Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Objective:

The following discussion provides an analysis of our financial condition and results of operations from management's perspective and should be read in conjunction with the condensed consolidated financial statements and related notes included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. Our objective is to also provide discussion of material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides an understanding of our financial condition, results of operations, and cash flows.

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.

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

See Note 16, Segment Reporting, in Item 1, Financial Statements, for our financial information by segment.

Acquisitions and Divestitures:

We completed the Hemmer Acquisition in the second quarter of 2022 and the Just Spices Acquisition in the first quarter of 2022, both in our International segment. See Note 4, Acquisitions and Divestitures, in Item 1, Financial Statements, for additional information on our acquisition and divestiture activities.

Conflict Between Russia and Ukraine:

For the three months ended April 1, 2023 and the year ended December 31, 2022, approximately 1% of consolidated net sales, net income/(loss), and Adjusted EBITDA were generated from our business in Russia. As of April 1, 2023, we had approximately 1,100 employees in Russia. We have no operations or employees in Ukraine and insignificant net sales through distributors. Further, due to overall market demand, inflationary pressures, and, in part, to the negative impact of the conflict between Russia and Ukraine on the global economy, we have experienced cost increases globally for certain commodities, including soybean and vegetable oils, energy, and sweeteners, as compared to the prior year period. We will continue to monitor the impact that this conflict has on our business; however, through the first quarter of 2023, the conflict between Russia and Ukraine did not have a material impact on our financial condition, results of operations, or cash flows.

Items Affecting Comparability of Financial Results

Inflation and Supply Chain Impacts:

During the three months ended April 1, 2023, we continued to experience increasing commodity costs and supply chain costs, including procurement and manufacturing costs, largely due to inflationary pressures, as compared to the prior year period. We expect inflation to remain elevated through 2023, moderating in the second half of the year, but to be lower than we experienced in 2022. While these costs have a negative impact on our results of operations, we are currently taking measures to mitigate, and expect to continue to take measures to mitigate, the impact of this inflation through pricing actions and efficiency gains. However, there has been, and we expect that there could continue to be, a difference between the timing of when these mitigative actions impact our results of operations and when the cost inflation is incurred. Additionally, the pricing actions we take have, in some instances, negatively impacted, and could continue to negatively impact, our market share.

Results of Operations

We disclose in this report certain non-GAAP financial measures. These non-GAAP financial measures assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our underlying operations. For additional information and reconciliations to the most closely comparable financial measures presented in our condensed consolidated financial statements, which are calculated in accordance with U.S. GAAP see Non-GAAP Financial Measures.

Consolidated Results of Operations

Summary of Results:

			For the Three Months Ended
			April 1, 2023						March 26, 2022						% Change
			(in millions, except per share data)
Net sales			$	6,489					$	6,045					7.3		%
Operating income/(loss)			1,243						1,115						11.4		%
Net income/(loss)			837						781						7.1		%
Net income/(loss) attributable to common shareholders			836						776						7.7		%
Diluted EPS			0.68						0.63						7.9		%

Net Sales:

			For the Three Months Ended
			April 1, 2023						March 26, 2022						% Change
			(in millions)
Net sales			$	6,489					$	6,045					7.3		%
Organic Net Sales(a)			6,567						6,004						9.4		%

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

Three Months Ended April 1, 2023 Compared to the Three Months Ended March 26, 2022:

Net sales increased 7.3% to $6.5 billion for the three months ended April 1, 2023 compared to $6.0 billion for the three months ended March 26, 2022, including the unfavorable impact of foreign currency (2.1 pp). The impact of acquisitions and divestitures was flat year over year. Organic Net Sales increased 9.4% to $6.6 billion for the three months ended April 1, 2023 compared to $6.0 billion for the three months ended March 26, 2022, primarily driven by higher pricing (14.7 pp), which more than offset unfavorable volume/mix (5.3 pp). Pricing was higher in both segments, while volume/mix was unfavorable in both segments.

Net Income/(Loss):

			For the Three Months Ended
			April 1, 2023						March 26, 2022						% Change
			(in millions)
Operating income/(loss)			$	1,243					$	1,115					11.4		%
Net income/(loss)			837						781						7.1		%
Net income/(loss) attributable to common shareholders			836						776						7.7		%
Adjusted EBITDA(a)			1,480						1,342						10.3		%

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

Three Months Ended April 1, 2023 Compared to the Three Months Ended March 26, 2022:

Operating income/(loss) increased 11.4% to $1.2 billion for the three months ended April 1, 2023 compared to $1.1 billion for the three months ended March 26, 2022, primarily driven by higher pricing, efficiency gains, and prior year non-cash impairment losses. These increases to operating income/(loss) more than offset higher supply chain costs, reflecting inflationary pressure in procurement and manufacturing costs; unfavorable volume/mix; higher commodity costs (mainly in soybean and vegetable oils, energy, and sweeteners); unrealized losses on commodity hedges in the current year period compared to unrealized gains on commodity hedges in the prior year period; higher general corporate expenses; the unfavorable impact of Cyclone Gabrielle in New Zealand in the first quarter of 2023; and the unfavorable impact of foreign currency.

Net income/(loss) increased 7.1% to income of $837 million for the three months ended April 1, 2023 compared to $781 million for the three months ended March 26, 2022. This increase was driven by the operating income/(loss) factors discussed above and lower interest expense, which more than offset unfavorable changes in other expense/(income) and higher tax expense.

• Interest expense was $227 million for the three months ended April 1, 2023 compared to $242 million for the three months ended March 26, 2022. This decrease was primarily due to our 2022 senior note repurchases and repayments, which reduced our aggregate principal amount of senior notes by approximately $1.5 billion.

• 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.

• 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.

Adjusted EBITDA increased 10.3% to $1.5 billion for the three months ended April 1, 2023 compared to $1.3 billion for the three months ended March 26, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher supply chain costs, reflecting inflationary pressure in procurement and manufacturing costs; unfavorable volume/mix; higher commodity costs (mainly in soybean and vegetable oils, energy, and sweeteners); higher general corporate expenses; the unfavorable impact of foreign currency (1.6 pp); and the unfavorable impact of Cyclone Gabrielle in New Zealand in the first quarter of 2023.

Diluted EPS:

			For the Three Months Ended
			April 1, 2023						March 26, 2022						% Change
Diluted EPS			$	0.68					$	0.63					7.9		%
Adjusted EPS(a)			0.68						0.60						13.3		%

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

Three Months Ended April 1, 2023 Compared to the Three Months Ended March 26, 2022:

Diluted EPS increased 7.9% to $0.68 for the three months ended April 1, 2023 compared to $0.63 for the three months ended March 26, 2022, primarily driven by the net income/(loss) factors discussed above.

			For the Three Months Ended
			April 1, 2023						March 26, 2022						$ Change						% Change
Diluted EPS			$	0.68					$	0.63					$	0.05					7.9		%
Restructuring activities			(0.01)						0.01						(0.02)
Unrealized losses/(gains) on commodity hedges			0.01						(0.05)						0.06
Impairment losses			—						0.03						(0.03)
Other losses/(gains) related to acquisitions and divestitures			—						(0.02)						0.02
Adjusted EPS(a)			$	0.68					$	0.60					$	0.08					13.3		%
Key drivers of change in Adjusted EPS(a):
Results of operations															$	0.09
Interest expense															0.01
Other expense/(income)															(0.01)
Effective tax rate															(0.01)
															$	0.08

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

Adjusted EPS increased 13.3% to $0.68 for the three months ended April 1, 2023 compared to $0.60 for the three months ended March 26, 2022. This increase was primarily driven by higher Adjusted EBITDA and lower interest expense, which more than offset unfavorable changes in other expense/(income) and higher taxes on adjusted earnings.

Results of Operations by Segment

Management evaluates segment performance based on several factors, including net sales, Organic 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.

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 other expense/(income) on our condensed consolidated statement of income, as nonmonetary currency devaluation, rather than accumulated other comprehensive income/(losses) on our condensed consolidated balance sheet, until such time as the economy is no longer considered highly inflationary. See Note 2, Significant Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022, for additional information. We apply highly inflationary accounting to the results of our subsidiaries in Venezuela, Argentina, and Turkey, which are all in our International segment.

Net Sales:

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

Organic Net Sales:

			For the Three Months Ended
			April 1, 2023						March 26, 2022
			(in millions)
Organic Net Sales(a):
North America			$	4,911					$	4,601
International			1,656						1,403
Total Organic Net Sales			$	6,567					$	6,004

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

Drivers of the changes in net sales and Organic Net Sales for the three months ended April 1, 2023 compared to the three months ended March 26, 2022 were:

			Net Sales						Currency						Acquisitions and Divestitures						Organic Net Sales						Price						Volume/Mix
For the Three Months Ended
North America			6.2		%				(0.5) pp						0.0 pp						6.7		%				13.2 pp						(6.5) pp
International			11.1		%				(6.7) pp						(0.3) pp						18.1		%				19.3 pp						(1.2) pp
Kraft Heinz			7.3		%				(2.1) pp						0.0 pp						9.4		%				14.7 pp						(5.3) pp

Adjusted EBITDA:

			For the Three Months Ended
			April 1, 2023						March 26, 2022
			(in millions)
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

North America:

			For the Three Months Ended
			April 1, 2023						March 26, 2022						% Change
			(in millions)
Net sales			$	4,885					$	4,601					6.2		%
Organic Net Sales(a)			4,911						4,601						6.7		%
Segment Adjusted EBITDA			1,333						1,173						13.7		%

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

Three Months Ended April 1, 2023 Compared to the Three Months Ended March 26, 2022:

Net sales increased 6.2% to $4.9 billion for the three months ended April 1, 2023 compared to $4.6 billion for the three months ended March 26, 2022, including the unfavorable impact of foreign currency (0.5 pp). Organic Net Sales increased 6.7% to $4.9 billion for the three months ended April 1, 2023 compared to $4.6 billion for the three months ended March 26, 2022, driven by higher pricing (13.2 pp), which more than offset unfavorable volume/mix (6.5 pp). Higher pricing was primarily driven by increases to mitigate rising input costs. Unfavorable volume/mix was primarily due to declines in cheese, meat, refrigerated meal combinations, and ready-to-drink beverages.

Segment Adjusted EBITDA increased 13.7% to $1.3 billion for the three months ended April 1, 2023 compared to $1.2 billion for the three months ended March 26, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher supply chain costs, reflecting inflationary pressure in procurement and manufacturing costs; unfavorable volume/mix; and higher commodity costs (mainly in soybean and vegetable oils and energy).

International:

			For the Three Months Ended
			April 1, 2023						March 26, 2022						% Change
			(in millions)
Net sales			$	1,604					$	1,444					11.1		%
Organic Net Sales(a)			1,656						1,403						18.1		%
Segment Adjusted EBITDA			255						242						5.3		%

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

Three Months Ended April 1, 2023 Compared to the Three Months Ended March 26, 2022:

Net sales increased 11.1% to $1.6 billion for the three months ended April 1, 2023 compared to $1.4 billion for the three months ended March 26, 2022, including the unfavorable impacts of foreign currency (6.7 pp) and acquisitions and divestitures (0.3 pp). Organic Net Sales increased 18.1% to $1.7 billion for the three months ended April 1, 2023 compared to $1.4 billion for the three months ended March 26, 2022, driven by higher pricing (19.3 pp), which more than offset unfavorable volume/mix (1.2 pp). Higher pricing included increases across markets primarily to mitigate rising input costs. Unfavorable volume/mix was primarily due to declines in meals and condiments and sauces in the United Kingdom, declines across categories in Australia, New Zealand, and Russia, and declines in infant nutrition in Italy, which more than offset growth in foodservice.

Segment Adjusted EBITDA increased 5.3% to $255 million for the three months ended April 1, 2023 compared to $242 million for the three months ended March 26, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher supply chain costs, reflecting inflationary pressure in procurement and manufacturing costs; higher commodity costs (mainly in sweeteners and soybean and vegetable oils); unfavorable volume/mix; the unfavorable impact of Cyclone Gabrielle in New Zealand in the first quarter of 2023; and the unfavorable impact of foreign currency (7.4 pp).

Liquidity and Capital Resources

We believe that cash generated from our operating activities, commercial paper programs, and senior unsecured revolving credit facility (the “Senior Credit Facility”) will provide sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations, payment of our anticipated quarterly dividends, planned capital expenditures, restructuring expenditures, and contributions to our postemployment benefit plans for the next 12 months. An additional potential source of liquidity is access to capital markets. We intend to use our cash on hand and commercial paper programs for daily funding requirements.

Acquisitions and Divestitures:

In the first quarter of 2022, we closed the Just Spices Acquisition for cash consideration of approximately $243 million. See Note 4, Acquisitions and Divestitures, in Item 1, Financial Statements, for additional information on our acquisitions and divestitures.

Cash Flow Activity for the Three Months Ended April 1, 2023 Compared to the Three Months Ended March 26, 2022:

Net Cash Provided by/Used for Operating Activities:

Net cash provided by operating activities was $486 million for the three months ended April 1, 2023 compared to $486 million for the three months ended March 26, 2022, as higher Adjusted EBITDA and lower cash outflows for variable compensation in the 2023 period compared to the 2022 period were offset by cash collateral related to our commodity derivative margin requirements, higher cash outflows in accounts payable, unfavorable changes in trade receivables, and higher cash outflows for inventories.

Net Cash Provided by/Used for Investing Activities:

Net cash used for investing activities was $264 million for the three months ended April 1, 2023 compared to $469 million for the three months ended March 26, 2022. This change was primarily driven by payments for the Just Spices Acquisition in 2022, which more than exceeded higher capital expenditures in the current year period. We expect 2023 capital expenditures to be approximately $1.1 billion as compared to 2022 capital expenditures of $916 million. Our 2023 capital expenditures are expected to be primarily driven by capital investments for capacity expansion, maintenance, cost improvement and innovation projects, and technology.

Net Cash Provided by/Used for Financing Activities:

Net cash used for financing activities was $439 million for the three months ended April 1, 2023 compared to $485 million for the three months ended March 26, 2022. This change was primarily due to cash collected in the first quarter of 2023 with respect to our role as collecting agent, under the terms of our accounts receivable factoring program, which had not yet been remitted to the third party financial institution as of April 1, 2023, partially offset by lower cash inflows from short-term borrowing activities. See Note 13, Financing Arrangements, for additional information on our accounts receivable factoring program.

Cash Held by International Subsidiaries:

Of the $826 million cash and cash equivalents on our condensed consolidated balance sheet at April 1, 2023, $600 million was held by international subsidiaries.

Subsequent to January 1, 2018, we consider the unremitted earnings of certain international subsidiaries that impose local country taxes on dividends to be indefinitely reinvested. For those undistributed earnings considered to be indefinitely reinvested, our intent is to reinvest these funds in our international operations, and our current plans do not demonstrate a need to repatriate the accumulated earnings to fund our U.S. cash requirements. The amount of unrecognized deferred tax liabilities for local country withholding taxes that would be owed, if repatriated, related to our 2018 through 2023 accumulated earnings of certain international subsidiaries is approximately $60 million.

Our undistributed historic earnings in foreign subsidiaries through December 31, 2017 are currently not considered to be indefinitely reinvested. Related to these undistributed historic earnings, we had recorded a deferred tax liability of approximately $10 million on approximately $90 million of historic earnings at April 1, 2023 and at December 31, 2022. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed.

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. We estimate that the amounts outstanding under these programs were $866 million at April 1, 2023 and $1.1 billion at December 31, 2022. See Note 13, Financing Arrangements, in Item 1, Financial Statement, for additional information on our trade payables programs.

Borrowing Arrangements:

As of the date of this filing, our long-term debt is rated BBB by S&P Global Ratings (“S&P”) and Fitch Ratings (“Fitch”) and Baa2 by Moody’s Investor Services, Inc. (“Moody’s”), with a stable outlook from all three ratings agencies. Our long-term credit rating was upgraded from BBB- to BBB by Fitch in November 2022 and by S&P in February 2023. Moody’s upgraded our long-term debt credit rating from Baa3 to Baa2 in February 2023.

From time to time, we obtain funding through our commercial paper programs. We had no commercial paper outstanding at April 1, 2023, at December 31, 2022, or during the three months ended April 1, 2023.

Our Senior Credit Facility provides for a revolving commitment of $4.0 billion through July 8, 2027. Subject to certain conditions, we may increase the amount of revolving commitments and/or add tranches of term loans in a combined aggregate amount of up to $1.0 billion.

No amounts were drawn on our Senior Credit Facility at April 1, 2023 or December 31, 2022, or on either the Senior Credit Facility or our previous credit facility during the three months ended April 1, 2023 or March 26, 2022.

Our credit agreement contains customary representations, warranties, and covenants that are typical for these types of facilities and could, upon the occurrence of certain events of default, restrict our ability to access our Senior Credit Facility. We were in compliance with all financial covenants as of April 1, 2023.

Long-Term Debt:

Our long-term debt, including the current portion, was $20.1 billion at April 1, 2023 and December 31, 2022.

We have aggregate principal amounts of senior notes of approximately 750 million euros maturing in June 2023.

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.

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.

See Note 14, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information on our long-term debt activity and Note 16, Debt, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our borrowing arrangements and long-term debt.

Equity and Dividends:

We paid dividends on our common stock of $491 million for the three months ended April 1, 2023 and $490 million for the three months ended March 26, 2022. Additionally, in the second quarter of 2023, our Board of Directors declared a cash dividend of $0.40 per share of common stock, which is payable on June 30, 2023 to stockholders of record on June 6, 2023.

The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects, and other factors that our Board of Directors deems relevant to its analysis and decision making.

Aggregate Contractual Obligations:

There were no material changes to our aggregate contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Supplemental Guarantor Information:

The Kraft Heinz Company (as the “Parent Guarantor”) fully and unconditionally guarantees all the senior unsecured registered notes (collectively, the “KHFC Senior Notes”) issued by Kraft Heinz Foods Company (“KHFC”), our 100% owned operating subsidiary (the “Guarantee”). See Note 16, Debt, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional descriptions of these guarantees.

The payment of the principal, premium, and interest on the KHFC Senior Notes is fully and unconditionally guaranteed on a senior unsecured basis by the Parent Guarantor, pursuant to the terms and conditions of the applicable indenture. None of the Parent Guarantor’s subsidiaries guarantee the KHFC Senior Notes.

The Guarantee is the Parent Guarantor’s senior unsecured obligation and is: (i) pari passu in right of payment with all of the Parent Guarantor’s existing and future senior indebtedness; (ii) senior in right of payment to all of the Parent Guarantor’s future subordinated indebtedness; (iii) effectively subordinated to all of the Parent Guarantor’s existing and future secured indebtedness to the extent of the value of the assets secured by that indebtedness; and (iv) effectively subordinated to all existing and future indebtedness and other liabilities of the Parent Guarantor’s subsidiaries.

The KHFC Senior Notes are obligations exclusively of KHFC and the Parent Guarantor and not of any of the Parent Guarantor’s other subsidiaries. Substantially all of the Parent Guarantor’s operations are conducted through its subsidiaries. The Parent Guarantor’s other subsidiaries are separate legal entities that have no obligation to pay any amounts due under the KHFC Senior Notes or to make any funds available therefor, whether by dividends, loans, or other payments. Except to the extent the Parent Guarantor is a creditor with recognized claims against its subsidiaries, all claims of creditors (including trade creditors) and holders of preferred stock, if any, of its subsidiaries will have priority with respect to the assets of such subsidiaries over its claims (and therefore the claims of its creditors, including holders of the KHFC Senior Notes). Consequently, the KHFC Senior Notes are structurally subordinated to all liabilities of the Parent Guarantor’s subsidiaries and any subsidiaries that it may in the future acquire or establish. The obligations of the Parent Guarantor will terminate and be of no further force or effect in the following circumstances: (i) (a) KHFC’s exercise of its legal defeasance option or, except in the case of a guarantee of any direct or indirect parent of KHFC, covenant defeasance option in accordance with the applicable indenture, or KHFC’s obligations under the applicable indenture have been discharged in accordance with the terms of the applicable indenture or (b) as specified in a supplemental indenture to the applicable indenture; and (ii) the Parent Guarantor has delivered to the trustee an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable indenture have been complied with. The Guarantee is limited by its terms to an amount not to exceed the maximum amount that can be guaranteed by the Parent Guarantor without rendering the Guarantee voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

The following tables present summarized financial information for the Parent Guarantor and KHFC (as subsidiary issuer of the KHFC Senior Notes) (together, the “Obligor Group”), on a combined basis after the elimination of all intercompany balances and transactions between the Parent Guarantor and subsidiary issuer and investments in any subsidiary that is a non-guarantor.

Certain amounts in the supplemental guarantor summarized balance sheets as of December 31, 2022 have been adjusted to correct a presentation error related to intercompany balances. The adjustments decreased current assets due from affiliates, non-current assets due from affiliates, and current liabilities due to affiliates. There was no change to the supplemental guarantor summarized statement of income, and these disclosure corrections had no effect on our condensed consolidated financial statements. We concluded that these items were not material.

Summarized Statement of Income

			For the Three Months Ended
			April 1, 2023
Net sales			$	4,212
Gross profit(a)			1,508
Intercompany service fees and other recharges			1,028
Operating income/(loss)			272
Equity in earnings/(losses) of subsidiaries			802
Net income/(loss)			836
Net income/(loss) attributable to common shareholders			836

(a) For the three months ended April 1, 2023, the Obligor Group recorded $91 million of net sales to the non-guarantor subsidiaries and $11 million of purchases from the non-guarantor subsidiaries.

Summarized Balance Sheets

			April 1, 2023						December 31, 2022
ASSETS
Current assets			$	4,291					$	4,218
Current assets due from affiliates(a)			759						645
Non-current assets			5,473						5,445
Goodwill			8,823						8,823
Intangible assets, net			2,078						2,102
Non-current assets due from affiliates(b)			—						—
LIABILITIES
Current liabilities			$	4,887					$	4,926
Current liabilities due to affiliates(a)			993						920
Non-current liabilities			21,417						21,372
Non-current liabilities due to affiliates(b)			593						591

(a) Represents receivables and short-term lending due from and payables and short-term lending due to non-guarantor subsidiaries.

(b) Represents long-term lending due from and long-term borrowings due to non-guarantor subsidiaries.

Commodity Trends

We purchase and use large quantities of commodities, including dairy products, meat products, soybean and vegetable oils, tomatoes, coffee beans, sugar and other sweeteners, other fruits and vegetables, corn products, wheat products, and potatoes, to manufacture our products. In addition, we purchase and use significant quantities of resins, fiberboard, metals, and cardboard to package our products, and we use electricity, diesel fuel, and natural gas in the manufacturing and distribution of our products. We continuously monitor worldwide supply and cost trends of these commodities.

During the three months ended April 1, 2023, we experienced higher commodity costs as compared to the prior year period, primarily for soybean and vegetable oils, energy (including diesel fuel, electricity, and natural gas), and sweeteners, which more than offset lower commodity costs for meat. These increased commodity costs were primarily driven by overall market demand, inflationary pressures, and, in part, by the negative impact of the conflict between Russia and Ukraine on the global economy. We manage commodity cost volatility primarily through pricing and risk management strategies. As a result of these risk management strategies, our commodity costs may not immediately correlate with market price trends.

See our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on how we manage commodity costs.

Critical Accounting Estimates

Our significant accounting policies are described in Note 2, Significant Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments, and assumptions. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our other critical accounting estimates and assumptions.

New Accounting Pronouncements

See Note 3, New Accounting Standards, in Item 1, Financial Statements, for a discussion of new accounting pronouncements.

Contingencies

See Note 14, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for a discussion of our contingencies.

Non-GAAP Financial Measures

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP.

To supplement the condensed consolidated financial statements prepared in accordance with U.S. GAAP, we have presented Organic Net Sales, Adjusted EBITDA, and Adjusted EPS, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable U.S. GAAP financial measures, such as net sales, net income/(loss), diluted EPS, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our underlying operations. We believe that Organic Net Sales, Adjusted EBITDA, and Adjusted EPS provide important comparability of underlying operating results, allowing investors and management to assess the Company’s operating performance on a consistent basis.

Management believes that presenting our non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results. We believe that the presentation of these non-GAAP financial measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting our business than could be obtained absent these disclosures.

Organic Net Sales is defined as net sales excluding, when they occur, the impact of currency, acquisitions and divestitures, and a 53rd week of shipments. We calculate the impact of currency on net sales by holding exchange rates constant at the previous year’s exchange rate, with the exception of highly inflationary subsidiaries, for which we calculate the previous year’s results using the current year’s exchange rate.

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 losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities).

Adjusted EPS is defined as diluted EPS excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, losses/(gains) on the sale of a business, other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g., remeasurement gains and losses), debt prepayment and extinguishment (benefit)/costs, and certain significant discrete income tax items (e.g., U.S. and non-U.S. tax reform), and including, when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis.

The Kraft Heinz Company

Reconciliation of Net Sales to Organic Net Sales

(dollars in millions)

(Unaudited)

			Net Sales						Currency						Acquisitions and Divestitures						Organic Net Sales						Price						Volume/Mix
Three Months Ended April 1, 2023
North America			$	4,885					$	(26)					$	—					$	4,911
International			1,604						(78)						26						1,656
Kraft Heinz			$	6,489					$	(104)					$	26					$	6,567
Three Months Ended March 26, 2022
North America			$	4,601					$	—					$	—					$	4,601
International			1,444						16						25						1,403
Kraft Heinz			$	6,045					$	16					$	25					$	6,004

Year-over-year growth rates
North America			6.2		%				(0.5) pp						0.0 pp						6.7		%				13.2 pp						(6.5) pp
International			11.1		%				(6.7) pp						(0.3) pp						18.1		%				19.3 pp						(1.2) pp
Kraft Heinz			7.3		%				(2.1) pp						0.0 pp						9.4		%				14.7 pp						(5.3) pp

The Kraft Heinz Company

Reconciliation of Net Income/(Loss) to Adjusted EBITDA

(dollars in millions)

(Unaudited)

			For the Three Months Ended
			April 1, 2023						March 26, 2022
Net income/(loss)			$	837					$	781
Interest expense			227						242
Other expense/(income)			(35)						(98)
Provision for/(benefit from) income taxes			214						190
Operating income/(loss)			1,243						1,115
Depreciation and amortization (excluding restructuring activities)			217						217
Divestiture-related license income			(13)						(14)
Restructuring activities			(10)						19
Deal costs			—						8
Unrealized losses/(gains) on commodity hedges			11						(92)
Impairment losses			—						55
Certain non-ordinary course legal and regulatory matters			1						—
Equity award compensation expense			31						34
Adjusted EBITDA			$	1,480					$	1,342

The Kraft Heinz Company

Reconciliation of Diluted EPS to Adjusted EPS

(Unaudited)

			For the Three Months Ended
			April 1, 2023						March 26, 2022
Diluted EPS			$	0.68					$	0.63
Restructuring activities(a)			(0.01)						0.01
Unrealized losses/(gains) on commodity hedges(b)			0.01						(0.05)
Impairment losses(c)			—						0.03
Other losses/(gains) related to acquisitions and divestitures(d)			—						(0.02)
Adjusted EPS			$	0.68					$	0.60

(a) Gross expenses/(income) included in restructuring activities were income of $8 million ($7 million after-tax) for the three months ended April 1, 2023 and expenses of $19 million ($14 million after tax) for the three months ended March 26, 2022 and were recorded in the following income statement line items:

• Cost of products sold included expenses of $6 million for the three months ended April 1, 2023 and $4 million for the three months ended March 26, 2022; and

• SG&A included income of $16 million for the three months ended April 1, 2023 and expenses of $15 million for the three months ended March 26, 2022.

• Other expense/(income) included expenses of $2 million for the three months ended April 1, 2023.

(b) Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges were expenses of $11 million ($9 million after-tax) for the three months ended April 1, 2023 and income of $92 million ($69 million after-tax) for the three months ended March 26, 2022 and were recorded in cost of products sold.

(c) Gross impairment losses included the following:

• Income related to goodwill impairment of $11 million ($11 million after-tax) for the three months ended March 26, 2022, which were recorded in SG&A;

• Property, plant and equipment, net asset impairment losses of $66 million ($50 million after-tax) for the three months ended March 26, 2022, which were recorded in cost of products sold.

(d) Gross expenses/(income) included in other losses/(gains) related to acquisitions and divestitures were income of $38 million ($29 million after-tax) for the three months ended March 26, 2022 and were recorded in other expense/(income).