Item 1. Financial Statements.

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Item 1. Financial Statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Income

(in millions, except per share data)

(Unaudited)


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Net sales	$	6,489	$	6,045
Cost of products sold	4,376		4,114
Gross profit	2,113		1,931
Selling, general and administrative expenses, excluding impairment losses	870		827
Goodwill impairment losses	—		(11)

Selling, general and administrative expenses	870		816
Operating income/(loss)	1,243		1,115
Interest expense	227		242
Other expense/(income)	(35)		(98)
Income/(loss) before income taxes	1,051		971
Provision for/(benefit from) income taxes	214		190
Net income/(loss)	837		781
Net income/(loss) attributable to noncontrolling interest	1		5
Net income/(loss) attributable to common shareholders	$	836	$	776
Per share data applicable to common shareholders:
Basic earnings/(loss)	$	0.68	$	0.63
Diluted earnings/(loss)	0.68		0.63

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(Unaudited)


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Net income/(loss)	$	837	$	781
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments	119		(33)
Net deferred gains/(losses) on net investment hedges	(24)		52
Amounts excluded from the effectiveness assessment of net investment hedges	6		9
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(6)		(8)
Net deferred gains/(losses) on cash flow hedges	(15)		(34)
Amounts excluded from the effectiveness assessment of cash flow hedges	4		7
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	(16)		22

Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(2)		(4)
Total other comprehensive income/(loss)	66		11
Total comprehensive income/(loss)	903		792
Comprehensive income/(loss) attributable to noncontrolling interest	5		4
Comprehensive income/(loss) attributable to common shareholders	$	898	$	788

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Balance Sheets

(in millions, except per share data)

(Unaudited)


	April 1, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	826	$	1,040
Trade receivables (net of allowances of $45 at April 1, 2023 and $46 at December 31, 2022)	2,286		2,120
Inventories	4,016		3,651
Prepaid expenses	329		240
Other current assets	755		842
Assets held for sale	4		4
Total current assets	8,216		7,897
Property, plant and equipment, net	6,776		6,740
Goodwill	30,888		30,833
Intangible assets, net	42,665		42,649
Other non-current assets	2,398		2,394
TOTAL ASSETS	$	90,943	$	90,513
LIABILITIES AND EQUITY
Commercial paper and other short-term debt	$	2	$	6
Current portion of long-term debt	840		831
Trade payables	4,804		4,848
Accrued marketing	758		749
Interest payable	315		264

Other current liabilities	2,235		2,330

Total current liabilities	8,954		9,028
Long-term debt	19,263		19,233
Deferred income taxes	10,162		10,152
Accrued postemployment costs	145		144
Long-term deferred income	1,465		1,477
Other non-current liabilities	1,601		1,609
TOTAL LIABILITIES	41,590		41,643
Commitments and Contingencies (Note 14)
Redeemable noncontrolling interest	40		40
Equity:
Common stock, $0.01 par value (5,000 shares authorized; 1,245 shares issued and 1,227 shares outstanding at April 1, 2023; 1,243 shares issued and 1,225 shares outstanding at December 31, 2022)	12		12
Additional paid-in capital	51,910		51,834
Retained earnings/(deficit)	831		489
Accumulated other comprehensive income/(losses)	(2,748)		(2,810)
Treasury stock, at cost (18 shares at April 1, 2023 and 18 shares at December 31, 2022)	(852)		(847)
Total shareholders' equity	49,153		48,678
Noncontrolling interest	160		152
TOTAL EQUITY	49,313		48,830
TOTAL LIABILITIES AND EQUITY	$	90,943	$	90,513

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Equity

(in millions)

(Unaudited)


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity
Balance at December 31, 2022	$	12	$	51,834	$	489	$	(2,810)	$	(847)	$	152	$	48,830
Net income/(loss) excluding redeemable noncontrolling interest	—		—		836		—		—		1		837
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		62		—		4		66
Dividends declared-common stock ($0.40 per share)	—		—		(494)		—		—		—		(494)
Exercise of stock options, issuance of other stock awards, and other	—		76		—		—		(5)		3		74
Balance at April 1, 2023	$	12	$	51,910	$	831	$	(2,748)	$	(852)	$	160	$	49,313


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity
Balance at December 25, 2021	$	12	$	53,379	$	(1,682)	$	(1,824)	$	(587)	$	150	$	49,448
Net income/(loss) excluding redeemable noncontrolling interest	—		—		776		—		—		4		780
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		12		—		(1)		11
Dividends declared-common stock ($0.40 per share)	—		(492)		—		—		—		—		(492)
Exercise of stock options, issuance of other stock awards, and other	—		67		1		—		(18)		—		50
Balance at March 26, 2022	$	12	$	52,954	$	(905)	$	(1,812)	$	(605)	$	153	$	49,797

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Cash Flows

(in millions)

(Unaudited)


	For the Three Months Ended
	April 1, 2023		March 26, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	837	$	781
Adjustments to reconcile net income/(loss) to operating cash flows:
Depreciation and amortization	220		220
Amortization of postemployment benefit plans prior service costs/(credits)	(3)		(4)
Divestiture-related license income	(13)		(14)
Equity award compensation expense	31		34
Deferred income tax provision/(benefit)	(3)		23
Postemployment benefit plan contributions	(6)		(7)
Goodwill and intangible asset impairment losses	—		(11)
Nonmonetary currency devaluation	3		4
Loss/(gain) on sale of business	1		1

Other items, net	29		(69)
Changes in current assets and liabilities:
Trade receivables	(151)		(123)
Inventories	(406)		(382)
Accounts payable	(32)		6
Other current assets	(53)		(91)
Other current liabilities	32		118
Net cash provided by/(used for) operating activities	486		486
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(266)		(214)
Payments to acquire business, net of cash acquired	—		(241)

Proceeds from sale of business, net of cash disposed and working capital adjustments	—		(20)
Other investing activities, net	2		6
Net cash provided by/(used for) investing activities	(264)		(469)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(1)		(9)






Dividends paid	(491)		(490)
Other financing activities, net	53		14
Net cash provided by/(used for) financing activities	(439)		(485)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	4		2
Cash, cash equivalents, and restricted cash
Net increase/(decrease)	(213)		(466)
Balance at beginning of period	1,041		3,446
Balance at end of period	$	828	$	2,980

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Notes to Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). In management’s opinion, these interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary to fairly state our results for the periods presented.

We operate on a 52- or 53-week fiscal year ending on the last Saturday in December in each calendar year. Unless the context requires otherwise, references to years and quarters contained herein pertain to our fiscal years and fiscal quarters. Our 2023 fiscal year is scheduled to be a 52-week period ending on December 30, 2023, and our 2022 fiscal year was a 53-week period that ended on December 31, 2022.

The condensed consolidated balance sheet data at December 31, 2022 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These statements should be read in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2022. The results for interim periods are not necessarily indicative of future or annual results.

Principles of Consolidation

The condensed consolidated financial statements include The Kraft Heinz Company and all of our controlled subsidiaries. All intercompany transactions are eliminated.

Reportable Segments

We manage and report our operating results through two reportable segments defined by geographic region: North America and International.

Use of Estimates

We prepare our condensed consolidated financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates, and assumptions that affect the reported amount of assets, liabilities, reserves, and expenses. These accounting policy elections, estimates, and assumptions are based on our best estimates and judgments. We evaluate our policy elections, estimates, and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates to be reasonable given the current facts available. We adjust our policy elections, estimates, and assumptions when facts and circumstances dictate. Market volatility, including foreign currency exchange rates, increases the uncertainty inherent in our estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from estimates. 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 condensed consolidated financial statements.

Reclassifications

We made reclassifications and adjustments to certain previously reported financial information to conform to our current period presentation.

Held for Sale

At April 1, 2023 and December 31, 2022, we classified certain assets as held for sale in our condensed consolidated balance sheet, primarily relating to land use rights across the globe.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents include term deposits with banks, money market funds, and all highly liquid investments with original maturities of three months or less. The fair value of cash equivalents approximates the carrying amount. Cash and cash equivalents that are legally restricted as to withdrawal or usage are classified in other current assets or other non-current assets, as applicable, on the condensed consolidated balance sheets. At April 1, 2023, we had restricted cash recorded in other current assets of $1 million and in other non-current assets of $1 million. At December 31, 2022, we had restricted cash recorded in other non-current assets of $1 million. Total cash, cash equivalents, and restricted cash was $828 million at April 1, 2023 and $1,041 million at December 31, 2022.

Note 2. Significant Accounting Policies

There were no significant changes to our accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Note 3. New Accounting Standards

Accounting Standards Adopted in the Current Year

Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations:

In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-04 to add disclosure requirements relative to supplier financing programs under ASC 405, Liabilities. The guidance requires entities that maintain supplier financing programs to provide information in their financial statements about their use of supplier finance programs and their effect on the entity’s working capital, liquidity, and cash flows. Specifically, the amendment requires entities to disclose the key terms of their programs, amounts outstanding, balance sheet presentation, and a rollforward of amounts outstanding during the annual period. Only the amount outstanding at the end of the period is required to be disclosed in interim periods. We adopted this ASU when it became effective in the first quarter of our fiscal year 2023, except for the rollforward requirement, which is effective in fiscal year 2024. The adoption of this ASU did not have a significant impact on our financial statements and related disclosures.

Note 4. Acquisitions and Divestitures

Acquisitions

Hemmer Acquisition:

On March 31, 2022 (the “Hemmer Acquisition Date”), we acquired a majority of the outstanding equity interests of Companhia Hemmer Indústria e Comércio (“Hemmer”), a Brazilian food and beverage manufacturing company focused on the condiments and sauces category, from certain third-party shareholders (the “Hemmer Acquisition”).

The Hemmer Acquisition was accounted for under the acquisition method of accounting for business combinations. Total cash consideration related to the Hemmer Acquisition was approximately 1.3 billion Brazilian reais (approximately $279 million at the Hemmer Acquisition Date). A noncontrolling interest was recognized at fair value, which was determined to be the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets, as of the Hemmer Acquisition Date. As of the Hemmer Acquisition Date, we acquired 94% of the outstanding shares of Hemmer. In the third quarter of 2022, we completed the redemption of the remaining outstanding shares and own 100% of the controlling interest in Hemmer.

We entered into foreign exchange derivative contracts to economically hedge the foreign currency exposure related to the cash consideration for the Hemmer Acquisition. See Note 11, Financial Instruments, for additional information.

We utilized fair values at the Hemmer Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Hemmer Acquisition became final during the first quarter of 2023.

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


	Initial Allocation(a)		Adjustments		Final Allocation
Cash	$	1	$	—	$	1
Trade receivables	13		—		13
Inventories	17		—		17
Other current assets	2		—		2
Property, plant and equipment, net	14		—		14
Identifiable intangible assets	122		—		122
Other non-current assets	13		4		17
Short-term debt	(9)		—		(9)
Trade payables	(11)		—		(11)
Other current liabilities	(31)		—		(31)
Long-term debt	(11)		—		(11)
Other non-current liabilities	(44)		—		(44)
Net assets acquired	76		4		80
Noncontrolling interest	(16)		—		(16)
Goodwill on acquisition	219		(4)		215
Total consideration	$	279	$	—	$	279

(a) As reported in Note 4, Acquisitions and Divestitures, to our condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the three months ended June 25, 2022.

The Hemmer Acquisition preliminarily resulted in $219 million of non-tax deductible goodwill relating principally to Hemmer’s long-term experience and large presence operating in emerging markets. In the fourth quarter of 2022, a portion of the goodwill became tax deductible following the merger of Hemmer into our existing legal entity structure. This goodwill was assigned to the Latin America (“LATAM”) reporting unit within our International segment. In the fourth quarter of 2022, certain insignificant measurement period adjustments were made to the initial allocation, and the final amount of goodwill was adjusted to $215 million.

The purchase price allocation to identifiable intangible assets acquired in the Hemmer Acquisition was:


	Fair Value (in millions of dollars)		Weighted Average Life (in years)
Definite-lived trademarks	$	101	13
Customer-related assets	21		15
Total	$	122

We valued trademarks using the relief from royalty method and customer-related assets using the distributor method. Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each 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’s plans, and market comparables.

We used carrying values as of the Hemmer Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.

Just Spices Acquisition:

On January 18, 2022 (the “Just Spices Acquisition Date”), we acquired 85% of the shares of Just Spices GmbH (“Just Spices”), a German-based company focused on direct-to-consumer sales of premium spice blends, from certain third-party shareholders (the “Just Spices Acquisition”).

The Just Spices Acquisition was accounted for under the acquisition method of accounting for business combinations. Total cash consideration related to the Just Spices Acquisition was approximately 214 million euros (approximately $243 million at the Just Spices Acquisition Date). A noncontrolling interest was recognized at fair value, which was determined to be the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets, as of the Just Spices Acquisition Date. Under the terms of certain transaction agreements, Just Spices’ other equity holders each have a put option to require us to purchase the remaining equity interests beginning three years after the Just Spices Acquisition Date. If the put option is not exercised, we have a call option to acquire the remaining equity interests of Just Spices. Considering the contractual terms related to the noncontrolling interest, it is classified as redeemable noncontrolling interest on our condensed consolidated balance sheet.

Subsequent to the Just Spices Acquisition, the redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for the net income/(loss) attributable to the noncontrolling interest.

We utilized fair values at the Just Spices Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Just Spices Acquisition was final as of December 31, 2022.

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


	Final Allocation
Cash	$	2
Trade receivables	4
Inventories	7
Other current assets	9
Property, plant and equipment, net	1
Identifiable intangible assets	172
Other non-current assets	7
Trade payables	(10)
Other current liabilities	(12)
Other non-current liabilities	(54)
Net assets acquired	126
Redeemable noncontrolling interest	(39)
Goodwill on acquisition	156
Total consideration	$	243

The Just Spices Acquisition preliminarily resulted in $167 million of non-tax deductible goodwill relating principally to Just Spices’ social media presence. This goodwill was assigned to the Continental Europe reporting unit within our International segment. In 2022, certain insignificant measurement period adjustments were made to the initial allocation, and the final amount of goodwill was adjusted to $156 million.

The purchase price allocation to identifiable intangible assets acquired in the Just Spices Acquisition was:


	Fair Value (in millions of dollars)		Weighted Average Life (in years)
Definite-lived trademarks	$	72	10
Customer-related assets	100		15
Total	$	172

We used carrying values as of the Just Spices Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.

Deal Costs:

We incurred insignificant deal costs for the three months ended April 1, 2023 and the three months ended March 26, 2022 related to our acquisitions and divestitures. We recognized these deal costs in selling, general and administrative expenses (“SG&A”).

Note 5. Restructuring Activities

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our restructuring activities.

Restructuring Activities:

We have restructuring programs globally, which are focused primarily on reducing our overall cost structure and streamlining our organizational design. For the three months ended April 1, 2023, we eliminated approximately 335 positions related to these programs. As of April 1, 2023, we expect to eliminate approximately 100 additional positions during the remainder of 2023, primarily in our International segment. For the three months ended April 1, 2023, restructuring activities resulted in income of $8 million and included $2 million of asset-related costs and a benefit of $10 million in other implementation costs. Restructuring activities resulted in expenses of $19 million for the three months ended March 26, 2022.

Our net liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP was (in millions):


	Severance and Employee Benefit Costs		Other Exit Costs		Total
Balance at December 31, 2022	$	28	$	11	$	39

Cash payments	(10)		(1)		(11)
Non-cash utilization	(2)		(1)		(3)
Balance at April 1, 2023	$	16	$	9	$	25

We expect the liability for severance and employee benefit costs as of April 1, 2023 to be paid by the end of 2023. The liability for other exit costs primarily relates to lease obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2024 and 2026.

Total Expenses/(Income):

Total expense/(income) related to restructuring activities, by income statement caption, were (in millions):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Severance and employee benefit costs - Cost of products sold	$	2	$	(3)
Severance and employee benefit costs - SG&A	(4)		13
Severance and employee benefit costs - Other expense/(income)	2		—
Asset-related costs - Cost of products sold	2		4

Other costs - Cost of products sold	2		3
Other costs - SG&A	(12)		2

	$	(8)	$	19

We do not include our restructuring activities within Segment Adjusted EBITDA (as defined in Note 16, Segment Reporting). The pre-tax impact of allocating such expenses/(income) to our segments would have been (in millions):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
North America	$	6	$	20
International	(1)		(2)
General corporate expenses	(13)		1
	$	(8)	$	19

Note 6. Inventories

Inventories consisted of the following (in millions):


	April 1, 2023		December 31, 2022
Packaging and ingredients	$	965	$	1,032
Spare parts	213		208
Work in process	330		334
Finished products	2,508		2,077
Inventories	$	4,016	$	3,651

Note 7. Goodwill and Intangible Assets

Goodwill:

Changes in the carrying amount of goodwill, by segment, were (in millions):


	North America		International		Total
Balance at December 31, 2022	$	27,685	$	3,148	$	30,833





Translation adjustments and other	3		52		55
Balance at April 1, 2023	$	27,688	$	3,200	$	30,888

As of April 1, 2023, we maintain 11 reporting units, seven of which comprise our goodwill balance. These seven reporting units had an aggregate goodwill carrying amount of $30.9 billion at April 1, 2023. As of their latest impairment test, our reporting units with 20% or less fair value over carrying amount had an aggregate goodwill carrying amount of $16.4 billion and included Taste, Meals, and Away From Home (“TMA”), Canada and North America Coffee (“CNAC”), and Continental Europe; and our reporting units with between 20-50% fair value over carrying amount had an aggregate goodwill carrying amount of $14.5 billion and included Fresh, Beverages, and Desserts (“FBD”), Northern Europe, Asia, and LATAM.

Accumulated impairment losses to goodwill were $11.3 billion as of April 1, 2023 and December 31, 2022.

No events occurred during the three months ended April 1, 2023 or the three months ended March 26, 2022 that indicated it was more likely than not that our goodwill was impaired.

Additional Goodwill Considerations

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 requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. Our current expectations also include certain assumptions that could be negatively impacted if we are unable to meet our pricing expectations in relation to inflation. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to goodwill impairments.

Our reporting units that were impaired in 2022 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, reporting units that have 20% or less excess fair value over carrying amount as of their latest impairment test have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining reporting units have more than 20% excess fair value over carrying amount as of their latest impairment test, these amounts are also susceptible to impairments if any assumptions, estimates, or market factors significantly change in the future.

Indefinite-lived intangible assets:

Changes in the carrying amount of indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):


Balance at December 31, 2022	$	38,552



Translation adjustments and other	68
Balance at April 1, 2023	$	38,620

Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $38.6 billion at April 1, 2023. As of their latest impairment test, brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of $16.6 billion, brands with between 20-50% fair value over carrying amount had an aggregate carrying amount of $2.5 billion, and brands that had over 50% fair value over carrying amount had an aggregate carrying amount of $19.4 billion.

No events occurred during the three months ended April 1, 2023 or the three months ended March 26, 2022 that indicated it was more likely than not that any brand was impaired.

Additional Indefinite-Lived Intangible Asset Considerations

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. Our current expectations also include certain assumptions that could be negatively impacted if we are unable to meet our pricing expectations in relation to inflation. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our brands might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to intangible asset impairments.

Our brands that were impaired in 2022 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other individual brands that have 20% or less excess fair value over carrying amount as of their latest impairment test have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining brands have more than 20% excess fair value over carrying amount as of their latest impairment test, these amounts are also susceptible to impairments if any assumptions, estimates, or market factors significantly change in the future.

Definite-lived intangible assets:

Definite-lived intangible assets were (in millions):


	April 1, 2023						December 31, 2022
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks	$	2,225	$	(672)	$	1,553	$	2,223	$	(649)	$	1,574
Customer-related assets	3,698		(1,216)		2,482		3,690		(1,177)		2,513
Other	14		(4)		10		13		(3)		10
	$	5,937	$	(1,892)	$	4,045	$	5,926	$	(1,829)	$	4,097

Amortization expense for definite-lived intangible assets was $62 million for the three months ended April 1, 2023 and $64 million for the three months ended March 26, 2022. Aside from amortization expense, the change in definite-lived intangible assets from December 31, 2022 to April 1, 2023 primarily reflects the impact of foreign currency.

We estimate that amortization expense related to definite-lived intangible assets will be approximately $250 million in 2023 and each of the following five years.

Note 8. Income Taxes

The provision for income taxes consists of provisions for federal, state, and non-U.S. 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 goodwill impairment and other items on the effective tax rate are affected by income/(loss) before income taxes. Further, 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. Our quarterly income tax provision is determined based on our estimated full year effective tax rate, adjusted for tax attributable to infrequent or unusual items, which are recognized on a discrete period basis in the income tax provision for the period in which they occur.

Our effective tax rate for the three months ended April 1, 2023 was an expense of 20.3% on pre-tax income. Our effective tax rate was favorably impacted by the geographic mix of pre-tax income in various non-U.S. jurisdictions.

Our effective tax rate for the three months ended March 26, 2022 was an expense of 19.6% on pre-tax income. Our effective tax rate was favorably impacted by the geographic mix of pre-tax income in various non-U.S. jurisdictions and the impact of certain net discrete items, primarily the reversal of uncertain tax position reserves in certain foreign jurisdictions. The year over year increase was due primarily to the impact of changes in uncertain tax position reserves.

Other Income Tax Matters:

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, we are currently under examination for income taxes by the Internal Revenue Service (“IRS”) for the years 2018 and 2019. We are continuing to respond to Information Document Requests. We received a draft economist report and expect to receive a Notice of Proposed Adjustment relating to transfer pricing with our foreign subsidiaries asserting that our U.S. taxable income should have been higher in 2018 and 2019, which would result in additional U.S. tax expense for 2018 and 2019 plus interest and potential penalties. We strongly disagree with the IRS’s suggested position, believe that our tax positions are properly supported, and intend to vigorously contest the position taken by the IRS and pursue all available administrative and judicial remedies. We continue to maintain our operating model and believe our income tax reserves are appropriate for all open tax years and that final adjudication of this matter will not have a material impact on our results of operations and cash flows. However, the ultimate outcome of this matter is uncertain, and if we are required to pay the IRS additional U.S. taxes, interest, and potential penalties, our results of operations and cash flows could be materially affected.

On August 16, 2022, the Inflation Reduction Act was signed into law in the United States. We are currently evaluating the law and do not expect the Inflation Reduction Act to have a significant impact on our financial statements, including our annual estimated effective tax rate.

Note 9. Employees’ Stock Incentive Plans

Stock Options:

Our stock option activity and related information was:


	Number of Stock Options	Weighted Average Exercise Price (per share)
Outstanding at December 31, 2022	9,559,063	$	46.80
Granted	794,301	38.40
Forfeited	(200,449)	56.49
Exercised	(1,161,560)	35.58
Outstanding at April 1, 2023	8,991,355	47.29

The aggregate intrinsic value of stock options exercised during the period was insignificant for the three months ended April 1, 2023.

Restricted Stock Units:

Our restricted stock unit (“RSU”) activity and related information was:


	Number of Units	Weighted Average Grant Date Fair Value (per share)
Outstanding at December 31, 2022	9,330,718	$	34.36
Granted	2,319,570	38.42
Forfeited	(78,684)	36.27
Vested	(1,576,924)	35.32
Outstanding at April 1, 2023	9,994,680	35.13

The aggregate fair value of RSUs that vested during the period was $61 million for the three months ended April 1, 2023.

Performance Share Units:

Our performance share unit (“PSU”) activity and related information was:


	Number of Units	Weighted Average Grant Date Fair Value (per share)
Outstanding at December 31, 2022	4,018,654	$	32.15
Granted	2,234,387	33.33
Forfeited	(47,673)	34.35
Vested	(47,948)	22.25
Outstanding at April 1, 2023	6,157,420	32.48

The aggregate fair value of PSUs that vested during the period was insignificant for the three months ended April 1, 2023.

Note 10. Postemployment Benefits

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our postemployment-related accounting policies.

Pension Plans

Components of Net Pension Cost/(Benefit):

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


	For the Three Months Ended
	U.S. Plans				Non-U.S. Plans
	April 1, 2023		March 26, 2022		April 1, 2023		March 26, 2022
Service cost	$	—	$	1	$	2	$	4
Interest cost	36		24		15		10
Expected return on plan assets	(49)		(48)		(21)		(19)

Amortization of unrecognized losses/(gains)	—		—		4		—


Special/contractual termination benefits	—		—		2		—

Net pension cost/(benefit)	$	(13)	$	(23)	$	2	$	(5)

We present all non-service cost components of net pension cost/(benefit) within other expense/(income) on our condensed consolidated statements of income.

Employer Contributions:

Related to our non-U.S. pension plans, we contributed $3 million during the three months ended April 1, 2023 and plan to make further contributions of approximately $7 million during the remainder of 2023. We did not contribute to our U.S. pension plans during the three months ended April 1, 2023 and do not plan to make contributions during the remainder of 2023. Estimated future contributions take into consideration current economic conditions, which at this time are expected to have minimal impact on expected contributions for the remainder of 2023. Our actual contributions and plans may change due to many factors, including changes in tax, employee benefit, or other laws and regulations, tax deductibility, significant differences between expected and actual pension asset performance or interest rates, or other factors.

Postretirement Plans

Components of Net Postretirement Cost/(Benefit):

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


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Service cost	$	1	$	1
Interest cost	9		5
Expected return on plan assets	(14)		(14)
Amortization of prior service costs/(credits)	(3)		(4)
Amortization of unrecognized losses/(gains)	(4)		(4)

Net postretirement cost/(benefit)	$	(11)	$	(16)

We present all non-service cost components of net postretirement cost/(benefit) within other expense/(income) on our condensed consolidated statements of income.

Employer Contributions:

During the three months ended April 1, 2023, we contributed $3 million to our postretirement benefit plans. We plan to make further contributions of approximately $9 million to our postretirement benefit plans during the remainder of 2023. Estimated future contributions take into consideration current economic conditions, which at this time are expected to have minimal impact on expected contributions for the remainder of 2023. Our actual contributions and plans may change due to many factors, including changes in tax, employee benefit, or other laws and regulations, tax deductibility, significant differences between expected and actual postretirement plan asset performance or interest rates, or other factors.

Note 11. Financial Instruments

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our overall risk management strategies, our use of derivatives, and our related accounting policies.

Derivative Volume:

The notional values of our outstanding derivative instruments were (in millions):


	Notional Amount
	April 1, 2023		December 31, 2022
Commodity contracts	$	1,043	$	1,166
Foreign exchange contracts	2,931		3,139
Cross-currency contracts	6,336		6,336
Interest rate contracts	400		—

Fair Value of Derivative Instruments:

The fair values and the levels within the fair value hierarchy of derivative instruments recorded on the condensed consolidated balance sheets were (in millions):


	April 1, 2023
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Total Fair Value
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	—	$	—	$	30	$	13	$	30	$	13
Cross-currency contracts(b)	—		—		231		182		231		182
Interest rate contracts(c)	—		—		—		3		—		3
Derivatives not designated as hedging instruments:
Commodity contracts(d)	26		81		6		4		32		85
Foreign exchange contracts(a)	—		—		22		23		22		23

Total fair value	$	26	$	81	$	289	$	225	$	315	$	306

(a) At April 1, 2023, the fair value of our derivative assets was recorded in other current assets ($50 million) and other non-current assets ($2 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($34 million) and other non-current liabilities ($2 million).

(b) At April 1, 2023, the fair value of our derivative assets was recorded in other current assets ($125 million) and other non-current assets ($106 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($57 million) and other non-current liabilities ($125 million).

(d) At April 1, 2023, the fair value of our derivative assets was recorded in other current assets and the fair value of derivative liabilities was recorded in other current liabilities.


	December 31, 2022
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Total Fair Value
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	—	$	—	$	40	$	10	$	40	$	10
Cross-currency contracts(b)	—		—		236		183		236		183
Derivatives not designated as hedging instruments:
Commodity contracts(c)	33		61		—		15		33		76
Foreign exchange contracts(a)	—		—		33		25		33		25
Total fair value	$	33	$	61	$	309	$	233	$	342	$	294

(a) At December 31, 2022, the fair value of our derivative assets was recorded in other current assets ($70 million) and other non-current assets ($3 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($33 million) and other non-current liabilities ($2 million).

(b) At December 31, 2022, the fair value of our derivative assets was recorded in other current assets ($132 million) and other non-current assets ($104 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($59 million) and other non-current liabilities ($124 million).

(c) At December 31, 2022, the fair value of our derivative assets was recorded in other current assets and the fair value of derivative liabilities was recorded in other current liabilities.

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 condensed consolidated balance sheets. If the derivative financial instruments had been netted on the condensed consolidated balance sheets, the asset and liability positions each would have been reduced by $203 million at April 1, 2023 and $222 million at December 31, 2022. We had posted collateral related to commodity derivative margin requirements of $72 million at April 1, 2023 and $43 million at December 31, 2022, which were included in prepaid expenses on our condensed consolidated balance sheets.

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 swaps, foreign exchange forwards, options, and swaps, cross-currency swaps, and treasury lock agreements. Commodity swaps 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 and swaps are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Foreign exchange options are valued using an income approach based on a Black-Scholes-Merton formula. This formula uses present value techniques and reflects the time value and intrinsic value based on observable market rates. Cross-currency swaps are valued based on observable market spot and swap rates. Treasury lock agreements are valued based on forward U.S. Treasury interest rates.

We did not have any Level 3 financial assets or liabilities in any period presented.

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

Net Investment Hedging:

At April 1, 2023, we had the following items designated as net investment hedges:

Non-derivative foreign-denominated debt with principal amounts of €650 million and £400 million; and
Cross-currency contracts with notional amounts of C$1.4 billion ($1.0 billion), €1.9 billion ($2.1 billion), JPY9.6 billion ($67 million), and CNH500 million ($68 million)

We periodically use non-derivative instruments such as non-U.S. dollar financing transactions or non-U.S. dollar assets or liabilities, including intercompany loans, to hedge the exposure of changes in underlying foreign currency denominated subsidiary net assets, and they are designated as net investment hedges. At April 1, 2023, we had euro intercompany loans with an aggregate notional amount of $108 million designated as net investment hedges.

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 fair value movements on the effective portion of our cross-currency contracts and foreign exchange contracts and remeasurements of our foreign-denominated debt.

Cash Flow Hedge Coverage:

At April 1, 2023, we had entered into foreign exchange contracts designated as cash flow hedges for periods not exceeding the next two years, cross-currency contracts designated as cash flow hedges for periods not exceeding the next six years, and interest rate contracts designated as cash flow hedges for periods not exceeding two months.

Deferred Hedging Gains and Losses on Cash Flow Hedges:

Based on our valuation at April 1, 2023 and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized gains during the next 12 months on foreign currency cash flow hedges to be approximately $20 million and on cross-currency cash flow hedges to be insignificant. Additionally, we expect transfers to net income/(loss) of unrealized losses on interest rate cash flow hedges during the next 12 months to be insignificant.

Acquisition Hedging:

We entered into foreign exchange derivative contracts to economically hedge the foreign currency exposure related to the cash consideration for the Hemmer Acquisition. For the three months ended March 26, 2022, the related derivative gains were $38 million, which were recorded within other expense/(income). These gains were classified as other losses/(gains) related to acquisitions and divestitures. These derivative contracts settled in our second quarter of 2022. See Note 4, Acquisitions and Divestitures, for additional information related to the Hemmer Acquisition.

Derivative Impact on the Statements of Comprehensive Income:

The following table presents the pre-tax amounts of derivative gains/(losses) deferred into accumulated other comprehensive income/(losses) and the income statement line item that will be affected when reclassified to net income/(loss) (in millions):


Accumulated Other Comprehensive Income/(Losses) Component	Gains/(Losses) Recognized in Other Comprehensive Income/(Losses) Related to Derivatives Designated as Hedging Instruments				Location of Gains/(Losses) When Reclassified to Net Income/(Loss)
	For the Three Months Ended
	April 1, 2023		March 26, 2022
Cash flow hedges:

Foreign exchange contracts	$	(4)	$	(9)		Cost of products sold
Foreign exchange contracts (excluded component)	(2)		—			Cost of products sold


Cross-currency contracts	(1)		(31)			Other expense/(income)
Cross-currency contracts (excluded component)	6		8			Other expense/(income)
Cross-currency contracts	(6)		(7)			Interest expense
Interest rate contracts	(3)		—			Interest expense
Net investment hedges:
Foreign exchange contracts	1		(1)			Other expense/(income)


Cross-currency contracts	(12)		35			Other expense/(income)
Cross-currency contracts (excluded component)	8		11			Interest expense
Total gains/(losses) recognized in statements of comprehensive income	$	(13)	$	6

Derivative Impact on the Statements of Income:

The following tables present the pre-tax amounts of derivative gains/(losses) reclassified from accumulated other comprehensive income/(losses) to net income/(loss) and the affected income statement line items (in millions):


	For the Three Months Ended
	April 1, 2023				March 26, 2022
	Cost of products sold		Interest expense		Other expense/(income)		Cost of products sold		Interest expense		Other expense/(income)
Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded	$	4,376	$	227	$	(35)	$	4,114	$	242	$	(98)

Gains/(losses) related to derivatives designated as hedging instruments:
Cash flow hedges:
Foreign exchange contracts	$	10	$	—	$	—	$	(6)	$	—	$	—
Foreign exchange contracts (excluded component)	(3)		—		—		(1)		—		—

Cross-currency contracts	—		(6)		14		—		(7)		(35)
Cross-currency contracts (excluded component)	—		—		6		—		—		8
Net investment hedges:

Foreign exchange contracts (excluded component)	—		—		—		—		1		—
Cross-currency contracts (excluded component)	—		8		—		—		9		—
Gains/(losses) related to derivatives not designated as hedging instruments:
Commodity contracts	(47)		—		—		139		—		—
Foreign exchange contracts	—		—		(12)		—		—		38

Total gains/(losses) recognized in statements of income	$	(40)	$	2	$	8	$	132	$	3	$	11

Non-Derivative Impact on Statements of Comprehensive Income:

Related to our non-derivative foreign-denominated debt instruments designated as net investment hedges, we recognized pre-tax losses of $20 million for the three months ended April 1, 2023 and pre-tax gains of $32 million for the three months ended March 26, 2022. These amounts were recognized in other comprehensive income/(loss).

Note 12. Accumulated Other Comprehensive Income/(Losses)

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


	Foreign Currency Translation Adjustments		Net Postemployment Benefit Plan Adjustments		Net Cash Flow Hedge Adjustments		Total
Balance as of December 31, 2022	$	(2,845)	$	(30)	$	65	$	(2,810)
Foreign currency translation adjustments	115		—		—		115
Net deferred gains/(losses) on net investment hedges	(24)		—		—		(24)
Amounts excluded from the effectiveness assessment of net investment hedges	6		—		—		6
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(6)		—		—		(6)
Net deferred gains/(losses) on cash flow hedges	—		—		(15)		(15)
Amounts excluded from the effectiveness assessment of cash flow hedges	—		—		4		4
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	—		—		(16)		(16)

Net postemployment benefit losses/(gains) reclassified to net income/(loss)	—		(2)		—		(2)
Total other comprehensive income/(loss)	91		(2)		(27)		62
Balance as of April 1, 2023	$	(2,754)	$	(32)	$	38	$	(2,748)

The gross amount and related tax benefit/(expense) recorded in, and associated with, each component of other comprehensive income/(loss) were as follows (in millions):


	For the Three Months Ended
	April 1, 2023						March 26, 2022
	Before Tax Amount		Tax		Net of Tax Amount		Before Tax Amount		Tax		Net of Tax Amount
Foreign currency translation adjustments	$	115	$	—	$	115	$	(32)	$	—	$	(32)
Net deferred gains/(losses) on net investment hedges	(31)		7		(24)		66		(14)		52
Amounts excluded from the effectiveness assessment of net investment hedges	8		(2)		6		11		(2)		9
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(8)		2		(6)		(10)		2		(8)
Net deferred gains/(losses) on cash flow hedges	(14)		(1)		(15)		(47)		13		(34)
Amounts excluded from the effectiveness assessment of cash flow hedges	4		—		4		8		(1)		7
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	(21)		5		(16)		41		(19)		22

Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(3)		1		(2)		(8)		4		(4)

The amounts reclassified from accumulated other comprehensive income/(losses) were as follows (in millions):


Accumulated Other Comprehensive Income/(Losses) Component	Reclassified from Accumulated Other Comprehensive Income/(Losses) to Net Income/(Loss)				Affected Line Item in the Statements of Income
	For the Three Months Ended
	April 1, 2023		March 26, 2022
Losses/(gains) on net investment hedges:

Foreign exchange contracts(a)	$	—	$	(1)		Interest expense
Cross-currency contracts(a)	(8)		(9)			Interest expense
Losses/(gains) on cash flow hedges:
Foreign exchange contracts(b)	(7)		7			Cost of products sold


Cross-currency contracts(b)	(20)		27			Other expense/(income)
Cross-currency contracts(b)	6		7			Interest expense

Losses/(gains) on hedges before income taxes	(29)		31
Losses/(gains) on hedges, income taxes	7		(17)
Losses/(gains) on hedges	$	(22)	$	14
Losses/(gains) on postemployment benefits:
Amortization of unrecognized losses/(gains)(c)	$	—	$	(4)
Amortization of prior service costs/(credits)(c)	(3)		(4)


Losses/(gains) on postemployment benefits before income taxes	(3)		(8)
Losses/(gains) on postemployment benefits, income taxes	1		4
Losses/(gains) on postemployment benefits	$	(2)	$	(4)

(a) Represents recognition of the excluded component in net income/(loss).

(b) Includes amortization of the excluded component and the effective portion of the related hedges.

(c) These components are included in the computation of net periodic postemployment benefit costs. See Note 10, Postemployment Benefits, for additional information.

In this note we have excluded activity and balances related to noncontrolling interest due to their insignificance. This activity was primarily related to foreign currency translation adjustments.

Note 13. Financing Arrangements

Product Financing Arrangements:

We enter into various product financing arrangements to facilitate supply from our vendors. Balance sheet classification is based on the nature of the arrangements. We have concluded that our obligations to our suppliers, including amounts due and scheduled payment terms, are impacted by their participation in the program and therefore we classify amounts outstanding within other current liabilities on our condensed consolidated balance sheets. We had approximately $71 million at April 1, 2023 and approximately $87 million at December 31, 2022 on our condensed consolidated balance sheets related to these arrangements.

Transfers of Financial Assets:

Since 2020, we have had a nonrecourse accounts receivable factoring program whereby certain eligible receivables are sold to third party financial institutions in exchange for cash. The program provides us with an additional means for managing liquidity. Under the terms of the arrangement, we act as the collecting agent on behalf of the financial institutions to collect amounts due from customers for the receivables sold. We account for the transfer of receivables as a true sale at the point control is transferred through derecognition of the receivable on our condensed consolidated balance sheet. Receivables sold under this accounts receivable factoring program were approximately $100 million during the three months ended April 1, 2023, with $100 million outstanding as of April 1, 2023. The incremental costs of factoring receivables under this arrangement were insignificant for the three months ended April 1, 2023. No receivables were sold under this accounts receivable factoring program during the three months ended March 26, 2022, and there was an insignificant amount outstanding as of December 31, 2022. The proceeds from the sales of receivables are included in cash flows from operating activities on the condensed consolidated statement of cash flows. As collecting agent on the sold receivables, we had $68 million of cash collected that was not yet remitted to the third party financial institutions as of April 1, 2023. This obligation is reported within other current liabilities on the condensed consolidated balance sheet as of April 1, 2023 and within cash flows from financing activities on the condensed consolidated statement of cash flows for the three months ended April 1, 2023. As of December 31, 2022, we had an insignificant amount of cash collected and not yet remitted to the bank.

Trade Payables Programs:

In order to manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. Our current payment terms with our suppliers, which we deem to be commercially reasonable, generally range from zero to 200 days. We also maintain agreements with third party administrators that allow participating suppliers to track payment obligations from us, and, at the sole discretion of the supplier, sell one or more of those payment obligations to participating financial institutions. We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. We pledged no assets in connection with our trade payable programs. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. All amounts due to participating suppliers are paid to the third party on the original invoice due dates, regardless of whether a particular invoice was sold. Supplier participation in these agreements is voluntary. We estimate that the amounts outstanding under these programs were $866 million at April 1, 2023 and $1.1 billion at December 31, 2022. The amounts were included in trade payables on our condensed consolidated balance sheets.

Note 14. Commitments, Contingencies, and Debt

Legal Proceedings

We are involved in legal proceedings, claims, and governmental inquiries, inspections, or investigations (“Legal Matters”) arising in the ordinary course of our 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 the Legal Matters that are currently pending will have a material adverse effect on our financial condition, results of operations, or cash flows.

Class Actions and Stockholder Derivative Actions:

The Kraft Heinz Company and certain of our current and former officers and directors are currently defendants in a consolidated securities class action lawsuit pending in the United States District Court for the Northern District of Illinois, Union Asset Management Holding AG, et al. v. The Kraft Heinz Company, et al. The consolidated amended class action complaint, which was filed on August 14, 2020 and also names 3G Capital, Inc. and several of its subsidiaries and affiliates (the “3G Entities”) as defendants, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, based on allegedly materially false or misleading statements and omissions in public statements, press releases, investor presentations, earnings calls, Company documents, and SEC filings regarding the Company’s business, financial results, and internal controls, and further alleges the 3G Entities engaged in insider trading and misappropriated the Company’s material, non-public information. In February 2023, the parties to the litigation reached a preliminary settlement agreement. Based upon our current estimate for the ultimate resolution of this matter, in the fourth quarter of 2022, we recorded a net expense of $210 million within SG&A in our consolidated statements of income. This expense contemplates the Company’s estimated liability after insurance recoveries and contributions from other defendants. The Company’s estimated liability and the insurance recoveries are reflected in current liabilities and current assets on the condensed consolidated balance sheets at December 31, 2022 and April 1, 2023. While it is possible that the ultimate amount of our liability in connection with this settlement could be different than the amount accrued, we believe that any difference between that ultimate liability and the amount already accrued will not have a material impact on our financial condition, results of operations, or cash flows. Any eventual final settlement agreement will be subject to approval by the United States District Court for the Northern District of Illinois.

Certain of The Kraft Heinz Company’s current and former officers and directors and the 3G Entities are also named as defendants in a stockholder derivative action, In re Kraft Heinz Shareholder Derivative Litigation, which had been previously consolidated in the United States District Court for the Western District of Pennsylvania, and is now pending in the United States District Court for the Northern District of Illinois. The court appointed lead plaintiffs and plaintiffs’ counsel on October 21, 2021, and lead plaintiffs filed a consolidated amended complaint on November 22, 2021. The consolidated amended complaint asserts state law claims for alleged breaches of fiduciary duties and unjust enrichment, as well as federal claims for contribution for alleged violations of Sections 10(b) and 21D of the Exchange Act and Rule 10b-5 promulgated thereunder, based on allegedly materially false or misleading statements and omissions in public statements and SEC filings, and for implementing cost cutting measures that allegedly damaged the Company. The plaintiffs seek damages in an unspecified amount, attorneys’ fees, and other relief. The defendants filed a motion to dismiss the consolidated amended complaint, which motion the court granted, without prejudice, on March 31, 2023. The court granted plaintiffs leave to file any consolidated second amended complaint on or before May 1, 2023, which deadline the parties have agreed to extend to May 31, 2023.

Certain of The Kraft Heinz Company’s current and former officers and directors and the 3G Entities are named as defendants in two stockholder derivative actions pending in the Delaware Court of Chancery, Datnoff, et al. v. Behring, et al., which was filed on May 6, 2022, and Felicetti, et al. v. Behring, et al., which was filed on March 6, 2023. The complaints allege state law claims and contend that the Company’s Board of Directors wrongfully refused plaintiffs’ demands to pursue legal action against the named defendants. Specifically, the complaints allege that certain of the Company’s current and former officers and directors breached their fiduciary duties to the Company by purportedly making materially misleading statements and omissions regarding the Company’s financial performance and the impairment of its goodwill and intangible assets. The complaints further allege that the 3G Entities and certain of the Company’s current and former officers and directors breached their fiduciary duties by engaging in insider trading and misappropriating the Company’s material, non-public information, or aided and abetted such alleged breaches of fiduciary duty. The complaints seek relief against the defendants, principally in the form of damages, disgorgement of all profits obtained from the alleged insider trading, contribution and indemnification, and an award of attorneys’ fees and costs.

We intend to vigorously defend against these lawsuits; however, we cannot reasonably estimate the potential range of loss, if any, due to the early stage of these proceedings.

Debt

We may from time to time seek to retire or purchase our outstanding debt through redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately negotiated transactions, Rule 10b5-1 plans, or otherwise. Cash payments related to debt extinguishment are classified as cash outflows from financing activities on the condensed consolidated statements of cash flows. Any gains or losses on extinguishment of debt are recognized in interest expense on the condensed consolidated statements of income.

Borrowing Arrangements:

See Note 16, Debt, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for information on our borrowing arrangements.

Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all financial covenants as of April 1, 2023.

Debt Repayments:

In March 2022, we repaid $6 million aggregate principal amount of senior notes that matured in the period.

Fair Value of Debt:

At April 1, 2023, the aggregate fair value of our total debt was $19.4 billion as compared with a carrying value of $20.1 billion. At December 31, 2022, the aggregate fair value of our total debt was $18.7 billion as compared with a carrying value of $20.1 billion. Our short-term debt had a carrying value that approximated its fair value at April 1, 2023 and December 31, 2022. 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 15. Earnings Per Share

Our earnings per common share (“EPS”) were:


	For the Three Months Ended
	April 1, 2023		March 26, 2022
	(in millions, except per share data)
Basic Earnings Per Common Share:
Net income/(loss) attributable to common shareholders	$	836	$	776
Weighted average shares of common stock outstanding	1,226		1,225
Net earnings/(loss)	$	0.68	$	0.63
Diluted Earnings Per Common Share:
Net income/(loss) attributable to common shareholders	$	836	$	776
Weighted average shares of common stock outstanding	1,226		1,225
Effect of dilutive equity awards	8		9
Weighted average shares of common stock outstanding, including dilutive effect	1,234		1,234
Net earnings/(loss)	$	0.68	$	0.63

We use the treasury stock method to calculate the dilutive effect of outstanding equity awards in the denominator for diluted EPS. Anti-dilutive shares were 7 million for the three months ended April 1, 2023 and 8 million for the three months ended March 26, 2022.

Note 16. Segment Reporting

We manage and report our operating results through two reportable segments defined by geographic region: North America and International.

Management evaluates segment performance based on several factors, including net sales and Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, we exclude, when they occur, the impacts of divestiture-related license income, restructuring activities, deal 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, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities). 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. Management also uses Segment Adjusted EBITDA to allocate resources.

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):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Net sales:
North America	$	4,885	$	4,601
International	1,604		1,444
Total net sales	$	6,489	$	6,045

Segment Adjusted EBITDA was (in millions):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Segment Adjusted EBITDA:
North America	$	1,333	$	1,173
International	255		242
General corporate expenses	(108)		(73)
Depreciation and amortization (excluding restructuring activities)	(217)		(217)
Divestiture-related license income	13		14
Restructuring activities	10		(19)
Deal costs	—		(8)
Unrealized gains/(losses) on commodity hedges	(11)		92
Impairment losses	—		(55)
Certain non-ordinary course legal and regulatory matters	(1)		—
Equity award compensation expense	(31)		(34)
Operating income/(loss)	1,243		1,115
Interest expense	227		242
Other expense/(income)	(35)		(98)
Income/(loss) before income taxes	$	1,051	$	971

Net sales by platform were (in millions):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Taste Elevation	$	2,142	$	1,830
Fast Fresh Meals	1,373		1,358
Easy Meals Made Better	1,341		1,238
Real Food Snacking	295		315
Flavorful Hydration	490		455
Easy Indulgent Desserts	224		217
Other	624		632
Total net sales	$	6,489	$	6,045

Net sales by product category were (in millions):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Condiments and sauces	$	2,169	$	1,827
Cheese and dairy	917		885
Ambient foods	749		722
Frozen and chilled foods	719		674
Meats and seafood	595		628
Refreshment beverages	489		456
Coffee	220		214
Infant and nutrition	93		104
Desserts, toppings, and baking	259		246

Other	279		289
Total net sales	$	6,489	$	6,045

Note 17. Other Financial Data

Condensed Consolidated Statements of Income Information

Other expense/(income) consists of the following (in millions):


	For the Three Months Ended
	April 1, 2023		March 26, 2022
Amortization of postemployment benefit plans prior service costs/(credits)	$	(3)	$	(4)
Net pension and postretirement non-service cost/(benefit)(a)	(22)		(46)
Loss/(gain) on sale of business	1		1
Interest income	(6)		(5)
Foreign exchange losses/(gains)	6		(32)
Derivative losses/(gains)	(8)		(11)
Other miscellaneous expense/(income)	(3)		(1)
Other expense/(income)	$	(35)	$	(98)

(a) Excludes amortization of postemployment benefit plans prior service costs/(credits).

We present all non-service cost components of net pension cost/(benefit) and net postretirement cost/(benefit) within other expense/(income) on our condensed consolidated statements of income. See Note 10, Postemployment Benefits, for additional information on these components, including any curtailments and settlements, as well as information on our prior service costs/(credits) amortization. See Note 11, Financial Instruments, for information related to our derivative impacts.

Other expense/(income) was $35 million of income for the three months ended April 1, 2023 compared to $98 million of income for the three months ended March 26, 2022. This change was primarily driven by a $6 million net foreign exchange loss in the first quarter of 2023 compared to a $32 million net foreign exchange gain in the first quarter of 2022 and a $24 million decrease in non-cash net pension and postretirement non-service benefits compared to the prior year period.

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