Segment Reporting

9 Months Ended

Sep. 30, 2018

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. 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 across our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions.

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, net gain on divestitures 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 benefit plan non-service income and 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 September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(in millions)
Net revenues:
Latin America	$	774		$	908		$	2,439		$	2,666
AMEA	1,398			1,405			4,300			4,290
Europe	2,361			2,442			7,370			6,978
North America	1,755			1,775			5,056			4,996
Net revenues	$	6,288		$	6,530		$	19,165		$	18,930
Earnings before income taxes:
Operating income:
Latin America	$	100		$	256		$	318		$	469
AMEA	153			82			558			424
Europe	381			393			1,245			1,107
North America	334			325			514			842
Unrealized gains/(losses) on hedging activities (mark-to-market impacts)	(112		)	28			181			(69		)
General corporate expenses	(74		)	(55		)	(228		)	(192		)
Amortization of intangibles	(44		)	(45		)	(132		)	(133		)
Net gain on divestitures	—			187			—			184
Acquisition-related costs	(1		)	—			(14		)	—
Operating income	737			1,171			2,442			2,632
Benefit plan non-service income ⁽¹⁾	19			10			47			30
Interest and other expense, net	(86		)	(19		)	(414		)	(262		)
Earnings before income taxes	$	670		$	1,162		$	2,075		$	2,400

(1)

During the first quarter of 2018, in connection with adopting a new pension cost classification accounting standard, we reclassified certain of our benefit plan component costs other than service costs out of operating income into a new line item, benefit plan non-service income, on our condensed consolidated statements of earnings. As such, we have recast our historical operating income and segment operating income to reflect this reclassification, which had no impact to earnings before income taxes or net earnings.

Items impacting our segment operating results are discussed in Note 1, Basis of Presentation, Note 2, Divestitures and Acquisitions, Note 4, Property, Plant and Equipment, Note 5, Goodwill and Intangible Assets, Note 7, Restructuring Program, and Note 12, Commitments and Contingencies. 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.

Net revenues by product category were:



	For the Three Months Ended September 30, 2018
	Latin America		AMEA		Europe		North America		Total
	(in millions)
Biscuits	$	185	$	455	$	769	$	1,422	$	2,831
Chocolate	169		524		1,142		66		1,901
Gum & Candy	220		207		167		267		861
Beverages	117		103		19		—		239
Cheese & Grocery	83		109		264		—		456
Total net revenues	$	774	$	1,398	$	2,361	$	1,755	$	6,288

	For the Three Months Ended September 30, 2017 ⁽¹⁾
	Latin America		AMEA		Europe		North America		Total
	(in millions)
Biscuits	$	210	$	445	$	778	$	1,427	$	2,860
Chocolate	207		519		1,179		74		1,979
Gum & Candy	247		228		185		274		934
Beverages	155		104		23		—		282
Cheese & Grocery	89		109		277		—		475
Total net revenues	$	908	$	1,405	$	2,442	$	1,775	$	6,530



	For the Nine Months Ended September 30, 2018
	Latin America		AMEA		Europe		North America		Total
	(in millions)
Biscuits	$	560	$	1,284	$	2,374	$	4,158	$	8,376
Chocolate	573		1,537		3,568		169		5,847
Gum & Candy	668		678		553		729		2,628
Beverages	394		448		66		—		908
Cheese & Grocery	244		353		809		—		1,406
Total net revenues	$	2,439	$	4,300	$	7,370	$	5,056	$	19,165

	For the Nine Months Ended September 30, 2017 ⁽¹⁾
	Latin America		AMEA		Europe		North America		Total
	(in millions)
Biscuits	$	580	$	1,201	$	2,177	$	4,061	$	8,019
Chocolate	660		1,457		3,318		194		5,629
Gum & Candy	701		695		582		741		2,719
Beverages	477		466		88		—		1,031
Cheese & Grocery	248		471		813		—		1,532
Total net revenues	$	2,666	$	4,290	$	6,978	$	4,996	$	18,930

(1)

During the first quarter of 2018, 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 2018 presentation.