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.

Following certain organizational changes announced on November 1, 2023, we will be evaluating the potential impact on our reportable segments. We expect that any change to our reportable segments will be effective in early 2024.

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 nine months ended September 30, 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 September 30, 2023, less than 1% of consolidated total assets were located in Russia and we had approximately 1,100 employees in Russia. We have no operations or employees in Ukraine and insignificant net sales through distributors. We will continue to monitor the impact that this conflict has on our business; however, through the third 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 nine months ended September 30, 2023, we experienced increased supply chain costs, including procurement and manufacturing costs, largely due to inflationary pressures, as compared to the prior year period. We expect inflation to moderate through the remainder of 2023 and to be lower than we experienced in 2022. While these costs have a negative impact on our results of operations, we have taken measures to mitigate the impact of this inflation through pricing actions, efficiency gains, and hedging strategies. 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																		For the Nine Months Ended
			September 30, 2023						September 24, 2022						% Change						September 30, 2023						September 24, 2022						% Change
			(in millions, except per share data)																		(in millions, except per share data)
Net sales			$	6,570					$	6,505					1.0		%				$	19,780					$	19,104					3.5		%
Operating income/(loss)			653						751						(13.1)		%				3,272						2,408						35.9		%
Net income/(loss)			254						435						(41.7)		%				2,089						1,481						41.0		%
Net income/(loss) attributable to common shareholders			262						432						(39.5)		%				2,098						1,473						42.4		%
Diluted EPS			0.21						0.35						(40.0)		%				1.70						1.19						42.9		%

Net Sales:

			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2023						September 24, 2022						% Change						September 30, 2023						September 24, 2022						% Change
			(in millions)																		(in millions)
Net sales			$	6,570					$	6,505					1.0		%				$	19,780					$	19,104					3.5		%
Organic Net Sales(a)			6,582						6,472						1.7		%				19,926						18,994						4.9		%

(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 September 30, 2023 Compared to the Three Months Ended September 24, 2022:

Net sales increased 1.0% to $6.6 billion for the three months ended September 30, 2023 compared to $6.5 billion for the three months ended September 24, 2022, including the unfavorable impacts of foreign currency (0.5 pp) and acquisitions and divestitures (0.2 pp). Organic Net Sales increased 1.7% to $6.6 billion for the three months ended September 30, 2023 compared to $6.5 billion for the three months ended September 24, 2022, primarily driven by higher pricing (7.1 pp), which more than offset unfavorable volume/mix (5.4 pp). Pricing was higher in both segments, while volume/mix was unfavorable in both segments.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022:

Net sales increased 3.5% to $19.8 billion for the nine months ended September 30, 2023 compared to $19.1 billion for the nine months ended September 24, 2022, including the unfavorable impacts of foreign currency (1.3 pp) and acquisitions and divestitures (0.1 pp). Organic Net Sales increased 4.9% to $19.9 billion for the nine months ended September 30, 2023 compared to $19.0 billion for the nine months ended September 24, 2022, primarily driven by higher pricing (10.8 pp), which more than offset unfavorable volume/mix (5.9 pp). Pricing was higher in both segments, while volume/mix was unfavorable in both segments.

Net Income/(Loss):

			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2023						September 24, 2022						% Change						September 30, 2023						September 24, 2022						% Change
			(in millions)																		(in millions)
Operating income/(loss)			$	653					$	751					(13.1)		%				3,272						2,408						35.9		%
Net income/(loss)			254						435						(41.7)		%				2,089						1,481						41.0		%
Net income/(loss) attributable to common shareholders			262						432						(39.5)		%				2,098						1,473						42.4		%
Adjusted EBITDA(a)			1,565						1,398						11.9		%				4,657						4,260						9.3		%

(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 September 30, 2023 Compared to the Three Months Ended September 24, 2022:

Operating income/(loss) decreased 13.1% to income of $653 million for the three months ended September 30, 2023 compared to income of $751 million for the three months ended September 24, 2022, primarily due to higher non-cash impairment losses, higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, unfavorable volume/mix, and increased SG&A due in part to investments in marketing, technology, and research and development. These decreases to operating income/(loss) were partially offset by higher pricing, efficiency gains, and reduced commodity costs, including the impact of realized and unrealized gains and losses on commodity hedges.

Net income/(loss) decreased 41.7% to income of $254 million for the three months ended September 30, 2023 compared to income of $435 million for the three months ended September 24, 2022. This decrease was due to the operating income/(loss) factors discussed above and higher tax expense, which more than offset favorable changes in other expense/(income). Interest expense was flat compared to the prior year period.

• Our effective tax rate for the three months ended September 30, 2023 was an expense of 44.7% on pre-tax income. Our effective tax rate was unfavorably impacted by certain net discrete items, including non-deductible goodwill impairments (29.0%) and a net increase in uncertain tax position reserves. These impacts were partially offset by favorable changes in estimates of certain 2022 U.S. income and deductions and the geographic mix of pre-tax income in various non-U.S. jurisdictions. Our effective tax rate for the three months ended September 24, 2022 was an expense of 20.2% on pre-tax income. Our effective tax rate was impacted by the favorable geographic mix of pre-tax income in various non-U.S. jurisdictions and certain favorable net discrete items, including the revaluation of deferred tax balances due to changes in state tax rates and favorable changes in estimates of certain 2021 U.S. income and deductions. These impacts were partially offset by the impact of certain unfavorable net discrete items, primarily non-deductible goodwill impairments (10.3%). The year-over-year increase in the effective tax rate for the three month period was due primarily to the impact of higher non-deductible goodwill impairments in the current period.

• Other expense/(income) was $35 million of income for the three months ended September 30, 2023 compared to $22 million of income for the three months ended September 24, 2022. This change was primarily driven by a $30 million net loss on derivative activities in the third quarter of 2023 compared to a $134 million net loss on derivative activities in the third quarter of 2022, which more than offset a $25 million net foreign exchange gain in the third quarter of 2023 compared to a $117 million net foreign exchange gain in the third quarter of 2022.

Adjusted EBITDA increased 11.9% to $1.6 billion for the three months ended September 30, 2023 compared to $1.4 billion for the three months ended September 24, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, unfavorable volume/mix, increased SG&A due in part to investments in marketing, technology, and research and development, increased commodity costs, including the impact of realized gains and losses on commodity hedges, and the unfavorable impact of foreign currency (1.0 pp).

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022:

Operating income/(loss) increased 35.9% to income of $3.3 billion for the nine months ended September 30, 2023 compared to income of $2.4 billion for the nine months ended September 24, 2022, primarily driven by higher pricing, efficiency gains, and lower non-cash impairment losses, which more than offset higher commodity costs, including the impact of realized and unrealized gains and losses on commodity hedges, higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, unfavorable volume/mix, and increased SG&A due in part to investments in marketing, technology, and research and development.

Net income/(loss) increased 41.0% to income of $2.1 billion for the nine months ended September 30, 2023 compared to income of $1.5 billion for the nine months ended September 24, 2022. This increase was driven by the operating income/(loss) factors discussed above, and lower interest expense, which more than offset higher tax expense and unfavorable changes in other expense/(income).

• Interest expense was $683 million for the nine months ended September 30, 2023 compared to $704 million for the nine months ended September 24, 2022.

• Our effective tax rate for the nine months ended September 30, 2023 was an expense of 22.1% 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 certain net discrete items, including the net decrease in uncertain tax position reserves primarily in the U.S. resulting from a conclusion of the IRS’s income tax examination for the year 2017 and the lapsing of the statute of limitations for such year (2.1%), as well as favorable changes in estimates of certain 2022 U.S. income and deductions. These impacts were partially offset by the impact of certain unfavorable net discrete items, primarily non-deductible goodwill impairments (5.0%). Our effective tax rate for the nine months ended September 24, 2022 was an expense of 22.7% on pre-tax income. Our effective tax rate was impacted by the favorable geographic mix of pre-tax income in various non-U.S. jurisdictions and certain favorable net discrete items, primarily the revaluation of deferred tax balances due to changes in state tax rates. This impact was partially offset by the impact of certain unfavorable net discrete items, primarily non-deductible goodwill impairments (6.1%). The year-over-year decrease in the effective tax rate for the nine month period was due primarily to the impact of changes in uncertain tax position reserves in the current year period.

• Other expense/(income) was $94 million of income for the nine months ended September 30, 2023 compared to $211 million of income for the nine months ended September 24, 2022. This change was primarily driven by a $21 million net foreign exchange loss in 2023 compared to a $254 million net foreign exchange gain in 2022 and a $52 million decrease in non-cash net pension and postretirement non-service benefits compared to the prior year period. These impacts were partially offset by an $8 million net gain on derivative activities in 2023 compared to a $195 million net loss on derivative activities in 2022.

Adjusted EBITDA increased 9.3% to $4.7 billion for the nine months ended September 30, 2023 compared to $4.3 billion for the nine months ended September 24, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher commodity costs, including the impact of realized gains and losses on commodity hedges, higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, unfavorable volume/mix, increased SG&A due in part to investments in marketing, technology, and research and development, and the unfavorable impact of foreign currency (1.3 pp).

Diluted EPS:

			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2023						September 24, 2022						% Change						September 30, 2023						September 24, 2022						% Change
Diluted EPS			$	0.21					$	0.35					(40.0)		%				$	1.70					$	1.19					42.9		%
Adjusted EPS(a)			0.72						0.63						14.3		%				2.20						1.93						14.0		%

(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 September 30, 2023 Compared to the Three Months Ended September 24, 2022:

Diluted EPS decreased 40.0% to $0.21 for the three months ended September 30, 2023 compared to $0.35 for the three months ended September 24, 2022, primarily due to the net income/(loss) factors discussed above.

			For the Three Months Ended
			September 30, 2023						September 24, 2022						$ Change						% Change
Diluted EPS			$	0.21					$	0.35					$	(0.14)					(40.0)		%
Restructuring activities			0.03						0.01						0.02
Unrealized losses/(gains) on commodity hedges			(0.03)						0.05						(0.08)
Impairment losses			0.50						0.23						0.27
Losses/(gains) on sale of business			—						(0.01)						0.01
Nonmonetary currency devaluation			0.01						0.01						—
Debt prepayment and extinguishment (benefit)/costs			—						(0.01)						0.01
Adjusted EPS(a)			$	0.72					$	0.63					$	0.09					14.3		%
Key drivers of change in Adjusted EPS(a):
Results of operations															$	0.11
Other expense/(income)															0.01
Effective tax rate															(0.03)
															$	0.09

(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 14.3% to $0.72 for the three months ended September 30, 2023 compared to $0.63 for the three months ended September 24, 2022. This increase was primarily driven by higher Adjusted EBITDA and favorable changes in other expense/(income), which more than offset higher taxes on adjusted earnings.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022:

Diluted EPS increased 42.9% to $1.70 for the nine months ended September 30, 2023 compared to $1.19 for the nine months ended September 24, 2022, primarily driven by the net income/(loss) factors discussed above.

			For the Nine Months Ended
			September 30, 2023						September 24, 2022						$ Change						% Change
Diluted EPS			$	1.70					$	1.19					$	0.51					42.9		%
Restructuring activities			0.02						0.02						—
Deal costs			—						0.01						(0.01)
Unrealized losses/(gains) on commodity hedges			(0.03)						0.04						(0.07)
Impairment losses			0.50						0.70						(0.20)
Losses/(gains) on sale of business			—						(0.01)						0.01
Other losses/(gains) related to acquisitions and divestitures			—						(0.02)						0.02
Nonmonetary currency devaluation			0.02						0.01						0.01
Debt prepayment and extinguishment (benefit)/costs			—						(0.01)						0.01
Certain significant discrete income tax items			(0.01)						—						(0.01)
Adjusted EPS(a)			$	2.20					$	1.93					$	0.27					14.0		%
Key drivers of change in Adjusted EPS(a):
Results of operations															$	0.28
Results of divested operations															(0.01)
Interest expense															0.02
Other expense/(income)															(0.04)
Effective tax rate															0.02
															$	0.27

(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 14.0% to $2.20 for the nine months ended September 30, 2023 compared to $1.93 for the nine months ended September 24, 2022. This increase was primarily driven by higher Adjusted EBITDA, lower taxes on adjusted earnings, and lower interest expense, which more than offset unfavorable changes in other expense/(income).

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												For the Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(in millions)
Net sales:
North America			$	4,995					$	5,016					$	14,959					$	14,656
International			1,575						1,489						4,821						4,448
Total net sales			$	6,570					$	6,505					$	19,780					$	19,104

Organic Net Sales:

			For the Three Months Ended												For the Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(in millions)
Organic Net Sales(a):
North America			$	5,009					$	5,016					$	15,023					$	14,656
International			1,573						1,456						4,903						4,338
Total Organic Net Sales			$	6,582					$	6,472					$	19,926					$	18,994

(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 and nine months ended September 30, 2023 compared to the three months nine months ended September 24, 2022 were:

			Net Sales						Currency						Acquisitions and Divestitures						Organic Net Sales						Price						Volume/Mix
For the Three Months Ended
North America			(0.4)		%				(0.3) pp						0.0 pp						(0.1)		%				5.8 pp						(5.9) pp
International			5.7		%				(1.5) pp						(0.8) pp						8.0		%				11.6 pp						(3.6) pp
Kraft Heinz			1.0		%				(0.5) pp						(0.2) pp						1.7		%				7.1 pp						(5.4) pp

			Net Sales						Currency						Acquisitions and Divestitures						Organic Net Sales						Price						Volume/Mix
For the Nine Months Ended
North America			2.1		%				(0.4) pp						0.0 pp						2.5		%				9.4 pp						(6.9) pp
International			8.4		%				(4.1) pp						(0.5) pp						13.0		%				15.7 pp						(2.7) pp
Kraft Heinz			3.5		%				(1.3) pp						(0.1) pp						4.9		%				10.8 pp						(5.9) pp

Adjusted EBITDA:

			For the Three Months Ended												For the Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(in millions)
Segment Adjusted EBITDA:
North America			$	1,390					$	1,213					$	4,108					$	3,734
International			259						243						804						733
General corporate expenses			(84)						(58)						(255)						(207)
Depreciation and amortization (excluding restructuring activities)			(234)						(227)						(680)						(676)
Divestiture-related license income			14						14						41						41
Restructuring activities			(45)						(8)						(25)						(38)
Deal costs			—						—						—						(8)
Unrealized gains/(losses) on commodity hedges			48						(84)						53						(65)
Impairment losses			(662)						(314)						(662)						(999)
Certain non-ordinary course legal and regulatory matters			—						—						(2)						—
Equity award compensation expense			(33)						(28)						(110)						(107)
Operating income/(loss)			653						751						3,272						2,408
Interest expense			228						228						683						704
Other expense/(income)			(35)						(22)						(94)						(211)
Income/(loss) before income taxes			$	460					$	545					$	2,683					$	1,915

North America:

			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2023						September 24, 2022						% Change						September 30, 2023						September 24, 2022						% Change
			(in millions)																		(in millions)
Net sales			$	4,995					$	5,016					(0.4)		%				$	14,959					$	14,656					2.1		%
Organic Net Sales(a)			5,009						5,016						(0.1)		%				15,023						14,656						2.5		%
Segment Adjusted EBITDA			1,390						1,213						14.6		%				4,108						3,734						10.0		%

(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 September 30, 2023 Compared to the Three Months Ended September 24, 2022:

Net sales decreased 0.4% to $5.0 billion for the three months ended September 30, 2023 compared to $5.0 billion for the three months ended September 24, 2022, including the unfavorable impact of foreign currency (0.3 pp). Organic Net Sales decreased 0.1% to $5.0 billion for the three months ended September 30, 2023 compared to $5.0 billion for the three months ended September 24, 2022, due to unfavorable volume/mix (5.9 pp), which more than offset higher pricing (5.8 pp). Higher pricing was primarily driven by increases taken to mitigate higher input costs. Unfavorable volume/mix was primarily due to elasticity impacts from pricing actions.

Segment Adjusted EBITDA increased 14.6% to $1.4 billion for the three months ended September 30, 2023 compared to $1.2 billion for the three months ended September 24, 2022, primarily driven by higher pricing and efficiency gains, which more than offset unfavorable volume/mix, increased SG&A due in part to investments in marketing, technology, and research and development, and higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022:

Net sales increased 2.1% to $15.0 billion for the nine months ended September 30, 2023 compared to $14.7 billion for the nine months ended September 24, 2022, including the unfavorable impact of foreign currency (0.4 pp). Organic Net Sales increased 2.5% to $15.0 billion for the nine months ended September 30, 2023 compared to $14.7 billion for the nine months ended September 24, 2022, driven by higher pricing (9.4 pp), which more than offset unfavorable volume/mix (6.9 pp). Higher pricing was primarily driven by increases taken to mitigate higher input costs. Unfavorable volume/mix was primarily due to elasticity impacts from pricing actions and due in part to the reduction of SNAP benefits.

Segment Adjusted EBITDA increased 10.0% to $4.1 billion for the nine months ended September 30, 2023 compared to $3.7 billion for the nine months ended September 24, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher commodity costs, including the impact of realized gains and losses on commodity hedges, unfavorable volume/mix, higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, and increased SG&A due in part to investments in marketing, technology, and research and development.

International:

			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2023						September 24, 2022						% Change						September 30, 2023						September 24, 2022						% Change
			(in millions)																		(in millions)
Net sales			$	1,575					$	1,489					5.7		%				$	4,821					$	4,448					8.4		%
Organic Net Sales(a)			1,573						1,456						8.0		%				4,903						4,338						13.0		%
Segment Adjusted EBITDA			259						243						6.8		%				804						733						9.7		%

(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 September 30, 2023 Compared to the Three Months Ended September 24, 2022:

Net sales increased 5.7% to $1.6 billion for the three months ended September 30, 2023 compared to $1.5 billion for the three months ended September 24, 2022, including the unfavorable impacts of foreign currency (1.5 pp) and acquisitions and divestitures (0.8 pp). Organic Net Sales increased 8.0% to $1.6 billion for the three months ended September 30, 2023 compared to $1.5 billion for the three months ended September 24, 2022, driven by higher pricing (11.6 pp), which more than offset unfavorable volume/mix (3.6 pp). Higher pricing included increases across markets primarily taken to mitigate higher input costs. Unfavorable volume/mix was primarily due to the elasticity impacts from pricing actions, particularly in our Asia and Continental Europe regions, which more than offset favorable volume/mix growth in emerging markets within our Eastern Europe and LATAM regions.

Segment Adjusted EBITDA increased 6.8% to $259 million for the three months ended September 30, 2023 compared to $243 million for the three months ended September 24, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, higher commodity costs, increased SG&A due in part to investments in marketing and technology, unfavorable volume/mix, and the unfavorable impact of foreign currency (3.4 pp).

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022:

Net sales increased 8.4% to $4.8 billion for the nine months ended September 30, 2023 compared to $4.4 billion for the nine months ended September 24, 2022, including the unfavorable impacts of foreign currency (4.1 pp) and acquisitions and divestitures (0.5 pp). Organic Net Sales increased 13.0% to $4.9 billion for the nine months ended September 30, 2023 compared to $4.3 billion for the nine months ended September 24, 2022, driven by higher pricing (15.7 pp), which more than offset unfavorable volume/mix (2.7 pp). Higher pricing included increases across markets primarily taken to mitigate higher input costs. Unfavorable volume/mix was primarily due to the elasticity impacts from pricing actions, particularly in our Northern Europe and Asia regions, which more than offset favorable volume/mix growth in emerging markets within our Eastern Europe and LATAM regions.

Segment Adjusted EBITDA increased 9.7% to $804 million for the nine months ended September 30, 2023 compared to $733 million for the nine months ended September 24, 2022, primarily driven by higher pricing and efficiency gains, which more than offset higher commodity costs, higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, increased SG&A due in part to investments in marketing, technology, and research and development, unfavorable volume/mix, the unfavorable impact of foreign currency (5.5 pp).

Liquidity and Capital Resources

We believe that cash generated from our operating activities, commercial paper programs, and 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. In the second quarter of 2022, we closed the Hemmer Acquisition for cash consideration of approximately $279 million.

In connection with the Cheese Transaction, which closed in the fourth quarter of 2021, we paid cash taxes of approximately $620 million in the second quarter of 2022, primarily to U.S. federal and state tax authorities.

See Note 4, Acquisitions and Divestitures, in Item 1, Financial Statements, for additional information on our acquisitions and divestitures.

Cash Flow Activity for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022:

Net Cash Provided by/Used for Operating Activities:

Net cash provided by operating activities was $2.6 billion for the nine months ended September 30, 2023 compared to $1.5 billion for the nine months ended September 24, 2022. This increase was primarily driven by lower cash outflows for inventories, primarily related to stock rebuilding in the prior year, higher Adjusted EBITDA in the current period, and lower cash outflows for cash tax payments driven by cash taxes paid in 2022 related to the Cheese Transaction. These impacts were partially offset by unfavorable changes in accounts payable, due in part to lower inventory purchase volume in the current period compared to the prior period and cash payments associated with the settlement of the consolidated securities class action lawsuit. See Note 14, Commitments, Contingencies, and Debt, for additional information on our legal proceedings.

Net Cash Provided by/Used for Investing Activities:

Net cash used for investing activities was $738 million for the nine months ended September 30, 2023 compared to $1.0 billion for the nine months ended September 24, 2022. This change was primarily driven by payments for the Just Spices Acquisition and the Hemmer 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 maintenance, capacity expansion, technology, and cost improvement and innovation projects.

Net Cash Provided by/Used for Financing Activities:

Net cash used for financing activities was $1.8 billion for the nine months ended September 30, 2023 compared to $2.8 billion for the nine months ended September 24, 2022. This change was primarily driven by proceeds from the issuance of the 2023 Notes and lower repayments of long-term debt in the current year period. See Note 14, Commitments, Contingencies, and Debt, for additional information on our long-term debt activity.

Cash Held by International Subsidiaries:

Of the $1.1 billion cash and cash equivalents on our condensed consolidated balance sheet at September 30, 2023, $813 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 September 30, 2023 and 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 $0.8 billion at September 30, 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 September 30, 2023, at December 31, 2022, or during the nine months ended September 30, 2023.

Our Senior Credit Facility provides for a revolving commitment of $4.0 billion through July 8, 2028. 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 September 30, 2023 or December 31, 2022, or on either the Senior Credit Facility or our previous credit facility during the nine months ended September 30, 2023 or September 24, 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 September 30, 2023.

Long-Term Debt:

Our long-term debt, including the current portion, was $19.9 billion at September 30, 2023 and $20.1 billion at December 31, 2022. This decrease was primarily due to approximately 750 million euro aggregate principal amount of senior notes that were repaid at maturity in June 2023, which more than offset the issuance of the 2023 Notes.

We have aggregate principal amounts of senior notes of approximately 550 million euros maturing in May 2024.

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 September 30, 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 $1.5 billion for the nine months ended September 30, 2023 and $1.5 billion for the nine months ended September 24, 2022. Additionally, in the fourth quarter of 2023, our Board of Directors declared a cash dividend of $0.40 per share of common stock, which is payable on December 29, 2023 to stockholders of record on December 1, 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:

In the second quarter of 2023, we issued the 2023 Notes, which mature in 2025. See Note 14, Commitments, Contingencies and Debt, in Item 1, Financial Statements, for additional information. There were no other 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 KHFC, our 100% owned operating subsidiary (the “Guarantee”). See Note 14, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, 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 descriptions of these guarantees.

The payment of the principal, interest and premium, when applicable, 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 Nine Months Ended
			September 30, 2023
Net sales			$	12,870
Gross profit(a)			4,794
Intercompany service fees and other recharges			3,361
Operating income/(loss)			827
Equity in earnings/(losses) of subsidiaries			1,938
Net income/(loss)			2,098
Net income/(loss) attributable to common shareholders			2,098

(a) For the nine months ended September 30, 2023, the Obligor Group recorded $323 million of net sales to the non-guarantor subsidiaries and $31 million of purchases from the non-guarantor subsidiaries.

Summarized Balance Sheets

			September 30, 2023						December 31, 2022
ASSETS
Current assets			$	4,554					$	4,218
Current assets due from affiliates(a)			444						645
Non-current assets			5,506						5,445
Goodwill			8,823						8,823
Intangible assets, net			2,021						2,102
Non-current assets due from affiliates(b)			—						—
LIABILITIES
Current liabilities			$	4,453					$	4,926
Current liabilities due to affiliates(a)			927						920
Non-current liabilities			21,271						21,372
Non-current liabilities due to affiliates(b)			591						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 nine months ended September 30, 2023, we experienced higher commodity costs for vegetables, sugar, and grains, while costs for dairy and meat decreased. We manage commodity cost volatility primarily through pricing and risk management strategies including utilizing a range of commodity hedging techniques in an effort to limit the impact of price fluctuations on many of our principal raw materials. However, we do not fully hedge against changes in commodity prices, and our hedging strategies may not protect us from increases in specific raw material costs. 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. Our critical accounting estimates and assumptions related to goodwill and intangible assets are described below. 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.

As of September 30, 2023, we maintain 11 reporting units, seven of which comprise our goodwill balance. These seven reporting units had an aggregate goodwill carrying amount of $30.3 billion at September 30, 2023. Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $38.3 billion as of September 30, 2023.

We test our reporting units and brands for impairment annually, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or brand is less than its carrying amount. Such events and circumstances could include a sustained decrease in our market capitalization, increased competition or unexpected loss of market share, increased input costs beyond projections, disposals of significant brands or components of our business, unexpected business disruptions (for example due to a natural disaster, pandemic, or loss of a customer, supplier, or other significant business relationship), unexpected significant declines in operating results, significant adverse changes in the markets in which we operate, changes in income tax rates, changes in interest rates, or changes in management strategy. We test reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. We test brands for impairment by comparing the estimated fair value of each brand with its carrying amount. If the carrying amount of a reporting unit or brand exceeds its estimated fair value, we record an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed the associated carrying amount of goodwill. See Note 7, Goodwill and Intangible Assets, in Item 1, Financial Statements, for a discussion of the timing of the annual impairment test.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units and 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, market capitalization, 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 or 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 goodwill or intangible asset impairments.

As detailed in Note 7, Goodwill and Intangible Assets, in Item 1, Financial Statements, we recorded impairment losses related to goodwill and indefinite-lived intangible assets. Our brands that were impaired in 2023 and 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. Our reporting units and brands that have 20% or less excess fair value over carrying amount as of the 2023 annual impairment test have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future.

Reporting units with 10% or less fair value over carrying amount had an aggregate goodwill carrying amount after impairment of $17.6 billion as of the 2023 annual impairment test and included Taste, Meals, and Away from Home (TMA), Northern Europe, Continental Europe, and Canada and North America Coffee (CNAC). Reporting units with 10-20% fair value over carrying amount had an aggregate goodwill carrying amount of $12.5 billion as of the 2023 annual impairment test and included Fresh, Beverages, and Desserts (FBD) and Latin America (LATAM). Our Asia reporting unit had between 20-50% fair value over carrying amount with an aggregate goodwill carrying amount of $309 million as of the 2023 annual impairment test. Our reporting units that have less than 5% excess fair value over carrying amount as of the 2023 annual impairment test are considered at a heightened risk of future impairments and include our TMA, Continental Europe, and CNAC reporting units, which had an aggregate goodwill carrying amount of $15.9 billion. Our four remaining reporting units had no goodwill carrying amount at the time of the 2023 annual impairment test.

After impairment and after reclassifying two indefinite-lived intangible asset brands to definite-lived trademarks, our brands with 10% or less fair value over carrying amount had an aggregate carrying amount of $16.2 billion as of the annual 2023 impairment test and included Kraft, Oscar Mayer, Velveeta, Maxwell House, Cool Whip, and Jet Puffed. Brands with 10-20% fair value over carrying amount had an aggregate carrying amount of $2.4 billion as of the 2023 annual impairment test and included Miracle Whip and Ore-Ida. The aggregate carrying amount of brands with fair value over carrying amount between 20-50% was $4.2 billion as of the 2023 annual impairment test. Although the remaining brands, with a carrying amount of $15.7 billion, have more than 50% excess fair value over carrying amount as of the 2023 annual impairment test, these amounts are also susceptible to impairments if any assumptions, estimates, or market factors significantly change in the future. Our brands that have less than 5% excess fair value over carrying amount as of the 2023 annual impairment test are considered at a heightened risk of future impairments and include our Kraft, Velveeta, Maxwell House, Cool Whip, and Jet Puffed brands, which had an aggregate carrying amount of $13.5 billion.

We generally utilize the discounted cash flow method under the income approach to estimate the fair value of our reporting units. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, cost of products sold, SG&A, depreciation and amortization, working capital, and capital expenditures), income tax rates, long-term growth rates, and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. We selected 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 guideline companies.

We utilize the excess earnings method under the income approach to estimate the fair value of certain of our largest brands. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each brand (including net sales, cost of products sold, and SG&A), contributory asset charges, income tax considerations, long-term growth rates, a discount rate that reflects the level of risk associated with the future earnings attributable to the brand, and management’s intent to invest in the brand indefinitely. We selected 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 guideline companies.

We utilize the relief from royalty method under the income approach to estimate the fair value of our remaining brands. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net sales for each brand, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, a discount rate that reflects the level of risk associated with the future cost savings attributable to the brand, and management’s intent to invest in the brand indefinitely. We selected 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 guideline companies.

The discount rates, long-term growth rates, and royalty rates used to estimate the fair values of our reporting units and our brands with 20% or less excess fair value over carrying amount, as well as the goodwill or brand carrying amounts, as of the 2023 annual impairment test for each reporting unit or brand, were as follows:

			Goodwill or Brand Carrying Amount (in billions)						Discount Rate												Long-Term Growth Rate												Royalty Rate
						Minimum						Maximum						Minimum						Maximum						Minimum						Maximum
Reporting units			$	30.1					7.8		%				10.8		%				1.5		%				2.5		%
Brands (excess earnings method)			14.9						8.3		%				8.6		%				1.0		%				1.9		%
Brands (relief from royalty method)			3.7						8.3		%				8.6		%				0.5		%				2.0		%				6.0		%				20.0		%

Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each annual and interim impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation. However, as it is reasonably possible that changes in assumptions could occur, as a sensitivity measure, we have presented the estimated effects of isolated changes in discount rates, long-term growth rates, and royalty rates on the fair values of our reporting units and brands with 20% or less excess fair value over carrying amount. These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.

If we had changed the assumptions used to estimate the fair value of our reporting units and brands with 20% or less excess fair value over carrying amount, as of the 2023 annual impairment test for each of these reporting units and brands, these isolated changes, which are reasonably possible to occur, would have led to the following increase/(decrease) in the aggregate fair value of these reporting units and brands (in billions):

			Discount Rate												Long-Term Growth Rate												Royalty Rate
			50-Basis-Point												25-Basis-Point												100-Basis-Point
			Increase						Decrease						Increase						Decrease						Increase						Decrease
Reporting units			$	(4.9)					$	5.7					$	2.4					$	(2.2)
Brands (excess earnings method)			(1.1)						1.3						0.5						(0.4)
Brands (relief from royalty method)			(0.2)						0.3						0.1						(0.1)						$	0.3					$	(0.3)

Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited. We review definite-lived intangible assets for impairment when conditions exist that indicate the carrying amount of the assets may not be recoverable. Such conditions could include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of definite-lived intangible assets held for use, we group assets at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on definite-lived intangible assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

See Note 7, Goodwill and Intangible Assets, in Item 1, Financial Statements, for our impairment testing results.

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 September 30, 2023
North America			$	4,995					$	(14)					$	—					$	5,009
International			1,575						2						—						1,573
Kraft Heinz			$	6,570					$	(12)					$	—					$	6,582
Three Months Ended September 24, 2022
North America			$	5,016					$	—					$	—					$	5,016
International			1,489						21						12						1,456
Kraft Heinz			$	6,505					$	21					$	12					$	6,472

Year-over-year growth rates
North America			(0.4)		%				(0.3) pp						0.0 pp						(0.1)		%				5.8 pp						(5.9) pp
International			5.7		%				(1.5) pp						(0.8) pp						8.0		%				11.6 pp						(3.6) pp
Kraft Heinz			1.0		%				(0.5) pp						(0.2) pp						1.7		%				7.1 pp						(5.4) pp

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
Nine Months Ended September 30, 2023
North America			$	14,959					$	(64)					$	—					$	15,023
International			4,821						(116)						34						4,903
Kraft Heinz			$	19,780					$	(180)					$	34					$	19,926
Nine Months Ended September 24, 2022
North America			$	14,656					$	—					$	—					$	14,656
International			4,448						57						53						4,338
Kraft Heinz			$	19,104					$	57					$	53					$	18,994

Year-over-year growth rates
North America			2.1		%				(0.4) pp						0.0 pp						2.5		%				9.4 pp						(6.9) pp
International			8.4		%				(4.1) pp						(0.5) pp						13.0		%				15.7 pp						(2.7) pp
Kraft Heinz			3.5		%				(1.3) pp						(0.1) pp						4.9		%				10.8 pp						(5.9) pp

The Kraft Heinz Company

Reconciliation of Net Income/(Loss) to Adjusted EBITDA

(dollars in millions)

(Unaudited)

			For the Three Months Ended												For the Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
Net income/(loss)			$	254					$	435					$	2,089					$	1,481
Interest expense			228						228						683						704
Other expense/(income)			(35)						(22)						(94)						(211)
Provision for/(benefit from) income taxes			206						110						594						434
Operating income/(loss)			653						751						3,272						2,408
Depreciation and amortization (excluding restructuring activities)			234						227						680						676
Divestiture-related license income			(14)						(14)						(41)						(41)
Restructuring activities			45						8						25						38
Deal costs			—						—						—						8
Unrealized losses/(gains) on commodity hedges			(48)						84						(53)						65
Impairment losses			662						314						662						999
Certain non-ordinary course legal and regulatory matters			—						—						2						—
Equity award compensation expense			33						28						110						107
Adjusted EBITDA			$	1,565					$	1,398					$	4,657					$	4,260

The Kraft Heinz Company

Reconciliation of Diluted EPS to Adjusted EPS

(Unaudited)

			For the Three Months Ended												For the Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
Diluted EPS			$	0.21					$	0.35					$	1.70					$	1.19
Restructuring activities(a)			0.03						0.01						0.02						0.02
Deal costs(b)			—						—						—						0.01
Unrealized losses/(gains) on commodity hedges(c)			(0.03)						0.05						(0.03)						0.04
Impairment losses(d)			0.50						0.23						0.50						0.70
Losses/(gains) on sale of business(e)			—						(0.01)						—						(0.01)
Other losses/(gains) related to acquisitions and divestitures(f)			—						—						—						(0.02)
Nonmonetary currency devaluation(g)			0.01						0.01						0.02						0.01
Debt prepayment and extinguishment (benefit)/costs(h)			—						(0.01)						—						(0.01)
Certain significant discrete income tax items(i)			—						—						(0.01)						—
Adjusted EPS			$	0.72					$	0.63					$	2.20					$	1.93

(a) Gross expenses/(income) included in restructuring activities were expenses of $45 million ($37 million after-tax) for the three months and $27 million ($22 million after-tax) for the nine months ended September 30, 2023 and $7 million ($6 million after tax) for the three months and $37 million ($28 million after-tax) for the nine months ended September 24, 2022 and were recorded in the following income statement line items:

• Cost of products sold included expenses of $44 million for the three and nine months ended September 30, 2023 and $5 million for the three months and $15 million for the nine months ended September 24, 2022; and

• SG&A included expenses of $1 million for the three months and income of $19 million for the nine months ended September 30, 2023 and expenses of $3 million for the three months and $23 million for the nine months ended September 24, 2022.

• Other expense/(income) included expenses of $2 million for the nine months ended September 30, 2023 and income of $1 million for the three and nine months ended September 24, 2022.

(b) Gross expenses included in deal costs were $8 million ($5 million after-tax) for the nine months ended September 24, 2022 and were recorded in SG&A.

(c) Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges were income of $48 million ($36 million after-tax) for the three months and $53 million ($40 million after-tax) for the nine months ended September 30, 2023 and expenses of $84 million ($63 million after-tax) for the three months and $65 million ($49 million after-tax) for the nine months ended September 24, 2022 and were recorded in cost of products sold.

(d) Gross impairment losses included the following:

• Goodwill impairment losses of $510 million ($510 million after-tax) for the three and nine months ended September 30, 2023 and $220 million ($220 million after-tax) for the three months and $444 million ($444 million after-tax) for the nine months ended September 24, 2022, which were recorded in SG&A;

• Intangible asset impairment losses of $152 million ($116 million after-tax) for the three and nine months ended September 30, 2023 and $74 million ($55 million after-tax) for the three months and $469 million ($358 million after-tax) for the nine months ended September 24, 2022, which were recorded in SG&A; and

• Property, plant and equipment, net asset impairment losses of $20 million ($15 million after-tax) for the three months and $86 million ($65 million after-tax) for the nine months ended September 24, 2022, which were recorded in cost of products sold.

(e) Gross expenses/(income) included in losses/(gains) on sale of business were expenses of $2 million ($2 million after-tax) for the nine months ended September 30, 2023 and a tax benefit of $7 million for the three months and income of $1 million ($8 million after-tax) for the nine months ended September 24, 2022 and were recorded in other expense/(income).

(f) Gross expenses/(income) included in other losses/(gains) related to acquisitions and divestitures were income of $38 million ($29 million after-tax) for the nine months ended September 24, 2022 and were recorded in other expense/(income).

(g) Gross expenses included in nonmonetary currency devaluation were $9 million ($9 million after-tax) for the three months and $27 million ($27 million after-tax) for the nine months ended September 30, 2023 and $6 million ($6 million after-tax) for the three months and $16 million ($16 million after-tax) for the nine months ended September 24, 2022 and were recorded in other expense/(income).

(h) Gross expenses/(income) included in debt prepayment and extinguishment costs were income of $3 million ($9 million after-tax) for the three months and $12 million ($16 million after-tax) for the nine months ended September 24, 2022 and were recorded in interest expense.

(i) Certain significant discrete income tax items were a benefit of $17 million for the nine months ended September 30, 2023. The benefit represents the reversal of uncertain tax position reserves related to the U.S. Tax Cuts and Jobs Act resulting from a conclusion of the Internal Revenue Service’s income tax examination for the year 2017 and the lapsing of the statute of limitations for such year.