (as a percent)	1.62%	1.69%
Weighted average fair value (in dollars per share)	$ 67.11	$ 40.98
RSUs | Minimum
Compensation Plans
Vesting period of award	3 years
RSUs | Maximum
Compensation Plans
Vesting period of award	4 years
PSUs | Minimum
Compensation Plans
Vesting period of award	2 years
PSUs | Maximum
Compensation Plans
Vesting period of award	3 years
RSAs | Minimum
Compensation Plans
Vesting period of award	3 years
RSAs | Maximum
Compensation Plans
Vesting period of award	4 years

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Segment Reporting (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Segment Reporting
Net sales	$ 1,386,358	$ 1,386,670
Operating income (loss)	215,927	226,626
Depreciation and amortization	61,159	59,148
Stock compensation	10,391	7,082
Corporate-Unallocated
Segment Reporting
Operating income (loss)	(42,262)	(38,147)
Depreciation and amortization	2,714	2,334
Stock compensation	3,837	2,346
Domestic
Segment Reporting
Net sales	1,215,458	1,191,866
Operating income (loss)	236,601	232,800
Depreciation and amortization	44,586	40,126
Stock compensation	5,831	3,706
Canada
Segment Reporting
Net sales	170,900	194,804
Operating income (loss)	21,588	31,973
Depreciation and amortization	13,859	16,688
Stock compensation	$ 723	$ 1,030

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Earnings Per Share

3 Months Ended

Dec. 27, 2014

Earnings Per Share

Earnings Per Share

15.Earnings Per Share

The following table illustrates the reconciliation of the numerator and denominator of basic and diluted earnings per share computations (dollars in thousands, except per share data):

	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Numerator for basic and diluted earnings per share:
Net income attributable to Keurig	$	134,579	$	138,227
Denominator:
Basic weighted-average shares outstanding	162,181,332		149,162,600
Effect of dilutive securities	1,893,706		2,419,297
Diluted weighted-average shares outstanding	164,075,038		151,581,897
Basic net income per common share	$	0.83	$	0.93
Diluted net income per common share	$	0.82	$	0.91

For the thirteen weeks ended December 27, 2014 and December 28, 2013, shares related to equity-based compensation of approximately 74,000 and 483,000 respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive.

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Segment Reporting (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Reconciliation of total segment operating income to consolidated income before income taxes
Operating income	$ 215,927	$ 226,626
Other income, net	181	429
Gain on financial instruments, net	3,345	4,561
Loss on foreign currency, net	(9,071)	(10,550)
Interest expense	(1,087)	(2,620)
Income before income taxes	$ 209,295	$ 218,446

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Inventories (Tables)

3 Months Ended

Dec. 27, 2014

Inventories

Schedule of inventories

Inventories consisted of the following (in thousands) as of:

	December 27, 2014		September 27, 2014
Raw materials and supplies	$	202,504	$	169,858
Finished goods	578,290		665,309
	$	780,794	$	835,167

Schedule of minimum future inventory purchase commitments

As of December 27, 2014, minimum future inventory purchase commitments were as follows (in thousands):

Fiscal Year	Inventory Purchase Obligations(1)
Remainder of 2015	$	612,262
2016	269,691
2017	262,952
2018	277,095
2019	120,123
Thereafter	65,762
	$	1,607,885

Certain purchase obligations are determined based on a contractual percentage of forecasted volumes.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Cash flows from operating activities:
Net income	$ 134,679	$ 138,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets	51,049	47,996
Amortization of intangibles	10,110	11,152
Amortization of deferred financing fees	1,413	1,413
Unrealized loss on foreign currency, net	8,981	11,932
Loss (gain) on disposal of fixed assets	217	(983)
Provision for doubtful accounts	2,479	862
Provision for sales returns	42,856	38,237
Gain on derivatives, net	(3,462)	(6,830)
Excess tax benefits from equity-based compensation plans	(12,324)	(4,509)
Deferred income taxes	3	(33)
Deferred compensation and stock compensation	10,407	7,087
Other	617	(225)
Changes in assets and liabilities
Receivables	(69,245)	(99,310)
Inventories	51,001	205,602
Income tax receivable/payable, net	(84,205)	1,185
Other current assets	(3,654)	(3,443)
Other long-term assets, net	1,297	(86)
Accounts payable and accrued expenses	(3,912)	(71,430)
Other current liabilities	(24,498)	(5,094)
Other long-term liabilities	28,599	678
Net cash provided by operating activities	142,408	272,676
Cash flows from investing activities:
Change in restricted cash	(158)	(537)
Acquisition, net of cash acquired	(180,698)
Capital expenditures for fixed assets	(100,303)	(60,822)
Other investing activities	(1,273)	770
Net cash used in investing activities	(282,432)	(60,589)
Cash flows from financing activities:
Proceeds from issuance of common stock under compensation plans	3,170	1,683
Repurchase of common stock	(80,898)	(122,464)
Excess tax benefits from equity-based compensation plans	12,324	4,509
Payments on capital lease and financing obligations	(853)	(462)
Repayment of long-term debt	(4,690)	(3,154)
Dividends paid	(40,580)	0
Other financing activities	(140)	26
Net cash provided by (used in) financing activities	(111,667)	(119,862)
Effect of exchange rate changes on cash and cash equivalents	(3,164)	(3,652)
Net (decrease) increase in cash and cash equivalents	(254,855)	88,573
Cash and cash equivalents at beginning of period	761,214	260,092
Cash and cash equivalents at end of period	506,359	348,665
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable and not disbursed at the end of each period	68,292	21,112
Dividends declared not paid at the end of each period	46,594	37,188
Noncash investing and financing activities:
Fixed assets acquired under capital lease and financing obligations	$ 375	$ 12,148

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Consolidated Balance Sheets
Receivables, uncollectible accounts and return allowances (in dollars)	$ 76,265	$ 66,120
Preferred stock, par value (in dollars per share)	$ 0.10	$ 0.10
Preferred stock, Authorized shares	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, Authorized shares	500,000,000	500,000,000
Common stock, Issued shares	162,066,179	162,318,246
Common stock, outstanding shares	162,066,179	162,318,246

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Fair Value Measurements

3 Months Ended

Dec. 27, 2014

Fair Value Measurements

Fair Value Measurements

10.Fair Value Measurements

The Company measures fair value as the selling price that would be received for an asset, or paid to transfer a liability, in the principal or most advantageous market on the measurement date.  The hierarchy established by the Financial Accounting Standards Board (“FASB”) prioritizes fair value measurements based on the types of inputs used in the valuation technique.  The inputs are categorized into the following levels:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than quoted prices that are observable, either directly or indirectly, which include quoted prices for similar assets or liabilities in active markets and quoted prices for identical assets or liabilities in markets that are not active.

Level 3 — Unobservable inputs not corroborated by market data, therefore requiring the entity to use the best available information, including management assumptions.

The following table summarizes the fair values and the levels used in fair value measurements as of December 27, 2014 for the Company’s financial assets (liabilities) (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2			Level 3
Derivatives:
Interest rate swaps	$	—	$	(2,682	)	$	—
Cross currency swap	—		9,296			—
Coffee futures	—		(701		)	—
Foreign currency forward contracts	—		130			—
Total	$	—	$	6,043		$	—

The following table summarizes the fair values and the levels used in fair value measurements as of September 27, 2014 for the Company’s financial liabilities (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2			Level 3
Derivatives:
Interest rate swaps	$	—	$	(3,371	)	$	—
Cross currency swap	—		5,951			—
Coffee futures	—		3,437			—
Forward currency forward contracts	—		108			—
Total	$	—	$	6,125		$	—

Derivatives

Level 2 derivative financial instruments use inputs that are based on market data of identical (or similar) instruments, including forward prices for commodities, interest rate curves and spot prices that are in observable markets.  Derivatives recorded on the balance sheet are at fair value with changes in fair value recorded in other comprehensive income for cash flow hedges and in the Unaudited Consolidated Statements of Operations for fair value hedges and derivatives that do not qualify for hedge accounting treatment.

Derivative financial instruments include coffee futures contracts, interest rate swap agreements, a cross currency swap agreement and foreign currency forward contracts.  The Company has identified significant concentrations of credit risk based on the economic characteristics of the instruments that include interest rates, commodity indexes and foreign currency rates and selectively enters into the derivative instruments with counterparties using credit ratings.

To determine fair value, the Company utilizes the market approach valuation technique for coffee futures and foreign currency forward contracts and the income approach for interest rate and cross currency swap agreements.  The Company’s fair value measurements include a credit valuation adjustment for the significant concentrations of credit risk.

As of December 27, 2014, the amount of loss estimated by the Company due to credit risk associated with the derivatives for all significant concentrations was not material based on the factors of an industry recovery rate and a calculated probability of default.

Long-Term Debt

The carrying value of long-term debt was $155.3 million and $160.0 million as of December 27, 2014 and September 27, 2014, respectively.  The inputs to the calculation of the fair value of long-term debt are considered to be Level 2 within the fair value hierarchy, as the measurement of fair value is based on the net present value of calculated interest and principal payments, using an interest rate derived from a fair market yield curve adjusted for the Company’s credit rating.  The carrying value of long-term debt approximates fair value as the interest rate on the debt is based on variable interest rates that reset every 30 days.

Long-Term Investment

The Company had a long-term investment of approximately $35.9 million included in other long-term assets in the accompanying Unaudited Consolidated Balance Sheet as of September 27, 2014, that was not publicly traded.  This investment was carried at cost and reviewed quarterly for indicators of other-than-temporary impairment.  During the first quarter of fiscal 2015, the Company acquired the remaining equity interests of this investment.  See Note 4, Acquisition.

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Document and Entity Information	3 Months Ended
	Dec. 27, 2014	Jan. 30, 2015
Document and Entity Information
Entity Registrant Name	KEURIG GREEN MOUNTAIN, INC.
Entity Central Index Key	0000909954
Document Type	10-Q
Document Period End Date	Dec. 27, 2014
Amendment Flag	false
Current Fiscal Year End Date	--09-26
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		161,675,100
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1

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Income Taxes

3 Months Ended

Dec. 27, 2014

Income Taxes

Income Taxes

11.Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax benefits or consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

As of December 27, 2014, the Company had a $17.7 million state capital loss carryforward and a state net operating loss carryforward of $11.5 million available to be utilized against future taxable income for years through fiscal 2015 and 2029, respectively, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code of 1986, as amended.  Based upon earnings history, the Company concluded that it is more likely than not that the net operating loss carryforward will be utilized prior to its expiration, but that the capital loss carryforward will not.  The Company has recorded a valuation allowance against the entire deferred tax asset balance for the capital loss carryforward.

As of each of the periods ending December 27, 2014 and September 27, 2014, the total amount of unrecognized tax benefits was $14.8 million.  The amount of unrecognized tax benefits at December 27, 2014 that would impact the effective tax rate if resolved in favor of the Company is $14.8 million.  As a result of prior acquisitions, the Company is indemnified for $7.2 million of the total reserve balance, and the indemnification is capped at $47.4 million.  If these unrecognized tax benefits are resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets, would be reduced accordingly.  The indemnifications have expiration dates through June 2016.

As of December 27, 2014 and September 27, 2014, accrued interest and penalties of $2.3 million and $2.4 million, respectively, were included in the Unaudited Consolidated Balance Sheets.  The Company recognizes interest and penalties in income tax expense.  The Company released $1.0 million of unrecognized tax benefits in the current quarter of fiscal 2015 and expects to release an additional $7.8 million over the next twelve months due to the expiration of the statute of limitations.

In the normal course of business, the Company is subject to tax examinations by taxing authorities both inside and outside of the United States.  The Company is generally not subject to examination with respect to returns filed for fiscal years prior to 2010.

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Consolidated Statements of Operations
Net sales	$ 1,386,358	$ 1,386,670
Cost of sales	922,236	922,623
Gross profit	464,122	464,047
Selling and operating expenses	176,522	168,215
General and administrative expenses	71,673	69,206
Operating income	215,927	226,626
Other income, net	181	429
Gain on financial instruments, net	3,345	4,561
Loss on foreign currency, net	(9,071)	(10,550)
Interest expense	(1,087)	(2,620)
Income before income taxes	209,295	218,446
Income tax expense	(74,616)	(79,971)
Net income	134,679	138,475
Net income attributable to noncontrolling interests	100	248
Net income attributable to Keurig	$ 134,579	$ 138,227
Net income attributable to Keurig per common share:
Basic (in dollars per share)	$ 0.83	$ 0.93
Diluted (in dollars per share)	$ 0.82	$ 0.91
Cash dividends declared per common share (in dollars per share)	$ 0.2875	$ 0.25
Weighted-average common shares outstanding:
Basic (in shares)	162,181,332	149,162,600
Diluted (in shares)	164,075,038	151,581,897

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Fixed Assets

3 Months Ended

Dec. 27, 2014

Fixed Assets

Fixed Assets

5.Fixed Assets

Fixed assets consisted of the following (in thousands) as of:

	Useful Life in Years	December 27, 2014			September 27, 2014
Production equipment	1-15	$	787,530		$	779,850
Coffee service equipment	3-7	59,508			61,029
Computer equipment and software	1-10	244,980			177,878
Land	Indefinite	12,576			12,767
Building and building improvements	4-30	248,908			238,945
Furniture and fixtures	1-15	37,863			36,899
Vehicles	4-5	12,467			13,032
Leasehold improvements	1-20 or remaining life of lease, whichever is less	96,752			95,373
Assets acquired under capital leases	5-15	42,073			41,200
Construction-in-progress		315,744			308,976
Total fixed assets		$	1,858,401		$	1,765,949
Accumulated depreciation and amortization		(635,832		)	(594,524		)
		$	1,222,569		$	1,171,425

Assets acquired under capital leases, net of accumulated amortization, were $34.3 million and $34.1 million at December 27, 2014 and September 27, 2014, respectively.

Total depreciation and amortization expense relating to all fixed assets was $51.0 million and $48.0 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively.

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Acquisition

3 Months Ended

Dec. 27, 2014

Acquisition

Acquisition

4.Acquisition

On December 18, 2014, the Company, through its wholly owned subsidiary Keurig International S.à.r.l., acquired all of the outstanding equity of MDS Global Holding p.l.c. (“Bevyz”), a manufacturer and distributor of an all-in-one drink system, for total cash consideration of $180.7 million, net of cash acquired.  The Company will utilize Bevyz’s complementary and unique technology and research and development capabilities in its own beverage platforms and products.

Prior to the acquisition, the Company owned approximately 15% of the outstanding equity of Bevyz.  As of December 27, 2014, the Company had not completed its valuation of fair value of the business acquired and the acquisition date fair value of the Company’s previously held equity interest in Bevyz.  As a result, for the fiscal quarter ended December 27, 2014, no gain or loss was recognized on the Company’s previously held equity interest.  No amounts were allocated to identifiable intangible assets or favorable or unfavorable contracts for purposes of the preliminary allocation.  The Company currently anticipates finalizing its valuation and the allocation of the purchase price, along with required retrospective adjustments, if any, in the second quarter of fiscal 2015.

The following summarizes the preliminary allocation as recorded as of December 27, 2014 (in thousands):

Accounts receivable	$	218
Inventories	743
Other current assets	504
Fixed assets	2,370
Other long-term assets	247
Goodwill	220,468
Accounts payable and accrued expenses	(5,911		)
Capital lease obligation	(763		)
Other long-term liabilities	(1,273		)
Total estimated fair value net assets acquired	216,603
Less previously held equity interest in Bevyz	(35,905		)
Total cash paid, net of cash acquired	$	180,698

Acquisition costs of $1.5 million were expensed as incurred and recognized in general and administrative expenses in the accompanying Unaudited Consolidated Statements of Operations.  Approximately $28.8 million of the purchase price was held in escrow at December 27, 2014 and is included in restricted cash and other long-term liabilities.  The revenue and earnings of Bevyz since acquisition and the proforma financial statements are immaterial.  For information on the assignment of goodwill to our operating segments, see Note 6, Goodwill and Intangible Assets.

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Segment Reporting (Tables)

3 Months Ended

Dec. 27, 2014

Segment Reporting

Summary of selected financial data for segment disclosures

	Thirteen weeks ended December 27, 2014
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	1,215,458	$	170,900	$	—		$	1,386,358
Operating income (loss)	$	236,601	$	21,588	$	(42,262	)	$	215,927
Depreciation and amortization	$	44,586	$	13,859	$	2,714		$	61,159
Stock compensation	$	5,831	$	723	$	3,837		$	10,391

	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

Reconciliation of operating segments and corporate-unallocated operating income (loss) to consolidated income before income taxes

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 27, 2014			December 28, 2013
Operating income	$	215,927		$	226,626
Other income, net	181			429
Gain on financial instruments, net	3,345			4,561
Loss on foreign currency, net	(9,071		)	(10,550		)
Interest expense	(1,087		)	(2,620		)
Income before income taxes	$	209,295		$	218,446

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Stockholders' Equity

3 Months Ended

Dec. 27, 2014

Stockholders' Equity

Stockholders' Equity

12.Stockholders’ Equity

Stock Repurchase Program

At various times during fiscal 2012, 2013, and 2014, Keurig’s Board of Directors authorized the Company to repurchase a total of $2.5 billion of the Company’s common stock.

Under its existing repurchase programs, on February 28, 2014, the Company entered into an accelerated share repurchase (“ASR”) agreement with a major financial institution (“Bank”).  The ASR allows the Company to buy a large number of shares immediately at a purchase price determined by an average market price over a period of time.  Under the ASR, the Company agreed to purchase $700.0 million of its common stock, in total, with an initial delivery to the Company of 4,340,508 shares (“Initial Shares”) of the Company’s common stock by the Bank.  The Initial Shares represent the number of shares at the current market price equal to 70% of the total fixed purchase price of $700.0 million.  The repurchased shares were retired and returned to an unissued status.  The par value of the repurchased shares of $0.4 million was deducted from common stock and the excess repurchase price over the par value of $489.6 million was deducted from additional paid-in capital.  The remainder of the total purchase price of $210.0 million reflects the value of the stock held by the Bank pending final settlement and, accordingly, was recorded as a reduction to additional paid-in capital.  Final settlement of the ASR will occur no later than February 27, 2015 at the Bank’s discretion.  Upon settlement of the ASR, the total shares repurchased by the Company will be determined based on a share price equal to the daily volume weighted-average price (“VWAP”) of the Company’s common stock during the term of the ASR, less a fixed per share discount amount. 

At settlement, the Bank will deliver additional shares to the Company in the event total shares are greater than the 4,340,508 shares initially delivered, and the Company will issue additional shares to the Bank in the event total shares are less than the shares initially delivered.  The receipt or issuance of additional shares will result in a reclassification between additional paid-in capital and common stock equal to the par value of the additional shares received or issued.  The number of shares that may be required to be issued by the Company to the Bank is limited to 10.0 million shares under the ASR.

The Company reflected the unsettled portion of the ASR ($210.0 million) as a repurchase of common stock for purposes of calculating earnings per share and as a forward contract indexed to its own common stock.  The forward contract met all of the applicable criteria for equity classification, and, therefore, was not accounted for as a derivative instrument.

As of December 27, 2014, based on the VWAP of the Company’s common stock for the period February 28, 2014 through December 27, 2014, settlement of the ASR would have resulted in 1.5 million additional shares delivered by the Bank to the Company.

An aggregate amount of $1,101.9 million remained authorized for common stock repurchase as of December 27, 2014.

Summary of share repurchase activity:

	Thirteen weeks ended
	December 27, 2014		Fiscal 2014(1)
Number of shares acquired	585,708		8,138,592
Average price per share of acquired shares	$	138.12	$	103.51
Total cost of acquired shares (in thousands)	$	80,898	$	1,052,430

(1)Number of shares acquired and average price per share reflect Initial Shares at then current market price, subject to change pending final settlement, and total cost of acquired shares includes total purchase price of $700.0 million under the ASR.

Accumulated Other Comprehensive Income (Loss)

The following table provides the changes in the components of accumulated other comprehensive income (loss), net of tax (in thousands) for the thirteen weeks ended December 27, 2014:

	Cash Flow Hedges			Translation			Accumulated Other Comprehensive Income (Loss)
Balance at September 27, 2014	$	8,952		$	(63,003	)	$	(54,051	)
Other comprehensive loss, before reclassifications	(232		)	(29,794		)	(30,026		)
Amounts reclassified from accumulated other comprehensive income (loss)	(329		)	—			(329		)
Foreign currency exchange impact on cash flow hedges	(2		)	—			(2		)
Net current period other comprehensive loss	(563		)	(29,794		)	(30,357		)
Balance at December 27, 2014	$	8,389		$	(92,797	)	$	(84,408	)

The unfavorable translation adjustment change during the thirteen weeks ended December 27, 2014 was primarily due to the weakening of the Canadian dollar against the U.S. dollar.  See also Note 9, Derivative Financial Instruments.

Common Stock Dividends

During the first quarter of fiscal 2015, the Company declared a quarterly dividend of $0.2875 per common share, or $46.6 million in the aggregate, payable on February 12, 2015 to shareholders of record on January 13, 2015.  During the thirteen weeks ended December 27, 2014, the Company paid dividends of approximately $40.6 million.

On January 30, 2015, the Company’s Board of Directors declared the Company’s next regular quarterly cash dividend of $0.2875 per common share, payable on April 30, 2015, to shareholders of record as of the close of business on March 31, 2015.

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Noncontrolling Interests

3 Months Ended

Dec. 27, 2014

Noncontrolling Interests

Noncontrolling Interests

8.Noncontrolling Interests

Noncontrolling interests (“NCI”) are evaluated by the Company and are shown as either a liability, temporary equity (shown between liabilities and equity) or as permanent equity depending on the nature of the redeemable features at amounts based on formulas specific to each entity.  Generally, mandatorily redeemable NCIs are classified as liabilities and non-mandatorily redeemable NCIs are classified as either temporary or permanent equity.  Redeemable NCIs that are not mandatorily redeemable are classified outside of stockholders’ equity in the Unaudited Consolidated Balance Sheets as temporary equity under the caption, Redeemable noncontrolling interests, and are measured at their redemption values at the end of each period.  If the redemption value is greater than the carrying value, an adjustment is recorded in retained earnings to record the NCI at its redemption value.

Net income attributable to NCIs reflects the portion of the net income of consolidated entities applicable to the NCI shareholders in the accompanying Unaudited Consolidated Statements of Operations.  The net income attributable to NCIs is classified in the Unaudited Consolidated Statements of Operations as part of consolidated net income and deducted from total consolidated net income to arrive at the net income attributable to the Company.

If a change in ownership of a consolidated subsidiary results in a loss of control or deconsolidation, any retained ownership interests are remeasured with the gain or loss reported to net earnings.

The changes in the temporary equity attributable to the redeemable NCI for the thirteen weeks ended December 27, 2014 are as follows (in thousands):

	Equity attributable to redeemable noncontrolling interest
Balance at September 27, 2014	$	12,440
Net income	100
Adjustment to redemption value	(228		)
Cash distributions	(141		)
Other comprehensive loss	(505		)
Balance at December 27, 2014	$	11,666

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Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended			3 Months Ended	12 Months Ended
	Apr. 27, 2012 item	Nov. 29, 2010 item	Sep. 28, 2010 item	Dec. 27, 2014 item	Sep. 27, 2014
Legal Proceedings | Brad Barry action
Legal Proceedings
Number of affirmative defenses shared by all defendants				3
Legal Proceedings | Putative securities fraud class actions
Legal Proceedings
Number of pending actions				1
Legal Proceedings | Putative stockholder derivative actions
Legal Proceedings
Number of pending actions				2
Legal Proceedings | Consolidated putative stockholder derivative action, District of Vermont
Legal Proceedings
Number of separate complaints in consolidated action				5
Number of separate complaints filed after disclosure of SEC Inquiry			2
Number of separate complaints ordered by federal court to be consolidated into the action	2	2
Legal Proceedings | Antitrust litigation, putative class actions
Legal Proceedings
Number of pending actions				27
Legal Proceedings | Club Coffee claim
Legal Proceedings
Amount of damages claimed				600
Product Liability
Legal Proceedings
Net charge for estimated cost related to potential issue with certain Keurig brewers					$ 10.0

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Goodwill and Intangible Assets

3 Months Ended

Dec. 27, 2014

Goodwill and Intangible Assets

Goodwill and Intangible Assets

6.Goodwill and Intangible Assets

The following represented the change in the carrying amount of goodwill by segment for the thirteen weeks ended December 27, 2014 (in thousands):

	Domestic			Canada			Total
Balance at September 27, 2014	$	369,353		$	386,542		$	755,895
Foreign currency effect	(2,894		)	(15,698		)	(18,592		)
Acquisition of Bevyz (see Note 4, Acquisition)	220,468			—			220,468
Balance at December 27, 2014	$	586,927		$	370,844		$	957,771

Indefinite-lived intangible assets included in the Canada segment consisted of the following (in thousands) as of:

	December 27, 2014		September 27, 2014
Trade names	$	86,592	$	90,257

Intangible Assets Subject to Amortization

Definite-lived intangible assets included in the Domestic segment and Canada segment consisted of the following (in thousands) as of:

		December 27, 2014					September 27, 2014
	Useful Life in Years	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired technology	4-10	$	16,490	$	(14,122	)	$	16,501	$	(13,713	)
Customer and roaster agreements	8-11	8,717		(5,410		)	8,939		(5,303		)
Customer relationships	2-16	378,502		(145,427		)	390,563		(141,163		)
Trade names	9-11	36,679		(17,165		)	35,911		(16,548		)
Total		$	440,388	$	(182,124	)	$	451,914	$	(176,727	)

Definite-lived intangible assets are amortized on a straight-line basis over the period of expected economic benefit.  Total amortization expense was $10.1 million and $11.2 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively.

The estimated aggregate amortization expense for the remainder of fiscal 2015, for each of the next five years and thereafter, is as follows (in thousands):

Fiscal Year	Amortization Expense
Remainder of 2015	$	29,716
2016	38,898
2017	37,502
2018	37,502
2019	37,402
2020	33,299
Thereafter	43,945

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Product Warranties

3 Months Ended

Dec. 27, 2014

Product Warranties

Product Warranties

7.Product Warranties

The Company offers a one-year warranty on all Keurig® hot beverage system brewers it sells.  The Company provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized.  Brewer failures may arise in the later part of the warranty period, and actual warranty costs may exceed the reserve.  As the Company has grown, it has added significantly to its product testing, quality control infrastructure and overall quality processes.  Nevertheless, as the Company continues to innovate, and its products become more complex, both in design and componentry, product performance may modulate, causing warranty rates to possibly fluctuate going forward.  As a result, future warranty claims rates may be higher or lower than the Company is currently experiencing and for which the Company is currently providing in its warranty reserve.

The changes in the carrying amount of product warranties for the thirteen weeks ended December 27, 2014 and December 28, 2013 are as follows (in thousands):

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Balance, beginning of period	$	12,850		$	7,804
Provision related to current period	14,166			10,230
Change in estimate	—			(58		)
Usage	(7,336		)	(5,185		)
Balance, end of period	$	19,680		$	12,791

For the thirteen weeks ended December 27, 2014 and December 28, 2013, the Company recorded recoveries of $0.2 million and $0.5 million, respectively.  The recoveries are under agreements with suppliers and are recorded as a reduction of warranty expense.  The recoveries are not reflected in the provision charged to income in the table above.

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Derivative Financial Instruments

3 Months Ended

Dec. 27, 2014

Derivative Financial Instruments

Derivative Financial Instruments

9.Derivative Financial Instruments

Cash Flow Hedges

The Company is exposed to certain risks relating to ongoing business operations.  The primary risks that are mitigated by financial instruments are interest rate risk, commodity price risk and foreign currency exchange rate risk.  The Company uses interest rate swaps to mitigate interest rate risk associated with the Company’s variable-rate borrowings, enters into coffee futures contracts to hedge future coffee purchase commitments of green coffee with the objective of minimizing cost risk due to market fluctuations, and uses foreign currency forward contracts to hedge the purchase and payment of green coffee purchase commitments denominated in non-functional currencies.

The Company designates these contracts as cash flow hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The effective portion of the derivatives’ gains or losses, resulting from changes in the fair value of these instruments is classified in accumulated other comprehensive income (loss), net of related tax effects and is reclassified from other comprehensive income (“OCI”) into earnings in the same period or periods during which the hedged transaction affects earnings.  Any ineffective portion of the derivatives’ gains or losses is recognized in earnings in the period such ineffectiveness occurs.  If it is determined that a derivative is not highly effective, the gain or loss is reclassified into earnings.

Fair Value Hedges

The Company occasionally enters into foreign currency forward contracts to hedge certain recognized liabilities in currencies other than the Company’s functional currency.  The Company designates these contracts as fair value hedges and measures the effectiveness of these derivative instruments at each balance sheet date.  The changes in the fair value of these instruments along with the changes in the fair value of the hedged liabilities are recognized in net gains or losses on foreign currency on the Unaudited Consolidated Statements of Operations.

Other Derivatives

The Company is also exposed to certain foreign currency and interest rate risks on an intercompany note with a foreign subsidiary denominated in Canadian currency.  At December 27, 2014, the Company had approximately one year remaining on a CDN $90.0 million cross currency swap to exchange interest payments and principal on the intercompany note.  This cross currency swap is not designated as a hedging instrument for accounting purposes and is recorded at fair value, with the changes in fair value recognized in the Unaudited Consolidated Statements of Operations.  Gains and losses resulting from the change in fair value are largely offset by the financial impact of the re-measurement of the intercompany note.  In accordance with the cross currency swap agreement, on a quarterly basis, the Company pays interest based on the three month Canadian Bankers Acceptance rate and receives interest based on the three month U.S. Libor rate.  Additional interest expense pursuant to the cross currency swap agreement for the thirteen weeks ended December 27, 2014 and for the thirteen weeks ended December 28, 2013 was $0.3 million and $0.4 million, respectively.

The Company occasionally enters into foreign currency forward contracts and coffee futures contracts that qualify as derivatives, and are not designated as hedging instruments for accounting purposes in addition to the foreign currency forward contracts and coffee futures contracts noted above.  Contracts that are not designated as hedging instruments are recorded at fair value with the changes in fair value recognized in the Unaudited Consolidated Statements of Operations.

The Company does not hold or use derivative financial instruments for trading or speculative purposes.

The Company is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments, however nonperformance is not anticipated.

The following table summarizes the fair value of the Company’s derivatives included on the Unaudited Consolidated Balance Sheets (in thousands):

	December 27, 2014			September 27, 2014			Balance Sheet Classification
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(2,682	)	$	(3,371	)	Other current liabilities
Coffee futures	—			3,437			Other current assets
Coffee futures	(701		)	—			Other current liabilities
Foreign currency forward contracts	130			108			Other current assets
	$	(3,253	)	$	174
Derivatives not designated as hedges:
Cross currency swap	$	9,296		$	5,951		Other current assets
	$	9,296		$	5,951
Total	$	6,043		$	6,125

Offsetting

Generally, all of the Company’s derivative instruments are subject to a master netting arrangement under which either party may offset amounts if the payment amounts are for the same transaction and in the same currency.  By election, the parties may agree to net other transactions.  In addition, the arrangements provide for the net settlement of all contracts through a single payment in a single currency in the event of default or termination of the contract.  The Company’s policy is to net all derivative assets and liabilities in the accompanying Unaudited Consolidated Balance Sheets when allowable by U.S. GAAP.

Additionally, the Company has elected to include all derivative assets and liabilities, including those not subject to a master netting arrangement, in the following offsetting tables.

Offsetting of financial assets and derivative assets as of December 27, 2014 and September 27, 2014 is as follows (in thousands):

								Gross amounts not offset in the
			Gross amounts			Net amount of		Unaudited Consolidated Balance
	Gross		offset in the			assets presented		Sheet
	amounts of		Unaudited			in the Unaudited				Cash
	recognized		Consolidated			Consolidated		Financial		collateral
	assets		Balance Sheet			Balance Sheet		instruments		received		Net amount
Derivative assets, as of December 27, 2014	$	9,426	$	—		$	9,426	$	—	$	—	$	9,426
Derivative assets, as of September 27, 2014	9,830		(334		)	9,496		—		—		9,496

Offsetting of financial liabilities and derivative liabilities as of December 27, 2014 and September 27, 2014 is as follows (in thousands):

						Net amount of		Gross amounts not offset in the
			Gross amounts			liabilities		Unaudited Consolidated
	Gross		offset in the			presented in the		Balance Sheet
	amounts of		Unaudited			Unaudited				Cash
	recognized		Consolidated			Consolidated		Financial		collateral
	liabilities		Balance Sheet			Balance Sheet		instruments		pledged		Net amount
Derivative liabilities, as of December 27, 2014	$	3,383	$	—		$	3,383	$	—	$	—	$	3,383
Derivative liabilities, as of September 27, 2014	3,705		(334		)	3,371		—		—		3,371

The following table summarizes the amount of unrealized gain (loss), gross of tax, arising during the period on financial instruments that qualify for hedge accounting included in OCI (in thousands):

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Cash Flow Hedges:
Interest rate swaps	$	689		$	574
Coffee futures	(1,172		)	(1,400		)
Foreign currency forward contracts	77			195
Total	$	(406	)	$	(631	)

The following table summarizes the amount of gains (losses), gross of tax, reclassified from OCI to income (in thousands):

	Thirteen weeks ended						Location of Gains
	December 27, 2014			December 28, 2013			(Losses) Reclassified from OCI into Income
Coffee futures	$	624		$	(206	)	Cost of sales
Foreign currency forward contracts	(59		)	(44		)	Cost of sales
Foreign currency forward contracts	—			(25		)	Loss on foreign currency, net
Total	$	565		$	(275	)

The Company expects to reclassify $9.9 million of net gains, net of tax, from OCI to earnings for coffee derivatives within the next twelve months.

See Note 12, Stockholders’ Equity, for a reconciliation of derivatives in beginning accumulated other comprehensive income (loss) to derivatives in ending accumulated other comprehensive income (loss).

Net (losses) gains on financial instruments not designated as hedges for accounting purposes are as follows (in thousands):

	Thirteen weeks ended				Location of net (loss) gain in
	December 27,  2014		December 28,  2013		Unaudited Consolidated Statements of Operations
Net gain on cross currency swap	$	3,345	$	4,561	Gain on financial instruments, net
Net gain on coffee futures	—		2,125		Cost of sales
Total	$	3,345	$	6,686

In addition, for the thirteen weeks ended December 27, 2014, the Company recognized $0.1 million in net losses as a cost of sale representing the ineffective portion on coffee futures designated as cash flow hedges.  No amounts were recognized for the thirteen weeks ended December 28, 2013 for ineffectiveness.

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Earnings Per Share (Tables)

3 Months Ended

Dec. 27, 2014

Earnings Per Share

Reconciliation of the numerator and denominator of basic and diluted earnings per share computations

The following table illustrates the reconciliation of the numerator and denominator of basic and diluted earnings per share computations (dollars in thousands, except per share data):

	Thirteen weeks ended
	December 27, 2014		December 28, 2013
Numerator for basic and diluted earnings per share:
Net income attributable to Keurig	$	134,579	$	138,227
Denominator:
Basic weighted-average shares outstanding	162,181,332		149,162,600
Effect of dilutive securities	1,893,706		2,419,297
Diluted weighted-average shares outstanding	164,075,038		151,581,897
Basic net income per common share	$	0.83	$	0.93
Diluted net income per common share	$	0.82	$	0.91

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Derivative Financial Instruments (Details 5) (USD $)	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Net gain (loss) on derivative instruments
Net (losses) gains on financial instruments not designated as hedges	$ 3,345,000	$ 6,686,000
Net gains recognized as ineffective portion		0
Coffee futures
Net gain (loss) on derivative instruments
Amount of net gains, net of tax expected to be reclassified from OCI to earnings	(9,900,000)
Coffee futures | Cost of sales
Net gain (loss) on derivative instruments
Net (losses) gains on financial instruments not designated as hedges	0	2,125,000
Cross currency swap | (Loss) gain on financial instruments, net
Net gain (loss) on derivative instruments
Net (losses) gains on financial instruments not designated as hedges	3,345,000	4,561,000
Cash Flow Hedges
Net gain (loss) on derivative instruments
Amount of unrealized gain (loss), gross of tax, on financial instruments qualifying for hedge accounting included in OCI	(406,000)	(631,000)
Amount of gains (losses), gross of tax, reclassified from OCI to income	565,000	(275,000)
Cash Flow Hedges | Interest rate swaps
Net gain (loss) on derivative instruments
Amount of unrealized gain (loss), gross of tax, on financial instruments qualifying for hedge accounting included in OCI	689,000	574,000
Cash Flow Hedges | Coffee futures
Net gain (loss) on derivative instruments
Amount of unrealized gain (loss), gross of tax, on financial instruments qualifying for hedge accounting included in OCI	(1,172,000)	(1,400,000)
Cash Flow Hedges | Coffee futures | Cost of sales
Net gain (loss) on derivative instruments
Amount of gains (losses), gross of tax, reclassified from OCI to income	624,000	(206,000)
Net gains recognized as ineffective portion	(100,000)
Cash Flow Hedges | Foreign currency forward contracts
Net gain (loss) on derivative instruments
Amount of unrealized gain (loss), gross of tax, on financial instruments qualifying for hedge accounting included in OCI	77,000	195,000
Cash Flow Hedges | Foreign currency forward contracts | Cost of sales
Net gain (loss) on derivative instruments
Amount of gains (losses), gross of tax, reclassified from OCI to income	(59,000)	(44,000)
Cash Flow Hedges | Foreign currency forward contracts | Gain (loss) on foreign currency, net
Net gain (loss) on derivative instruments
Amount of gains (losses), gross of tax, reclassified from OCI to income		$ (25,000)

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Commitments and Contingencies

3 Months Ended

Dec. 27, 2014

Commitments and Contingencies

Commitments and Contingencies

14.Commitments and Contingencies

Legal Proceedings

On May 9, 2011, an organization named Council for Education and Research on Toxics (“CERT”), purporting to act in the public interest, filed suit in Los Angeles Superior Court (Council for Education and Research on Toxics v. Brad Barry LLC, et al., Case No. BC461182) against several companies, including the Company, that roast, package, or sell coffee in California.  The Brad Barry complaint alleges that coffee contains the chemical acrylamide and that the Company and the other defendants are required to provide warnings under section 25249.6 of the California Safe Drinking Water and Toxics Enforcement Act, better known as Proposition 65.  Acrylamide is not added to coffee, but forms in trace amounts (parts per billion) as part of a chemical reaction that occurs in the coffee bean when it is roasted.  Therefore it is present in all roasted coffee.  To date, the Company is unaware of any reliable method for reducing acrylamide levels in coffee without adversely affecting the quality of the product.  The Brad Barry action has been consolidated for all purposes with another Proposition 65 case filed by CERT on April 13, 2010 over allegations of acrylamide in “ready to drink” coffee sold in restaurants, convenience stores, and donut shops.  (Council for Education and Research on Toxics v. Starbucks Corp., et al., Case No. BC 415759).  The Company was not named in the Starbucks complaint.  The Company has joined a joint defense group (“JDG”) organized to address CERT’s allegations, and the Company intends to vigorously defend against these allegations.  The Court ordered the case phased for discovery and trial.  Trial of the first phase of the case commenced on September 8, 2014 and was limited to three affirmative defenses shared by all defendants in both cases.  Other affirmative defenses, plaintiff’s prima facie case, and remedies are deferred for subsequent phases if defendants do not prevail on the three Phase 1 defenses.  Testimony in Phase 1 was completed on November 3, 2014, and final post-trial briefing of Phase 1 issues was completed on January 23, 2015.  The Court will entertain closing arguments on February 26, 2015, after which the matter will be submitted.

At this stage of the proceedings, the Company is unable to predict its outcome, the potential loss or range of loss, if any, associated with its resolution or any potential effect it may have on the Company or its operations.

On January 24, 2012, Teashot, LLC (“Teashot”) filed suit against the Company, Keurig and Starbucks Corp. (“Starbucks”) in the United States District Court for the District of Colorado (Civil Action No. 12-cv-00189-WJM-KMT) for infringement of Teashot’s U.S. Patent No. 5,895,672 (the ‘672 patent).  On February 6, 2014, the district court granted the Company’s motion for summary judgment of non-infringement.  Following an appeal by Teashot, on January 5, 2015 the United States Court of Appeals for the Federal Circuit unanimously affirmed the district court’s decision on summary judgment of non-infringement.

Stockholder Litigation

One putative securities fraud class action is presently pending against the Company and certain of its officers and directors, along with two putative stockholder derivative actions.  The pending putative securities fraud class action was filed on November 29, 2011.  The first putative stockholder derivative action is a consolidated action pending in the United States District Court for the District of Vermont that consists of five separate putative stockholder derivative complaints, the first two were filed after the Company’s disclosure of the SEC inquiry on September 28, 2010, while the others were filed on February 10, 2012, March 2, 2012, and July 23, 2012, respectively.  The second putative stockholder derivative action is pending in the Superior Court of the State of Vermont for Washington County and was commenced following the Company’s disclosure of the SEC inquiry on September 28, 2010.

The putative securities fraud class action, captioned Louisiana Municipal Police Employees’ Retirement System (“LAMPERS”) v. Green Mountain Coffee Roasters, Inc., et al., Civ. No. 2:11-cv-00289, was filed in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III.  Plaintiffs’ amended complaint alleged violations of the federal securities laws in connection with the Company’s disclosures relating to its revenues and its inventory accounting practices.  The amended complaint sought class certification, compensatory damages, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  Plaintiffs sought to represent all purchasers of the Company’s securities between February 2, 2011 and November 9, 2011.  The initial complaint filed in the action on November 29, 2011 included counts for alleged violations of (1) Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) against the Company, certain of its officers and directors, and the Company’s underwriters in connection with a May 2011 secondary common stock offering; and (2) Section 10(b) of the Exchange Act and Rule 10b-5 against the Company and the officer defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants.  Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until January 30, 2012 to move the court to serve as lead plaintiff of the putative class.  Competing applications were filed and the Court appointed Louisiana Municipal Police Employees’ Retirement System, Sjunde AP-Fonden, Board of Trustees of the City of Fort Lauderdale General Employees’ Retirement System, Employees’ Retirement System of the Government of the Virgin Islands, and Public Employees’ Retirement System of Mississippi as lead plaintiffs’ counsel on April 27, 2012.  Pursuant to a schedule approved by the court, plaintiffs filed their amended complaint on October 22, 2012, and plaintiffs filed a corrected amended complaint on November 5, 2012.  Plaintiffs’ amended complaint did not allege any claims under the Securities Act against the Company, its officers and directors, or the Company’s underwriters in connection with the May 2011 secondary common stock offering.  Defendants moved to dismiss the amended complaint on March 1, 2013 and on December 20, 2013, the court issued an order dismissing the amended complaint with prejudice.  On January 21, 2014, plaintiffs filed a notice of intent to appeal the court’s December 20, 2013 order to the United States Court of Appeals for the Second Circuit.  Pursuant to a schedule entered by the appeals court, briefing on the appeal was completed on June 23, 2014.  The Second Circuit heard oral argument on the appeal on December 1, 2014.  The underwriters previously named as defendants notified the Company of their intent to seek indemnification from the Company pursuant to their underwriting agreement dated May 5, 2011 in regard to the claims asserted in this action.

The first putative stockholder derivative action, a consolidated action captioned In re Green Mountain Coffee Roasters, Inc.  Derivative Litigation, Civ. No. 2:10-cv-00233, premised on the same allegations asserted in the now dismissed Horowitz v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:10-cv-00227 securities class action complaint, the LAMPERS action described above, and the now dismissed action captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III.  On November 29, 2010, the federal court entered an order consolidating two actions and appointing the firms of Robbins Umeda LLP and Shuman Law Firm as co-lead plaintiffs’ counsel.  On February 23, 2011, the federal court approved a stipulation filed by the parties providing for a temporary stay of that action until the court rules on defendants’ motions to dismiss the consolidated complaint in the Horowitz putative securities fraud class action. 

On March 7, 2012, the federal court approved a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the Horowitz putative securities fraud class action or the Horowitz putative securities fraud class action is dismissed with prejudice.  On April 27, 2012, the federal court entered an order consolidating the stockholder derivative action captioned Himmel v. Robert P. Stiller, et al., with two additional putative derivative actions, Musa Family Revocable Trust v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00029, and Laborers Local 235 Benefit Funds v. Robert P.  Stiller, et al., Civ. No. 2:12-cv- 00042.  On November 14, 2012, the federal court entered an order consolidating an additional stockholder derivative action, captioned Henry Cargo v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00161, and granting plaintiffs leave to lift the stay for the limited purpose of filing a consolidated complaint.  The consolidated complaint is asserted nominally on behalf of the Company against certain of its officers and directors.  The consolidated complaint asserts claims for breach of fiduciary duty, waste of corporate assets, unjust enrichment, contribution, and indemnification and seeks compensatory damages, injunctive relief, restitution, disgorgement, attorney’s fees, costs, and such other relief as the court should deem just and proper.  On May 14, 2013, the court approved a joint stipulation filed by the parties providing for a temporary stay of the proceedings until the conclusion of the appeal in the Horowitz putative securities fraud class action.  On August 1, 2013, the parties filed a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the LAMPERS putative securities fraud class action or the LAMPERS putative securities fraud class action is dismissed with prejudice, which the court approved on August 2, 2013.  On February 24, 2014, the court approved a further joint stipulation filed by the parties continuing the temporary stay until the appeals court rules on the pending appeal in the LAMPERS putative securities fraud class action.

The second putative stockholder derivative action, M. Elizabeth Dickinson v. Robert P. Stiller, et al., Civ. No. 818-11-10, is pending in the Superior Court of the State of Vermont for Washington County.  On February 28, 2011, the court approved a stipulation filed by the parties similarly providing for a temporary stay of that action until the federal court rules on defendants’ motions to dismiss the consolidated complaint in the Horowitz putative securities fraud class action.  As a result of the federal court’s ruling in the Horowitz putative securities fraud class action, the temporary stay was lifted.  On June 25, 2013, plaintiff filed an amended complaint in the action, which is asserted nominally on behalf of the Company against certain current and former directors and officers.  The amended complaint is premised on the same allegations alleged in the Horowitz, LAMPERS, and Fifield putative securities fraud class actions.  The amended complaint asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and alleged insider selling by certain of the named defendants.  The amended complaint seeks compensatory damages, injunctive relief, restitution, disgorgement, attorneys’ fees, costs, and such other relief as the court should deem just and proper.  On August 7, 2013, the parties filed a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the LAMPERS putative securities fraud class action or the LAMPERS putative securities fraud class action is dismissed with prejudice, which the court approved on August 21, 2013.  On April 21, 2014, the court approved a joint stipulation filed by the parties continuing the temporary stay until the appeals court rules on the pending appeal in the LAMPERS putative securities fraud class action.

The Company and the other defendants intend to vigorously defend all the pending lawsuits.  Additional lawsuits may be filed and, at this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

Antitrust Litigation

On February 11, 2014, TreeHouse Foods, Inc., Bay Valley Foods, LLC, and Sturm Foods, Inc. filed suit against Green Mountain Coffee Roasters, Inc. and Keurig, Inc. in the U.S. District Court for the Southern District of New York (TreeHouse Foods, Inc. et al. v. Green Mountain Coffee Roasters, Inc. et al., No. 1:14-cv-00905-VSB).  The TreeHouse complaint asserts claims under the federal antitrust laws and various state laws, contending that the Company has monopolized alleged markets for single serve coffee brewers and single serve coffee portion packs, including through its contracts with suppliers and distributors and in connection with the launch of its next generation coffee brewer.  The TreeHouse complaint seeks monetary damages, declaratory relief, injunctive relief, and attorneys’ fees.

On March 13, 2014, JBR, Inc. (d/b/a Rogers Family Company) filed suit against Keurig Green Mountain, Inc. in the U.S. District Court for the Eastern District of California (JBR, Inc. v. Keurig Green Mountain, Inc., No. 2:14-cv-00677-KJM-CKD).  The claims asserted and relief sought in the JBR complaint are substantially similar to the claims asserted and relief sought in the TreeHouse complaint.

Additionally, beginning on March 10, 2014, twenty-seven putative class actions asserting similar claims and seeking similar relief have been filed on behalf of purported direct and indirect purchasers of the Company’s products in various federal district courts.  On June 3, 2014, the Judicial Panel on Multidistrict Litigation granted a motion to transfer these various actions, including the TreeHouse and JBR actions, to a single judicial district for coordinated or consolidated pre-trial proceedings.  The actions are now pending before Judge Vernon S. Broderick in the Southern District of New York (In re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation, No. 1:14-md-02542-VSB).

On June 23, 2014, TreeHouse and JBR filed a joint motion to expedite discovery, which the Court granted in part and denied in part on July 23, 2014.  On August 11, 2014, JBR filed a motion for a preliminary injunction, which the Company opposed.  The Court held a hearing on September 3-4, 2014, and by order dated September 19, 2014, denied JBR’s motion for a preliminary injunction.  On September 24, 2014, JBR filed a notice of appeal of the denial of the preliminary injunction.  On October 28, 2014, JBR moved to expedite its appeal, which the Company opposed, and on November 13, 2014, the Court of Appeals denied the motion for expedited treatment.  JBR filed its opening appeal brief on November 17, 2014.  The Company’s brief is due February 17, 2015, and JBR’s reply brief will be due March 3, 2015.

Consolidated putative class action complaints by direct purchaser and indirect purchaser plaintiffs were filed on July 24, 2014.  The Company filed motions to dismiss these complaints and the complaints in the TreeHouse and JBR actions on October 6, 2014.  On October 27, 2014, all plaintiffs informed the Company of their decision to amend their complaints rather than oppose the Company’s motions to dismiss.  Plaintiffs’ amended complaints were filed November 25, 2014.  [The Company moved to dismiss the amended complaints on February 2, 2015.]  Under the current briefing schedule, plaintiffs’ opposition briefs will be due April 10, 2015, and the Company’s reply briefs will be due May 11, 2015.

On September 30, 2014, a statement of claim was filed against the Company and Keurig Canada Inc. in Ontario, Canada by Club Coffee L.P. (“Club Coffee”), a Canadian manufacturer of single-serve beverage packs, claiming damages of $600 million and asserting a breach of competition law and false and misleading statements by the Company.  On October 21, 2014, Club Coffee filed an amended statement of claim against the Company and Keurig Canada Inc. claiming the same amount of damages as in the original statement of claim and asserting essentially the same breaches of competition law and false and misleading statements by the Company.  On January 12, 2015, the Company and Keurig Canada Inc. served Club Coffee with notice of motion for a motion to strike the claims made by Coffee Club for failure to state a reasonable cause of action.

The Company intends to vigorously defend all of the pending lawsuits.  At this time, the Company is unable to predict the outcome of these lawsuits, the potential loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

Product Liability

In November 2014, the Company informed the U.S. Consumer Product Safety Commission and Health Canada that it identified a potential issue involving certain Keurig MINI Plus (non-reservoir) brewers (K10 and B31 models), where on very rare occasions, hot liquid could escape the brewer.  As a result, the Company recorded a net charge in fiscal 2014 of approximately $10.0 million in its statement of operations which represented the Company’s best estimate, based on a number of assumptions, of the cost to remediate this issue and related expenses. Included in this charge is the recovery that the Company expects to receive from its insurance carriers where the Company has a legally enforceable contract that stipulates the terms of the insurance coverage and where the terms are not in or expected to be in dispute.  On December 23, 2014 the Company issued a recall for its Keurig MINI Plus brewers.  This action did not change our estimate for the reserve or the anticipated insurance recovery; however, as such charge is based on estimates, the Company’s ultimate liability and recovery may exceed or be less than the amounts recorded.  Based on current information known to the Company, the Company believes that this issue will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

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Fixed Assets (Tables)

3 Months Ended

Dec. 27, 2014

Fixed Assets

Schedule of fixed assets

Fixed assets consisted of the following (in thousands) as of:

	Useful Life in Years	December 27, 2014			September 27, 2014
Production equipment	1-15	$	787,530		$	779,850
Coffee service equipment	3-7	59,508			61,029
Computer equipment and software	1-10	244,980			177,878
Land	Indefinite	12,576			12,767
Building and building improvements	4-30	248,908			238,945
Furniture and fixtures	1-15	37,863			36,899
Vehicles	4-5	12,467			13,032
Leasehold improvements	1-20 or remaining life of lease, whichever is less	96,752			95,373
Assets acquired under capital leases	5-15	42,073			41,200
Construction-in-progress		315,744			308,976
Total fixed assets		$	1,858,401		$	1,765,949
Accumulated depreciation and amortization		(635,832		)	(594,524		)
		$	1,222,569		$	1,171,425

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Derivative Financial Instruments (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Derivatives
Gross amounts of recognized assets	$ 9,426	$ 9,830
Gross amounts offset in the Unaudited Consolidated Balance Sheet		(334)
Net amount of assets presented in the Unaudited Consolidated Balance Sheet	9,426	9,496
Net amount	$ 9,426	$ 9,496

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Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 755,895
Foreign currency effect	(18,592)
Acquisition of Bevyz	220,468
Balance at the end of the period	957,771
Domestic
Changes in the carrying amount of goodwill
Balance at the beginning of the period	369,353
Foreign currency effect	(2,894)
Acquisition of Bevyz	220,468
Balance at the end of the period	586,927
Canada
Changes in the carrying amount of goodwill
Balance at the beginning of the period	386,542
Foreign currency effect	(15,698)
Balance at the end of the period	$ 370,844

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Consolidated Statements of Comprehensive Income
Net income	$ 134,679	$ 138,475
Cash flow hedges, Pre-tax:
Unrealized losses arising during the period, Pre-tax	(406)	(631)
(Gains) losses reclassified to net income, Pre-tax	(565)	275
Foreign currency translation adjustments, Pre-tax	(30,299)	(25,496)
Other comprehensive loss, Pre-tax	(31,270)	(25,852)
Cash flow hedges, Tax (expense) benefit:
Unrealized losses arising during the period, Tax (expense) benefit	174	280
(Gains) losses reclassified to net income, Tax (expense) benefit	236	(102)
Other comprehensive loss, Tax (expense) benefit	410	178
Cash flow hedges, After-tax:
Unrealized losses arising during the period, After-tax	(232)	(351)
(Gains) losses reclassified to net income, After-tax	(329)	173
Foreign currency translation adjustments, After-tax	(30,299)	(25,496)
Other comprehensive loss, After-tax	(30,860)	(25,674)
Total comprehensive income	103,819	112,801
Total comprehensive loss attributable to noncontrolling interests	(404)	(358)
Total comprehensive income attributable to Keurig	$ 104,223	$ 113,159

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Inventories

3 Months Ended

Dec. 27, 2014

Inventories

Inventories

3.Inventories

Inventories consisted of the following (in thousands) as of:

	December 27, 2014		September 27, 2014
Raw materials and supplies	$	202,504	$	169,858
Finished goods	578,290		665,309
	$	780,794	$	835,167

At December 27, 2014, the Company had approximately $375.1 million in green coffee purchase commitments, of which approximately 87% had a fixed price.  These commitments primarily extend through fiscal 2016.  The value of the variable portion of these commitments was calculated using an average “C” price of coffee of $1.75 per pound at December 27, 2014.  In addition to its green coffee commitments, the Company had approximately $103.8 million in fixed price brewer and related accessory purchase commitments and $1,129.0 million in production raw material commitments at December 27, 2014.  The Company believes, based on relationships established with its suppliers, that the risk of non-delivery on such purchase commitments is remote.

As of December 27, 2014, minimum future inventory purchase commitments were as follows (in thousands):

Fiscal Year	Inventory Purchase Obligations(1)
Remainder of 2015	$	612,262
2016	269,691
2017	262,952
2018	277,095
2019	120,123
Thereafter	65,762
	$	1,607,885

(1) Certain purchase obligations are determined based on a contractual percentage of forecasted volumes.

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Stockholders' Equity (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	0 Months Ended	3 Months Ended
	Jan. 30, 2015	Dec. 27, 2014	Dec. 28, 2013
Dividends
Dividend declared per common share (in dollars per share)	$ 0.2875	$ 0.2875	$ 0.25
Dividend declared on common shares		$ 46,594
Dividend paid on common shares		$ 40,580	$ 0

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Dec. 27, 2014

Goodwill and Intangible Assets

Schedule of change in the carrying amount of goodwill by segment

The following represented the change in the carrying amount of goodwill by segment for the thirteen weeks ended December 27, 2014 (in thousands):

	Domestic			Canada			Total
Balance at September 27, 2014	$	369,353		$	386,542		$	755,895
Foreign currency effect	(2,894		)	(15,698		)	(18,592		)
Acquisition of Bevyz (see Note 4, Acquisition)	220,468			—			220,468
Balance at December 27, 2014	$	586,927		$	370,844		$	957,771

Schedule of indefinite-lived intangible assets

Indefinite-lived intangible assets included in the Canada segment consisted of the following (in thousands) as of:

	December 27, 2014		September 27, 2014
Trade names	$	86,592	$	90,257

Schedule of definite-lived intangible assets

Definite-lived intangible assets included in the Domestic segment and Canada segment consisted of the following (in thousands) as of:

		December 27, 2014					September 27, 2014
	Useful Life in Years	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired technology	4-10	$	16,490	$	(14,122	)	$	16,501	$	(13,713	)
Customer and roaster agreements	8-11	8,717		(5,410		)	8,939		(5,303		)
Customer relationships	2-16	378,502		(145,427		)	390,563		(141,163		)
Trade names	9-11	36,679		(17,165		)	35,911		(16,548		)
Total		$	440,388	$	(182,124	)	$	451,914	$	(176,727	)

Schedule of estimated aggregate amortization expense for the remainder of fiscal 2015, for each of the next five years and thereafter

The estimated aggregate amortization expense for the remainder of fiscal 2015, for each of the next five years and thereafter, is as follows (in thousands):

Fiscal Year	Amortization Expense
Remainder of 2015	$	29,716
2016	38,898
2017	37,502
2018	37,502
2019	37,402
2020	33,299
Thereafter	43,945

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Inventories (Details 2) (Inventory, USD $) In Thousands, unless otherwise specified	Dec. 27, 2014
Inventory
Purchase commitments
Remainder of 2015	$ 612,262
2016	269,691
2017	262,952
2018	277,095
2019	120,123
Thereafter	65,762
Minimum future inventory purchase commitments	$ 1,607,885

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Compensation Plans

3 Months Ended

Dec. 27, 2014

Compensation Plans

Compensation Plans

13.Compensation Plans

Stock Options

The grant-date fair value of employee stock options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during the thirteen weeks ended December 27, 2014 and December 28, 2013:

	Thirteen weeks ended
	December 27, 2014			December 28, 2013
Average expected life	5.5 years			5.5 years
Average volatility	57		%	75		%
Dividend yield	0.83		%	1.33		%
Risk-free interest rate	1.62		%	1.69		%
Weighted average fair value	$	67.11		$	40.98

Restricted Stock Units, Performance Stock Units and Other Awards

The Company awards restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible employees (each, a “Grantee”) which entitle a Grantee to receive shares of the Company’s common stock.  RSUs and PSUs are awards denominated in units that are settled in shares of the Company’s common stock upon vesting.  In general, RSUs vest over a period of three or four years based on a Grantee’s continuing employment.  The vesting of PSUs follows a two or three year measurement period and is conditioned on the achievement of both a Grantee’s service and the Company’s performance requirements during the measurement period.  In the past the Company has also granted restricted stock awards (“RSAs”) which are awards of common stock that are restricted until the shares vest (generally over a period of three or four years).  The fair value of RSUs, RSAs and PSUs is based on the closing price of the Company’s common stock on the grant date.  Compensation expense for RSUs and RSAs is recognized ratably over a Grantee’s service period.  Compensation expense for PSUs is also recognized over a Grantee’s service period, but only if and when the Company concludes that it is probable (more than likely) the performance condition(s) will be achieved.  The assessment of the probability of achievement is performed each period based on the relevant facts and circumstances at that time, and if the estimated grant-date fair value changes as a result of that assessment, the cumulative effect of the change on current and prior periods is recognized in the period of change.  All awards are reserved for issuance under the Company’s Amended and Restated 2006 Incentive Plan (the “2006 Plan”) and the Company’s 2014 Omnibus Incentive Plan (which replaced the 2006 Plan).

 In addition, the Company has awarded deferred cash awards (“DCAs”) to Grantees which entitle a Grantee to receive cash over time upon vesting.  The vesting of DCAs is conditioned on a Grantee’s continued employment.

Employee Stock Purchase Plan

The grant-date fair value of employees’ purchase rights under the Company’s Employee Stock Purchase Plan is estimated using the Black-Scholes option-pricing model with the following assumptions for the purchase rights granted during the thirteen weeks ended December 27, 2014 and December 28, 2013:

	Thirteen weeks ended
	December 27,  2014			December 28,  2013
Average expected life	6 months			6 months
Average volatility	40		%	55		%
Dividend yield	0.88		%	1.34		%
Risk-free interest rate	0.05		%	0.04		%
Weighted average fair value	$	33.94		$	22.57

Income before income taxes in the Unaudited Consolidated Statements of Operations includes compensation expense related to the plans described above of $10.4 million and $7.1 million for the thirteen weeks ended December 27, 2014 and December 28, 2013, respectively.