Segment Reporting

3 Months Ended

Dec. 26, 2015

Segment Reporting

Segment Reporting

4.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 Keurig® hot and KOLD™  system appliances and accessories, and sources, produces and sells coffee, hot cocoa, teas and other beverages, including our Keurig® KOLD™ beverages, in pods, including K-Cup®, Vue®, K-Mug™, and K-Carafe™ pods and coffee in more traditional packaging including bags and fractional packages 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 pods sold by a third-party licensed roaster.

The Canada segment sells Keurig® hot and KOLD™  system appliances and accessories, and sources, produces and sells coffee, teas and other beverages, including our Keurig® KOLD™ beverages, in pods and coffee in more traditional packaging, including bags, cans, and fractional packages under a variety of brands to retailers including supermarkets, department stores, mass merchandisers, club stores, office coffee distributors, and, 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 within the operating segment as part of the financial consolidation process.  Operating income represents gross profit less selling, operating, general and administrative, and restructuring expenses.  The Company’s manufacturing operations occur within both the Domestic and Canada segments, and the costs of manufacturing are recognized in cost of sales in the operating segment in which the sale occurs.  Information system technology services are mainly centralized while finance and accounting functions are primarily decentralized.  Expenses consisting primarily of compensation and depreciation related to certain centralized administrative functions including information system technology are allocated to the operating segments.

Expenses not specifically related to an operating segment are presented under “Corporate Unallocated.”  Corporate Unallocated expenses are comprised mainly of the compensation and other related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise.  Corporate Unallocated expenses also include depreciation for corporate headquarters, sustainability expenses, legal expenses, and other professional fees.

The following tables summarize selected financial data for segment disclosures for the thirteen weeks ended December 26, 2015 and December 27, 2014, respectively:

	Thirteen weeks ended December 26, 2015
	(Dollars in thousands)
	Domestic		Canada		Corporate- Unallocated			Consolidated
Net sales	$	1,127,267	$	131,154	$	—		$	1,258,421
Operating income (loss)	$	175,308	$	17,673	$	(32,168	)	$	160,813
Depreciation and amortization	$	56,531	$	11,756	$	4,430		$	72,717
Stock compensation	$	4,265	$	665	$	4,365		$	9,295

	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

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 26, 2015			December 27, 2014
Operating income	$	160,813		$	215,927
Other (expense) income, net	(223		)	181
Gain on financial instruments, net	1,395			3,345
Loss on foreign currency, net	(809		)	(9,071		)
Interest expense	(2,244		)	(1,087		)
Income before income taxes	$	158,932		$	209,295