UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2016April 1, 2017
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number 001-37482
kraftheinzlogo06.jpg
The Kraft Heinz Company
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
46-2078182
(I.R.S. Employer Identification No.)
One PPG Place, Pittsburgh, Pennsylvania
(Address of Principal Executive Offices)
 
15222
(Zip Code)

Registrant’s telephone number, including area code: (412) 456-5700

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer ox
Accelerated filer o
 
Non-accelerated filer xo
(Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 31, 2016,April 29, 2017, there were 1,217,650,8661,217,633,003 shares of the registrant'sregistrant’s common stock outstanding.



The Kraft Heinz Company
Table of Contents
Page No.
PART I - FINANCIAL INFORMATION
1
Item 1. Financial Statements and Supplementary Data.
1
Condensed Consolidated Statements of Income
1
Condensed Consolidated Statements of Comprehensive Income
2
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statement of Equity
4
Condensed Consolidated Statements of Cash Flows
5
Notes to Condensed Consolidated Financial Statements
6
Note 1. Background and Basis of Presentation
6
Note 2. Integration and Restructuring Expenses
8
Note 3. Restricted Cash
10
Note 4. Inventories
10
Note 5. Goodwill and Intangible Assets
10
Note 6. Income Taxes
11
Note 7. Employees’ Stock Incentive Plans
12
Note 8. Postemployment Benefits
13
Note 9. Accumulated Other Comprehensive Income/(Losses)
14
Note 10. Financial Instruments
15
Note 11. Financing Arrangements
19
Note 12. Venezuela - Foreign Currency and Inflation
19
Note 13. Commitments, Contingencies and Debt
20
Note 14. Earnings Per Share
21
Note 15. Segment Reporting
21
Note 16. Supplemental Financial Information
23
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
3531
Overview
31
Consolidated Results of Operations
31
Results of Operations by Segment
33
Liquidity and Capital Resources
37
Commodity Trends
38
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
38
Equity and Dividends
38
Significant Accounting Estimates
38
Recently Issued Accounting Standards
38
Contingencies
39
Non-GAAP Financial Measures
39
Forward-Looking Statements
43
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk.
5944
Item 4. Controls and Procedures.
5944
PART II - OTHER INFORMATION
5944
Item 1. Legal Proceedings.
5944
Item 1A. Risk Factors.
5944
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
6044
Item 6. Exhibits.
6145
Signatures
6246

Unless the context otherwise requires, the terms “we,” “us,” “our,” “Kraft Heinz,” and the “Company” each refer to The Kraft Heinz Company.




PART I —- FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data.
The Kraft Heinz Company
Condensed Consolidated Statements of Income
(in millions, except per share data)
(Unaudited)
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
Net sales$6,793
 $2,616
 $13,363
 $5,094
$6,364
 $6,570
Cost of products sold4,262
 1,734
 8,454
 3,365
4,063
 4,192
Gross profit2,531
 882
 4,909
 1,729
2,301
 2,378
Selling, general and administrative expenses895
 438
 1,760
 776
750
 865
Operating income1,636
 444
 3,149
 953
1,551
 1,513
Interest expense264
 394
 513
 595
313
 249
Other expense/(income), net6
 245
 (2) 206
(12) (8)
Income/(loss) before income taxes1,366
 (195) 2,638
 152
1,250
 1,272
Provision for/(benefit from) income taxes411
 (35) 783
 33
359
 372
Net income/(loss)955
 (160) 1,855
 119
891
 900
Net income/(loss) attributable to noncontrolling interest5
 4
 9
 7
(2) 4
Net income/(loss) attributable to Kraft Heinz950
 (164) 1,846
 112
Preferred dividends180
 180
 180
 360
Net income/(loss) attributable to common shareholders$770
 $(344) $1,666
 $(248)$893
 $896
Per share data applicable to common shareholders:          
Basic earnings/(loss)$0.63
 $(0.91) $1.37
 $(0.66)$0.73
 $0.74
Diluted earnings/(loss)0.63
 (0.91) 1.36
 (0.66)0.73
 0.73
Dividends declared0.575
 —
 1.15
 —
0.60
 0.575

See accompanying notes to the condensed consolidated financial statements.



The Kraft Heinz Company
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(Unaudited)
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
Net income/(loss)$955
 $(160) $1,855
 $119
$891
 $900
Other comprehensive income/(loss), net of tax:          
Foreign currency translation adjustments(418) 361
 (146) (433)307
 272
Net deferred gains/(losses) on net investment hedges105
 (206) 45
 226
(51) (60)
Net actuarial gains/(losses) arising during the period—
 (18) —
 (19)(10) —
Reclassification of net postemployment benefit losses/(gains)(50) 8
 (104) 7
(55) (54)
Net deferred gains/(losses) on cash flow hedges(14) (10) (32) (77)(34) (18)
Net deferred losses/(gains) on cash flow hedges reclassified to net income4
 137
 (18) 138
20
 (22)
Total other comprehensive income/(loss)(373) 272
 (255) (158)177
 118
Total comprehensive income/(loss)582
 112
 1,600
 (39)1,068
 1,018
Comprehensive income/(loss) attributable to noncontrolling interest5
 5
 16
 (6)(4) 11
Comprehensive income/(loss) attributable to Kraft Heinz$577
 $107
 $1,584
 $(33)
Comprehensive income/(loss) attributable to common shareholders$1,072
 $1,007

See accompanying notes to the condensed consolidated financial statements.


The Kraft Heinz Company
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
July 3, 2016 January 3, 2016April 1, 2017 December 31, 2016
ASSETS      
Cash and cash equivalents$4,237
 $4,837
$3,242
 $4,204
Trade receivables (net of allowances of $32 at July 3, 2016 and at January 3, 2016)1,114
 871
Trade receivables (net of allowances of $30 at April 1, 2017 and $20 at December 31, 2016)886
 769
Sold receivables146
 583
588
 129
Inventories2,881
 2,618
3,151
 2,684
Other current assets969
 871
1,008
 967
Total current assets9,347
 9,780
8,875
 8,753
Property, plant and equipment, net6,423
 6,524
6,693
 6,688
Goodwill44,641
 43,051
44,300
 44,125
Intangible assets, net59,762
 62,120
59,330
 59,297
Other assets1,511
 1,498
1,604
 1,617
TOTAL ASSETS$121,684
 $122,973
$120,802
 $120,480
LIABILITIES AND EQUITY      
Commercial paper and other short-term debt$645
 $4
$909
 $645
Current portion of long-term debt2,106
 79
2,023
 2,046
Trade payables2,960
 2,844
3,936
 3,996
Accrued marketing867
 856
599
 749
Accrued postemployment costs164
 328
157
 157
Income taxes payable368
 417
424
 255
Interest payable393
 401
346
 415
Dividends payable827
 762
Other current liabilities1,263
 1,241
989
 1,238
Total current liabilities9,593
 6,932
9,383
 9,501
Long-term debt30,002
 25,151
29,748
 29,713
Deferred income taxes20,900
 21,497
20,910
 20,848
Accrued postemployment costs2,341
 2,405
2,016
 2,038
Other liabilities801
 752
801
 806
TOTAL LIABILITIES63,637
 56,737
62,858
 62,906
Commitments and Contingencies (Note 12)
 
Redeemable noncontrolling interest—
 23
9.00% cumulative compounding preferred stock, Series A, no shares authorized and issued at July 3, 2016 and 80,000 authorized and issued shares at January 3, 2016, $.01 par value—
 8,320
Commitments and Contingencies (Note 13)
 
Equity:      
Common stock, $.01 par value (5,000,000,000 shares authorized at July 3, 2016 and January 3, 2016; 1,217,900,434 shares issued and 1,217,354,448 shares outstanding at July 3, 2016; 1,214,391,614 shares issued and 1,213,978,752 shares outstanding at January 3, 2016)
12
 12
Common stock, $0.01 par value (5,000,000,000 shares authorized; 1,220,191,898 shares issued and 1,217,543,284 shares outstanding at April 1, 2017; 1,218,947,088 shares issued and 1,216,475,740 shares outstanding at December 31, 2016)
12
 12
Additional paid-in capital58,525
 58,375
58,642
 58,593
Retained earnings/(deficit)263
 —
750
 588
Accumulated other comprehensive income/(losses)(933) (671)(1,449) (1,628)
Treasury stock, at cost(41) (31)(223) (207)
Total shareholders' equity57,826
 57,685
57,732
 57,358
Noncontrolling interest221
 208
212
 216
TOTAL EQUITY58,047
 57,893
57,944
 57,574
TOTAL LIABILITIES AND EQUITY$121,684
 $122,973
$120,802
 $120,480

See accompanying notes to the condensed consolidated financial statements.


The Kraft Heinz Company
Condensed Consolidated Statement of Equity
(in millions)
(Unaudited)
 Common Stock Additional Paid-in Capital Retained Earnings/ (Deficit) Accumulated Other Comprehensive Income/(Losses) Treasury Stock Noncontrolling Interest Total Equity
Balance at January 3, 2016$12
 $58,375
 $—
 $(671) $(31) $208
 $57,893
Net income/(loss) excluding redeemable noncontrolling interest—
 —
 1,846
 —
 —
 9
 1,855
Other comprehensive income/(loss) excluding redeemable noncontrolling interest—
 —
 —
 (262) —
 4
 (258)
Dividends declared-Series A Preferred Stock—
 —
 (180) —
 —
 —
 (180)
Dividends declared-common stock—
 —
 (1,399) —
 —
 —
 (1,399)
Exercise of stock options, issuance of other stock awards, and other—
 150
 (4) —
 (10) —
 136
Balance at July 3, 2016$12
 $58,525
 $263
 $(933) $(41) $221
 $58,047
 Common Stock Additional Paid-in Capital Retained Earnings/(Deficit) Accumulated Other Comprehensive Income/(Losses) Treasury Stock Noncontrolling Interest Total Equity
Balance at December 31, 2016$12
 $58,593
 $588
 $(1,628) $(207) $216
 $57,574
Net income/(loss)—
 —
 893
 —
 —
 (2) 891
Other comprehensive income/(loss)—
 —
 —
 179
 —
 (2) 177
Dividends declared-common stock—
 —
 (731) —
 —
 —
 (731)
Exercise of stock options, issuance of other stock awards, and other—
 49
 —
 —
 (16) —
 33
Balance at April 1, 2017$12
 $58,642
 $750
 $(1,449) $(223) $212
 $57,944

See accompanying notes to the condensed consolidated financial statements.


The Kraft Heinz Company
Condensed Consolidated Statements of Cash Flows
(in millions)
(Unaudited)
For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income/(loss)$1,855
 $119
$891
 $900
Adjustments to reconcile net income/(loss) to operating cash flows:      
Depreciation and amortization720
 179
262
 363
Amortization of postretirement benefit plans prior service credits(131) (3)
Amortization of postretirement benefit plans prior service costs/(credits)(82) (50)
Equity award compensation expense26
 5
11
 13
Deferred income tax provision3
 (254)
Deferred income tax provision/(benefit)105
 27
Pension contributions(177) (33)(11) (169)
Nonmonetary currency devaluation16
 234
Other items, net(113) 334
16
 (111)
Changes in current assets and liabilities:      
Trade receivables(226) (35)(118) (38)
Sold receivables437
 32
(458) (222)
Inventories(256) (80)(492) (273)
Accounts payable90
 13
62
 59
Other current assets(68) (69)(67) (45)
Other current liabilities(72) (31)(270) (184)
Net cash provided by/(used for) operating activities2,104
 411
(151) 270
CASH FLOWS FROM INVESTING ACTIVITIES:      
Capital expenditures(514) (163)(368) (303)
Proceeds from net investment hedges77
 306
Other investing activities, net(79) 7
38
 10
Net cash provided by/(used for) investing activities(516) 150
(330) (293)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments of long-term debt(12) (1,963)
Proceeds from issuance of long-term debt6,982
 2,000
Proceeds from issuance of commercial paper1,939
 —
2,324
 —
Repayments of commercial paper(1,307) —
(2,068) —
Dividends paid-Series A Preferred Stock(180) (360)
Dividends paid-common stock(1,334) —
(736) (667)
Redemption of Series A Preferred Stock(8,320) —
Other financing activities, net43
 (56)(25) 40
Net cash provided by/(used for) financing activities(2,189) (379)(505) (627)
Effect of exchange rate changes on cash and cash equivalents1
 (333)
Cash and cash equivalents:   
Effect of exchange rate changes on cash, cash equivalents, and restricted cash13
 44
Cash, cash equivalents, and restricted cash   
Net increase/(decrease)(600) (151)(973) (606)
Balance at beginning of period4,837
 2,298
4,255
 4,912
Balance at end of period$4,237
 $2,147
$3,282
 $4,306

See accompanying notes to the condensed consolidated financial statements.


The Kraft Heinz Company
Notes to Condensed Consolidated Financial Statements
Note 1. Background and Basis of Presentation
Basis of Presentation:
Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). In management'smanagement’s opinion, these interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary to present fairly our results for the periods presented.
The condensed consolidated balance sheet data at January 3,December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. You should read these statements in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended January 3,December 31, 2016. The results for interim periods are not necessarily indicative of future or annual results.
Organization:
On July 2, 2015, (the “2015 Merger Date”), through a series of transactions, we consummated the merger of Kraft Foods Group, Inc. (“Kraft”) with and into a wholly-owned subsidiary of H.J. Heinz Holding Corporation (“Heinz”) (the “2015 Merger”). At the closing of the 2015 Merger, Heinz was renamed The Kraft Heinz Company (“Kraft Heinz”).
Before the consummation of the 2015 Merger, Heinz was controlled by Berkshire Hathaway Inc. and 3G Global Food Holdings, L.P. (together,(“3G Capital”), following their acquisition of H. J. Heinz Company (the “2013 Merger”) on June 7, 2013.
Accounting Standards Adopted in the “Sponsors”Current Period:
In March 2016, the Financial Accounting Standards Board (the “FASB”). issued accounting standards update (“ASU”) 2016-09 related to equity-based award accounting and presentation. Under this guidance, excess tax benefits upon the exercise of share- based payment awards are recognized in our tax provision rather than within equity. Cash flows related to excess tax benefits are classified as operating activities rather than financing activities. Additionally, cash flows related to employee tax withholdings on restricted share vesting are classified as financing activities. This ASU was effective in the first quarter of 2017. We adopted the guidance related to excess tax benefits on a prospective basis. As a result, we recognized a tax benefit of $8 million in our condensed consolidated statement of income for the three months ended April 1, 2017 related to our excess tax benefits upon the exercise of share-based payment awards. We retrospectively adopted the guidance related to cash flow classification of employee tax withholdings on restricted share vesting. There was no related impact on our statement of cash flows for the three months ended April 3, 2016. Our equity award compensation cost continues to reflect estimated forfeitures.
ChangesIn August 2016, the FASB issued ASU 2016-15 related to the classification of certain cash payments and cash receipts on the statement of cash flows. This ASU provided guidance on eight specific cash flow classification matters, which must be adopted in Accountingthe same period using a retrospective transition method. We early adopted this ASU in the first quarter of 2017. Only one classification matter impacted us. Specifically, now we classify cash payments for debt prepayment and Reporting:debt extinguishment costs as cash outflows from financing activities rather than cash outflows from operating activities. This guidance did not impact our condensed consolidated statements of cash flows for the three months ended April 1, 2017 or April 3, 2016.
In November 2016, the thirdFASB issued ASU 2016-18 requiring the statement of cash flows to explain the change in restricted cash and restricted cash equivalents, in addition to cash and cash equivalents. We early adopted this ASU in the first quarter of 2015,2017. Accordingly, we made the following changes in accountingrestated our cash and reporting to harmonize our accounting and reporting as Kraft Heinz:
We made a voluntary change in accounting policy to classify certain warehouse and distribution costs (including shipping and handling costs) associated with the distribution of finished product to our customers as cost of products sold, which were previously recorded in selling, general and administrative expenses (“SG&A”). We made this voluntary change in accounting policy because we believe this presentation is preferable, as the classification in cost of products sold better reflects the cost of producing and distributing products. Additionally, this presentation enhances the comparability of our financial statements with industry peers and aligns with how we now internally manage and review costs. As required by U.S. GAAP, the change has been reflectedcash equivalents balances in the condensed consolidated statements of income through retrospective applicationcash flows to include restricted cash of the change in accounting policy. The impact of this change resulted in an increase in cost of products sold$51 million at December 31, 2016, $108 million at April 3, 2016, and $75 million at January 3, 2016. Additionally, cash outflows from investing activities related to dividends paid on our Series A Preferred Stock were reduced to reflect $32 million which was moved to escrow and did not reflect a decrease in SG&A of $148 millioncash disbursement for the three months and $299 million for the six months ended June 28, 2015.
We made a voluntary change in accounting policy to classify our trademark and license intangible asset impairments and amortization in SG&A, which were previously recorded in cost of products sold. We made this voluntary change in accounting policy because we believe this presentation is preferable, as removing these expenses from cost of products sold better aligns cost of products sold with costs directly associated with generating revenue. Additionally, this presentation enhances the comparability of our financial statements with industry peers and aligns with how we now internally manage and review costs.April 3, 2016. As required by U.S. GAAP, the change has been reflected in the condensed consolidated statements of income through retrospective application of the change in accounting policy. The impact of this change was an increase in SG&AASU, we have provided a reconciliation from cash and a decrease in cost of products sold by $63 million for the three months and $68 million for the six months ended June 28, 2015.
We determined that we had previously misclassified customer related intangible asset amortization. Such costs were previously included in cost of products sold but should have been included in SG&A. We have revised the classification to report these expenses in SG&A in the condensed consolidated statements of income for the applicable prior periods presented. The impact of this revision was to increase SG&A and decrease cost of products sold by $16 million for the three months and $32 million for the six months ended June 28, 2015. This misstatement was not material to any prior period financial statements.
Consistent with our consolidated financial statements in our Annual Report on Form 10-K for the year ended January 3, 2016, we separatelycash equivalents as presented sold receivables on our condensed consolidated balance sheets to cash, cash equivalents, and restricted cash as reported on our condensed consolidated statements of cash flows. Our prior periodSee Note 3, Restricted Cash, for this reconciliation, as well as a discussion of the nature of our restricted cash flow balances have been reclassified to conform with the current period presentation.

balances.

Recently Issued Accounting Standards:
In May 2014, the Financial Accounting Standards Board (the “FASB”)FASB issued an accounting standards update (“ASU”) thatASU 2014-09, which superseded previously existing revenue recognition guidance. Under this ASU, companies will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the company expects to be entitled in exchange for those goods or services. This ASU will be effective beginning in the first quarter of our fiscal year 2018. The ASU may be applied retrospectively to historical periods presentedusing a full retrospective method or asa modified retrospective transition method, with a cumulative-effect adjustment as of the date of adoption. WeWhile we are currentlystill evaluating the impact that this ASU will have on our financial statements and related disclosures.
In September 2015,disclosures, we have completed our preliminary scoping reviews and have made progress in our assessment phase. We have focused our reviews on the FASB issued an ASU intendedrevenue streams in the U.S., Canada, and Europe as they are our most significant. At this time, we believe the potential impacts on our existing accounting policies may be associated with our consumer incentive and trade promotion programs. We will adopt the new standard on January 1, 2018. We are still evaluating our application method. Our ability to simplifyadopt using the accounting for measurement period adjustments infull retrospective method is dependent on a business combination. Measurement period adjustments are changes to provisional amounts recorded when the accounting for a business combination is incomplete asnumber of the endfactors, including system readiness, which may include software procured from third-party providers, and finalizing our assessment of a reporting period. The measurement period can extend for up to a year following the transaction date. During the measurement period, companies may make adjustments to provisional amounts when information necessary to complete the measurement is received. The ASU requires companies to recognize these adjustments, including any related impacts to net income, in the reportingrestate prior period in which the adjustments are determined. Companies are no longer required to retroactively apply measurement period adjustments to all periods presented. We early adopted this ASU in 2015. See Note 2, Merger and Acquisition, for additional information on measurement period adjustments.financial statements.
In February 2016, the FASB issued an ASU that2016-02, which superseded previously existing leasing guidance. The ASU is intended to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The new guidance requires lessees to reflect most leases on their balance sheet as assets and obligations. This ASU will be effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. While we are still evaluating the impact this ASU will have on our financial statements and related disclosures, we have initiated our scoping reviews and have made progress in our assessment phase. Based on our initial reviews, we expect that the adoption will increase the assets and liabilities on our condensed consolidated balance sheets. We are still evaluating our adoption date.
In October 2016, the FASB issued ASU 2016-16 related to the income tax accounting impacts of intra-entity transfers of assets other than inventory, such as intellectual property and property, plant and equipment. Under the new accounting guidance, current and deferred income taxes should be recognized upon transfer of the assets. Previously, recognition of current and deferred income taxes was prohibited until the asset was sold to an external third party. This ASU will be effective beginning in the first quarter of our fiscal year 2018. Early adoption is permitted but must be adopted in the first interim period of the annual period for which the ASU is adopted. The new guidance must be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. While we are still evaluating the impact that this ASU will have on our financial statements and related disclosures, we will adopt this ASU in the first quarter of 2018.
In January 2017, the FASB issued ASU 2017-04 related to goodwill impairment testing. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entities that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test; however, additional disclosure will be required of those entities. This ASU will be effective in the first quarter of our fiscal year 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance must be adopted on a prospective basis. While we are still evaluating the timing of adoption, we currently do not expect this ASU to have a material impact on our financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-07 related to the presentation of net periodic benefit cost (pension and postretirement cost). Under the new guidance, the service cost component of net periodic benefit cost must be presented in the same statement of income line item as other employee compensation costs arising from services rendered by employees during the period. Other components of net periodic benefit cost must be disaggregated from the service cost component in the statements of income and must be presented outside the operating income subtotal. Additionally, only the service cost component will be eligible for capitalization in assets. The new guidance must be applied retrospectively for the statement of income presentation of service cost components and other net periodic benefit cost components and prospectively for the capitalization of the service cost components. The ASU will become effective in the first quarter of our fiscal year 2018. Early adoption is permitted but must occur within the first interim period of the annual period adopted. We are currently evaluating the impact that this ASU will have on our financial statements and related disclosures.
In March 2016, the FASB issued an ASU intended to simplify equity-based award accounting and presentation. The ASU impacts income tax accounting related to equity-based awards, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. This ASU will be effective beginning in the first quarter of our fiscal year 2017. Early adoption is permitted. We are currently evaluating the impact that this ASU will have on our financial statements and related disclosures.
Note 2. Merger and Acquisition
Transaction Overview:
The 2015 Merger was accounted for under the acquisition method of accounting for business combinations and Heinz was considered to be the acquiring company. Under the acquisition method of accounting, total consideration exchanged was (in millions):
Aggregate fair value of Kraft common stock$42,502
$16.50 per share special cash dividend9,782
Fair value of replacement equity awards353
Total consideration exchanged$52,637
Valuation Assumptions and Purchase Price Allocation:
We utilized estimated fair values at the 2015 Merger Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. Such allocation was final as of the issuance date of this report.
During the first half of 2016, we made measurement period adjustments to the preliminary purchase price allocation primarily reflecting (i) a decrease in indefinite-lived intangible assets of $2.0 billion, (ii) a decrease in deferred income tax liabilities of $564 million, and (iii) an increase in goodwill of $1.4 billion. We made these measurement period adjustments to reflect facts and circumstances that existed as of the 2015 Merger Date and did not result from intervening events subsequent to such date.


The final purchase price allocation to assets acquired and liabilities assumed in the transaction was (in millions):
Cash$314
Other current assets3,423
Property, plant and equipment4,179
Identifiable intangible assets47,771
Other non-current assets214
Trade and other payables(3,026)
Long-term debt(9,286)
Net postemployment benefits and other non-current liabilities(4,739)
Deferred income tax liabilities(16,675)
Net assets acquired22,175
Goodwill on acquisition30,462
Total consideration52,637
Fair value of shares exchanged and equity awards42,855
Total cash consideration paid to Kraft shareholders9,782
Cash and cash equivalents of Kraft at the 2015 Merger Date314
Acquisition of business, net of cash on hand$9,468
The 2015 Merger resulted in $30.5 billion of non tax deductible goodwill relating principally to synergies expected to be achieved from the combined operations and planned growth in new markets. Goodwill has been allocated to our segments as shown in Note 5, Goodwill and Intangible Assets.
Pro Forma Results:
The following table provides unaudited pro forma results, prepared in accordance with ASC 805, for the three and six months ended June 28, 2015, as if Kraft had been acquired as of December 30, 2013.
 For the Three Months Ended For the Six Months Ended
 June 28, 2015 June 28, 2015
 (in millions, except per share data)
Net sales$7,130
 $13,960
Net income366
 1,104
Basic earnings per share0.16
 0.63
Diluted earnings per share0.15
 0.61
The unaudited pro forma results include certain purchase accounting adjustments. We have made pro forma adjustments to exclude deal costs (“Deal Costs”) of $47 million ($29 million net of tax) for the three months and $71 million ($44 million net of tax) for the six months ended June 28, 2015, because such costs are non-recurring and are directly attributable to the 2015 Merger. These expenses were included in the prior year pro forma results.
The unaudited pro forma results do not include any anticipated cost savings or other effects of future integration efforts. Unaudited pro forma amounts are not necessarily indicative of results had the 2015 Merger occurred on December 30, 2013 or of future results.
Note 3.2. Integration and Restructuring Expenses
Following the 2015 Merger, we announced a multi-year program (the “Integration Program”) designed to reduce costs, as well as integrate and optimize the combined organization. As part of theseour restructuring activities, we incur expenses (primarily employee separations, lease terminations and other direct exit costs) that qualify as exit and disposal costs under U.S. GAAP. These include severance and employee benefit costs and other exit costs. Severance and employee benefit costs primarily relate to cash severance, non-cash severance, including accelerated equity award compensation expense, and pension and other termination benefits. Other exit costs primarily relate to lease and contract terminations. We also incur expenses that are an integral component of, and directly attributable to, our restructuring activities, which do not qualify as exit and disposal costs (primarily accelerated depreciation, asset impairments, implementation costs such as new facility relocation and start-upunder U.S. GAAP. These include asset-related costs and other incremental costs).



implementation costs. Asset-related costs primarily relate to accelerated depreciation and asset impairment charges. Other implementation costs primarily relate to start-up costs of new facilities, professional fees, asset relocation costs, and costs to exit facilities.
Employee severance and other termination benefit packages are primarily determined based on established benefit arrangements, local statutory requirements, or historical benefit practices. We recognize the contractual component of these benefits when payment is probable and estimable; additional elements of severance and termination benefits associated with non-recurring benefits are recognized ratably over each employee’s required future service period. Asset-related costs consist primarily of accelerated depreciation, and to a lesser degree asset impairments. Charges for accelerated depreciation are recognized on long-lived assets that will be taken out of service before the end of their normal service, in which case depreciation estimates are revised to reflect the use of the asset over its shortened useful life. Asset impairments establish a new fair value basis for assets held for disposal or sale and those assets are written down to expected net realizable value if carrying value exceeds fair value. All other costs are recognized as incurred.
Integration Program:
Following the 2015 Merger, we announced a multi-year program (the “Integration Program”) designed to reduce costs, streamline and simplify our operating structure as well as optimize our production and supply chain network across our businesses in the United States and Canada segments. We currently expect to incur pre-tax costs of $2.0 billion related to the Integration Program, will result in $1.9 billion of pre-tax costs, with approximately 60% reflected in cost of products sold within our United States and Canada segments. These pre-tax costs are comprised of the following categories:
Organization costs ($650400 million) associated with our plans to streamline and simplify our operating structure, resulting in workforce reduction. These costs primarily include:reduction (primarily severance and employee benefits (cash severance, non-cash severance, including accelerated equity award compensation expense, and pension and other termination benefits)benefit costs). Beginning in August 2015, we announced a new, streamlined structure for our businesses in the United States and Canada segments. This resulted in the reduction of salaried positions across the United States and Canada. Overall, we expect to eliminate 2,950 positions in connection with this reduction.
Footprint costs ($1.11.2 billion) associated with our plans to optimize our production and supply chain network, resulting in workforce reduction and facility closures and consolidations. These costs primarily include:consolidations (primarily asset-related costs (accelerated depreciation and asset impairment charges), costs to exit facilities, relocation and start-up costs of new facilities, and severance and employee benefits. On November 4, 2015, we announced the closure of seven factories and began consolidation of our distribution network. In a staged process, production in these locations is shifting to other existing factories in the United States and Canada. Overall, we expect to eliminate 2,600 positions in connection with these activities.benefit costs).
Other costs ($150400 million) incurred as a direct result of integration activities, primarily including:including other exit costs (lease and contract and lease terminations, professional fees,terminations) and other incrementalimplementation costs (professional services and other third-party fees.fees).
Overall, as part of the Integration Program, we expect to eliminate 5,150 positions, close net six factories, and consolidate our distribution network. At April 1, 2017, the total Integration Program liability related primarily to the elimination of general salaried and factory positions across the United States and Canada, 3,800 of whom have left the company by April 1, 2017.
Related to the Integration Program, we incurred costs of $127 million for the three months ended April 1, 2017 and $241 million for the three months ended April 3, 2016. As ofJuly 3, 2016, April 1, 2017, we have incurred $1.3approximately $1.8 billion of cumulative costs under the Integration Program, including: $620including $715 million of severance and employee benefit costs, $441$731 million of non-cash asset-related costs, $188$293 million of other implementation costs, and $80$104 million of other exit costs. We expect that approximately 60% of the Integration Program expenses will be cash expenditures.
Our liability balance for Integration Program costs during the three and six months ended July 3, 2016 were (in millions):
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 July 3, 2016
Severance and employee benefit costs$30
 $58
Asset-related costs149
 305
Other exit costs17
 25
Other implementation costs63
 112
 $259
 $500
At July 3, 2016, the total Integration Program liability related primarily to the elimination of general salaried and footprint-related positions across the United States and Canada, 2,900 of whom have left the company by July 3, 2016. The liability balance associated with the Integration Program, which qualifiesthat qualify as U.S. GAAP exit and disposal costs (i.e., severance and employee benefit costs and other exit costs), was (in millions):
Severance and Employee Benefit Costs 
Other Exit Costs(a)
 TotalSeverance and Employee Benefit Costs 
Other Exit Costs(a)
 Total
Balance at January 3, 2016
$185
 $23
 $208
Balance at December 31, 2016$99
 $10
 $109
Charges58
 25
 83
34
 9
 43
Cash payments(83) (38) (121)(22) (1) (23)
Non-cash utilization(9) —
 (9)(8) (2) (10)
Balance at July 3, 2016$151
 $10
 $161
Balance at April 1, 2017$103
 $16
 $119
(a) Other exit costs primarily represent contract and lease terminations.
We expect that a substantial portion of the July 3, 2016 Integration Program liability as of April 1, 2017 will be paid in 2016.

2017.

Restructuring Activities:
PriorIn addition to the 2015 Merger,our Integration Program in North America, we executedhave a small number of other restructuring activitiesprograms globally, which are focused primarily on workforce reduction and factory closure and consolidation, which are substantially complete.consolidation. These programs, and other programs resulted in expenses of of $21 million for the elimination of 8,250 positions and cumulative $568three months ended April 1, 2017, including $10 million severance and employee benefit costs, $337$1 million non-cash asset-related costs, and $376$10 million other exit costs through July 3, 2016. Related to these restructuring activities, we incurredimplementation costs. Such expenses of $25 million for the three months and $44 million for the six months ended July 3, 2016.
As of JulyApril 3, 2016 thewere $19 million, including $10 million severance and employee benefit costs, $8 million other implementation costs, and $1 million other exit costs.
Our liability balance associated with activefor restructuring projects, which qualifiesproject costs that qualify as U.S. GAAP exit and disposal costs (i.e., severance and employee benefit costs and other exit costs), was (in millions):
Severance and Employee Benefit Costs 
Other Exit Costs(a)
 TotalSeverance and Employee Benefit Costs 
Other Exit Costs(a)
 Total
Balance at January 3, 2016
$25
 $30
 $55
Balance at December 31, 2016$12
 $25
 $37
Charges17
 1
 18
10
 —
 10
Cash payments(25) (3) (28)(12) (1) (13)
Balance at July 3, 2016$17
 $28
 $45
Non-cash utilization(4) —
 (4)
Balance at April 1, 2017$6
 $24
 $30
(a) Other exit costs primarily represent contract and lease terminations.
We expect the liability for severance and employee benefit costs as of April 1, 2017 to be paid in 2017. The liability for other exit costs primarily relates to lease obligations associated with restructuring programs executed prior to the 2015 Merger. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2017 and 2026.
Total Integration and Restructuring:
Our totalTotal expenses related to our Integration Program and restructuring activities recorded in cost of products sold and selling, general and administrative expenses (“SG&A”) for the years presented were (in millions):
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
Severance and employee benefit costs - COGS$23
 $9
 $29
 $19
$19
 $6
Severance and employee benefit costs - SG&A14
 11
 46
 13
25
 32
Asset-related costs - COGS137
 31
 279
 34
75
 142
Asset-related costs - SG&A12
 —
 26
 —
7
 14
Other exit costs - COGS39
 6
 72
 23
Other exit costs - SG&A59
 5
 92
 16
Other costs - COGS9
 33
Other costs - SG&A13
 33
$284
 $62
 $544
 $105
$148
 $260
We do not include Integration Program and restructuring expenses within Segment Adjusted EBITDA. SeeEBITDA (as defined in Note 14,15, Segment Reporting, for additional information on our segment structure.). The pre-tax impact of allocating such expenses to our segments would have been (in millions):
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
United States$247
 $31
 $446
 $40
$108
 $199
Canada9
 11
 27
 12
10
 18
Europe13
 9
 28
 34
14
 15
Rest of World—
 5
 —
 9
—
 —
Non-Operating15
 6
 43
 10
General corporate expenses16
 28
$284
 $62
 $544
 $105
$148
 $260


Note 3. Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, as reported on our condensed consolidated balance sheets, to cash, cash equivalents, and restricted cash, as reported on our condensed consolidated statements of cash flows (in millions):
 April 1,
2017		 December 31, 2016
Cash and cash equivalents$3,242
 $4,204
Restricted cash included in other assets (current)36
 42
Restricted cash included in other assets (noncurrent)4
 9
Cash, cash equivalents, and restricted cash$3,282
 $4,255
Our restricted cash primarily relates to withholding taxes on our common stock dividends to 3G Capital.
Note 4. Inventories
Inventories at July 3, 2016April 1, 2017 and January 3,December 31, 2016 were (in millions):
July 3, 2016 January 3, 2016April 1, 2017 December 31, 2016
Packaging and ingredients$601
 $563
$716
 $542
Work in process369
 393
493
 388
Finished product1,911
 1,662
1,942
 1,754
Inventories$2,881
 $2,618
$3,151
 $2,684
The increase in inventories in the secondfirst quarter of 20162017 is primarily due to an increase in inventory production ahead of planned facility closures and consolidations under our Integration Program, combined withseasonality, as well as lower net sales for the impact of seasonality. See Note 3, Integration and Restructuring Expenses, for additional information on the Integration Program.period.
Note 5. Goodwill and Intangible Assets
Goodwill:
Changes in the carrying amount of goodwill from January 3,December 31, 2016 to July 3, 2016,April 1, 2017, by segment, were (in millions):
 United States Canada Europe Rest of World Total
Balance at January 3, 2016
$32,290
 $4,796
 $3,182
 $2,783
 $43,051
2015 Merger measurement period adjustments1,433
 —
 —
 —
 1,433
Translation adjustments—
 334
 (263) 86
 157
Balance at July 3, 2016$33,723
 $5,130
 $2,919
 $2,869
 $44,641
 United States Canada Europe Rest of World Total
Balance at December 31, 2016$33,696
 $4,913
 $2,778
 $2,738
 $44,125
Translation adjustments—
 44
 51
 80
 175
Balance at April 1, 2017$33,696
 $4,957
 $2,829
 $2,818
 $44,300
In connection with the 2015 Merger, we recorded $30.5 billion of goodwill in purchase accounting, representing the fair value as of the 2015 Merger Date. As of the issuance date of this report, the assignment of goodwill to reporting units was final. During the first half of 2016, we made measurement period adjustments to the 2015 Merger purchase price allocation, resulting in an increase of $1.4 billion to goodwill in the United States segment. See Note 2, Merger and Acquisition, for additional information on these measurement period adjustments.
In the first quarter of 2016, we moved certain of our export businesses and their related goodwill balances from our United States segment to our Rest of World and Europe segments. We have reflected this change in all historical periods presented. Accordingly, the segment goodwill balances at January 3, 2016 reflect a decrease of $1,473 million in the United States, an increase of $1,443 million in Rest of World, and an increase of $30 million in Europe. These amounts represent the final allocation of goodwill associated with these export businesses.
We test goodwill for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 2016 annual impairment testing in the second quarter of 2016. There was no impairment of goodwill as a result of our testing; however, we noted that one reporting unit within the Rest of WorldEurope segment had an estimated fair value in excess of its carrying value of less than 10%. The goodwill carrying value of this reporting unit was $48 million as of April 4, 2016 (our goodwill2016 annual impairment testing date).
Our goodwill balance consists of a large number of individual18 reporting units and had an aggregate carrying value of $44.6$44.3 billion as of July 3, 2016. A significant portionApril 1, 2017. As a majority of thisour goodwill was recently recorded in connection with the 20152013 Merger at which time it represented the estimated fair value. Becauseand the 2015 Merger, occurred recently, werepresenting fair values as of those merger dates, there was not a significant excess of fair values over carrying values as of April 4, 2016 (our 2016 annual impairment testing date). We have a risk of future impairment to the extent that individual goodwill reporting unit performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair value of our goodwill could be adversely affected, leading to a potential impairment in the future. No events occurred during the period ended April 1, 2017 that indicated it was more likely than not that our goodwill was impaired.There were no accumulated impairment losses to goodwill as of July 3, 2016.

April 1, 2017.

Indefinite-lived intangible assets:
In connection with the 2015 Merger, we recorded $43.1 billion of indefinite-lived intangible assets in purchase accounting, representing the fair values as of the 2015 Merger Date.
Indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):
Balance at January 3, 2016
$55,824
2015 Merger measurement period adjustments(1,978)
Translation adjustments(253)
Balance at July 3, 2016$53,593
Balance at December 31, 2016$53,307
Translation adjustments80
Balance at April 1, 2017$53,387
We test indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 2016 annual impairment testing in the second quarter of 2016. There was no impairment of indefinite-lived intangibles as a result of our testing; however, we noted that seven brands each had excess fair valuesvalue over theirits carrying valuesvalue of less than 10%. These brands had an aggregate carrying value of $6.1 billion at April 4, 2016 (our indefinite-lived intangible asset2016 annual impairment testing date). Of the $6.1 billion aggregate carrying value, $5.6 billion was attributable to Velveeta, Lunchables, Maxwell House, and Cracker Barrel.
Our indefinite-lived intangible assets primarily consist of a large number of individual brands and had an aggregate carrying value of $53.6$53.4 billion as of July 3, 2016. A significant portionApril 1, 2017. As a majority of these brandsour indefinite-lived intangible assets were adjusted to their estimated fair valuesrecently recorded in connection with the 2015 Merger. Because2013 Merger and the 2015 Merger, occurred recently, werepresenting fair values as of those merger dates, there was not a significant excess of fair values over carrying values as of April 4, 2016 (our 2016 annual impairment testing date). We have a risk of future impairment to the extent individual brand performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair values of our indefinite-lived intangible assets could be adversely affected, leading to potential impairments in the future. No events occurred during the period ended April 1, 2017 that indicated it was more likely than not that our indefinite-lived intangible assets were impaired.
Definite-lived intangible assets:
Definite-lived intangible assets at July 3, 2016April 1, 2017 and January 3,December 31, 2016 were (in millions):
July 3, 2016 January 3, 2016April 1, 2017 December 31, 2016
Gross 
Accumulated
Amortization
 Net Gross 
Accumulated
Amortization
 NetGross 
Accumulated
Amortization
 Net Gross 
Accumulated
Amortization
 Net
Trademarks$2,354
 $(122) $2,232
 $2,346
 $(70) $2,276
$2,346
 $(199) $2,147
 $2,337
 $(172) $2,165
Customer-related assets4,219
 (292) 3,927
 4,218
 (209) 4,009
4,199
 (413) 3,786
 4,184
 (369) 3,815
Other14
 (4) 10
 15
 (4) 11
13
 (3) 10
 13
 (3) 10
$6,587
 $(418) $6,169
 $6,579
 $(283) $6,296
$6,558
 $(615) $5,943
 $6,534
 $(544) $5,990
Amortization expense for definite-lived intangible assets was $67 million for the three months ended April 1, 2017 and $66 million for the three months and $132 million for the six months ended JulyApril 3, 2016 and was $22 million for the three months and $44 million for the six months ended June 28, 2015.2016. Aside from amortization expense, the changes in definite-lived intangible assets from January 3,December 31, 2016 to July 3, 2016April 1, 2017 reflect the impact of foreign currency. We estimate that annual amortization expense for definite-lived intangible assets for each of the next five years will be approximately $275$270 million.
Note 6. Income Taxes
The provision for income taxes consists of provisions for federal, state and foreign income taxes. We operate in an international environment; accordingly, the consolidated incomeeffective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax ratesrates. Additionally, our quarterly income tax provision is determined based on our estimated full year effective tax rate, adjusted for tax attributable to infrequent or unusual items, which are recognized on a discrete period basis in various locations.the income tax provision for the period in which they occur.
TheOur effective tax rate was an expense of 30.1%28.7% for the three months and 29.7% for the six months ended July 3, 2016, reflecting the favorable benefit of pre-tax income in non-U.S. jurisdictions and certain tax exempt income. Our effective tax rate increased in comparisonApril 1, 2017, compared to the benefit of 17.6%29.2% for the three months and an expense of 21.8% for the six months ended June 28, 2015.April 3, 2016. The increasedecrease in our effective tax rate for the three and six months ended July 3, 2016 compared to the three and six months ended June 28, 2015 was driven by the 2015 Merger. Withfavorable impact of net discrete items, primarily related to reversals of uncertain tax position reserves in foreign jurisdictions. The favorable impact of current year discrete items was partially offset by the 2015 Merger, our operations in the United States and Canada increased, resulting in an unfavorable impact to theof a higher percentage of U.S. income reflected in our estimated full year effective tax rate of higher blended statutory tax rates and a favorable impactfor 2017 compared to the effective tax rate of a larger amount of tax exempt income.2016.


Note 7. Employees’ Stock Incentive Plans
Our annual equity award grants and vesting occurred in the first quarter of 2016.2017. Other off-cycle equity grants may occur throughout the year.
Stock Options:
Our stock option activity and related information was:
 Number of Stock Options 
Weighted Average Exercise Price
(per share)
Outstanding at January 3, 201624,205,612
 $34.86
Options granted1,204,005
 77.66
Options forfeited(470,020) 40.65
Options exercised(3,090,965) 35.04
Outstanding at July 3, 201621,848,632
 37.07
 Number of Stock Options Weighted Average Exercise Price
(per share)
Outstanding at December 31, 201620,560,140
 $37.39
Granted1,170,685
 91.40
Forfeited(126,206) 44.78
Exercised(1,126,852) 34.00
Outstanding at April 1, 201720,477,767
 40.62
The aggregate intrinsic value of stock options exercised during the period was $137$65 million for the sixthree months ended July 3, 2016.April 1, 2017.
Restricted Stock Units:
Our restricted stock unit (“RSU”) activity and related information was:
Number of Units 
Weighted Average Grant Date Fair Value
(per share)
Number of Units 
Weighted Average Grant Date Fair Value
(per share)
RSUs at January 3, 2016968,444
 $70.14
Outstanding at December 31, 2016806,744
 $71.95
Granted499,563
 77.49
1,640,535
 84.97
Forfeited(57,558) 73.83
(19,395) 76.65
Vested(404,578) 72.96
(117,958) 72.96
RSUs at July 3, 20161,005,871
 72.43
Outstanding at April 1, 20172,309,926
 81.15
The aggregate fair value of RSUs that vested during the period was $30$11 million for the sixthree months ended July 3, 2016.April 1, 2017.
Total Equity Awards:
The compensation cost related to equity awards was primarily recognized in general corporate expenses within SG&A. Equity award compensation cost and the related tax benefit was (in millions):
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
Pre-tax compensation cost$13
 $3
 $26
 $5
$11
 $13
Tax benefit(4) (1) (8) (2)(3) (4)
After-tax compensation cost$9
 $2
 $18
 $3
$8
 $9
Unrecognized compensation cost related to unvested equity awards was $114$220 million at July 3, 2016April 1, 2017 and is expected to be recognized over a weighted average period of threefour years.

Note 8. Postemployment Benefits
In the first quarter of 2016, we changed the method that we use to estimate the service cost and interest cost components of net pension cost/(benefit) and net postretirement cost/(benefit). We use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We made this change to provide a more precise measurement of service cost and interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. The change resulted in a decrease in service and interest cost of approximately $20 million in the three months ended July 3, 2016 and approximately $40 million in the six months ended July 3, 2016 compared to what our costs would have been under the previous method. This change did not affect the measurement of our total benefit obligations. We have accounted for this change prospectively as a change in accounting estimate.


Pension Plans
Components of Net Pension Cost/(Benefit):
Net pension cost/(benefit) consisted of the following for the three and six months ended July 3, 2016 and June 28, 2015 (in millions):
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. PlansU.S. Plans Non-U.S. Plans
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016		 April 1,
2017		 April 3,
2016
Service cost$4
 $2
 $6
 $5
 $7
 $3
 $12
 $10
$3
 $3
 $4
 $6
Interest cost53
 4
 22
 22
 106
 9
 43
 43
45
 53
 16
 21
Expected return on plan assets(74) (3) (47) (42) (148) (8) (93) (85)(65) (74) (43) (46)
Amortization of unrecognized losses/(gains)—
 1
 —
 —
 —
 2
 —
 —
Settlements—
 —
 —
 11
 (6) —
 —
 11
—
 (6) —
 —
Curtailments—
 —
 —
 (2) —
 —
 —
 (2)
Special/contractual termination benefits7
 —
 6
 —
Other2
 —
 (9) —
Net pension cost/(benefit)$(17) $4
 $(19) $(6) $(41) $6
 $(38) $(23)$(8) $(24) $(26) $(19)
We capitalized a portion of net pension costs/(benefits) into inventory based on our production activities. These amounts are included in the table above.
Employer Contributions:
DuringIn the six months ended July 3, 2016,first quarter of 2017, we contributed $161$11 million to our non-U.S. pension plans. We did not contribute to our U.S. pension plans which included contributions related toin the settlementfirst quarter of our U.S. nonqualified pension plan that was terminated effective December 31, 2015. During the six months ended July 3, 2016, we contributed $16 million to our non-U.S. pension plans.2017. Based on our contribution strategy, we plan to make further contributions of up to approximately $150 million to our U.S. plans and approximately $15$45 million to our non-U.S. plans during the remainder of 2016.2017. However, our actual contributions and plans may differchange due to many factors, including timing of regulatory approval for the windup of our Canadian plans; changes in tax, employee benefit, or other laws,laws; tax deductibility,deductibility; significant differences between expected and actual pension asset performance or interest rates,rates; or other factors.
Postretirement Plans
Components of Net Postretirement Cost/(Benefit):
Net postretirement cost/(benefit) consisted of the following for the three and six months ended July 3, 2016 and June 28, 2015 (in millions):
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
Service cost$4
 $1
 $8
 $2
$2
 $4
Interest cost14
 2
 30
 4
13
 16
Amortization of prior service costs/(credits)(80) (2) (162) (3)(90) (82)
Net postretirement cost /(benefit)$(62) $1
 $(124) $3
Net postretirement cost/(benefit)$(75) $(62)
We capitalized a portion of net postretirement costs/(benefits) into inventory based on our production activities. These amounts are included in the table above.


Note 9. Accumulated Other Comprehensive Income/(Losses)
The components of, and changes in, accumulated other comprehensive income/(losses), net of tax, were as follows (net of tax)(in millions):
Foreign Currency Translation Adjustments Net Postemployment Benefit Plan Adjustments Net Cash Flow Hedge Adjustments TotalForeign Currency Translation Adjustments Net Postemployment Benefit Plan Adjustments Net Cash Flow Hedge Adjustments Total
(in millions)
Balance as of January 3, 2016$(1,646) $922
 $53
 $(671)
Balance as of December 31, 2016$(2,412) $772
 $12
 $(1,628)
Foreign currency translation adjustments(153) —
 —
 (153)309
 —
 —
 309
Net deferred gains/(losses) on net investment hedges45
 —
 —
 45
(51) —
 —
 (51)
Net postemployment benefit gains/(losses) arising during the period—
 (10) —
 (10)
Reclassification of net postemployment benefit losses/(gains)—
 (104) —
 (104)—
 (55) —
 (55)
Net deferred gains/(losses) on cash flow hedges—
 —
 (32) (32)—
 —
 (34) (34)
Net deferred losses/(gains) on cash flow hedges reclassified to net income—
 —
 (18) (18)—
 —
 20
 20
Total other comprehensive income/(loss)(108) (104) (50) (262)258
 (65) (14) 179
Balance as of July 3, 2016$(1,754) $818
 $3
 $(933)
Balance as of April 1, 2017$(2,154) $707
 $(2) $(1,449)
Reclassification of net postemployment benefit losses/(gains) included amounts reclassified to net income and amounts reclassified into inventory (consistent with our capitalization policy).
The gross amount and related tax benefit/(expense) recorded in, and associated with, each component of other comprehensive income/(loss) for the three and six months ended July 3, 2016 and June 28, 2015 were as follows (in millions):
 For the Three Months Ended
 July 3, 2016 June 28, 2015
 Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
Foreign currency translation adjustments$(418) $—
 $(418) $360
 $—
 $360
Net deferred gains/(losses) on net investment hedges194
 (89) 105
 (330) 124
 (206)
Net actuarial gains/(losses) arising during the period—
 —
 —
 (23) 5
 (18)
Reclassification of net postemployment benefit losses/(gains)(80) 30
 (50) 10
 (2) 8
Net deferred gains/(losses) on cash flow hedges(17) 3
 (14) (8) (2) (10)
Net deferred losses/(gains) on cash flow hedges reclassified to net income6
 (2) 4
 223
 (86) 137
For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax AmountBefore Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
Foreign currency translation adjustments$(153) $—
 $(153) $(420) $—
 $(420)$309
 $—
 $309
 $265
 $—
 $265
Net deferred gains/(losses) on net investment hedges110
 (65) 45
 421
 (195) 226
(78) 27
 (51) (84) 24
 (60)
Net actuarial gains/(losses) arising during the period—
 —
 —
 (25) 6
 (19)(12) 2
 (10) —
 —
 —
Reclassification of net postemployment benefit losses/(gains)(168) 64
 (104) 10
 (3) 7
(90) 35
 (55) (88) 34
 (54)
Net deferred gains/(losses) on cash flow hedges(45) 13
 (32) (120) 43
 (77)(39) 5
 (34) (28) 10
 (18)
Net deferred losses/(gains) on cash flow hedges reclassified to net income(20) 2
 (18) 222
 (84) 138
17
 3
 20
 (26) 4
 (22)

The amounts reclassified from accumulated other comprehensive income/(losses) in the three and six months ended July 3, 2016 and June 28, 2015 were as follows (in millions):
Accumulated Other Comprehensive Income/(Losses) Component  Reclassified from Accumulated Other Comprehensive Income/(Losses) Affected Line Item in the Statement Where Net Income is Presented  Reclassified from Accumulated Other Comprehensive Income/(Losses) Affected Line Item in the Statement Where Net Income/(Loss) is Presented
 For the Three Months Ended For the Six Months Ended  For the Three Months Ended 
 July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015  April 1,
2017		 April 3,
2016		 
Losses/(gains) on cash flow hedges:     
  
    
Foreign exchange contracts $(2) $1
 $(3) $2

Net sales $—
 $(1)
Net sales
Foreign exchange contracts (4) (11) (33) (16)
Cost of products sold 1
 (29)
Cost of products sold
Foreign exchange contracts 11
 —
 14
 (1) Other expense/(income), net 15
 3
 Other expense/(income), net
Interest rate contracts 1
 233
 2
 237

Interest expense 1
 1

Interest expense
Losses/(gains) on cash flow hedges before income taxes 6
 223
 (20) 222

 17
 (26)
 
Losses/(gains) on cash flow hedges income taxes (2) (86) 2
 (84)
 3
 4

 
Losses/(gains) on cash flow hedges $4
 $137
 $(18) $138

 $20
 $(22)
 
              
Losses/(gains) on postemployment benefits:        
    
Amortization of unrecognized losses/(gains) $—
 $1
 $—
 $2
 (a) $—
 $—
 (a)
Amortization of prior service costs/(credits) (80) (2) (162) (3)
(a) (90) (82)
(a)
Settlement and curtailments losses/(gains) —
 11
 (6) 11

(a) —
 (6)
(a)
Losses/(gains) on postemployment benefits before income taxes (80) 10
 (168) 10

 (90) (88)
 
Losses/(gains) on postemployment benefits income taxes 30
 (2) 64
 (3)
 35
 34

 
Losses/(gains) on postemployment benefits $(50) $8
 $(104) $7

 $(55) $(54)
 
(a)
These components are included in the computation of net periodic postemployment benefit costs. See Note 8, Postemployment Benefits, for additional information.
In this note we have excluded activity and balances related to noncontrolling interest (which was primarily comprised of foreign currency translation adjustments) due to its insignificance.
Note 10. Financial Instruments
See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended January 3,December 31, 2016 for additional information on our overall risk management strategies, our use of derivatives, and our related accounting policies.
Derivative Volume:
The notional values of our derivative instruments at July 3, 2016April 1, 2017 and January 3,December 31, 2016 were (in millions):
Notional AmountNotional Amount
July 3, 2016 January 3, 2016April 1, 2017 December 31, 2016
Commodity contracts$474
 $787
$641
 $459
Foreign exchange contracts2,820
 3,458
3,048
 2,997
Cross-currency contracts3,173
 4,328
3,173
 3,173

Fair Value of Derivative Instruments:
The fair values and the levels within the fair value hierarchy of derivative instruments recorded on the condensed consolidated balance sheets at July 3, 2016April 1, 2017 and January 3,December 31, 2016 were (in millions):
July 3, 2016April 1, 2017
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 Significant Other Observable Inputs
(Level 2)		 Significant Unobservable Inputs
(Level 3)		 Total Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)		 Significant Other Observable Inputs
(Level 2)		 Significant Unobservable Inputs
(Level 3)		 Total Fair Value
Assets Liabilities Assets Liabilities Assets Liabilities Assets LiabilitiesAssets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Derivatives designated as hedging instruments:                              
Foreign exchange contracts$—
 $—
 $27
 $41
 $—
 $—
 $27
 $41
$—
 $—
 $35
 $23
 $—
 $—
 $35
 $23
Cross-currency contracts—
 —
 450
 14
 —
 —
 450
 14
—
 —
 549
 40
 —
 —
 549
 40
Derivatives not designated as hedging instruments:                              
Commodity contracts39
 6
 1
 3
 —
 —
 40
 9
16
 39
 2
 3
 —
 —
 18
 42
Foreign exchange contracts—
 —
 27
 15
 —
 —
 27
 15
—
 —
 37
 1
 —
 —
 37
 1
Cross-currency contracts—
 —
 40
 —
 —
 —
 40
 —
—
 —
 43
 —
 —
 —
 43
 —
Total fair value$39
 $6
 $545
 $73
 $—
 $—
 $584
 $79
$16
 $39
 $666
 $67
 $—
 $—
 $682
 $106
January 3, 2016December 31, 2016
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total Fair Value
Assets Liabilities Assets Liabilities Assets Liabilities Assets LiabilitiesAssets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Derivatives designated as hedging instruments:                              
Foreign exchange contracts$—
 $—
 $46
 $6
 $—
 $—
 $46
 $6
$—
 $—
 $69
 $13
 $—
 $—
 $69
 $13
Cross-currency contracts—
 —
 605
 —
 —
 —
 605
 —
—
 —
 580
 36
 —
 —
 580
 36
Derivatives not designated as hedging instruments:                              
Commodity contracts24
 29
 1
 7
 —
 —
 25
 36
28
 7
 —
 —
 —
 —
 28
 7
Foreign exchange contracts—
 —
 88
 13
 —
 —
 88
 13
—
 —
 35
 30
 —
 —
 35
 30
Cross-currency contracts—
 —
 47
 —
 —
 —
 47
 —
—
 —
 44
 —
 —
 —
 44
 —
Total fair value$24
 $29
 $787
 $26
 $—
 $—
 $811
 $55
$28
 $7
 $728
 $79
 $—
 $—
 $756
 $86
Our derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. We elect to record the gross assets and liabilities of our derivative financial instruments on the condensed consolidated balance sheets. If the derivative financial instruments had been netted on the condensed consolidated balance sheets, the asset and liability positions each would have been reduced by $46$69 million at July 3, 2016April 1, 2017 and $44$67 million at January 3,December 31, 2016. No material amounts of collateral were received or posted on our derivative assets and liabilities at July 3, 2016.April 1, 2017.
Level 1 financial assets and liabilities consist of commodity future and options contracts and are valued using quoted prices in active markets for identical assets and liabilities.
Level 2 financial assets and liabilities consist of commodity forwards, foreign exchange forwards, and cross-currency swaps. Commodity forwards are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign exchange forwards are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Cross-currency swaps are valued based on observable market spot and swap rates.
Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.
There have been no transfers between Levels 1, 2, and 3 in any period presented.


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

Net Investment Hedging:
In the second quarter of 2016, we issued €1.8 billion aggregate principal amount of Euro denominated notes (see Note 12, Commitments, Contingencies and Debt). The principal amounts of this foreign denominated debt were designated as net investment hedges. Concurrently, we fully unwound our Euro swap (USD notional amount of $1.1 billion). At July 3, 2016,April 1, 2017, the principal amounts of foreign denominated debt designated as net investment hedges totaled €2,550 million and £400 million.
At July 3, 2016,April 1, 2017, our cross-currency swaps designated as net investment hedges consisted of:
Instrument 
Notional
(local)
(in billions)
 
Notional
(USD)
(in billions)
 Maturity 
Notional
(local)
(in billions)
 
Notional
(USD)
(in billions)
 Maturity
Cross-currency swap £0.8
 $1.4
 October 2019 £0.8
 $1.4
 October 2019
Cross-currency swap C$1.8
 1.6
 December 2019 C$1.8
 $1.6
 December 2019
We also periodically enter into shorter-dated foreign currency contracts that are designated as net investment hedges. At July 3, 2016,April 1, 2017, we had Euroa Chinese renminbi foreign currency contractscontract with an aggregate USD notional amountsamount of $196 million and Canadian dollar foreign currency contracts with aggregate USD notional amounts of $51 million outstanding. $120 million.
Hedge Coverage:
At July 3, 2016,April 1, 2017, we had entered into contracts designated as hedging instruments, which hedge transactions for the following durations:
foreign currencyexchange contracts for periods not exceeding the next two years,14 months and
cross-currency contracts for periods not exceeding the next fourthree years.
At July 3, 2016,April 1, 2017, we had entered into contracts not designated as hedging instruments, which hedge economic risks for the following durations:
commodity contracts for periods not exceeding the next 1218 months,
foreign exchange contracts for periods not exceeding the next 1211 months, and
cross-currency contracts for periods not exceeding the next threetwo years.
Hedge Ineffectiveness:
We record pre-tax gains or losses reclassified from accumulated other comprehensive income/(losses) due to ineffectiveness in:
other expense/(income), net for foreign exchange contracts related to forecasted transactions.transactions in other expense/(income), net.
Deferred Hedging Gains and Losses:
Based on our valuation at July 3, 2016April 1, 2017 and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized gains for foreign currency cash flow hedges during the next 12 months to be insignificant. Additionally, we expect transfers to net income/(loss) of unrealized losses for interest rate cash flow hedges during the next 12 months to be insignificant.


Derivative Impact on the Statements of Income and Statements of Comprehensive Income:
The following tables present the pre-tax effect of derivative instruments on the condensed consolidated statements of income and statements of comprehensive income for the three and six months ended July 3, 2016 and June 28, 2015 (in millions):income:
 For the Three Months Ended
 July 3, 2016 June 28, 2015
 Commodity Contracts Foreign Exchange
Contracts		 Cross-Currency Contracts Interest Rate Contracts Commodity Contracts Foreign Exchange
Contracts		 Cross-Currency Contracts Interest Rate
Contracts
Derivatives designated as hedging instruments:               
Cash flow hedges:               
Gains/(losses) recognized in other comprehensive income (effective portion)$—
 $(9) $—
 $(8) $—
 $(17) $—
 $9
                
Net investment hedges:               
Gains/(losses) recognized in other comprehensive income (effective portion)—
 46
 90
 —
 —
 —
 (330) —
Total gains/(losses) recognized in other comprehensive income (effective portion)$—
 $37
 $90
 $(8) $—
 $(17) $(330) $9
                
Cash flow hedges reclassified to net income/(loss):               
Net sales$—
 $2
 $—
 $—
 $—
 $(1) $—
 $—
Cost of products sold (effective portion)—
 4
 —
 —
 —
 11
 —
 —
Other expense/(income), net—
 (11) —
 —
 —
 —
 —
 —
Interest expense—
 —
 —
 (1) —
 —
 —
 (233)
 —
 (5) —
 (1) —
 10
 —
 (233)
Derivatives not designated as hedging instruments:               
Gains/(losses) on derivatives recognized in cost of products sold29
 —
 —
 —
 —
 —
 —
 —
Gains/(losses) on derivatives recognized in other expense/(income), net—
 18
 (1) —
 —
 (16) —
 —
 29
 18
 (1) —
 —
 (16) —
 —
Total gains/(losses) recognized in statements of income$29
 $13
 $(1) $(1) $—
 $(6) $—
 $(233)



For the Three Months Ended
For the Six Months EndedApril 1,
2017		 April 3,
2016
July 3, 2016 June 28, 2015Commodity Contracts Foreign Exchange
Contracts		 Cross-Currency Contracts Interest Rate Contracts Commodity Contracts Foreign Exchange
Contracts		 Cross-Currency Contracts Interest Rate
Contracts
Commodity Contracts Foreign Exchange
Contracts		 Cross-Currency Contracts Interest Rate Contracts Commodity Contracts Foreign Exchange
Contracts		 Cross-Currency Contracts Interest Rate
Contracts		(in millions)
Derivatives designated as hedging instruments:                              
Cash flow hedges:                              
Gains/(losses) recognized in other comprehensive income (effective portion)$—
 $(37) $—
 $(8) $—
 $(9) $—
 $(111)$—
 $(39) $—
 $—
 $—
 $(27) $—
 $—
                              
Net investment hedges:                              
Gains/(losses) recognized in other comprehensive income (effective portion)—
 46
 25
 —
 —
 —
 421
 —
—
 (4) (30) —
 —
 —
 (65) —
Total gains/(losses) recognized in other comprehensive income (effective portion)$—
 $9
 $25
 $(8) $—
 $(9) $421
 $(111)$—
 $(43) $(30) $—
 $—
 $(27) $(65) $—
                              
Cash flow hedges reclassified to net income/(loss):                              
Net sales$—
 $3
 $—
 $—
 $—
 $(2) $—
 $—
$—
 $—
 $—
 $—
 $—
 $1
 $—
 $—
Cost of products sold (effective portion)—
 33
 —
 —
 —
 16
 —
 —
—
 (1) —
 —
 —
 29
 —
 —
Other expense/(income), net—
 (14) —
 —
 —
 1
 —
 —
—
 (15) —
 —
 —
 (3) —
 —
Interest expense—
 —
 —
 (2) —
 —
 —
 (237)—
 —
 —
 (1) —
 —
 —
 (1)
—
 22
 —
 (2) —
 15
 —
 (237)—
 (16) —
 (1) —
 27
 —
 (1)
Derivatives not designated as hedging instruments:                              
Gains/(losses) on derivatives recognized in cost of products sold11
 —
 —
 —
 —
 —
 —
 —
(37) —
 —
 —
 (18) —
 —
 —
Gains/(losses) on derivatives recognized in other expense/(income), net—
 (57) (8) —
 —
 33
 —
 11
—
 2
 (1) —
 —
 (75) (7) —
11
 (57) (8) —
 —
 33
 —
 11
(37) 2
 (1) —
 (18) (75) (7) —
Total gains/(losses) recognized in statements of income$11
 $(35) $(8) $(2) $—
 $48
 $—
 $(226)$(37) $(14) $(1) $(1) $(18) $(48) $(7) $(1)
Related to our non-derivative, foreign denominated debt instruments designated as net investment hedges, we recognized a pre-tax gainlosses in other comprehensive income/(loss) of $58$44 million for the three months ended April 1, 2017 and $39$19 million for the sixthree months ended JulyApril 3, 2016.

Note 11. Financing Arrangements
We account for transfers of receivables pursuant to our accounts receivable securitization and factoring programs (the “Programs”) as a sale and remove them from our condensed consolidated balance sheets. Under the Programs, we generally receive cash consideration up to a certain limit and a receivable for the remainder of the purchase price (“Deferred Purchase Price”).
In March 2017, we amended our European receivables factoring program to reduce the cash consideration limit. As a result, our aggregate cash consideration limit related to our foreign denominated Programs, after applying applicable hold-backs, was $193 million U.S. dollars at April 1, 2017, compared to $245 million at December 31, 2016. Additionally, in February 2017, we elected to reduce the cash consideration limit related to our U.S. securitization program from $800 million to $500 million. There were no other changes to the Programs during the three months ended April 1, 2017.
The cash consideration and carrying amount of receivables removed from the condensed consolidated balance sheets in connection with the Programs were $616 million at April 1, 2017 and $904 million at December 31, 2016. The fair value of the Deferred Purchase Price for the Programs was $588 million at April 1, 2017 and $129 million at December 31, 2016. The Deferred Purchase Price is included in sold receivables on the condensed consolidated balance sheets and had a carrying value which approximated its fair value at April 1, 2017 and December 31, 2016.
See Note 14, Financing Arrangements, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information on the Programs.
Note 11.12. Venezuela - Foreign Currency and Inflation
In February 2016, the Venezuela government announced the following changes to its foreign currency exchange mechanisms, which were effective on March 10, 2016:
the official exchange rate of BsF6.30 per U.S. dollar, which was available through the government-operated National Center of Foreign Commerce (“CENCOEX”), was devalued to BsF10 per U.S. dollar;
the CENCOEX was replaced with the Sistema de Divisa Protegida (“DIPRO”), which is available for purchases and sales of essential items, including food products;
the Complimentary System of Foreign Currency Acquirement (“SICAD”) was eliminated; and
the Marginal Currency System (“SIMADI”) was replaced with the Sistema de Divisa Complementaria (“DICOM”), which is available for all transactions not covered by DIPRO and is a free-floating exchange format.
At July 3, 2016, there were two exchange rates legally available to us for converting Venezuelan bolivars to U.S. dollars, including:
the official exchange rate of BsF10 per U.S. dollar available through DIPRO; and
the DICOM rate, which averaged BsF462 per U.S. dollar for the three months and BsF338 per U.S. dollar for the six months ended July 3, 2016, and was BsF628 per U.S. dollar at July 3, 2016.


In June 2015, dueWe apply highly inflationary accounting to the continued lack of liquidity and increasing economic uncertainty, we reevaluated the rate used to remeasure the monetary assets and liabilities of our Venezuelan subsidiary. As of June 28, 2015, we determined that the then current SIMADI rate of BsF197.7 per U.S. dollar was the most appropriate legally available rate and remeasured our net monetary assets of our Venezuelan subsidiary, resulting in a nonmonetary currency devaluation of $234 million recorded in other expense/(income), net, in the condensed consolidated statements of income for the three and six months ended June 28, 2015. Additionally, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, which resulted in a $49 million loss to write down inventory to the lower of cost or market, which was recorded in cost of products sold in the condensed consolidated statements of income for the three and six months ended June 28, 2015. As of July 3, 2016, we continue to believe that the DICOM rate (formerly SIMADI) is the most appropriate legally available rate.
During the second quarter of 2016, the DICOM rate increased significantly to BsF628 per U.S. dollar as of July 3, 2016. We remeasured the net monetary assets and operating results of our Venezuelan subsidiary to reflect this increase, resultingand include these results in a nonmonetary currency devaluation of $7 million recorded in other expense/(income), net, in the condensedour consolidated statements of income for the three and six months ended July 3, 2016. In addition, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, resulting in a $53 million loss to write down property, plant and equipment, net, and prepaid spare parts, which was recorded within cost of products sold in the condensed consolidated statements of income for the three and six months ended July 3, 2016.
We have had limited access to, and settlements at, the official exchange rate of BsF6.30 per U.S. dollar and no settlements at the official exchange rate of BsF10 per U.S. dollar during the three and six months ended July 3, 2016. We had outstanding requests of $26 million at July 3, 2016 for payment of invoices for the purchase of ingredients and packaging materials for the years from 2012 through 2015, all of which were requested for payment at BsF6.30 per U.S. dollar.
financial statements. Our results of operations in Venezuela reflect a controlled subsidiary. We continue to have sufficient currency liquidity and pricing flexibility to run our operations. However, the continuing economic uncertainty, strict labor laws, and evolving government controls over imports, prices, currency exchange, and payments present a challenging operating environment. Increased restrictions imposed by the Venezuelan government or further deterioration of the economic environment could impact our ability to control our Venezuelan operations and could lead us to deconsolidate our Venezuelan subsidiary in the future.
At April 1, 2017, there were two exchange rates legally available to us for converting Venezuelan bolivars to U.S. dollars, including:
the official exchange rate of BsF10 per U.S. dollar available through the Sistema de Divisa Protegida (“DIPRO”), which is available for purchases and sales of essential items, including food products, and
an alternative exchange rate available through the Sistema de Divisa Complementaria (“DICOM”), which is available for all transactions not covered by DIPRO and is a free-floating exchange rate format.
The DICOM rate (formerly the Marginal Currency System “SIMADI”) averaged BsF694 per U.S. dollar during the first quarter of 2017 and was BsF710 per U.S. dollar at April 1, 2017. We have had access to U.S. dollars at DICOM rates in 2017. As of April 1, 2017, we believe that the DICOM rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary.
We have had no settlements at the official exchange rate of BsF10 per U.S. dollar in 2017. At April 1, 2017, we had outstanding requests of $26 million for payment of invoices for the purchase of ingredients and packaging materials for the years 2012 through 2015, all of which were requested for payment at BsF6.30 per U.S. dollar (the official exchange rate until March 10, 2016).
During the three months ended April 1, 2017, we remeasured the monetary assets and liabilities, as well as the operating results, of our Venezuelan subsidiary at floating DICOM rates. This remeasurement resulted in a nonmonetary currency devaluation loss of $8 million for the three months ended April 1, 2017, which was recorded in other expense/(income), net, in the condensed consolidated statement of income for the period then ended. We continue to monitor the DICOM rate, and the nonmonetary assets supported by the underlying operations in Venezuela, for impairment. The currency has ranged between BsF674 and BsF710 per U.S. dollar from December 31, 2016 to April 1, 2017. No triggers for impairment resulted from this movement.

Note 12.13. Commitments, Contingencies and Debt
Legal Proceedings
We are routinely involved in legal proceedings, claims, and governmental inquiries, inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.
On April 1, 2015, the Commodity Futures Trading Commission (“CFTC”) filed a formal complaint against Mondelēz International (formerly known as Kraft Foods Inc. (“Mondelēz International”) and Kraft in the U.S. District Court for the Northern District of Illinois, Eastern Division, related to activities involving the trading of December 2011 wheat futures contracts. The complaint alleges that Mondelēz International and Kraft (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011, (2) violated position limit levels for wheat futures, and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. As previously disclosed by Kraft, these activities arose prior to the October 1, 2012 spin-off of Kraft by Mondelēz International to its shareholders and involve the business now owned and operated by Mondelēz International or its affiliates. The Separation and Distribution Agreement between Kraft and Mondelēz International, dated as of September 27, 2012, governs the allocation of liabilities between Mondelēz International and Kraft and, accordingly, Mondelēz International will predominantly bear the costs of this matter and any monetary penalties or other payments that the CFTC may impose. We do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.
While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.
Debt
Borrowing Arrangements:
On May 4,We had commercial paper outstanding of $900 million at April 1, 2017 and $642 million at December 31, 2016.
See Note 11, Debt, to our consolidated financial statements for the year ended December 31, 2016 together with Kraft Heinz Foods Company, our wholly owned operating subsidiary, we entered into the first amendment (the “First Amendment”) to the credit agreement dated as of July 6, 2015 (the “Credit Agreement”) described in our Annual Report on Form 10-K for the year ended January 3, 2016.
Among other things, the First Amendment (a) provided for a one time modification of the extension period of the Credit Agreement, (b) increased the letter of credit sublimit from $150 million to $300 million and (c) expanded the available currencies in which


revolving loans can be issued with the mutual consent of Kraft Heinz Foods Company and the applicable lender. In connection with the First Amendment, the maturity date of the revolving loans and commitments under the Credit Agreement was extended from July 6, 2020 to July 6, 2021.
The obligations under the Credit Agreement continue to be guaranteed by Kraft Heinz Foods Company in the case of indebtedness and other liabilities of any subsidiary borrower and by Kraft Heinz in the case of indebtedness and other liabilities of any subsidiary borrower and Kraft Heinz Foods Company. The Credit Agreement contains representations, warranties, covenants and events of default that are typical for this type of facility.
During the second quarter of 2016, we also commenced a commercial paper program. As of July 3, 2016, we had $633 million of commercial paper outstanding, which had a weighted average interest rate of 1.129%. There was no commercial paper outstanding at January 3, 2016.
Debt Issuance:
The carrying value ofadditional information on our long-term debt, including the current portion, was $32.1 billion at July 3, 2016 and $25.2 billion at January 3, 2016. The increase during the period was driven by new issuances of long-term debt in May 2016, as described below.borrowing arrangements.
On May 24, 2016, we completed the sale of $2.0 billion aggregate principal amount of 3.000% Senior Notes due June 1, 2026 (the “2026 Notes”) and $3.0 billion aggregate principal amount of 4.375% Senior Notes due June 1, 2046 (the “2046 Notes” and, together with the 2026 Notes, the “U.S. Dollar Notes”). Interest on the U.S. Dollar Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016.
On May 25, 2016, we completed the sale of €550 million aggregate principal amount of 1.500% Senior Notes due May 24, 2024 (the “2024 Notes”) and €1,250 million aggregate principal amount of 2.250% Senior Notes due May 25, 2028 (the “2028 Notes” and, together with the 2024 Notes, the “Euro Notes”). Interest on the 2024 Notes is payable annually in arrears on May 24 of each year, beginning on May 24, 2017. Interest on the 2028 Notes is payable annually in arrears on May 25 of each year, beginning on May 25, 2017.
We used the net proceeds from the U.S. Dollar Notes and Euro Notes issuances primarily to redeem all outstanding shares of our 9.00% cumulative compounding preferred stock, Series A (“Series A Preferred Stock”).
The U.S. Dollar Notes and the Euro Notes were issued by Kraft Heinz Foods Company and are fully and unconditionally guaranteed as to payment of principal, premium, if any, and interest on a senior unsecured basis by Kraft Heinz. The U.S. Dollar Notes and the Euro Notes contain customary covenants and events of default.
We incurred debt issuance costs related to the sale of the U.S. Dollar Notes and the Euro Notes of $52 million, which is reflected as a direct deduction of our long-term debt balance on the condensed consolidated balance sheets at July 3, 2016.
Fair Value of Debt:
At July 3,April 1, 2017, the aggregate fair value of our total debt was $33.4 billion as compared with a carrying value of $32.7 billion. At December 31, 2016, the aggregate fair value of our total debt was $35.6$33.2 billion as compared with a carrying value of $32.4 billion. We determined the fair value of our short-term debt using Level 1 quoted prices in active markets. We determined the fair value of our long-term debt using Level 2 inputs. Fair values are generally estimated based on quoted market prices for identical or similar instruments.
Series A Preferred StockStock:
As noted above, onOn June 7, 2016, we redeemed all outstanding shares of our 9.00% cumulative compounding preferred stock, Series A (“Series A Preferred Stock.Stock”). We funded this redemption primarily through the issuance of the U.S. Dollar Notes and Euro Notes,long-term debt, as well as other sources of liquidity, including our commercial paper program, U.S. securitization program, and cash on hand. In connection with the redemption, all Series A Preferred Stock was canceled and automatically retired. Additionally, on June 7, 2016,retired, and we filed a Certificate of Retirement of Series A Preferred Stock, which reduced the number of our preferred shares authorized by 80,000 to 920,000 and eliminated all references to the Series A Preferred Stock from our Certificate of Incorporation.
Financing Arrangements
In May 2016, we amended our U.S. securitization program. Under the new terms, we receive cash consideration of up to $800 million and a receivable for the remainder of the purchase price (the “Deferred Purchase Price”). This program expires in May 2017. There were no significant changes to our other accounts receivable securitization and factoring programs (“Programs”) during the six months ended January 3, 2016. See Note 15, Financing Arrangements, to our consolidated financial statements for the year ended January 3, 2016in our Annual Report on Form 10-K for additional information on the Programs.longer pay any associated dividends.


The cash consideration and carrying amount of receivables removed from the condensed consolidated balance sheets in connection with the Programs were $860 million at July 3, 2016 and $267 million at January 3, 2016. The fair value of the Deferred Purchase Price for the Programs was $146 million at July 3, 2016 and $583 million at January 3, 2016. The Deferred Purchase Price is included in sold receivables on the condensed consolidated balance sheets and had a carrying value which approximated its fair value at July 3, 2016 and January 3, 2016.
Redeemable Noncontrolling Interest
In April 2016, the minority partner in our Brazilian subsidiary, Coniexpress S.A. Industrias Alimenticias (“Coniexpress”), exercised a put option that required us to purchase its 5% equity interest in the subsidiary for $21 million. The redemption value was determined based on a specified formula within the shareholders' agreement between our Brazilian subsidiary and the minority partner. An adjustment was made to retained earnings to record the carrying value at the maximum redemption value immediately prior to this transaction. As this exercise did not result in a change in control of Coniexpress, it was accounted for as an equity transaction. We now own 100% of our Brazilian subsidiary.
Note 13.14. Earnings Per Share
Our earnings per common share (“EPS”) for the three and six months ended July 3, 2016 and June 28, 2015 were:
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
(in millions, except per share amounts)(in millions, except per share amounts)
Basic Earnings Per Common Share:          
Net income/(loss) attributable to common shareholders$770
 $(344) $1,666
 $(248)$893
 $896
Weighted average shares of common stock outstanding1,217
 380
 1,216
 379
1,217
 1,215
Net earnings/(loss)$0.63
 $(0.91) $1.37
 $(0.66)$0.73
 $0.74
Diluted Earnings Per Common Share:          
Net income/(loss) attributable to common shareholders$770
 $(344) $1,666
 $(248)$893
 $896
Weighted average shares of common stock outstanding1,217
 380
 1,216
 379
1,217
 1,215
Effect of dilutive securities:          
Equity awards10
 —
 10
 —
12
 10
Weighted average shares of common stock outstanding, including dilutive effect1,227
 380
 1,226
 379
1,229
 1,225
Net earnings/(loss)$0.63
 $(0.91) $1.36
 $(0.66)$0.73
 $0.73
We use the treasury stock method to calculate the dilutive effect of outstanding equity awards in the denominator for diluted earnings per common share. Due to the net loss attributable to common shareholders inAnti-dilutive shares were 1 million for the three and six months ended June 28, 2015, the dilutive effects of equity awardsApril 1, 2017 and warrants were excluded. Anti-dilutive shares were 3 million for the three months and 2 million for the six months ended JulyApril 3, 2016. There were no anti-dilutive shares for the three and six months ended June 28, 2015.
Note 14.15. Segment Reporting
We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products, throughout the world.
We manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World is comprised of threetwo operating segments: Latin America; and Asia Pacific, Latin America, and Russia, India, the Middle East, and Africa (“RIMEA”AMEA”).

In the fourth quarter of 2016, we reorganized our segments to reflect the following:

our Russia business moved from the Rest of World segment to the Europe segment and
management of our Global Procurement Office moved from one of our European subsidiaries to our global headquarters, which resulted in moving the related costs from the Europe segment to general corporate expenses.
These changes are reflected in all historical periods presented and did not have a material impact on our financial statements. See Note 18, Segment Reporting, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information related to these changes.
Management evaluates segment performance based on several factors including net sales and segment adjusted earnings before interest, tax, depreciation, and amortization (“Segment Adjusted EBITDA”). Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA assistsis a tool that can assist management and investors 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 coreunderlying operations. These items include depreciation and amortization (including amortization of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, merger costs, unrealized gains and lossesgains/(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'ssegment’s operating results), impairment losses, gains/(losses) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and certain general corporate expenses. In addition, consistent with the manner in which management evaluates segment performance and allocates resources, Segment Adjusted EBITDA includes the operating results of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013. There are no pro forma adjustments to any of the numbers disclosed in this note to the condensed consolidated financial statements except for the Segment Adjusted EBITDA reconciliation.
In the first quarter of 2016, we moved certain historical Kraft export businesses from our United States segment to our Rest of World and Europe segments to align with our long-term go-to-market strategies. We began to manage and report our results reflecting this change in the first quarter of 2016 and have reflected this change in all pro forma historical information presented. The impact of this change is not material to current or prior period results. This change did not impact our Integration Program and restructuring expenses disclosed by segment in Note 3, Integration and Restructuring Expenses.losses).
Management does not use assets by segment to evaluate performance or allocate resources and therefore,resources. Therefore, we do not disclose assets by segment.
Our net
Net sales by segment and were (in millions):
 For the Three Months Ended
 April 1,
2017		 April 3,
2016
Net sales:   
United States$4,552
 $4,715
Canada443
 504
Europe543
 583
Rest of World826
 768
Total net sales$6,364
 $6,570
Segment Adjusted EBITDA were:was (in millions):
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015
 (in millions)
Net sales:       
United States$4,692
 $877
 $9,407
 $1,745
Canada638
 144
 1,142
 265
Europe578
 620
 1,131
 1,246
Rest of World885
 975
 1,683
 1,838
Total net sales$6,793
 $2,616
 $13,363
 $5,094


For the Three Months Ended For the Six Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015For the Three Months Ended
(in millions)April 1,
2017		 April 3,
2016
Segment Adjusted EBITDA:          
United States$1,518
 $1,208
 $3,011
 $2,331
$1,472
 $1,493
Canada192
 151
 343
 264
126
 151
Europe212
 225
 389
 439
170
 180
Rest of World208
 228
 375
 418
146
 166
General corporate expenses(43) (39) (80) (70)(29) (39)
Depreciation and amortization (excluding integration and restructuring expenses)(124) (210) (285) (426)(132) (161)
Integration and restructuring expenses(284) (118) (544) (199)(148) (260)
Merger costs(14) (41) (29) (54)—
 (15)
Unrealized gains/(losses) on commodity hedges37
 21
 45
 23
(42) 8
Impairment losses(53) (58) (53) (58)
Gains/(losses) on sale of business—
 21
 —
 21
Nonmonetary currency devaluation(2) (49) (3) (49)—
 (1)
Equity award compensation expense (excluding integration and restructuring expenses)(11) (25) (20) (44)(12) (9)
Other pro forma adjustments—
 (870) —
 (1,643)
Operating income1,636
 444
 3,149
 953
1,551
 1,513
Interest expense264
 394
 513
 595
313
 249
Other expense/(income), net6
 245
 (2) 206
(12) (8)
Income/(loss) before income taxes$1,366
 $(195) $2,638
 $152
$1,250
 $1,272
In 2016,the first quarter of 2017, we reorganized the products within our product categories to reflect how we manage our business. We have reflected this change for all historical periods presented. Our net sales by product category were:were (in millions):
For the Three Months Ended For the Six Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015For the Three Months Ended
(in millions)April 1,
2017		 April 3,
2016
Condiments and sauces$1,824
 $1,439
 $3,403
 $2,677
$1,513
 $1,564
Cheese and dairy1,369
 —
 2,753
 —
1,299
 1,366
Ambient meals550
 304
 1,136
 639
583
 590
Frozen and chilled meals562
 416
 1,179
 877
653
 627
Meats and seafood740
 51
 1,445
 96
660
 696
Refreshment beverages444
 —
 851
 —
372
 408
Coffee344
 —
 736
 —
350
 383
Infant and nutrition215
 264
 406
 517
188
 190
Desserts, toppings and baking229
 —
 435
 —
196
 210
Nuts and salted snacks258
 —
 522
 —
232
 260
Other258
 142
 497
 288
318
 276
Total net sales$6,793
 $2,616
 $13,363
 $5,094
$6,364
 $6,570


Note 15.16. Supplemental Financial Information
We fully and unconditionally guarantee the notes issued by our wholly owned operating subsidiary, Kraft Heinz Foods Company. See Note 12,11, Debt, to our consolidated financial statements for the year ended January 3,December 31, 2016in our Annual Report on Form 10-K for additional descriptions of these guarantees. None of our other subsidiaries guarantee these notes.
Set forth below are the condensed consolidating financial statements presenting the results of operations, financial position and cash flows of Kraft Heinz (as parent guarantor), Kraft Heinz Foods Company (as subsidiary issuer of the notes), and the non-guarantor subsidiaries on a combined basis and eliminations necessary to arrive at the total reported information on a consolidated basis. This condensed consolidating financial information has been prepared and presented pursuant to the SEC Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” This information is not intended to present the financial position, results of operations, and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among the parent guarantor, subsidiary issuer, and the non-guarantor subsidiaries.


The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended July 3, 2016April 1, 2017
(in millions)
(Unaudited)
Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations ConsolidatedParent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $4,479
 $2,474
 $(160) $6,793
$—
 $4,360
 $2,166
 $(162) $6,364
Cost of products sold—
 2,741
 1,681
 (160) 4,262
—
 2,714
 1,511
 (162) 4,063
Gross profit—
 1,738
 793
 —
 2,531
—
 1,646
 655
 —
 2,301
Selling, general and administrative expenses—
 307
 588
 —
 895
—
 184
 566
 —
 750
Intercompany service fees and other recharges—
 1,311
 (1,311) —
 —
—
 1,108
 (1,108) —
 —
Operating income—
 120
 1,516
 —
 1,636
—
 354
 1,197
 —
 1,551
Interest expense—
 253
 11
 —
 264
—
 303
 10
 —
 313
Other expense/(income), net—
 55
 (49) —
 6
—
 17
 (29) —
 (12)
Income/(loss) before income taxes—
 (188) 1,554
 —
 1,366
—
 34
 1,216
 —
 1,250
Provision for/(benefit from) income taxes—
 (92) 503
 —
 411
—
 (12) 371
 —
 359
Equity in earnings of subsidiaries950
 1,046
 —
 (1,996) —
893
 847
 —
 (1,740) —
Net income/(loss)950
 950
 1,051
 (1,996) 955
893
 893
 845
 (1,740) 891
Net income/(loss) attributable to noncontrolling interest—
 —
 5
 —
 5
—
 —
 (2) —
 (2)
Net income/(loss) excluding noncontrolling interest$950
 $950
 $1,046
 $(1,996) $950
$893
 $893
 $847
 $(1,740) $893
                  
Comprehensive income/(loss) excluding noncontrolling interest$577
 $577
 $579
 $(1,156) $577
$1,072
 $1,072
 $1,842
 $(2,914) $1,072

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended June 28, 2015April 3, 2016
(in millions)
(Unaudited)
Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations ConsolidatedParent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $932
 $1,741
 $(57) $2,616
$—
 $4,471
 $2,241
 $(142) $6,570
Cost of products sold—
 652
 1,139
 (57) 1,734
—
 2,832
 1,502
 (142) 4,192
Gross profit—
 280
 602
 —
 882
—
 1,639
 739
 —
 2,378
Selling, general and administrative expenses—
 166
 272
 —
 438
—
 277
 588
 —
 865
Intercompany service fees and other recharges—
 5
 (5) —
 —
—
 1,214
 (1,214) —
 —
Operating income—
 109
 335
 —
 444
—
 148
 1,365
 —
 1,513
Interest expense—
 360
 34
 —
 394
—
 235
 14
 —
 249
Other expense/(income), net—
 132
 113
 —
 245
—
 31
 (39) —
 (8)
Income/(loss) before income taxes—
 (383) 188
 —
 (195)—
 (118) 1,390
 —
 1,272
Provision for/(benefit from) income taxes—
 (110) 75
 —
 (35)—
 (58) 430
 —
 372
Equity in earnings of subsidiaries(164) 109
 —
 55
 —
896
 956
 —
 (1,852) —
Net income/(loss)(164) (164) 113
 55
 (160)896
 896
 960
 (1,852) 900
Net income/(loss) attributable to noncontrolling interest—
 —
 4
 —
 4
—
 —
 4
 —
 4
Net income/(loss) excluding noncontrolling interest$(164) $(164) $109
 $55
 $(164)$896
 $896
 $956
 $(1,852) $896
                  
Comprehensive income/(loss) excluding noncontrolling interest$107
 $107
 $349
 $(456) $107
$1,007
 $1,007
 $1,149
 $(2,156) $1,007



The Kraft Heinz Company
Condensed Consolidating StatementsBalance Sheets
As of Income
For the Six Months Ended July 3, 2016April 1, 2017
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $8,950
 $4,715
 $(302) $13,363
Cost of products sold—
 5,573
 3,183
 (302) 8,454
Gross profit—
 3,377
 1,532
 —
 4,909
Selling, general and administrative expenses—
 584
 1,176
 —
 1,760
Intercompany service fees and other recharges—
 2,525
 (2,525) —
 —
Operating income—
 268
 2,881
 —
 3,149
Interest expense—
 488
 25
 —
 513
Other expense/(income), net—
 86
 (88) —
 (2)
Income/(loss) before income taxes—
 (306) 2,944
 —
 2,638
Provision for/(benefit from) income taxes—
 (150) 933
 —
 783
Equity in earnings of subsidiaries1,846
 2,002
 —
 (3,848) —
Net income/(loss)1,846
 1,846
 2,011
 (3,848) 1,855
Net income/(loss) attributable to noncontrolling interest—
 —
 9
 —
 9
Net income/(loss) excluding noncontrolling interest$1,846
 $1,846
 $2,002
 $(3,848) $1,846
          
Comprehensive income/(loss) excluding noncontrolling interest$1,584
 $1,584
 $1,728
 $(3,312) $1,584


The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Six Months Ended June 28, 2015
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $1,857
 $3,353
 $(116) $5,094
Cost of products sold—
 1,270
 2,211
 (116) 3,365
Gross profit—
 587
 1,142
 —
 1,729
Selling, general and administrative expenses—
 302
 474
 —
 776
Intercompany service fees and other recharges—
 (7) 7
 —
 —
Operating income—
 292
 661
 —
 953
Interest expense—
 526
 69
 —
 595
Other expense/(income), net—
 129
 77
 —
 206
Income/(loss) before income taxes—
 (363) 515
 —
 152
Provision for/(benefit from) income taxes—
 (111) 144
 —
 33
Equity in earnings of subsidiaries112
 364
 —
 (476) —
Net income/(loss)112
 112
 371
 (476) 119
Net income/(loss) attributable to noncontrolling interest—
 —
 7
 —
 7
Net income/(loss) excluding noncontrolling interest$112
 $112
 $364
 $(476) $112
          
Comprehensive income/(loss) excluding noncontrolling interest$(33) $(33) $(195) $228
 $(33)

 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS         
Cash and cash equivalents$—
 $1,929
 $1,313
 $—
 $3,242
Trade receivables—
 30
 856
 —
 886
Receivables due from affiliates—
 808
 220
 (1,028) —
Dividends due from affiliates32
 —
 —
 (32) —
Sold receivables—
 —
 588
 —
 588
Inventories—
 2,074
 1,077
 —
 3,151
Short-term lending due from affiliates—
 1,792
 3,062
 (4,854) —
Other current assets—
 2,366
 227
 (1,585) 1,008
Total current assets32
 8,999
 7,343
 (7,499) 8,875
Property, plant and equipment, net—
 4,424
 2,269
 —
 6,693
Goodwill—
 11,067
 33,233
 —
 44,300
Investments in subsidiaries57,732
 71,474
 —
 (129,206) —
Intangible assets, net—
 3,329
 56,001
 —
 59,330
Long-term lending due from affiliates—
 1,700
 2,000
 (3,700) —
Other assets—
 602
 1,002
 —
 1,604
TOTAL ASSETS$57,764
 $101,595
 $101,848
 $(140,405) $120,802
LIABILITIES AND EQUITY         
Commercial paper and other short-term debt$—
 $900
 $9
 $—
 $909
Current portion of long-term debt—
 2,012
 11
 —
 2,023
Short-term lending due to affiliates—
 3,062
 1,792
 (4,854) —
Trade payables—
 2,366
 1,570
 —
 3,936
Payables due to affiliates—
 220
 808
 (1,028) —
Accrued marketing—
 165
 434
 —
 599
Accrued postemployment costs—
 144
 13
 —
 157
Income taxes payable—
 —
 2,009
 (1,585) 424
Interest payable—
 340
 6
 —
 346
Dividends due to affiliates—
 32
 —
 (32) —
Other current liabilities32
 378
 579
 —
 989
Total current liabilities32
 9,619
 7,231
 (7,499) 9,383
Long-term debt—
 28,762
 986
 —
 29,748
Long-term borrowings due to affiliates—
 2,000
 1,917
 (3,917) —
Deferred income taxes—
 1,367
 19,543
 —
 20,910
Accrued postemployment costs—
 1,728
 288
 —
 2,016
Other liabilities—
 387
 414
 —
 801
TOTAL LIABILITIES32
 43,863
 30,379
 (11,416) 62,858
Total shareholders’ equity57,732
 57,732
 71,257
 (128,989) 57,732
Noncontrolling interest—
 —
 212
 —
 212
TOTAL EQUITY57,732
 57,732
 71,469
 (128,989) 57,944
TOTAL LIABILITIES AND EQUITY$57,764
 $101,595
 $101,848
 $(140,405) $120,802

The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of July 3,December 31, 2016
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS         
Cash and cash equivalents$—
 $2,679
 $1,558
 $—
 $4,237
Trade receivables—
 163
 951
 —
 1,114
Receivables due from affiliates—
 872
 169
 (1,041) —
Dividends due from affiliates827
 —
 —
 (827) —
Sold receivables—
 118
 28
 —
 146
Inventories—
 1,900
 981
 —
 2,881
Short-term lending due from affiliates—
 1,673
 2,805
 (4,478) —
Other current assets—
 1,039
 430
 (500) 969
Total current assets827
 8,444
 6,922
 (6,846) 9,347
Property, plant and equipment, net—
 4,156
 2,267
 —
 6,423
Goodwill—
 11,093
 33,548
 —
 44,641
Investments in subsidiaries57,825
 72,866
 —
 (130,691) —
Intangible assets, net—
 3,437
 56,325
 —
 59,762
Long-term lending due from affiliates—
 1,723
 2,000
 (3,723) —
Other assets—
 544
 967
 —
 1,511
TOTAL ASSETS$58,652
 $102,263
 $102,029
 $(141,260) $121,684
LIABILITIES AND EQUITY         
Commercial paper and other short-term debt$—
 $640
 $5
 $—
 $645
Current portion of long-term debt—
 2,087
 19
 —
 2,106
Short-term lending due to affiliates—
 2,805
 1,673
 (4,478) —
Trade payables—
 1,720
 1,240
 —
 2,960
Payables due to affiliates—
 169
 872
 (1,041) —
Accrued marketing—
 279
 588
 —
 867
Accrued postemployment costs—
 150
 14
 —
 164
Income taxes payable—
 —
 868
 (500) 368
Interest payable—
 383
 10
 —
 393
Dividends payable827
 —
 —
 —
 827
Dividends due to affiliates—
 827
 —
 (827) —
Other current liabilities—
 928
 335
 —
 1,263
Total current liabilities827
 9,988
 5,624
 (6,846) 9,593
Long-term debt—
 28,975
 1,027
 —
 30,002
Long-term borrowings due to affiliates—
 2,000
 1,933
 (3,933) —
Deferred income taxes—
 1,169
 19,731
 —
 20,900
Accrued postemployment costs—
 2,064
 277
 —
 2,341
Other liabilities—
 241
 560
 —
 801
TOTAL LIABILITIES827
 44,437
 29,152
 (10,779) 63,637
Redeemable noncontrolling interest—
 —
 —
 —
 —
Total shareholders' equity57,825
 57,826
 72,656
 (130,481) 57,826
Noncontrolling interest—
 —
 221
 —
 221
TOTAL EQUITY57,825
 57,826
 72,877
 (130,481) 58,047
TOTAL LIABILITIES AND EQUITY$58,652
 $102,263
 $102,029
 $(141,260) $121,684


The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of January 3, 2016
(in millions)
(Unaudited)
Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations ConsolidatedParent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS                  
Cash and cash equivalents$—
 $3,189
 $1,648
 $—
 $4,837
$—
 $2,830
 $1,374
 $—
 $4,204
Trade receivables—
 62
 809
 —
 871
—
 12
 757
 —
 769
Receivables due from affiliates—
 555
 319
 (874) —
—
 712
 111
 (823) —
Dividends due from affiliates39
 —
 —
 (39) —
Sold receivables—
 554
 29
 

 583
—
 —
 129
 —
 129
Inventories—
 1,741
 877
 —
 2,618
—
 1,759
 925
 —
 2,684
Short-term lending due from affiliates—
 3,657
 4,353
 (8,010) —
—
 1,722
 2,956
 (4,678) —
Other current assets—
 645
 443
 (217) 871
—
 2,229
 447
 (1,709) 967
Total current assets—
 10,403
 8,478
 (9,101) 9,780
39
 9,264
 6,699
 (7,249) 8,753
Property, plant and equipment, net—
 4,518
 2,006
 —
 6,524
—
 4,447
 2,241
 —
 6,688
Goodwill—
 10,976
 32,075
 —
 43,051
—
 11,067
 33,058
 —
 44,125
Investments in subsidiaries66,005
 73,105
 —
 (139,110) —
57,358
 70,877
 —
 (128,235) —
Intangible assets, net—
 3,838
 58,282
 —
 62,120
—
 3,364
 55,933
 —
 59,297
Long-term lending due from affiliates—
 1,700
 2,000
 (3,700) —
—
 1,700
 2,000
 (3,700) —
Other assets—
 534
 964
 —
 1,498
—
 501
 1,116
 —
 1,617
TOTAL ASSETS$66,005
 $105,074
 $103,805
 $(151,911) $122,973
$57,397
 $101,220
 $101,047
 $(139,184) $120,480
LIABILITIES AND EQUITY                  
Commercial paper and other short-term debt$—
 $—
 $4
 $—
 $4
$—
 $642
 $3
 $—
 $645
Current portion of long-term debt—
 65
 14
 —
 79
—
 2,032
 14
 —
 2,046
Short-term lending due to affiliates—
 4,353
 3,657
 (8,010) —
—
 2,956
 1,722
 (4,678) —
Trade payables—
 1,612
 1,232
 —
 2,844
—
 2,376
 1,620
 —
 3,996
Payables due to affiliates—
 319
 555
 (874) —
—
 111
 712
 (823) —
Accrued marketing—
 359
 497
 —
 856
—
 277
 472
 —
 749
Accrued postemployment costs—
 316
 12
 —
 328
—
 144
 13
 —
 157
Income taxes payable—
 71
 563
 (217) 417
—
 —
 1,964
 (1,709) 255
Interest payable—
 386
 15
 —
 401
—
 401
 14
 —
 415
Dividends payable—
 762
 —
 —
 762
Dividends due to affiliates—
 39
 —
 (39) —
Other current liabilities—
 988
 253
 —
 1,241
39
 588
 611
 —
 1,238
Total current liabilities—
 9,231
 6,802
 (9,101) 6,932
39
 9,566
 7,145
 (7,249) 9,501
Long-term debt—
 24,143
 1,008
 —
 25,151
—
 28,736
 977
 —
 29,713
Long-term borrowings due to affiliates—
 2,000
 1,905
 (3,905) —
—
 2,000
 1,902
 (3,902) —
Deferred income taxes—
 1,278
 20,219
 —
 21,497
—
 1,382
 19,466
 —
 20,848
Accrued postemployment costs—
 2,147
 258
 —
 2,405
—
 1,754
 284
 —
 2,038
Other liabilities—
 270
 482
 —
 752
—
 424
 382
 —
 806
TOTAL LIABILITIES—
 39,069
 30,674
 (13,006) 56,737
39
 43,862
 30,156
 (11,151) 62,906
Redeemable noncontrolling interest—
 —
 23
 —
 23
9.00% cumulative compounding preferred stock, Series A8,320
 —
 —
 —
 8,320
Total shareholders' equity57,685
 66,005
 72,900
 (138,905) 57,685
Total shareholders’ equity57,358
 57,358
 70,675
 (128,033) 57,358
Noncontrolling interest—
 —
 208
 —
 208
—
 —
 216
 —
 216
TOTAL EQUITY57,685
 66,005
 73,108
 (138,905) 57,893
57,358
 57,358
 70,891
 (128,033) 57,574
TOTAL LIABILITIES AND EQUITY$66,005
 $105,074
 $103,805
 $(151,911) $122,973
$57,397
 $101,220
 $101,047
 $(139,184) $120,480

The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the SixThree Months Ended July 3, 2016April 1, 2017
(in millions)
(Unaudited)
Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations ConsolidatedParent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES                  
Net cash provided by/(used for) operating activities$847
 $1,520
 $584
 $(847) $2,104
$736
 $(304) $153
 $(736) $(151)
CASH FLOWS FROM INVESTING ACTIVITIES                  
Capital expenditures—
 (346) (168) —
 (514)—
 (203) (165) —
 (368)
Proceeds from net investment hedges—
 77
 —
 —
 77
Net proceeds from/(payments on) intercompany lending activities—
 595
 107
 (702) —
—
 (4) (67) 71
 —
Additional investments in subsidiaries—
 (10) —
 10
 —
Return of capital8,987
 —
 —
 (8,987) —
7
 —
 —
 (7) —
Other investing activities, net—
 (54) (25) —
 (79)—
 44
 (6) —
 38
Net cash provided by/(used for) investing activities8,987
 262
 (86) (9,679) (516)7
 (163) (238) 64
 (330)
CASH FLOWS FROM FINANCING ACTIVITIES                  
Repayments of long-term debt—
 (8) (4) —
 (12)
Proceeds from issuance of long-term debt—
 6,980
 2
 —
 6,982
Proceeds from issuance of commercial paper—
 1,939
 —
 —
 1,939
—
 2,324
 —
 —
 2,324
Repayments of commercial paper—
 (1,307) —
 —
 (1,307)—
 (2,068) —
 —
 (2,068)
Net proceeds from/(payments on) intercompany borrowing activities—
 (107) (595) 702
 —
—
 67
 4
 (71) —
Dividends paid-Series A Preferred Stock(180) —
 —
 —
 (180)
Dividends paid-common stock(1,334) (1,514) —
 1,514
 (1,334)(736) (736) —
 736
 (736)
Redemption of Series A Preferred Stock(8,320) 

 

 

 (8,320)
Other intercompany capital stock transactions—
 (8,320) 10
 8,310
 —
—
 (7) —
 7
 —
Other financing activities, net—
 45
 (2) —
 43
(7) (21) 3
 —
 (25)
Net cash provided by/(used for) financing activities(9,834) (2,292) (589) 10,526
 (2,189)(743) (441) 7
 672
 (505)
Effect of exchange rate changes on cash and cash equivalents—
 —
 1
 —
 1
Cash and cash equivalents:         
Effect of exchange rate changes on cash, cash equivalents, and restricted cash—
 —
 13
 —
 13
Cash, cash equivalents, and restricted cash:         
Net increase/(decrease)—
 (510) (90) —
 (600)—
 (908) (65) —
 (973)
Balance at beginning of period—
 3,189
 1,648
 —
 4,837
—
 2,869
 1,386
 —
 4,255
Balance at end of period$—
 $2,679
 $1,558
 $—
 $4,237
$—
 $1,961
 $1,321
 $—
 $3,282

The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the SixThree Months Ended June 28, 2015April 3, 2016
(in millions)
(Unaudited)
Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations ConsolidatedParent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES                  
Net cash provided by/(used for) operating activities$180
 $(56) $467
 $(180) $411
$—
 $166
 $104
 $—
 $270
CASH FLOWS FROM INVESTING ACTIVITIES                  
Capital expenditures—
 (59) (104) —
 (163)—
 (242) (61) —
 (303)
Proceeds from net investment hedges—
 306
 —
 —
 306
Net proceeds from/(payments on) intercompany lending activities—
 (76) (246) 322
 —
—
 423
 314
 (737) —
Return of capital180
 5
 —
 (185) —
667
 —
 —
 (667) —
Other investing activities, net—
 (2) 9
 —
 7
—
 13
 (3) —
 10
Net cash provided by/(used for) investing activities180
 174
 (341) 137
 150
667
 194
 250
 (1,404) (293)
CASH FLOWS FROM FINANCING ACTIVITIES                  
Repayments of long-term debt—
 (1,960) (3) —
 (1,963)
Proceeds from issuance of long-term debt—
 2,000
 —
 —
 2,000
Net proceeds from/(payments on) intercompany borrowing activities—
 246
 76
 (322) —
—
 (314) (423) 737
 —
Dividends paid-Series A Preferred Stock(360) —
 —
 —
 (360)
Dividends paid-common stock—
 (360) —
 360
 —
(667) (667) —
 667
 (667)
Other intercompany capital stock transactions—
 —
 (5) 5
 —
Other financing activities, net—
 (3) (53) —
 (56)—
 25
 15
 —
 40
Net cash provided by/(used for) financing activities(360) (77) 15
 43
 (379)(667) (956) (408) 1,404
 (627)
Effect of exchange rate changes on cash and cash equivalents—
 —
 (333) —
 (333)
Cash and cash equivalents:         
Effect of exchange rate changes on cash, cash equivalents, and restricted cash—
 —
 44
 —
 44
Cash, cash equivalents, and restricted cash:         
Net increase/(decrease)—
 41
 (192) —
 (151)—
 (596) (10) —
 (606)
Balance at beginning of period—
 541
 1,757
 —
 2,298
—
 3,253
 1,659
 —
 4,912
Balance at end of period$—
 $582
 $1,565
 $—
 $2,147
$—
 $2,657
 $1,649
 $—
 $4,306

The following tables provide a reconciliation of cash and cash equivalents, as reported on our unaudited condensed consolidating balance sheets, to cash, cash equivalents, and restricted cash, as reported on our unaudited condensed consolidating statements of cash flows (in millions):
 April 1, 2017
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Cash and cash equivalents$—
 $1,929
 $1,313
 $—
 $3,242
Restricted cash included in other assets (current)—
 32
 4
 —
 36
Restricted cash included in other assets (noncurrent)—
 —
 4
 —
 4
Cash, cash equivalents, and restricted cash$—
 $1,961
 $1,321
 $—
 $3,282
 December 31, 2016
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Cash and cash equivalents$—
 $2,830
 $1,374
 $—
 $4,204
Restricted cash included in other assets (current)—
 39
 3
 —
 42
Restricted cash included in other assets (noncurrent)—
 —
 9
 —
 9
Cash, cash equivalents, and restricted cash$—
 $2,869
 $1,386
 $—
 $4,255




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
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.
In the first quarter of 2016, we moved certain historical Kraft export businesses from our United States segment to our Rest of World and Europe segments to align with our long-term go-to-market strategies. We began to manage and report our results reflecting this change in the first quarter of 2016 and have reflected this change in all pro forma historical information presented. The impact of this change is not material to current or prior period results.
Items Affecting Comparability of Financial Results
The 2015 Merger:
We completed the 2015 Merger on July 2, 2015. See Note 1, Background and Basis of Presentation, and Note 2, Merger and Acquisition, to the condensed consolidated financial statements for additional information.
Integration and Restructuring Expenses:
We recorded expenses of $284 million for the three months and $544 million for the six months ended July 3, 2016, and $62 million for the three months and $105 million for the six months ended June 28, 2015, related to the Integration Program and restructuring activities. These expenses include our multi-year $1.9 billion Integration Program, which we announced following the 2015 Merger. The Integration Program costs primarily include organization costs, including cash and non-cash severance, footprint costs to exit facilities, and other costs incurred as a direct result of restructuring activities related to the 2015 Merger. Additionally, we anticipate capital expenditures of approximately $1.1 billion related to the Integration Program, and as of July 3, 2016, we have recognized $377 million in capital expenditures since the inception of the Integration Program. The Integration Program is designed to reduce costs, integrate, and optimize our combined organization and is expected to achieve $1.5 billion of pre-tax savings by 2017, primarily benefiting the United States and Canada segments. We realized pre-tax savings of approximately $310 million during the three months and $535 million during the six months ended July 3, 2016. Since the inception of the Integration Program, our cumulative savings achieved are approximately $660 million. See Note 3, Integration and Restructuring Expenses, to the condensed consolidated financial statements for additional information.

Series A Preferred Stock:
On June 7, 2016, we redeemed all outstanding shares of our Series A Preferred Stock. We funded this redemption primarily through the issuance of the U.S. Dollar Notes and Euro Notes, as well as other sources of liquidity, including our commercial paper program, U.S. securitization program, and cash on hand.
Results of Operations
Due to the size of Kraft's business relative to the size of Heinz's business prior to the 2015 Merger, and for purposes of comparability, the Results of Operations include certain unaudited pro forma condensed combined financial information (the “pro forma financial information”) adjusted to assume that Kraft and Heinz were a combined company for the first two quarters of 2015. This pro forma financial information reflects combined historical results, final purchase accounting adjustments, and adjustments to align accounting policies for the six months ended June 28, 2015. Pro forma adjustments are only reflected for the three and six months ended June 28, 2015, as Kraft and Heinz were a combined company for the three and six months ended July 3, 2016. For more information see Supplemental Unaudited Pro Forma Condensed Combined Financial Information.
In addition, we include certain non-GAAP financial measures, which, for the three and six months ended June 28, 2015, are derived from these unaudited pro forma results. 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 core operations. For additional information, see Non-GAAP Financial Measures.


Consolidated Results of Operations
Summary of Results:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % Change
 (in millions, except per share data)   (in millions, except per share data)  
Net sales$6,793
 $2,616
 159.7% $13,363
 $5,094
 162.3%
Operating income1,636
 444
 268.5% 3,149
 953
 230.4%
Net income/(loss) attributable to common shareholders770
 (344) nm
 1,666
 (248) nm
Diluted earnings/(loss) per share0.63
 (0.91) nm
 1.36
 (0.66) nm
Net Sales:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % Change
 (in millions)   (in millions)  
Net sales$6,793
 $2,616
 159.7 % $13,363
 $5,094
 162.3 %
Pro forma net sales(a)
6,793
 7,130
 (4.7)% 13,363
 13,960
 (4.3)%
Organic Net Sales(b)
6,894
 6,929
 (0.5)% 13,614
 13,573
 0.3 %

(a) There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(b) 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 July 3, 2016 compared to the Three Months Ended June 28, 2015:
Net sales increased 159.7% to $6.8 billion for the three months ended July 3, 2016 compared to the three months ended June 28, 2015, primarily driven by the 2015 Merger.
Pro forma net sales decreased 4.7% reflecting the unfavorable impacts of foreign currency (4.0 pp) and divestitures (0.2 pp). Organic Net Sales decreased 0.5% due to unfavorable volume/mix (2.1 pp) partially offset by higher pricing (1.6 pp). Unfavorable volume/mix was primarily due to lower shipments across several categories, particularly meats and foodservice in the United States, which was partially offset by growth in refrigerated meal combinations in the United States and condiments and sauces globally. Pricing was higher in United States, Rest of World, and Canada despite deflation in key commodities (which we define as dairy, meat, coffee and nuts) in United States and Canada, primarily in dairy and coffee.
Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Net sales increased 162.3% to $13.4 billion for the six months ended July 3, 2016 compared to the six months ended June 28, 2015, primarily driven by the 2015 Merger.
Pro forma net sales decreased 4.3% reflecting the unfavorable impacts of foreign currency (4.3 pp) and divestitures (0.3 pp). Organic Net Sales increased 0.3% driven by higher pricing (1.0 pp) partially offset by unfavorable volume/mix (0.7 pp). Pricing was higher in United States, Rest of World, and Canada despite deflation in key commodities in United States and Canada, primarily in dairy and coffee. Unfavorable volume/mix was due to lower shipments in meats and ready-to-drink beverages in the United States that was partially offset by growth in condiments and sauces globally and refrigerated meal combinations in the United States.


Operating Income:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % Change
 (in millions)   (in millions)  
Operating income$1,636
 $444
 268.5% $3,149
 $953
 230.4%
Adjusted EBITDA(a)
2,087
 1,773
 17.7% 4,038
 3,382
 19.4%
(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 July 3, 2016 compared to the Three Months Ended June 28, 2015:
Operating income increased 268.5% to $1.6 billion for the three months ended July 3, 2016 compared to the three months ended June 28, 2015, primarily driven by the 2015 Merger. The benefit realized from the 2015 Merger was partially offset by higher Integration Program and restructuring expenses, higher depreciation and amortization expense, as well as the unfavorable impact of foreign currency.
Adjusted EBITDA increased 17.7% to $2.1 billion for the three months ended July 3, 2016 compared to the three months ended June 28, 2015, primarily driven by savings from our Integration Program and restructuring activities and favorable pricing net of commodity costs, partially offset by the unfavorable impact of foreign currency (5.4 pp).
Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Operating income increased 230.4% to $3.1 billion for the six months ended July 3, 2016 compared to the six months ended June 28, 2015, primarily driven by the 2015 Merger. The benefit realized from the 2015 Merger was partially offset by higher Integration Program and restructuring expenses, higher depreciation and amortization expense, as well as the unfavorable impact of foreign currency.
Adjusted EBITDA increased 19.4% to $4.0 billion for the six months ended July 3, 2016 compared to the six months ended June 28, 2015, primarily driven by savings from our Integration Program and restructuring activities and favorable pricing net of commodity costs, partially offset by the unfavorable impact of foreign currency (5.7 pp).
Net Income and Diluted EPS:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % Change
 (in millions, except per share data)   (in millions, except per share data)  
Net income/(loss) attributable to common shareholders$770
 $(344) nm
 $1,666
 $(248) nm
Diluted EPS0.63
 (0.91) nm
 1.36
 (0.66) nm
Adjusted EPS(a)
0.85
 0.61
 39.3% 1.58
 1.14
 38.6%
(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 July 3, 2016 compared to the Three Months Ended June 28, 2015:
Net income/(loss) attributable to common shareholders increased $1.1 billion to $770 million for the three months ended July 3, 2016 compared to the three months ended June 28, 2015. The increase was due to the growth in operating income discussed above, lower interest expense, and lower other expense/(income), net, partially offset by a higher effective tax rate as follows:
Interest expense decreased to $264 million for the three months ended July 3, 2016, compared to $394 million in the prior year period. This decrease was primarily due to a $227 million loss released from other accumulated comprehensive income due to early termination of certain interest rate swaps in the prior period and interest savings following our refinancing in connection with the 2015 Merger. These were partially offset by the assumption of $8.6 billion of Kraft's long-term debt obligations in the 2015 Merger as well as new borrowings under our commercial paper program and the issuance of new long-term debt in conjunction with the redemption of our Series A Preferred Stock. See Note 12, Commitments, Contingencies and Debt, to the consolidated financial statements for additional information.
Other expense/(income), net decreased to $6 million of expense for the three months ended July 3, 2016, compared to $245 million of expense in the prior period. The decrease was primarily due to a $234 million nonmonetary currency devaluation loss in the prior period compared to $7 million in the current period related to our Venezuelan operations.


The effective tax rate was 30.1% for the three months ended July 3, 2016, compared to a 17.6% benefit for the three months ended June 28, 2015. The increase in our effective tax rate was driven by the 2015 Merger. With the 2015 Merger, our operations in the United States and Canada increased, resulting in an unfavorable impact to the effective tax rate of higher blended statutory tax rates and a favorable impact to the effective tax rate of a larger amount of tax exempt income. See Note 6, Income Taxes, to the condensed consolidated financial statements for a discussion of income tax rates.
 For the Three Months Ended
 July 3, 2016* June 28, 2015 $ Change % Change
Diluted EPS$0.63
 $(0.91) $1.54
 nm
Pro forma adjustments—
 1.06
 (1.06)  
Pro forma diluted EPS0.63
 0.15
 0.48
 320.0%
Integration and restructuring expenses0.16
 0.07
 0.09
  
Merger costs0.01
 0.15
 (0.14)  
Unrealized losses/(gains) on commodity hedges(0.02) (0.01) (0.01)  
Impairment losses0.03
 0.03
 —
  
Losses/(gains) on sale of business—
 (0.01) 0.01
  
Nonmonetary currency devaluation—
 0.23
 (0.23)  
Preferred dividend adjustment(a)
0.04
 —
 0.04
  
Adjusted EPS(b)
$0.85
 $0.61
 $0.24
 39.3%
        
Key drivers of Adjusted EPS(b):
       
Results of operations    0.24
  
Preferred dividend adjustment for June 7, 2016 redemption    0.04
  
Change in interest expense    —
  
Change in other expense/(income), net    (0.01)  
Change in effective income tax rate and other    (0.03)  
     0.24
  
*There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(a)
For Adjusted EPS, we present the impact of the Series A Preferred Stock dividend payments on an accrual basis. Accordingly, we include an adjustment to EPS to exclude $51 million of Series A Preferred Stock dividends during the three months ended July 3, 2016 (to reflect that it had been redeemed on June 7, 2016).
(b) Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Diluted EPS increased to $0.63 for the three months ended July 3, 2016 compared to a loss of $0.91 for the three months ended June 28, 2015. The increase in diluted earnings/(loss) per share was driven primarily by the net income factors discussed above, partially offset by the effect of an increase in the weighted average shares of common stock outstanding following the 2015 Merger.
Adjusted EPS increased 39.3% to $0.85 for the three months ended July 3, 2016 compared to $0.61 for the three months ended June 28, 2015, primarily driven by Adjusted EBITDA growth as well as lower preferred dividend and interest expense, partially offset by the unfavorable impact of foreign currency and a higher effective tax rate.


Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Net income/(loss) attributable to common shareholders increased $1.9 billion to $1.7 billion for the six months ended July 3, 2016 compared to the six months ended June 28, 2015. The increase was due to the growth in operating income discussed above, lower interest expense and other expense/(income) as well as the absence of a preferred dividend payment in the first quarter of the current period, partially offset by a higher effective tax rate as follows:
Interest expense decreased to $513 million for the six months ended July 3, 2016, compared to $595 million in the prior period. This decrease was primarily due to a $227 million loss released from other accumulated comprehensive income due to the early termination of certain interest rate swaps as well as a write-off of debt issuance costs in the prior period and interest savings following our refinancing in connection with the 2015 Merger. These were partially offset by the assumption of $8.6 billion of Kraft's long-term debt obligations in the 2015 Merger, new borrowings under our commercial paper program, and the issuance of new long-term debt in conjunction with the redemption of our Series A Preferred Stock. See Note 12, Commitments, Contingencies and Debt, to the consolidated financial statements for additional information.
Other expense/(income), net decreased to $2 million of income for the six months ended July 3, 2016, compared to $206 million of expense in the prior period. The decrease was primarily due to a $234 million nonmonetary currency devaluation loss in the prior period compared to $7 million in the current period related to our Venezuelan operations.
The effective tax rate was 29.7% for the six months ended July 3, 2016, compared to 21.8% for the six months ended June 28, 2015. The increase in our effective tax rate was driven by the 2015 Merger. With the 2015 Merger, our operations in the United States and Canada increased, resulting in an unfavorable impact to the effective tax rate of higher blended statutory tax rates and a favorable impact to the effective tax rate of a larger amount of tax exempt income. See Note 6, Income Taxes, to the condensed consolidated financial statements for a discussion of income tax rates.
Due to the December 8, 2015 common stock dividend declaration, we were required to accelerate payment of the Series A Preferred Stock dividend from March 7, 2016 to December 8, 2015. Accordingly, there were two cash distributions for Series A Preferred Stock during the three months ended January 3, 2016, and none during the three months ended April 3, 2016. The Series A Preferred Stock was fully redeemed on June 7, 2016. In accordance with U.S. GAAP, we recorded our Series A Preferred Stock dividends as they were distributed. During the three and six months ended July 3, 2016, we made one $180 million cash distribution on our Series A Preferred Stock.


 For the Six Months Ended
 July 3, 2016* June 28, 2015 $ Change % Change
Diluted EPS$1.36
 $(0.66) $2.02
 nm
Pro forma adjustments—
 1.27
 (1.27)  
Pro forma diluted EPS1.36
 0.61
 0.75
 123.0%
Integration and restructuring expenses0.30
 0.12
 0.18
 

Merger costs0.02
 0.17
 (0.15)  
Unrealized losses/(gains) on commodity hedges(0.03) (0.01) (0.02)  
Impairment losses0.03
 0.03
 —
  
Losses/(gains) on sale of business—
 (0.01) 0.01
 

Nonmonetary currency devaluation0.01
 0.23
 (0.22) 

Preferred dividend adjustment(a)
(0.11) —
 (0.11)  
Adjusted EPS(b)
$1.58
 $1.14
 $0.44
 38.6%
        
Key drivers of Adjusted EPS(b):
       
Results of operations    0.48
  
Preferred dividend adjustment for June 7, 2016 redemption    0.04
  
Change in interest expense    0.02
  
Change in other expense/(income), net    (0.04)  
Change in effective income tax rate and other    (0.06)  
     0.44
  
*There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(a) For Adjusted EPS, we present the impact of the Series A Preferred Stock dividend payments on an accrual basis. Accordingly, we include adjustments to EPS to include $180 million of Series A Preferred Stock dividends during the first quarter of 2016 (to reflect the March 7, 2016 Series A Preferred Stock dividend that was paid in December 2015), and to exclude $51 million of Series A Preferred Stock dividends during the three months ended July 3, 2016 (to reflect that it was redeemed on June 7, 2016).
(b) Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Diluted earnings/(loss) per share increased to $1.36 for the six months ended July 3, 2016 compared to a loss of $0.66 for the six months ended July 3, 2016. The increase in diluted earnings/(loss) per share was driven primarily by the net income factors discussed above, partially offset by the effect of an increase in the weighted average shares of common stock outstanding following the 2015 Merger.
Adjusted EPS increased 38.6% to $1.58 for the six months ended July 3, 2016 compared to $1.14 for the six months ended June 28, 2015, primarily driven by Adjusted EBITDA growth as well as lower preferred dividend and interest expense, partially offset by the unfavorable impact of foreign currency, lower other expense/(income), net, and a higher effective tax rate.


Results of Operations by Segment
We manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World is comprised of threetwo operating segments: Asia Pacific, Latin America and RIMEA.AMEA.
In the fourth quarter of 2016, we reorganized our segments to reflect the following:
our Russia business moved from the Rest of World segment to the Europe segment and
management of our Global Procurement Office moved from one of our European subsidiaries to our global headquarters, which resulted in moving the related costs from the Europe segment to general corporate expenses.
These changes are reflected in all historical periods presented and did not have a material impact on our financial statements. See Note 18, Segment Reporting, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information related to these changes.
Items Affecting Comparability of Financial Results
Integration and Restructuring Expenses:
We recorded expenses related to integration and restructuring activities (including the multi-year Integration Program announced following the 2015 Merger) totaling $148 million for the three months ended April 1, 2017 and $260 million for the three months ended April 3, 2016. Integration Program expenses included in these totals were $127 million for the three months ended April 1, 2017 and $241 million for the three months ended April 3, 2016.
We expect to incur pre-tax costs of $2.0 billion related to the Integration Program. As of April 1, 2017, we have incurred cumulative costs of $1.8 billion. These costs primarily include severance and employee benefit costs (including cash and non-cash severance), costs to exit facilities (including non-cash costs such as accelerated depreciation), and other costs incurred as a direct result of integration activities related to the 2015 Merger.
Additionally, we anticipate capital expenditures of approximately $1.3 billion related to the Integration Program. As of April 1, 2017, we have incurred $995 million in capital expenditures since the inception of the Integration Program. The Integration Program is designed to reduce costs, integrate, and optimize our combined organization and is expected to achieve $1.7 billion of pre-tax savings by the end of 2017, primarily benefiting the United States and Canada segments. Since the inception of the Integration Program, our cumulative pre-tax savings achieved are approximately $1,270 million.
See Note 2, Integration and Restructuring Expenses, to the condensed consolidated financial statements for additional information.
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 from our condensed consolidated financial statements see Non-GAAP Financial Measures.
Consolidated Results of Operations
Summary of Results:
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 % Change
 (in millions, except per share data)  
Net sales$6,364
 $6,570
 (3.1)%
Operating income1,551
 1,513
 2.5 %
Net income/(loss) attributable to common shareholders893
 896
 (0.3)%
Diluted earnings/(loss) per share0.73
 0.73
 — %

Net Sales:
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 % Change
 (in millions)  
Net sales$6,364
 $6,570
 (3.1)%
Organic Net Sales(a)
6,379
 6,557
 (2.7)%
(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, 2017 compared to the Three Months Ended April 3, 2016:
Net sales decreased 3.1% to $6.4 billion for the three months ended April 1, 2017 compared to the prior period, partially due to the unfavorable impact of foreign currency (0.4 pp). Organic Net Sales decreased 2.7% due to unfavorable volume/mix (3.7 pp), partially offset by higher pricing (1.0 pp). Volume/mix was unfavorable across most categories in the United States and Canada, which was partially offset by growth in Rest of World and Europe. Higher pricing in Rest of World and United States were partially offset by lower pricing in Canada and Europe.
Net Income:
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 % Change
 (in millions, except per share data)  
Operating income$1,551
 $1,513
 2.5 %
Net income/(loss) attributable to common shareholders893
 896
 (0.3)%
Adjusted EBITDA(a)
1,885
 1,951
 (3.4)%
(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, 2017 compared to the Three Months Ended April 3, 2016:
Operating income increased 2.5% to $1.6 billion for the three months ended April 1, 2017, compared to $1.5 billion in the prior period. This increase was primarily due to lower Integration Program and other restructuring expenses in the current period, partially offset by unrealized losses on commodity hedges in the current period, lower commercial results, and the unfavorable impact from foreign currency (1.1 pp).
Net income/(loss) attributable to common shareholders decreased 0.3% to $893 million for the three months ended April 1, 2017, compared to $896 million in the prior period. The decrease was due to higher interest expense, which more than offset growth in operating income and a lower effective tax rate, detailed as follows:
Interest expense increased to $313 million for the three months ended April 1, 2017, compared to $249 million in the prior period. This increase was primarily due to the issuance of new long-term debt in conjunction with the redemption of our Series A Preferred Stock during the second quarter of 2016, and borrowings under our commercial paper program, which began in the second quarter of 2016.
The effective tax rate decreased to 28.7% for the three months ended April 1, 2017, compared to 29.2% in the prior period. The decrease in our effective tax rate was driven by the favorable impact of net discrete items, primarily related to reversals of uncertain tax position reserves in foreign jurisdictions. The favorable impact of current year discrete items was partially offset by the unfavorable impact of a higher percentage of U.S. income reflected in our estimated full year effective tax rate for 2017 compared to 2016.
Adjusted EBITDA decreased 3.4% to $1.9 billion for the three months ended April 1, 2017 compared to the prior period, primarily due to unfavorable volume/mix and the unfavorable impact of foreign currency (1.0 pp), partially offset by savings from the Integration Program and other restructuring activities as well as higher pricing. Segment Adjusted EBITDA results were as follows:
Canada Segment Adjusted EBITDA decreased primarily due to volume/mix declines, partially offset by Integration Program savings and the favorable impact of foreign currency (2.2 pp).
United States Segment Adjusted EBITDA decreased primarily due to volume/mix declines and unfavorable key commodity costs (which we define as dairy, meat, coffee, and nuts) primarily coffee and meats, partially offset by Integration Program savings and higher pricing in cheese.

Rest of World Segment Adjusted EBITDA decreased primarily due to increased commercial investments, higher input costs in local currency, and the unfavorable impact of foreign currency (2.7 pp), which were partially offset by net sales growth.
Europe Segment Adjusted EBITDA decreased primarily due to higher input costs in local currency and the unfavorable impact of foreign currency (10.2 pp), which were partially offset by productivity savings.
Diluted EPS:
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 % Change
 (in millions, except per share data)  
Diluted EPS$0.73
 $0.73
 —%
Adjusted EPS(a)
0.84
 0.73
 15.1%
(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, 2017 compared to the Three Months Ended April 3, 2016:
Diluted EPS was $0.73 for the three months ended April 1, 2017 and April 3, 2016.
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 $ Change % Change
Diluted EPS$0.73
 $0.73
 $—
 —%
Integration and restructuring expenses0.08
 0.14
 (0.06)  
Merger costs—
 0.01
 (0.01)  
Unrealized losses/(gains) on commodity hedges0.02
 —
 0.02
  
Nonmonetary currency devaluation0.01
 —
 0.01
  
Preferred dividend adjustment—
 (0.15) 0.15
  
Adjusted EPS(a)
$0.84
 $0.73
 $0.11
 15.1%
        
Key drivers of change in Adjusted EPS:       
Results of operations    $(0.02)  
Change in preferred dividends    0.15
  
Change in interest expense    (0.04)  
Change in other expense/(income), net    0.01
  
Change in effective tax rate and other    0.01
  
     $0.11
  
(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 15.1% to $0.84 for the three months ended April 1, 2017, compared to $0.73 in the prior period, primarily driven by the absence of a Series A Preferred Stock dividend in the current period, higher other expense/(income), net, and a lower effective tax rate, partially offset by higher interest expense and lower Adjusted EBITDA.
Results of Operations by Segment
Management evaluates segment performance based on several factors including net sales and Segment Adjusted EBITDA. Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA assistsis a tool that can assist management and investors 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 coreunderlying operations. These items include depreciation and amortization (including amortization of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, merger costs, unrealized gains and lossesgains/(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'ssegment’s operating results), impairment losses, gains/(losses) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and certain general corporate expenses. In addition, consistent with the manner in which management evaluates segment performance and allocates resources, Segment Adjusted EBITDA includes the operating results of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013.losses).

Net Sales:
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
(in millions)(in millions)
Net sales:          
United States$4,692
 $877
 $9,407
 $1,745
$4,552
 $4,715
Canada638
 144
 1,142
 265
443
 504
Europe578
 620
 1,131
 1,246
543
 583
Rest of World885
 975
 1,683
 1,838
826
 768
Total net sales$6,793
 $2,616
 $13,363
 $5,094
$6,364
 $6,570

Organic Net Sales:
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015April 1,
2017		 April 3,
2016
(in millions)(in millions)
Pro forma net sales(a):
       
Organic Net Sales(a):
   
United States$4,692
 $4,783
 $9,407
 $9,490
$4,552
 $4,715
Canada638
 664
 1,142
 1,215
429
 504
Europe578
 621
 1,131
 1,247
582
 583
Rest of World885
 1,062
 1,683
 2,008
816
 755
Total pro forma net sales$6,793
 $7,130
 $13,363
 $13,960
Total Organic Net Sales$6,379
 $6,557

(a)There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015
 (in millions)
Organic Net Sales(b):
       
United States$4,692
 $4,783
 $9,407
 $9,490
Canada672
 664
 1,231
 1,215
Europe591
 605
 1,168
 1,204
Rest of World939
 877
 1,808
 1,664
Total Organic Net Sales$6,894
 $6,929
 $13,614
 $13,573
(b) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.


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 pro forma net sales and Organic Net Sales were:
Pro Forma Net Sales Currency Divestitures Organic Net Sales Price Volume/MixNet Sales Impact of Currency Organic Net Sales Price Volume/Mix
Three Months Ended July 3, 2016 compared to Three Months Ended June 28, 2015           
Three Months Ended April 1, 2017 compared to
Three Months Ended April 3, 2016
         
United States(1.9)% 0.0 pp 0.0 pp (1.9)% 1.2 pp (3.1) pp(3.5)% 0.0 pp (3.5)% 0.7 pp (4.2) pp
Canada(3.9)% (5.1) pp 0.0 pp 1.2 % 3.1 pp (1.9) pp(12.2)% 2.7 pp (14.9)% (1.0) pp (13.9) pp
Europe(6.9)% (2.1) pp (2.5) pp (2.3)% (2.4) pp 0.1 pp(6.8)% (6.6) pp (0.2)% (0.6) pp 0.4 pp
Rest of World(16.7)% (23.8) pp 0.0 pp 7.1 % 5.0 pp 2.1 pp7.5 % (0.6) pp 8.1 % 5.1 pp 3.0 pp
(4.7)% (4.0) pp (0.2) pp (0.5)% 1.6 pp (2.1) pp
Six Months Ended July 3, 2016 compared to Six Months Ended June 28, 2015           
United States(0.9)% 0.0 pp 0.0 pp (0.9)% 0.6 pp (1.5) pp
Canada(6.0)% (7.3) pp 0.0 pp 1.3 % 3.4 pp (2.1) pp
Europe(9.3)% (3.0) pp (3.3) pp (3.0)% (3.4) pp 0.4 pp
Rest of World(16.2)% (24.9) pp 0.0 pp 8.7 % 4.3 pp 4.4 pp
(4.3)% (4.3) pp (0.3) pp 0.3 % 1.0 pp (0.7) pp
Kraft Heinz(3.1)% (0.4) pp (2.7)% 1.0 pp (3.7) pp

Adjusted EBITDA:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 July 3, 2016 June 28, 2015
 (in millions)
Segment Adjusted EBITDA:       
United States$1,518
 $1,208
 $3,011
 $2,331
Canada192
 151
 343
 264
Europe212
 225
 389
 439
Rest of World208
 228
 375
 418
General corporate expenses(43) (39) (80) (70)
Depreciation and amortization (excluding integration and restructuring expenses)(124) (210) (285) (426)
Integration and restructuring expenses(284) (118) (544) (199)
Merger costs(14) (41) (29) (54)
Unrealized gains/(losses) on commodity hedges37
 21
 45
 23
Impairment losses(53) (58) (53) (58)
Gains/(losses) on sale of business—
 21
 —
 21
Nonmonetary currency devaluation(2) (49) (3) (49)
Equity award compensation expense (excluding integration and restructuring expenses)(11) (25) (20) (44)
 Other pro forma adjustments(a)
—
 (870) —
 (1,643)
Operating income1,636
 444
 3,149
 953
Interest expense264
 394
 513
 595
Other expense/(income), net6
 245
 (2) 206
Income/(loss) before income taxes$1,366
 $(195) $2,638
 $152
(a) See Supplemental Unaudited Pro Forma Condensed Combined Financial Information for additional information.


 For the Three Months Ended
 April 1,
2017		 April 3,
2016
 (in millions)
Segment Adjusted EBITDA:   
United States$1,472
 $1,493
Canada126
 151
Europe170
 180
Rest of World146
 166
General corporate expenses(29) (39)
Depreciation and amortization (excluding integration and restructuring expenses)(132) (161)
Integration and restructuring expenses(148) (260)
Merger costs—
 (15)
Unrealized gains/(losses) on commodity hedges(42) 8
Nonmonetary currency devaluation—
 (1)
Equity award compensation expense (excluding integration and restructuring expenses)(12) (9)
Operating income1,551
 1,513
Interest expense313
 249
Other expense/(income), net(12) (8)
Income/(loss) before income taxes$1,250
 $1,272
United States:
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % ChangeApril 1,
2017		 April 3,
2016		 % Change
(in millions)   (in millions)  (in millions)  
Net sales$4,692
 $877
 435.0 % $9,407
 $1,745
 439.1 %$4,552
 $4,715
 (3.5)%
Pro forma net sales(a)
4,692
 4,783
 (1.9)% 9,407
 9,490
 (0.9)%
Organic Net Sales(b)
4,692
 4,783
 (1.9)% 9,407
 9,490
 (0.9)%
Organic Net Sales(a)
4,552
 4,715
 (3.5)%
Segment Adjusted EBITDA1,518
 1,208
 25.7 % 3,011
 2,331
 29.2 %1,472
 1,493
 (1.4)%

(a)
(a) There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(b)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 July 3, 2016April 1, 2017 compared to the Three Months Ended June 28, 2015:April 3, 2016:
Net sales increased 435.0% to $4.7 billion, primarily driven by the 2015 Merger. Pro forma net sales and Organic Net Sales decreased 1.9%,3.5% to $4.6 billion due to unfavorable volume/mix (3.1(4.2 pp), partially offset by higher pricing (1.2(0.7 pp). Unfavorable volume/mix was due to lower shipments, particularly in meatsreflected a combination of weaker consumption across most categories, including the impacts of calendar shifts as well as select distribution losses (primarily within the club channel). The categories most affected by these factors included foodservice, cheese, meat, and foodservice, which wasnuts. These declineswere partially offset by gains in refrigerated meal combinations, frozen meals, and boxed dinners. Pricing was higher across most categories despite deflationgains primarily reflected price increases in key commodities, primarily in dairy and coffee.cheese.
Segment Adjusted EBITDA increased 25.7%decreased 1.4% primarily due to gainsvolume/mix declines across most categories and unfavorable key commodity costs, primarily in coffee and meats, partially offset by savings from the Integration Program and favorable pricing net of key commodity costs, partially offset by volume/mix declines in meats and foodservice.
Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Net sales increased 439.1% to $9.4 billion, primarily driven by the 2015 Merger. Pro forma net sales and Organic Net Sales decreased 0.9% due to unfavorable volume/mix (1.5 pp) that was partially offset by higher pricing (0.6 pp). Unfavorable volume/mix was primarily due to lower shipments of meats and declines in ready-to-drink beverages that were partially offset by innovation-related gains in refrigerated meal combinations. Pricing was higher across most categories despite deflation in key commodities, primarily in dairy and coffee.
Segment Adjusted EBITDA increased 29.2% primarily due to gains from the Integration Program and favorable pricing net of key commodity costs, partially offset by volume/mix declines in meats, foodservice, spoonables, and ready-to-drink.cheese.
Canada:
For the Three Months Ended For the Six Months EndedFor the Three Months Ended
July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % ChangeApril 1,
2017		 April 3,
2016		 % Change
(in millions)   (in millions)  (in millions)  
Net sales$638
 $144
 343.1 % $1,142
 $265
 330.9 %$443
 $504
 (12.2)%
Pro forma net sales(a)
638
 664
 (3.9)% 1,142
 1,215
 (6.0)%
Organic Net Sales(b)
672
 664
 1.2 % 1,231
 1,215
 1.3 %
Organic Net Sales(a)
429
 504
 (14.9)%
Segment Adjusted EBITDA192
 151
 27.2 % 343
 264
 29.9 %126
 151
 (16.6)%

(a)
(a) There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(b)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 July 3, 2016April 1, 2017 compared to the Three Months Ended June 28, 2015:April 3, 2016:
Net sales increased 343.1%decreased 12.2% to $638$443 million primarily driven bydespite the 2015 Merger. Pro forma net sales decreased by 3.9% due to the unfavorablefavorable impact of foreign currency (5.1 pp). Organic Net Sales increased 1.2% driven by higher pricing (3.1 pp) that was partially offset by unfavorable volume/mix (1.9 pp). Pricing increased from significant pricing actions to offset higher input costs in local currency. Unfavorable volume/mix reflected the volume impact of reduced promotional activity in cheese versus the prior year as well as lower shipments in coffee and ready-to-drink beverages.
Segment Adjusted EBITDA increased 27.2% despite the unfavorable impact of foreign currency (7.2 pp). This increase was driven primarily by Integration Program savings and favorable pricing net of higher input costs in local currency, partially offset by unfavorable volume/mix.


Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Net sales increased 330.9% to $1.1 billion, primarily driven by the 2015 Merger. Pro forma net sales decreased by 6.0% due to the unfavorable impact of foreign currency (7.3 pp). Organic Net Sales increased 1.3% driven by higher pricing (3.4 pp) that was partially offset by unfavorable volume/mix (2.1 pp). Pricing increased from significant pricing actions to offset higher input costs in local currency, despite deflation in key commodities. Unfavorable volume/mix reflected the volume impact of reduced promotional activity in cheese versus the prior year as well as lower shipments in coffee and foodservice, partially offset by higher shipments of condiments and sauces.
Segment Adjusted EBITDA increased 29.9% despite the unfavorable impact of foreign currency (10.3 pp). This increase was driven primarily by Integration Program savings and favorable pricing net of key commodity costs, partially offset by unfavorable volume/mix.
Europe:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % Change
 (in millions)   (in millions)  
Net sales$578
 $620
 (6.8)% $1,131
 $1,246
 (9.2)%
Pro forma net sales(a)
578
 621
 (6.9)% 1,131
 1,247
 (9.3)%
Organic Net Sales(b)
591
 605
 (2.3)% 1,168
 1,204
 (3.0)%
Segment Adjusted EBITDA212
 225
 (5.8)% 389
 439
 (11.4)%

(a) There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(b) 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 July 3, 2016 compared to the Three Months Ended June 28, 2015:
Net sales decreased 6.8% to $578 million, primarily due to the unfavorable impacts of divestitures and foreign currency. Pro forma net sales decreased 6.9%, primarily reflecting the unfavorable impacts of divestitures (2.5 pp) and foreign currency (2.1(2.7 pp). Organic Net Sales decreased 2.3%14.9% due to unfavorable volume/mix (13.9 pp) and lower pricing (2.4(1.0 pp). Volume/mix was unfavorable across most categories and neutral volume/mix (0.1 pp)was most pronounced in cheese and coffee, primarily due to delayed execution of go-to-market agreements with key retailers and retail distribution losses (primarily in cheese). Lower pricing was primarily due to higher promotional activity in condiments and sauceslevels versus the prior period in the UK. Neutral volume/mix reflected gains from condiments and sauces in most countries offset by lower shipments across most categories in the UK.period.
Segment Adjusted EBITDA decreased 5.8%16.6% despite the favorable impact of foreign currency (2.2 pp). Excluding the currency impact, the decrease was primarily due to volume/mix declines partially dueoffset by savings from the Integration Program.
Europe:
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 % Change
 (in millions)  
Net sales$543
 $583
 (6.8)%
Organic Net Sales(a)
582
 583
 (0.2)%
Segment Adjusted EBITDA170
 180
 (5.6)%
(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, 2017 compared to the Three Months Ended April 3, 2016:
Net sales decreased 6.8% to $543 million, reflecting the unfavorable impact of foreign currency (3.1 pp). Excluding currency, the Segment Adjusted EBITDA decline was primarily due to lower pricing and an increase in marketing investments, partially offset by savings in manufacturing costs.
Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Net sales decreased 9.2% to $1.1 billion reflecting the unfavorable impacts of divestitures and foreign currency. Pro forma net sales decreased 9.3% partially due to the unfavorable impacts of divestitures (3.3 pp) and foreign currency (3.0(6.6 pp). Organic Net Sales decreased 3.0%0.2% due to lower pricing (3.4(0.6 pp), partially offset by favorable volume/mix (0.4 pp). Lower pricing was primarily due to increased promotional activity in soup and beanstiming in the UK and Italy versus the prior period and declines in condiments and sauces across Europe. Favorable volume/mix was primarily due to growth in beans in the UK as well as condiments and sauces across the region, partially offset by declines in infant nutrition and soup in the UK.
Segment Adjusted EBITDA decreased 11.4% partially due to the unfavorable impact of foreign currency (3.4 pp). Excluding currency, the Segment Adjusted EBITDA decline was primarily due to lower pricing and an increase in marketing investments, partially offset by savings in manufacturing costs.


Rest of World:
 For the Three Months Ended For the Six Months Ended
 July 3, 2016 June 28, 2015 % Change July 3, 2016 June 28, 2015 % Change
 (in millions)   (in millions)  
Net sales$885
 $975
 (9.2)% $1,683
 $1,838
 (8.4)%
Pro forma net sales(a)
885
 1,062
 (16.7)% 1,683
 2,008
 (16.2)%
Organic Net Sales(b)
939
 877
 7.1 % 1,808
 1,664
 8.7 %
Segment Adjusted EBITDA208
 228
 (8.8)% 375
 418
 (10.3)%

(a) There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(b) 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 July 3, 2016 compared to the Three Months Ended June 28, 2015:
Net sales decreased 9.2% to $885 million, reflecting the unfavorable impact of foreign currency, which was partially offset by the inclusion of Kraft in the current period. Pro forma net sales decreased 16.7% due to the unfavorable impact of foreign currency (23.8 pp, including 17.5 pp from the devaluation of the Venezuelan bolivar). Organic Net Sales increased 7.1%, driven by higher pricing (5.0 pp) and favorable volume/mix (2.1 pp). Higher pricing was primarily driven by pricing actions to offset higher input costs in local currency in Latin America. Favorable volume/mix was primarily driven by growth in condiments and sauces across all regions.
Segment Adjusted EBITDA decreased 8.8% primarily due to the unfavorable impact of foreign currency (34.5 pp, including 27.5 pp from the devaluation of the Venezuelan bolivar). Excluding currency, Segment Adjusted EBITDA growth was primarily driven by organic sales growth.
Six Months Ended July 3, 2016 compared to the Six Months Ended June 28, 2015:
Net sales decreased 8.4% to $1.7 billion reflecting the unfavorable impact of foreign currency, which was partially offset by the inclusion of Kraft in the current period. Pro forma net sales decreased 16.2% due to the unfavorable impact of foreign currency (24.9 pp, including 17.5 pp from the devaluation of the Venezuelan bolivar). Organic Net Sales increased 8.7%, driven by favorable volume/mix (4.4 pp) and higher pricing (4.3 pp). Favorable volume/mix was driven by growth in condiments and sauces across all regions.in the UK, partially offset by declines in infant nutrition in Italy and in most categories in the Netherlands.
Segment Adjusted EBITDA decreased 5.6%, including the unfavorable impact of foreign currency (10.2 pp). Excluding the currency impact, Segment Adjusted EBITDA increased primarily due to productivity savings partially offset by higher input costs in local currency.
Rest of World:
 For the Three Months Ended
 April 1,
2017		 April 3,
2016		 % Change
 (in millions)  
Net sales$826
 $768
 7.5 %
Organic Net Sales(a)
816
 755
 8.1 %
Segment Adjusted EBITDA146
 166
 (11.8)%
(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, 2017 compared to the Three Months Ended April 3, 2016:
Net sales increased 7.5% to $826 million, reflecting the unfavorable impact of foreign currency (0.6 pp). Organic Net Sales increased 8.1% driven by higher pricing (5.1 pp) and favorable volume/mix (3.0 pp). Higher pricing was primarily driven primarily by pricing actions taken to offset higher input costs in local currency, primarily in Latin America. Favorable volume/mix was primarily driven by shipment timing on seasonal holiday categories in Indonesia, ongoing growth in China as well as growth in condiments and sauces in Latin America. This growth was partially offset by volume declines in several markets associated with distributor network re-alignment.
Segment Adjusted EBITDA decreased 10.3%11.8%, primarily due toincluding the unfavorable impact of foreign currency (36.2 pp, including 28.5 pp from the devaluation of the Venezuelan bolivar)(2.7 pp). Excluding the currency impact, Segment Adjusted EBITDA growth wasdecreased primarily drivendue to higher commercial investments and higher input costs in local currency, partially offset by organicnet sales growth.

Liquidity and Capital Resources
We believe that cash generated from our operating activities, our Revolving Credit Facility (as defined below), our securitization programs, and our commercial paper program will provide sufficient liquidity to meet our working capital needs, expected Integration Program and restructuring expenditures, planned capital expenditures, contributions to our postemployment benefit plans, future contractual obligations (including repayments of long-term debt), and payment of our anticipated quarterly dividends. We intend to use our cash on hand and our commercial paper program for daily funding requirements. Overall, we do not expect any negative effects on our funding sources that would have a material effect on our short-term or long-term liquidity.
Cash Flow Activity for 2017 compared to 2016:
Net Cash Provided by/Used for Operating Activities:
Net cash used for operating activities was $151 million for the three months ended April 1, 2017 compared to net cash provided by operating activities was $2.1 billion inof $270 million for the sixthree months ended JulyApril 3, 2016, compared to $411 million in the six months ended June 28, 2015.2016. The increasedecrease in cash provided by operating activities was driven by unfavorable changes in current assets and liabilities, primarily due to an increasereceivables and inventory, partially offset by decreased pension contributions in operating incomethe current year. Changes in receivables were unfavorable primarily as a result of the 2015 Merger, which was partially offset by increased cash expenditures related to the Integration Program and restructuring activities and increased pension contributions. See Note 8, Postemployment Benefits, for further discussion of our pension contributions, including the amount that we expect to pay in the current year. Net working capital was flat year over year, with favorable changes in sold receivables largely being offset by unfavorable changes in inventories and trade receivables. We had increased cash inflows from sold receivables as a result of increasingdecreasing our U.S. securitization program. The changeprogram from $800 million to $500 million in the first quarter of 2017. Changes in inventories were unfavorable, primarily within the U.S., which was driven by an increase in inventory production aheada combination of planned facility closureshigher input costs, including key commodity costs, and consolidations under our Integration Program, combined with the impact of seasonality.


lower than anticipated net sales.
Net Cash Provided by/Used for Investing Activities:
Net cash used for investing activities was $516$330 million infor the sixthree months ended July 3, 2016,April 1, 2017 compared to net cash provided by investing activities of $150$293 million infor the sixthree months ended June 28, 2015.April 3, 2016. The increase in cash used for investing activities was driven by an increase inprimarily due to increased capital expenditures of $65 million compared to the prior year, which was primarily due to the integration and restructuring activities in the United States during the six months ended July 3, 2016.States. We expect 20162017 capital expenditures to be approximately $1.4$1.1 billion, including capital expenditures required for our ongoing integration and restructuring activities. The increase in cash used for investing activities was also driven by lower cash settlements of net investment hedges in the six months ended July 3, 2016 than in the six months ended June 28, 2015.
Net Cash Provided by/Used for Financing Activities:
Net cash used for financing activities was $2.2 billion in$505 million for the sixthree months ended July 3, 2016,April 1, 2017 compared to $379$627 million infor the sixthree months ended June 28, 2015. The increaseApril 3, 2016. This decrease in cash used for financing activities was primarily driven by net proceeds in the redemption of all outstanding shares ofcurrent period from our Series A Preferred Stock and the payment of our quarterly common stock cash dividend,commercial paper program, which commenced duringin the thirdsecond quarter of 2015.2016. These increasesproceeds were partially offset by proceeds from our May 2016 issuance of U.S. Dollar Notes and Euro Notes and by net proceeds from our issuance of commercial paper, which were our primary sources of funding for the Series A Preferred Stock redemption. Additionally, in the prior year we had a benefit from proceeds from the issuance of long-term debt, which were largely offset by repayments of long-term debt. Ourincreased cash used for financing activities for the six months ended July 3, 2016 also reflected the positive impact of no cash distributiondistributions related to our Series A Preferred Stock in the first quarter of 2016.common stock dividends. SeeEquity and Dividendsfor further information on cash distributions related to our Series A Preferred Stock.common stock dividends.

Cash Held by International Subsidiaries:
At July 3, 2016, approximately $1.4Of the $3.2 billion of cash and short-term investments werecash equivalents on our condensed consolidated balance sheet at April 1, 2017, approximately $1.3 billion was held by international subsidiaries.
We have provided for a deferred tax liability of $22 million for undistributed earnings not considered to be indefinitely reinvested. Further, certain previously taxed earnings have not yet been remitted and certain intercompany loans have not yet been repaid. As a result, in future periods, we believe that we could remit up to approximately $2.8 billion of cash to the U.S. without incurring any additional material tax expense.
We consider the unremitted earnings of our international subsidiaries that have not been previously taxed in the United StatesU.S. to be indefinitely reinvested. For those undistributed earnings considered to be indefinitely reinvested, our intent is to reinvest these fundsearnings in our international operations, and our current plans do not demonstrate a need to repatriate the accumulated earnings to fund our United StatesU.S. cash requirements. If we decide at a later date to repatriate these fundsearnings to the United States,U.S., we would be required to pay taxes on these amounts based on the applicable United StatesU.S. tax rates net of credits for foreign taxes already paid.
Further, certain previously taxed earnings have not yet been remitted and certain intercompany loans have not been repaid. As a result, in future periods, we believe that we could remit approximately $3.7 billion of cash to the United States without incurring any additional material tax expense.
Total Debt:
During the second quarter of 2016, we also commenced aWe had commercial paper program. Asoutstanding of July 3, 2016, we had $633$900 million at April 1, 2017 and $642 million at December 31, 2016. The maximum amount of commercial paper outstanding which had a weighted average interest rate of 1.129%. Thereduring the three months ended April 1, 2017 was no commercial papernot materially different than the amount outstanding at January 3, 2016.April 1, 2017.
We maintain our Senior Credit Facilities comprised of our $4.0 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $600 million Termsenior unsecured loan facility (the “Term Loan Facility (togetherFacility” and, together with the Revolving Credit Facility, the “Senior Credit Facilities”). Subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to $1.0 billion. Our Senior Credit Facilities contain customary representations, covenants, and events of default. At July 3, 2016,April 1, 2017, $600 million aggregate principal amount of our Term Loan Facility was outstanding. No amounts were drawn on our Revolving Credit Facility at July 3, 2016April 1, 2017 or during the sixthree months ended July 3, 2016. Effective May 4, 2016, we amended the Revolving Credit Facility. See Note 12, Commitments, Contingencies and Debt, for additional information on the amendment. See our consolidated financial statements and related notes on Form 10-K for the year ended January 3, 2016, for additional information on our Senior Credit Facilities, including covenant information related to our Revolving Credit Facility, interest rates on borrowings, maturity dates, and other general terms.April 1, 2017.

Our long-term debt, including the current portion, was $32.1$31.8 billion at July 3, 2016April 1, 2017 and $25.2$31.8 billion at January 3,December 31, 2016. The increase during the period was driven by new issuances of long-term debt in May 2016. See Note 12, Commitments, Contingencies and Debt, for additional details related to this long-term debt issuance. Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all such covenants asat April 1, 2017.
We have approximately $2.0 billion aggregate principal amount of July 3, 2016.senior notes that will mature in June 2017. We expect to fund these long-term debt repayments primarily with current cash and cash equivalents, cash generated from our operating activities, and proceeds from our U.S. securitization and commercial paper programs.


Commodity Trends
We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, tomatoes, potatoes, soybean and vegetable oils, sugar and other sweeteners, corn products, and wheat to manufacture our products. In addition, we purchase and use significant quantities of resins, metals, and cardboard to package our products and natural gas to operate our facilities. We continuously monitor worldwide supply and cost trends of these commodities.
Markets forWe define our key commodities were volatile duringas dairy, meat, coffee beans, and nuts. During the three and six months ended July 3, 2016.April 1, 2017, we experienced increases in our key commodities, including coffee beans, cheese, and meat, while costs for nuts were flat. We expect commodity cost volatility to continue over the remainder of the year. 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.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements:
During the second quarter of 2016, we amended our U.S. securitization program. Under the new terms, we receive cash consideration of up to $800 million and a receivable for the remainder of the Deferred Purchase Price. See Note 12, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information.
There were no other material changes to our off-balance sheet arrangements from those disclosed in our Annual Report on Form 10-K for the year ended January 3, 2016.
Aggregate Contractual Obligations:
During the second quarter of 2016, we issued long-term debt, and as a result, our long-term debt, including the current portion, increased to $32.1 billion at July 3, 2016 as compared to $25.2 billion at January 3, 2016. See Note 12, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information.
Additionally, during the second quarter of 2016, we redeemed all outstanding shares of our Series A Preferred Stock, and as a result, we will not make any further Series A Preferred Stock dividend payments. See Note 12, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information.
There were no other material changes to ouror aggregate contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended January 3,December 31, 2016.
Equity and Dividends
Series A Preferred Stock:
On June 7, 2016, we redeemed all outstanding shares of our Series A Preferred Stock, therefore we no longer pay any associated dividends.
There were no cash distributions related to our Series A Preferred Stock for the three months ended April 3, 2016 because, concurrent with the declaration of our common stock dividend on December 8, 2015, we also declared and paid the Series A Preferred Stock dividend that would otherwise have been payable on March 7, 2016.
Common Stock Dividends:
We paid common stock dividends of $1.3 billion in$736 million for the sixthree months ended JulyApril 1, 2017 and $667 million for the three months ended April 3, 2016. No common stock dividends were paid in the six months ended June 28, 2015.
On May 4, 2016, our Board of Directors declared a cash dividend of $0.575 per share of common stock, which was paid on July 8, 2016, to shareholders of recordAdditionally, on May 27, 2016. We accrued dividends payable related to this dividend as of July 3, 2016.
Additionally, on August 4, 2016,2017, our Board of Directors declared a cash dividend of $0.60 per share of common stock, which is payable on October 7, 2016June 16, 2017 to shareholders of record on August 26, 2016.May 19, 2017. The present annualized dividend rate is $2.40 per share of common stock.
The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects, and other factors that our Board of Directors deems relevant to its analysis and decision making.
Series A Preferred Stock:
On June 7, 2016, we redeemed all outstanding shares of our Series A Preferred Stock. Following the redemption we will not pay any future dividends on our Series A Preferred Stock.
Prior to the redemption, we made cash distributions of $180 million in the six months ended July 3, 2016 compared to $360 million in the six months ended June 28, 2015. The decrease in Series A Preferred Stock dividends occurred because, concurrent with the declaration of our common stock dividend on December 8, 2015, we also declared and paid the Series A Preferred Stock dividend that would otherwise have been payable on March 7, 2016. Accordingly, there were no cash distributions related to our Series A Preferred Stock in the first quarter of 2016.


Significant Accounting Estimates
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 significant accounting policies are described in Note 1, Background and Basis of Presentation, to our consolidated financial statements for the year ended January 3,December 31, 2016 in our Annual Report on Form 10-K. Our significant accounting assumptions and estimates are described in our Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended January 3,December 31, 2016 in our Annual Report on Form 10-K.
We changed the method that we use to estimate the service cost and interest cost components of net pension cost/(benefit) and net postretirement cost/(benefit). We use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We made this change to provide a more precise measurement of service cost and interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. The new method will result in a decrease in service cost and interest cost compared to what our costs would have been under the previous method. This change did not affect the measurement of our total benefit obligations. We have accounted for this change prospectively as a change in accounting estimate.
NewRecently Issued Accounting PronouncementsStandards
See Note 1, Background and Basis of Presentation, to the condensed consolidated financial statements for a discussion of newrecently issued accounting pronouncements.standards.

Contingencies
See Note 12,13, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for a discussion of our contingencies.
Supplemental Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the 2015 Merger, which was consummated on July 2, 2015, and the related equity investments, based on the historical results of operations of Heinz and Kraft. See Note 1, Background and Basis of Presentation, and Note 2, Merger and Acquisition, to the condensed consolidated financial statements for additional information on the 2015 Merger.
The following unaudited pro forma condensed combined statements of income for the three and six months ended June 28, 2015 are based on the historical financial statements of Heinz and Kraft after giving effect to the 2015 Merger, related equity investments, and the assumptions and adjustments described in the accompanying notes to these unaudited pro forma condensed combined statements of income.
The Heinz statements of income information for the three and six months ended June 28, 2015 was derived from the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. The Kraft statements of income information for the three and six months ended June 28, 2015 was derived from its unaudited condensed consolidated financial statements included in our Current Report on Form 8-K filed with the SEC on July 7, 2016.
The unaudited pro forma condensed combined statements of income are presented as if the 2015 Merger had been consummated on December 30, 2013, the first business day of our 2014 fiscal year, and combine the historical results of Heinz and Kraft. This is consistent with internal management reporting. The unaudited pro forma condensed combined statements of income set forth below primarily give effect to the following assumptions and adjustments:
Application of the acquisition method of accounting;
The issuance of Heinz common stock to the Sponsors in connection with the equity investments;
The pre-closing Heinz share conversion;
The exchange of one share of Kraft Heinz common stock for each share of Kraft common stock; and
Conformance of accounting policies.


The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. We utilized estimated fair values at the 2015 Merger Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. Such allocation was final as of the issuance date of this report.
The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11 and is not necessarily indicative of the results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of our anticipated combined future results. In addition, the accompanying unaudited pro forma condensed combined statements of income do not reflect any additional anticipated synergies, operating efficiencies, cost savings, or any integration costs that may result from the 2015 Merger.
The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed combined statements of income to give effect to unaudited pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) are expected to have a continuing impact on the results of operations of the combined company. As a result, under SEC Regulation S-X Article 11, certain expenses such as Deal Costs and the fair value step-up of Kraft’s inventory (“Inventory Step-up Costs”), if applicable, are eliminated from pro forma results in the periods presented. In contrast, under the ASC 805 presentation in Note 2, Merger and Acquisition, to the condensed consolidated financial statements, these expenses are required to be included in prior year pro forma results.
The unaudited pro forma condensed combined financial information, including the related notes, should be read in conjunction with the historical consolidated financial statements and related notes of Kraft, and with our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. The historical SEC filings of Kraft are available to the public at the SEC’s website at www.sec.gov.


The Kraft Heinz Company
Pro Forma Condensed Combined Statement of Income
For the Three Months Ended June 28, 2015
(in millions, except per share data)
(Unaudited)
 Historical Heinz Historical Kraft Pro Forma Adjustments Pro Forma
Net sales$2,616
 $4,514
 $—
 $7,130
Cost of products sold1,734
 2,945
 30
 4,709
Gross profit882
 1,569
 (30) 2,421
Selling, general and administrative expenses438
 646
 23
 1,107
Operating income444
 923
 (53) 1,314
Interest expense394
 123
 (20) 497
Other expense/(income), net245
 1
 —
 246
Income/(loss) before income taxes(195) 799
 (33) 571
Provision for/(benefit from) income taxes(35) 248
 (12) 201
Net income/(loss)(160) 551
 (21) 370
Net income/(loss) attributable to noncontrolling interest4
 ���
 —
 4
Net income/(loss) attributable to Kraft Heinz(164) 551
 (21) 366
Preferred dividends180
 —
 —
 180
Net income/(loss) attributable to common shareholders$(344) $551
 $(21) $186
        
Basic common shares outstanding380
 592
 222
 1,194
Diluted common shares outstanding380
 597
 247
 1,224
        
Per share data applicable to common shareholders:       
Basic earnings/(loss)$(0.91) $0.93
 $0.14
 $0.16
Diluted earnings/(loss)(0.91) 0.92
 0.14
 0.15


The Kraft Heinz Company
Pro Forma Condensed Combined Statement of Income
For the Six Months Ended June 28, 2015
(in millions, except per share data)
(Unaudited)
 Historical Heinz Historical Kraft Pro Forma Adjustments Pro Forma
Net sales$5,094
 $8,866
 $—
 $13,960
Cost of products sold3,365
 5,934
 (34) 9,265
Gross profit1,729
 2,932
 34
 4,695
Selling, general and administrative expenses776
 1,268
 55
 2,099
Operating income953
 1,664
 (21) 2,596
Interest expense595
 247
 (40) 802
Other expense/(income), net206
 (16) —
 190
Income/(loss) before income taxes152
 1,433
 19
 1,604
Provision for/(benefit from) income taxes33
 452
 8
 493
Net income/(loss)119
 981
 11
 1,111
Net income/(loss) attributable to noncontrolling interest7
 —
 —
 7
Net income/(loss) attributable to Kraft Heinz112
 981
 11
 1,104
Preferred dividends360
 —
 —
 360
Net income/(loss) attributable to common shareholders$(248) $981
 $11
 $744
        
Basic common shares outstanding379
 590
 221
 1,190
Diluted common shares outstanding379
 596
 246
 1,221
        
Per share data applicable to common shareholders:       
Basic earnings/(loss)$(0.66) $1.66
 $(0.37) $0.63
Diluted earnings/(loss)(0.66) 1.64
 (0.37) 0.61



The Kraft Heinz Company
Summary of Pro Forma Adjustments
(in millions)
(Unaudited)
 For the Three Months Ended For the Six Months Ended
 June 28, 2015 June 28, 2015
Impact to cost of products sold:   
Postemployment benefit costs(a)
$30
 $(34)
Impact to cost of products sold$30

$(34)
    
Impact to selling, general and administrative expenses:   
Depreciation and amortization(b)
$42
 $84
Compensation expense(c)
18
 31
Postemployment benefit costs(a)
10
 11
Deal costs(d)
(47) (71)
Impact to selling, general and administrative expenses$23

$55
    
Impact to interest expense:   
Interest expense(e)
$(20) $(40)
Impact to interest expense$(20)
$(40)
Adjustments included in the accompanying unaudited pro forma condensed combined statements of income are as follows:
(a)Represents the change to align Kraft's accounting policy to our accounting policy for postemployment benefit plans. Kraft historically elected a mark-to-market accounting policy and recognized net actuarial gains or losses and changes in the fair value of plan assets immediately in earnings upon remeasurement. Our policy is to initially record such items in other comprehensive income/(loss). Also represents the elimination of Kraft’s historical amortization of postemployment benefit plan prior service credits.
(b)Represents incremental amortization resulting from the fair value adjustment of Kraft’s definite-lived intangible assets in connection with the 2015 Merger. The net change in depreciation expense resulting from the fair value adjustment of property, plant, and equipment was insignificant. See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended January 3, 2016, for additional information on the determination of fair values.
(c)Represents the incremental compensation expense due to the fair value remeasurement of certain of Kraft’s equity awards in connection with the 2015 Merger. See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended January 3, 2016, for additional information on the conversion of Kraft’s equity awards in connection with the 2015 Merger.
(d)Represents the elimination of non-recurring deal costs incurred in connection with the 2015 Merger.
(e)Represents the incremental change in interest expense resulting from the fair value adjustment of Kraft’s long-term debt in connection with the 2015 Merger, including the elimination of the historical amortization of deferred financing fees and amortization of original issuance discount.
We calculated the income tax effect of the pro forma adjustments using a 38.5% weighted average statutory tax rate for the periods presented.
Additionally, we calculated the unaudited pro forma weighted average number of basic shares outstanding by adding Heinz’s historical weighted average number of basic shares outstanding, the 500 million shares issued to the Sponsors in connection with their equity investments (after giving effect to the pre-closing Heinz conversion ratio of 0.443332) and the historical weighted average number of basic shares of Kraft, which were converted on a 1:1 basis into shares of Kraft Heinz. We calculated the unaudited pro forma weighted average number of diluted shares outstanding by adding the effect of dilutive securities to the unaudited pro forma weighted average number of basic shares outstanding, including dilutive securities of historical Heinz.


Non-GAAP Financial Measures
Our non-GAAP financial measures provided 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, operating income,net income/(loss), diluted earnings per common share, 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 coreunderlying operations. Management believes that presenting our non-GAAP financial measures (i.e., Organic Net Sales, Adjusted EBITDA, and Adjusted EPS) 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 acquisitions, currency, divestitures, and a 53rd53rd week of shipments. We calculate the impact of currency on net sales by holding exchange rates constant at the previous year'syear’s exchange rate, with the exception of Venezuela following our June 28, 2015 currency devaluation, for which we calculate the previous year'syear’s results using the current year'syear’s exchange rate. Organic Net Sales for any period prior to the 2015 Merger Date includes the operating results of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013. Organic Net Sales is a tool intended tothat can assist management and investors 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 coreunderlying operations.
Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), net, provision for/(benefit from) income taxes; in addition to these adjustments, we exclude, when they occur, the impacts of depreciation and amortization (excluding integration and restructuring expenses) (including amortization of postretirement benefit plans prior service credits), integration and restructuring expenses, merger costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, nonmonetary currency devaluation (e.g., remeasurement gains and losses), and equity award compensation expense (excluding integration and restructuring expenses). Adjusted EBITDA for any period prior to the 2015 Merger Date includes the operating results of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013. Adjusted EBITDA is a tool intended tothat can assist management and investors 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 coreunderlying operations.
Adjusted EPS is defined as diluted earnings per share excluding, when they occur, the impacts of integration and restructuring expenses, merger costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and losses), and including when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. We believe Adjusted EPS for any period prior to the 2015 Merger Date includes theprovides important comparability of underlying operating results, of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013. Management uses Adjusted EPSallowing investors and management to assess operating performance on a consistent basis.



The Kraft Heinz Company
Reconciliation of Pro Forma Net Sales to Organic Net Sales
For the Three Months Ended JulyApril 1, 2017 and April 3, 2016 and June 28, 2015
(dollars in millions)
(Unaudited)
Pro Forma Net Sales Impact of Currency Impact of Divestitures Organic Net Sales Price Volume/MixNet Sales Impact of Currency Organic Net Sales Price Volume/Mix
July 3, 2016*        
Three Months Ended April 1, 2017      
United States$4,692
 $—
 $—
 $4,692
 $4,552
 $—
 $4,552
 
Canada638
 (34) —
 672
 443
 14
 429
 
Europe578
 (13) —
 591
 543
 (39) 582
 
Rest of World885
 (54) —
 939
 826
 10
 816
 
$6,793
 $(101) $—
 $6,894
 $6,364
 $(15) $6,379
 
              
June 28, 2015        
Three Months Ended April 3, 2016      
United States$4,783
 $—
 $—
 $4,783
 $4,715
 $—
 $4,715
 
Canada664
 —
 —
 664
 504
 —
 504
 
Europe621
 —
 16
 605
 583
 —
 583
 
Rest of World1,062
 185
 —
 877
 768
 13
 755
 
$7,130
 $185
 $16
 $6,929
 $6,570
 $13
 $6,557
 
Year-over-year growth rates                    
United States(1.9)% 0.0 pp 0.0 pp (1.9)% 1.2 pp (3.1) pp(3.5)% 0.0 pp (3.5)% 0.7 pp (4.2) pp
Canada(3.9)% (5.1) pp 0.0 pp 1.2 % 3.1 pp (1.9) pp(12.2)% 2.7 pp (14.9)% (1.0) pp (13.9) pp
Europe(6.9)% (2.1) pp (2.5) pp (2.3)% (2.4) pp 0.1 pp(6.8)% (6.6) pp (0.2)% (0.6) pp 0.4 pp
Rest of World(16.7)% (23.8) pp 0.0 pp 7.1 % 5.0 pp 2.1 pp7.5 % (0.6) pp 8.1 % 5.1 pp 3.0 pp
(4.7)% (4.0) pp (0.2) pp (0.5)% 1.6 pp (2.1) pp
Kraft Heinz(3.1)% (0.4) pp (2.7)% 1.0 pp (3.7) pp
*There are no pro forma adjustments
The Kraft Heinz Company
Reconciliation of Net Income/(Loss) to Adjusted EBITDA
(in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.millions)
(Unaudited)
 For the Three Months Ended
 April 1,
2017		 April 3,
2016
Net income/(loss)$891
 $900
Interest expense313
 249
Other expense/(income), net(12) (8)
Provision for/(benefit from) income taxes359
 372
Operating income1,551
 1,513
Depreciation and amortization (excluding integration and restructuring expenses)132
 161
Integration and restructuring expenses148
 260
Merger costs—
 15
Unrealized losses/(gains) on commodity hedges42
 (8)
Nonmonetary currency devaluation—
 1
Equity award compensation expense (excluding integration and restructuring expenses)12
 9
Adjusted EBITDA$1,885
 $1,951


The Kraft Heinz Company
Reconciliation of Pro Forma Net Sales to Organic Net Sales
For the Six Months Ended July 3, 2016 and June 28, 2015
(dollars in millions)
(Unaudited)
 Pro Forma Net Sales Impact of Currency Impact of Divestitures Organic Net Sales Price Volume/Mix
July 3, 2016*           
United States$9,407
 $—
 $—
 $9,407
    
Canada1,142
 (89) —
 1,231
    
Europe1,131
 (37) —
 1,168
    
Rest of World1,683
 (125) —
 1,808
    

$13,363
 $(251) $—
 $13,614
    
            
June 28, 2015           
United States$9,490
 $—
 $—
 $9,490
    
Canada1,215
 —
 —
 1,215
    
Europe1,247
 —
 43
 1,204
    
Rest of World2,008
 344
 —
 1,664
    

$13,960
 $344
 $43
 $13,573
    
Year-over-year growth rates           
United States(0.9)% 0.0 pp 0.0 pp (0.9)% 0.6 pp (1.5) pp
Canada(6.0)% (7.3) pp 0.0 pp 1.3 % 3.4 pp (2.1) pp
Europe(9.3)% (3.0) pp (3.3) pp (3.0)% (3.4) pp 0.4 pp
Rest of World(16.2)% (24.9) pp 0.0 pp 8.7 % 4.3 pp 4.4 pp
 (4.3)% (4.3) pp (0.3) pp 0.3 % 1.0 pp (0.7) pp
*There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.


The Kraft Heinz Company
Reconciliation of Pro Forma Net Income to Adjusted EBITDA
(in millions)
(Unaudited)
 For the Three Months Ended For the Six Months Ended
 July 3, 2016* June 28, 2015 July 3, 2016* June 28, 2015
Pro forma net income/(loss)$955
 $370
 $1,855
 $1,111
Interest expense264
 497
 513
 802
Other expense/(income), net6
 246
 (2) 190
Provision for/(benefit from) income taxes411
 201
 783
 493
Operating income1,636
 1,314
 3,149
 2,596
Depreciation and amortization (excluding integration and restructuring expenses)124
 210
 285
 426
Integration and restructuring expenses284
 118
 544
 199
Merger costs14
 41
 29
 54
Unrealized losses/(gains) on commodity hedges(37) (21) (45) (23)
Impairment losses53
 58
 53
 58
Losses/(gains) on sale of business—
 (21) —
 (21)
Nonmonetary currency devaluation2
 49
 3
 49
Equity award compensation expense (excluding integration and restructuring expenses)11
 25
 20
 44
Adjusted EBITDA$2,087
 $1,773
 $4,038
 $3,382
*There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.



The Kraft Heinz Company
Reconciliation of Pro Forma Diluted EPS to Adjusted EPS
(Unaudited)
 For the Three Months Ended For the Six Months Ended
 July 3, 2016* June 28, 2015 July 3, 2016* June 28, 2015
Pro forma diluted EPS$0.63
 $0.15
 $1.36
 $0.61
Integration and restructuring expenses(a)
0.16
 0.07
 0.30
 0.12
Merger costs(b)
0.01
 0.15
 0.02
 0.17
Unrealized losses/(gains) on commodity hedges(a)
(0.02) (0.01) (0.03) (0.01)
Impairment losses(a)
0.03
 0.03
 0.03
 0.03
Losses/(gains) on sale of business(a)
—
 (0.01) —
 (0.01)
Nonmonetary currency devaluation(c)
—
 0.23
 0.01
 0.23
Preferred dividend adjustment(d)
0.04
 —
 (0.11) —
Adjusted EPS$0.85
 $0.61
 $1.58
 $1.14
 For the Three Months Ended
 April 1,
2017		 April 3,
2016
Diluted EPS$0.73
 $0.73
Integration and restructuring expenses(a)(b)
0.08
 0.14
Merger costs(a)(b)
—
 0.01
Unrealized losses/(gains) on commodity hedges(a)(b)
0.02
 —
Nonmonetary currency devaluation(a)(c)
0.01
 —
Preferred dividend adjustment(d)
—
 (0.15)
Adjusted EPS$0.84
 $0.73
*There are no pro forma adjustments in the periods ended July 3, 2016 as Kraft and Heinz were a combined company for the entire period.
(a) Refer to the reconciliation of pro forma net income to Adjusted EBITDA for the related gross expenses.
(b) Merger costs include the following gross expenses:
(a)
Income tax expense associated with these items is based on applicable jurisdictional tax rates and deductibility assessment of individual items.
(b)
Refer to the reconciliation of net income/(loss) to Adjusted EBITDA for the related gross expenses.
(c)
Nonmonetary currency devaluation includes the following gross expenses/(income):
Expenses recorded in cost of products sold of were $1 million for the three and six months ended JulyApril 3, 2016;
Expenses recorded in selling, general and administrative2016 (there were no such expenses of $13 million for thethree months and $28 million for the six months ended July 3, 2016 and $41 million for the three months and $54 million for the six months ended June 28, 2015;
Expenses recorded in interest expense of$227 million for the three months and $259 million for the six months ended June 28, 2015; and,
Expenses recorded in other expense/(income), net of $26 million for the three and six months ended June 28, 2015.
(c) Nonmonetary currency devaluation includes the following gross expenses:
Expenses recorded in cost of products sold of $2 million for the three months and $3 million for the six months ended July 3, 2016 and $49 million for the three and six months ended June 28, 2015;April 1, 2017) and
Expenses recorded in other expense/(income), net, of $7were $8 million for thethree and six months ended July 3, 2016 and $234 millionApril 1, 2017 (there were no such expenses for the three and six months ended June 28, 2015April 3, 2016).
(d)  
For Adjusted EPS, we present the impact of the Series A Preferred Stock dividend payments on an accrual basis. Accordingly, we include adjustmentsincluded an adjustment to EPS to include $180 million of Series A Preferred Stock dividends duringin the first quarter ofthree months ended April 3, 2016 (to reflect the March 7, 2016 Series A Preferred Stock dividend that was paid in December 2015) and to exclude $51 million of Series A Preferred Stock dividends during the three months ended July 3, 2016 (to reflect that it was redeemed on June 7, 2016).  



Forward-Looking Statements
This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Words such as “expect,” “improve,” “reassess,” “remain,” “will,” and variations of such words and similar expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our plans, synergies and growth, , taxes, integration, impacts of accounting guidance, and dividends. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond our control.
Important factors that affect our business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, increased competition; our ability to maintain, extend and expand our reputation and brand image; our ability to differentiate our products from other brands; the consolidation of retail customers; our ability to predict, identify and interpret changes in consumer preferences and demand; our ability to drive revenue growth in our key product categories, increase our market share, or add products; an impairment of the carrying value of goodwill or other indefinite-lived intangible assets; volatility in commodity, energy and other input costs; changes in our management team or other key personnel; our inability to realize the anticipated benefits from our cost savings initiatives; changes in relationships with significant customers and suppliers; execution of our international expansion strategy; changes in laws and regulations; legal claims or other regulatory enforcement actions; product recalls or product liability claims; unanticipated business disruptions; failure to successfully integrate the business and operations of Kraft Heinz in the expected time frame; our ability to complete or realize the benefits from potential and completed acquisitions, alliances, divestitures or joint ventures; economic and political conditions in the nations in which we operate; the volatility of capital markets; increased pension, labor and people-related expenses; volatility in the market value of all or a portion of the derivatives we use; exchange rate fluctuations; disruptions in information technology networks and systems; our inability to protect intellectual property rights; impacts of natural events in the locations in which we or our customers, suppliers or regulators operate; our indebtedness and ability to pay such indebtedness; tax law changes or interpretations; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see “Risk Factors” below in this Quarterly Report on Form 10-Q. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report, except as required by applicable law or regulation.



Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk.
There have been no material changes to our market risk during the sixthree months ended July 3, 2016.April 1, 2017. For additional information, refer to our Annual Report on Form 10-K for the year ended January 3,December 31, 2016.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report, were effective and provided reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer, with other members of management, evaluated the changes in our internal control over financial reporting during the quarterthree months ended July 3, 2016.April 1, 2017. We determined that there were no changes in our internal control over financial reporting during the quarterthree months ended July 3, 2016,April 1, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II —- OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 12,13, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for a discussion of legal proceedings.
Item 1A. Risk Factors.
Please refer
There have been no material changes to Part I, Item 1A., Risk Factors,the risk factors disclosed in our Annual Report on Form 10-K for the year ended January 3, 2016 for information regarding factors that could affect our results of operations and financial condition. The following addition has been made to our Risk Factor disclosures subsequent to the filing of such Annual Report on Form 10-K.December 31, 2016.
We may not generate U.S. earnings and profits sufficient for distributions paid to stockholders to be treated as dividends for U.S. federal income tax purposes.
Although it is currently anticipated that we will continue to pay regular quarterly dividends, we currently anticipate that distributions made on our stock, including the redemption of$8.3 billion of our Series A Preferred Stock (which we believe will be treated as a dividend distribution for U.S. federal income tax purposes), will significantly exceed our earnings and profits in 2016 (as determined under U.S. tax principles) and, therefore, only a portion of our regular 2016 quarterly dividends will be treated as dividends for U.S. federal income tax purposes. For purposes of U.S. federal income tax, insofar as our earnings and profits are not sufficient, these distributions would be treated as a return of capital to each stockholder, up to the extent of the stockholder’s tax basis. If a stockholder does not have sufficient tax basis, these distributions could result in taxable gains to the stockholder. Stockholders should consult their tax advisors for a full understanding of all of the tax consequences of the receipt of dividends, including distributions in excess of our earnings and profits.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities during the Quarter ended July 3, 2016
Our share repurchase activity forin the three months ended July 3, 2016April 1, 2017 was:
  
Total Number
of Shares(a)
 
Average Price 
Paid Per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plan or Program Dollar Value of Shares that May Yet be Purchased Under the Plan or Program
4/4/2016 - 5/8/2016 8,150
 $77.15
 —
  
5/9/2016 - 6/5/2016 1,394
 78.21
 —
  
6/6/2016 - 7/3/2016 1,556
 85.36
 —
 $—
For the Quarter Ended July 3, 2016 11,100
   —
  
  
Total Number
of Shares(a)
 
Average Price 
Paid Per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plan or Program Dollar Value of Shares that May Yet be Purchased Under the Plan or Program
1/1/2017 - 2/4/2017 111,031
 $87.81
 —
  
2/5/2017 - 3/4/2017 386,000
 91.26
 —
  
3/5/2017 - 4/1/2017 —
 —
 —
 $—
For the Three Months Ended April 1, 2017 497,031
   —
  
(a)  
Includes the following types of share repurchase activity, when they occur: (1) shares repurchased in connection with the exercise of stock options (including periodic repurchases using accumulated option exercise proceeds), (2) shares tendered by individuals who used shares to pay the related taxes for grants of RSUs that vested, (2) shares repurchased in connection with the exercise of stock options, and (3) shares repurchased related to employee benefit programs (including our annual bonus swap program).


Item 6. Exhibits.
Exhibit No. Descriptions
3.1Certificate of Retirement of Series A Preferred Stock of The Kraft Heinz Company dated June 7, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 1-37482), filed on June 7, 2016).
4.1Fourth Supplemental Indenture, dated as of May 24, 2016, governing the 3.000% Senior Notes due 2026 and the 4.375% Senior Notes due 2046, by and among Kraft Heinz Foods Company, as issuer, The Kraft Heinz Company, as guarantor, and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (File No. 1-37482), filed on May 25, 2016).
4.2Form of the 3.000% Senior Notes due 2026 and the 4.375% Senior Notes due 2046 included in Exhibit 4.1.
4.3Fifth Supplemental Indenture, dated as of May 25, 2016, governing the 1.500% Senior Notes due 2024 and the 2.250% Senior Notes due 2028, by and among Kraft Heinz Foods Company, as issuer, The Kraft Heinz Company, as guarantor, and Deutsche Bank Trust Company Americas, as trustee, paying agent, security registrar, and transfer agent (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K (File No. 1-37482), filed on May 25, 2016).
4.4Form of the 1.500% Senior Notes due 2024 and the 2.250% Senior Notes due 2028 included in Exhibit 4.3.
4.5Registration Rights Agreement dated as of May 24, 2016, relating to the 3.000% Senior Notes due 2026 and the 4.375% Senior Notes due 2046, by and among Kraft Heinz Foods Company, The Kraft Heinz Company, Barclays Capital Inc., J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Wells Fargo Securities, LLC, for themselves and on behalf of the other initial purchasers (incorporated by reference to Exhibit 4.5 of the Company’s Current Report on Form 8-K (File No. 1-37482), filed on May 25, 2016).
10.1First Amendment to Credit Agreement, entered into as of May 4, 2016, to the Credit Agreement dated as of July 6, 2015, by and among The Kraft Heinz Company, Kraft Heinz Foods Company, the banks, financial institutions and other institutional lenders party thereto, the issuing banks, JPMorgan Chase Bank, N.A., as Administrative Agent and J.P. Morgan Europe Limited, as London agent for the lenders (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 1-37482), filed on May 6, 2016).
31.1 Certification of Chief Executive Officer pursuant to Rule 13a 14(a)/15d 14(a) of the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a 14(a)/15d 14(a) of the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1 The following materials from The Kraft Heinz Company’s Quarterly Report on Form 10-Q for the period ended July 3, 2016April 1, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Equity, (iv) the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Cash Flows, (vi) Notes to Condensed Consolidated Financial Statements, and (vii) document and entity information.



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  The Kraft Heinz Company
Date:August 5, 2016May 4, 2017  
  By: /s/ Paulo Basilio
   Paulo Basilio
   Executive Vice President and Chief Financial Officer
   (Principal Financial Officer)


  The Kraft Heinz Company
Date:August 5, 2016May 4, 2017  
  By: /s/ Christopher R. Skinger
   Christopher R. Skinger
   Vice President, Global Controller
   (Principal Accounting Officer)


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