Note 17. Segment Reporting

We manufacture and market primarily snack food products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy and various cheese & grocery products, as well as powdered beverage products. We manage our global business and report operating results through geographic units.

Our operations and management structure are organized into five reportable operating segments:

•

Latin America

•

Asia Pacific

•

EEMEA

•

Europe

•

North America

We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise in our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions.

Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, to align with the accounting for our new coffee equity method investment in JDE, we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of segment operating income. For the six months ended December 31, 2015, after-tax equity method investment net earnings were less than $1 million on a combined basis. Earnings from equity method investments through July 2, 2015 recorded within segment operating income were $49 million in Asia Pacific, $3 million in EEMEA and $4 million in North America. For the year ended December 31, 2014 these earnings were $98 million in Asia Pacific, $6 million in EEMEA and $9 million in North America. For the year ended December 31, 2013 these earnings were $99 million in Asia Pacific, $7 million in EEMEA and $1 million in North America. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, for additional information.

Also in 2015, we began to report stock-based compensation for our corporate employees, which was previously reported within our North America region, within general corporate expenses. We reclassified $32 million of corporate stock-based compensation expense out of the North America segment in 2015.

We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles, the benefit from the Cadbury acquisition-related indemnification resolution (which is a component of selling, general and administrative expenses), gains and losses on divestitures or acquisitions, gain on the coffee business transactions, loss on deconsolidation of Venezuela and acquisition-related costs (which are a component of selling, general and administrative expenses) in all periods presented. We exclude these items from segment operating income in order to provide better transparency of our segment operating results. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.

Our segment net revenues and earnings were:


	For the Years Ended December 31,
	2015		2014		2013
	(in millions)

Net revenues:
Latin America ⁽¹⁾	$	4,988	$	5,153	$	5,382
Asia Pacific ⁽¹⁾		4,360		4,605		4,952
EEMEA ⁽¹⁾		2,786		3,638		3,915
Europe ⁽¹⁾		10,528		13,912		14,059
North America		6,974		6,936		6,991

Net revenues	$	29,636	$	34,244	$	35,299

(1)

On July 2, 2015, we contributed our global coffee businesses primarily from our Europe, EEMEA and Asia Pacific segments. The impact of deconsolidating our coffee businesses on July 2, 2015 was $1,699 million in Europe, $413 million in EEMEA, $32 million in Asia Pacific and $5 million in Latin America on a year-over-year basis. Refer to Note 2,Divestitures and Acquisitions – Coffee Business Transactions, for more information.


	For the Years Ended December 31,
	2015			2014			2013
				(in millions)

Earnings from continuing operations before income taxes:
Operating income:
Latin America	$	485		$	475		$	570
Asia Pacific		268			385			512
EEMEA		194			327			379
Europe		1,277			1,770			1,699
North America		1,105			922			889
Unrealized gains / (losses) on hedging activities		96			(112	)		62
General corporate expenses		(383	)		(317	)		(287	)
Amortization of intangibles		(181	)		(206	)		(217	)
Benefit from indemnification resolution		–			–			336
Gains on coffee business transactions and divestitures		6,822			–			30
Loss on deconsolidation of Venezuela		(778	)		–			–
Acquisition-related costs		(8	)		(2	)		(2	)

Operating income		8,897			3,242			3,971
Interest and other expense, net		(1,013	)		(688	)		(1,579	)

Earnings from continuing operations before income taxes	$	7,884		$	2,554		$	2,392

No single customer accounted for 10% or more of our net revenues from continuing operations in 2015. Our five largest customers accounted for 17.0% and our ten largest customers accounted for 24.0% of net revenues from continuing operations in 2015.

Items impacting our segment operating results are discussed in Note 1, Summary of Significant Accounting Policies, including the Venezuela deconsolidation and currency devaluations, Note 2, Divestitures and Acquisitions, Note 5, Goodwill and Intangible Assets, Note 6, Restructuring Programs and Note 7,Integration Program and Cost Saving Initiatives. Also see Note 8, Debt and Borrowing Arrangements, and Note 9, Financial Instruments, for more information on our interest and other expense, net for each period.

Total assets, depreciation expense and capital expenditures by segment were:


	As of December 31,
	2015		2014		2013
			(in millions)

Total assets ⁽¹⁾:
Latin America⁽²⁾	$	4,673	$	6,470	$	6,860
Asia Pacific ⁽³⁾		7,936		8,068		8,487
EEMEA ⁽³⁾		3,867		5,153		6,951
Europe ⁽³⁾		19,683		24,568		27,599
North America		21,175		21,287		21,705
Equity method investments		5,387		662		659
Unallocated assets ⁽⁴⁾		122		563		203

Total assets	$	62,843	$	66,771	$	72,464

(1)

Beginning in the third quarter of 2015, earnings from equity method investees were reported outside of segment operating income, as discussed above in this Note and Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, and outside of segment assets. We reclassified equity method investments above as of December 31, 2014 and 2013 on a basis consistent with the 2015 presentation.

(2)

The change in total assets as of December 31, 2015 reflects a decrease of $1.1 billion related to the loss on deconsolidation of Venezuela. See Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

(3)

On July 2, 2015, we deconsolidated our global coffee businesses, primarily from our Europe, EEMEA and Asia Pacific segments. See Note 2, Divestitures and Acquisitions – Coffee Business Transactions, for more information.

(4)

Unallocated assets consist primarily of cash and cash equivalents, deferred income taxes, centrally held property, plant and equipment, prepaid pension assets and derivative financial instrument balances. We had debt issuance costs related to recognized debt liabilities of $46 million as of December 31, 2015, $44 million as of December 31, 2014 and $51 million as of December 31, 2013, which have been reclassified from long-term other assets to a deduction from the related debt obligations on the consolidated balance sheets.


	For the Years Ended December 31,
	2015		2014		2013
	(in millions)

Depreciation expense:
Latin America	$	94	$	118	$	107
Asia Pacific		114		112		107
EEMEA		66		90		88
Europe		274		359		359
North America		165		174		199

Total depreciation expense	$	713	$	853	$	860


	For the Years Ended December 31,
	2015		2014		2013
	(in millions)

Capital Expenditures:
Latin America	$	354	$	460	$	412
Asia Pacific		311		356		268
EEMEA		197		219		254
Europe		390		429		478
North America		262		178		210

Total capital expenditures	$	1,514	$	1,642	$	1,622

Geographic data for net revenues and long-lived assets, excluding deferred tax, goodwill, intangible assets and equity method investments were:


	For the Years Ended December 31,
	2015		2014		2013
			(in millions)

Net revenues:
United States	$	6,302	$	6,143	$	5,965
Other		23,334		28,101		29,334

Total net revenues	$	29,636	$	34,244	$	35,299


	As of December 31,
	2015		2014		2013
			(in millions)

Long-lived assets⁽¹⁾:
United States	$	1,551	$	1,564	$	1,607
Other		7,238		8,801		9,201

Total long-lived assets	$	8,789	$	10,365	$	10,808

(1)

Long-lived assets no longer includes debt issuance costs related to recognized debt liabilities of $46 million as of December 31, 2015, $44 million as of December 31, 2014 and $51 million as of December 31, 2013, which have been reclassified from long-term other assets to a deduction from the related debt obligations on the consolidated balance sheets.

No individual country within Other exceeded 10% of our net revenues or long-lived assets for all periods presented.

Net revenues by product category were:


	For the Year Ended December 31, 2015
	Latin		Asia						North
	America		Pacific		EEMEA		Europe		America		Total
	(in millions)

Biscuits	$	1,605	$	1,264	$	535	$	2,420	$	5,569	$	11,393
Chocolate		840		1,444		896		4,638		256		8,074
Gum & Candy		1,091		717		544		757		1,149		4,258
Beverages ⁽¹⁾		767		401		543		1,549		–		3,260
Cheese & Grocery		685		534		268		1,164		–		2,651

Total net revenues	$	4,988	$	4,360	$	2,786	$	10,528	$	6,974	$	29,636


	For the Year Ended December 31, 2014⁽²⁾
	Latin		Asia						North
	America		Pacific		EEMEA		Europe		America		Total
	(in millions)

Biscuits	$	1,322	$	1,177	$	642	$	2,882	$	5,486	$	11,509
Chocolate		1,054		1,555		1,082		5,394		296		9,381
Gum & Candy		1,176		776		646		908		1,154		4,660
Beverages ⁽¹⁾		940		465		981		3,292		–		5,678
Cheese & Grocery		661		632		287		1,436		–		3,016

Total net revenues	$	5,153	$	4,605	$	3,638	$	13,912	$	6,936	$	34,244


	For the Year Ended December 31, 2013 ⁽²⁾
	Latin		Asia						North
	America		Pacific		EEMEA		Europe		America		Total
	(in millions)

Biscuits	$	1,288	$	1,311	$	677	$	2,940	$	5,480	$	11,696
Chocolate		1,143		1,632		1,181		5,385		326		9,667
Gum & Candy		1,380		849		673		968		1,185		5,055
Beverages ⁽¹⁾		907		470		1,113		3,340		–		5,830
Cheese & Grocery		664		690		271		1,426		–		3,051

Total net revenues	$	5,382	$	4,952	$	3,915	$	14,059	$	6,991	$	35,299

(1)

On July 2, 2015, we contributed our global coffee businesses primarily from our Europe, EEMEA and Asia Pacific segment beverage categories. The decrease in beverages net revenues in 2015 compared to 2014 primarily reflects the coffee business transactions and unfavorable currency on our remaining beverage business. The impact of deconsolidating our coffee businesses on July 2, 2015 was $1,699 million in Europe, $413 million in EEMEA, $32 million in Asia Pacific and $5 million in Latin America on a year-over-year basis. Refer to Note 2, Divestitures and Acquisitions – Coffee Business Transactions, for more information.

(2)

During 2014, we realigned some of our products across product categories and as such, we reclassified the product category net revenues on a basis consistent with the 2015 presentation.