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Segment Reporting | 9 Months Ended
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Sep. 30, 2016
Segment Reporting | Note 15. 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
On October 1, 2016, we integrated our EEMEA business into our Europe and Asia Pacific segments. 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 operating segment to form a new Asia, Middle East and Africa (“AMEA”) regional operating segment. 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. Within segment operating income, equity method investment net earnings were $56 million for the nine months ended September 30, 2015, including $49 million in Asia Pacific, $3 million in EEMEA and $4 million in North America. See Note 1, Basis of Presentation – Principles of Consolidation, and Note 2, Divestitures and Acquisitions, for additional information. 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 were:
|  | For the Three Months Ended |  |  | For the Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
|  | (in millions) |
Net revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Latin America (1) |  | $ | 868 |  |  | $ | 1,233 |  |  | $ | 2,528 |  |  | $ | 3,730 |
Asia Pacific (2) |  |  | 1,128 |  |  |  | 1,101 |  |  |  | 3,278 |  |  |  | 3,278 |
EEMEA (2) |  |  | 543 |  |  |  | 586 |  |  |  | 1,738 |  |  |  | 2,150 |
Europe (2) |  |  | 2,104 |  |  |  | 2,173 |  |  |  | 6,461 |  |  |  | 7,963 |
North America |  |  | 1,753 |  |  |  | 1,756 |  |  |  | 5,148 |  |  |  | 5,151 |
Net revenues |  | $ | 6,396 |  |  | $ | 6,849 |  |  | $ | 19,153 |  |  | $ | 22,272 |
(1) Net revenues of $315 million for the three months and $834 million for the nine months ended September 30, 2015 from our Venezuelan subsidiaries are included in our condensed 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 condensed consolidated financial statements. Refer to Note 1, Basis of Presentation – 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, EEMEA and Asia Pacific segments. Net revenues of our global coffee business were $1,348 million in Europe, $246 million in EEMEA and $33 million in Asia Pacific for the nine months ended September 30, 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information. |
|  | For the Three Months Ended |  |  | For the Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
|  | (in millions) |
Earnings before income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Latin America |  | $ | 92 |  |  | $ | 134 |  |  | $ | 191 |  |  | $ | 422 |
Asia Pacific |  |  | 135 |  |  |  | 71 |  |  |  | 378 |  |  |  | 321 |
EEMEA |  |  | 44 |  |  |  | 52 |  |  |  | 154 |  |  |  | 184 |
Europe |  |  | 302 |  |  |  | 298 |  |  |  | 896 |  |  |  | 885 |
North America |  |  | 274 |  |  |  | 275 |  |  |  | 840 |  |  |  | 817 |
Unrealized gains / (losses) on hedging activities (mark-to-market impacts) |  |  | (12 | ) |  |  | (4 | ) |  |  | (49 | ) |  |  | 75 |
General corporate expenses |  |  | (89 | ) |  |  | (95 | ) |  |  | (216 | ) |  |  | (240 | )
Amortization of intangibles |  |  | (44 | ) |  |  | (45 | ) |  |  | (132 | ) |  |  | (137 | )
Gains on JDE coffee business transactions and divestiture |  |  | – |  |  |  | 7,122 |  |  |  | – |  |  |  | 7,135 |
Acquisition-related costs |  |  | – |  |  |  | (6 | ) |  |  | – |  |  |  | (8 | )
Operating income |  |  | 702 |  |  |  | 7,802 |  |  |  | 2,062 |  |  |  | 9,454 |
Interest and other expense, net |  |  | (145 | ) |  |  | (114 | ) |  |  | (540 | ) |  |  | (814 | )
Earnings before income taxes |  | $ | 557 |  |  | $ | 7,688 |  |  | $ | 1,522 |  |  | $ | 8,640 |
Items impacting our segment operating results are discussed in Note 1, Basis of Presentation, including the Venezuela deconsolidation and currency devaluation, Note 2, Divestitures and Acquisitions, Note 5, Goodwill and Intangible Assets, and Note 6, 2014-2018 Restructuring Program. 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. Net revenues by product category were:
|  | For the Three Months Ended September 30, 2016 |
|  | Latin |  |  | Asia |  |  |  |  |  |  |  |  | North |  |  |  |
| America |  |  | Pacific |  |  | EEMEA |  |  | Europe |  |  | America |  |  | Total |
|  | (in millions) |
Biscuits |  | $ | 191 |  |  | $ | 360 |  |  | $ | 125 |  |  | $ | 608 |  |  | $ | 1,403 |  |  | $ | 2,687 |
Chocolate |  |  | 185 |  |  |  | 388 |  |  |  | 223 |  |  |  | 1,021 |  |  |  | 65 |  |  |  | 1,882 |
Gum & Candy |  |  | 247 |  |  |  | 174 |  |  |  | 120 |  |  |  | 163 |  |  |  | 285 |  |  |  | 989 |
Beverages (1) |  |  | 164 |  |  |  | 77 |  |  |  | 31 |  |  |  | 36 |  |  |  | – |  |  |  | 308 |
Cheese & Grocery |  |  | 81 |  |  |  | 129 |  |  |  | 44 |  |  |  | 276 |  |  |  | – |  |  |  | 530 |
Total net revenues |  | $ | 868 |  |  | $ | 1,128 |  |  | $ | 543 |  |  | $ | 2,104 |  |  | $ | 1,753 |  |  | $ | 6,396 |
|  | For the Three Months Ended September 30, 2015 |
|  | Latin |  |  | Asia |  |  |  |  |  |  |  |  | North |  |  |  |
| America (2) |  |  | Pacific |  |  | EEMEA |  |  | Europe (3) |  |  | America |  |  | Total |
|  | (in millions) |
Biscuits |  | $ | 431 |  |  | $ | 356 |  |  | $ | 125 |  |  | $ | 592 |  |  | $ | 1,403 |  |  | $ | 2,907 |
Chocolate |  |  | 184 |  |  |  | 370 |  |  |  | 232 |  |  |  | 1,074 |  |  |  | 64 |  |  |  | 1,924 |
Gum & Candy |  |  | 262 |  |  |  | 171 |  |  |  | 134 |  |  |  | 177 |  |  |  | 289 |  |  |  | 1,033 |
Beverages (1) |  |  | 178 |  |  |  | 76 |  |  |  | 45 |  |  |  | 43 |  |  |  | – |  |  |  | 342 |
Cheese & Grocery |  |  | 178 |  |  |  | 128 |  |  |  | 50 |  |  |  | 287 |  |  |  | – |  |  |  | 643 |
Total net revenues |  | $ | 1,233 |  |  | $ | 1,101 |  |  | $ | 586 |  |  | $ | 2,173 |  |  | $ | 1,756 |  |  | $ | 6,849 |
|  | For the Nine Months Ended September 30, 2016 |
|  | Latin |  |  | Asia |  |  |  |  |  |  |  |  | North |  |  |  |
| America |  |  | Pacific |  |  | EEMEA |  |  | Europe |  |  | America |  |  | Total |
|  | (in millions) |
Biscuits |  | $ | 551 |  |  | $ | 991 |  |  | $ | 379 |  |  | $ | 1,848 |  |  | $ | 4,162 |  |  | $ | 7,931 |
Chocolate |  |  | 562 |  |  |  | 1,088 |  |  |  | 549 |  |  |  | 3,124 |  |  |  | 153 |  |  |  | 5,476 |
Gum & Candy |  |  | 713 |  |  |  | 538 |  |  |  | 383 |  |  |  | 512 |  |  |  | 833 |  |  |  | 2,979 |
Beverages (1) |  |  | 466 |  |  |  | 285 |  |  |  | 229 |  |  |  | 123 |  |  |  | – |  |  |  | 1,103 |
Cheese & Grocery |  |  | 236 |  |  |  | 376 |  |  |  | 198 |  |  |  | 854 |  |  |  | – |  |  |  | 1,664 |
Total net revenues |  | $ | 2,528 |  |  | $ | 3,278 |  |  | $ | 1,738 |  |  | $ | 6,461 |  |  | $ | 5,148 |  |  | $ | 19,153 |
|  | For the Nine Months Ended September 30, 2015 |
|  | Latin |  |  | Asia |  |  |  |  |  |  |  |  | North |  |  |  |
| America (2) |  |  | Pacific |  |  | EEMEA |  |  | Europe (3) |  |  | America |  |  | Total |
|  | (in millions) |
Biscuits |  | $ | 1,147 |  |  | $ | 940 |  |  | $ | 396 |  |  | $ | 1,828 |  |  | $ | 4,161 |  |  | $ | 8,472 |
Chocolate |  |  | 680 |  |  |  | 1,074 |  |  |  | 627 |  |  |  | 3,204 |  |  |  | 161 |  |  |  | 5,746 |
Gum & Candy |  |  | 852 |  |  |  | 550 |  |  |  | 418 |  |  |  | 558 |  |  |  | 829 |  |  |  | 3,207 |
Beverages (1) |  |  | 570 |  |  |  | 324 |  |  |  | 502 |  |  |  | 1,493 |  |  |  | – |  |  |  | 2,889 |
Cheese & Grocery |  |  | 481 |  |  |  | 390 |  |  |  | 207 |  |  |  | 880 |  |  |  | – |  |  |  | 1,958 |
Total net revenues |  | $ | 3,730 |  |  | $ | 3,278 |  |  | $ | 2,150 |  |  | $ | 7,963 |  |  | $ | 5,151 |  |  | $ | 22,272 |
| (1) | On July 2, 2015, we contributed our global coffee businesses primarily from our Europe, EEMEA and Asia Pacific segment beverage categories. Net revenues of our global coffee business were $1,348 million in Europe, $246 million in EEMEA and $33 million in Asia Pacific for the nine months ended September 30, 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information.
| (2) | Our Venezuelan subsidiaries net revenues of $209 million in biscuits, $95 million in cheese & grocery, $6 million in beverages and $5 million in gum & candy for the three months and $496 million in biscuits, $231 million in cheese & grocery, $66 million in gum & candy and $41 million in beverages for the nine months ended September 30, 2015 are included in our condensed 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 condensed consolidated financial statements. Refer to Note 1, Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela, 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.

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8981-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9038-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8971-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8595-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8984-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9031-108599 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9054-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8538-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8864-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8924-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8906-108599 + Details
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