Note 16. 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 four reportable operating segments:

•

Latin America

•

AMEA

•

Europe

•

North America

On October 1, 2016, we integrated our EEMEA operating segment into our Europe and Asia Pacific operating segments to further leverage and optimize the operating scale built within the Europe and Asia Pacific regions. Russia, Ukraine, Turkey, Belarus, Georgia and Kazakhstan were combined within our Europe operating segment, while the remaining Middle East and African countries were combined within our Asia Pacific region to form the AMEA regional operating segment. We have reflected the segment change as if it had occurred in all periods presented.

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 were part 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 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 $52 million in AMEA and $4 million in North America. For the year ended December 31, 2014, these earnings were $104 million in AMEA and $9 million in North America. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, and Note 2, Divestitures and Acquisitions, for additional information.

In 2015, we also began to report stock-based compensation for our corporate employees within general corporate expenses that were reported within our North America region. We reclassified $32 million of corporate stock-based compensation expense in 2015 from the North America segment to general corporate expenses.

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, gains and losses on divestitures or acquisitions, gain on the JDE 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, revised to reflect our new segment structure, were:


	For the Years Ended December 31,
	2016		2015		2014
	(in millions)

Net revenues:
Latin America ⁽¹⁾	$	3,392	$	4,988	$	5,153
AMEA ⁽²⁾		5,816		6,002		6,367
Europe ⁽²⁾		9,755		11,672		15,788
North America		6,960		6,974		6,936

Net revenues	$	25,923	$	29,636	$	34,244

(1)

Net revenues of $1,217 million for 2015 and $760 million for 2014 from our Venezuelan subsidiaries are included in our consolidated financial statements. Beginning in 2016, we account for our Venezuelan subsidiaries using the cost method of accounting and no longer include net revenues of our Venezuelan subsidiaries within our consolidated financial statements. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

(2)

On July 2, 2015, we contributed our global coffee businesses primarily from our Europe and AMEA segments. Net revenues of our global coffee business were $1,561 million in Europe and $66 million in AMEA for the year ended December 31, 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information.


	For the Years Ended December 31,
	2016			2015			2014
	(in millions)

Earnings before income taxes:
Operating income:
Latin America	$	271		$	485		$	475
AMEA		506			389			530
Europe		1,267			1,350			1,952
North America		1,078			1,105			922
Unrealized (losses) / gains on hedging activities (mark-to-market impacts)		(94	)		96			(112	)
General corporate expenses		(291	)		(383	)		(317	)
Amortization of intangibles		(176	)		(181	)		(206	)
Gains on divestitures and JDE coffee business transactions		9			6,822			–
Loss on deconsolidation of Venezuela		–			(778	)		–
Acquisition-related costs		(1	)		(8	)		(2	)

Operating income		2,569			8,897			3,242
Interest and other expense, net		(1,115	)		(1,013	)		(688	)

Earnings before income taxes	$	1,454		$	7,884		$	2,554

No single customer accounted for 10% or more of our net revenues from continuing operations in 2016. Our five largest customers accounted for 16.6% and our ten largest customers accounted for 22.9% of net revenues from continuing operations in 2016.

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

Total assets, depreciation expense and capital expenditures by segment, revised to reflect our new segment structure, were:


	For the Years Ended December 31,
	2016		2015		2014
	(in millions)

Total assets:
Latin America	$	5,156	$	4,673	$	6,470
AMEA		10,031		10,460		10,549
Europe		19,934		21,026		27,240
North America		20,694		21,175		21,287
Equity method investments		5,585		5,387		662
Unallocated assets ⁽¹⁾		138		122		563

Total assets	$	61,538	$	62,843	$	66,771

(1)

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 $40 million as of December 31, 2016, $46 million as of December 31, 2015 and $44 million as of December 31, 2014.


	For the Years Ended December 31,
	2016		2015		2014
	(in millions)

Depreciation expense:
Latin America	$	92	$	94	$	118
AMEA		161		155		154
Europe		253		299		407
North America		141		165		174

Total depreciation expense	$	647	$	713	$	853


	For the Years Ended December 31,
	2016		2015		2014
	(in millions)

Capital Expenditures:
Latin America	$	321	$	354	$	460
AMEA		349		381		451
Europe		294		517		553
North America		260		262		178

Total capital expenditures	$	1,224	$	1,514	$	1,642

Geographic data for net revenues (recognized in the countries where products are sold) and long-lived assets, excluding deferred tax, goodwill, intangible assets and equity method investments, were:


	For the Years Ended December 31,
	2016		2015		2014
	(in millions)

Net revenues:
United States	$	6,329	$	6,302	$	6,143
Other		19,594		23,334		28,101

Total net revenues	$	25,923	$	29,636	$	34,244


	As of December 31,
	2016		2015		2014
	(in millions)

Long-lived assets:
United States	$	1,508	$	1,551	$	1,564
Other		7,229		7,238		8,801

Total long-lived assets	$	8,737	$	8,789	$	10,365

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

Net revenues by product category, revised to reflect our new segment structure, were:


	For the Year Ended December 31, 2016
	Latin						North
	America ⁽¹⁾		AMEA		Europe		America		Total ⁽¹⁾
	(in millions)

Biscuits	$	734	$	1,588	$	2,703	$	5,565	$	10,590
Chocolate		743		1,901		4,840		255		7,739
Gum & Candy		938		953		916		1,140		3,947
Beverages		657		611		177		–		1,445
Cheese & Grocery		320		763		1,119		–		2,202

Total net revenues	$	3,392	$	5,816	$	9,755	$	6,960	$	25,923


	For the Year Ended December 31, 2015
	Latin						North
	America ⁽¹⁾		AMEA		Europe ⁽³⁾		America		Total ⁽¹⁾
	(in millions)

Biscuits	$	1,605	$	1,539	$	2,680	$	5,569	$	11,393
Chocolate		840		1,928		5,050		256		8,074
Gum & Candy		1,091		1,003		1,015		1,149		4,258
Beverages ⁽²⁾		767		730		1,763		–		3,260
Cheese & Grocery		685		802		1,164		–		2,651

Total net revenues	$	4,988	$	6,002	$	11,672	$	6,974	$	29,636


	For the Year Ended December 31, 2014
	Latin						North
	America ⁽¹⁾		AMEA		Europe ⁽³⁾		America		Total ⁽¹⁾
	(in millions)

Biscuits	$	1,322	$	1,442	$	3,259	$	5,486	$	11,509
Chocolate		1,054		2,073		5,997		296		9,420
Gum & Candy		1,176		1,098		1,232		1,154		4,660
Beverages ⁽²⁾		940		836		3,902		–		5,678
Cheese & Grocery		661		918		1,398		–		2,977

Total net revenues	$	5,153	$	6,367	$	15,788	$	6,936	$	34,244

(1)

In 2015 and 2014, our consolidated net revenues included Venezuela net revenues of $763 million in biscuits, $340 million in cheese & grocery, $66 million in gum & candy and $48 million in beverages and 2014 Venezuela net revenues of $422 million in biscuits, $216 million in cheese & grocery, $91 million in beverages and $30 million in gum & candy. Following the deconsolidation of our Venezuela operations at the end of 2015, in 2016 our consolidated net revenues no longer include the net revenues of our Venezuelan subsidiaries. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

(2)

On July 2, 2015, we contributed our global coffee businesses primarily from our Europe and AMEA segment beverage categories. Net revenues of our global coffee business were $1,561 million in Europe and $66 million in AMEA for the year ended December 31, 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information.

(3)

During 2016, we realigned some of our products across product categories primarily within our Europe segment and as such, we reclassified the product category net revenues on a basis consistent with the 2016 presentation.