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.