Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, Financial Statements and Supplementary Data.

Description of the Company

We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products throughout the world.

Items Affecting Comparability of Financial Results

The 2015 Merger

We completed the 2015 Merger on July 2, 2015. See Note 1, Background and Basis of Presentation, and Note 2, Merger and Acquisition, to the consolidated financial statements for additional information.

2013 Periods Presented

In Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for purposes of comparing the results for the year ended December 28, 2014 to the prior year, we compare our year ended December 28, 2014 to the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013. We believe this is the most appropriate way to compare our full year 2014 results to a comparable prior year period. All data for the unaudited Predecessor period December 24, 2012 to June 7, 2013 is derived from our unaudited consolidated financial information, which is presented in the tables below, and represents a different period than the Predecessor period April 29, 2013 to June 7, 2013 included in Item 8, Financial Statements and Supplementary Data.

53rd week

Our year end date for financial reporting purposes is the Sunday closest to December 31. As a result, we occasionally have a 53rd week in a fiscal year. Our year ended January 3, 2016 includes a 53rd week of activity. Additionally, the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013 combined is equal to 53 weeks of activity.

Integration and Restructuring Expenses

Related to Integration and Restructuring, we recorded expenses of $1.0 billion in the year ended January 3, 2016, expenses of $637 million in the year ended December 28, 2014, expenses of $411 million in the 2013 Successor Period, a benefit of $6 million in the 2013 Predecessor Period, and expenses of $1 million in Fiscal 2013.

These expenses include our multi-year $1.9 billion Integration Program which we announced following the 2015 Merger. The costs primarily include organization costs, including cash and non-cash severance, footprint costs to exit facilities, and other costs incurred as a direct result of restructuring activities related to the 2015 Merger. Additionally, we anticipate capital expenditures of approximately $1.1 billion related to the Integration Program and have recognized $225 million in the year ended January 3, 2016. The Integration Program is designed to reduce costs, integrate and optimize our combined organization and is expected to achieve $1.5 billion of pre-tax savings by 2017, primarily benefiting the United States and Canada segments. We realized approximately $125 million of pre-tax savings in the year ended January 3, 2016.

These expenses also include costs associated with other restructuring activities focused primarily on work-force reductions and factory closures and consolidations in relation to the 2013 Merger.

See Note 3, Integration and Restructuring Expenses, to the consolidated financial statements for additional information.

Results of Continuing Operations for Year Ended January 3, 2016 compared to Year Ended December 28, 2014:

Due to the size of Kraft's business relative to the size of Heinz's business prior to the 2015 Merger, and for purposes of comparability, the Results of Continuing Operations for Year Ended January 3, 2016 compared to Year Ended December 28, 2014 include certain unaudited pro forma results adjusted to assume that Kraft and Heinz were a combined company for both periods presented, which includes combining historical results, reflecting preliminary purchase accounting adjustments, and aligning accounting policies for both historical periods presented. These pro forma adjustments impacted the consolidated results as well as our United States and Canada segments. In addition, we include certain non-GAAP financial measures derived from these unaudited pro forma results. These pro forma adjustments and non-GAAP financial measures assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations. For additional information and reconciliations from our consolidated financial statements, see Supplemental Unaudited Pro Forma Condensed Combined Financial Information and Non-GAAP Financial Measures.

Consolidated Results of Continuing Operations

Year Ended January 3, 2016 compared to Year Ended December 28, 2014:

Summary of Results

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions, except per share data)
Net sales	$	18,338			$	10,922			67.9	%
Operating income	$	2,639			$	1,568			68.3	%
Net loss attributable to common shareholders	$	(266	)		$	(63	)		nm
Diluted loss per share	$	(0.34	)		$	(0.17	)		nm

Net Sales

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions)
Net sales	$	18,338			$	10,922			67.9	%
Pro forma net sales	$	27,447			$	29,122			(5.8	)%

Net sales increased 67.9% to $18.3 billion in the year ended January 3, 2016 compared to the year ended December 28, 2014, primarily driven by the 2015 Merger.

Pro forma net sales decreased 5.8% in the year ended January 3, 2016 compared to the year ended December 28, 2014, due primarily to the unfavorable impacts of foreign currency (5.2 pp) and divestitures (0.2 pp), partially offset by the favorable impact of a 53rd week of shipments (1.2 pp). Excluding these impacts, Pro Forma Organic Net Sales(1) declined 1.6% as unfavorable volume/mix (2.6 pp) was partially offset by higher net pricing (1.0 pp). Unfavorable volume/mix was driven primarily by lower shipments in refreshment beverages, frozen meals, foodservice and boxed dinners in our United States and Canada segments, partially offset by growth in Rest of World. Higher net pricing in nearly all segments was reduced by the negative impact (approximately 1.0 pp) of lower overall key commodity costs (dairy, meat, coffee and nuts) in the United States and Canada.

(1) Pro Forma Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Operating Income

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions)
Operating income	$	2,639			$	1,568			68.3	%
Adjusted Pro Forma EBITDA(2)	$	6,739			$	6,526			3.3	%

(2) Adjusted Pro Forma EBITDA is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Operating income increased 68.3% to $2.6 billion for the year ended January 3, 2016, driven primarily by the 2015 Merger. In addition to the 2015 Merger, we also recognized a benefit from a 53rd week of shipments partially offset by Integration and Restructuring expenses, the impact of non-cash costs related to the fair value adjustment of Kraft's inventory in purchase accounting, the unfavorable impact of foreign currency, merger costs, a nonmonetary loss to write down inventory at our Venezuelan subsidiary, and higher depreciation and amortization expense.

Adjusted Pro Forma EBITDA increased 3.3% to $6.7 billion in the year ended January 3, 2016 compared to the year ended December 28, 2014, driven primarily by savings from Integration and Restructuring activities and other ongoing productivity efforts, favorable pricing net of commodity costs, and the benefit (approximately 1.0 pp) of the 53rd week of shipments, partially offset by the unfavorable impact of foreign currency (6.3 pp) and unfavorable volume/mix.

Net Income and Diluted EPS

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions, except per share data)
Net loss attributable to common shareholders	$	(266	)		$	(63	)		nm
Diluted loss per share	$	(0.34	)		$	(0.17	)		nm
Adjusted Pro Forma EPS(3)	$	2.19			$	1.98			10.6	%

(3) Adjusted Pro Forma EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Net loss attributable to common shareholders increased $203 million to $266 million for the year ended January 3, 2016. The increase in operating income was more than offset by higher interest expense, other expense, the provision for income taxes, and an additional preferred dividend payment as follows:

•	Interest expense increased to $1.3 billion for the year ended January 3, 2016, compared to $686 million in the prior year period. This increase was due primarily to a $236 million write-off of debt issuance costs related to 2015 refinancing

activities and a $227 million expense related to the termination of certain interest rate swap contracts. The remaining increase was due to the assumption of $8.6 billion of Kraft's long-term debt obligations in the 2015 Merger, partially offset by interest savings following our 2015 refinancing activities.

•	Other expense, net increased to $305 million for the year ended January 3, 2016, compared to $79 million in the prior year period. This increase was primarily due to a $234 million nonmonetary currency devaluation charge related to our Venezuelan subsidiary and call premiums of $105 million related to our 2015 refinancing activities, compared to currency losses of $99 million in the prior year.

•

The effective tax rate was 36.2% for the year ended January 3, 2016 compared to 16.3% for the year ended December 28, 2014, primarily driven by higher earnings repatriation charges, non-deductibility of nonmonetary Venezuela devaluation loss and higher charges for foreign uncertain tax positions, partially offset by increased benefits from statutory tax rate changes as well as additional benefits from foreign income taxed at lower statutory rates. See Note 8, Income Taxes, to the consolidated financial statements for a discussion of income tax rates.

•

The Series A Preferred Stock entitles holders to a 9.00% annual dividend to be paid quarterly in arrears on each March 7, June 7, September 7, and December 7, in cash. While the Series A Preferred Stock remains outstanding, if we declare or pay a dividend on our common stock, we must also declare and pay in full the dividend on the Series A Preferred Stock for the then-current quarterly period. We made cash distributions of $900 million during the year ended January 3, 2016 which reflects five payments due to the fact that, in connection with the declaration of our dividend on our common stock on December 8, 2015, we also declared and paid the dividend on the Series A Preferred Stock for the quarterly period that ends March 7, 2016.

Diluted loss per share increased $0.17 to a diluted loss per share of $0.34 in the year ended January 3, 2016. The increase in diluted loss per share was driven primarily by the net income factors discussed above, partially offset by the effect of an increase in the weighted average shares of common stock outstanding following the 2015 Merger.

Adjusted Pro Forma EPS increased 10.6% to $2.19 for the year ended January 3, 2016 compared to $1.98 for the year ended December 28, 2014, driven primarily by favorable Adjusted Pro Forma EBITDA despite the unfavorable impact of foreign currency, lower other expense, net, and lower interest expense, partially offset by a higher tax rate.

Results of Continuing Operations by Segment

Year Ended January 3, 2016 compared to Year Ended December 28, 2014:

Following the 2015 Merger, we revised our segment structure and began to manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World is comprised of three operating segments: Asia Pacific, Latin America, and RIMEA. We began to report on our reorganized segment structure during the third quarter of 2015 and have reflected this structure for all historical periods presented.

Management evaluates segment performance based on several factors including net sales and segment adjusted earnings before interest, tax, depreciation and amortization (“Segment Adjusted EBITDA”). Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations. These items include depreciation and amortization (including amortization of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, merger costs, unrealized gains and losses on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment operating results), impairment losses, gain/loss associated with the sale of a business, nonmonetary currency devaluation, and certain general corporate expenses. In addition, consistent with the manner in which management evaluates segment performance and allocates resources, Segment Adjusted EBITDA includes the operating results of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013.

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
	(in millions)
Net sales:
United States	$	11,124			$	3,615
Canada	1,437				631
Europe	2,485				2,973
Rest of World	3,292				3,703
Total net sales	$	18,338			$	10,922

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
	(in millions)
Pro forma net sales:
United States	$	19,284			$	19,635
Canada	2,386				2,811
Europe	2,485				2,973
Rest of World	3,292				3,703
Total pro forma net sales	$	27,447			$	29,122

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
	(in millions)
Segment Adjusted EBITDA:
United States	$	4,783			$	4,499
Canada	541				615
Europe	909				898
Rest of World	670				689
General corporate expenses	(164		)		(175		)
Depreciation and amortization (excluding integration and restructuring expenses)	(779		)		(924		)
Integration and restructuring expenses	(1,117		)		(743		)
Merger costs	(194		)		(68		)
Amortization of inventory step-up	(347		)		—
Unrealized gains/(losses) on commodity hedges	41				(79		)
Impairment losses	(58		)		(221		)
Gain on sale of business	21				—
Nonmonetary currency devaluation	(57		)		—
Equity award compensation expense (excluding integration and restructuring expenses)	(61		)		(108		)
Other pro forma adjustments(a)	(1,549		)		(2,815		)
Operating income	2,639				1,568
Interest expense	1,321				686
Other expense, net	305				79
Income from continuing operations before income taxes	$	1,013			$	803

(a) See Supplemental Unaudited Pro Forma Condensed Combined Financial Information for additional information.

United States

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions)
Net sales	$	11,124			$	3,615			207.7	%
Pro forma net sales	$	19,284			$	19,635			(1.8	)%
Segment Adjusted EBITDA	$	4,783			$	4,499			6.3	%

Net sales increased 207.7% to $11.1 billion, primarily driven by the 2015 Merger. Pro forma net sales decreased 1.8%, despite a benefit (1.2 pp) from the 53rd week of shipments. Pro Forma Organic Net Sales decreased 3.0%, due primarily to unfavorable volume/mix (3.0 pp). Pricing was neutral as higher net pricing across most categories was offset by the negative impact (approximately 1.5 pp) of lower overall key commodity costs (dairy, meat, coffee and nuts). Unfavorable volume/mix was driven by lower shipments in ready-to-drink beverages, powdered beverages and boxed dinners that reflected category trends and the volume loss associated with higher net pricing, category and market share declines in frozen meals, and lower foodservice shipments. These declines were partially offset by favorable volume/mix primarily from innovation in refrigerated meal combinations and coffee.

Segment Adjusted EBITDA increased 6.3%, driven by favorable pricing net of commodity costs, savings from Integration and Restructuring activities and the favorable impact of the 53rd week of shipments, partially offset by unfavorable volume/mix.

Canada

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions)
Net sales	$	1,437			$	631			127.7	%
Pro forma net sales	$	2,386			$	2,811			(15.1	)%
Segment Adjusted EBITDA	$	541			$	615			(12.0	)%

Net sales increased 127.7% to $1.4 billion, primarily driven by the 2015 Merger. Pro forma net sales decreased 15.1%, due primarily to the unfavorable impact of foreign currency (13.4 pp), partially offset by the benefit (1.1 pp) of the 53rd week of shipments. Pro Forma Organic Net Sales decreased 2.8%, due primarily to unfavorable volume/mix (5.0 pp), partially offset by higher net pricing (2.2 pp). Unfavorable volume/mix reflected lower shipments in foodservice, refreshment beverages and infant nutrition and the volume impact of higher net pricing in on-demand coffee and boxed dinners. Higher net pricing in most categories reflected pricing actions related to higher input costs in local currency that was partially offset by the negative impact (approximately 0.5 pp) of lower key commodity costs (dairy, meat, coffee and nuts).

Segment Adjusted EBITDA decreased 12.0%, due primarily to the unfavorable impact of foreign currency (14.6 pp). Excluding currency, savings from Integration and Restructuring activities, lower marketing spending and the favorable impact of the 53rd week of shipments were partially offset by unfavorable volume/mix and higher input costs in local currency.

Europe

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions)
Net sales	$	2,485			$	2,973			(16.4	)%
Pro forma net sales	$	2,485			$	2,973			(16.4	)%
Segment Adjusted EBITDA	$	909			$	898			1.2	%

Net sales decreased 16.4%, including the unfavorable impacts of foreign currency (11.4 pp) and divestitures (2.1 pp), partially offset by the benefit (0.9 pp) of the 53rd week of shipments. Pro Forma Organic Net Sales decreased 3.8% as unfavorable volume/mix (4.5 pp) was partially offset by higher net pricing (0.7 pp). Higher net pricing reflected lower promotional spending in beans and price increases in ketchup. Unfavorable volume/mix was driven primarily by the volume impact of higher net pricing in beans and ketchup, declines in infant nutrition in Italy and increased competitive activity in soup, partially offset by growth in frozen potatoes.

Segment Adjusted EBITDA increased 1.2%, driven by lower input costs, savings from Restructuring activities and other ongoing productivity efforts, favorable product mix and the benefit of the 53rd week of shipments, partially offset by the unfavorable impact of foreign currency (14.3 pp) and increased marketing investments.

Rest of World

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				% Change
	(in millions)
Net sales	$	3,292			$	3,703			(11.1	)%
Pro forma net sales	$	3,292			$	3,703			(11.1	)%
Segment Adjusted EBITDA	$	670			$	689			(2.8	)%

Net sales decreased 11.1%, due to the unfavorable impact of foreign currency (21.8 pp, including 7.1 pp from the devaluation of the Venezuelan bolivar), partially offset by the benefit (1.5 pp) of the 53rd week of shipments. Pro Forma Organic Net Sales increased 9.2%, driven by both higher net pricing (6.3 pp) and favorable volume/mix (2.9 pp). Higher net pricing reflected the effects of the hyper-inflationary Venezuelan economy prior to our June 28, 2015 currency devaluation as well as pricing actions related to higher input costs in local currencies. Favorable volume/mix was driven primarily by growth in ketchup and condiments across all businesses as well as sauces in Asia, partially offset by declines in nutritional beverages in India.

Segment Adjusted EBITDA decreased 2.8%, due primarily to the unfavorable impact of foreign currency (31.0 pp, including the impact of the devaluation of the Venezuelan bolivar) and higher local input costs. This decrease was partially offset by savings from Restructuring activities and other ongoing productivity efforts as well as the favorable impact of the 53rd week of shipments.

Results of Continuing Operations for Year Ended December 28, 2014 compared to the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013:

The following discussion presents the operating results for the year ended December 28, 2014, as compared to the 2013 Successor Period, and the unaudited Predecessor period from December 24, 2012 through June 7, 2013. We believe this is the most appropriate way to compare our full year 2014 results to a comparable prior year period. The results for the year ended December 28, 2014 and the twenty-nine weeks from February 8 through December 29, 2013 are derived from our audited consolidated financial statements. All data for the unaudited Predecessor period December 24, 2012 to June 7, 2013 is derived from our unaudited consolidated financial information, which is presented in the tables below, and represents a different period than the Predecessor period April 29, 2013 to June 7, 2013 included in Item 8, Financial Statements and Supplementary Data.

The Results of Continuing Operations and Results of Continuing Operations by Segment for the Year Ended December 28, 2014 compared to the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013 do not include unaudited pro forma adjustments to reflect the 2015 Merger. Consistent with internal management reporting, there are no pro forma adjustments in any of the 2013 periods presented as it would be impracticable to develop adjustments that would be meaningful. The information would not be meaningful due to the difficulty of interpreting these pro forma impacts on the various durations of the multiple 2013 periods presented, as well as, the length of time that has passed since 2013 makes it difficult to assess how the company would have performed if Kraft and Heinz had been a combined company at that time.

Consolidated Results of Continuing Operations:

Year Ended December 28, 2014 compared to the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013:

Summary of Results

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net sales	$	10,922			$	6,240			$	5,204
Operating income/(loss)	$	1,568			$	(8	)		$	604
Net income/(loss) from continuing operations	$	672			$	(66	)		$	142

Net Sales

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net sales	$	10,922			$	6,240			$	5,204

Net sales decreased 4.6% to $10.9 billion for the year ended December 28, 2014, compared to the sum of $6.2 billion for the 2013 Successor Period, and $5.2 billion for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This decrease included the negative impacts of unfavorable foreign exchange rates (2.0 pp), a 53rd week of shipments in the 2013 Successor Period to align to the new year-end (1.4 pp) and divestitures (0.2 pp). Excluding these impacts, Organic Net Sales(1) decreased 1.0%, due to unfavorable volume/mix (4.0 pp), partially offset by higher net pricing (3.0 pp). Unfavorable volume/mix was due primarily to frozen nutritional meals category declines and share losses in our frozen potatoes, meals and snacks businesses in United States consumer products, reduced trade promotions in U.S. foodservice products, raw material and packaging supply constraints in Venezuela, and global product rationalization. Higher net pricing was driven by price increases in United States consumer products and Rest of World, as well as reduced trade promotions in U.S. foodservice products and Canada, partially offset by increased promotional activity in Europe.

(1) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Operating Income

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Operating income/(loss)	$	1,568			$	(8	)		$	604
Adjusted EBITDA(2)	$	2,840			$	1,165			$	946

(2) Adjusted EBITDA is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Operating income increased $972 million to $1,568 million for the year ended December 28, 2014, compared to the sum of an operating loss of $8 million for the 2013 Successor Period, and operating income of $604 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013.

The increase was driven primarily by savings from restructuring and productivity related initiatives, overall lower impacts of purchase accounting and merger costs, partially offset by the unfavorable impacts of intangible asset impairment, foreign currency and restructuring costs as well as the 53rd week of shipments in the 2013 Successor Period.

Adjusted EBITDA increased 34.2% to $2.8 billion for the year ended December 28, 2014, compared to the sum of $1.2 billion for the 2013 Successor Period, and $946 million for the Predecessor period from December 24, 2012 to June 7, 2013. This increase was primarily due to efficiencies driven by restructuring and productivity initiatives, partially offset by the unfavorable impact of foreign currency and the 53rd week of shipments in the 2013 Successor Period.

Net Income

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net income/(loss)	$	657			$	(77	)		$	95

Net income increased $639 million to $657 million for the year ended December 28, 2014, compared to the sum of a net loss of $77 million for the 2013 Successor Period, and net income of $95 million for the unaudited Predecessor period from December 24,

2012 to June 7, 2013. This increase was driven by higher operating income and the absence of $46 million of losses from discontinued operations in previous periods, partially offset by higher interest expense, higher income taxes and higher other expense, net as follows:

•

Interest expense increased $147 million to $686 million for the year ended December 28, 2014, compared to the sum of $409 million for the 2013 Successor Period and $130 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013 largely reflecting higher average debt balances resulting from the 2013 Merger. Included in net interest expense for 2014 is $45 million of amortization of 2013 Merger-related debt costs. Included in net interest expense for the 2013 Successor Period is $29 million of amortization of 2013 Merger-related debt costs.

•

Our effective tax rate was a 16.3% provision for the year ended December 28, 2014 compared to a 77.8% benefit for the 2013 Successor Period and a 53.1% provision for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. The year ended December 28, 2014 tax provision reflected favorable jurisdictional income mix. The 2013 Successor Period tax benefit reflected favorable impacts of a 300 basis point statutory rate reduction in the United Kingdom. The unaudited Predecessor period from December 24, 2012 to June 7, 2013 tax rate included the effect of repatriation costs of approximately $100 million for earnings of foreign subsidiaries distributed during the period.

•

Other expense/(income), net decreased $26 million to $79 million expense for the year ended December 28, 2014, compared to the sum of $119 million income for the 2013 Successor Period, and $172 million expense for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. The year ended December 28, 2014 included an increase in currency losses of $83 million. The 2013 Successor Period included $118 million gain recognized on undesignated interest rate swaps associated with variable rate debt. The unaudited Predecessor period from December 24, 2012 to June 7, 2013 reflected $129 million of cost for early extinguishment of debt as well as a $43 million charge related to currency devaluations in Venezuela.

Results of Continuing Operations by Segment

Year Ended December 28, 2014 compared to the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013:

Following the 2015 Merger, we revised our segment structure and began to manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World is comprised of three operating segments: Asia Pacific, Latin America, and RIMEA. We began to report on our reorganized segment structure during the third quarter of 2015 and have reflected this structure for all historical periods presented.

Management evaluates segment performance based on several factors including net sales and Segment Adjusted EBITDA. Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations. These items include depreciation and amortization (including amortization of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, merger costs, unrealized gains and losses on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment operating results), impairment losses, gain/loss associated with the sale of a business, nonmonetary currency devaluation, and certain general corporate expenses.

Net sales by segment included (in millions):

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
Net sales:
United States	$	3,615			$	2,072			$	1,759
Canada	631				371				331
Europe	2,973				1,659				1,366
Rest of World	3,703				2,138				1,748
Total net sales	$	10,922			$	6,240			$	5,204

Adjusted EBITDA by segment included (in millions):

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
United States	$	1,138			$	519			$	433
Canada	193				99				84
Europe	897				349				292
Rest of World	689				256				223
General corporate expenses	(77		)		(58		)		(86		)
	$	2,840			$	1,165			$	946

United States

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net sales	$	3,615			$	2,072			$	1,759
Segment Adjusted EBITDA	$	1,138			$	519			$	433

Net sales decreased 5.6% to $3.6 billion for the year ended December 28, 2014, compared to the sum of $2.1 billion for the 2013 Successor Period, and $1.8 billion for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This decrease included the unfavorable impact (1.7 pp) of a 53rd week of shipments in the 2013 Successor Period to align to the new year-end. Excluding the impact of the 53rd week of shipments, Organic Net Sales decreased 3.9%, due primarily to unfavorable volume/mix (5.8 pp), partially offset by higher net pricing (1.9 pp). Unfavorable volume/mix was due primarily to frozen nutritional meals category softness and share losses in Heinz’s frozen potatoes, meals and snacks businesses, product rationalization in consumer products, and reduced trade promotions in foodservice. Higher net pricing reflected increased pricing in consumer products coupled with reduced trade promotions in foodservice.

Segment Adjusted EBITDA increased 19.5% to $1.1 billion for the year ended December 28, 2014, compared to the sum of $519 million for the 2013 Successor Period, and $433 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This increase was primarily driven by savings from restructuring and productivity initiatives and the favorable impact of higher net pricing, partially offset by unfavorable volume/mix and the unfavorable impact of the 53rd week of shipments in the 2013 Successor Period.

Canada

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net sales	$	631			$	371			$	331
Segment Adjusted EBITDA	$	193			$	99			$	84

Net sales decreased 10.1% to $631 million for the year ended December 28, 2014, compared to the sum of $371 million for the 2013 Successor Period, and $331 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This decrease included the impacts of unfavorable Canadian exchange rates (6.7 pp) and a 53rd week of shipments in the 2013 Successor Period (1.5 pp) to align to the new year-end. Excluding the impacts of foreign currency and the 53rd week of shipments, Organic Net Sales decreased 1.9%, due primarily to unfavorable volume/mix (3.5 pp), partially offset by higher net pricing (1.6 pp). Unfavorable volume/mix was due primarily to reduced trade promotions that drove higher net pricing.

Segment Adjusted EBITDA increased 5.5% to $193 million for the year ended December 28, 2014, compared to the sum of $99 million for the 2013 Successor Period, and $84 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013, driven primarily by savings from restructuring and productivity initiatives, partially offset by the negative impact of foreign currency, unfavorable volume/mix and the unfavorable impact of the 53rd week of shipments in the 2013 Successor Period.

Europe

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net sales	$	2,973			$	1,659			$	1,366
Segment Adjusted EBITDA	$	897			$	349			$	292

Net sales decreased 1.7% to $3.0 billion for the year ended December 28, 2014, compared to the sum of $1.7 billion for the 2013 Successor Period, and $1.4 billion for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This decrease included the impacts of favorable foreign exchange rates (2.6 pp), a 53rd week of shipments in the 2013 Successor Period (1.1 pp) to align to the new year-end and divestitures (0.6 pp). Excluding these impacts, Organic Net Sales decreased 2.6% due to unfavorable volume/mix (2.6 pp) as net pricing was essentially flat. Unfavorable volume/mix was due primarily to product rationalization coupled with soft soup and frozen meals category sales in the U.K., infant food in Italy, and, to a lesser extent, increased competition in the Benelux Union and Eastern Europe, partially offset by strong market performance in Sweden.

Segment Adjusted EBITDA increased 39.9% to $897 million for the year ended December 28, 2014, compared to the sum of $349 million for the 2013 Successor Period, and $292 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This increase was driven primarily by savings from restructuring and productivity initiatives, the favorable impact of foreign currency, partially offset by unfavorable volume/mix and the impact of the 53rd week of shipments in the 2013 Successor Period.

Rest of World

	Successor								Predecessor (H. J. Heinz Company) (Unaudited)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
Net sales	$	3,703			$	2,138			$	1,748
Segment Adjusted EBITDA	$	689			$	256			$	223

Net sales decreased 4.7% to $3.7 billion for the year ended December 28, 2014, compared to the sum of $2.1 billion for the 2013 Successor Period, and $1.7 billion for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This decrease included the impacts of unfavorable foreign exchange rates (6.6 pp) and a 53rd week of shipments in the 2013 Successor Period (1.3 pp) to align to the new year-end. Excluding the impacts of foreign currency and the 53rd week of shipments, Organic Net Sales increased 3.2% driven by higher net pricing (6.5 pp), partially offset by unfavorable volume/mix (3.3 pp). Higher net pricing was driven by increased pricing in China, Indonesia and Australia, as well as higher commodity-driven pricing in India, partially offset by increased promotional activity in New Zealand. Unfavorable volume/mix was due primarily to reduced promotional activity in the tuna and seafood category and product rationalizations in Australia, softness in Indonesian sales following the transition to a new distributor network, increased competition in vegetables in Brazil, and the impact of a product recall in China, partially offset by favorable volume/mix in Russia driven by growth in infant feeding and the Africa, Middle East, and Turkey region driven by growth in ketchup, condiments and sauces.

Segment Adjusted EBITDA increased 43.8% to $689 million for the year ended December 28, 2014, compared to the sum of $256 million for the 2013 Successor Period, and $223 million for the unaudited Predecessor period from December 24, 2012 to June 7, 2013. This increase was driven primarily by savings from restructuring and productivity initiatives and higher net pricing, partially offset by the negative impact of foreign currency, unfavorable volume/mix and the unfavorable impact of the 53rd week of shipments in the 2013 Successor Period.

Discontinued Operations

See Note 4, Discontinued Operations, to the consolidated financial statements for a discussion of divested businesses.

Critical Accounting Policies

Note 1, Background and Basis of Presentation, to the consolidated financial statements includes a summary of the significant accounting policies we used to prepare our consolidated financial statements. The following is a review of the more significant assumptions and estimates, as well as the accounting policies we used to prepare our consolidated financial statements.

Principles of Consolidation:

The consolidated financial statements include The Kraft Heinz Company, as well as our wholly-owned and majority-owned subsidiaries. All intercompany transactions are eliminated. Our year end date for financial reporting purposes is the Sunday closest to December 31. As a result, we occasionally have a 53rd week in a fiscal year. Our year ended January 3, 2016 includes a 53rd week of activity. The year end date of certain of our U.S. and Canada businesses is the Saturday closest to December 31.

Revenue Recognition:

We recognize revenues when title and risk of loss pass to our customers. We record revenues net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. We also record provisions for estimated product returns and customer allowances as reductions to revenues within the same period that the revenue is recognized. We base these estimates principally on historical and current period experience factors.

Advertising, Consumer Incentives, and Trade Promotions:

We promote our products with advertising, consumer incentives, and trade promotions.

Advertising expenses are recorded in selling, general and administrative expenses (“SG&A”). We recorded advertising expense of $464 million in the year ended January 3, 2016, $241 million in the year ended December 28, 2014, $190 million in the 2013 Successor Period, $22 million in the 2013 Predecessor Period, and $305 million in Fiscal 2013. For interim reporting purposes, we charge advertising to operations as a percentage of estimated full year sales activity and marketing costs. We review and adjust these estimates each quarter based on actual experience and other information.

Consumer incentives and trade promotions include, but are not limited to, discounts, coupons, rebates, in-store display incentives, and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. We review and adjust these estimates each quarter based on actual experience and other information.

Goodwill and Intangible Assets:

As a result of the 2013 Merger and the 2015 Merger, the carrying value of goodwill and indefinite-lived intangible assets is substantial as of January 3, 2016: $43.1 billion of goodwill and $55.8 billion of indefinite-lived intangible assets. As more fully described in Note 7, Goodwill and Intangible Assets, to the consolidated financial statements, valuations attributed to the 2015 Merger, $29.0 billion goodwill and $45.1 billion indefinite-lived intangible assets, are preliminary and potentially subject to change.

We test goodwill and indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. We performed our annual impairment testing in the second quarter of 2015, prior to completion of the 2015 Merger.

The first step of the goodwill impairment test compares the reporting unit’s estimated fair value with its carrying value. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second step would be applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill would be considered impaired and would be reduced to its implied fair value. We test indefinite-lived intangible assets for impairment by comparing the fair value of each intangible asset with its carrying value. If the carrying value exceeds fair value, the intangible asset would be considered impaired and would be reduced to fair value.

No impairment of goodwill was reported as a result of our 2015 or 2014 annual goodwill impairment tests; however, the historical Heinz North America Consumer Products reporting unit had an estimated fair value in excess of its carrying value of less than 10%. As a result of our annual indefinite-lived intangible asset impairment tests, we recognized non-cash impairment losses of $58 million in the year ended January 3, 2016 and $221 million in the year ended December 28, 2014.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based

discount rates, and other market factors. If current expectations of future growth rates are not met or market factors outside of our control, such as discount rates, change significantly, then one or more reporting units or intangible assets might become impaired in the future. Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate.

Postemployment Benefit Plans:

We provide a range of benefits to our eligible employees and retirees. These include defined benefit pension, postretirement benefit plans, defined contribution, and multiemployer pension and medical benefits. We maintain various retirement plans for the majority of our employees. The cost of these plans is charged to expense over the working life of the covered employees. We generally amortize net actuarial gains or losses and changes in the fair value of plan assets in future periods within cost of sales and SG&A.

For our postretirement benefit plans, our 2016 health care cost trend rate assumption will be 6.5%. We established this rate based upon our most recent experience as well as our expectation for health care trend rates going forward. We anticipate the weighted average assumed ultimate trend rate will be 4.9%. The year in which the ultimate trend rate is reached varies by plan, ranging between the years 2016 and 2024. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects, increase/(decrease) in cost and obligation, as of January 3, 2016:

	One-Percentage-Point
	Increase				Decrease
	(in millions)
Effect on annual service and interest cost	$	8			$	(7	)
Effect on postretirement benefit obligation	126				(104		)

Our 2016 discount rate assumption is 4.2% for our postretirement plans. Our 2016 discount rate assumption is 4.3% for our U.S. pension plans and 3.8% for our non-U.S. pension plans. We model these discount rates using a portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Changes in our discount rates were primarily the result of changes in bond yields year-over-year.

Beginning in 2016, we will change the method we use to estimate the service cost and interest cost components of net pension cost/(benefit) and net postretirement benefit plans cost resulting in a decrease to these cost components. We will use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We are making this change to provide a more precise measurement of service cost and interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. This change will not affect the measurement of our total benefit obligations. We will account for this change prospectively as a change in accounting estimate.

Our 2016 expected rate of return on plan assets is 5.7% for our U.S. pension plans and 5.8% for our non-U.S. pension plans. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current and future asset allocation, and estimates of future long-term returns by asset class. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments.

While we do not anticipate further changes in the 2016 assumptions for our U.S. and non-U.S. pension and postretirement benefit plans, as a sensitivity measure, a 100-basis point change in our discount rate or a 100-basis point change in the actual rate of return on plan assets would have the following effects, increase/(decrease) in cost, as of January 3, 2016:

	U.S. Plans								Non-U.S. Plans
	100-Basis-Point								100-Basis-Point
	Increase				Decrease				Increase				Decrease
	(in millions)
Effect of change in discount rate on pension costs	$	9			$	(24	)		$	7			$	(9	)
Effect of change in expected rate of return on plan assets on pension costs	(52		)		52				(34		)		34
Effect of change in discount rate on postretirement benefit plans costs	(4		)		(9		)		—				1

Income Taxes:

We compute our annual tax rate based on the statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we earn income. Significant judgment is required in determining our annual tax rate and in evaluating

uncertainty of our tax positions. We recognize a benefit for tax positions that we believe will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that we believe has more than a 50% probability of being realized upon settlement. We regularly monitor our tax positions and adjust the amount of recognized tax benefit based on our evaluation of information that has become available since the end of our last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits we do not consider information that has become available after the balance sheet date, however we do disclose the effects of new information whenever those effects would be material to our financial statements. Unrecognized tax benefits represent the difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting. These unrecognized tax benefits are recorded primarily within other liabilities on the balance sheet.

We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, we consider future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, we would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. The resolution of tax reserves and changes in valuation allowances could be material to our results of operations for any period, but is not expected to be material to our financial position.

We have a significant amount of undistributed earnings of foreign subsidiaries that are considered to be indefinitely reinvested. We do not recognize U.S. taxes on undistributed earnings of foreign subsidiaries which are considered to be indefinitely reinvested or which may be remitted tax free in certain situations. We do recognize U.S. taxes on undistributed earnings in foreign subsidiaries which are currently not considered to be indefinitely reinvested.

We intend to continue to reinvest the majority of our foreign subsidiary earnings to support our priorities for growth in international markets and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. If we decided at a later date to repatriate these funds to the U.S., we would be required to provide taxes on these amounts based on the applicable U.S. tax rates net of credits for foreign taxes already paid. It is not practicable to determine the deferred tax liability associated with the indefinitely reinvested undistributed earnings. We believe it is not practicable because there is a significant amount of uncertainty with respect to the tax impact. This uncertainty results from the significant judgment required to analyze the amount of foreign tax credits attributable to the earnings, the ability to use foreign tax credits to offset the U.S. tax on the earnings, the potential timing of any distributions, as well as the local withholding tax and other indirect tax consequences that may arise due to the potential distribution of these earnings.

New Accounting Pronouncements

See Note 1, Background and Basis of Presentation, to the consolidated financial statements for a discussion of new accounting pronouncements.

Contingencies

See Note 18, Commitments and Contingencies, to the consolidated financial statements for a discussion of contingencies.

Commodity Trends

We purchase and use large quantities of commodities, including dairy products, meat products, tomatoes, coffee beans, nuts, potatoes, soybean and vegetable oils, sugar and other sweeteners, corn products, and wheat to manufacture our products. In addition, we purchase and use significant quantities of resins, metals, and cardboard to package our products and natural gas to operate our facilities. We continuously monitor worldwide supply and cost trends of these commodities.

Markets for our key commodities were volatile for the year ended January 3, 2016. We expect commodity cost volatility to continue in 2016. We manage commodity cost volatility primarily through pricing and risk management strategies. As a result of these risk management strategies, our commodity cost experience may not immediately correlate with market price trends.

Liquidity and Capital Resources

We believe that cash generated from our operating activities, and our Revolving Credit Facility (as defined below), will provide sufficient liquidity to meet our working capital needs, expected integration and restructuring expenditures, planned capital expenditures and contributions to our postemployment benefit plans, future contractual obligations, and payment of our anticipated quarterly dividends. We intend to use our cash on hand and our Revolving Credit Facility for daily funding requirements. Overall, we do not expect any negative effects on our funding sources that would have a material effect on our short-term or long-term liquidity.

Cash Flow Activity

	Successor												Predecessor (H. J. Heinz Company) (Unaudited)
	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
	(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	647			$	672			$	(72	)		$	102
Adjustments to reconcile net income/(loss) to operating cash flows:
Depreciation and amortization	740				530				280				164
Amortization of inventory step-up	347				—				383				—
Pension contributions	(286		)		(102		)		(152		)		(28		)
Impairment losses on indefinite-lived intangible assets	58				221				—				—
Other items, net	294				22				(337		)		78
Changes in current assets and liabilities:
Trade receivables and sold receivables	416				15				(121		)		140
Inventories	25				153				84				46
Accounts payable	(119		)		562				(90		)		65
Other current assets	114				(20		)		46				(41		)
Other current liabilities	231				87				14				142
Net cash provided by operating activities	2,467				2,140				35				668
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(648		)		(399		)		(202		)		(292		)
Acquisition of business, net of cash on hand	(9,468		)		—				(21,494		)		—
Proceeds from net investment hedges	488				—				—				—
Other investing activities, net	(76		)		50				25				34
Net cash used for investing activities	(9,704		)		(349		)		(21,671		)		(258		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(12,314		)		(1,103		)		(2,670		)		(450		)
Proceeds from issuance of long-term debt	14,834				—				12,575				5
Debt issuance costs	(98		)		—				(321		)		—
Net (payments)/proceeds on short-term debt	(49		)		(3		)		(1,641		)		297
Dividends	(2,202		)		(720		)		(360		)		(332		)
Capital contributions	10,000				—				16,500				—
Other financing activities, net	12				6				26				(2		)
Net cash (used for)/provided by financing activities	10,183				(1,820		)		24,109				(482		)
Effect of exchange rate changes on cash and cash equivalents	(407		)		(132		)		(14		)		(140		)
Net (decrease)/increase	2,539				(161		)		2,459				(212		)
Balance at beginning of period	2,298				2,459				—				2,282
Balance at end of period	$	4,837			$	2,298			$	2,459			$	2,070

Cash Flow Activity for the Year Ended January 3, 2016 compared to Year Ended December 28, 2014

Net Cash Provided by Operating Activities:

Cash provided by operating activities was $2.5 billion in the year ended January 3, 2016 compared to $2.1 billion in the year ended December 28, 2014. The increase in cash provided by operating activities was primarily due to an increase in operating income as a result of the 2015 Merger, partially offset by an increase in pension contributions and working capital improvements that were less pronounced than prior year.

Net Cash Used in Investing Activities:

Net cash used in investing activities was $9.7 billion in the year ended January 3, 2016 and $349 million in the year ended December 28, 2014. The increase in cash used in investing activities was primarily driven by our payments to acquire Kraft and also included proceeds from our net investment hedges of $488 million. Capital expenditures were $648 million for the year ended January 3, 2016. We expect 2016 capital expenditures to be approximately $1.6 billion, including capital expenditures required for our ongoing integration and restructuring activities.

Net Cash Provided by/Used in Financing Activities:

Net cash provided by financing activities was $10.2 billion in the year ended January 3, 2016 compared to net cash used of $1.8 billion in the year ended December 28, 2014. The $10.2 billion of cash provided by financing activities was primarily driven by $10.0 billion proceeds from issuance of common stock to the Sponsors. Our cash provided by financing activities also included $14.8 billion proceeds from issuances of long-term debt partially offset by long-term debt repayments of $12.3 billion and the payment of our quarterly common stock cash dividend starting in the third quarter of 2015. Additionally, related to our Series A Preferred Stock we made cash distributions of $900 million in the year ended January 3, 2016, which reflected five dividend payments compared to cash distributions of $720 million in the year ended December 28, 2014 which reflected four dividend payments. See Equity and Dividends for further information on our cash distributions related to our Series A Preferred Stock.

Cash Flow Activity for Year Ended December 28, 2014 compared to the 2013 Successor Period and the unaudited Predecessor period from December 24, 2012 through June 7, 2013

Cash provided by operating activities was $2.1 billion for the Successor Period ended December 28, 2014 compared to cash provided by operating activities of $35 million for the 2013 Successor Period, and cash provided by operating activities of $668 million for the Predecessor period December 24, 2012 to June 7, 2013, an increase of $1.4 billion. The increase primarily reflects the improvements in our profitability following the various restructuring and productivity initiatives undertaken subsequent to the 2013 Merger, coupled with higher 2013 Merger-related costs and charges on the early extinguishment of debt in the prior periods. In addition, we extended our payment terms with suppliers generating approximately $540 million of incremental cash in the Successor Period ended December 28, 2014. The increase also reflects favorable movements in inventory, receivables as well as lower pension contributions and cash taxes, partially offset by cash used for restructuring initiatives.

Cash used for investing activities totaled $349 million for the year ended December 28, 2014, compared with $21.7 billion for the 2013 Successor Period, and $258 million for the Predecessor period December 24, 2012 to June 7, 2013. The cash used in 2014 for investing activities primarily represented capital expenditures, net of proceeds from the disposal of property, plant and equipment. The 2013 Successor Period reflected the 2013 Merger consideration, net of cash on hand, of $21.5 billion.

Cash used for financing activities was $1.8 billion for the year ended December 28, 2014, compared with cash provided by financing activities of $24.1 billion for the 2013 Successor Period, and cash used for financing activities of $482 million for the Predecessor period December 24, 2012 to June 7, 2013. Our cash used in 2014 was driven by repayment of $133 million of our B-1 Loans, repayment of $867 million of our B-2 Loans, and $720 million of Series A Preferred Stock dividends to Berkshire Hathaway. In the 2013 Successor Period, cash provided by financing activities reflected the funding of the 2013 Merger including equity contributions from the Sponsors totaling $16.5 billion, proceeds of approximately $9.5 billion in senior secured term loans, and proceeds of $3.1 billion upon the issuance of 4.250% Second Lien Senior Secured Notes, these proceeds were partially offset by $321 million of debt issuance costs. We used the funding from the 2013 Merger to repay $4.2 billion of H. J. Heinz Company outstanding short and long term debt and associated hedge contracts.

Cash held by international subsidiaries:

At January 3, 2016, approximately $1.6 billion of cash and short-term investments were held by international subsidiaries.

We have provided a deferred tax liability of $22 million for undistributed earnings not considered to be indefinitely reinvested. Except as noted below, we consider the unremitted earnings of our non-U.S subsidiaries that have not been previously taxed in the US, to be indefinitely reinvested. For those undistributed earnings considered to be indefinitely reinvested, our intent is to reinvest these funds in our international operations and our current plans do not demonstrate a need to repatriate the accumulated

earnings to fund our United States cash requirements. Further, certain previously taxed earnings have not yet been remitted and certain intercompany loans have not been repaid. As a result, in future periods, we believe that we could remit approximately $4.2 billion of cash to the United States without incurring any additional material tax expense. If we decide at a later date to repatriate these funds to the United States, we would be required to pay taxes on these amounts based on the applicable United States tax rates net of credits for foreign taxes already paid. Notwithstanding the above, for the year ended January 3, 2016, we incurred tax expense of approximately $222 million related to the repatriation of foreign earnings. We repatriated these foreign earnings as part of the integration of Kraft and Heinz international structures post-merger, to make better use of our excess foreign cash, and to align our capital structure with our strategic and operational needs. The remaining undistributed earnings of our foreign subsidiaries continue to be indefinitely reinvested and would not be available for use in the United States without incurring United States federal and state income tax consequences.

We also made taxable distributions of earnings in in the year ended December 28, 2014 and in the 2013 Predecessor period. We did not have significant taxable distributions of foreign earnings in the 2013 successor period or for Fiscal 2013. For the distributions of earnings in the year ended December 28, 2014, we incurred tax expense of approximately $64 million. The 2014 distributions used the majority of our United States foreign tax credit carry forwards. In the 2013 Predecessor period, our taxable distributions of earnings resulted in a charge to our provision for income taxes of approximately $100 million. We were able to use existing foreign tax credit carryforwards to offset the tax liability created by this distribution and therefore, there were not incremental cash taxes incurred.

Total Debt:

Our long-term debt increased to $25.2 billion at January 3, 2016 as compared to $13.4 billion at December 28, 2014. See Note 12, Debt, to the consolidated financial statements for information on our debt, including the impacts of the 2015 Merger and other transactions that occurred during year ended January 3, 2016. Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all covenants as of January 3, 2016.

We maintain our Senior Credit Facilities comprised of our $4.0 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $600 million Term Loan Facility (together with the Revolving Credit Facility, the “Senior Credit Facilities”). Our Senior Credit Facilities contain customary representations, covenants, and events of default. At January 3, 2016, $600 million aggregate principal amount of our Term Loan Facility was outstanding. No amounts were drawn on our Revolving Credit Facility at January 3, 2016 or during the year ended January 3, 2016. For further description of our Senior Credit Facilities, see Note 12, Debt, to the consolidated financial statements.

Series A Preferred Stock:

We currently intend to refinance the Series A Preferred Stock in 2016 through issuance of debt, other capital market initiatives, as well as any excess liquidity we may have available on our balance sheet.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements:

We do not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

See Note 15, Financing Arrangements, to the consolidated financial statements for a discussion of our accounts receivable securitization and factoring programs.

Aggregate Contractual Obligations:

The following table summarizes our contractual obligations at January 3, 2016 (in millions):

	Payments Due
	2016				2017-2018				2019-2020				2021 and Thereafter				Total
Long-term debt(a)	$	1,111			$	6,732			$	5,370			$	26,736			$	39,949
Capital leases(b)	22				37				13				67				139
Operating leases(c)	120				225				158				235				738
Purchase obligations(d)	2,409				1,978				412				253				5,052
Preferred dividends(e)	540				1,440				1,440				360				3,780
Other long-term liabilities(f)	194				352				323				678				1,547
Total	$	4,396			$	10,764			$	7,716			$	28,329			$	51,205

(a)	Amounts represent the expected cash payments of our long-term debt, including interest on variable and fixed rate long-term debt and interest rate swap contracts.

(b)	Amounts represent the expected cash payments of our capital leases, including expected cash payments of interest expense.

(c)	Operating leases represent the minimum rental commitments under non-cancelable operating leases.

(d)

Amounts represent commitments to purchase materials, supplies, property, plant and equipment, and co-packing, storage and distribution services based on projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology, and professional services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. A few of these obligations are long-term and are based on minimum purchase requirements. Certain purchase obligations contain variable pricing components, and, as a result, actual cash payments are expected to fluctuate based on changes in these variable components. Due to the proprietary nature of some of our materials and processes, certain supply contracts contain penalty provisions for early terminations. We do not believe that a material amount of penalties is reasonably likely to be incurred under these contracts based upon historical experience and current expectations. We exclude amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities from the table above.

(e)

Berkshire Hathaway has an $8.0 billion preferred stock investment in Kraft Heinz which entitles it to a 9.00% annual dividend to be paid quarterly in cash or in-kind. We currently intend to refinance the Series A Preferred Stock in 2016. However, there can be no assurance that we will be able to successfully undertake such refinancing, and as such, we have reflected continued quarterly cash distributions in all periods presented in the table above. See Note 13, Preferred Stock and Warrants, to the consolidated financial statements for additional information.

(f)

Other long-term liabilities primarily consist of certain specific incentive compensation arrangements and postretirement benefit commitments. Future benefit payments for our postretirement benefit plans through 2025 are expected to be $1.4 billion. We are unable to reliably estimate the timing of the payments beyond 2025. Long-term liabilities related to income taxes, insurance accruals, and other accruals included on the consolidated balance sheet are excluded from the above table as we are unable to estimate the timing of payments for these items.

Pension contributions were $286 million for the year ended January 3, 2016. We estimate that 2016 pension contributions will be approximately $315 million to our U.S. plans and approximately $30 million to our non-U.S. plans. Our U.S. contributions include approximately $160 million in the first quarter of 2016 related to the termination of our U.S. nonqualified pension plan that was effective December 31, 2015. Beyond 2016, we are unable to reliably estimate the timing of contributions to our pension plans. Our contributions depend on many factors, including changes in tax, employee benefit, or other laws, tax deductibility, significant differences between expected and actual pension asset performance or interest rates, and other factors. As such, expected pension contributions for 2016 have been excluded from the above table.

At January 3, 2016, the total amount of unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was approximately $397 million. The timing of payments will depend on the progress of examinations with tax authorities. We do not expect a significant tax payment related to these obligations within the next year. We are unable to make a reasonably reliable estimate as to when any significant cash settlements with taxing authorities may occur; therefore, we have excluded the amount of gross unrecognized tax benefits from the above table.

Equity and Dividends

Series A Preferred Stock:

Our Series A Preferred Stock entitles holders to a 9.00% annual dividend to be paid quarterly in arrears on each March 7, June 7, September 7, and December 7, in cash. While the Series A Preferred Stock remains outstanding, if we declare or pay a dividend on our common stock, we must also declare and pay in full the dividend on the Series A Preferred Stock for the then-current quarterly period. We made cash distributions of $900 million during the year ended January 3, 2016 which reflects five payments due to the fact that, in connection with the declaration of our dividend on our common stock on December 8, 2015, we also declared and paid the dividend on the Series A Preferred Stock for the quarterly period that ends March 7, 2016. We expect to continue to make cash distributions to pay this dividend as long as the Series A Preferred Stock remains outstanding. We made cash distributions of $720 million in the year ended December 28, 2014 and $360 million in the 2013 Successor Period. The Series A Preferred Stock was issued in connection with the 2013 Merger and therefore, there were no preferred dividends paid in any of the Predecessor periods.

See Note 13, Preferred Stock and Warrants, to the consolidated financial statements for a discussion of the Series A Preferred Stock.

Common Stock Dividends:

We paid common stock dividends of $1.3 billion in the year ended January 3, 2016. No common stock dividends were paid in the year ended December 28, 2014, the 2013 Successor Period, or the 2013 Predecessor Period. We paid common stock dividends of $666 million in Fiscal 2013.

On December 8, 2015, our Board of Directors declared a cash dividend of $0.575 per share of common stock, which was paid on January 15, 2016, to shareholders of record on December 23, 2015. In connection with this dividend we recorded $762 million of dividends payable as of January 3, 2016. Additionally, on February 25, 2016, our Board of Directors declared a cash dividend of $0.575 per share of common stock, which is payable on April 8, 2016, to shareholders of record on March 18, 2016. The present annualized dividend rate is $2.30 per share of common stock. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects, and other factors that our Board of Directors deems relevant to its analysis and decision making.

Supplemental Unaudited Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the 2015 Merger, which was consummated on July 2, 2015, and the related equity investments, based on the historical results of operations of Heinz and Kraft. See Note 1, Background and Basis of Presentation, and Note 2, Merger and Acquisition, to the consolidated financial statements for additional information on the 2015 Merger.

The following unaudited pro forma condensed combined statements of income for the years ended January 3, 2016 and December 28, 2014 are based on the historical financial statements of Heinz and Kraft after giving effect to the 2015 Merger, related equity investments, and the assumptions and adjustments described in the accompanying notes to these unaudited pro forma condensed combined statements of income.

The Kraft Heinz statement of income information for the year ended January 3, 2016 was derived from the consolidated financial statements included elsewhere in this Form 10-K. The historical Kraft statement of income includes information for the six months ended June 27, 2015 derived from Kraft's unaudited condensed consolidated financial statements included in our Form 8-K dated August 10, 2015 and information for June 27, 2015 to July 2, 2015 derived from Kraft's books and records.

The Heinz statement of income information for the year ended December 28, 2014 was derived from the consolidated financial statements included elsewhere in this Form 10-K. The Kraft statement of income information for the year ended December 28, 2014 was derived from its consolidated financial statements included in Kraft’s Annual Report on Form 10-K for the year ended December 27, 2014.

The unaudited pro forma condensed combined statements of income are presented as if the 2015 Merger had been consummated on December 30, 2013, the first business day of our 2014 fiscal year, and combine the historical results of Heinz and Kraft. This is consistent with internal management reporting. The unaudited pro forma condensed combined statements of income set forth below primarily give effect to the following assumptions and adjustments:

•	Application of the acquisition method of accounting;

•	The issuance of Heinz common stock to the Sponsors in connection with the equity investments;

•	The pre-closing Heinz share conversion;

•	The exchange of one share of Kraft Heinz common stock for each share of Kraft common stock; and

•	Conformance of accounting policies.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. We utilized estimated fair values at the 2015 Merger Date for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. Our purchase price allocation is substantially complete with the exception of identifiable intangible assets, certain income tax accounts and goodwill. During the measurement period, we will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ materially from our preliminary estimates.

The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11 and is not necessarily indicative of the results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of our anticipated combined future results. In addition, the accompanying unaudited pro forma condensed combined statements of income do not reflect any additional anticipated synergies, operating efficiencies, cost savings or any integration costs that may result from the 2015 Merger.

The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed combined statements of income to give effect to unaudited pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) are expected to have a continuing impact on the results of operations of the combined company. As a result, under SEC Regulation S-X Article 11, certain expenses such as deal costs (“Deal Costs”) and the fair value step-up of Kraft’s inventory (“Inventory Step-up Costs”) are eliminated from pro forma results in both periods presented. In contrast, under the ASC 805 presentation in Note 2, Merger and Acquisition, to the consolidated financial statements, these expenses are required to be included in prior year pro forma results.

The unaudited pro forma condensed combined financial information, including the related notes, should be read in conjunction with the historical consolidated financial statements and related notes of Kraft, and with our consolidated financial statements included elsewhere in this Form 10-K. The historical SEC filings of Kraft are available to the public at the SEC website at www.sec.gov.

The Kraft Heinz Company

Pro Forma Condensed Combined Statements of Income

(in millions, except per share data)

(Unaudited)

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Net sales	$	27,447			$	29,122
Cost of products sold	18,299				20,146
Gross profit	9,148				8,976
Selling, general and administrative expenses	4,613				4,593
Operating income	4,535				4,383
Interest expense	1,528				1,113
Other expense, net	289				57
Income before income taxes	2,718				3,213
Provision for income taxes	944				880
Net income	1,774				2,333
Net income attributable to noncontrolling interest	13				15
Net income attributable to Kraft Heinz	$	1,761			$	2,318
Preferred dividends	900				720
Net income attributable to common shareholders	$	861			$	1,598
Basic common shares outstanding	1,202				1,192
Diluted common shares outstanding	1,222				1,222
Per share data applicable to common shareholders:
Basic earnings	$	0.72			$	1.34
Diluted earnings	$	0.70			$	1.31

The Kraft Heinz Company

Pro Forma Condensed Combined Statement of Income

For the Year Ended January 3, 2016

(in millions, except per share data)

(Unaudited)

	Kraft Heinz				Historical Kraft				Pro Forma Adjustments				Pro Forma
Net sales	$	18,338			$	9,109			$	—			$	27,447
Cost of products sold	12,577				6,103				(381		)		18,299
Gross profit	5,761				3,006				381				9,148
Selling, general and administrative expenses	3,122				1,532				(41		)		4,613
Operating income	2,639				1,474				422				4,535
Interest expense	1,321				247				(40		)		1,528
Other expense/(income), net	305				(16		)		—				289
Income before income taxes	1,013				1,243				462				2,718
Provision for income taxes	366				400				178				944
Net income	647				843				284				1,774
Net income attributable to noncontrolling interest	13				—				—				13
Net income attributable to Kraft Heinz	$	634			$	843			$	284			$	1,761
Preferred dividends	900				—				—				900
Net (loss)/income attributable to common shareholders	$	(266	)		$	843			$	284			$	861
Basic common shares outstanding	786				—				416				1,202
Diluted common shares outstanding	786				—				436				1,222
Per share data applicable to common shareholders:
Basic (loss)/earnings	$	(0.34	)		$	—			$	1.06			$	0.72
Diluted (loss)/earnings	$	(0.34	)		$	—			$	1.04			$	0.70

The Kraft Heinz Company

Pro Forma Condensed Combined Statement of Income

For the Year Ended December 28, 2014

(in millions, except per share data)

(Unaudited)

	Historical Heinz				Historical Kraft				Pro Forma Adjustments				Pro Forma
Net sales	$	10,922			$	18,200			$	—			$	29,122
Cost of products sold	7,645				13,248				(747		)		20,146
Gross profit	3,277				4,952				747				8,976
Selling, general and administrative expenses	1,709				3,062				(178		)		4,593
Operating income	1,568				1,890				925				4,383
Interest expense	686				507				(80		)		1,113
Other expense/(income), net	79				(22		)		—				57
Income before income taxes	803				1,405				1,005				3,213
Provision for income taxes	131				363				386				880
Net income	672				1,042				619				2,333
Net income attributable to noncontrolling interest	15				—				—				15
Net income attributable to Kraft Heinz	$	657			$	1,042			$	619			$	2,318
Preferred dividends	720				—				—				720
Net (loss)/income attributable to common shareholders	$	(63	)		$	1,042			$	619			$	1,598
Basic common shares outstanding	377				593				222				1,192
Diluted common shares outstanding	377				600				245				1,222
Per share data applicable to common shareholders:
Basic (loss)/earnings	$	(0.17	)		$	1.76			$	(0.25	)		$	1.34
Diluted (loss)/earnings	$	(0.17	)		$	1.74			$	(0.26	)		$	1.31

The Kraft Heinz Company

Summary of Pro Forma Adjustments

(in millions)

(Unaudited)

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Impact to cost of products sold:
Postemployment benefit costs(a)	$	(34	)		$	(747	)
Inventory step-up(b)	(347		)		—
Impact to cost of products sold	$	(381	)		$	(747	)
Impact to selling, general and administrative expenses:
Depreciation and amortization(c)	$	84			$	168
Compensation expense(d)	31				68
Postemployment benefit costs(a)	11				(414		)
Deal costs(e)	(167		)		—
Impact to selling, general and administrative expenses	$	(41	)		$	(178	)
Impact to interest expense:
Interest expense(f)	$	(40	)		$	(80	)
Impact to interest expense	$	(40	)		$	(80	)

Adjustments included in the accompanying unaudited pro forma condensed combined statements of operations are as follows:

(a)

Represents the change to align Kraft's accounting policy to our accounting policy for postemployment benefit plans. Kraft historically elected a mark-to-market accounting policy and recognized net actuarial gains or losses and changes in the fair value of plan assets immediately in earnings upon remeasurement. Our policy is to initially record such items in other comprehensive income/(loss). Also represents the elimination of Kraft’s historical amortization of postemployment benefit plan prior service credits.

(b)	Represents the elimination of nonrecurring non-cash costs related to the fair value adjustment of Kraft’s inventory. See Note 2, Merger and Acquisition, to the consolidated financial statements for additional information on the determination of fair values.

(c)

Represents incremental amortization resulting from the fair value adjustment of Kraft’s definite-lived intangible assets in connection with the 2015 Merger. The net change in depreciation expense resulting from the fair value adjustment of property, plant, and equipment was insignificant. See Note 2, Merger and Acquisition, to the consolidated financial statements for additional information on the determination of fair values.

(d)	Represents the incremental compensation expense due to the fair value remeasurement of certain of Kraft’s equity awards in connection with the 2015 Merger. See Note 9, Employees' Stock Incentive Plans, to the consolidated financial statements for additional information on the conversion of Kraft’s equity awards in connection with the 2015 Merger.

(e)	Represents the elimination of nonrecurring deal costs incurred in connection with the 2015 Merger.

(f)	Represents the incremental change in interest expense resulting from the fair value adjustment of Kraft’s long-term debt in connection with the 2015 Merger, including the elimination of the historical amortization of deferred financing fees and amortization of original issuance discount.

We calculated the income tax effect of the pro forma adjustments using a 38.5% weighted average statutory tax rate for both periods presented.

For the year ended December 28, 2014, we calculated the unaudited pro forma weighted average number of basic shares outstanding by adding Heinz’s historical weighted average number of basic shares outstanding, the 500 million shares issued to the Sponsors in connection with their equity investments (after giving effect to the pre-closing Heinz conversion ratio of 0.443332) and the historical weighted average number of basic shares of Kraft, which were converted on a 1:1 basis into shares of Kraft Heinz. We calculated the unaudited pro forma weighted average number of diluted shares outstanding by adding the effect of dilutive securities to the unaudited pro forma weighted average number of basic shares outstanding, including dilutive securities related to historical Heinz. The historical Heinz diluted EPS calculation did not include these securities as historical Heinz was in a net loss position and such securities were anti-dilutive.

For the year ended January 3, 2016, we calculated the unaudited pro forma weighted average number of basic shares outstanding by adding the Kraft Heinz weighted average number of basic shares outstanding (which included the Sponsors' shares and the converted Kraft shares weighted for the period from the 2015 Merger through the year ended January 3, 2016), and the Sponsors' shares (as converted) and the converted Kraft shares (both weighted from the beginning of the year through the 2015 Merger Date). We calculated the unaudited pro forma weighted average number of diluted shares outstanding by adding the effect of dilutive securities to the unaudited pro forma weighted average number of basic shares outstanding, including dilutive securities related to Kraft Heinz. The Kraft Heinz diluted EPS calculation did not include these securities as Kraft Heinz was in a net loss position and such securities were anti-dilutive.

Non-GAAP Financial Measures

We use different Non-GAAP financial measures for the comparison of the year ended January 3, 2016 to the year ended December 28, 2014 and for the comparison of the year ended December 28, 2014 to 2013 Successor Period and the unaudited Predecessor period from December 24, 2013 through June 7, 2013 as our pro forma adjustments are only included when we compare the year ended January 3, 2016 to the year ended December 28, 2014. Our unaudited pro forma condensed combined statements of income are presented as if the 2015 Merger had been consummated on December 30, 2013, the first business day of our 2014 fiscal year.

Consistent with internal management reporting, there are no pro forma adjustments in any of the 2013 periods presented as it would be impracticable to develop adjustments that would be meaningful. The information would not be meaningful due to the difficulty of interpreting these pro forma impacts on the various durations of the multiple 2013 periods presented, as well as, the length of time that has passed since 2013 makes it difficult to assess how the company would have performed if Kraft and Heinz had been a combined company at that time.

Our pro forma financial information and our non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with accounting principles generally accepted in the United States of America(“U.S. GAAP”).

The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. Pro Forma Organic Net Sales, Adjusted Pro Forma EBITDA, Adjusted Pro Forma EPS, Organic Net Sales, and Adjusted EBITDA are not substitutes for their comparable U.S. GAAP financial measures, such as net sales, operating income, earnings per common share (“EPS”), or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.

Management uses these Non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our core operations. Management believes that presenting our Non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results. We believe that the presentation of these Non-GAAP financial measures, when considered together with the corresponding U.S. GAAP financial measure and the reconciliation to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained absent these disclosures.

Year Ended January 3, 2016 compared to the Year Ended December 28, 2014

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented in this report selected unaudited pro forma condensed combined financial information for 2015 and 2014. We also present Pro Forma Organic Net Sales, Adjusted Pro Forma EBITDA and Adjusted Pro Forma EPS, which are considered non-GAAP financial measures.

We define Pro Forma Organic Net Sales as pro forma net sales excluding the impact of acquisitions, currency, divestitures and 53rd week of shipments when it occurs. We calculate the impact of currency on net sales by holding exchange rates constant at the previous year's exchange rate, with the exception of Venezuela following our June 28, 2015 currency devaluation, for which we calculate the previous year's results using the current year's exchange rate. Management believes that presenting Pro Forma Organic

Net Sales is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results.

Adjusted Pro Forma EBITDA is defined as pro forma net income/(loss) from continuing operations before interest expense, other expense/(income), net, provision for/(benefit from) income taxes, depreciation and amortization (including amortization of postretirement benefit plans prior service credits); excluding the impacts of integration and restructuring expenses, merger costs, unrealized gains/(losses) on commodity hedges, equity award compensation expense, impairment losses, gains/(losses) on the sale of a business, and nonmonetary currency devaluation. Adjusted Pro Forma EBITDA is a tool intended to assist management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our core operations.

We define Adjusted Pro Forma EPS as pro forma diluted EPS excluding the impacts of integration and restructuring expenses, merger costs, unrealized gains/(losses) on commodity hedges, impairment losses, gains/(losses) on the sale of a business, nonmonetary currency devaluation and timing impacts of preferred stock dividends. Management uses Adjusted Pro Forma EPS to assess operating performance on a consistent basis.

See the following schedules for supplemental financial data, which include the unaudited pro forma condensed combined financial information, and corresponding reconciliations of Pro Forma Organic Net Sales, Adjusted Pro Forma EBITDA and Adjusted Pro Forma EPS for the relevant periods.

The Kraft Heinz Company

Reconciliation of Pro Forma Net Sales to Pro Forma Organic Net Sales

For the Years Ended January 3, 2016 and December 28, 2014

(dollars in millions)

(Unaudited)

	Pro Forma Net Sales			Impact of Currency				Impact of Divestitures				Impact of 53rd week				Pro Forma Organic Net Sales			Price		Volume/Mix
January 3, 2016 (53 weeks)
United States	$19,284			$	—			$	—			$	233			$19,051
Canada	2,386			(378		)		—				31				2,733
Europe	2,485			(340		)		42				25				2,758
Rest of World	3,292			(503		)		—				51				3,744
	$27,447			$	(1,221	)		$	42			$	340			$28,286
December 28, 2014 (52 weeks)
United States	$19,635			$	—			$	—			$	—			$19,635
Canada	2,811			—				—				—				2,811
Europe	2,973			—				107				—				2,866
Rest of World	3,703			274				—				—				3,429
	$29,122			$	274			$	107			$	—			$28,741
Year-over-year growth rates
United States	(1.8	)%		0.0 pp				0.0 pp				1.2 pp				(3.0	)%		0.0 pp		(3.0) pp
Canada	(15.1	)%		(13.4) pp				0.0 pp				1.1 pp				(2.8	)%		2.2 pp		(5.0) pp
Europe	(16.4	)%		(11.4) pp				(2.1) pp				0.9 pp				(3.8	)%		0.7 pp		(4.5) pp
Rest of World	(11.1	)%		(21.8) pp				0.0 pp				1.5 pp				9.2	%		6.3 pp		2.9 pp
	(5.8	)%		(5.2) pp				(0.2) pp				1.2 pp				(1.6	)%		1.0 pp		(2.6) pp

The Kraft Heinz Company

Reconciliation of Pro Forma Operating Income to Adjusted Pro Forma EBITDA

(in millions)

(Unaudited)

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Pro forma operating income	$	4,535			$	4,383
Depreciation and amortization (excluding integration and restructuring expenses)	779				924
Integration and restructuring expenses	1,117				743
Merger costs	194				68
Unrealized (gains)/losses on commodity hedges	(41		)		79
Impairment losses	58				221
Gain on sale of business	(21		)		—
Nonmonetary currency devaluation	57				—
Equity award compensation expense (excluding integration and restructuring expenses)	61				108
Adjusted Pro Forma EBITDA	$	6,739			$	6,526

The Kraft Heinz Company

Reconciliation of Pro Forma Diluted EPS to Adjusted Pro Forma EPS

(Unaudited)

	January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Pro forma diluted EPS	$	0.70			$	1.31
Integration and restructuring expenses	0.61				0.47
Merger costs	0.49				0.04
Unrealized (gains)/losses on commodity hedges	(0.02		)		0.05
Impairment losses	0.03				0.11
Gain on sale of business	(0.01		)		—
Nonmonetary currency devaluation	0.24				—
Additional preferred dividend	0.15				—
Adjusted Pro Forma EPS	$	2.19			$	1.98

Year Ended December 28, 2014 compared to 2013 Successor Period and the Predecessor period from December 24, 2012 through June 7, 2013

We define Organic Net Sales as net sales excluding the impact of acquisitions, currency, divestitures and 53rd week of shipments when it occurs. We calculate the impact of currency on net sales by holding exchange rates constant at the previous year's exchange rate, for which we calculate the previous year's results using the current year's exchange rate. Management believes that presenting Organic Net Sales is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results.

Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), net, provision for/(benefit from) income taxes, depreciation and amortization (including amortization of postretirement benefit plans prior service credits); excluding the impacts of integration and restructuring expenses, merger costs, unrealized gains/(losses) on commodity hedges, equity award compensation expense, impairment losses, gains/(losses) on the sale of a business, and nonmonetary currency devaluation. Adjusted EBITDA is a tool intended to assist management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our core operations.

See the following schedules for supplemental financial data, which include the reconciliations of Organic Net Sales and Adjusted EBITDA for the relevant periods.

The Kraft Heinz Company

Reconciliation of Net Sales to Organic Net Sales

For the Year Ended December 28, 2014 compared to the 2013 Successor Period and the Predecessor period from December 24, 2012 through June 7, 2013

(dollars in millions)

(Unaudited)

	Net Sales				Impact of Currency				Impact of Divestitures				Impact of 53rd week				Organic Net Sales				Price		Volume/Mix
Successor Period: December 28, 2014 (52 weeks)
United States	$	3,615			$	—			$	—			$	—			$	3,615
Canada	631				(47		)		—				—				678
Europe	2,973				79				2				—				2,892
Rest of World	3,703				(256		)		—				—				3,959
	$	10,922			$	(224	)		$	2			$				$	11,144
Successor Period: February 8 - December 29, 2013 (29 weeks)
United States	$	2,072			$	—			$	—			$	69			$	2,003
Canada	371				—				—				11				360
Europe	1,659				—				9				35				1,615
Rest of World	2,138				—				—				48				2,090
	$	6,240			$				$	9			$	163			$	6,068
Predecessor period: December 24, 2012 through June 7, 2013 (24 weeks)
United States	$	1,759			$	—			$	—			$	—			$	1,759
Canada	331				—				—				—				331
Europe	1,366				—				12				—				1,354
Rest of World	1,748				—				—				—				1,748
	$	5,204			$				$	12			$				$	5,192
Successor Period: February 8 - December 29, 2013 and Predecessor period: December 24, 2012 through June 7, 2013
United States	$	3,831			$				$				$	69			$	3,762
Canada	702				—				—				11				691
Europe	3,025				—				21				35				2,969
Rest of World	3,886				—				—				48				3,838
	$	11,444			$				$	21			$	163			$	11,260
Period-over-period growth rates for Successor Period: December 28, 2014 compared to Successor Period: February 8 - December 29, 2013 and Predecessor period: December 24, 2012 through June 7, 2013
United States	(5.6		)%		0.0 pp				0.0 pp				(1.7) pp				(3.9		)%		1.9 pp		(5.8) pp
Canada	(10.1		)%		(6.7) pp				0.0 pp				(1.5) pp				(1.9		)%		1.6 pp		(3.5) pp
Europe	(1.7		)%		2.6 pp				(0.6) pp				(1.1) pp				(2.6		)%		0.0 pp		(2.6) pp
Rest of World	(4.7		)%		(6.6) pp				0.0 pp				(1.3) pp				3.2		%		6.5 pp		(3.3) pp
	(4.6		)%		(2.0) pp				(0.2) pp				(1.4) pp				(1.0		)%		3.0 pp		(4.0) pp

The Kraft Heinz Company

Reconciliation of Adjusted EBITDA to Operating Income

(in millions)

(Unaudited)

	Successor								Predecessor (H. J. Heinz Company)
	December 28, 2014 (52 weeks)				February 8 - December 29, 2013 (29 weeks)				December 24, 2012 - June 7, 2013 (24 weeks)
United States	$	1,138			$	519			$	433
Canada	193				99				84
Europe	897				349				292
Rest of World	689				256				223
General corporate expenses	(77		)		(58		)		(86		)
Depreciation and amortization (excluding integration and restructuring expenses)	(406		)		(216		)		(159		)
Integration and restructuring expenses	(637		)		(411		)		6
Merger costs	—				(158		)		(158		)
Foodstar earn-out									(12		)
Amortization of inventory step-up	—				(383		)		—
Impairment losses	(221		)		—				—
Equity award compensation expense	(8		)		(5		)		(19		)
Operating income	$	1,568			$	(8	)		$	604