Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of The Kraft Heinz Company

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of The Kraft Heinz Company and its subsidiaries at December 31, 2016 and January 3, 2016, and the results of their operations and their cash flows for the fiscal years ended December 31, 2016, January 3, 2016, and December 28, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) for the fiscal years ended December 31, 2016, January 3, 2016, and December 28, 2014 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our audits (which was an integrated audit for the fiscal year ended December 31, 2016). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

February 23, 2017

The Kraft Heinz Company

Consolidated Statements of Income

(in millions, except per share data)

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Net sales	$	26,487			$	18,338			$	10,922
Cost of products sold	16,901				12,577				7,645
Gross profit	9,586				5,761				3,277
Selling, general and administrative expenses	3,444				3,122				1,709
Operating income	6,142				2,639				1,568
Interest expense	1,134				1,321				686
Other expense/(income), net	(15		)		305				79
Income/(loss) before income taxes	5,023				1,013				803
Provision for/(benefit from) income taxes	1,381				366				131
Net income/(loss)	3,642				647				672
Net income/(loss) attributable to noncontrolling interest	10				13				15
Net income/(loss) attributable to Kraft Heinz	3,632				634				657
Preferred dividends	180				900				720
Net income/(loss) attributable to common shareholders	$	3,452			$	(266	)		$	(63	)
Per share data applicable to common shareholders:
Basic earnings/(loss)	$	2.84			$	(0.34	)		$	(0.17	)
Diluted earnings/(loss)	2.81				(0.34		)		(0.17		)
Dividends declared	2.35				1.70				—

See accompanying notes to the consolidated financial statements.

The Kraft Heinz Company

Consolidated Statements of Comprehensive Income

(in millions)

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Net income/(loss)	$	3,642			$	647			$	672
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments	(986		)		(1,604		)		(939		)
Net deferred gains/(losses) on net investment hedges	226				506				336
Net actuarial gains/(losses) arising during the period	(40		)		23				(34		)
Prior service credits/(costs) arising during the period	97				923				—
Reclassification of net postemployment benefit losses/(gains)	(207		)		(85		)		(7		)
Net deferred gains/(losses) on cash flow hedges	46				(6		)		(173		)
Net deferred losses/(gains) on cash flow hedges reclassified to net income	(87		)		120				4
Total other comprehensive income/(loss)	(951		)		(123		)		(813		)
Total comprehensive income/(loss)	2,691				524				(141		)
Comprehensive income/(loss) attributable to noncontrolling interest	16				(13		)		8
Comprehensive income/(loss) attributable to Kraft Heinz	$	2,675			$	537			$	(149	)

See accompanying notes to the consolidated financial statements.

The Kraft Heinz Company

Consolidated Balance Sheets

(in millions of dollars)

	December 31, 2016				January 3, 2016
ASSETS
Cash and cash equivalents	$	4,204			$	4,837
Trade receivables (net of allowances of $20 at December 31, 2016 and $32 at January 3, 2016)	769				871
Sold receivables	129				583
Inventories	2,684				2,618
Other current assets	967				871
Total current assets	8,753				9,780
Property, plant and equipment, net	6,688				6,524
Goodwill	44,125				43,051
Intangible assets, net	59,297				62,120
Other assets	1,617				1,498
TOTAL ASSETS	$	120,480			$	122,973
LIABILITIES AND EQUITY
Commercial paper and other short-term debt	$	645			$	4
Current portion of long-term debt	2,046				79
Trade payables	3,996				2,844
Accrued marketing	749				856
Accrued postemployment costs	157				328
Income taxes payable	255				417
Interest payable	415				401
Dividends payable	39				762
Other current liabilities	1,199				1,241
Total current liabilities	9,501				6,932
Long-term debt	29,713				25,151
Deferred income taxes	20,848				21,497
Accrued postemployment costs	2,038				2,405
Other liabilities	806				752
TOTAL LIABILITIES	62,906				56,737
Commitments and Contingencies (Note 16)
Redeemable noncontrolling interest	—				23
9.00% cumulative compounding preferred stock, Series A, no shares authorized and issued at December 31, 2016 and 80,000 authorized and issued shares at January 3, 2016, $0.01 par value	—				8,320
Equity:
Common stock, $0.01 par value (5,000,000,000 shares authorized; 1,218,947,088 shares issued and 1,216,475,740 shares outstanding at December 31, 2016; 1,214,391,614 shares issued and 1,213,978,752 shares outstanding at January 3, 2016)	12				12
Additional paid-in capital	58,593				58,375
Retained earnings/(deficit)	588				—
Accumulated other comprehensive income/(losses)	(1,628		)		(671		)
Treasury stock, at cost	(207		)		(31		)
Total shareholders' equity	57,358				57,685
Noncontrolling interest	216				208
TOTAL EQUITY	57,574				57,893
TOTAL LIABILITIES AND EQUITY	$	120,480			$	122,973

See accompanying notes to the consolidated financial statements.

The Kraft Heinz Company

Consolidated Statement of Equity

(in millions)

	Common Stock				Warrants				Additional Paid-in Capital				Retained Earnings/ (Deficit)				Accumulated Other Comprehensive Income/(Losses)				Treasury Stock				Noncontrolling Interest				Total Equity
Balance at December 29, 2013	$	4			$	367			$	7,450			$	(77	)		$	232			$	—			$	216			$	8,192
Net income/(loss) excluding redeemable noncontrolling interest	—				—				—				657				—				—				14				671
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—				—				—				—				(806		)		—				(4		)		(810		)
Dividends declared-Series A Preferred Stock	—				—				(142		)		(578		)		—				—				—				(720		)
Dividends declared-noncontrolling interest	—				—				—				—				—				—				(7		)		(7		)
Exercise of stock options, issuance of other stock awards, and other	—				—				12				(2		)		—				—				—				10
Balance at December 28, 2014	4				367				7,320				—				(574		)		—				219				7,336
Net income/(loss) excluding redeemable noncontrolling interest	—				—				—				634				—				—				13				647
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—				—				—				—				(97		)		—				(18		)		(115		)
Dividends declared-Series A Preferred Stock	—				—				(360		)		(540		)		—				—				—				(900		)
Dividends declared-common stock	—				—				(1,972		)		(92		)		—				—				—				(2,064		)
Dividends declared-noncontrolling interest	—				—				—				—				—				—				(6		)		(6		)
Exercise of warrants	—				(367		)		367				—				—				—				—				—
Issuance of common stock to Sponsors	2				—				9,998				—				—				—				—				10,000
Acquisition of Kraft Foods Group, Inc.	6				—				42,849				—				—				—				—				42,855
Exercise of stock options, issuance of other stock awards, and other	—				—				173				(2		)		—				(31		)		—				140
Balance at January 3, 2016	12				—				58,375				—				(671		)		(31		)		208				57,893
Net income/(loss) excluding redeemable noncontrolling interest	—				—				—				3,632				—				—				10				3,642
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—				—				—				—				(957		)		—				6				(951		)
Dividends declared-Series A Preferred Stock	—				—				—				(180		)		—				—				—				(180		)
Dividends declared-common stock	—				—				—				(2,862		)		—				—				—				(2,862		)
Dividends declared-noncontrolling interest	—				—				—				—				—				—				(8		)		(8		)
Exercise of stock options, issuance of other stock awards, and other	—				—				218				(2		)		—				(176		)		—				40
Balance at December 31, 2016	$	12			—				$	58,593			$	588			$	(1,628	)		$	(207	)		$	216			$	57,574

See accompanying notes to the consolidated financial statements.

The Kraft Heinz Company

Consolidated Statements of Cash Flows

(in millions)

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	3,642			$	647			$	672
Adjustments to reconcile net income/(loss) to operating cash flows:
Depreciation and amortization	1,337				740				530
Amortization of postretirement benefit plans prior service credits	(333		)		(112		)		(6		)
Amortization of inventory step-up	—				347				—
Equity award compensation expense	46				133				8
Deferred income tax provision	(29		)		(317		)		(174		)
Pension contributions	(344		)		(286		)		(102		)
Impairment losses on indefinite-lived intangible assets	—				58				221
Nonmonetary currency devaluation	24				234				—
Write-off of debt issuance costs	—				236				—
Other items, net	(134		)		120				194
Changes in current assets and liabilities:
Trade receivables	80				838				144
Sold receivables	454				(422		)		(129		)
Inventories	(130		)		25				153
Accounts payable	943				(119		)		562
Other current assets	(42		)		114				(20		)
Other current liabilities	(276		)		231				87
Net cash provided by/(used for) operating activities	5,238				2,467				2,140
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(1,247		)		(648		)		(399		)
Payments to acquire Kraft Foods Group, Inc., net of cash acquired	—				(9,468		)		—
Proceeds from net investment hedges	91				488				—
Other investing activities, net	43				(76		)		50
Net cash provided by/(used for) investing activities	(1,113		)		(9,704		)		(349		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(86		)		(12,314		)		(1,103		)
Proceeds from issuance of long-term debt	6,981				14,834				—
Debt issuance costs	(53		)		(98		)		—
Proceeds from issuance of commercial paper	6,680				—				—
Repayments of commercial paper	(6,043		)		—				—
Proceeds from issuance of common stock to Sponsors	—				10,000				—
Dividends paid-Series A Preferred Stock	(180		)		(900		)		(720		)
Dividends paid-common stock	(3,584		)		(1,302		)		—
Redemption of Series A Preferred Stock	(8,320		)		—				—
Other financing activities, net	(16		)		(37		)		3
Net cash provided by/(used for) financing activities	(4,621		)		10,183				(1,820		)
Effect of exchange rate changes on cash and cash equivalents	(137		)		(407		)		(132		)
Cash and cash equivalents:
Net increase/(decrease)	(633		)		2,539				(161		)
Balance at beginning of period	4,837				2,298				2,459
Balance at end of period	$	4,204			$	4,837			$	2,298

See accompanying notes to the consolidated financial statements.

The Kraft Heinz Company

Consolidated Statements of Cash Flows

(in millions)

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Cash paid during the period for:
Interest	$	1,176			$	704			$	620
Income taxes	1,619				577				86

See accompanying notes to the consolidated financial statements.

The Kraft Heinz Company

Notes to Consolidated Financial Statements

Note 1. Background and Basis of Presentation

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.

Organization:

On July 2, 2015 (the “2015 Merger Date”), through a series of transactions, we consummated the merger of Kraft Foods Group, Inc. (“Kraft”) with and into a wholly-owned subsidiary of H.J. Heinz Holding Corporation (“Heinz”) (the “2015 Merger”). At the closing of the 2015 Merger, Heinz was renamed The Kraft Heinz Company (“Kraft Heinz”). See Note 2, Merger and Acquisition, for additional information on the 2015 Merger.

Immediately prior to the consummation of the 2015 Merger, each share of Heinz issued and outstanding common stock was reclassified and changed into 0.443332 of a share of Kraft Heinz common stock. All share and per share amounts in this Annual Report on Form 10-K, including the consolidated financial statements and related notes have been retroactively adjusted for all historical periods presented prior to the 2015 Merger Date to give effect to this conversion, including reclassifying an amount equal to the change in value of common stock to additional paid-in capital. In the 2015 Merger, all outstanding shares of Kraft common stock were converted into the right to receive, on a one-for-one basis, shares of Kraft Heinz common stock. Deferred shares and restricted shares of Kraft were converted to deferred shares and restricted shares of Kraft Heinz, as applicable. In addition, upon the completion of the 2015 Merger, the Kraft shareholders of record immediately prior to the closing of the 2015 Merger received a special cash dividend of $16.50 per share.

Prior to the consummation of the 2015 Merger, Heinz had been controlled by Berkshire Hathaway Inc. (“Berkshire Hathaway”) and 3G Global Food Holdings LP (together, the “Sponsors”), following their acquisition of H. J. Heinz Company. On June 7, 2013, H. J. Heinz Company was acquired by Heinz (formerly known as Hawk Acquisition Holding Corporation) (the “2013 Merger”), a Delaware corporation controlled by the Sponsors, pursuant to the Agreement and Plan of Merger, dated February 13, 2013, as amended by the Amendment to Agreement and Plan of Merger, dated March 4, 2013, by and among H. J. Heinz Company, Heinz, and Hawk Acquisition Sub, Inc. (“Hawk”).

The Sponsors initially owned 850 million shares of common stock in Heinz; Berkshire Hathaway also held a warrant to purchase 46 million additional shares of common stock, which it exercised in June 2015. Additionally, in connection with the 2013 Merger, we issued an $8.0 billion preferred stock investment in Heinz which entitled Berkshire Hathaway to a 9.00% annual dividend. Prior to, but in connection with, the 2015 Merger, the Sponsors made equity investments whereby they purchased an additional 500 million newly issued shares of Heinz common stock for an aggregate purchase price of $10.0 billion.

Subsequent Event:

On February 17, 2017, we disclosed that we approached Unilever plc / Unilever N.V. (“Unilever”) with a comprehensive proposal to combine the two companies to create a leading consumer goods company with a mission of long-term growth and sustainable living. Unilever declined the proposal. On February 19, 2017, we disclosed that we had amicably withdrawn our proposal for a combination of the two companies.

Change in Fiscal Year End:

On December 9, 2016, our Board of Directors approved a change to our fiscal year end from Sunday to Saturday. Effective December 31, 2016, we operate on a 52 or 53-week fiscal year ending on the last Saturday in December in each calendar year. In prior years, we operated on a 52 or 53-week fiscal year ending 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. This change to our fiscal year end aligns our financial statement reporting date with the fiscal close periods of certain of our U.S. and Canada businesses, which make up a substantial portion of our results. This change did not have a material impact on our current or any prior period financial statements.

Significant Accounting Policies:

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.

Use of Estimates:

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make accounting policy elections, estimates, and assumptions that affect a number of amounts in our consolidated financial statements. We base our estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our consolidated financial statements.

Translation of Foreign Currencies:

For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of accumulated other comprehensive income/(losses) on the balance sheet. Gains and losses from foreign currency transactions are included in net income for the period.

Highly Inflationary Accounting:

We apply highly inflationary accounting if the cumulative inflation rate in an economy for a three-year period meets or exceeds 100 percent. Under highly inflationary accounting, the financial statements of a subsidiary are remeasured into our reporting currency (U.S. dollars) based on the legally available exchange rate at which we expect to settle the underlying transactions. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in net income/(loss), rather than accumulated other comprehensive income/(losses) on the balance sheet, until such time as the economy is no longer considered highly inflationary. Certain non-monetary assets and liabilities are recorded at the applicable historical exchange rates.

Cash and Cash Equivalents:

Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less.

Inventories:

Inventories are stated at the lower of cost or market. We value inventories primarily using the average cost method.

Property, Plant and Equipment:

Property, plant and equipment are stated at historical cost and depreciated on the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from 3 to 20 years and buildings and improvements over periods up to 40 years. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed seven years. We review long-lived assets for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. Such conditions include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Goodwill and Intangible Assets:

We test goodwill and indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. 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.

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.

We performed our annual impairment testing in the second quarter of 2016. See Note 6, Goodwill and Intangible Assets, for additional information.

Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited, and are reviewed when appropriate for possible impairment.

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 $708 million in 2016, $464 million in 2015, and $241 million in 2014. 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.

Research and Development Expense:

We expense costs as incurred for product research and development within SG&A. Research and development expense was approximately $120 million in 2016, $105 million in 2015, and $58 million in 2014.

Postemployment Benefit Plans:

We maintain various retirement plans for the majority of our employees. These include pension benefits, postretirement health care benefits, and defined contribution benefits. 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 in future periods within cost of products sold and SG&A.

Financial Instruments:

As we source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use a variety of risk management strategies and financial instruments to manage commodity price, foreign currency exchange rate, and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. One way we do this is through actively hedging our risks through the use of derivative instruments. As a matter of policy, we do not use highly leveraged derivative instruments, nor do we use financial instruments for speculative purposes.

Derivatives are recorded on our consolidated balance sheets at fair value, which fluctuates based on changing market conditions.

Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others are not designated as hedging instruments and are marked to market through earnings. The effective portion of gains and losses on cash flow hedges are deferred as a component of accumulated other comprehensive income/(losses) and are recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. We also designate certain derivatives and non-derivatives as net investment hedges to hedge the net assets of certain foreign subsidiaries which are exposed to volatility in foreign currency exchange rates. The fair value of these derivatives and remeasurements of our non-derivatives designated as net investment

hedges are calculated each period with changes reported in foreign currency translation adjustment within accumulated other comprehensive income/(losses). Such amounts will remain in accumulated other comprehensive income/(losses) until the complete or substantially complete liquidation of our investment in the underlying foreign operations. The income statement classification of gains and losses related to derivative instruments not designated as hedging instruments is determined based on the underlying intent of the contracts. Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities. All other cash flows related to derivative instruments are generally classified within operating activities. For additional information on derivative activity within our operating results, see Note 14, Financial Instruments.

To qualify for hedge accounting, a specified level of hedging effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. Any hedging ineffectiveness is recognized in net earnings when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. We formally document our risk management objectives, strategies for undertaking the various hedge transactions, the nature of and relationships between the hedging instruments and hedged items, and method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. If it becomes probable that a forecasted transaction will not occur, the hedge will no longer be effective and all of the derivative gains or losses would be recognized in earnings in the current period.

Unrealized gains and losses on our commodity derivatives not designated as hedging instruments are recorded in general corporate expenses until realized. Once realized, the gains and losses are recorded within the applicable segment operating results.

When we use financial instruments, we are exposed to credit risk that a counterparty might fail to fulfill its performance obligations under the terms of our agreement. We minimize our credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure we have with each counterparty, and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of greater than one year be governed by an International Swaps and Derivatives Association master agreement. We are also exposed to market risk as the value of our financial instruments might be adversely affected by a change in foreign currency exchange rates, commodity prices, or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use and the degree of market risk that we hedge with derivative instruments.

Foreign currency cash flow hedges - We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. Our principal foreign currency exposures that are hedged include the British pound sterling, euro, and Canadian dollar. These instruments include forward foreign exchange contracts. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment. We exclude forward points from the assessment and measurement of hedge ineffectiveness and report such amounts in current period net income as interest expense.

Net investment hedges - We have numerous investments in our foreign subsidiaries, the net assets of which are exposed to volatility in foreign currency exchange rates. We manage this risk by utilizing derivative and non-derivative instruments, including cross-currency swap contracts and certain foreign denominated debt designated as net investment hedges.

Interest rate cash flow hedges - From time to time, we have used derivative instruments, including interest rate swaps, as part of our interest rate risk management strategy. We have primarily used interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations. Substantially all of these derivative instruments have been highly effective and have qualified for hedge accounting treatment.

Commodity derivatives - We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity purchase contracts primarily for coffee beans, meat products, sugar, wheat products, corn products, vegetable oils, cocoa products, and dairy products. These commodity purchase contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to economically hedge the price of certain commodity costs, including coffee beans, meat products, sugar, wheat products, corn products, vegetable oils, cocoa products, dairy products, diesel fuel, and packaging products. We do not designate these commodity contracts as hedging instruments. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to economically cross hedge a commodity exposure.

Income Taxes:

We recognize income taxes based on amounts refundable or payable for the current year and record deferred tax assets or liabilities for any difference between U.S. GAAP accounting and tax reporting. We also recognize deferred tax assets for temporary differences, operating loss carryforwards, and tax credit carryforwards. Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss and other carryforwards, is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods.

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect income in the quarter of such change.

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.

Common Stock and Preferred Stock Dividends:

Dividends are recorded as a reduction to retained earnings. When we have an accumulated deficit, dividends are recorded as a reduction of additional paid-in capital.

Recently Issued Accounting Standards:

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standards update (“ASU”) that superseded previously existing revenue recognition guidance. Under this ASU, companies will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the company expects to be entitled in exchange for those goods or services. This ASU will be effective beginning in the first quarter of our fiscal year 2018. The ASU may be applied using a full retrospective method or a modified retrospective transition method, with a cumulative-effect adjustment as of the date of adoption. While we are still evaluating the impact this ASU will have on our financial statements and related disclosures, we have completed our preliminary scoping reviews and have made progress in our assessment phase. We have focused our reviews on the revenue streams in the U.S., Canada, and Europe as they are our most significant. At this time, we believe the potential impacts on our existing accounting policies may be associated with our consumer incentive and trade promotion programs. We will adopt the new standard on January 1, 2018, however, we are still evaluating our application method. Our ability to adopt using the full retrospective method is dependent on system readiness, which may include software procured from third-party providers, and finalizing our assessment of information necessary to restate prior period financial statements.

In February 2016, the FASB issued an ASU that superseded previously existing leasing guidance. The ASU is intended to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The new guidance requires lessees to reflect most leases on their balance sheet as assets and obligations. This ASU will be effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. Based on our initial reviews, we expect that the adoption will increase the assets and liabilities on our consolidated balance sheets. We are still evaluating the impact this ASU will have on our financial statements and related disclosures.

In March 2016, the FASB issued an ASU intended to simplify equity-based award accounting and presentation. The ASU impacts income tax accounting related to equity-based awards, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. As a result of this ASU, our excess tax benefits upon the exercise of share based payments will be recognized in the tax provision rather than within equity, which we expect to generate a favorable impact on our 2017 income tax expense. In addition, the cash flows related to employee tax withholdings on restricted share vesting will be reclassified from financing activities to operating activities on the consolidated statements of cash flows. The impact of adopting this ASU at December 31, 2016 would have been a $30 million income tax benefit recorded on the consolidated statement of income and an offsetting non-cash deduction in cash flows from operating activities on the statement of cash flows for the year ended December 31, 2016. This ASU will be effective beginning in the first quarter of our fiscal year 2017.

In August 2016, the FASB issued an ASU related to the classification of certain cash payments and cash receipts on the statement of cash flows. This ASU provides guidance on eight specific cash flow classification matters in order to reduce current and future diversity in practice. The ASU will be effective beginning in the first quarter of our fiscal year 2018. Early adoption is permitted. The guidance related to each of the eight separate classification matters must be adopted in the same period using a retrospective transition method. While we are still evaluating the impact that this ASU will have on our financial statements and related disclosures, we currently expect one of these classification matters to impact us. Under the new guidance, cash payments for debt prepayment and debt extinguishment costs should be classified as cash outflows for financing activities. We expect that this will result in a reclassification of call premiums paid in conjunction with our debt refinancing activity in 2015 from operating activities to financing activities.

In October 2016, the FASB issued an ASU on the income tax accounting impacts of intra-entity transfers of assets other than inventory, such as intellectual property and property, plant and equipment. This guidance is intended to reduce the complexity and diversity in practice, particularly for intellectual property transfers. Under the new accounting guidance, current and deferred income taxes should be recognized upon transfer of the assets. Previously, recognition of current and deferred income taxes was prohibited until the asset was sold to an external third party. This ASU will be effective beginning in the first quarter of our fiscal year 2018. Early adoption is permitted but must be adopted in the first interim period of the annual period for which the ASU is adopted. The new guidance must be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. We are currently evaluating the impact that this ASU will have on our financial statements and related disclosures.

In November 2016, the FASB issued an ASU requiring the statement of cash flows to now explain the change in restricted cash and restricted cash equivalents, in addition to cash and cash equivalents. Accordingly, restricted cash would be required to be included in the beginning and ending cash and cash equivalents balances. Additionally, this ASU provides specific guidance on restricted cash and restricted cash equivalents cash flow classification and presentation matters in order to reduce current and future diversity in practice. The ASU will be effective beginning in the first quarter of our fiscal year 2018. Early adoption is permitted, including adoption in an interim period. The new guidance must be applied using a retrospective transition method to each period presented. We are currently evaluating the impact that this ASU will have on our financial statements and related disclosures.

In January of 2017, the FASB issued an ASU intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entities that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test, however, additional disclosure will be required of those entities. This ASU will be effective in the first quarter of our fiscal year 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance must be adopted on a prospective basis. We are currently evaluating the impact that this ASU will have on our financial statements and related disclosures.

Note 2. Merger and Acquisition

Transaction Overview:

As discussed in Note 1, Background and Basis of Presentation, Heinz merged with Kraft on July 2, 2015. The Kraft businesses manufacture and market food and beverage products, including cheese, meats, refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts, dressings, and other grocery products, primarily in the United States and Canada. Total net sales for Kraft during its most recent pre-acquisition year ended December 27, 2014 were $18.2 billion. Following the 2015 Merger Date, the operating results of the Kraft businesses have been included in our consolidated financial statements. For the period from the 2015 Merger Date through January 3, 2016, Kraft's net sales were $8.5 billion and net income was $478 million.

The 2015 Merger was accounted for under the acquisition method of accounting for business combinations and Heinz was considered to be the acquiring company. Under the acquisition method of accounting, total consideration exchanged was (in millions):

Aggregate fair value of Kraft common stock	$	42,502
$16.50 per share special cash dividend	9,782
Fair value of replacement equity awards	353
Total consideration exchanged	$	52,637

Valuation Assumptions and Purchase Price Allocation:

We utilized estimated fair values at the 2015 Merger Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. This allocation was final as of July 3, 2016.

We made measurement period adjustments to the preliminary purchase price allocation in the second half of 2015 and the first half of 2016. Measurement period adjustments in the second half of 2015 primarily reflected (i) an increase in indefinite-lived intangible assets of $5.4 billion, (ii) an increase in deferred tax liabilities of $2.0 billion, and (iii) a decrease in goodwill of $3.4 billion. Measurement period adjustments in the first half of 2016 primarily reflected (i) a decrease in indefinite-lived intangible assets of $2.0 billion, (ii) a decrease in deferred tax liabilities of $564 million, and (iii) an increase in goodwill of $1.4 billion.We made these measurement period adjustments to reflect facts and circumstances that existed as of the 2015 Merger Date and did not result from intervening events subsequent to such date.

The final purchase price allocation to assets acquired and liabilities assumed in the transaction was (in millions):

Cash	$	314
Other current assets	3,423
Property, plant and equipment	4,179
Identifiable intangible assets	47,771
Other non-current assets	214
Trade and other payables	(3,026		)
Long-term debt	(9,286		)
Net postemployment benefits and other non-current liabilities	(4,739		)
Deferred income tax liabilities	(16,675		)
Net assets acquired	22,175
Goodwill on acquisition	30,462
Total consideration	52,637
Fair value of shares exchanged and equity awards	42,855
Total cash consideration paid to Kraft shareholders	9,782
Cash and cash equivalents of Kraft at the 2015 Merger Date	314
Acquisition of business, net of cash on hand	$	9,468

The 2015 Merger resulted in $30.5 billion of non tax deductible goodwill relating principally to synergies expected to be achieved from the combined operations and planned growth in new markets. Goodwill has been allocated to our segments as shown in Note 6, Goodwill and Intangible Assets.

The purchase price allocation to identifiable intangible assets acquired was:

	Fair Value				Weighted Average Life
	(in millions of dollars)				(in years)
Indefinite-lived trademarks	$	43,104
Definite-lived trademarks	1,690				24
Customer-related assets	2,977				29
Total	$	47,771

We valued trademarks using either the excess earnings method or relief from royalty method, which are both variations of the income approach. We used the excess earnings method for our most significant trademarks due to their impact on the cash flows of the business and used the relief from royalty method for the remaining trademarks and licenses. For customer relationships, we used the distributor method, a variation of the excess earnings method that uses distributor-based inputs for margins and contributory asset charges.

Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each indefinite-lived or definite-lived intangible asset (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends, as well as other factors. We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management plans, and market comparables.

We used carrying values as of July 2, 2015 to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as we determined that they represented the fair value of those items at the 2015 Merger Date.

We valued finished goods and work-in-process inventory using a net realizable value approach, which resulted in a step-up of $347 million that was recognized in cost of products sold in the period from the 2015 Merger Date to September 27, 2015 as the related inventory was sold. Raw materials and packaging inventory was valued using the replacement cost approach.

We valued property, plant and equipment using a combination of the income approach, the market approach and the cost approach, which is based on current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors.

Deferred income tax assets and liabilities as of the 2015 Merger Date represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases.

Pro Forma Results:

The following table provides unaudited pro forma results, prepared in accordance with ASC 805, for 2015 and 2014, as if Kraft had been acquired as of December 30, 2013.

	For the Year Ended
	January 3, 2016				December 28, 2014
	(in millions, except per share data)
Net sales	$	27,447			$	29,122
Net income	1,761				2,003
Basic earnings per share	0.72				1.08
Diluted earnings per share	0.70				1.05

The unaudited pro forma results include certain purchase accounting adjustments. We have made pro forma adjustments to exclude deal costs of $166 million ($102 million net of tax) and $347 million ($213 million net of tax) of non-cash costs related to the fair value step-up of inventory (“Inventory Step-up Costs”) from 2015, because such costs are non-recurring and are directly attributable to the 2015 Merger. As required by U.S. GAAP, we have made pro forma adjustments to include the deal costs and Inventory Step-up Costs in 2014.

The unaudited pro forma results do not include any anticipated cost savings or other effects of future integration or restructuring efforts. Unaudited pro forma amounts are not necessarily indicative of results had the 2015 Merger occurred on December 30, 2013 or of future results.

Note 3. Integration and Restructuring Expenses

As part of our restructuring activities, we incur expenses that qualify as exit and disposal costs under U.S. GAAP. These include severance and employee benefit costs and other exit costs. Severance and employee benefit costs primarily relate to cash severance, non-cash severance, including accelerated equity award compensation expense, and pension and other termination benefits. Other exit costs primarily relate to lease and contract terminations. We also incur expenses that are an integral component of, and directly attributable to, our restructuring activities, which do not qualify as exit and disposal costs under U.S. GAAP. These include asset-related costs and other incremental costs. Asset-related costs primarily relate to accelerated depreciation and asset impairment charges, as well as costs to exit facilities, relocation costs, and start-up costs of new facilities. Other implementation costs primarily relate to professional fees, and other incremental third-party fees.

Employee severance and other termination benefit packages are primarily determined based on established benefit arrangements, local statutory requirements, or historical benefit practices. We recognize the contractual component of these benefits when payment is probable and estimable; additional elements of severance and termination benefits associated with non-recurring benefits are recognized ratably over each employee’s required future service period. Charges for accelerated depreciation are recognized on long-lived assets that will be taken out of service before the end of their normal service, in which case depreciation estimates are revised to reflect the use of the asset over its shortened useful life. Asset impairments establish a new fair value basis for assets held for disposal or sale and those assets are written down to expected net realizable value if carrying value exceeds fair value. All other costs are recognized as incurred.

Integration Program:

Following the 2015 Merger, we announced a multi-year program (the “Integration Program”) designed to reduce costs, streamline and simplify our operating structure as well as optimize our production and supply chain network across our businesses in the United States and Canada segments. We expect to incur pre-tax costs of $2.0 billion related to the Integration Program, with approximately 60% reflected in cost of products sold within our United States and Canada segments. These pre-tax costs are comprised of the following categories:

•	Organization costs ($400 million) associated with our plans to streamline and simplify our operating structure, resulting in workforce reduction (primarily severance and employee benefit costs).

•	Footprint costs ($1.2 billion) associated with our plans to optimize our production and supply chain network, resulting in workforce reduction and facility closures and consolidations (primarily asset-related costs and severance and employee benefit costs).

•	Other costs ($400 million) incurred as a direct result of integration activities, including other exit costs (lease and contract terminations) and other implementation costs (professional services and other third-party fees).

Overall, as part of the Integration Program, we expect to eliminate 5,150 positions, close six factories, and consolidate our distribution network. At December 31, 2016, the total Integration Program liability related primarily to the elimination of general salaried and factory positions across the United States and Canada, 3,350 of whom have left the company by December 31, 2016.

As of December 31, 2016, we have incurred approximately $1.7 billion of cumulative costs under the Integration Program, including: $681 million of severance and employee benefit costs, $650 million of non-cash asset-related costs, $290 million of other implementation costs, and $95 million of other exit costs. We expect that approximately 60% of the Integration Program expenses will be cash expenditures.

The liability balance associated with the Integration Program, which qualifies as U.S. GAAP exit and disposal costs, was (in millions):

	Severance and Employee Benefit Costs				Other Exit Costs(a)				Total
Balance at January 3, 2016	$	185			$	23			$	208
Charges	119				40				159
Cash payments	(182		)		(53		)		(235		)
Non-cash utilization	(23		)		—				(23		)
Balance at December 31, 2016	$	99			$	10			$	109

(a) Other exit costs primarily represent contract and lease terminations.

We expect that a substantial portion of the Integration Program liability as of December 31, 2016 will be paid in 2017.

Restructuring Activities:

Prior to the 2015 Merger, we executed a number of other restructuring activities focused primarily on workforce reduction and factory closure and consolidation, which were substantially complete as of December 31, 2016. These programs, and other programs, resulted in the elimination of 8,350 positions and cumulative $589 million severance and employee benefit costs, $360 million non-cash asset-related costs, and $413 million other exit costs through December 31, 2016. Related to these restructuring activities, we incurred expenses of $125 million in 2016, $194 million in 2015, and $637 million in 2014.

As of December 31, 2016, the liability balance associated with active restructuring projects, which qualifies as U.S. GAAP exit and disposal costs, was (in millions):

	Severance and Employee Benefit Costs				Other Exit Costs(a)				Total
Balance at January 3, 2016	$	25			$	30			$	55
Charges	38				2				40
Cash payments	(44		)		(7		)		(51		)
Non-cash utilization	(7		)		—				(7		)
Balance at December 31, 2016	$	12			$	25			$	37

(a) Other exit costs primarily represent contract and lease terminations.

We expect that a substantial portion of the active restructuring projects liability as of December 31, 2016 will be paid in 2017.

Total Integration and Restructuring:

Total expenses related to our Integration Program and restructuring activities recorded in cost of products sold and SG&A for the years presented were (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Severance and employee benefit costs - COGS	$	53			$	119			$	135
Severance and employee benefit costs - SG&A	104				519				67
Asset-related costs - COGS	496				186				199
Asset-related costs - SG&A	41				7				9
Other exit costs - COGS	162				99				179
Other exit costs - SG&A	156				93				48
	$	1,012			$	1,023			$	637

We do not include Integration Program and restructuring expenses within Segment Adjusted EBITDA. The pre-tax impact of allocating such expenses to our segments would have been (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
United States	$	759			$	790			$	227
Canada	45				47				101
Europe	85				142				228
Rest of World	6				12				58
General corporate expenses	117				32				23
	$	1,012			$	1,023			$	637

In the fourth quarter of 2016, we reorganized our segment structure to move our Russia business from the Rest of World segment to the Europe segment. We have reflected this change in all historical periods presented. This change did not have a material impact on our current or any prior period results. See Note 18, Segment Reporting, for additional information.

Note 4. Inventories

Inventories at December 31, 2016 and January 3, 2016 were (in millions):

	December 31, 2016				January 3, 2016
Packaging and ingredients	$	542			$	563
Work in process	388				393
Finished product	1,754				1,662
Inventories	$	2,684			$	2,618

Note 5. Property, Plant and Equipment

Property, plant and equipment at December 31, 2016 and January 3, 2016 was (in millions):

	December 31, 2016				January 3, 2016
Land	$	264			$	297
Buildings and improvements	1,884				1,700
Equipment and other	4,770				4,432
Construction in progress	1,600				1,001
	8,518				7,430
Accumulated depreciation	(1,830		)		(906		)
Property, plant and equipment, net	$	6,688			$	6,524

Note 6. Goodwill and Intangible Assets

Goodwill:

Changes in the carrying amount of goodwill from January 3, 2016 to December 31, 2016, by segment, were (in millions):

	United States				Canada				Europe				Rest of World				Total
Balance at January 3, 2016	$	32,290			$	4,796			$	3,227			$	2,738			$	43,051
2015 Merger measurement period adjustments	1,433				—				—				—				1,433
Translation adjustments and other	(27		)		117				(449		)		—				(359		)
Balance at December 31, 2016	$	33,696			$	4,913			$	2,778			$	2,738			$	44,125

In connection with the 2015 Merger, we recorded $30.5 billion of goodwill in purchase accounting, representing the fair value as of the 2015 Merger Date. As of July 3, 2016, the assignment of goodwill to reporting units was final. During the first half of 2016, we made measurement period adjustments to the 2015 Merger purchase price allocation, resulting in an increase of $1.4 billion to goodwill in the United States segment. See Note 2, Merger and Acquisition, for additional information on these measurement period adjustments.

In the first quarter of 2016, we moved certain of our export businesses and their related goodwill balances from our United States segment to our Rest of World and Europe segments. We have reflected this change in all historical periods presented. Accordingly, the segment goodwill balances at January 3, 2016 reflect a decrease of $1.5 billion in the United States, an increase of $1.4 billion in Rest of World, and an increase of $30 million in Europe. These amounts represent the final allocation of goodwill associated with these export businesses.

In the fourth quarter of 2016, we reorganized our segment structure to move our Russia business from the Rest of World segment to the Europe segment. We have reflected this change in all historical periods presented. Accordingly, the segment goodwill balances at January 3, 2016 reflect an increase of $45 million in Europe and a corresponding decrease in Rest of World. This change did not have a material impact on our current or any prior period results. See Note 18, Segment Reporting, for additional information.

We test goodwill for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 2016 annual impairment testing in the second quarter of 2016. There was no impairment of goodwill as a result of our testing; however we noted that one reporting unit within the Europe segment had an estimated fair value in excess of its carrying value of less than 10%. The goodwill carrying value of this reporting unit was $48 million as of April 4, 2016 (our goodwill impairment testing date).

Our goodwill balance consists of 20 reporting units and had an aggregate carrying value of $44.1 billion as of December 31, 2016. As a majority of our goodwill was recently recorded in connection with the 2013 Merger and the 2015 Merger, representing fair values as of those merger dates, there is not a significant excess of fair values over carrying values as of December 31, 2016. We have a risk of future impairment to the extent that individual reporting unit performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair value of our goodwill could be adversely affected, leading to a potential impairment in the future. No events occurred during the period ended December 31, 2016 that indicated it was more likely than not that our goodwill was impaired. There were no accumulated impairment losses to goodwill as of December 31, 2016.

Indefinite-lived intangible assets:

In connection with the 2015 Merger, we recorded $43.1 billion of indefinite-lived intangible assets in purchase accounting, representing the fair values as of the 2015 Merger Date.

Indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):

Balance at January 3, 2016	$	55,824
2015 Merger measurement period adjustments	(1,978		)
Translation adjustments	(539		)
Balance at December 31, 2016	$	53,307

We test indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 2016 annual impairment testing in the second quarter of 2016. There was no impairment of indefinite-lived intangibles as a result of our testing; however, we noted that seven brands each had excess fair value over its carrying value of less than 10%. These brands had an aggregate carrying value of $6.1 billion at April 4, 2016 (our indefinite-lived intangible asset impairment testing date). Of the $6.1 billion aggregate carrying value, $5.6 billion was attributable to Velveeta, Lunchables, Maxwell House, and Cracker Barrel.

Our indefinite-lived intangible assets primarily consist of a large number of individual brands and had an aggregate carrying value of $53.3 billion as of December 31, 2016. As a majority of our indefinite-lived intangible assets were recently recorded in connection with the 2013 Merger and the 2015 Merger, representing fair values as of those merger dates, there is not a significant excess of fair values over carrying values as of December 31, 2016. We have a risk of future impairment to the extent individual brand performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair values of our indefinite-lived intangible assets could be adversely affected, leading to potential impairments in the future. No events occurred during the period ended December 31, 2016 that indicated it was more likely than not that our indefinite-lived intangible assets were impaired.

In 2015, we recognized non-cash impairment losses of $58 million in SG&A, primarily related to declines within frozen soup in the United States, frozen meals and snacks primarily in the United Kingdom, and pasta sauce in the United States and Canada.

In 2014, we recognized non-cash impairment losses of $221 million in SG&A, primarily related to our Heinz North America frozen meals and snacks business due to continued category softness and weaker than anticipated sales.

Definite-lived intangible assets:

Definite-lived intangible assets at December 31, 2016 and January 3, 2016 were (in millions):

	December 31, 2016												January 3, 2016
	Gross				Accumulated Amortization				Net				Gross				Accumulated Amortization				Net
Trademarks	$	2,337			$	(172	)		$	2,165			$	2,346			$	(70	)		$	2,276
Customer-related assets	4,184				(369		)		3,815				4,218				(209		)		4,009
Other	13				(3		)		10				15				(4		)		11
	$	6,534			$	(544	)		$	5,990			$	6,579			$	(283	)		$	6,296

Amortization expense for definite-lived intangible assets was $268 million in 2016, $178 million in 2015, and $93 million in 2014. Aside from amortization expense, the changes in definite-lived intangible assets from January 3, 2016 to December 31, 2016 reflect the impact of foreign currency. We estimate that annual amortization expense for definite-lived intangible assets for each of the next five years will be approximately $270 million.

Note 7. Income Taxes

Income/(loss) before income taxes and the provision for income taxes, consisted of the following (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Income/(loss) before income taxes:
United States	$	3,358			$	(13	)		$	(207	)
International	1,665				1,026				1,010
Total	$	5,023			$	1,013			$	803
Provision for/(benefit from) income taxes:
Current:
U.S. federal	$	1,095			$	427			$	105
U.S. state and local	76				22				12
International	239				234				188
	1,410				683				305
Deferred:
U.S. federal	31				(173		)		(159		)
U.S. state and local	(60		)		(70		)		(14		)
International	—				(74		)		(1		)
	(29		)		(317		)		(174		)
Total provision for/(benefit from) income taxes	$	1,381			$	366			$	131

Tax benefits related to stock options and other equity instruments recorded directly to additional paid-in capital totaled $30 million in 2016 and $10 million in 2015. There were no tax benefits related to stock options and other equity instruments in 2014.

The effective tax rate on income/(loss) before income taxes differed from the U.S. federal statutory tax rate for the following reasons:

	December 31, 2016 (52 weeks)			January 3, 2016 (53 weeks)			December 28, 2014 (52 weeks)
U.S. federal statutory tax rate	35.0	%		35.0	%		35.0	%
Increase/(decrease) resulting from:
Tax on income of foreign subsidiaries	(3.6	)%		(11.8	)%		(8.3	)%
Changes in valuation allowances	—	%		1.4	%		(1.3	)%
Domestic manufacturing deduction	(1.9	)%		(2.9	)%		(2.8	)%
U.S. state and local income taxes, net of federal tax benefit	0.8	%		(0.6	)%		(0.9	)%
Earnings repatriation	0.4	%		21.9	%		8.0	%
Tax exempt income	(3.3	)%		(10.9	)%		(12.3	)%
Deferred tax effect of statutory tax rate changes	(2.0	)%		(10.4	)%		(0.8	)%
Audit settlements and changes in uncertain tax positions	1.8	%		6.2	%		2.2	%
Venezuela nondeductible devaluation loss	0.2	%		9.9	%		—	%
Venezuela inflation adjustment	—	%		(1.7	)%		(3.1	)%
Other	0.1	%		0.1	%		0.6	%
Effective tax rate	27.5	%		36.2	%		16.3	%

The provision for income taxes consists of provisions for federal, state and foreign income taxes. We operate in an international environment; accordingly, the consolidated effective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. Additionally, the calculation of the percentage point impact of domestic manufacturing deductions, tax exempt income, uncertain tax positions and other items on the effective tax rate shown in the table above are affected by income/(loss) before income taxes. Fluctuations in the amount of income generated across locations around the world could impact comparability of reconciling items between periods.

Due to the 2015 Merger, the tax provision for 2016 reflected a much greater percentage of U.S. income, which unfavorably impacted the effective tax rate compared to 2015 and 2014. The tax provisions for the 2015 and 2014 tax years benefited from a favorable jurisdictional income mix and from impairment losses recorded in the U.S.

The 2016 and 2015 tax years included a benefit related to the tax effect of statutory tax rate changes. Small movements in tax rates due to a change in tax law or a change in tax rates that causes us to revalue our deferred tax balances produces volatility in our effective tax rate. In addition:

•	The 2016 tax year included a benefit related to the impact on deferred taxes of a 10 basis point reduction in the state tax rate and a 100 basis point statutory rate reduction in the United Kingdom.

•	The 2015 tax year included a benefit related to the impact on deferred taxes of a 200 basis point statutory rate reduction in the United Kingdom.

The tax effects of temporary differences and carryforwards that gave rise to deferred income tax assets and liabilities consisted of the following at December 31, 2016 and January 3, 2016:

	December 31, 2016				January 3, 2016
Deferred income tax liabilities:
Intangible assets, net	$	20,946			$	21,950
Property, plant and equipment	1,035				1,233
Other	532				495
Deferred income tax liabilities	22,513				23,678
Deferred income tax assets:
Benefit plans	(1,025		)		(1,323		)
Other	(782		)		(1,011		)
Deferred income tax assets	(1,807		)		(2,334		)
Valuation allowance	89				83
Net deferred income tax liabilities	$	20,795			$	21,427

Certain prior period amounts in the above table have been revised to conform to current period presentation.

The increase in our valuation allowance during 2016 of $6 million reflects the impact of recording a valuation allowance for state net operating losses that we do not anticipate being able to utilize.

At December 31, 2016, foreign operating loss carryforwards totaled $321 million. Of that amount, $61 million expire between 2017 and 2036; the other $260 million do not expire. We have recorded $85 million of deferred tax assets related to these foreign operating loss carryforwards. Additionally, we have foreign operating loss carryforwards of $941 million for which the realization of a tax benefit is considered remote and, as a result, we have recorded a full valuation allowance for the tax benefits. However, due to the remote likelihood of utilizing these losses, neither the deferred tax asset nor the offsetting valuation allowance has been presented in the table above. Deferred tax assets of $43 million have been recorded for U.S. state and local operating loss carryforwards. These losses expire between 2017 and 2036.

Deferred tax assets of $16 million have been recorded for U.S. foreign tax credit carryforwards. These credit carryforwards expire between 2020 and 2025.

At December 31, 2016, our unrecognized tax benefits for uncertain tax positions of $389 million are included in income taxes payable (current liabilities) and other liabilities (long-term). If we had recognized all of these benefits, the impact on our effective tax rate would have been $325 million. It is reasonably possible that our unrecognized tax benefits will decrease by as much as $104 million in the next 12 months primarily due to the progression of federal, state and foreign audits in process.

The changes in our unrecognized tax benefits were (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Balance at the beginning of the period	$	353			$	71			$	53
Increases for tax positions of prior years	59				25				5
Decreases for tax positions of prior years	(18		)		(9		)		(5		)
Increases based on tax positions related to the current year	62				33				21
Increases due to acquisitions of businesses	—				242				—
Decreases due to settlements with taxing authorities	(62		)		—				(1		)
Decreases due to lapse of statute of limitations	(5		)		(9		)		(2		)
Balance at the end of the period	$	389			$	353			$	71

Our unrecognized tax benefits increased during 2016 as a result of evaluating tax positions taken or expected to be taken on our federal, state, and foreign income tax returns. In the third quarter of 2016, we reached an agreement with the IRS resolving all Kraft open matters related to the audits of taxable years 2012 through 2014. This settlement reduced our reserves for uncertain tax positions and resulted in a non-cash tax benefit of $42 million.

The gross unrecognized tax balance increased substantially for the year ended January 3, 2016 as a result of 2015 Merger purchase accounting.

We include interest and penalties related to uncertain tax positions in our tax provision. Our provision for income taxes included interest and penalties expense of $8 million in 2016 and $18 million in 2015. Our interest and penalties expense was insignificant in 2014. Accrued interest and penalties were $81 million as of December 31, 2016 and $72 million as of January 3, 2016.

In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, Italy, the Netherlands, the United Kingdom and the United States. We have substantially concluded all national income tax matters for years through 2012 for the Netherlands and the United Kingdom, through 2011 for the United States, Australia, and Italy and through 2009 for Canada. We have substantially concluded all state income tax matters through 2007.

We have a tax sharing agreement with Mondelēz International, Inc. (“Mondelēz International”), which generally provides that (i) we are liable for U.S. state income taxes and Canadian federal and provincial income taxes for Kraft periods prior to October 1, 2012 and (ii) Mondelēz International is responsible for U.S. federal income taxes and substantially all non-U.S. income taxes, excluding Canadian income taxes, for Kraft periods prior to October 1, 2012.

Kraft's U.S. operations were included in Mondelēz International's U.S. federal consolidated income tax returns for tax periods through October 1, 2012. In December 2016, Mondelēz International reached a final resolution on a U.S. federal income tax audit of the 2010-2012 tax years. As noted above, we are indemnified for U.S. federal income taxes related to these periods.

Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested, and amounts which may be remitted tax free in certain situations approximated $4.7 billion at December 31, 2016. It is not practicable to determine the deferred tax liability associated with the indefinitely reinvested undistributed earnings. Additionally, we have undistributed earnings in foreign subsidiaries which are currently not considered to be indefinitely reinvested, for which we have recorded deferred taxes of $21 million as of December 31, 2016. 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. At December 31, 2016, approximately $1.3 billion of cash and cash equivalents were held by international subsidiaries.

Note 8. Employees’ Stock Incentive Plans

We issued equity-based awards from the following plans in 2016, 2015, and 2014:

2016 Omnibus Incentive Plan

In April 2016, our Board of Directors approved the 2016 Omnibus Incentive Plan (“2016 Omnibus Plan”), which authorized grants of options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”), deferred stock, performance awards, investment rights, other stock-based awards, and cash-based awards. This plan authorizes the issuance of up to 18 million shares of our common stock. We grant non-qualified stock options under the 2016 Omnibus Plan to select employees with a five-year cliff vesting. Such options have a maximum exercise term of 10 years.

2013 Omnibus Incentive Plan

In October 2013, our Board of Directors adopted the 2013 Omnibus Incentive Plan (“2013 Omnibus Plan”), which authorized the issuance of shares of capital stock. Each Heinz stock option that was outstanding under the 2013 Omnibus Plan immediately prior to the completion of the 2015 Merger was converted into 0.443332 of a Kraft Heinz stock option. Following this conversion, the 2013 Omnibus Plan authorized the issuance of up to 17,555,947 shares of our common stock. All Heinz stock option amounts have been retrospectively adjusted for the Successor periods presented to give effect to this conversion. We grant non-qualified stock options under the 2013 Omnibus Plan to select employees with a five-year cliff vesting. Such options have a maximum exercise term of 10 years. If a participant is involuntarily terminated without cause, 20% of their options will vest, on an accelerated basis, for each full year of service after the grant date.

Kraft 2012 Performance Incentive Plan

Prior to the 2015 Merger, Kraft issued equity-based awards, including stock options and RSUs, under its 2012 Performance Incentive Plan. As a result of the 2015 Merger, each outstanding Kraft stock option was converted into an option to purchase a number of shares of our common stock based upon an option adjustment ratio, and each outstanding Kraft RSU was converted into one Kraft Heinz RSU. These Kraft Heinz stock awards will continue to vest and become exercisable in accordance with the terms and conditions that were applicable immediately prior to the completion of the 2015 Merger. These options generally become exercisable in three annual installments beginning on the first anniversary of the original grant date, and have a maximum exercise term of 10 years. RSUs generally cliff vest on the third anniversary of the original grant date. In accordance with the terms of the 2012 Performance Incentive Plan, vesting generally accelerates for holders of Kraft awards who are terminated without cause within two years of the 2015 Merger Date.

In addition, prior to the 2015 Merger, Kraft issued performance based long-term incentive awards (“Performance Shares”), which vested based on varying performance, market, and service conditions. In connection with the 2015 Merger, all outstanding Performance Shares were converted into cash awards, payable in two installments: (i) a 2015 pro-rata payment based upon the portion of the Performance Share cycle completed prior to the 2015 Merger and (ii) the remaining value of the award to be paid on the earlier of the first anniversary of the closing of the 2015 Merger and a participant's termination without cause.

Stock Options:

We use the Black-Scholes model to estimate the fair value of stock option grants. We used the Hull-White II Lattice (“Lattice”) model to estimate the fair value of Kraft converted stock options. We believe the Lattice model provided an appropriate estimate of fair value of Kraft converted options as it took into account each option’s distinct in-the-money level and remaining terms. The grant date fair value of options is amortized to expense over the vesting period.

Our weighted average Black-Scholes fair value assumptions were:

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Risk-free interest rate	1.63		%		1.70		%		1.49		%
Expected term	7.5 years				6.3 years				5 years
Expected volatility	22.0		%		22.9		%		24.3		%
Expected dividend yield	3.1		%		1.5		%		—		%
Weighted average grant date fair value per share	$	12.48			$	9.60			$	5.53

The risk-free interest rate represented the constant maturity U.S. Treasury rate in effect at the grant date, with a remaining term equal to the expected life of the options. The expected life is the period over which our employees are expected to hold their options. Due to the lack of historical data for 2016, we calculated expected life using the Safe Harbor method, which uses the weighted average vesting period and the contractual term of the options. For 2015 and 2014, the weighted average expected life of options was based on consideration of historical exercise patterns adjusted for changes in the contractual term and exercise periods of the awards. For 2016, volatility was estimated using a blended approach of implied volatility and peer volatility. Peer volatility was calculated as the average of the term-matched, leverage-adjusted historical volatilities of Colgate-Palmolive Co., The Coca-Cola Company, Mondelēz International, Altria Group, Inc., Pepsico, Inc., and Unilever plc. For 2015 and 2014, volatility was estimated based on a review of the equity volatilities of publicly-traded peer companies for a period commensurate with the expected life of the options. Dividend yield was estimated over the expected life of the options based on our stated dividend policy.

Our Lattice model fair value assumptions for the Kraft converted options were:

	January 3, 2016 (53 weeks)
Risk-free interest rate	1.72		%
Expected volatility	20.10		%
Expected dividend yield	3.00		%
Weighted average fair value on conversion date	$	35.65

The risk-free interest rate represented the constant maturity U.S. Treasury rate in effect at the conversion date, with a remaining term equal to the expected life of the options. The expected volatility was calculated as the average leverage-adjusted historical volatility of several peer companies, matched to the remaining term of each option. Dividend yield was estimated based on our stated dividend policy and conversion date stock price.

Our stock option activity and related information was:

	Number of Stock Options			Weighted Average Exercise Price				Aggregate Intrinsic Value (in millions)				Average Remaining Contractual Term
Outstanding at January 3, 2016	24,205,612			$	34.86
Granted	1,466,626			79.78
Forfeited	(1,094,676	)		46.93
Exercised	(4,017,422	)		35.02
Outstanding at December 31, 2016	20,560,140			37.39				$	1,027			6 years
Exercisable at December 31, 2016	8,660,191			37.25				434				5 years

The aggregate intrinsic value of stock options exercised during the period was $186 million in 2016 and $21 million in 2015. No stock options were exercised in 2014.

Cash received from options exercised was $140 million in 2016 and $29 million in 2015. The tax benefit realized from stock options exercised was $68 million in 2016 and $12 million in 2015. There was no cash received and no tax benefit recognized related to stock option exercises in 2014.

Our unvested stock options and related information was:

	Number of Options			Weighted Average Grant Date Fair Value (per share)
Unvested options at January 3, 2016	13,492,010			$	10.02
Granted	1,466,626			12.48
Vested	(2,010,210	)		21.24
Forfeited	(1,048,477	)		11.71
Unvested options at December 31, 2016	11,899,949			8.26

RSUs:

We use the closing stock price on the grant date to estimate the fair value of RSUs. The grant date fair value is amortized to expense over the vesting period.

Our RSU activity and related information was:

	Number of Units			Weighted Average Grant Date Fair Value (per share)
RSUs at January 3, 2016	968,444			$	70.14
Granted	510,157			77.53
Forfeited	(149,831	)		75.29
Vested	(522,026	)		72.96
RSUs at December 31, 2016	806,744			71.95

The aggregate fair value of restricted stock and RSUs that vested during the period was $40 million in 2016 and $76 million in 2015. No restricted stock or RSUs vested in 2014.

Total Equity Awards:

The compensation cost related to equity awards was primarily recognized in general corporate expenses within SG&A. Equity award compensation cost and the related tax benefit was (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Pre-tax compensation cost	$	46			$	133			$	8
Tax benefit	(15		)		(48		)		(3		)
After-tax compensation cost	$	31			$	85			$	5

Unrecognized compensation cost related to unvested equity awards was $83 million at December 31, 2016 and is expected to be recognized over a weighted average period of three years.

Note 9. Postemployment Benefits

We maintain various retirement plans for the majority of our employees. Current defined benefit pension plans are provided primarily for certain domestic union and foreign employees. Local statutory requirements govern many of these plans. The pension benefits of our unionized workers are in accordance with the applicable collective bargaining agreement covering their employment. Defined contribution plans are provided for certain domestic unionized, non-union hourly, and salaried employees as well as certain employees in foreign locations.

We provide health care and other postretirement benefits to certain of our eligible retired employees and their eligible dependents. Certain of our U.S. and Canadian employees may become eligible for such benefits. We currently do not fund these benefit arrangements until claims occur and may modify plan provisions or terminate plans at our discretion. The postretirement benefits of our unionized workers are in accordance with the applicable collective bargaining agreement covering their employment.

Prior to the 2015 Merger, Kraft provided a range of benefits to its employees and retirees, including pension benefits and postretirement health care benefits. As part of the 2015 Merger, we assumed the assets and liabilities associated with these plans.

We remeasure our postemployment benefit plans at least annually.

In the first quarter of 2016, we changed the method that we use to estimate the service cost and interest cost components of net pension cost/(benefit) and net postretirement cost/(benefit). We 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 made 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. The change resulted in a decrease in service and interest cost of approximately $80 million in 2016 compared to what our costs would have been under the previous method. This change did not affect the measurement of our total benefit obligations. We have accounted for this change prospectively as a change in accounting estimate.

Pension Plans

Obligations and Funded Status:

The projected benefit obligations, plan assets, and funded status of our pension plans at December 31, 2016 and January 3, 2016 were (in millions):

	U.S. Plans								Non-U.S. Plans
	December 31, 2016				January 3, 2016				December 31, 2016				January 3, 2016
Benefit obligation at beginning of year	$	5,990			$	540			$	2,892			$	2,611
Service cost	13				45				25				26
Interest cost	203				164				87				103
Participants' contributions	—				—				3				2
Benefits paid	(268		)		(167		)		(158		)		(138		)
Actuarial losses/(gains)	195				(121		)		540				23
Plan amendments	—				7				—				—
Currency	—				—				(281		)		(300		)
Settlements	(966		)		(977		)		(12		)		(655		)
Curtailments	—				(148		)		—				(50		)
Special/contractual termination benefits	—				4				3				6
Assumption of Kraft's benefit obligations	—				6,645				—				1,264
Other	(10		)		(2		)		—				—
Benefit obligation at end of year	5,157				5,990				3,099				2,892
Fair value of plan assets at beginning of year	5,282				547				3,428				3,088
Actual return on plan assets	435				(34		)		712				126
Participants' contributions	—				—				3				2
Employer contributions	311				227				33				59
Benefits paid	(268		)		(167		)		(158		)		(138		)
Currency	—				—				(378		)		(331		)
Settlements	(966		)		(977		)		(12		)		(655		)
Assumption of Kraft's plan assets	—				5,686				—				1,277
Other	(6		)		—				—				—
Fair value of plan assets at end of year	4,788				5,282				3,628				3,428
Net pension liability/(asset) recognized at end of year	$	369			$	708			$	(529	)		$	(536	)

The accumulated benefit obligation, which represents benefits earned to the measurement date, was $5.2 billion at December 31, 2016 and $6.0 billion at January 3, 2016 for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was $3.0 billion at December 31, 2016 and $2.7 billion at January 3, 2016.

The combined U.S. and non-U.S. pension plans resulted in a net pension asset of $160 million at December 31, 2016 and a net pension liability of $172 million at January 3, 2016. We recognized these amounts on our consolidated balance sheets at December 31, 2016 and January 3, 2016, as follows (in millions):

	December 31, 2016				January 3, 2016
Other assets (long-term assets)	$	641			$	616
Accrued postemployment costs (current liabilities)	(3		)		(172		)
Accrued postemployment costs (long-term liabilities)	(478		)		(616		)
Net pension asset/(liability) recognized	$	160			$	(172	)

For certain of our U.S. and non-U.S. plans that were underfunded based on accumulated benefit obligations in excess of plan assets, the projected benefit obligations, accumulated benefit obligations, and the fair value of plan assets at December 31, 2016 and January 3, 2016 were (in millions):

	U.S. Plans								Non-U.S. Plans
	December 31, 2016				January 3, 2016				December 31, 2016				January 3, 2016
Projected benefit obligation	$	3,669			$	5,990			$	527			$	72
Accumulated benefit obligation	3,669				5,986				527				72
Fair value of plan assets	3,282				5,282				437				15

For certain of our U.S. and non-U.S. plans that were underfunded based on projected benefit obligations in excess of plan assets, the projected benefit obligations, accumulated benefit obligations, and the fair value of plan assets at December 31, 2016 and January 3, 2016 were (in millions):

	U.S. Plans								Non-U.S. Plans
	December 31, 2016				January 3, 2016				December 31, 2016				January 3, 2016
Projected benefit obligation	$	3,669			$	5,990			$	539			$	119
Accumulated benefit obligation	3,669				5,986				534				72
Fair value of plan assets	3,282				5,282				445				43

We used the following weighted average assumptions to determine our projected benefit obligations under the pension plans at December 31, 2016 and January 3, 2016:

	U.S. Plans						Non-U.S. Plans
	December 31, 2016			January 3, 2016			December 31, 2016			January 3, 2016
Discount rate	4.2	%		4.3	%		2.9	%		3.8	%
Rate of compensation increase	4.1	%		4.2	%		4.0	%		3.4	%

Components of Net Pension Cost/(Benefit):

Net pension cost/(benefit) consisted of the following (in millions):

	U.S. Plans												Non-U.S. Plans
	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)				December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Service cost	$	13			$	45			$	4			$	25			$	26			$	25
Interest cost	203				164				29				87				103				107
Expected return on plan assets	(290		)		(179		)		(46		)		(182		)		(194		)		(169		)
Amortization of unrecognized losses/(gains)	—				3				—				—				—				—
Settlements	23				102				10				2				17				—
Curtailments	—				(96		)		—				—				(47		)		(6		)
Special/contractual termination benefits	—				4				—				3				6				8
Net pension cost/(benefit)	$	(51	)		$	43			$	(3	)		$	(65	)		$	(89	)		$	(35	)

We capitalized a portion of net pension costs/(benefits) into inventory based on our production activities. These amounts are included in the table above.

In the third quarter of 2016, we approved the wind up of our Canadian salaried and Canadian hourly defined benefit pension plans effective December 31, 2016. This action resulted in an increase to our projected benefit obligations of approximately $85 million at December 31, 2016. This action had no impact on the consolidated statements of income or consolidated statements of cash flows for the year ended December 31, 2016.

In 2015, we recorded net settlement losses for the U.S. and non-U.S. plans primarily related to certain plan terminations. We also recorded net curtailment gains for the U.S. and non-U.S. plans primarily related to certain plan freezes and work force reductions under our integration and restructuring activities.

We used the following weighted average assumptions to determine our net pension costs:

	U.S. Plans									Non-U.S. Plans
	December 31, 2016 (52 weeks)			January 3, 2016 (53 weeks)			December 28, 2014 (52 weeks)			December 31, 2016 (52 weeks)			January 3, 2016 (53 weeks)			December 28, 2014 (52 weeks)
Discount rate - Service Cost	4.5	%		4.4	%		4.8	%		4.2	%		3.7	%		4.5	%
Discount rate - Interest Cost	3.5	%		4.4	%		4.8	%		3.3	%		3.7	%		4.5	%
Expected rate of return on plan assets	5.7	%		5.6	%		6.5	%		5.6	%		6.4	%		6.1	%
Rate of compensation increase	4.1	%		4.0	%		4.5	%		3.4	%		3.3	%		3.6	%

Discount rates for our U.S. and non-U.S. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the plans. We determine our expected rate of return on plan assets from the plan assets' historical long-term investment performance, target asset allocation, and estimates of future long-term returns by asset class.

Plan Assets:

The underlying basis of the investment strategy of our defined benefit plans is to ensure that pension funds are available to meet the plans’ benefit obligations when they are due. Our investment objectives include: investing plan assets in a high-quality, diversified manner in order to maintain the security of the funds; achieving an optimal return on plan assets within specified risk tolerances; and investing according to local regulations and requirements specific to each country in which a defined benefit plan operates. The investment strategy expects equity investments to yield a higher return over the long term than fixed-income securities, while fixed-income securities are expected to provide certain matching characteristics to the plans’ benefit payment cash flow requirements. Our investment policy specifies the type of investment vehicles appropriate for the applicable plan, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. It also provides guidelines enabling the applicable plan fiduciaries to fulfill their responsibilities.

Our weighted average asset allocations were:

	U.S. Plans						Non-U.S. Plans
	December 31, 2016			January 3, 2016			December 31, 2016			January 3, 2016
Fixed-income securities	67	%		62	%		49	%		48	%
Equity securities	30	%		27	%		31	%		31	%
Real estate	—	%		5	%		7	%		9	%
Cash and cash equivalents	3	%		5	%		8	%		7	%
Certain insurance contracts	—	%		1	%		5	%		5	%
Total	100	%		100	%		100	%		100	%

Our pension asset strategy for U.S. plans is designed to align our pension assets with our projected benefit obligation to reduce volatility by targeting an investment of approximately 70% of our U.S. plan assets in fixed-income securities and approximately 30% in return-seeking assets, primarily equity securities.

For pension plans outside the U.S., our investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country. In aggregate, the long-term asset allocation targets of our non-U.S. plans are broadly characterized as a mix of approximately 60% fixed-income securities, and approximately 40% in return-seeking assets, primarily equity securities and real estate.

The fair value of pension plan assets at December 31, 2016 was determined using the following fair value measurements (in millions):

Asset Category	Total Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Government bonds	$	484			$	410			$	74			$	—
Corporate bonds and other fixed-income securities	2,952				—				2,952				—
Total fixed-income securities	3,436				410				3,026				—
Equity securities	765				765				—				—
Real estate	234				—				—				234
Cash and cash equivalents	49				31				18				—
Certain insurance contracts	189				—				—				189
Fair value excluding investments measured at net asset value	4,673				1,206				3,044				423
Investments measured at net asset value	3,743
Total fair value	$	8,416

The fair value of pension plan assets at January 3, 2016 was determined using the following fair value measurements (in millions):

Asset Category	Total Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Government bonds	$	671			$	671			$	—			$	—
Corporate bonds and other fixed-income securities	2,994				—				2,994				—
Total fixed-income securities	3,665				671				2,994				—
Equity securities	322				321				—				1
Real estate	288				—				—				288
Cash and cash equivalents	148				14				134				—
Certain insurance contracts	236				—				—				236
Fair value excluding investments measured at net asset value	4,659				1,006				3,128				525
Investments measured at net asset value	4,051
Total fair value	$	8,710

The following section describes the valuation methodologies used to measure the fair value of pension plan assets, including an indication of the level in the fair value hierarchy in which each type of asset is generally classified.

Government Bonds. These securities consist of direct investments in publicly traded U.S. and non-U.S. fixed interest obligations (principally debentures). Such investments are valued using quoted prices in active markets. These securities are principally included in Level 1.

Corporate Bonds and Other Fixed-Income Securities. These securities consist of publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate bonds). Such investments are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data. As such, these securities are included in Level 2.

Equity Securities. These securities consist of direct investments in the stock of publicly traded companies. Such investments are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1.

Real Estate. These holdings consist of real estate investments. Direct investments of real estate are valued by investment managers based on the most recent financial information available, which typically represents significant unobservable data. As such, these investments are generally classified as Level 3.

Cash and Cash Equivalents. This consists of direct cash holdings and institutional short-term investment vehicles. Direct cash holdings are valued based on cost, which approximates fair value and are classified as Level 1. Institutional short-term investment vehicles are valued daily and are classified as Level 2.

Certain Insurance Contracts. This category consists of group annuity contracts that have been purchased to cover a portion of the plan members. The fair value of non-participating annuity buy-in contracts fluctuates based on fluctuations in the obligation associated with the covered plan members. The fair value of certain participating annuity contracts are reported at contract value. These values have been classified as Level 3.

Investments Measured at Net Asset Value. This category consists of partnership/joint venture interests, pooled funds, and short-term investments.

Partnership/joint venture interests. Fair value estimates of the real estate partnership are based on their net asset values, as reported by the manager of the partnership. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. Investments in the partnership may be redeemed once per quarter subject to available cash, as determined by the trustee. A written withdrawal request is required 60 days prior to quarter end. To the extent that withdrawal requests exceed available cash, distributions are made on a pro-rata basis based on a ratio of total units held in the partnership. The investment objective of the partnership is to provide a long-term return in excess of the consumer price index plus 5% investing in a diversified portfolio of real estate investments.

Pooled funds. The fair values of participation units held in collective trusts and a Delaware trust are based on their net asset values, as reported by the managers of the collective trusts and Delaware trust and as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. Investments in the collective trusts can be redeemed on each business day based upon the applicable net asset value per unit. Investments in the international large/mid cap equity collective trust can be redeemed on the last business date of each month and at least one business day during the month. Investments in the Delaware trust can be redeemed not later than seven business days after the business day on which the redemption occurs or as soon as practicable thereafter, with at least 30 business days’ written notice, based on the net asset value per unit as determined as of the end of each month.

The fair values of the property collective trust are based upon the net asset values of the real estate collective trusts in which it invests. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. Investments in Property Trust may be redeemed once per quarter subject to available cash, as determined by the trustee. A written withdrawal request is required 45 days prior to quarter end. To the extent that withdrawal requests exceed available cash, distributions are made on a pro-rata basis.

The mutual fund investments are not traded on an exchange and a majority of these funds are held in a separate account managed by a fixed income manager. The fair values of the mutual fund investments that are not traded on an exchange are based on their net asset values, as reported by the managers and as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. The objective of the account is to provide superior return with reasonable risk, where performance is expected to exceed Barclays Long U.S. Credit Index. Investments in this account can be redeemed with a written notice to the investment manager.

Short-term investments: Short-term investments largely consisted of a money market fund, the fair value of which is based on the net asset value reported by the manager of the fund and supported by the unit prices of actual purchase and sale transactions. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. The money market fund is designed to provide safety of principal, daily liquidity, and a competitive yield by investing in high quality money market instruments. The investment objective of the money market fund is to provide the highest possible level of current income while still maintaining liquidity and preserving capital.

Changes in our Level 3 plan assets for the year ended December 31, 2016 included (in millions):

Asset Category	January 3, 2016				Net Realized Gain/(Loss)				Net Unrealized Gain/(Loss)				Net Purchases, Issuances and Settlements				Transfers Into/(Out of) Level 3				December 31, 2016
Equity securities	$	1			$	—			$	—			$	(1	)		$	—			$	—
Real estate	288				6				(37		)		(23		)		—				234
Certain insurance contracts	236				—				13				(49		)		(11		)		189
Total Level 3 investments	$	525			$	6			$	(24	)		$	(73	)		$	(11	)		$	423

Changes in our Level 3 plan assets for the year ended January 3, 2016 included (in millions):

Asset Category	December 28, 2014				2015 Merger				Net Realized Gain/(Loss)				Net Unrealized Gain/(Loss)				Net Purchases, Issuances and Settlements				Transfers Into/(Out of) Level 3				January 3, 2016
Equity securities	$	—			$	1			$	—			$	—			$	—			$	—			$	1
Real estate	307				—				4				11				(24		)		(10		)		288
Certain insurance contracts	189				51				12				(14		)		(2		)		—				236
Total Level 3 investments	$	496			$	52			$	16			$	(3	)		$	(26	)		$	(10	)		$	525

Employer Contributions:

In 2016, we contributed $311 million to our U.S. pension plans, which included contributions related to the settlement of our U.S. nonqualified pension plan that was terminated effective December 31, 2015. In 2016, we contributed $33 million to our non-U.S. pension plans. We estimate that 2017 pension contributions will be approximately $150 million to our U.S. plans and approximately $35 million to our non-U.S. plans. However, our actual contributions and plans may change due to many factors, including timing of regulatory approval for the wind up of our Canadian plans, changes in tax, employee benefit or other laws, tax deductibility, significant differences between expected and actual pension asset performance or interest rates, or other factors.

Future Benefit Payments:

The estimated future benefit payments from our pension plans at December 31, 2016 were (in millions):

	U.S. Plans				Non-U.S. Plans
2017	$	377			$	524
2018	322				794
2019	326				61
2020	321				62
2021	330				66
2022-2026	1,651				386

Postretirement Plans

Obligations:

Our postretirement benefit plans are not funded. The changes in and the amount of the accrued benefit obligations at December 31, 2016 and January 3, 2016 were (in millions):

	December 31, 2016				January 3, 2016
Accrued benefit obligations at beginning of year	$	1,945			$	205
Service cost	11				13
Interest cost	51				56
Benefits paid	(150		)		(106		)
Actuarial losses/(gains)	5				(7		)
Plan amendments	(158		)		(1,507		)
Currency	6				(25		)
Curtailments	—				(55		)
Participant's contributions	—				—
Assumption of Kraft's benefit obligations	—				3,371
Other	4				—
Accrued benefit obligations at end of year	$	1,714			$	1,945

In the third quarter of 2015, we made a number of plan amendments to certain of our postretirement health care benefit plans in the U.S., which resulted in a $1.5 billion reduction to our postretirement plan accrued benefit obligations. This $1.5 billion pre-tax benefit was deferred as a component of accumulated other comprehensive income/(losses) and is being amortized to net income/(loss) as a prior service credit over the remaining working life to full eligibility of the covered employees.

We used the following weighted average assumptions to determine our postretirement benefit obligations at December 31, 2016 and January 3, 2016:

	December 31, 2016			January 3, 2016
Discount rate	3.8	%		4.2	%
Health care cost trend rate assumed for next year	6.3	%		6.5	%
Ultimate trend rate	4.9	%		4.9	%

Discount rates for our plans were developed from a model portfolio of high-quality, fixed-income debt instruments with durations that match the expected future cash flows of the plans. Our expected health care cost trend rate is based on historical costs.

The year that the health care cost trend rate reaches the ultimate trend rate varies by plan and ranges between 2022 and 2027 as of December 31, 2016.

Assumed health care costs trend rates have a significant impact on the amounts reported for the postretirement benefit 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 December 31, 2016 (in millions):

	One-Percentage-Point
	Increase				Decrease
Effect on annual service and interest cost	$	6			$	(5	)
Effect on postretirement benefit obligation	74				(63		)

Components of Net Postretirement Cost/(Benefit):

Net postretirement cost/(benefit) consisted of the following (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Service cost	$	11			$	13			$	5
Interest cost	51				56				9
Amortization of prior service costs/(credits)	(362		)		(112		)		(6		)
Amortization of unrecognized losses/(gains)	(1		)		—				—
Curtailments	—				1				(7		)
Net postretirement cost/(benefit)	$	(301	)		$	(42	)		$	1

We capitalized a portion of net postretirement costs/(benefits) into inventory based on our production activities. These amounts are included in the table above.

The amortization of prior service credits in 2016 and 2015 was primarily driven by the 2015 plan amendments. Amortization of prior service credits in 2016 included 12 months of amortization related to the 2015 plan amendments, and 2015 included four months of such amortization.

We used the following weighted average assumptions to determine our net postretirement benefit plans cost:

	December 31, 2016 (52 weeks)			January 3, 2016 (53 weeks)			December 28, 2014 (52 weeks)
Discount rate - Service Cost	4.3	%		4.2	%		4.3	%
Discount rate - Interest Cost	3.0	%		4.2	%		4.3	%
Health care cost trend rate	6.5	%		6.7	%		6.0	%

Future Benefit Payments:

Our estimated future benefit payments for our postretirement plans at December 31, 2016 were (in millions):

2017	$	154
2018	150
2019	144
2020	138
2021	132
2022-2026	570

Other Costs

We sponsor and contribute to employee savings plans that cover eligible salaried, non-union, and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense for defined contribution plans totaled $74 million in 2016, $52 million in 2015, and $19 million in 2014.

Accumulated Other Comprehensive Income/(Losses):

Our accumulated other comprehensive income/(losses) pension and postretirement benefit plans balances, before tax, consisted of the following (in millions):

	Pension Benefits								Postretirement Benefits								Total
	December 31, 2016				January 3, 2016				December 31, 2016				January 3, 2016				December 31, 2016				January 3, 2016
Net actuarial gain/(loss)	$	(35	)		$	13			$	64			$	70			$	29			$	83
Prior service credit/(cost)	—				—				1,205				1,409				1,205				1,409
	$	(35	)		$	13			$	1,269			$	1,479			$	1,234			$	1,492

The net postemployment benefits recognized in other comprehensive income/(loss), consisted of the following (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Net postemployment benefit gains/(losses) arising during the period:
Net actuarial gains/(losses) arising during the period - Pension Benefits	$	(73	)		$	3			$	(75	)
Net actuarial gains/(losses) arising during the period - Postretirement Benefits	(5		)		62				1
Prior service credits/(costs) arising during the period - Pension Benefits	—				(7		)		—
Prior service credits/(costs) arising during the period - Postretirement Benefits	158				1,507				—
	80				1,565				(74		)
Tax benefit/(expense)	(23		)		(619		)		40
	$	57			$	946			$	(34	)
Reclassification of net postemployment benefit losses/(gains) to net income/(loss):
Amortization of unrecognized losses/(gains) - Pension Benefits	$	—			$	3			$	—
Amortization of unrecognized losses/(gains) - Postretirement Benefits	(1		)		—				—
Amortization of prior service costs/(credits) - Pension Benefits	—				—				—
Amortization of prior service costs/(credits) - Postretirement Benefits	(362		)		(112		)		(6		)
Net settlement and curtailment losses/(gains) - Pension Benefits	25				(24		)		4
Net settlement and curtailment losses/(gains) - Postretirement Benefits	—				1				(7		)
	(338		)		(132		)		(9		)
Tax benefit/(expense)	131				47				2
	$	(207	)		$	(85	)		$	(7	)

As of December 31, 2016, we expect to amortize $312 million of postretirement benefit plans prior service credits from accumulated other comprehensive income/(losses) into net postretirement benefit plans costs/(benefits) during 2017. We do not expect to amortize any other significant postemployment benefit losses/(gains) into net pension or net postretirement benefit plan costs/(benefits) during 2017.

Note 10. Accumulated Other Comprehensive Income/(Losses)

The components of, and changes in, accumulated other comprehensive income/(losses) were as follows (net of tax):

	Foreign Currency Translation Adjustments				Net Postemployment Benefit Plan Adjustments				Net Cash Flow Hedge Adjustments				Total
	(in millions)
Balance as of December 29, 2013	$	22			$	102			$	108			$	232
Foreign currency translation adjustments	(932		)		—				—				(932		)
Net deferred gains/(losses) on net investment hedges	336				—				—				336
Net postemployment benefit gains/(losses) arising during the period	—				(34		)		—				(34		)
Reclassification of net postemployment benefit losses/(gains)	—				(7		)		—				(7		)
Net deferred gains/(losses) on cash flow hedges	—				—				(173		)		(173		)
Net deferred losses/(gains) on cash flow hedges reclassified to net income	—				—				4				4
Total other comprehensive income/(loss)	(596		)		(41		)		(169		)		(806		)
Balance as of December 28, 2014	(574		)		61				(61		)		(574		)
Foreign currency translation adjustments	(1,578		)		—				—				(1,578		)
Net deferred gains/(losses) on net investment hedges	506				—				—				506
Net postemployment benefit gains/(losses) arising during the period	—				946				—				946
Reclassification of net postemployment benefit losses/(gains)	—				(85		)		—				(85		)
Net deferred gains/(losses) on cash flow hedges	—				—				(6		)		(6		)
Net deferred losses/(gains) on cash flow hedges reclassified to net income	—				—				120				120
Total other comprehensive income/(loss)	(1,072		)		861				114				(97		)
Balance as of January 3, 2016	(1,646		)		922				53				(671		)
Foreign currency translation adjustments	(992		)		—				—				(992		)
Net deferred gains/(losses) on net investment hedges	226				—				—				226
Net postemployment benefit gains/(losses) arising during the period	—				57				—				57
Reclassification of net postemployment benefit losses/(gains)	—				(207		)		—				(207		)
Net deferred gains/(losses) on cash flow hedges	—				—				46				46
Net deferred losses/(gains) on cash flow hedges reclassified to net income	—				—				(87		)		(87		)
Total other comprehensive income/(loss)	(766		)		(150		)		(41		)		(957		)
Balance as of December 31, 2016	$	(2,412	)		$	772			$	12			$	(1,628	)

Reclassification of net postemployment benefit losses/(gains) included amounts reclassified to net income and amounts reclassified into inventory (consistent with our capitalization policy).

The gross amount and related tax benefit/(expense) recorded in, and associated with, each component of other comprehensive income/(loss) for the years ended December 31, 2016, January 3, 2016, and December 28, 2014 were as follows (in millions):

	December 31, 2016 (52 weeks)												January 3, 2016 (53 weeks)												December 28, 2014 (52 weeks)
	Before Tax Amount				Tax				Net of Tax Amount				Before Tax Amount				Tax				Net of Tax Amount				Before Tax Amount				Tax				Net of Tax Amount
Foreign currency translation adjustments	$	(992	)		$	—			$	(992	)		$	(1,578	)		$	—			$	(1,578	)		$	(932	)		$	—			$	(932	)
Net deferred gains/(losses) on net investment hedges	426				(200		)		226				801				(295		)		506				545				(209		)		336
Net actuarial gains/(losses) arising during the period	(78		)		38				(40		)		65				(42		)		23				(74		)		40				(34		)
Prior service credits/(costs) arising during the period	158				(61		)		97				1,500				(577		)		923				—				—				—
Reclassification of net postemployment benefit losses/(gains)	(338		)		131				(207		)		(132		)		47				(85		)		(9		)		2				(7		)
Net deferred gains/(losses) on cash flow hedges	40				6				46				(38		)		32				(6		)		(268		)		95				(173		)
Net deferred losses/(gains) on cash flow hedges reclassified to net income	(81		)		(6		)		(87		)		195				(75		)		120				(5		)		9				4

In the third quarter of 2016, we determined that we had misstated the prior service credit related to the postretirement plan amendment recognized in the third quarter 2015 financial statements. This misstatement had an impact on other comprehensive income/(losses) for the year ended January 3, 2016. In the third quarter of 2016, we recorded a correction to reduce accrued postemployment costs by $107 million, reduce deferred income taxes by $41 million, and increase accumulated other comprehensive income/(losses) by $66 million on the consolidated balance sheet. This correction is reflected in prior service credits/(costs) arising during the period in the table above. This misstatement was not material to our current or any prior period financial statements.

The amounts reclassified from accumulated other comprehensive income/(losses) in 2016, 2015, and 2014 were as follows (in millions):

Accumulated Other Comprehensive Income/(Losses) Component		Reclassified from Accumulated Other Comprehensive Income/(Losses)												Affected Line Item in the Statement Where Net Income is Presented
		December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Losses/(gains) on cash flow hedges:
Foreign exchange contracts		$	(6	)		$	2			$	1			Net sales
Foreign exchange contracts		(41		)		(45		)		(5		)		Cost of products sold
Foreign exchange contracts		(38		)		(1		)		(1		)		Other expense/(income), net
Interest rate contracts		4				239				—				Interest expense
Losses/(gains) on cash flow hedges before income taxes		(81		)		195				(5		)
Losses/(gains) on cash flow hedges income taxes		(6		)		(75		)		9
Losses/(gains) on cash flow hedges		$	(87	)		$	120			$	4
Losses/(gains) on postemployment benefits:
Amortization of unrecognized losses/(gains)		$	(1	)		$	3			$	—			(a)
Amortization of prior service costs/(credits)		(362		)		(112		)		(6		)		(a)
Settlement and curtailments losses/(gains)		25				(23		)		(3		)		(a)
Losses/(gains) on postemployment benefits before income taxes		(338		)		(132		)		(9		)
Losses/(gains) on postemployment benefits income taxes		131				47				2
Losses/(gains) on postemployment benefits		$	(207	)		$	(85	)		$	(7	)

(a)	These components are included in the computation of net periodic postemployment benefit costs. See Note 9, Postemployment Benefits, for additional information.

In this note we have excluded activity and balances related to noncontrolling interest (which was primarily comprised of foreign currency translation adjustments) due to its insignificance.

Note 11. Debt

Borrowing Arrangements:

On July 6, 2015, together with Kraft Heinz Foods Company, our wholly owned operating subsidiary, we entered into a credit agreement (as amended, the “Credit Agreement”), which provides for:

•	a $4.0 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”), which matures on July 6, 2021; and

•	a $600 million senior unsecured loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Senior Credit Facilities”), which matures on July 6, 2022.

The Revolving Credit Facility includes a $1.0 billion sub-limit for borrowings in alternative currencies (i.e., euro, sterling, Canadian dollars, or other lawful currencies readily available and freely transferable and convertible into U.S. dollars), as well as a letter of credit sub-facility of up to $300 million. Subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to $1.0 billion.

Any committed borrowings under the Senior Credit Facilities bear interest at a variable annual rate based on LIBOR/EURIBOR/CDOR loans or an alternate base rate/Canadian prime rate, in each case subject to an applicable margin based upon the long-term senior unsecured, non-credit enhanced debt rating assigned to us. The borrowings under the Revolving Credit Facility have interest rates based on, at our election, base rate, LIBOR, EURIBOR, CDOR, or Canadian prime rate plus a spread ranging from 87.5-175 basis points for LIBOR, EURIBOR, and CDOR loans, and 0-75 basis points for base rate or Canadian prime rate loans.

The Senior Credit Facilities contain representations, warranties, and covenants that are typical for these types of facilities. Our Revolving Credit Facility requires us to maintain a minimum shareholders’ equity (excluding accumulated other comprehensive income/(losses)) of at least $35 billion. We were in compliance with this covenant as of December 31, 2016.

At December 31, 2016 and 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 December 31, 2016, at January 3, 2016, or during the years ended December 31, 2016 and January 3, 2016.

The obligations under the Credit Agreement are guaranteed by Kraft Heinz Foods Company in the case of indebtedness and other liabilities of any subsidiary borrower and by Kraft Heinz in the case of indebtedness and other liabilities of any subsidiary borrower and Kraft Heinz Foods Company.

In 2016, together with Kraft Heinz Foods Company, we commenced a commercial paper program. As of December 31, 2016, we had $642 million of commercial paper outstanding, with a weighted average interest rate of 1.074%. We had no commercial paper outstanding at January 3, 2016.

Long-Term Debt:

Our long-term debt consists of the following:

		Priority 1		Maturity Dates		Interest Rates 2		Carrying Values
								December 31, 2016				January 3, 2016
								(in millions)
U.S. dollar notes:
2025 Notes(a)		Senior Secured Notes		February 15, 2025		4.875%		$	1,191			$	1,190
Other U.S. dollar notes(b)(c)(d)		Senior Notes		2017-2046		1.500% - 7.125%		25,761				20,957
Euro notes(b)(c)		Senior Notes		2023-2028		1.500% - 2.250%		2,656				803
Canadian dollar notes(b)		Senior Notes		2018-2020		1.697% - 2.700%		743				720
British pound sterling notes(b)(d)		Senior Notes		2027-2030		4.125% - 6.250%		650				778
Term Loan Facility		Senior Unsecured Loan		July 6, 2022		2.114%		596				596
Other long-term debt		Various		2017-2035		0.500% - 5.800%		54				57
Capital lease obligations								108				129
Total long-term debt								31,759				25,230
Current portion of long-term debt								2,046				79
Long-term debt, excluding current portion								$	29,713			$	25,151

1	Priority of debt indicates the order which debt would be paid if all debt obligations were due on the same day. Senior secured debt takes priority over unsecured debt. Senior debt has greater seniority than subordinated debt.

2	Floating interest rates are stated as of December 31, 2016.

(a)	The 4.875% Second Lien Senior Secured Notes due February 15, 2025 (the “2025 Notes”) are senior in right of payment of existing and future unsecured and subordinated indebtedness.

(b)	We fully and unconditionally guarantee these notes, which were issued by Kraft Heinz Foods Company.

(c) Includes current year issuances (the “May 2016 Note Issuances”), detailed as follows:

On May 24, 2016, we completed the sale of $2.0 billion aggregate principal amount of 3.000% Senior Notes due June 1, 2026 (the “2026 Notes”) and $3.0 billion aggregate principal amount of 4.375% Senior Notes due June 1, 2046 (the “2046 Notes”). Interest on the 2026 Notes and 2046 Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016.

On May 25, 2016, we completed the sale of €550 million aggregate principal amount of 1.500% Senior Notes due May 24, 2024 (the “2024 Notes”) and €1,250 million aggregate principal amount of 2.250% Senior Notes due May 25, 2028 (the “2028 Notes”). Interest on the 2024 Notes is payable annually in arrears on May 24 of each year, beginning on May 24, 2017. Interest on the 2028 Notes is payable annually in arrears on May 25 of each year, beginning on May 25, 2017.

We used the net proceeds from the May 2016 Note Issuances primarily to redeem all outstanding shares of our 9.00% cumulative compounding preferred stock, Series A (“Series A Preferred Stock”) for $8.3 billion. See Note 12, Capital Stock, for additional information.

(d)	Includes £125 million aggregate principal amount of 6.250% Pound Sterling Notes due February 18, 2030 (the “2030 Notes”) previously issued by H.J. Heinz Finance UK Plc and guaranteed by Kraft Heinz Foods Company, which we became guarantor of in connection with the 2015 Merger.

Our long-term debt contains customary representations, covenants, and events of default, and we were in compliance with all such covenants at December 31, 2016.

At December 31, 2016, aggregate principal maturities of our long-term debt excluding capital leases were (in millions):

2017	$	2,019
2018	2,685
2019	3
2020	2,999
2021	38
Thereafter	23,446

Debt Issuance Costs:

Unamortized debt issuance costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of debt. In relation to our debt issuances, we incurred debt issuance costs of $53 million in 2016 and $99 million in 2015. Unamortized debt issuance costs were $124 million at December 31, 2016 and $85 million at January 3, 2016. Amortization of debt issuance costs was $14 million in 2016, $27 million in 2015, and $49 million in 2014.

Debt Premium:

Unamortized debt premiums are presented on the consolidated balance sheets as a direct addition to the carrying amount of debt. Unamortized debt premium, net was $585 million at December 31, 2016 and $699 million at January 3, 2016. Amortization of our debt premium, net was $88 million in 2016, $45 million in 2015, and $25 million in 2014.

Debt Repayments:

In 2015, we recorded a $341 million loss on extinguishment of debt, which was comprised of a write-off of debt issuance costs and unamortized debt discounts of $236 million in interest expense as well as call premiums of $105 million in other expense/(income), net.

Fair Value of Debt:

At December 31, 2016, the aggregate fair value of our total debt was $33.2 billion as compared with a carrying value of $32.4 billion. At January 3, 2016, the aggregate fair value of our total debt was $25.7 billion as compared with a carrying value of $25.2 billion. We determined the fair value of our long-term debt using Level 2 inputs. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

Note 12. Capital Stock

Preferred Stock and Warrants

Our Amended and Restated Certificate of Incorporation authorizes the issuance of up to 920,000 shares of preferred stock.

On June 7, 2016, we redeemed all 80,000 outstanding shares of our Series A Preferred Stock for $8.3 billion. We funded this redemption primarily through the May 2016 Note Issuances, as well as other sources of liquidity, including our commercial paper program, U.S. securitization program, and cash on hand. In connection with the redemption, all Series A Preferred Stock was canceled and automatically retired.

The 80,000 shares of Series A Preferred Stock were issued in connection with the 2013 Merger, along with warrants to purchase 46 million Heinz common shares, at an exercise price of $0.01 per common share (the “Warrants”), for an aggregate purchase price of $8.0 billion. We allocated the proceeds to the Series A Preferred Stock ($7.6 billion) and the Warrants ($367 million) on a relative fair value basis. In June 2015, Berkshire Hathaway exercised the Warrants to purchase the additional 46 million Heinz common shares, which were subsequently reclassified and changed into approximately 20 million shares of Kraft Heinz common stock.

Common Stock

Our Amended and Restated Certificate of Incorporation authorizes the issuance of up to 5.0 billion shares of common stock.

Immediately prior to the consummation of the 2015 Merger, each share of Heinz issued and outstanding common stock was reclassified and changed into 0.443332 of a share of Kraft Heinz common stock. All share and per share amounts have been retroactively adjusted for all historical periods presented prior to the 2015 Merger Date to give effect to this conversion. In the 2015 Merger, all outstanding shares of Kraft common stock were converted into the right to receive, on one-for-one basis, shares of Kraft Heinz common stock.

Shares of common stock issued, in treasury, and outstanding were (in thousands of shares):

	Shares Issued			Treasury Shares			Shares Outstanding
Balance at December 29, 2013	376,832			—			376,832
Exercise of stock options, issuance of other stock awards, and other	178			—			178
Balance at December 28, 2014	377,010			—			377,010
Exercise of warrants	20,480			—			20,480
Issuance of common stock to Sponsors	221,666			—			221,666
Acquisition of Kraft Foods Group, Inc.	592,898			—			592,898
Exercise of stock options, issuance of other stock awards, and other	2,338			(413	)		1,925
Balance at January 3, 2016	1,214,392			(413	)		1,213,979
Exercise of stock options, issuance of other stock awards, and other	4,555			(2,058	)		2,497
Balance at December 31, 2016	1,218,947			(2,471	)		1,216,476

Note 13. Financing Arrangements

We routinely enter into accounts receivable securitization and factoring programs. We account for transfers of receivables pursuant to these programs as a sale and remove them from our consolidated balance sheet.

At December 31, 2016, our most significant program in place was the U.S. securitization program, which was amended in May 2016 and originally entered into in October of 2015. Under the program, we are entitled to receive cash consideration of up to $800 million (which we elected to reduce to $500 million, effective February 21, 2017) and a receivable for the remainder of the purchase price (the “Deferred Purchase Price”). This securitization program utilizes a bankruptcy-remote special-purpose entity (“SPE”). The SPE is wholly-owned by a subsidiary of Kraft Heinz and its sole business consists of the purchase or acceptance, through capital contributions of receivables and related assets, from a Kraft Heinz subsidiary and subsequent transfer of such receivables and related assets to a bank. Although the SPE is included in our consolidated financial statements, it is a separate legal entity with separate creditors who will be entitled, upon its liquidation, to be satisfied out of the SPE's assets prior to any assets or value in the SPE becoming available to Kraft Heinz or its subsidiaries. The assets of the SPE are not available to pay creditors of Kraft Heinz or its subsidiaries. This program expires in May 2017.

In addition to the U.S. securitization program, we have accounts receivable factoring programs denominated in Australian dollars, New Zealand dollars, British pound sterling, euros, and Japanese yen. Under these programs, we generally receive cash consideration up to a certain limit and a receivable for the Deferred Purchase Price. There is no Deferred Purchase Price associated with the Japanese yen contract. Related to these programs, our aggregate cash consideration limit, after applying applicable hold-backs, was $245 million U.S. dollars at December 31, 2016. Generally, each of these programs automatically renews annually until terminated by either party.

The cash consideration and carrying amount of receivables removed from the consolidated balance sheets in connection with the above programs were $904 million at December 31, 2016 and $267 million at January 3, 2016. The fair value of the Deferred Purchase Price for the programs was $129 million at December 31, 2016 and $583 million at January 3, 2016. The Deferred Purchase Price is included in sold receivables on the consolidated balance sheets and had a carrying value which approximated its fair value at December 31, 2016 and January 3, 2016. The proceeds from these sales are recognized on the consolidated statements of cash flows as a component of operating activities. We act as servicer for these arrangements and have not recorded any servicing assets or liabilities for these arrangements as of December 31, 2016 and January 3, 2016 because they were not material to the financial statements.

Note 14. Financial Instruments

Derivative Volume:

The notional values of our derivative instruments at December 31, 2016 and January 3, 2016 were (in millions):

	Notional Amount
	December 31, 2016				January 3, 2016
Commodity contracts	$	459			$	787
Foreign exchange contracts	2,997				3,458
Cross-currency contracts	3,173				4,328

Fair Value of Derivative Instruments:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values and the levels within the fair value hierarchy of derivative instruments recorded on the consolidated balance sheets at December 31, 2016 and January 3, 2016 were (in millions):

	December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)								Significant Other Observable Inputs (Level 2)								Significant Unobservable Inputs (Level 3)								Total Fair Value
	Assets				Liabilities				Assets				Liabilities				Assets				Liabilities				Assets				Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—			$	—			$	69			$	13			$	—			$	—			$	69			$	13
Cross-currency contracts	—				—				580				36				—				—				580				36
Derivatives not designated as hedging instruments:
Commodity contracts	28				7				—				—				—				—				28				7
Foreign exchange contracts	—				—				35				30				—				—				35				30
Cross-currency contracts	—				—				44				—				—				—				44				—
Total fair value	$	28			$	7			$	728			$	79			$	—			$	—			$	756			$	86

	January 3, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)								Significant Other Observable Inputs (Level 2)								Significant Unobservable Inputs (Level 3)								Total Fair Value
	Assets				Liabilities				Assets				Liabilities				Assets				Liabilities				Assets				Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—			$	—			$	46			$	6			$	—			$	—			$	46			$	6
Cross-currency contracts	—				—				605				—				—				—				605				—
Derivatives not designated as hedging instruments:
Commodity contracts	24				29				1				7				—				—				25				36
Foreign exchange contracts	—				—				88				13				—				—				88				13
Cross-currency contracts	—				—				47				—				—				—				47				—
Total fair value	$	24			$	29			$	787			$	26			$	—			$	—			$	811			$	55

Our derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. We elect to record the gross assets and liabilities of our derivative financial instruments on the consolidated balance sheets. If the derivative financial instruments had been netted on the consolidated balance sheets, the asset and liability positions each would have been reduced by $67 million at December 31, 2016 and $44 million at January 3, 2016. No material amounts of collateral were received or posted on our derivative assets and liabilities at December 31, 2016.

Level 1 financial assets and liabilities consist of commodity future and options contracts and are valued using quoted prices in active markets for identical assets and liabilities.

Level 2 financial assets and liabilities consist of commodity forwards, foreign exchange forwards, and cross-currency swaps. Commodity forwards are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign exchange forwards are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Cross-currency swaps are valued based on observable market spot and swap rates.

Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.

There have been no transfers between Levels 1, 2, and 3 in any period presented.

The fair values of our asset derivatives are recorded within other current assets and other assets. The fair values of our liability derivatives are recorded within other current liabilities and other liabilities.

Net Investment Hedging:

In May 2016, we issued €1.8 billion aggregate principal amount of euro denominated notes (see Note 11, Debt). The principal amounts of these foreign denominated notes were designated as net investment hedges. Concurrently, we fully unwound our then-outstanding euro swap (USD notional amount of $1.1 billion). At December 31, 2016, the principal amounts of foreign denominated debt designated as net investment hedges totaled €2,550 million and £400 million.

At December 31, 2016, our cross-currency swaps designated as net investment hedges consisted of:

Instrument		Notional (local) (in billions)				Notional (USD) (in billions)				Maturity
Cross-currency swap		£	0.8			$	1.4			October 2019
Cross-currency swap		C$	1.8			1.6				December 2019

We also periodically enter into shorter-dated foreign currency contracts that are designated as net investment hedges. At December 31, 2016, we had a Chinese renminbi foreign currency contract with an aggregate USD notional amount of $119 million.

The component of the gains and losses on our net investment in these designated foreign operations, driven by changes in foreign exchange rates, are economically offset by movements in the fair values of our cross-currency swap contracts and remeasurement of our foreign denominated debt.

Interest Rate Hedging:

During 2015, we de-designated all of our outstanding interest rate swaps (total notional amount of $7.9 billion) from hedging relationships in connection with the repayment of the Term B-1 and Term B-2 loans. We determined that the related forecasted future cash flows were probable of not occurring, and as a result, we reclassified $227 million of deferred losses initially reported in accumulated other comprehensive income/(losses) to net income/(loss) as interest expense.

Hedge Coverage:

At December 31, 2016, we had entered into contracts designated as hedging instruments, which hedge transactions for the following durations:

•	foreign currency contracts for periods not exceeding the next 12 months, and

•	cross-currency contracts for periods not exceeding the next three years.

At December 31, 2016, we had entered into contracts not designated as hedging instruments, which hedge economic risks for the following durations:

•	commodity contracts for periods not exceeding the next 12 months,

•	foreign exchange contracts for periods not exceeding the next 12 months, and

•	cross-currency contracts for periods not exceeding the next two years.

Hedge Ineffectiveness:

We record pre-tax gains or losses reclassified from accumulated other comprehensive income/(losses) due to ineffectiveness for foreign exchange contracts related to forecasted transactions in other expense/(income), net.

Deferred Hedging Gains and Losses:

Based on our valuation at December 31, 2016 and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized gains for foreign currency cash flow hedges during the next 12 months to be $14 million. Additionally, we expect transfers to net income/(loss) of unrealized losses for interest rate cash flow hedges during the next 12 months to be insignificant.

Concentration of Credit Risk:

Counterparties to our foreign exchange derivatives consist of major international financial institutions. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of our credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. We closely monitor the credit risk associated with our counterparties and customers and to date have not experienced material losses.

Economic Hedging:

We enter into certain derivative contracts not designated as hedging instruments in accordance with our risk management strategy which have an economic impact of largely mitigating commodity price risk and foreign currency exposures. Gains and losses are recorded in net income/(loss) as a component of cost of products sold for our commodity contracts and other expense/(income), net for our cross currency and foreign exchange contracts.

Derivative Impact on the Statements of Income and Statements of Comprehensive Income:

The following tables present the pre-tax effect of derivative instruments on the consolidated statements of income and statements of comprehensive income for 2016, 2015, and 2014:

	December 31, 2016 (52 weeks)																January 3, 2016 (53 weeks)
	Commodity Contracts				Foreign Exchange Contracts				Cross-Currency Contracts				Interest Rate Contracts				Commodity Contracts				Foreign Exchange Contracts				Cross-Currency Contracts				Interest Rate Contracts
	(in millions)
Derivatives designated as hedging instruments:
Cash flow hedges:
Gains/(losses) recognized in other comprehensive income (effective portion)	$	—			$	48			$	—			$	(8	)		$	—			$	73			$	—			$	(111	)
Net investment hedges:
Gains/(losses) recognized in other comprehensive income (effective portion)	—				45				147				—				—				—				736				—
Total gains/(losses) recognized in other comprehensive income (effective portion)	$	—			$	93			$	147			$	(8	)		$	—			$	73			$	736			$	(111	)
Cash flow hedges reclassified to net income/(loss):
Net sales	$	—			$	6			$	—			$	—			$	—			$	(2	)		$	—			$	—
Cost of products sold (effective portion)	—				41				—				—				—				45				—				—
Other expense/(income), net	—				38				—				—				—				1				—				—
Interest expense	—				—				—				(4		)		—				—				—				(239		)
	—				85				—				(4		)		—				44				—				(239		)
Derivatives not designated as hedging instruments:
Gains/(losses) on derivatives recognized in cost of products sold	9				—				—				—				(57		)		—				—				—
Gains/(losses) on derivatives recognized in other expense/(income), net	—				(63		)		(3		)		—				—				92				53				8
	9				(63		)		(3		)		—				(57		)		92				53				8
Total gains/(losses) recognized in statements of income	$	9			$	22			$	(3	)		$	(4	)		$	(57	)		$	136			$	53			$	(231	)

	December 28, 2014 (52 weeks)
	Commodity Contracts				Foreign Exchange Contracts				Cross-Currency Contracts				Interest Rate Contracts
	(in millions)
Derivatives designated as hedging instruments:
Cash flow hedges:
Gains/(losses) recognized in other comprehensive income (effective portion)	$	—			$	21			$	—			$	(289	)
Net investment hedges:
Gains/(losses) recognized in other comprehensive income (effective portion)	—				—				545				—
Total gains/(losses) recognized in other comprehensive income (effective portion)	$	—			$	21			$	545			$	(289	)
Cash flow hedges reclassified to net income/(loss):
Net sales	$	—			$	(1	)		$	—			$	—
Cost of products sold (effective portion)	—				5				—				—
Other expense/(income), net	—				1				—				—
Interest expense	—				—				—				—
	—				5				—				—
Derivatives not designated as hedging instruments:
Gains/(losses) on derivatives recognized in cost of products sold	—				—				—				—
Gains/(losses) on derivatives recognized in other expense/(income), net	—				151				—				—
	—				151				—				—
Total gains/(losses) recognized in statements of income	$	—			$	156			$	—			$	—

Related to our non-derivative, foreign denominated debt instruments designated as net investment hedges, we recognized a pre-tax gain in other comprehensive income/(loss) of $234 million in 2016 and $65 million in 2015.

Note 15. Venezuela - Foreign Currency and Inflation

We have a subsidiary in Venezuela that manufactures and sells a variety of products, primarily in the condiments and sauces and infant/nutrition categories. We apply highly inflationary accounting to the results of our Venezuelan subsidiary and include these results in our consolidated financial statements. Under highly inflationary accounting, the financial statements of our Venezuelan subsidiary are remeasured into our reporting currency (U.S. dollars) based on the legally available exchange rate at which we expect to settle the underlying transactions. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current net income/(loss), rather than accumulated other comprehensive income/(losses) on the balance sheet, until the Venezuelan economy is no longer considered highly inflationary. Certain non-monetary assets and liabilities are recorded at the applicable historical exchange rates.

Our results of operations in Venezuela reflect a controlled subsidiary. We continue to have sufficient currency liquidity and pricing flexibility to run our operations. However, the continuing economic uncertainty, strict labor laws, and evolving government controls over imports, prices, currency exchange and payments present a challenging operating environment. Increased restrictions imposed by the Venezuelan government or further deterioration of the economic environment could impact our ability to control our Venezuelan operations and could lead us to deconsolidate our Venezuelan subsidiary in the future.

At December 31, 2016, there were two exchange rates legally available to us for converting Venezuelan bolivars to U.S. dollars, including:

•	the official exchange rate of BsF10 per U.S. dollar available through the Sistema de Divisa Protegida (“DIPRO”), which is available for purchases and sales of essential items, including food products, and

•	an alternative exchange rate available through the Sistema de Divisa Complementaria (“DICOM”), which is available for all transactions not covered by DIPRO and is a free-floating exchange rate format.

The DICOM rate (formerly the Marginal Currency System “SIMADI”) averaged BsF496 per U.S. dollar in 2016 and was BsF674 per U.S. dollar at December 31, 2016. We have had access to U.S. dollars at DICOM rates in 2016. As of December 31, 2016, we believe that the DICOM rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary.

We have had no settlements at the current official exchange rate of BsF10 per U.S. dollar in 2016. We have had limited access to, and settlements at, the former official exchange rate of BsF6.30 per U.S. dollar in 2016 (as of March 10, 2016, the official exchange rate was devalued to BsF10 per U.S. dollar). We had outstanding requests of $26 million at December 31, 2016 for payment of invoices for the purchase of ingredients and packaging materials for the years 2012 through 2015, all of which were requested for payment at BsF6.30 per U.S. dollar.

Throughout 2016, we remeasured the net monetary assets and operating results of our Venezuelan subsidiary, resulting in a net nonmonetary currency devaluation loss of $24 million in 2016, which was recorded in other expense/(income), net, in the consolidated statement of income. During the second quarter of 2016, the DICOM rate deteriorated significantly, from BsF276 per U.S. dollar as of April 3, 2016 to BsF628 per U.S. dollar as of July 3, 2016. Accordingly, as of July 3, 2016, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, resulting in a $53 million loss to write down property, plant and equipment, net, and prepaid spare parts, which was recorded within cost of products sold in the consolidated statements of income for that period. We continue to monitor the DICOM rate, and our nonmonetary assets being supported by the underlying operations in Venezuela, for impairment. The currency has ranged between BsF628 and BsF676 per U.S. dollar from July 3, 2016 to December 31, 2016. No triggers for impairment resulted from this movement.

In June 2015, due to the continued lack of liquidity and increasing economic uncertainty, we reevaluated the rate used to remeasure the monetary assets and liabilities of our Venezuelan subsidiary. We determined that the DICOM rate was the most appropriate legally available rate. At June 28, 2015, we remeasured the net monetary assets of our Venezuelan subsidiary at the then DICOM rate of BsF197.7 per U.S. dollar, resulting in a nonmonetary currency devaluation loss of $234 million, which was recorded in other expense/(income), net, in the consolidated statements of income for the second quarter of 2015. Additionally, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, which resulted in a $49 million loss to write down inventory to the lower of cost or market, which was recorded in cost of products sold in the consolidated statements of income for the second quarter of 2015. Prior to June 28, 2015, we used the official exchange rate of BsF6.30 per U.S. dollar to translate the results of our Venezuelan subsidiary.

In 2014, we also had limited access to the Complimentary System of Foreign Currency Acquirement (“SICAD”) II foreign exchange mechanism, which was eliminated in 2016. SICAD II was the market through which U.S. dollars were to be obtained for the remittance of dividends. This market had significantly higher foreign exchange rates than those available through the other foreign exchange mechanisms at the time, with published weighted average daily exchange rates of approximately BsF50 per U.S. dollar. In 2014, we converted 164 million bolivars into $3 million U.S. dollars, recognizing a $23 million transactional currency loss, which was recorded in other expense/(income), net, in the consolidated statements of income.

Note 16. Commitments and Contingencies

Legal Proceedings:

We are routinely involved in legal proceedings, claims, and governmental inquiries, inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.

On April 1, 2015, the Commodity Futures Trading Commission (“CFTC”) filed a formal complaint against Mondelēz International (formerly known as Kraft Foods Inc.) and Kraft in the U.S. District Court for the Northern District of Illinois, Eastern Division, related to activities involving the trading of December 2011 wheat futures contracts. The complaint alleges that Mondelēz International and Kraft (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011, (2) violated position limit levels for wheat futures, and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. As previously disclosed by Kraft, these activities arose prior to the October 1, 2012 spin-off of Kraft by Mondelēz International to its shareholders and involve the business now owned and operated by Mondelēz International or its affiliates. The Separation and Distribution Agreement between Kraft and Mondelēz International, dated as of September 27, 2012, governs the allocation of liabilities between Mondelēz International and Kraft and, accordingly, Mondelēz International will predominantly bear the costs of this matter and any monetary penalties or other payments that the CFTC may impose. We do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.

While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.

Leases:

Rental expenses for leases of warehouse, production, and office facilities and equipment were $149 million in 2016, $160 million in 2015, and $102 million in 2014.

Minimum rental commitments under non-cancelable operating leases in effect at December 31, 2016 were (in millions):

2017	$	94
2018	92
2019	77
2020	61
2021	43
Thereafter	107
Total	$	474

Purchase Obligations:

We have purchase obligations for 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. As of December 31, 2016, our take-or-pay purchase obligations were as follows (in millions):

2017	$	1,861
2018	670
2019	369
2020	252
2021	125
Thereafter	366
Total	$	3,643

Redeemable Noncontrolling Interest:

In April 2016, the minority partner in our Brazilian subsidiary, Coniexpress S.A. Industrias Alimenticias (“Coniexpress”), exercised a put option that required us to purchase its remaining 5% equity interest in the subsidiary for $21 million. The redemption value was determined based on a specified formula within the shareholders’ agreement between our Brazilian subsidiary and the minority partner. An adjustment was made to retained earnings to record the carrying value at the maximum redemption value immediately prior to this transaction. As this exercise did not result in a change in control of Coniexpress, it was accounted for as an equity transaction. We now own 100% of Coniexpress.

Note 17. Earnings Per Share

As a result of the stock conversion prior to the 2015 Merger, all per share data, numbers of shares, and numbers of equity awards outstanding were retroactively adjusted for all historical periods presented prior to the 2015 Merger Date. See Note 1, Background and Basis of Presentation, for additional information.

Our earnings per common share (“EPS”) for 2016, 2015, and 2014 were:

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
	(in millions, except per share amounts)
Basic Earnings Per Common Share:
Net income/(loss) attributable to common shareholders	$	3,452			$	(266	)		$	(63	)
Weighted average shares of common stock outstanding	1,217				786				377
Net earnings/(loss)	$	2.84			$	(0.34	)		$	(0.17	)
Diluted Earnings Per Common Share:
Net income/(loss) attributable to common shareholders	$	3,452			$	(266	)		$	(63	)
Weighted average shares of common stock outstanding	1,217				786				377
Effect of dilutive securities:
Equity awards	9				—				—
Weighted average shares of common stock outstanding, including dilutive effect	1,226				786				377
Net earnings/(loss)	$	2.81			$	(0.34	)		$	(0.17	)

We use the treasury stock method to calculate the dilutive effect of outstanding warrants and equity awards in the denominator for diluted earnings per common share. Due to the net loss attributable to common shareholders in 2015 and 2014, the dilutive effects of equity awards and warrants were excluded because their inclusion would have had an anti-dilutive effect on earnings per share. Anti-dilutive shares were 3 million in 2016, 17 million in 2015, and 29 million in 2014.

Note 18. Segment Reporting

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.

We 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 two operating segments: Latin America; and Asia Pacific, Middle East, and Africa (“AMEA”).

In the fourth quarter of 2016, we reorganized our segments to reflect a change in our organizational structure. As a result, the Russia business, which was included within our historical Russia, India, Middle East and Africa (“RIMEA”) operating segment, moved to our Europe reportable segment. The remaining businesses within RIMEA joined our historical Asia Pacific operating segment to form the AMEA operating segment. These changes were effective December 31, 2016. We have reflected these changes for all historical periods presented. Additionally, we have reflected this change in our Integration Program and restructuring expenses disclosed by segment in Note 3, Integration and Restructuring Expenses, and in our goodwill balances disclosed by segment in Note 6, Goodwill and Intangible Assets. This change did not have a material impact on our current or any prior period results.

Additionally, in the fourth quarter of 2016, we determined that our Global Procurement Office (“GPO”), formerly managed by a subsidiary within our Europe segment, would be managed by our global headquarters. This change aligns management of this function with the global nature of the centralized procurement benefits and with our business objective to continue expanding the reach of the GPO. As a result of this change, we have restated our segment results to exclude GPO costs from the Europe segment and to include such costs within general corporate expenses. This change did not impact our Integration Program and restructuring expenses disclosed by segment in Note 3, Integration and Restructuring Expenses, or our goodwill balances disclosed by segment in Note 6, Goodwill and Intangible Assets. This change did not have a material impact on our current or any prior period results.

In the first quarter of 2016, we moved certain historical Kraft export businesses from our United States segment to our Rest of World and Europe segments to align with our long-term go-to-market strategies. We began to manage and report our results reflecting this change in the first quarter of 2016 and have reflected this change in all historical periods presented. This change did not have a material impact on our current or any prior period results. This change did not impact our Integration Program and restructuring expenses disclosed by segment in Note 3, Integration and Restructuring Expenses. See Note 6, Goodwill and Intangible Assets, for the impact on our goodwill balances disclosed by segment.

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 is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying 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/(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’s operating results), impairment losses, gains/(losses) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and losses). 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. There are no pro forma adjustments to any of the numbers disclosed in this note to the consolidated financial statements except for the Segment Adjusted EBITDA reconciliation.

Management does not use assets by segment to evaluate performance or allocate resources. Therefore, we do not disclose assets by segment.

Net sales by segment were (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Net sales:
United States	$	18,641			$	10,943			$	3,615
Canada	2,309				1,437				631
Europe	2,366				2,656				3,233
Rest of World	3,171				3,302				3,443
Total net sales	$	26,487			$	18,338			$	10,922

Segment Adjusted EBITDA was (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
	(in millions)
Segment Adjusted EBITDA:
United States	$	5,862			$	4,690			$	4,421
Canada	642				541				615
Europe	781				938				939
Rest of World	657				742				732
General corporate expenses	(164		)		(172		)		(181		)
Depreciation and amortization (excluding integration and restructuring expenses)	(536		)		(779		)		(924		)
Integration and restructuring expenses	(1,012		)		(1,117		)		(743		)
Merger costs	(30		)		(194		)		(68		)
Amortization of inventory step-up	—				(347		)		—
Unrealized gains/(losses) on commodity hedges	38				41				(79		)
Impairment losses	(53		)		(58		)		(221		)
Gains/(losses) on sale of business	—				21				—
Nonmonetary currency devaluation	(4		)		(57		)		—
Equity award compensation expense (excluding integration and restructuring expenses)	(39		)		(61		)		(108		)
Other pro forma adjustments	—				(1,549		)		(2,815		)
Operating income	6,142				2,639				1,568
Interest expense	1,134				1,321				686
Other expense/(income), net	(15		)		305				79
Income/(loss) before income taxes	$	5,023			$	1,013			$	803

Total depreciation and amortization expense by segment was (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Depreciation and amortization expense:
United States	$	966			$	484			$	191
Canada	56				36				83
Europe	84				86				124
Rest of World	87				85				100
General corporate expenses	144				49				32
Total depreciation and amortization expense	$	1,337			$	740			$	530

Total capital expenditures by segment were (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Capital expenditures:
United States	$	843			$	377			$	146
Canada	30				19				2
Europe	109				106				102
Rest of World	102				99				86
General corporate expenses	163				47				63
Total capital expenditures	$	1,247			$	648			$	399

Concentration of risk:

Our largest customer, Wal-Mart Stores Inc., represented approximately 22% of our net sales in 2016, approximately 20% of our net sales in 2015, and approximately 10% of our net sales in 2014. All of our segments have sales to Wal-Mart Stores Inc.

In 2016, we reorganized the products within our product categories to reflect how we manage our business. We have reflected this change for all historical periods presented. Our net sales by product category were (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Condiments and sauces	$	6,781			$	5,877			$	5,502
Cheese and dairy	5,661				2,795				—
Ambient meals	2,283				1,859				1,543
Frozen and chilled meals	2,251				2,179				1,975
Meats and seafood	2,710				1,480				199
Refreshment beverages	1,529				665				—
Coffee	1,496				710				—
Infant and nutrition	762				902				1,116
Desserts, toppings and baking	980				521				—
Nuts and salted snacks	1,051				562				—
Other	983				788				587
Total net sales	$	26,487			$	18,338			$	10,922

We had significant sales in the United States, Canada, and the United Kingdom. Our net sales by geography were (in millions):

	December 31, 2016 (52 weeks)				January 3, 2016 (53 weeks)				December 28, 2014 (52 weeks)
Net sales:
United States	$	18,641			$	10,943			$	3,615
Canada	2,309				1,437				631
United Kingdom	1,055				1,334				1,549
Other	4,482				4,624				5,127
Total net sales	$	26,487			$	18,338			$	10,922

We had significant long-lived assets in the United States, United Kingdom, and Canada. Long-lived assets include property, plant and equipment, goodwill, trademarks, and other intangibles, net of related depreciation and amortization. Our long-lived assets by geography were (in millions):

	December 31, 2016				January 3, 2016
Long-lived assets:
United States	$	92,243			$	92,881
United Kingdom	5,669				6,756
Canada	6,172				6,021
Other	6,026				6,037
Total long-lived assets	$	110,110			$	111,695

The change in long-lived assets within the United Kingdom from January 3, 2016 to December 31, 2016 is primarily driven by foreign currency exchange rates.

Note 19. Quarterly Financial Data (Unaudited)

Our quarterly financial data for 2016 and 2015 was:

	2016 Quarters
	First				Second				Third				Fourth
	(in millions, except per share data)
Net sales	$	6,570			$	6,793			$	6,267			$	6,857
Gross profit	2,378				2,531				2,218				2,459
Net income/(loss)	900				955				843				944
Net income/(loss) attributable to Kraft Heinz	896				950				842				944
Net income/(loss) attributable to common shareholders	896				770				842				944
Per share data applicable to common shareholders:
Basic earnings/(loss)	0.74				0.63				0.69				0.78
Diluted earnings/(loss)	0.73				0.63				0.69				0.77

	2015 Quarters
	First				Second				Third				Fourth
	(in millions, except per share data)
Net sales	$	2,478			$	2,616			$	6,120			$	7,124
Gross profit	847				882				1,628				2,404
Net income/(loss)	279				(160		)		(120		)		648
Net income/(loss) attributable to Kraft Heinz	276				(164		)		(123		)		645
Net income/(loss) attributable to common shareholders	96				(344		)		(303		)		285
Per share data applicable to common shareholders:
Basic earnings/(loss)	0.26				(0.91		)		(0.27		)		0.23
Diluted earnings/(loss)	0.24				(0.91		)		(0.27		)		0.23

Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the year.

Note 20. Supplemental Financial Information

We fully and unconditionally guarantee the notes issued by our wholly owned operating subsidiary, Kraft Heinz Foods Company. See Note 11, Debt, for additional descriptions of these guarantees. None of our other subsidiaries guarantee these notes.

Set forth below are the condensed consolidating financial statements presenting the results of operations, financial position and cash flows of Kraft Heinz (as parent guarantor), Kraft Heinz Foods Company (as subsidiary issuer of the notes), and the non-guarantor subsidiaries on a combined basis and eliminations necessary to arrive at the total reported information on a consolidated basis. This condensed consolidating financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” This information is not intended to present the financial position, results of operations, and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among the parent guarantor, subsidiary issuer, and the non-guarantor subsidiaries.

The Kraft Heinz Company

Condensed Consolidating Statements of Income

For the Year Ended December 31, 2016

(52 weeks)

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales	$	—			$	17,809			$	9,310			$	(632	)		$	26,487
Cost of products sold	—				11,156				6,377				(632		)		16,901
Gross profit	—				6,653				2,933				—				9,586
Selling, general and administrative expenses	—				970				2,474				—				3,444
Intercompany service fees and other recharges	—				4,624				(4,624		)		—				—
Operating income	—				1,059				5,083				—				6,142
Interest expense	—				1,076				58				—				1,134
Other expense/(income), net	—				144				(159		)		—				(15		)
Income/(loss) before income taxes	—				(161		)		5,184				—				5,023
Provision for/(benefit from) income taxes	—				(372		)		1,753				—				1,381
Equity in earnings of subsidiaries	3,632				3,421				—				(7,053		)		—
Net income/(loss)	3,632				3,632				3,431				(7,053		)		3,642
Net income/(loss) attributable to noncontrolling interest	—				—				10				—				10
Net income/(loss) excluding noncontrolling interest	$	3,632			$	3,632			$	3,421			$	(7,053	)		$	3,632
Comprehensive income/(loss) excluding noncontrolling interest	$	2,675			$	2,675			$	5,717			$	(8,392	)		$	2,675

The Kraft Heinz Company

Condensed Consolidating Statements of Income

For the Year Ended January 3, 2016

(53 weeks)

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales	$	—			$	10,580			$	8,145			$	(387	)		$	18,338
Cost of products sold	—				7,298				5,666				(387		)		12,577
Gross profit	—				3,282				2,479				—				5,761
Selling, general and administrative expenses	—				1,449				1,673				—				3,122
Intercompany service fees and other recharges	—				929				(929		)		—				—
Operating income	—				904				1,735				—				2,639
Interest expense	—				1,221				100				—				1,321
Other expense/(income), net	—				140				165				—				305
Income/(loss) before income taxes	—				(457		)		1,470				—				1,013
Provision for/(benefit from) income taxes	—				(192		)		558				—				366
Equity in earnings of subsidiaries	634				899				—				(1,533		)		—
Net income/(loss)	634				634				912				(1,533		)		647
Net income/(loss) attributable to noncontrolling interest	—				—				13				—				13
Net income/(loss) excluding noncontrolling interest	$	634			$	634			$	899			$	(1,533	)		$	634
Comprehensive income/(loss) excluding noncontrolling interest	$	537			$	537			$	(734	)		$	197			$	537

The Kraft Heinz Company

Condensed Consolidating Statements of Income

For the Year Ended December 28, 2014

(52 weeks)

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales	$	—			$	3,740			$	7,325			$	(143	)		$	10,922
Cost of products sold	—				2,663				5,125				(143		)		7,645
Gross profit	—				1,077				2,200				—				3,277
Selling, general and administrative expenses	—				633				1,076				—				1,709
Intercompany service fees and other recharges	—				(23		)		23				—				—
Operating income	—				467				1,101				—				1,568
Interest expense	—				556				130				—				686
Other expense/(income), net	—				104				(25		)		—				79
Income/(loss) before income taxes	—				(193		)		996				—				803
Provision for/(benefit from) income taxes	—				(156		)		287				—				131
Equity in earnings of subsidiaries	657				694				—				(1,351		)		—
Net income/(loss)	657				657				709				(1,351		)		672
Net income/(loss) attributable to noncontrolling interest	—				—				15				—				15
Net income/(loss) excluding noncontrolling interest	$	657			$	657			$	694			$	(1,351	)		$	657
Comprehensive income/(loss) excluding noncontrolling interest	$	(149	)		$	(149	)		$	(180	)		$	329			$	(149	)

The Kraft Heinz Company

Condensed Consolidating Balance Sheets

As of December 31, 2016

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Cash and cash equivalents	$	—			$	2,830			$	1,374			$	—			$	4,204
Trade receivables	—				12				757				—				769
Receivables due from affiliates	—				712				111				(823		)		—
Dividends due from affiliates	39				—				—				(39		)		—
Sold receivables	—				—				129				—				129
Inventories	—				1,759				925				—				2,684
Short-term lending due from affiliates	—				1,722				2,956				(4,678		)		—
Other current assets	—				2,229				447				(1,709		)		967
Total current assets	39				9,264				6,699				(7,249		)		8,753
Property, plant and equipment, net	—				4,447				2,241				—				6,688
Goodwill	—				11,067				33,058				—				44,125
Investments in subsidiaries	57,358				70,877				—				(128,235		)		—
Intangible assets, net	—				3,364				55,933				—				59,297
Long-term lending due from affiliates	—				1,700				2,000				(3,700		)		—
Other assets	—				501				1,116				—				1,617
TOTAL ASSETS	$	57,397			$	101,220			$	101,047			$	(139,184	)		$	120,480
LIABILITIES AND EQUITY
Commercial paper and other short-term debt	$	—			$	642			$	3			$	—			$	645
Current portion of long-term debt	—				2,032				14				—				2,046
Short-term lending due to affiliates	—				2,956				1,722				(4,678		)		—
Trade payables	—				2,376				1,620				—				3,996
Payables due to affiliates	—				111				712				(823		)		—
Accrued marketing	—				277				472				—				749
Accrued postemployment costs	—				144				13				—				157
Income taxes payable	—				—				1,964				(1,709		)		255
Interest payable	—				401				14				—				415
Dividends payable	39				—				—				—				39
Dividends due to affiliates	—				39				—				(39		)		—
Other current liabilities	—				588				611				—				1,199
Total current liabilities	39				9,566				7,145				(7,249		)		9,501
Long-term debt	—				28,736				977				—				29,713
Long-term borrowings due to affiliates	—				2,000				1,902				(3,902		)		—
Deferred income taxes	—				1,382				19,466				—				20,848
Accrued postemployment costs	—				1,754				284				—				2,038
Other liabilities	—				424				382				—				806
TOTAL LIABILITIES	39				43,862				30,156				(11,151		)		62,906
Redeemable noncontrolling interest	—				—				—				—				—
Total shareholders’ equity	57,358				57,358				70,675				(128,033		)		57,358
Noncontrolling interest	—				—				216				—				216
TOTAL EQUITY	57,358				57,358				70,891				(128,033		)		57,574
TOTAL LIABILITIES AND EQUITY	$	57,397			$	101,220			$	101,047			$	(139,184	)		$	120,480

The Kraft Heinz Company

Condensed Consolidating Balance Sheets

As of January 3, 2016

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Cash and cash equivalents	$	—			$	3,189			$	1,648			$	—			$	4,837
Trade receivables	—				62				809				—				871
Receivables due from affiliates	—				555				319				(874		)		—
Sold receivables	—				554				29								583
Inventories	—				1,741				877				—				2,618
Short-term lending due from affiliates	—				3,657				4,353				(8,010		)		—
Other current assets	—				645				443				(217		)		871
Total current assets	—				10,403				8,478				(9,101		)		9,780
Property, plant and equipment, net	—				4,518				2,006				—				6,524
Goodwill	—				10,976				32,075				—				43,051
Investments in subsidiaries	66,005				73,105				—				(139,110		)		—
Intangible assets, net	—				3,838				58,282				—				62,120
Long-term lending due from affiliates	—				1,700				2,000				(3,700		)		—
Other assets	—				534				964				—				1,498
TOTAL ASSETS	$	66,005			$	105,074			$	103,805			$	(151,911	)		$	122,973
LIABILITIES AND EQUITY
Commercial paper and other short-term debt	$	—			$	—			$	4			$	—			$	4
Current portion of long-term debt	—				65				14				—				79
Short-term lending due to affiliates	—				4,353				3,657				(8,010		)		—
Trade payables	—				1,612				1,232				—				2,844
Payables due to affiliates	—				319				555				(874		)		—
Accrued marketing	—				359				497				—				856
Accrued postemployment costs	—				316				12				—				328
Income taxes payable	—				71				563				(217		)		417
Interest payable	—				386				15				—				401
Dividends payable	—				762				—				—				762
Other current liabilities	—				988				253				—				1,241
Total current liabilities	—				9,231				6,802				(9,101		)		6,932
Long-term debt	—				24,143				1,008				—				25,151
Long-term borrowings due to affiliates	—				2,000				1,905				(3,905		)		—
Deferred income taxes	—				1,278				20,219				—				21,497
Accrued postemployment costs	—				2,147				258				—				2,405
Other liabilities	—				270				482				—				752
TOTAL LIABILITIES	—				39,069				30,674				(13,006		)		56,737
Redeemable noncontrolling interest	—				—				23				—				23
9.00% cumulative compounding preferred stock, Series A	8,320				—				—				—				8,320
Total shareholders’ equity	57,685				66,005				72,900				(138,905		)		57,685
Noncontrolling interest	—				—				208				—				208
TOTAL EQUITY	57,685				66,005				73,108				(138,905		)		57,893
TOTAL LIABILITIES AND EQUITY	$	66,005			$	105,074			$	103,805			$	(151,911	)		$	122,973

The Kraft Heinz Company

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2016

(52 weeks)

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by/(used for) operating activities	$	3,097			$	4,369			$	884			$	(3,112	)		$	5,238
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	—				(923		)		(324		)		—				(1,247		)
Proceeds from net investment hedges	—				104				(13		)		—				91
Net proceeds from/(payments on) intercompany lending activities	—				690				37				(727		)		—
Additional investments in subsidiaries	55				(10		)		—				(45		)		—
Return of capital	8,987				—				—				(8,987		)		—
Other investing activities, net	—				49				(6		)		—				43
Net cash provided by/(used for) investing activities	9,042				(90		)		(306		)		(9,759		)		(1,113		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt	—				(72		)		(14		)		—				(86		)
Proceeds from issuance of long-term debt	—				6,978				3				—				6,981
Debt issuance costs	—				(53		)		—				—				(53		)
Proceeds from issuance of commercial paper	—				6,680				—				—				6,680
Repayments of commercial paper	—				(6,043		)		—				—				(6,043		)
Net proceeds from/(payments on) intercompany borrowing activities	—				(37		)		(690		)		727				—
Dividends paid-Series A Preferred Stock	(180		)		—				—				—				(180		)
Dividends paid-common stock	(3,584		)		(3,764		)		(16		)		3,780				(3,584		)
Redemption of Series A Preferred Stock	(8,320		)		—				—				—				(8,320		)
Other intercompany capital stock transactions	—				(8,374		)		10				8,364				—
Other financing activities, net	(55		)		47				(8		)		—				(16		)
Net cash provided by/(used for) financing activities	(12,139		)		(4,638		)		(715		)		12,871				(4,621		)
Effect of exchange rate changes on cash and cash equivalents	—				—				(137		)		—				(137		)
Cash and cash equivalents:
Net increase/(decrease)	—				(359		)		(274		)		—				(633		)
Balance at beginning of period	—				3,189				1,648				—				4,837
Balance at end of period	$	—			$	2,830			$	1,374			$	—			$	4,204

The Kraft Heinz Company

Condensed Consolidating Statements of Cash Flows

For the Year Ended January 3, 2016

(53 weeks)

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by/(used for) operating activities	$	632			$	1,227			$	1,395			$	(787	)		$	2,467
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	—				(400		)		(248		)		—				(648		)
Proceeds from net investment hedges	—				488				—				—				488
Net proceeds from/(payments on) intercompany lending activities	—				737				(721		)		(16		)		—
Payments to acquire Kraft Foods Group, Inc., net of cash acquired	—				(9,535		)		67				—				(9,468		)
Additional investments in subsidiaries	(10,000		)		—				—				10,000				—
Return of capital	1,570				5				—				(1,575		)		—
Other investing activities, net	—				(66		)		(10		)		—				(76		)
Net cash provided by/(used for) investing activities	(8,430		)		(8,771		)		(912		)		8,409				(9,704		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt	—				(12,284		)		(30		)		—				(12,314		)
Proceeds from issuance of long-term debt	—				14,032				802				—				14,834
Debt issuance costs	—				(94		)		(4		)		—				(98		)
Net proceeds from/(payments on) intercompany borrowing activities	—				721				(737		)		16				—
Proceeds from issuance of common stock to Sponsors	10,000				—				—				—				10,000
Dividends paid-Series A Preferred Stock	(900		)		—				—				—				(900		)
Dividends paid-common stock	(1,302		)		(2,202		)		(155		)		2,357				(1,302		)
Other intercompany capital stock transactions	—				10,000				(5		)		(9,995		)		—
Other financing activities, net	—				19				(56		)		—				(37		)
Net cash provided by/(used for) financing activities	7,798				10,192				(185		)		(7,622		)		10,183
Effect of exchange rate changes on cash and cash equivalents	—				—				(407		)		—				(407		)
Cash and cash equivalents:
Net increase/(decrease)	—				2,648				(109		)		—				2,539
Balance at beginning of period	—				541				1,757				—				2,298
Balance at end of period	$	—			$	3,189			$	1,648			$	—			$	4,837

The Kraft Heinz Company

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 28, 2014

(52 weeks)

(in millions)

	Parent Guarantor				Subsidiary Issuer				Non-Guarantor Subsidiaries				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by/(used for) operating activities	$	578			$	669			$	1,556			$	(663	)		$	2,140
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	—				(211		)		(188		)		—				(399		)
Net proceeds from/(payments on) intercompany lending activities	—				(802		)		(2,479		)		3,281				—
Return of capital	142				—				—				(142		)		—
Other investing activities, net	—				23				27				—				50
Net cash provided by/(used for) investing activities	142				(990		)		(2,640		)		3,139				(349		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt	—				(1,096		)		(7		)		—				(1,103		)
Net proceeds from/(payments on) intercompany borrowing activities	—				2,479				802				(3,281		)		—
Dividends paid-Series A Preferred Stock	(720		)		—				—				—				(720		)
Dividends paid-common stock	—				(720		)		(85		)		805				—
Other financing activities, net	—				12				(9		)		—				3
Net cash provided by/(used for) financing activities	(720		)		675				701				(2,476		)		(1,820		)
Effect of exchange rate changes on cash and cash equivalents	—				—				(132		)		—				(132		)
Cash and cash equivalents:
Net increase/(decrease)	—				354				(515		)		—				(161		)
Balance at beginning of period	—				187				2,272				—				2,459
Balance at end of period	$	—			$	541			$	1,757			$	—			$	2,298