UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 25, 2021~~March 26, 2022


☐						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

The Kraft Heinz Company

(Exact name of registrant as specified in its charter)

Delaware

46-2078182

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One PPG Place,

Pittsburgh,

Pennsylvania

15222

(Address of principal executive offices)

(Zip Code)

(412) 456-5700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	KHC	The Nasdaq Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October~~April 23, ~~2021,~~2022, there were ~~1,225,261,485~~1,223,951,939 shares of the registrant’s common stock outstanding.

Table of Contents


PART I - FINANCIAL INFORMATION			1
Item 1. Financial Statements.			1
Condensed Consolidated Statements of Income			1
Condensed Consolidated Statements of Comprehensive Income			2
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Equity			4
Condensed Consolidated Statements of Cash Flows			65
Notes to Condensed Consolidated Financial Statements			76
Note 1. Basis of Presentation			76
Note 2. Significant Accounting Policies			87
Note 3. New Accounting Standards			87
Note 4. Acquisitions and Divestitures			8
Note 5. Restructuring Activities			12
Note 6. Restricted Cash			13
Note 7. Inventories			1314
Note 8. Goodwill and Intangible Assets			14
Note 9. Income Taxes			1817
Note 10. Employees’ Stock Incentive Plans			1917
Note 11. Postemployment Benefits			1918
Note 12. Financial Instruments			2119
Note 13. Accumulated Other Comprehensive Income/(Losses)			2723
Note 14. Financing Arrangements			2924
Note 15. Commitments, Contingencies, and Debt			2924
Note 16. Earnings Per Share			3526
Note 17. Segment Reporting			3526
Note 18. Other Financial Data			3728
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			3930
Overview			3930
Consolidated Results of Operations			3931
Results of Operations by Segment			4433
Liquidity and Capital Resources			4836
Commodity Trends			52
~~Off-Balance Sheet Arrangements and Aggregate Contractual Obligations~~			52
~~Equity and Dividends~~			5240
Critical Accounting Estimates			5340
New Accounting Pronouncements			5640
Contingencies			5640
Non-GAAP Financial Measures			56
~~Forward-Looking Statements~~			6240
Item 3. Quantitative and Qualitative Disclosures about Market Risk.			6345
Item 4. Controls and Procedures.			6345
PART II - OTHER INFORMATION			6446
Item 1. Legal Proceedings.			6446
Item 1A. Risk Factors.			6446
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			6446
Item 6. Exhibits.			6547
Signatures			6648

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Words such as “anticipate,” “reflect,” “invest,” “see,” “make,” “expect,” “give,” “deliver,” “drive,” “believe,” “improve,” “assess,” “reassess,” “remain,” “evaluate,” “grow,” “will,” “plan,” “intend,” and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our plans, impacts of accounting standards and guidance, growth, legal matters, taxes, costs and cost savings, impairments, and dividends. These forward-looking statements reflect management’s current expectations and 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 may 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, the impacts of COVID-19 and government and consumer responses; operating in a highly competitive industry; our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in our relationships with significant customers or suppliers, or in other business relationships; our ability to maintain, extend, and expand our reputation and brand image; our ability to leverage our brand value to compete against private label products; our ability to drive revenue growth in our key product categories or platforms, increase our market share, or add products that are in faster-growing and more profitable categories; product recalls or other product liability claims; climate change and legal or regulatory responses; our ability to identify, complete, or realize the benefits from strategic acquisitions, alliances, divestitures, joint ventures, or other investments; our ability to successfully execute our strategic initiatives; the impacts of our international operations; our ability to protect intellectual property rights; our ownership structure; our ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve our competitiveness; our level of indebtedness, as well as our ability to comply with covenants under our debt instruments; additional impairments of the carrying amounts of goodwill or other indefinite-lived intangible assets; foreign exchange rate fluctuations; volatility in commodity, energy, and other input costs; volatility in the market value of all or a portion of the commodity derivatives we use; compliance with laws and regulations and related legal claims or regulatory enforcement actions; failure to maintain an effective system of internal controls; a downgrade in our credit rating; the impact of future sales of our common stock in the public market; our ability to continue to pay a regular dividend and the amounts of any such dividends; unanticipated business disruptions and natural events in the locations in which we or our customers, suppliers, distributors, or regulators operate; economic and political conditions in the United States and in various other nations where we do business (including the Russia and Ukraine conflict and its regional and global ramifications); changes in our management team or other key personnel and our ability to hire or retain key personnel or a highly skilled and diverse global workforce; risks associated with information technology and systems, including service interruptions, misappropriation of data, or breaches of security; increased pension, labor, and people-related expenses; changes in tax laws and interpretations; volatility of capital markets and other macroeconomic factors; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 25, 2021. We disclaim and do not undertake any obligation to update, revise, or withdraw any forward-looking statement in this report, except as required by applicable law or regulation.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Income

(in millions, except per share data)

(Unaudited)


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Net sales	Net sales	$	6,324	$	6,441	$	19,333	$	19,246	Net sales	$	6,045	$	6,394
Cost of products sold	Cost of products sold	4,296		4,097		12,813		12,592		Cost of products sold	4,114		4,193
Gross profit	Gross profit	2,028		2,344		6,520		6,654		Gross profit	1,931		2,201
Selling, general and administrative expenses, excluding impairment losses	Selling, general and administrative expenses, excluding impairment losses	872		897		2,697		2,677		Selling, general and administrative expenses, excluding impairment losses	827		882
Goodwill impairment losses	Goodwill impairment losses	—		300		265		2,343		Goodwill impairment losses	(11)		230
Intangible asset impairment losses		—		—		78		1,056

Selling, general and administrative expenses	Selling, general and administrative expenses	872		1,197		3,040		6,076		Selling, general and administrative expenses	816		1,112
Operating income/(loss)	Operating income/(loss)	1,156		1,147		3,480		578		Operating income/(loss)	1,115		1,089
Interest expense	Interest expense	415		314		1,443		1,066		Interest expense	242		415
Other expense/(income)	Other expense/(income)	(138)		(73)		(191)		(232)		Other expense/(income)	(98)		(30)
Income/(loss) before income taxes	Income/(loss) before income taxes	879		906		2,228		(256)		Income/(loss) before income taxes	971		704
Provision for/(benefit from) income taxes	Provision for/(benefit from) income taxes	143		308		949		417		Provision for/(benefit from) income taxes	190		136
Net income/(loss)	Net income/(loss)	736		598		1,279		(673)		Net income/(loss)	781		568
Net income/(loss) attributable to noncontrolling interest	Net income/(loss) attributable to noncontrolling interest	3		1		10		3		Net income/(loss) attributable to noncontrolling interest	5		5
Net income/(loss) attributable to common shareholders	Net income/(loss) attributable to common shareholders	$	733	$	597	$	1,269	$	(676)	Net income/(loss) attributable to common shareholders	$	776	$	563
Per share data applicable to common shareholders:	Per share data applicable to common shareholders:									Per share data applicable to common shareholders:
Basic earnings/(loss)	Basic earnings/(loss)	$	0.60	$	0.49	$	1.04	$	(0.55)	Basic earnings/(loss)	$	0.63	$	0.46
Diluted earnings/(loss)	Diluted earnings/(loss)	0.59		0.49		1.03		(0.55)		Diluted earnings/(loss)	0.63		0.46

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 Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Net income/(loss)	Net income/(loss)	$	736	$	598	$	1,279	$	(673)	Net income/(loss)	$	781	$	568
Other comprehensive income/(loss), net of tax:	Other comprehensive income/(loss), net of tax:									Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(237)		289		12		(315)		Foreign currency translation adjustments	(33)		59
Net deferred gains/(losses) on net investment hedges	Net deferred gains/(losses) on net investment hedges	96		(200)		52		(51)		Net deferred gains/(losses) on net investment hedges	52		5
Amounts excluded from the effectiveness assessment of net investment hedges	Amounts excluded from the effectiveness assessment of net investment hedges	4		5		14		21		Amounts excluded from the effectiveness assessment of net investment hedges	9		5
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(3)		(3)		(9)		(14)		Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(8)		(3)
Net deferred gains/(losses) on cash flow hedges	Net deferred gains/(losses) on cash flow hedges	(6)		17		(70)		153		Net deferred gains/(losses) on cash flow hedges	(34)		(29)
Amounts excluded from the effectiveness assessment of cash flow hedges	Amounts excluded from the effectiveness assessment of cash flow hedges	7		6		21		18		Amounts excluded from the effectiveness assessment of cash flow hedges	7		7
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	22		(29)		48		(90)		Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	22		27
Net actuarial gains/(losses) arising during the period	Net actuarial gains/(losses) arising during the period	(15)		(22)		58		(22)		Net actuarial gains/(losses) arising during the period	—		2
Net postemployment benefit losses/(gains) reclassified to net income/(loss)	Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(5)		(29)		(18)		(78)		Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(4)		(6)
Total other comprehensive income/(loss)	Total other comprehensive income/(loss)	(137)		34		108		(378)		Total other comprehensive income/(loss)	11		67
Total comprehensive income/(loss)	Total comprehensive income/(loss)	599		632		1,387		(1,051)		Total comprehensive income/(loss)	792		635
Comprehensive income/(loss) attributable to noncontrolling interest	Comprehensive income/(loss) attributable to noncontrolling interest	4		(3)		9		(3)		Comprehensive income/(loss) attributable to noncontrolling interest	4		3
Comprehensive income/(loss) attributable to common shareholders	Comprehensive income/(loss) attributable to common shareholders	$	595	$	635	$	1,378	$	(1,048)	Comprehensive income/(loss) attributable to common shareholders	$	788	$	632

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Balance Sheets

(in millions, except per share data)

(Unaudited)


		September 25, 2021		December 26, 2020			March 26, 2022		December 25, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	2,273	$	3,417	Cash and cash equivalents	$	2,978	$	3,445
Trade receivables (net of allowances of $45 at September 25, 2021 and $48 at December 26, 2020)		1,958		2,063
Trade receivables (net of allowances of $50 at March 26, 2022 and $48 at December 25, 2021)						Trade receivables (net of allowances of $50 at March 26, 2022 and $48 at December 25, 2021)	2,067		1,957
Inventories	Inventories	2,839		2,773		Inventories	3,093		2,729
Prepaid expenses	Prepaid expenses	158		132		Prepaid expenses	179		136
Other current assets	Other current assets	603		574		Other current assets	869		716
Assets held for sale	Assets held for sale	1,726		1,863		Assets held for sale	89		11
Total current assets	Total current assets	9,557		10,822		Total current assets	9,275		8,994
Property, plant and equipment, net	Property, plant and equipment, net	6,588		6,876		Property, plant and equipment, net	6,602		6,806
Goodwill	Goodwill	31,386		33,089		Goodwill	31,440		31,296
Intangible assets, net	Intangible assets, net	44,803		46,667		Intangible assets, net	43,640		43,542
Other non-current assets	Other non-current assets	2,563		2,376		Other non-current assets	2,907		2,756
TOTAL ASSETS	TOTAL ASSETS	$	94,897	$	99,830	TOTAL ASSETS	$	93,864	$	93,394
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Commercial paper and other short-term debt	Commercial paper and other short-term debt	$	1	$	6	Commercial paper and other short-term debt	$	50	$	14
Current portion of long-term debt	Current portion of long-term debt	1,034		230		Current portion of long-term debt	730		740
Trade payables	Trade payables	4,380		4,304		Trade payables	4,610		4,753
Accrued marketing	Accrued marketing	908		946		Accrued marketing	874		804
Interest payable	Interest payable	285		358		Interest payable	315		268

Other current liabilities	Other current liabilities	1,841		2,200		Other current liabilities	2,485		2,485
Liabilities held for sale		6		17

Total current liabilities	Total current liabilities	8,455		8,061		Total current liabilities	9,064		9,064
Long-term debt	Long-term debt	22,937		28,070		Long-term debt	20,970		21,061
Deferred income taxes	Deferred income taxes	11,389		11,462		Deferred income taxes	10,609		10,536
Accrued postemployment costs	Accrued postemployment costs	240		243		Accrued postemployment costs	209		205
Long-term deferred income						Long-term deferred income	1,525		1,534
Other non-current liabilities	Other non-current liabilities	1,638		1,751		Other non-current liabilities	1,643		1,542
TOTAL LIABILITIES	TOTAL LIABILITIES	44,659		49,587		TOTAL LIABILITIES	44,020		43,942
Commitments and Contingencies (Note 15)	Commitments and Contingencies (Note 15)	0		0		Commitments and Contingencies (Note 15)	0		0
Redeemable noncontrolling interest						Redeemable noncontrolling interest	47		4
Equity:	Equity:					Equity:
Common stock, $0.01 par value (5,000 shares authorized; 1,235 shares issued and 1,227 shares outstanding at September 25, 2021; 1,228 shares issued and 1,223 shares outstanding at December 26, 2020)		12		12
Common stock, $0.01 par value (5,000 shares authorized; 1,237 shares issued and 1,225 shares outstanding at March 26, 2022; 1,235 shares issued and 1,224 shares outstanding at December 25, 2021)						Common stock, $0.01 par value (5,000 shares authorized; 1,237 shares issued and 1,225 shares outstanding at March 26, 2022; 1,235 shares issued and 1,224 shares outstanding at December 25, 2021)	12		12
Additional paid-in capital	Additional paid-in capital	53,823		55,096		Additional paid-in capital	52,954		53,379
Retained earnings/(deficit)	Retained earnings/(deficit)	(1,425)		(2,694)		Retained earnings/(deficit)	(905)		(1,682)
Accumulated other comprehensive income/(losses)	Accumulated other comprehensive income/(losses)	(1,858)		(1,967)		Accumulated other comprehensive income/(losses)	(1,812)		(1,824)
Treasury stock, at cost (8 shares at September 25, 2021 and 5 shares at December 26, 2020)		(463)		(344)
Treasury stock, at cost (12 shares at March 26, 2022 and 11 shares at December 25, 2021)						Treasury stock, at cost (12 shares at March 26, 2022 and 11 shares at December 25, 2021)	(605)		(587)
Total shareholders' equity	Total shareholders' equity	50,089		50,103		Total shareholders' equity	49,644		49,298
Noncontrolling interest	Noncontrolling interest	149		140		Noncontrolling interest	153		150
TOTAL EQUITY	TOTAL EQUITY	50,238		50,243		TOTAL EQUITY	49,797		49,448
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	94,897	$	99,830	TOTAL LIABILITIES AND EQUITY	$	93,864	$	93,394

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Equity

(in millions)

(Unaudited)


		Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity			Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity
Balance at December 26, 2020		$	12	$	55,096	$	(2,694)	$	(1,967)	$	(344)	$	140	$	50,243
Net income/(loss)		—		—		563		—		—		5		568
Balance at December 25, 2021																Balance at December 25, 2021	$	12	$	53,379	$	(1,682)	$	(1,824)	$	(587)	$	150	$	49,448
Net income/(loss) excluding redeemable noncontrolling interest																Net income/(loss) excluding redeemable noncontrolling interest	—		—		776		—		—		4		780
Other comprehensive income/(loss)	Other comprehensive income/(loss)	—		—		—		69		—		(2)		67		Other comprehensive income/(loss)	—		—		—		12		—		(1)		11
Dividends declared-common stock ($0.40 per share)	Dividends declared-common stock ($0.40 per share)	—		(495)		—		—		—		—		(495)		Dividends declared-common stock ($0.40 per share)	—		(492)		—		—		—		—		(492)
Exercise of stock options, issuance of other stock awards, and other	Exercise of stock options, issuance of other stock awards, and other	—		77		—		—		(29)		—		48		Exercise of stock options, issuance of other stock awards, and other	—		67		1		—		(18)		—		50
Balance at March 27, 2021		$	12	$	54,678	$	(2,131)	$	(1,898)	$	(373)	$	143	$	50,431
Net income/(loss)		—		—		(27)		—		—		2		(25)
Other comprehensive income/(loss)		—		—		—		178		—		—		178
Dividends declared-common stock ($0.40 per share)		—		(495)		—		—		—		—		(495)
Exercise of stock options, issuance of other stock awards, and other		—		72		—		—		(19)		—		53
Balance at June 26, 2021		$	12	$	54,255	$	(2,158)	$	(1,720)	$	(392)	$	145	$	50,142
Net income/(loss)		—		—		733		—		—		3		736
Other comprehensive income/(loss)		—		—		—		(138)		—		1		(137)
Dividends declared-common stock ($0.40 per share)		—		(495)		—		—		—		—		(495)
Exercise of stock options, issuance of other stock awards, and other		—		63		—		—		(71)		—		(8)
Balance at September 25, 2021		$	12	$	53,823	$	(1,425)	$	(1,858)	$	(463)	$	149	$	50,238
Balance at March 26, 2022																Balance at March 26, 2022	$	12	$	52,954	$	(905)	$	(1,812)	$	(605)	$	153	$	49,797


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity
Balance at December 26, 2020	$	12	$	55,096	$	(2,694)	$	(1,967)	$	(344)	$	140	$	50,243
Net income/(loss)	—		—		563		—		—		5		568
Other comprehensive income/(loss)	—		—		—		69		—		(2)		67
Dividends declared-common stock ($0.40 per share)	—		(495)		—		—		—		—		(495)
Exercise of stock options, issuance of other stock awards, and other	—		77		—		—		(29)		—		48
Balance at March 27, 2021	$	12	$	54,678	$	(2,131)	$	(1,898)	$	(373)	$	143	$	50,431

See accompanying notes to the condensed consolidated financial statements.

Common Stock Additional Paid-in Capital Retained Earnings/(Deficit) Accumulated Other Comprehensive Income/(Losses) Treasury Stock, at Cost Noncontrolling Interest Total Equity
Balance at December 28, 2019 $ 12 $ 56,828 $ (3,060) $ (1,886) $ (271) $ 126 $ 51,749
Net income/(loss) excluding redeemable noncontrolling interest — — 378 — — 3 381
Other comprehensive income/(loss) — — — (540) — (14) (554)
Dividends declared-common stock ($0.40 per share) — (492) — — — — (492)
Exercise of stock options, issuance of other stock awards, and other — 42 (4) — 2 — 40
Balance at March 28, 2020 $ 12 $ 56,378 $ (2,686) $ (2,426) $ (269) $ 115 $ 51,124
Net income/(loss) excluding redeemable noncontrolling interest — — (1,651) — — (1) (1,652)
Other comprehensive income/(loss) — — — 130 — 12 142
Dividends declared-common stock ($0.40 per share) — (493) — — — — (493)
Exercise of stock options, issuance of other stock awards, and other — 105 1 — (61) — 45
Balance at June 27, 2020 $ 12 $ 55,990 $ (4,336) $ (2,296) $ (330) $ 126 $ 49,166
Net income/(loss) excluding redeemable noncontrolling interest — — 597 — — 1 598
Other comprehensive income/(loss) — — — 38 — (4) 34
Dividends declared-common stock ($0.40 per share) — (494) — — — — (494)
Exercise of stock options, issuance of other stock awards, and other — 48 — — (11) — 37
Balance at September 26, 2020 $ 12 $ 55,544 $ (3,739) $ (2,258) $ (341) $ 123 $ 49,341
The Kraft Heinz Company

Condensed Consolidated Statements of Cash Flows

(in millions)

(Unaudited)


	For the Three Months Ended
	March 26, 2022		March 27, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	781	$	568
Adjustments to reconcile net income/(loss) to operating cash flows:
Depreciation and amortization	220		222
Amortization of postemployment benefit plans prior service costs/(credits)	(4)		(2)
Divestiture-related license income	(14)		—
Equity award compensation expense	34		51
Deferred income tax provision/(benefit)	23		127
Postemployment benefit plan contributions	(7)		(9)
Goodwill and intangible asset impairment losses	(11)		230
Nonmonetary currency devaluation	4		4
Loss/(gain) on sale of business	1		19
Other items, net	(69)		30
Changes in current assets and liabilities:
Trade receivables	(123)		(34)
Inventories	(382)		(101)
Accounts payable	6		(11)
Other current assets	(91)		(54)
Other current liabilities	118		(230)
Net cash provided by/(used for) operating activities	486		810
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(214)		(227)
Payments to acquire business, net of cash acquired	(241)		—

Proceeds from sale of business, net of cash disposed and working capital adjustments	(20)		—
Other investing activities, net	6		11
Net cash provided by/(used for) investing activities	(469)		(216)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(9)		(1,014)

Debt prepayment and extinguishment costs	—		(103)


Dividends paid	(490)		(489)
Other financing activities, net	14		(37)
Net cash provided by/(used for) financing activities	(485)		(1,643)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	2		(8)
Cash, cash equivalents, and restricted cash
Net increase/(decrease)	(466)		(1,057)
Balance at beginning of period	3,446		3,418
Balance at end of period	$	2,980	$	2,361

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

~~Condensed Consolidated Statements of Cash Flows~~

~~(in millions)~~

~~(Unaudited)~~
For the Nine Months Ended
September 25, 2021 September 26, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 1,279 $ (673)
Adjustments to reconcile net income/(loss) to operating cash flows:
Depreciation and amortization 677 722
Amortization of postemployment benefit plans prior service costs/(credits) (5) (92)
Equity award compensation expense 155 114
Deferred income tax provision/(benefit) (120) (343)
Postemployment benefit plan contributions (21) (20)
Goodwill and intangible asset impairment losses 343 3,399
Nonmonetary currency devaluation 4 6
Loss/(gain) on sale of business (11) 2
Other items, net 421 132
Changes in current assets and liabilities:
Trade receivables 92 (6)
Inventories (264) (441)
Accounts payable 194 62
Other current assets (96) (18)
Other current liabilities (200) 482
Net cash provided by/(used for) operating activities 2,448 3,326
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (655) (397)
Proceeds from sale of business, net of cash disposed 3,401 —
Other investing activities, net (2) 35
Net cash provided by/(used for) investing activities 2,744 (362)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (4,145) (4,395)
Proceeds from issuance of long-term debt — 3,500
Debt prepayment and extinguishment costs (577) (101)
Proceeds from revolving credit facility — 4,000
Repayments of revolving credit facility — (4,000)
Dividends paid (1,469) (1,467)
Other financing activities, net (142) (46)
Net cash provided by/(used for) financing activities (6,333) (2,509)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (3) (14)
Cash, cash equivalents, and restricted cash
Net increase/(decrease) (1,144) 441
Balance at beginning of period 3,418 2,280
Balance at end of period $ 2,274 $ 2,721

~~See accompanying notes to the condensed consolidated financial statements.~~

~~The Kraft Heinz Company~~

Notes to Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

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

We operate on a 52- or 53-week fiscal year ending on the last Saturday in December in each calendar year. Unless the context requires otherwise, references to years and quarters contained herein pertain to our fiscal years and fiscal quarters. Our ~~2021~~2022 fiscal year is scheduled to be a ~~52-week~~53-week period ending on December ~~25,~~31, 2022, and our 2021 ~~and the 2020~~ fiscal year was a 52-week period that ended on December ~~26, 2020.~~25, 2021.

The condensed consolidated balance sheet data at December ~~26, 2020~~25, 2021 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These statements should be read in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December ~~26, 2020.~~25, 2021. The results for interim periods are not necessarily indicative of future or annual results.

Principles of Consolidation

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

Reportable Segments

We manage and report our operating results through 3 reportable segments defined by geographic region: United States, International, and Canada.

During the fourth quarter of 2021, certain organizational changes were announced that will impact our future internal reporting and reportable segments. As a result of these changes, we plan to combine our United States and Canada zones to form the North America zone and expect to have 2 reportable segments, North America and International. We expect that any change to our reportable segments will be effective in the second quarter of 2022.

Considerations Related to COVID-19

The ongoing spread of COVID-19 throughout the United States and internationally, as well as measures implemented by governmental authorities and private businesses in an attempt to minimize transmission of the virus ~~including~~(including social distancing mandates, shelter-in-place orders, vaccine mandates, and business restrictions and ~~shutdowns,~~shutdowns) and consumer responses to such measures and the pandemic have had and continue to have negative and positive implications for portions of our business. Though many areas have relaxed restrictions, varying levels remain throughout the world, are continuously evolving, and may be increased, including as a result of further outbreaks, resurgences, or the emergence of new variants.

In the preparation of these financial statements and related disclosures we have assessed the impact that COVID-19 has had on our estimates, assumptions, forecasts, and accounting policies and made additional disclosures, as necessary. As COVID-19 and its impacts are unprecedented and ever evolving, future events and effects related to the pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.

See Note 8, Goodwill and Intangible Assets, ~~Note 11,~~ ~~Postemployment Benefits, and Note 15,~~ ~~Commitments, Contingencies, and Debt~~, for further discussion of COVID-19 considerations.

Use of Estimates

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

Reclassifications

We made reclassifications and adjustments to certain previously reported financial information to conform to our current period presentation. In the first quarter of 2021, we reclassified certain balances, which were previously reported in prepaid expenses, to inventories on our condensed consolidated balance sheets. Certain financial statement line items in our condensed consolidated balance sheet at December 26, 2020 and our condensed consolidated statement of cash flows for the nine months ended September 26, 2020, were adjusted as necessary. See Note 7, ~~Inventories, for additional information.~~

Held for Sale

At ~~September 25, 2021,~~March 26, 2022, we classified certain assets ~~and liabilities~~ as held for sale in our condensed consolidated balance sheet, ~~primarily relating~~including certain property, plant and equipment, net in our United States segment related to the ~~divestiture~~sale of ~~certain of~~a manufacturing facility, inventory in our ~~cheese businesses~~International segment, and certain manufacturing equipment inand land use rights across the ~~United States.~~globe. At December ~~26, 2020,~~25, 2021, we classified certain assets ~~and liabilities~~ as held for sale in our condensed consolidated balance sheet, ~~primarily relating to the divestiture of certain of our cheese businesses, a business~~including inventory in our International segment and certain manufacturing equipment and land use rights across the globe. See Note 4, Acquisitions and Divestitures, for additional information.

Note 2. Significant Accounting Policies

There were no significant changes to our accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December ~~26, 2020.~~25, 2021.

Note 3. New Accounting Standards

Accounting Standards Not Yet Adopted ~~in the Current Year~~

~~Simplifying the~~ Accounting for ~~Income Taxes:~~Contract Assets and Contract Liabilities from Contracts with Customers:

In ~~December 2019,~~October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2019-12~~2021-08 to ~~simplify~~amend the accounting for contract assets and contract liabilities acquired in a business combination under Accounting Standards Codification (“ASC”) ~~740,~~805, ~~Income Taxes~~Business Combinations. ~~This~~The guidance ~~removes certain exceptions related~~requires entities engaged in a business combination to recognize and measure contract assets acquired and contract liabilities assumed in accordance with ASC 606, Revenue from Contracts with Customers, rather than at fair value on the ~~approach for intraperiod tax allocation,~~acquisition date. The amendments also apply to other contracts such as contract liabilities arising from nonfinancial assets under ASC 610-20, Other Income – Gains and Losses from the ~~methodology for calculating income taxes in an interim period, and the recognition~~Derecognition of ~~deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. Certain amendments in this update must~~Nonfinancial Assets. The ASU will be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. This ASU became effective beginning in the first quarter of ~~2021. The~~2023. Early adoption is permitted, including in an interim period. We currently expect to adopt ASU 2021-08 in the first quarter of 2023 on a prospective basis. While the impact of these amendments is dependent on the nature of any future transactions, we currently do not expect this ASU ~~did~~to have a significant impact on our financial statements and related disclosures.

Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting:

In March 2020, the FASB issued ASU 2020-04 to provide temporary optional expedients and exceptions to the U.S. GAAP guidance for accounting for contracts, hedging relationships, and other transactions affected by the transition from discontinued reference rates, such as the London Interbank Offered Rate (LIBOR), to alternative reference rates. The new accounting requirements can be applied from March 12, 2020 through December 31, 2022. While we currently do not expect this new guidance to have a significant impact on our financial statements or related disclosures, we continue to evaluate our contracts and the ~~related disclosures.~~optional expedients provided by the new standard.

Note 4. Acquisitions and Divestitures

Acquisitions

Just Spices Acquisition:

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

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

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

We utilized fair values at the Just Spices Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Just Spices Acquisition is preliminary and subject to adjustment.

The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the Just Spices Acquisition Date). The primary areas of accounting for the Just Spices Acquisition that are not yet finalized relate to the fair value of certain intangible assets and tangible net assets acquired, residual goodwill, and any related tax impact. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, we will evaluate any additional information prior to finalization of the fair value. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the Just Spices Acquisition Date, that, if known, would have resulted in revised values for these items as of that date. The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.

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


	Initial Allocation
Cash	$	2
Trade receivables	4
Inventories	7
Other current assets	9
Property, plant and equipment, net	1
Identifiable intangible assets	172

Trade payables	(10)
Other current liabilities	(12)
Other non-current liabilities	(54)
Net assets acquired	119
Redeemable noncontrolling interest	(43)
Goodwill on acquisition	167
Total consideration	$	243

The Just Spices Acquisition preliminarily resulted in $167 million of non-tax deductible goodwill relating principally to Just Spices’ social media presence. This goodwill was assigned to the Continental Europe reporting unit within our International segment. See Note 8, Goodwill and Intangible Assets, for additional information.

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


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

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

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

Assan Foods Acquisition:

~~In June~~On October 1, 2021 (the “Assan Foods Acquisition Date”), we ~~entered into~~acquired all of the outstanding equity interests in Assan Gıda Sanayi ve Ticaret A.Ş. (“Assan Foods”), a ~~definitive agreement with~~condiments and sauces manufacturer based in Turkey, from third parties Kibar Holding Anonim Şirketi and a holder of registered shares of Assan ~~Gıda Sanayi ve Ticaret A.Ş. (“Assan Foods”) to acquire all of the outstanding equity interests in Assan~~ Foods ~~a condiments and sauces manufacturer based in Turkey, for approximately $70 million of cash consideration~~ (the “Assan Foods Acquisition”). ~~As part~~

The Assan Foods Acquisition was accounted for under the acquisition method of accounting for business combinations. Total consideration related to the Assan Foods Acquisition was approximately $79 million, including cash consideration of $70 million and contingent consideration of approximately $9 million. We utilized fair values at the Assan Foods Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Assan Foods Acquisition is preliminary and subject to adjustment.

The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the Assan Foods Acquisition Date). The primary areas of accounting for the Assan Foods Acquisition that are not yet finalized relate to the fair value of certain tangible net assets acquired and the related impact on residual goodwill. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, we will evaluate any additional information prior to finalization of the fair value. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the Assan Foods Acquisition ~~we will assume the debt of Assan Foods, which was approximately $30 million~~Date, that, if known, would have resulted in revised values for these items as of ~~September 25, 2021.~~that date. The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.

The preliminary purchase price allocation to assets acquired and liabilities assumed in the Assan Foods Acquisition ~~closed~~was (in millions):


	Initial Allocation(a)		Adjustments		Updated Allocation
Cash	$	4	$	—	$	4
Trade receivables	24		—		24
Inventories	26		—		26
Other current assets	2		—		2
Property, plant and equipment, net	12		—		12
Identifiable intangible assets	—		16		16
Other non-current assets	4		1		5
Short-term debt	(21)		—		(21)
Current portion of long-term debt	(5)		—		(5)
Trade payables	(25)		—		(25)
Other current liabilities	(2)		—		(2)
Long-term debt	(4)		—		(4)
Other non-current liabilities	—		(4)		(4)
Net assets acquired	15		13		28
Goodwill on acquisition	64		(13)		51
Total consideration	$	79	$	—	$	79

(a) As reported in Note 4, Acquisitions and Divestitures, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021.

The measurement period adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired.

In the fourth quarter of ~~2021.~~2021, the Assan Foods Acquisition preliminarily resulted in $64 million of non-tax deductible goodwill relating principally to additional capacity that the Assan Foods manufacturing facilities will provide for our brands in the EMEA East region. This goodwill was assigned to the EMEA East reporting unit within our International segment. Following the measurement period adjustments made in the first quarter of 2022, the preliminarily amount of goodwill has been adjusted to $51 million as of March 26, 2022. See Note 8, Goodwill and Intangible Assets, in this Quarterly Report on Form 10-Q as well as Note 9, Goodwill and Intangible Assets, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information.

The preliminary purchase price allocation to identifiable intangible assets acquired in the Assan Foods Acquisition was:


	Fair Value (in millions of dollars)		Weighted Average Life (in years)
Definite-lived trademarks	$	13	10
Customer-related assets	3		10
Total	16

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

Hemmer Acquisition:

In September 2021, we entered into a definitive agreement with certain third-party shareholders of Companhia Hemmer Indústria e Comércio (“Hemmer”) to acquire a majority of the outstanding equity interests of Hemmer, ~~for cash consideration of approximately 1.2 billion Brazilian reais (approximately $225 million at September 25, 2021) (the “Hemmer Acquisition”). Hemmer is~~ a Brazilian food and beverage manufacturing company focused on the condiments and sauces ~~category.~~category (the “Hemmer Acquisition”). The Hemmer Acquisition ~~is expected to close~~closed on March 31, 2022 (the “Hemmer Acquisition Date”), in the ~~first half~~second quarter of 2022, ~~subject~~for preliminary cash consideration of approximately 1.2 billion Brazilian reais (approximately $252 million at the Hemmer Acquisition Date). The initial accounting for the transaction is incomplete as of the date of this Quarterly Report on Form 10-Q, as the information necessary to ~~customary closing conditions,~~complete such evaluation is in the process of being obtained and more thoroughly evaluated. We have not yet determined the purchase price allocation, including ~~regulatory approvals.~~the fair value of the acquired assets and assumed liabilities.

~~Other Acquisitions:~~

~~In September 2021, we~~We entered into ~~a definitive agreement~~foreign exchange derivative contracts to ~~acquire a majority stake in BR Spices Indústria e Comércio de Alimentos Ltda.~~economically hedge the foreign currency exposure related to the cash consideration for the Hemmer Acquisition. See Note 12, Financial Instruments, ~~a manufacturer of spices and other seasonings in Brazil. This acquisition is expected to close in the fourth quarter of 2021, subject to customary closing conditions, including regulatory approvals.~~for additional information.

Deal Costs:

Related to our acquisitions, we incurred insignificant deal costs for the three ~~and nine~~ months ended ~~September 25, 2021.~~March 26, 2022. We recognized these deal costs in selling, general and administrative expenses (“SG&A”). There were no deal costs related to acquisitions for the three ~~and nine~~ months ended ~~September 26, 2020.~~

March 27, 2021.

Divestitures

Cheese Transaction:

In September 2020, we entered into a definitive agreement with a third party, an affiliate of Groupe Lactalis (“Lactalis”), to sell certain assets in our global cheese business, as well as to license certain trademarks, for total consideration of approximately $3.3 billion, including approximately $3.2 billion of cash consideration and approximately $141 million related to a perpetual license for the Cracker Barrel brand that Lactalis granted to us for certain products (the “Cheese Transaction”). The Cheese Transaction had two primary components. The first component related to the perpetual licenses for the Kraft and Velveeta brands that we granted to Lactalis for certain cheese products (the “Kraft and Velveeta Licenses”), along with a three-year transitional license that we granted to Lactalis for the Philadelphia brand (the “Philadelphia License” and collectively, the “Cheese Divestiture Licenses”). The second component related to the net assets transferred to Lactalis. The Cheese Transaction closed on November 29, 2021 (the “Cheese Transaction Closing Date”).

Of the $3.3 billion total consideration, approximately $1.6 billion was attributed to the Cheese Divestiture Licenses based on the estimated fair value of the licensed portion of each brand. As of the Cheese Transaction Closing Date, the license income related to the Kraft and Velveeta Licenses will be recognized over approximately 30 years, and the license income related to the Philadelphia License will be recognized over approximately three years. Related to the Cheese Divestiture Licenses, we recognized approximately $14 million of license income for the three months ended March 26, 2022, which was recorded as a reduction to SG&A and classified as divestiture-related license income. Additionally, at March 26, 2022, we have recorded approximately $1.5 billion in long-term deferred income and $56 million in other current liabilities on the condensed consolidated balance sheet related to the Cheese Divestiture Licenses.

In the first quarter of 2022, we reimbursed Lactalis approximately $20 million following a final inventory count performed after the Cheese Transaction closed. This amount reflects the difference between the estimated and actual value of inventory transferred, which was primarily driven by seasonal fluctuations in finished goods. The payment to Lactalis was recognized in our condensed consolidated statement of cash flows for the three months ended March 26, 2022 as a cash outflow from investing activities in proceeds from sale of business, net of cash disposed and working capital adjustments.

See Note 4, Acquisitions and Divestitures, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information related to the Cheese Transaction.

Nuts Transaction:

In February 2021, we entered into a definitive agreement with a third party, Hormel Foods Corporation, ~~(“Hormel”),~~ to sell certain assets in our global nuts business for total consideration of approximately $3.4 billion (the “Nuts Transaction”). The net assets transferred in the Nuts Transaction included, among other things, our intellectual property rights to the Planters brand and to the Corn Nuts brand, 3 manufacturing facilities in the U.S., and the associated inventories (collectively, the “Nuts Disposal Group”).

In the first quarter of 2021, we determined that the Nuts Disposal Group met the held for sale criteria. Accordingly, we presented the assets and liabilities of the Nuts Disposal Group as held for sale on the condensed consolidated balance sheet at March 27, 2021. As of February 10, 2021, the date the Nuts Disposal Group was determined to be held for sale, we tested the individual assets included within the Nuts Disposal Group for impairment. The net assets of the Nuts Disposal Group had an aggregate carrying amount above their $3.4 billion estimated fair value. We determined that the goodwill within the Nuts Disposal Group was partially impaired. As a result, we recorded a non-cash goodwill impairment loss of $230 million, which was recognized in SG&A, in the first quarter of 2021. Additionally, we recorded an estimated pre-tax loss on sale of business of $19 million in the first quarter of 2021 primarily related to estimated costs to sell, which was recognized in other expense/(income) ~~on our condensed consolidated statement of income.~~.

The Nuts Transaction closed in the second quarter of 2021. ~~As a result of~~See Note 4, Acquisitions and Divestitures, to the ~~Nuts Transaction closing, we recognized an incremental pre-tax loss~~consolidated financial statements in our Annual Report on sale of business of $17 million in other expense/(income) on our condensed consolidated statement of income in the second quarter of 2021. In the third quarter of 2021, we recorded adjustments to our estimated costs to sell, which resulted in a pre-tax gain on sale of business of $1 millionForm 10-K for the ~~three months~~year ended ~~September 25, 2021. The total pre-tax loss on sale of business for the Nuts Transaction was $35 million for the nine months ended September 25, 2021.~~

~~The Nuts Transaction is not considered a strategic shift that will have a major effect on our operations or financial results; therefore, it was not reported as discontinued operations.~~

~~Cheese Transaction:~~

In September 2020, we entered into a definitive agreement with a third party, an affiliate of Groupe Lactalis (“Lactalis”), to sell certain assets in our global cheese business, as well as to license certain trademarks, for total consideration of approximately $3.34 billion, including approximately $3.20 billion of cash consideration and approximately $140 million related to a perpetual license for the ~~Cracker Barrel~~ brand that Lactalis will grant to us for certain products (the “Cheese Transaction”). The Cheese Transaction has two primary components. The first component relates to the perpetual licenses for the ~~Kraft~~ ~~and~~ ~~Velveeta~~ ~~brands that we will grant to Lactalis for certain cheese products (the “Kraft~~ ~~and~~ ~~Velveeta~~ ~~Licenses”). The second component relates to the net assets to be transferred to Lactalis (the “Cheese Disposal Group”).~~

~~Of the $3.34 billion total consideration, approximately $1.59 billion was attributed to the~~ ~~Kraft~~ ~~and~~ ~~Velveeta~~ ~~Licenses based on the estimated fair value of the licensed portion of each brand. Lactalis will have rights to the~~ ~~Kraft~~ ~~and~~ ~~Velveeta~~ brands in association with the manufacturing, distribution, marketing, and sale of certain cheese products in certain countries. Lactalis will also receive the rights to certain know-how in manufacturing the authorized cheese products. The license income will be recognized in the future as a reduction to SG&A over approximately 30 years, as it does not constitute our ongoing major or central operations.

The remaining $1.75 billion of consideration was attributed to the Cheese Disposal Group. The net assets in the Cheese Disposal Group are associated with our natural, grated, cultured, and specialty cheese businesses in the U.S., our grated cheese business in Canada, and our grated, processed, and natural cheese businesses outside the U.S. and Canada. The Cheese Disposal Group includes our global intellectual property rights to several brands, including, among others, ~~Cracker Barrel~~, ~~Breakstone’s~~, ~~Knudsen~~, ~~Athenos~~, ~~Polly-O, and~~ ~~Hoffman’s, along with the~~ ~~Cheez Whiz~~ brand in the majority of the countries outside of the U.S. and Canada. The Cheese Disposal Group also includes certain inventories, 3 manufacturing facilities and 1 distribution center in the U.S., and certain other manufacturing equipment.

~~Included in the consideration attributed to the Cheese Disposal Group is the perpetual license that Lactalis will grant to us for the~~ ~~Cracker Barrel~~ ~~brand for certain products, including macaroni and cheese. We determined that the~~ ~~Cracker Barrel~~ license will be recognized on our consolidated balance sheet as an intangible asset upon closing of the Cheese Transaction, and increased the total consideration by approximately $140 million as noted above, which was the estimated fair value of the licensed portion of the ~~Cracker Barrel~~ ~~brand.~~

In the second quarter of 2021, we assessed the fair value less costs to sell of the net assets of the Cheese Disposal Group and recorded an estimated pre-tax loss on sale of business of approximately $27 million, which was recognized in other expense/(income). As of SeptemberDecember 25, 2021 ~~we assessed the fair value less costs to sell of the net assets of the Cheese Disposal Group, and no~~for additional ~~pre-tax loss on sale of business was recorded.~~

In the third quarter of 2020, we determined that the Cheese Disposal Group met the held for sale criteria. Accordingly, we have presented the assets and liabilities of the Cheese Disposal Group as held for sale on the condensed consolidated balance sheets at September 25, 2021 and December 26, 2020. As of September 15, 2020, the date the Cheese Disposal Group was determined to be held for sale, we tested the individual assets included within the Cheese Disposal Group for impairment. The net assets of the Cheese Disposal Group had an aggregate carrying amount above their then-current $1.78 billion estimated fair value. We determined that the goodwill within the Cheese Disposal Group was partially impaired. Accordingly, we recorded a non-cash impairment loss of $300 million, which was recognized in SG&A, in the third quarter of 2020.

~~Additional considerations~~information related to the ~~Cheese Transaction include the treatment of the~~ Nuts Transaction.~~Kraft~~ ~~and~~ ~~Velveeta~~ ~~Licenses upon closing of the transaction. At the time the licensed rights are granted, we will reassess the remaining fair value of the retained portions of the~~ ~~Kraft~~ ~~and~~ ~~Velveeta~~ brands and may record a charge to reduce the intangible asset carrying amounts to reflect the lower future cash flows expected to be generated after monetization of the licensed portion of each brand. If the Cheese Transaction had closed in the third quarter of 2021, we would have recorded an indefinite-lived intangible asset non-cash impairment loss of approximately $1.25 billion. The actual impairment loss will depend upon the excess fair value, if any, over carrying amount for each brand at the time we grant the perpetual licenses, which will be on the closing date of the Cheese Transaction. Changes in the fair value of the retained and licensed portions of each brand will impact the amount of any potential charges and the amount of license income that will be recognized, which, at this time, we would not expect to exceed the fair value of the perpetual licenses.

The Cheese Transaction is expected to close in the fourth quarter of 2021, subject to customary closing conditions, including regulatory approvals. Upon closing of the Cheese Transaction, and in addition to any potential impairment losses identified related to the ~~Kraft~~ ~~and~~ ~~Velveeta~~ brands noted above, we may recognize a pre-tax gain or loss on sale of business. While the consideration for the transaction is not expected to materially change, the actual pre-tax gain or loss on sale of business to be recognized will depend on, among other things, final transaction proceeds, inventory levels and underlying costs as of the closing date, and changes in the estimated fair values of certain components of the consideration.

~~We utilized the excess earnings method under the income approach to estimate the fair value of the licensed portion of the~~ ~~Kraft~~ ~~brand and the relief from royalty method under the income approach to estimate the fair value of the licensed portions of the~~ ~~Velveeta~~ ~~brand and the~~ ~~Cracker Barrel~~ brand. Some of the more significant assumptions inherent in estimating these fair values include the estimated future annual net sales and net cash flows for each brand, contributory asset charges, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, and a discount rate that reflects the level of risk associated with the future earnings attributable to each brand. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, and guideline companies. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. See Note 8, ~~Goodwill and Intangible Assets, for additional information on the underlying assumptions and sensitivities.~~

~~The Cheese Transaction is not considered a strategic shift that will have a major effect on our operations or financial results; therefore, it will not be reported as discontinued operations.~~

~~Other Potential Dispositions:~~

In the fourth quarter of 2019, we determined a business in our International segment was held for sale and recorded an estimated pre-tax loss on sale of business of $71 million within other expense/(income). In the third quarter of 2021, we exhausted negotiations with our most recently identified buyer for this business. As of September 25, 2021, we determined that the related disposal group no longer met the held for sale criteria as there was no longer an active plan to sell and the sale was not probable within the next year. Accordingly, we reclassified the disposal group as held and used and remeasured the disposal group, which resulted in a $75 million pre-tax gain recorded in other expense/(income) on our condensed consolidated statements of income for the three and nine months ended September 25, 2021.Consistent with the presentation of the pre-tax loss recorded in the fourth quarter of 2019, this gain was included in loss/(gain) on sale of business within other expense/(income).The difference between the initial loss on sale of business and the gain resulting from remeasurement of the disposal group was due to foreign currency fluctuations.

In the first quarter of 2020, we had deemed a separate business in our International segment held for sale and recorded an estimated pre-tax loss on sale of business of $3 million within other expense/(income). In the fourth quarter of 2020, we deemed this business no longer held for sale and reversed the corresponding pre-tax loss. The related assets and liabilities were no longer classified as held for sale on our consolidated balance sheet at December 26, 2020.

Heinz India Transaction:

~~In October 2018,~~On January 30, 2019 (the “Heinz India Closing Date”), we ~~entered into a definitive agreement with 2 third parties, Zydus Wellness Limited and Cadila Healthcare Limited (collectively, the “Buyers”), to sell~~sold 100% of our equity interests in Heinz India Private Limited (“Heinz India”) to 2 third-parties, Zydus Wellness Limited and Cadila Healthcare Limited (collectively, the “Buyers”) for approximately 46 billion Indian rupees (approximately $655 million at the Heinz India Closing Date) (the “Heinz India Transaction”). In connection with the Heinz India Transaction, we agreed to indemnify the Buyers from and against any tax losses for any taxable period prior to ~~January 30, 2019 (the “Heinz~~the Heinz India Closing ~~Date”),~~Date, including taxes for which we are liable as a result of any transaction that occurred on or before such date. To determine the fair value of our tax indemnity we made various assumptions, including the range of potential dates the tax matters will be resolved, the range of potential future cash flows, the probabilities associated with potential resolution dates and potential future cash flows, and the discount rate. We recorded tax indemnity liabilities related to the Heinz India Transaction totaling approximately $48 million ~~as of~~at the Heinz India Closing Date. We also recorded a corresponding $48 million reduction of the pre-tax gain on the Heinz India Transaction within other expense/(income) in our condensed consolidated statement of income in the first quarter of 2019. Future changes to the fair value of these tax indemnity liabilities will continue to impact other expense/(income) throughout the life of the exposures as a component of the ~~pre-tax~~ gain on sale of business for the Heinz India Transaction. As of March 26, 2022, the tax indemnity liabilities were $41 million, including $14 million included within other current liabilities and $27 million in other non-current liabilities on our condensed consolidated balance sheet. There ~~were~~was no ~~changes~~impact to the gain/(loss) on sale of business related to the tax indemnity liabilities ~~during~~for the ~~nine~~three months ended ~~September 25,~~March 26, 2022 or the three months ended March 27, 2021. We recognized ~~a gain~~an insignificant pre-tax loss on sale of ~~approximately $1 million~~business related to ~~local India tax recoveries in the first quarter of 2020.~~

~~See Note 4,~~ ~~Acquisitions and Divestitures~~, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 26, 2020 for additional details related to this transaction and the tax indemnity associated with the Heinz India ~~Transaction.~~Transaction for the three months ended March 26, 2022.

Deal Costs:

Related to our divestitures, we incurred insignificant deal costs for the three ~~and nine~~ months ended ~~September 25, 2021~~March 26, 2022 and the three ~~and nine~~ months ended ~~September 26, 2020.~~March 27, 2021. We recognized these deal costs in SG&A.

Held for Sale

Our assets ~~and liabilities~~ held for sale, by major class, were (in millions):

September 25, 2021
Cheese Transaction Other Total
ASSETS
Inventories $ 346 $ — $ 346
Property, plant and equipment, net 255 2 257
Goodwill (net of impairment of $300) 281 — 281
Intangible assets, net 850 — 850
Other 5 — 5
Reserve for disposal groups (13) — (13)
Total assets held for sale $ 1,724 $ 2 $ 1,726
LIABILITIES
Other 6 — 6
Total liabilities held for sale $ 6 $ — $ 6


	March 26, 2022		December 25, 2021
ASSETS

Inventories	$	3	$	5
Property, plant and equipment, net	85		5

Intangible assets, net	1		1


Total assets held for sale	$	89	$	11

December 26, 2020
Cheese Transaction Other Total
ASSETS
Cash and cash equivalents $ — $ 33 $ 33
Inventories 373 12 385
Property, plant and equipment, net 243 14 257
Goodwill (net of impairment of $300) 281 — 281
Intangible assets, net 850 23 873
Other 10 24 34
Total assets held for sale $ 1,757 $ 106 $ 1,863
LIABILITIES
Other 7 10 17
Total liabilities held for sale $ 7 $ 10 $ 17

~~Other~~The balances held for sale at ~~September 25, 2021~~March 26, 2022 primarily included certain property, plant and equipment, net in our United States segment related to the sale of a manufacturing ~~equipment in the U.S. Other balances held for sale at December 26, 2020 primarily related to a business~~facility, as well as inventory in our International segment ~~as well as~~related to the Cheese Transaction and certain manufacturing equipment and land use rights across the globe. ~~We recorded non-cash goodwill impairment losses of $300 million~~At December 25, 2021, balances held for sale included inventory in ~~the third quarter of 2020~~our International segment related to the Cheese ~~Transaction. As a result, goodwill~~Transaction and certain manufacturing equipment and land use rights across the globe.

For the three months ended March 26, 2022, related to the manufacturing facility held for sale in the ~~table above is presented net~~United States segment, we recorded an impairment loss of ~~cumulative goodwill~~approximately $66 million to cost of products sold on our condensed consolidated statement of income. This impairment ~~losses~~loss, which was recorded at the time the assets were determined to be held for sale, reflects the difference between the fair value and carrying value of ~~$300 million at September 25, 2021~~the related asset disposal group, which primarily includes buildings and ~~December 26, 2020.~~improvements, machinery and equipment, and land. The fair value of the asset disposal group was determined using the cost and market approaches.

Note 5. Restructuring Activities

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for additional information on our restructuring activities.

Restructuring Activities:

We have restructuring programs globally, which are focused primarily on workforce reduction and factory closure and consolidation. For the ~~nine~~three months ended ~~September 25, 2021,~~March 26, 2022, we eliminated approximately ~~390~~330 positions related to these programs. As of ~~September 25, 2021,~~March 26, 2022, we expect to eliminate approximately 10200 additional positions during the remainder of ~~2021. Total restructuring expenses during~~2022. For the ~~nine~~three months ended ~~September 25, 2021 were $52~~March 26, 2022, restructuring activities resulted in expenses of $19 million and included $10 million of severance and employee benefit costs, $4 million of asset-related costs, and ~~$42~~$5 million of other implementation costs. Restructuring activities resulted in expenses ~~during the three months ended September 25, 2021 were $15 million and included $4 million~~ of ~~severance and employee benefit costs and $11 million of other implementation costs. Total restructuring expenses were $9~~$18 million for the three months ~~and $13 million for the nine months~~ ended ~~September 26, 2020.~~March 27, 2021.

Our net liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP ~~(i.e., severance and employee benefit costs and other exit costs)~~ was (in millions):


		Severance and Employee Benefit Costs		Other Exit Costs		Total			Severance and Employee Benefit Costs		Other Exit Costs		Total
Balance at December 26, 2020		$	10	$	20	$	30
Balance at December 25, 2021								Balance at December 25, 2021	$	27	$	16	$	43
Charges/(credits)	Charges/(credits)	10		—		10		Charges/(credits)	10		—		10
Cash payments	Cash payments	(15)		(3)		(18)		Cash payments	(14)		(1)		(15)
Balance at September 25, 2021		$	5	$	17	$	22
Balance at March 26, 2022								Balance at March 26, 2022	$	23	$	15	$	38

We expect the majority of the liability for severance and employee benefit costs as of ~~September 25, 2021~~March 26, 2022 to be paid by the end of 2022. The liability for other exit costs primarily relates to lease obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2022 and 2026.

Total ~~Expenses:~~Expenses/(Income):

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

For the Three Months Ended For the Nine Months Ended
September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Severance and employee benefit costs - Cost of products sold $ — $ (1) $ 4 $ (1)
Severance and employee benefit costs - SG&A 4 (1) 6 (7)
Asset-related costs - Cost of products sold — — — (2)
Other costs - Cost of products sold — (2) — (1)
Other costs - SG&A 11 12 42 23
Other costs - Other expense/(income) — 1 — 1
$ 15 $ 9 $ 52 $ 13


	For the Three Months Ended
	March 26, 2022		March 27, 2021
Severance and employee benefit costs - Cost of products sold	$	(3)	$	3
Severance and employee benefit costs - SG&A	13		1
Asset-related costs - Cost of products sold	4		—

Other costs - Cost of products sold	3		—
Other costs - SG&A	2		14

	$	19	$	18

We do not include our restructuring activities within Segment Adjusted EBITDA (as defined in Note 17, Segment Reporting). The pre-tax impact of allocating such ~~expenses~~expenses/(income) to our segments would have been (in millions):


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
United States	United States	$	—	$	2	$	2	$	4	United States	$	18	$	1
International	International	1		—		7		(2)		International	(2)		4
Canada	Canada	4		7		4		12		Canada	2		—
General corporate expenses	General corporate expenses	10		—		39		(1)		General corporate expenses	1		13
		$	15	$	9	$	52	$	13		$	19	$	18

Note 6. 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):


		September 25, 2021		December 26, 2020			March 26, 2022		December 25, 2021
Cash and cash equivalents	Cash and cash equivalents	$	2,273	$	3,417	Cash and cash equivalents	$	2,978	$	3,445

Restricted cash included in other current assets						Restricted cash included in other current assets	1		—
Restricted cash included in other non-current assets	Restricted cash included in other non-current assets	1		1		Restricted cash included in other non-current assets	1		1
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	2,274	$	3,418	Cash, cash equivalents, and restricted cash	$	2,980	$	3,446

Note 7. Inventories

Inventories consisted of the following (in millions):


	March 26, 2022		December 25, 2021
Packaging and ingredients	$	671	$	571
Spare parts	211		208
Work in process	270		268
Finished products	1,941		1,682
Inventories	$	3,093	$	2,729

At March 26, 2022 and December ~~26, 2020, cash and cash equivalents~~25, 2021, inventories excluded amounts classified as held for sale. See Note 4, Acquisitions and Divestitures, for additional information.

~~Note 7. Inventories~~

~~Inventories consisted of the following (in millions):~~

September 25, 2021 December 26, 2020
Packaging and ingredients $ 569 $ 482
Spare parts 210 219
Work in process 268 268
Finished products 1,792 1,804
Inventories $ 2,839 $ 2,773

~~At September 25, 2021 and December 26, 2020, inventories excluded amounts classified as held for sale. See Note 4,~~ ~~Acquisitions and Divestitures, for additional information.~~

~~In the first quarter of 2021, we reclassified certain balances from prepaid expenses to inventories on our condensed consolidated balance sheets. See Note 1,~~ ~~Basis of Presentation, for additional information.~~

Note 8. Goodwill and Intangible Assets

Goodwill:

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

United States International Canada Total
Balance at December 26, 2020 $ 28,429 $ 3,160 $ 1,500 $ 33,089
Impairment losses (35) — — (35)
Divestitures (1,653) — (9) (1,662)
Translation adjustments and other 4 (35) 25 (6)
Balance at September 25, 2021 $ 26,745 $ 3,125 $ 1,516 $ 31,386


	United States		International		Canada		Total
Balance at December 25, 2021	$	26,745	$	3,054	$	1,497	$	31,296

Acquisitions	—		167		—		167
Measurement period adjustments	—		(4)		—		(4)


Translation adjustments and other	—		(60)		41		(19)
Balance at March 26, 2022	$	26,745	$	3,157	$	1,538	$	31,440

~~At September 25, 2021 and December 26, 2020,~~In the first quarter of 2022, we closed the Just Spices Acquisition in our International segment, which resulted in preliminary goodwill ~~excluded amounts classified as held for sale~~of $167 million. Additionally, we recorded measurement period adjustments primarily related to the ~~Cheese Transaction. Additionally, the amounts included in divestitures~~Assan Foods Acquisition that impacted goodwill. The Assan Foods Acquisition closed in the ~~table above represent the~~fourth quarter of 2021 and was in our International segment. These measurement period adjustments resulted in a net decrease to goodwill ~~that was previously reclassified to assets held for sale and tested and determined to be partially impaired in connection with the Nuts Transaction. The resulting impairment loss~~on acquisitions of ~~$230~~approximately $15 million ~~was recognized~~ in the first quarter of ~~2021. The Nuts Transaction closed~~2022. However, as each of the affected reporting units (EMEA East and Latin America) have no goodwill balance remaining, we recorded a reduction of the $53 million non-cash impairment loss recorded to SG&A in the ~~second~~fourth quarter of 2021 that fully impaired the goodwill related to each of these acquisitions and their respective reporting units. The impairment reduction of $11 million, which reflects the measurement period adjustment of $15 million adjusted for the impact of foreign currency, was recorded in SG&A in our International segment in the first quarter of 2022. Following these measurement period adjustments, there continues to be no goodwill in the EMEA East or Latin America reporting units. See Note 9, Goodwill and Intangible Assets, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information related to the impairment losses recorded in the fourth quarter of 2021. See Note 4, Acquisitions and ~~Divestitures~~,Divestitures, for additional information related to ~~the Cheese Transaction~~these transactions and the ~~Nuts Transaction and their~~related financial statement impacts.

As of March 26, 2022, we maintain 14 reporting units, 9 of which comprise our goodwill balance. These 9 reporting units had an aggregate goodwill carrying amount of $31.4 billion at March 26, 2022. As of their latest 2021 impairment testing date, 6 reporting units had 20% or less fair value over carrying amount and an aggregate goodwill carrying amount of $28.3 billion, 2 reporting units had between 20-50% fair value over carrying amount and a goodwill carrying amount of $2.2 billion, and 1 reporting unit had over 50% fair value over carrying amount and a goodwill carrying amount of $961 million.

Accumulated impairment losses to goodwill were $10.9 billion as of March 26, 2022 and $10.9 billion at December 25, 2021.

2022 Year-to-Date Goodwill Impairment Testing

We test our reporting units for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. No events occurred during the period ended March 26, 2022 that indicated it was more likely than not that our goodwill was impaired.

As discussed in Note 1, Basis of Presentation, during the fourth quarter of 2021, certain organizational changes were announced that will impact our future internal reporting and reportable segments. As a result of these changes, we plan to combine our United States and Canada zones to form the North America zone and expect to have two reportable segments, North America and International. We expect that any change to our reportable segments will be effective in the second quarter of 2022. These changes are also expected to affect our reporting unit structure and will require an interim impairment test (or transition test) in the second quarter of 2022.

2021 Year-to-Date Goodwill Impairment Testing

In the first quarter of 2021, we announced the Nuts Transaction and determined that the Nuts Disposal Group was held for sale. Accordingly, based on a relative fair value allocation, we reclassified $1.7 billion of goodwill to assets held for sale, which included a portion of goodwill from 4 of our reporting units. The Nuts Transaction primarily affected our Kids, Snacks, and Beverages ~~(“KSB”)~~(KSB) reporting unit but also affected, to a lesser extent, our Enhancers, Specialty, and Away From Home ~~(“ESA”)~~(ESA), Canada Foodservice, and Puerto Rico reporting units. These reporting units were evaluated for impairment prior to their representative inclusion in the Nuts Disposal Group as well as on a post-reclassification basis. The fair value of all reporting units was determined to be in excess of their carrying amounts in both scenarios and, therefore, no impairment was recorded.

We test our reporting units for impairment annually as of the first day of our second quarter, which was March 28, 2021 for our 2021 annual impairment test. In performing this test, we incorporated information that was known through the date of filing of our Quarterly Report on Form 10-Q for the period ended June 26, 2021. We utilized the discounted cash flow method under the income approach to estimate the fair value of our reporting units. As a result of our 2021 annual impairment test, we recognized a non-cash impairment loss of approximately $35 million in SG&A in the second quarter of 2021 related to our Puerto Rico reporting unit within our United States segment. With the update of our five-year operating plan in the second quarter of 2021, we established a revised downward outlook for net sales for this reporting unit. After the impairment, the goodwill carrying amount of the Puerto Rico reporting unit is approximately $14 million.

As of September 25, 2021, we maintain 14 reporting units, 9 of which comprise our goodwill balance. These 9 reporting units had an aggregate goodwill carrying amount of $31.4 billion at September 25, 2021. As of the 2021 annual impairment test date, 6 reporting units had 20% or less fair value over carrying amount and an aggregate goodwill carrying amount of $28.3 billion, 2 reporting units had between 20-50% fair value over carrying amount and a goodwill carrying amount of $2.2 billion, and 1 reporting unit had over 50% fair value over carrying amount and a goodwill carrying amount of $961 million. We test our reporting units for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

~~2020 Year-to-Date Goodwill Impairment Testing~~

As previously disclosed, in the first quarter of 2020, following changes to our internal reporting and reportable segments, the composition of certain of our reporting units changed and we performed an interim impairment test (or transition test) on the affected reporting units on both a pre- and post-reorganization basis.

~~We performed our pre-reorganization impairment test as of December 29, 2019, which was our first day of 2020. There were no impairment losses resulting from our pre-reorganization impairment test.~~

We performed our post-reorganization impairment test as of December 29, 2019. There were 6 reporting units in scope for our post-reorganization impairment test: Northern Europe, Continental Europe, Asia, Australia, New Zealand, and Japan (“ANJ”), Latin America (“LATAM”), and Puerto Rico. As a result of our post-reorganization impairment test, we recognized a non-cash impairment loss of $226 million in SG&A in the first quarter of 2020 related to 2 reporting units contained within our International segment, including $83 million related to our ANJ reporting unit and $143 million related to our LATAM reporting unit, which represented all of the goodwill associated with these reporting units. The remaining reporting units tested as part of our post-reorganization impairment test each had excess fair value over carrying amount as of December 29, 2019.

We performed our 2020 annual impairment test as of March 29, 2020, which was the first day of our second quarter in 2020. We utilized the discounted cash flow method under the income approach to estimate the fair value of our reporting units. Through the performance of the 2020 annual impairment test, we identified impairments related to our U.S. Foodservice, Canada Retail, Canada Foodservice, and EMEA East reporting units. As a result, we recognized a non-cash impairment loss of $1.8 billion in SG&A in the second quarter of 2020, which included an $815 million impairment loss in our Canada Retail reporting unit within our Canada segment, a $655 million impairment loss in our U.S. Foodservice reporting unit within our United States segment, a $205 million impairment loss in our Canada Foodservice reporting unit within our Canada segment, and a $142 million impairment loss in our EMEA East reporting unit within our International segment. These impairments were primarily due to the completion of our enterprise strategy and five-year operating plan in the second quarter of 2020.

As previously disclosed, in the third quarter of 2020, following changes to our United States zone reporting structure, the composition of certain of our reporting units changed and we performed an interim impairment test (or transition test) on the affected reporting units on both a pre- and post-reorganization basis.

We performed our pre-reorganization impairment test as of June 28, 2020, which was our first day of the third quarter of 2020. There were no impairment losses resulting from this pre-reorganization impairment test.

We performed our post-reorganization impairment test as of June 28, 2020. There were 3 reporting units in scope for our post-reorganization impairment test: ESA, KSB, and Meal Foundations and Coffee (“MFC”). These reporting units, which were tested as part of this post-reorganization impairment test, each had excess fair value over carrying amount as of June 28, 2020.

Additionally, in the third quarter of 2020, we announced the Cheese Transaction and determined that the Cheese Disposal Group was held for sale. Accordingly, based on a relative fair value allocation, we reclassified $580 million of goodwill to assets held for sale, which included a portion of goodwill from 7 of our reporting units. Following the reclassification of a portion of goodwill from our reporting units, we determined that a triggering event had occurred for the remaining portion of each of the impacted reporting units, and we tested each for impairment as of September 15, 2020, the triggering event date. The triggering event impairment test did not result in an impairment of the remaining portion of any impacted reporting units.

~~In the third quarter of 2020, we recorded a non-cash impairment loss of $300 million in SG&A, which was related to the Cheese Disposal Group’s goodwill. See Note 4,~~ ~~Acquisitions and Divestitures, for additional information on the Cheese Transaction and its financial statement impacts.~~

~~See Note 9,~~ ~~Goodwill and Intangible Assets, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 26, 2020 for additional information.~~

~~Accumulated impairment losses to goodwill were $10.8 billion as of September 25, 2021.~~

Additional Goodwill Considerations

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or any factors that could be affected by COVID-19, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to ~~the impairment of one or more of our reporting units~~goodwill impairments.

Since its onset in ~~the future.~~

Inearly 2020, ~~and continuing into 2021,~~ the COVID-19 pandemic has produced ~~and has continued to produce~~ a ~~short-term~~ beneficial financial impact to our consolidated results. Retail sales have increased compared to pre-pandemic periods due to higher than anticipated consumer demand for our products. The foodservice channel, however, has experienced a negative impact from prolonged social distancing mandates limiting access to and capacity at away-from-home establishments for a longer period of time than was expected when they were originally put in place. Our Canada Foodservice reporting unit, which maintains an aggregate goodwill carrying amount of approximately $158 million as of March 26, 2022, is the most exposed of our reporting units to the ~~long-term~~ impacts to away-from-home establishments as it is our only standalone foodservice reporting unit. While our other reporting units have varying levels of exposure to the foodservice channel, they also have exposure to the retail channel, which offsets some of the risk associated with the potential long-term impacts of shifts in net sales between retail and away-from-home establishments. Our Canada Foodservice reporting unit was impaired during our 2020 annual impairment test, reflecting our best estimate at that time of the future outlook and risks of this business. ~~The Canada Foodservice reporting unit maintains an aggregate goodwill carrying amount of approximately $156 million as of September 25, 2021.~~ A number of factors could result in further future impairments of our foodservice (or away-from-home) businesses, including but not limited to: mandates around closures of dining rooms in restaurants, distancing of people within establishments resulting in fewer customers, the total number of restaurant closures, ~~forthcoming~~ changes in consumer preferences or regulatory requirements over product formats (e.g., table top packaging vs. single serve packaging), and consumer trends of dining-in versus dining-out. Given the evolving nature of, and uncertainty driven by, the COVID-19 pandemic, we will continue to evaluate the impact on our reporting units as adverse changes to these assumptions could result in future impairments.

Our reporting units that were impaired in 2021 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other reporting units that have 20% or less excess fair value over carrying amount as of ~~the~~their latest 2021 ~~annual~~ impairment testing date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining reporting units have more than 20% excess fair value over carrying amount as of ~~the~~their latest 2021 ~~annual~~ impairment testing date, these amounts are also primarily associated with the acquisition of H. J. Heinz Company in 2013 by Berkshire Hathaway Inc. and 3G Global Food Holdings, LP (the “2013 Heinz Acquisition”) and the merger of Kraft Foods Group, Inc. with and into H.J. Heinz Holding Corporation in 2015 (the “2015 Merger”) and are recorded on ~~the~~our condensed consolidated balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments.

Indefinite-lived intangible assets:

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


Balance at December ~~26, 2020~~25, 2021	$	~~42,267~~39,419
~~Impairment losses~~	~~(69)~~
~~Divestitures~~	~~(1,487)~~

Translation adjustments	31 (20)
Balance at ~~September 25, 2021~~March 26, 2022	$	~~40,742~~39,399

At September 25, 2021 and December 26, 2020, indefinite-lived intangible assets excluded amounts classified as held for sale related to the Cheese Transaction. Indefinite-lived intangible asset amounts included in divestitures in the table above represent amounts previously reclassified to assets held for sale related to the ~~Planters~~ ~~trademark in connection with the Nuts Transaction, which closed in the second quarter of 2021. See Note 4,~~ ~~Acquisitions and Divestitures, for additional information on the Cheese Transaction and the Nuts Transaction.~~

~~2021 Year-to-Date Indefinite-Lived Intangible Asset Impairment Testing~~

We performed our 2021 annual impairment test as of March 28, 2021, which was the first day of our second quarter in 2021. As a result of our 2021 annual impairment test, we recognized a non-cash impairment loss of $69 million in SG&A in the second quarter of 2021 related to two brands, ~~Plasmon~~ ~~and~~ ~~Maxwell House. We recorded non-cash impairment losses of $45 million in our International segment related to~~ ~~Plasmon~~ ~~and $24 million in our United States segment related to~~ ~~Maxwell House, consistent with the ownership of the trademarks. The impairment of the~~ ~~Plasmon~~ ~~brand was largely due to downward revised revenue expectations for infant nutrition in Italy. The impairment of the~~ ~~Maxwell House~~ brand was primarily due to downward revised revenue expectations for mainstream coffee in the U.S. These brands had an aggregate carrying amount of $822 million prior to this impairment and $753 million after impairment.

1615

Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of ~~$40.7~~$39.4 billion at ~~September 25, 2021.~~March 26, 2022. As of ~~the~~their latest 2021 ~~annual~~ impairment ~~test~~testing date, brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of ~~$22.5~~$21.3 billion, brands with between 20-50% fair value over carrying amount had an aggregate carrying amount of $6.5 billion, and brands that had over 50% fair value over carrying amount had an aggregate carrying amount of $11.8 billion.

We test our brands for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a brand is less than its carrying amount.

~~2020 Year-to-Date Indefinite-Lived Intangible Asset Impairment Testing~~

~~We performed our 2020 annual impairment test as of~~ No events occurred during the period ended March 29, 2020, which is the first day of our second quarter in 2020. As a result of our 2020 annual impairment test, we recognized a non-cash impairment loss of $1.1 billion in SG&A in the second quarter of 2020 primarily related to 9 brands (~~Oscar Mayer~~, ~~Maxwell House~~, ~~Velveeta~~, ~~Cool Whip~~, ~~Plasmon~~, ~~ABC~~, ~~Classico~~, ~~Wattie’s, and~~ ~~Planters~~), which included impairment losses of $949 million in our United States segment, $100 million in our International segment, and $7 million in our Canada segment, consistent with the ownership of the trademarks. We recognized a $626 million impairment loss related to the ~~Oscar Mayer~~26, 2022 that indicated it was more likely than not that any brand ~~a $140 million impairment loss related to the~~ ~~Maxwell House~~ ~~brand, and a $290 million impairment loss primarily related to 7 other brands (Velveeta~~, ~~Cool Whip~~, ~~Plasmon~~, ~~ABC~~, ~~Classico~~, ~~Wattie’s, and~~ ~~Planters~~).

~~See Note 9,~~ ~~Goodwill and Intangible Assets, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 26, 2020 for additional information on these impairment losses.~~was impaired.

Additional Indefinite-Lived Intangible Asset Considerations

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or any factors that could be affected by COVID-19, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our brands might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to ~~the impairment of one or more of our brands in the future.~~

~~As we consider the ongoing impact of the COVID-19 pandemic with regard to our indefinite-lived~~ intangible assets, a number of factors could have a future adverse impact on our brands, including changes in consumer and consumption trends in both the short and long term, the extent of government mandates to shelter in place, total number of restaurant closures, economic declines, and reductions in consumer discretionary income. We have seen an increase in our retail business, as compared to pre-pandemic levels, in the short term that has more than offset declines in our foodservice business over the same period. Our brands are generally common across both the retail and foodservice businesses and the fair value of our brands are subject to a similar mix of positive and negative factors. Given the evolving nature and uncertainty driven by the COVID-19 pandemic, we will continue to evaluate the impact on our brands.asset impairments.

Our brands that were impaired in 2021 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other individual brands that have 20% or less excess fair value over carrying amount as of ~~the~~their latest 2021 ~~annual~~ impairment testing date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining brands have more than 20% excess fair value over carrying amount as of ~~the~~their latest 2021 ~~annual~~ impairment testing date, these amounts are also associated with the 2013 Heinz Acquisition and the 2015 Merger and are recorded on ~~the~~our condensed consolidated balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments.

Definite-lived intangible assets:

Definite-lived intangible assets were (in millions):


		September 25, 2021						December 26, 2020							March 26, 2022						December 25, 2021
		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks	Trademarks	$	1,958	$	(534)	$	1,424	$	2,000	$	(478)	$	1,522	Trademarks	$	2,172	$	(581)	$	1,591	$	2,091	$	(556)	$	1,535
Customer-related assets	Customer-related assets	3,630		(1,010)		2,620		3,808		(942)		2,866		Customer-related assets	3,718		(1,079)		2,639		3,617		(1,040)		2,577
Other	Other	20		(3)		17		15		(3)		12		Other	14		(3)		11		17		(6)		11
		$	5,608	$	(1,547)	$	4,061	$	5,823	$	(1,423)	$	4,400		$	5,904	$	(1,663)	$	4,241	$	5,725	$	(1,602)	$	4,123

At ~~September~~March 26, 2022 and December 25, 2021, ~~and December 26, 2020,~~ definite-lived intangible assets excluded amounts classified as held for sale. See Note 4, Acquisitions and Divestitures, for additional information on amounts held for sale.

Amortization expense for definite-lived intangible assets was ~~$60~~$64 million for the three months ended March 26, 2022 and ~~$180 million for the nine months ended September 25, 2021 and $68~~$61 million for the three months ~~and $204 million for the nine months~~ ended ~~September 26, 2020.~~March 27, 2021. Aside from amortization expense, the change in definite-lived intangible assets from December ~~26, 2020 to September~~ 25, 2021 to March 26, 2022 primarily reflects ~~the assets sold in connection with the Nuts Transaction, including certain customer-related assets with a net carrying value of $133 million and the~~ ~~Corn Nuts~~ ~~trademark with a net carrying value of $25 million, $9 million of non-cash impairment losses related to a trademark in our International segment, $2~~$193 million of additions, which are largely related to ~~an acquired license,~~the Just Spices Acquisition and the Assan Foods Acquisition, and the impact of foreign currency. The impairment of definite-lived intangible assets in the second quarter of 2021 related to a trademark that had a net carrying value that was deemed not to be recoverable. This $9 million non-cash impairment loss was recognized in SG&A in the second quarter of 2021.See Note 4, Acquisitions and Divestitures, for additional information on these acquisitions.

We estimate that amortization expense related to definite-lived intangible assets will be approximately ~~$239~~$260 million ~~for~~in 2022 and 2023 and $250 million in each of the ~~next five~~following four years.

Note 9. 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 effective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. Additionally, the calculation of the percentage point impact of goodwill impairment and other items on the effective tax rate are affected by income/(loss) before income taxes. Further, small movements in tax rates due to a change in tax law or a change in tax rates that causes us to revalue our deferred tax balances produces volatility in our effective tax rate. Our quarterly income tax provision is determined based on our estimated full year effective tax rate, adjusted for tax attributable to infrequent or unusual items, which are recognized on a discrete period basis in the income tax provision for the period in which they occur.

Our effective tax rate for the three months ended ~~September 25, 2021~~March 26, 2022 was an expense of ~~16.2%~~19.6% on pre-tax income. Our effective tax rate was favorably impacted by ~~a favorable~~the geographic mix of pre-tax income in various non-U.S. jurisdictions and the impact of certain ~~favorable~~ net discrete items, primarily the reversal of uncertain tax ~~impact related to a business~~position reserves in ~~our International segment that no longer met the held for sale criteria and the revaluation of our deferred tax balances due to changes in state tax rates.~~certain foreign jurisdictions.

Our effective tax rate for the three months ended ~~September 26, 2020~~March 27, 2021 was an expense of ~~34.1%~~19.3% on pre-tax income. Our effective tax rate was ~~unfavorably~~favorably impacted by ~~certain net discrete items, primarily~~ the revaluation of our deferred tax balances due to changes in international tax laws (7.8%) and non-deductible goodwill impairment (7.1%) related to the Cheese Transaction. These impacts were partially offset by the reversal of uncertain tax position reserves in the U.S. and certain state jurisdictions and favorable changes in estimates of certain 2019 U.S. income and deductions.

Our effective tax rate for the nine months ended September 25, 2021 was an expense of 42.6% on pre-tax income. Our effective tax rate was unfavorably impacted by certain net discrete items, primarily the tax impact related to the Nuts Transaction (13.0%), the revaluation of our deferred tax balances due to changes in international and state tax rates (9.0%), mainly an increase in U.K. tax rates, and non-deductible goodwill impairments (3.2%). These impacts were partially offset by a favorable geographic mix of pre-tax income ~~in various non-U.S. jurisdictions~~ and the impact of certain net discrete items, including the reversal of uncertain tax position reserves in certain U.S. state and foreign ~~jurisdictions.~~

~~Our effective tax rate for the nine months ended September 26, 2020 was an expense~~jurisdictions, favorable changes in estimates of ~~163.1% on pre-tax losses. Our effective tax rate was unfavorably impacted by~~ certain ~~net discrete items, primarily related to non-deductible goodwill impairments (202.8%)~~foreign taxes, and the revaluation of our deferred tax balances due to changes in ~~international~~U.S. state tax ~~laws.~~rates. These impacts were partially offset by the unfavorable impact of certain net discrete items, ~~including~~primarily due to non-deductible goodwill impairment (8.2%) related to the ~~favorable impact of establishing certain deferred tax assets for state tax deductions.~~

Nuts Transaction.

Other Income Tax Matters:

In the second quarter of ~~2021, as a result of the Nuts Transaction,~~2022, we reclassified approximately $435 million of deferred income tax liabilities to income taxes payable, which is presented within other current liabilities, on our condensed consolidated balance sheet. In the third quarter of 2021, we paid approximately $525 million of cash taxes related to the Nuts Transaction. We expect to pay cash taxes of approximately ~~$175~~$620 million ~~in the fourth quarter of 2021~~ related to the ~~Nuts~~Cheese Transaction.

Note 10. Employees’ Stock Incentive Plans

Stock Options:

Our stock option activity and related information was:


		Number of Stock Options	Weighted Average Exercise Price (per share)			Number of Stock Options	Weighted Average Exercise Price (per share)
Outstanding at December 26, 2020		13,479,668	$	43.71
Outstanding at December 25, 2021					Outstanding at December 25, 2021	11,778,068	$	45.43
Granted	Granted	1,021,901	37.05		Granted	940,822	38.68
Forfeited	Forfeited	(642,018)	53.30		Forfeited	(322,764)	58.96
Exercised	Exercised	(1,712,957)	26.76		Exercised	(1,154,021)	26.60
Outstanding at September 25, 2021		12,146,594	45.03
Outstanding at March 26, 2022					Outstanding at March 26, 2022	11,242,105	46.41

The aggregate intrinsic value of stock options exercised during the period was ~~$20~~$13 million for the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022.

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)
Outstanding at December 26, 2020		14,235,922	$	31.32
Outstanding at December 25, 2021					Outstanding at December 25, 2021	12,476,390	$	33.08
Granted	Granted	3,235,971	36.55		Granted	2,706,762	38.00
Forfeited	Forfeited	(1,116,522)	30.82		Forfeited	(723,457)	32.36
Vested	Vested	(3,454,250)	29.64		Vested	(428,928)	74.86
Outstanding at September 25, 2021		12,901,121	33.13
Outstanding at March 26, 2022					Outstanding at March 26, 2022	14,030,767	32.88

The aggregate fair value of RSUs that vested during the period was ~~$131~~$16 million for the ~~nine~~three months ended ~~September 25, 2021.~~March 26, 2022.

Performance Share Units:

Our performance share unit (“PSU”) 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)
Outstanding at December 26, 2020		7,778,710	$	33.16
Outstanding at December 25, 2021					Outstanding at December 25, 2021	5,319,980	$	27.24
Granted	Granted	1,571,066	35.03		Granted	1,736,551	34.43
Forfeited	Forfeited	(608,284)	41.88		Forfeited	(246,420)	30.13
Vested	Vested	(1,816,180)	29.16		Vested	(95,896)	23.46
Outstanding at September 25, 2021		6,925,312	33.87
Outstanding at March 26, 2022					Outstanding at March 26, 2022	6,714,215	28.70

The aggregate fair value of PSUs that vested during the period was ~~$69 million~~insignificant for the ~~nine~~three months ended ~~September 25, 2021.~~March 26, 2022.

Note 11. Postemployment Benefits

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for additional information on our ~~postemployment related~~postemployment-related accounting policies.

Pension Plans

Components of Net Pension Cost/(Benefit):

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

For the Three Months Ended
U.S. Plans Non-U.S. Plans
September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Service cost $ 1 $ 2 $ 4 $ 4
Interest cost 24 33 7 9
Expected return on plan assets (50) (52) (23) (26)
Settlements (2) (3) — —
Other — — — 1
Net pension cost/(benefit) $ (27) $ (20) $ (12) $ (12)


		For the Nine Months Ended									For the Three Months Ended
		U.S. Plans				Non-U.S. Plans					U.S. Plans				Non-U.S. Plans
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021		March 26, 2022		March 27, 2021
Service cost	Service cost	$	4	$	5	$	12	$	12	Service cost	$	1	$	2	$	4	$	4
Interest cost	Interest cost	67		98		22		28		Interest cost	24		22		10		7
Expected return on plan assets	Expected return on plan assets	(140)		(157)		(71)		(77)		Expected return on plan assets	(48)		(45)		(19)		(23)
Amortization of prior service costs/(credits)		—		—		1		—
Amortization of unrecognized losses/(gains)		—		—		1		1
Settlements		(8)		(3)		—		—

Special/contractual termination benefits	Special/contractual termination benefits	3		—		—		—		Special/contractual termination benefits	—		4		—		—
Other		—		—		—		1

Net pension cost/(benefit)	Net pension cost/(benefit)	$	(74)	$	(57)	$	(35)	$	(35)	Net pension cost/(benefit)	$	(23)	$	(17)	$	(5)	$	(12)

We present all non-service cost components of net pension cost/(benefit) within other expense/(income) on our condensed consolidated statements of income. In the first quarter of 2021, we recognized $4 million of special/contractual termination benefits related to the Nuts ~~Transaction, including a loss of $3 million for the nine months ended September 25, 2021.~~Transaction. These special/contractual termination benefits are recorded in other expense/(income) as a component of our pre-tax loss/(gain) on sale of business on the condensed consolidated statement of income for the ~~nine~~three months ended ~~September 25,~~March 27, 2021.

Employer Contributions:

Related to our non-U.S. pension plans, we contributed ~~$11~~$3 million during the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 and plan to make further contributions of approximately $4$9 million during the remainder of ~~2021.~~2022. We did not contribute to our U.S. pension plans during the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 and do not plan to make contributions during the remainder of ~~2021.~~2022. Estimated future contributions take into consideration current economic conditions, ~~including the impacts of COVID-19,~~ which at this time are expected to have minimal impact on expected contributions for the remainder of ~~2021.~~2022. Our actual contributions and plans may change due to many factors, including changes in tax, employee benefit, or other laws and regulations, tax deductibility, significant differences between expected and actual pension asset performance or interest rates, or other factors.

2018

Postretirement Plans

Components of Net Postretirement Cost/(Benefit):

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


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Service cost	Service cost	$	1	$	2	$	4	$	5	Service cost	$	1	$	1
Interest cost	Interest cost	5		8		15		25		Interest cost	5		5
Expected return on plan assets	Expected return on plan assets	(12)		(12)		(36)		(37)		Expected return on plan assets	(14)		(12)
Amortization of prior service costs/(credits)	Amortization of prior service costs/(credits)	(2)		(31)		(6)		(92)		Amortization of prior service costs/(credits)	(4)		(2)
Amortization of unrecognized losses/(gains)	Amortization of unrecognized losses/(gains)	(4)		(3)		(12)		(10)		Amortization of unrecognized losses/(gains)	(4)		(4)
Curtailments		—		—		(4)		—

Net postretirement cost/(benefit)	Net postretirement cost/(benefit)	$	(12)	$	(36)	$	(39)	$	(109)	Net postretirement cost/(benefit)	$	(16)	$	(12)

We present all non-service cost components of net postretirement cost/(benefit) within other expense/(income) on our condensed consolidated statements of income. For the nine months ended September 25, 2021, we recognized a curtailment gain of $4 million related to the Nuts Transaction. This gain is recorded in other expense/(income) as a component of our pre-tax loss/(gain) on sale of business on the condensed consolidated statement of income for the nine months ended September 25, 2021.

Employer Contributions:

During the ~~nine~~three months ended ~~September 25, 2021,~~March 26, 2022, we contributed ~~$10~~$4 million to our postretirement benefit plans. We plan to make further contributions of approximately $4$9 million to our postretirement benefit plans during the remainder of ~~2021.~~2022. Estimated future contributions take into consideration current economic conditions, ~~including the impacts of COVID-19,~~ which at this time are expected to have minimal impact on expected contributions for the remainder of ~~2021.~~2022. Our actual contributions and plans may change due to many factors, including changes in tax, employee benefit, or other laws and regulations, tax deductibility, significant differences between expected and actual postretirement plan asset performance or interest rates, or other factors.

Note 12. Financial Instruments

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for additional information on our overall risk management strategies, our use of derivatives, and our related accounting policies.

Derivative Volume:

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


		Notional Amount					Notional Amount
		September 25, 2021		December 26, 2020			March 26, 2022		December 25, 2021
Commodity contracts	Commodity contracts	$	574	$	384	Commodity contracts	$	562	$	592
Foreign exchange contracts	Foreign exchange contracts	2,754		3,658		Foreign exchange contracts	4,352		3,359
Cross-currency contracts	Cross-currency contracts	7,239		8,189		Cross-currency contracts	7,239		7,239

2119

Fair Value of Derivative Instruments:

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


		September 25, 2021													March 26, 2022
		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Total Fair Value					Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Total Fair Value
		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities			Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:													Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	Foreign exchange contracts(a)	$	—	$	—	$	18	$	30	$	18	$	30	Foreign exchange contracts(a)	$	—	$	—	$	24	$	26	$	24	$	26
Cross-currency contracts(b)	Cross-currency contracts(b)	—		—		272		273		272		273		Cross-currency contracts(b)	—		—		342		318		342		318
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:													Derivatives not designated as hedging instruments:
Commodity contracts(c)	Commodity contracts(c)	52		12		11		—		63		12		Commodity contracts(c)	125		17		7		—		132		17
Foreign exchange contracts(a)	Foreign exchange contracts(a)	—		—		2		7		2		7		Foreign exchange contracts(a)	—		—		54		27		54		27

Total fair value	Total fair value	$	52	$	12	$	303	$	310	$	355	$	322	Total fair value	$	125	$	17	$	427	$	371	$	552	$	388

(a) At ~~September~~March 26, 2022, the fair value of our derivative assets was recorded in other current assets ($69 million) and other non-current assets ($9 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($46 million) and other non-current liabilities ($7 million).

(b) At March 26, 2022, the fair value of our derivative assets was recorded in other current assets ($83 million) and other non-current assets ($259 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($61 million) and other non-current liabilities ($257 million).

(c) At March 26, 2022, the fair value of our derivative assets was recorded in other current assets and the fair value of derivative liabilities was recorded in other current liabilities.


	December 25, 2021
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Total Fair Value
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	—	$	—	$	24	$	19	$	24	$	19
Cross-currency contracts(b)	—		—		247		212		247		212
Derivatives not designated as hedging instruments:
Commodity contracts(c)	41		17		2		5		43		22
Foreign exchange contracts(a)	—		—		15		18		15		18
Total fair value	$	41	$	17	$	288	$	254	$	329	$	271

(a) At December 25, 2021, the fair value of our derivative assets was recorded in other current assets ($1431 million) and other non-current assets ($68 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($3433 million) and other non-current liabilities ($34 million).

(b) At ~~September~~December 25, 2021, the fair value of our derivative assets was recorded in other current assets ($7174 million) and other non-current assets ($~~201~~173 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($5442 million) and other non-current liabilities ($~~219 million).~~

(c) At September 25, 2021, the fair value of our derivative assets was recorded in other current assets ($62 million) and other non-current assets ($1 million), and the fair value of derivative liabilities was recorded in other current liabilities.

December 26, 2020
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1) Significant Other Observable Inputs
(Level 2) Total Fair Value
Assets Liabilities Assets Liabilities Assets Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)
$ — $ — $ 9 $ 46 $ 9 $ 46
Cross-currency contracts(b)
— — 298 333 298 333
Derivatives not designated as hedging instruments:
Commodity contracts(c)
50 14 3 1 53 15
Foreign exchange contracts(a)
— — 20 9 20 9
Total fair value $ 50 $ 14 $ 330 $ 389 $ 380 $ 403

(a) At December 26, 2020, the fair value of our derivative assets was recorded in other current assets ($28 million) and other non-current assets ($1 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($50 million) and other non-current liabilities ($5 million).

(b) At December 26, 2020, the fair value of our derivative assets was recorded in other non-current assets, and the fair value of our derivative liabilities was recorded in other current liabilities ($41 million) and other non-current liabilities ($292170 million).

(c) At December ~~26, 2020,~~25, 2021, the fair value of our derivative assets was recorded in other current assets, and the fair value of our derivative liabilities was recorded in other current liabilities.

Our derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. We elect to record the gross assets and liabilities of our derivative financial instruments on the condensed consolidated balance sheets. If the derivative financial instruments had been netted on the condensed consolidated balance sheets, the asset and liability positions each would have been reduced by ~~$225~~$119 million at ~~September 25, 2021~~March 26, 2022 and ~~$315~~$155 million at December ~~26, 2020.~~25, 2021. We had collected collateral related to commodity derivative margin requirements of ~~$31~~$72 million at ~~September 25, 2021~~March 26, 2022 and ~~$25~~$12 million at December ~~26, 2020,~~25, 2021, which was included in other current liabilities on our condensed consolidated balance sheets.

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

2220

Level 2 financial assets and liabilities consist of commodity swaps, foreign exchange forwards, options, and swaps, and cross-currency swaps. Commodity swaps are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign exchange forwards and swaps are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Foreign exchange options are valued using an income approach based on a Black-Scholes-Merton formula. This formula uses present value techniques and reflects the time value and intrinsic value based on observable market rates. Cross-currency swaps are valued based on observable market spot and swap rates.

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

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

Net Investment Hedging:

At ~~September 25, 2021,~~March 26, 2022, we had the following items designated as net investment hedges:

•Non-derivative foreign-denominated debt with principal amounts of €650 million and £400 million;

•Cross-currency contracts with notional amounts of £677 million ($900 million), C$1.4 billion ($1.1 billion), €1.9 billion ($2.1 billion), and ¥9.6 billion ($85 million); and

•Foreign exchange contracts denominated in Chinese renminbi with an aggregate notional amount of ~~$117~~$116 million and in euro with an aggregate notional amount of $82 million.

We periodically use non-derivative instruments such as non-U.S. dollar financing transactions or non-U.S. dollar assets or liabilities, including intercompany loans, to hedge the exposure of changes in underlying foreign currency denominated subsidiary net assets, and they are designated as net investment hedges. At ~~September 25, 2021,~~March 26, 2022, we had Chinese renminbi intercompany loans with an aggregate notional amount of $98 million and euro intercompany loans with an aggregate notional amount of ~~$214 million and a British pound sterling intercompany loan with an aggregate notional amount of $124~~$43 million designated as net investment hedges.

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

Cash Flow Hedge Coverage:

At ~~September 25, 2021,~~March 26, 2022, we had entered into foreign exchange contracts designated as cash flow hedges for periods not exceeding the next two years and into cross-currency contracts designated as cash flow hedges for periods not exceeding the next seven years.

Deferred Hedging Gains and Losses on Cash Flow Hedges:

Based on our valuation at ~~September 25, 2021~~March 26, 2022 and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized losses on foreign currency cash flow hedges during the next 12 months to be ~~approximately $16 million.~~insignificant. Additionally, we expect transfers to net income/(loss) of unrealized gains on cross-currency cash flow hedges ~~and unrealized losses on interest rate cash flow hedges~~ during the next 12 months to each be insignificant.

Acquisition Hedging:

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

Derivative Impact on the Statements of Comprehensive Income:

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

Accumulated Other Comprehensive Income/(Losses) Component Gains/(Losses) Recognized in Other Comprehensive Income/(Losses) Related to Derivatives Designated as Hedging Instruments Location of Gains/(Losses) When Reclassified to Net Income/(Loss)
For the Three Months Ended For the Nine Months Ended
September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Cash flow hedges:
Foreign exchange contracts $ — $ — $ (1) $ 1 Net sales
Foreign exchange contracts 24 (8) (16) 41 Cost of products sold
Foreign exchange contracts (excluded component) — (1) — (2) Cost of products sold
Cross-currency contracts (33) 45 (65) 138 Other expense/(income)
Cross-currency contracts (excluded component) 7 7 21 20 Other expense/(income)
Cross-currency contracts (5) (4) (15) (7) Interest expense
Net investment hedges:
Foreign exchange contracts 2 1 2 3 Other expense/(income)
Foreign exchange contracts (excluded component) 1 (1) 1 (2) Interest expense
Cross-currency contracts 98 (223) 31 (91) Other expense/(income)
Cross-currency contracts (excluded component) 5 7 17 23 Interest expense
Total gains/(losses) recognized in statements of comprehensive income $ 99 $ (177) $ (25) $ 124


Accumulated Other Comprehensive Income/(Losses) Component	Gains/(Losses) Recognized in Other Comprehensive Income/(Losses) Related to Derivatives Designated as Hedging Instruments				Location of Gains/(Losses) When Reclassified to Net Income/(Loss)
	For the Three Months Ended
	March 26, 2022		March 27, 2021
Cash flow hedges:
Foreign exchange contracts	$	—	$	(1)		Net sales
Foreign exchange contracts	(9)		(23)			Cost of products sold


Cross-currency contracts	(31)		(15)			Other expense/(income)
Cross-currency contracts (excluded component)	8		7			Other expense/(income)
Cross-currency contracts	(7)		(6)			Interest expense
Net investment hedges:
Foreign exchange contracts	(1)		1			Other expense/(income)

Cross-currency contracts	35		(14)			Other expense/(income)
Cross-currency contracts (excluded component)	11		6			Interest expense
Total gains/(losses) recognized in statements of comprehensive income	$	6	$	(45)

Derivative Impact on the Statements of Income:

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

For the Three Months Ended
September 25, 2021 September 26, 2020
Cost of products sold Interest expense Other expense/(income) Cost of products sold Interest expense Other expense/(income)
Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded $ 4,296 $ 415 $ (138) $ 4,097 $ 314 $ (73)
Gains/(losses) related to derivatives designated as hedging instruments:
Cash flow hedges:
Foreign exchange contracts $ (13) $ — $ — $ 5 $ — $ —
Foreign exchange contracts (excluded component) (1) — — — — —
Cross-currency contracts — (6) (22) — — 42
Cross-currency contracts (excluded component) — — 7 — (4) 7
Net investment hedges:
Foreign exchange contracts (excluded component) — — — — (1) —
Cross-currency contracts (excluded component) — 4 — — 5 —
Gains/(losses) related to derivatives not designated as hedging instruments:
Commodity contracts 53 — — 44 — —
Foreign exchange contracts — — (13) — — 1
Cross-currency contracts — — 5 — — —
Total gains/(losses) recognized in statements of income $ 39 $ (2) $ (23) $ 49 $ — $ 50


		For the Nine Months Ended															For the Three Months Ended
		September 25, 2021								September 26, 2020							March 26, 2022				March 27, 2021
		Cost of products sold		SG&A		Interest expense		Other expense/(income)		Cost of products sold		Interest expense		Other expense/(income)			Cost of products sold		Interest expense		Other expense/(income)		Cost of products sold		Interest expense		Other expense/(income)
Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded	Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded	$	12,813	$	3,040	$	1,443	$	(191)	$	12,592	$	1,066	$	(232)	Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded	$	4,114	$	242	$	(98)	$	4,193	$	415	$	(30)

Gains/(losses) related to derivatives designated as hedging instruments:	Gains/(losses) related to derivatives designated as hedging instruments:															Gains/(losses) related to derivatives designated as hedging instruments:
Cash flow hedges:	Cash flow hedges:															Cash flow hedges:
Foreign exchange contracts	Foreign exchange contracts	$	(32)	$	(1)	$	—	$	—	$	16	$	—	$	—	Foreign exchange contracts	$	(6)	$	—	$	—	$	(7)	$	—	$	—
Foreign exchange contracts (excluded component)	Foreign exchange contracts (excluded component)	(2)		—		—		—		—		—		—		Foreign exchange contracts (excluded component)	(1)		—		—		—		—		—
Interest rate contracts		—		—		—		—		—		(2)		—

Cross-currency contracts	Cross-currency contracts	—		—		(16)		(50)		—		—		83		Cross-currency contracts	—		(7)		(35)		—		(6)		(43)
Cross-currency contracts (excluded component)	Cross-currency contracts (excluded component)	—		—		—		20		—		(7)		21		Cross-currency contracts (excluded component)	—		—		8		—		—		6
Net investment hedges:	Net investment hedges:															Net investment hedges:

Foreign exchange contracts (excluded component)	Foreign exchange contracts (excluded component)	—		—		1		—		—		(2)		—		Foreign exchange contracts (excluded component)	—		1		—		—		—		—
Cross-currency contracts (excluded component)	Cross-currency contracts (excluded component)	—		—		11		—		—		20		—		Cross-currency contracts (excluded component)	—		9		—		—		4		—
Gains/(losses) related to derivatives not designated as hedging instruments:	Gains/(losses) related to derivatives not designated as hedging instruments:															Gains/(losses) related to derivatives not designated as hedging instruments:
Commodity contracts	Commodity contracts	147		—		—		—		(120)		—		—		Commodity contracts	139		—		—		50		—		—
Foreign exchange contracts	Foreign exchange contracts	—		—		—		(33)		—		—		(27)		Foreign exchange contracts	—		—		38		—		—		(5)
Cross-currency contracts		—		—		—		9		—		—		—

Total gains/(losses) recognized in statements of income	Total gains/(losses) recognized in statements of income	$	113	$	(1)	$	(4)	$	(54)	$	(104)	$	9	$	77	Total gains/(losses) recognized in statements of income	$	132	$	3	$	11	$	43	$	(2)	$	(42)

Non-Derivative Impact on Statements of Comprehensive Income:

Related to our non-derivative foreign-denominated debt instruments designated as net investment hedges, we recognized pre-tax gains of ~~$27~~$32 million for the three months ended March 26, 2022 and ~~$32 million for the nine months ended September 25, 2021 and pre-tax losses of $46~~$18 million for the three months ~~and pre-tax gains of $19 million for the nine months~~ ended ~~September 26, 2020.~~March 27, 2021. These amounts were recognized in other comprehensive income/(loss).

~~Other Financial Instruments:~~

The carrying amounts of cash equivalents approximated fair values at September 25, 2021 and December 26, 2020. Money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets. The fair value of money market funds was $137 million at September 25, 2021 and $144 million at December 26, 2020. These are considered Level 1 financial assets and are valued using quoted prices in active markets for identical assets.

2622

Note 13. Accumulated Other Comprehensive Income/(Losses)

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


		Foreign Currency Translation Adjustments		Net Postemployment Benefit Plan Adjustments		Net Cash Flow Hedge Adjustments		Total			Foreign Currency Translation Adjustments		Net Postemployment Benefit Plan Adjustments		Net Cash Flow Hedge Adjustments		Total
Balance as of December 26, 2020		$	(2,218)	$	158	$	93	$	(1,967)
Balance as of December 25, 2021										Balance as of December 25, 2021	$	(2,285)	$	364	$	97	$	(1,824)
Foreign currency translation adjustments	Foreign currency translation adjustments	13		—		—		13		Foreign currency translation adjustments	(32)		—		—		(32)
Net deferred gains/(losses) on net investment hedges	Net deferred gains/(losses) on net investment hedges	52		—		—		52		Net deferred gains/(losses) on net investment hedges	52		—		—		52
Amounts excluded from the effectiveness assessment of net investment hedges	Amounts excluded from the effectiveness assessment of net investment hedges	14		—		—		14		Amounts excluded from the effectiveness assessment of net investment hedges	9		—		—		9
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(9)		—		—		(9)		Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(8)		—		—		(8)
Net deferred gains/(losses) on cash flow hedges	Net deferred gains/(losses) on cash flow hedges	—		—		(70)		(70)		Net deferred gains/(losses) on cash flow hedges	—		—		(34)		(34)
Amounts excluded from the effectiveness assessment of cash flow hedges	Amounts excluded from the effectiveness assessment of cash flow hedges	—		—		21		21		Amounts excluded from the effectiveness assessment of cash flow hedges	—		—		7		7
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	—		—		48		48		Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	—		—		22		22
Net actuarial gains/(losses) arising during the period		—		58		—		58

Net postemployment benefit losses/(gains) reclassified to net income/(loss)	Net postemployment benefit losses/(gains) reclassified to net income/(loss)	—		(18)		—		(18)		Net postemployment benefit losses/(gains) reclassified to net income/(loss)	—		(4)		—		(4)
Total other comprehensive income/(loss)	Total other comprehensive income/(loss)	70		40		(1)		109		Total other comprehensive income/(loss)	21		(4)		(5)		12
Balance as of September 25, 2021		$	(2,148)	$	198	$	92	$	(1,858)
Balance as of March 26, 2022										Balance as of March 26, 2022	$	(2,264)	$	360	$	92	$	(1,812)

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


		For the Three Months Ended													For the Three Months Ended
		September 25, 2021						September 26, 2020							March 26, 2022						March 27, 2021
		Before Tax Amount		Tax		Net of Tax Amount		Before Tax Amount		Tax		Net of Tax Amount			Before Tax Amount		Tax		Net of Tax Amount		Before Tax Amount		Tax		Net of Tax Amount
Foreign currency translation adjustments	Foreign currency translation adjustments	$	(238)	$	—	$	(238)	$	293	$	—	$	293	Foreign currency translation adjustments	$	(32)	$	—	$	(32)	$	61	$	—	$	61
Net deferred gains/(losses) on net investment hedges	Net deferred gains/(losses) on net investment hedges	127		(31)		96		(268)		68		(200)		Net deferred gains/(losses) on net investment hedges	66		(14)		52		5		—		5
Amounts excluded from the effectiveness assessment of net investment hedges	Amounts excluded from the effectiveness assessment of net investment hedges	6		(2)		4		6		(1)		5		Amounts excluded from the effectiveness assessment of net investment hedges	11		(2)		9		6		(1)		5
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(4)		1		(3)		(4)		1		(3)		Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(10)		2		(8)		(4)		1		(3)
Net deferred gains/(losses) on cash flow hedges	Net deferred gains/(losses) on cash flow hedges	(14)		8		(6)		33		(16)		17		Net deferred gains/(losses) on cash flow hedges	(47)		13		(34)		(45)		16		(29)
Amounts excluded from the effectiveness assessment of cash flow hedges	Amounts excluded from the effectiveness assessment of cash flow hedges	7		—		7		6		—		6		Amounts excluded from the effectiveness assessment of cash flow hedges	8		(1)		7		7		—		7
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	35		(13)		22		(50)		21		(29)		Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	41		(19)		22		50		(23)		27
Net actuarial gains/(losses) arising during the period	Net actuarial gains/(losses) arising during the period	(20)		5		(15)		(30)		8		(22)		Net actuarial gains/(losses) arising during the period	—		—		—		2		—		2
Net postemployment benefit losses/(gains) reclassified to net income/(loss)	Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(8)		3		(5)		(37)		8		(29)		Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(8)		4		(4)		(7)		1		(6)

2723

For the Nine Months Ended
September 25, 2021 September 26, 2020
Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
Foreign currency translation adjustments $ 13 $ — $ 13 $ (309) $ — $ (309)
Net deferred gains/(losses) on net investment hedges 65 (13) 52 (69) 18 (51)
Amounts excluded from the effectiveness assessment of net investment hedges 18 (4) 14 21 — 21
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss) (12) 3 (9) (18) 4 (14)
Net deferred gains/(losses) on cash flow hedges (97) 27 (70) 173 (20) 153
Amounts excluded from the effectiveness assessment of cash flow hedges 21 — 21 18 — 18
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss) 81 (33) 48 (111) 21 (90)
Net actuarial gains/(losses) arising during the period 78 (20) 58 (30) 8 (22)
Net postemployment benefit losses/(gains) reclassified to net income/(loss) (24) 6 (18) (104) 26 (78)

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


Accumulated Other Comprehensive Income/(Losses) Component	Accumulated Other Comprehensive Income/(Losses) Component	Reclassified from Accumulated Other Comprehensive Income/(Losses) to Net Income/(Loss)								Affected Line Item in the Statements of Income	Accumulated Other Comprehensive Income/(Losses) Component	Reclassified from Accumulated Other Comprehensive Income/(Losses) to Net Income/(Loss)				Affected Line Item in the Statements of Income
		For the Three Months Ended				For the Nine Months Ended						For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020				March 26, 2022		March 27, 2021
Losses/(gains) on net investment hedges:	Losses/(gains) on net investment hedges:										Losses/(gains) on net investment hedges:

Foreign exchange contracts(a)	Foreign exchange contracts(a)	$	—	$	1	$	(1)	$	2	Interest expense	Foreign exchange contracts(a)	$	(1)	$	—		Interest expense
Cross-currency contracts(a)	Cross-currency contracts(a)	(4)		(5)		(11)		(20)		Interest expense	Cross-currency contracts(a)	(9)		(4)			Interest expense
Losses/(gains) on cash flow hedges:	Losses/(gains) on cash flow hedges:										Losses/(gains) on cash flow hedges:
Foreign exchange contracts(b)	Foreign exchange contracts(b)	14		(5)		34		(16)		Cost of products sold	Foreign exchange contracts(b)	7		7			Cost of products sold
Foreign exchange contracts(b)		—		—		1		—		SG&A

Cross-currency contracts(b)	Cross-currency contracts(b)	15		(49)		30		(104)		Other expense/(income)	Cross-currency contracts(b)	27		37			Other expense/(income)
Cross-currency contracts(b)	Cross-currency contracts(b)	6		4		16		7		Interest expense	Cross-currency contracts(b)	7		6			Interest expense
Interest rate contracts(c)		—		—		—		2		Interest expense

Losses/(gains) on hedges before income taxes	Losses/(gains) on hedges before income taxes	31		(54)		69		(129)			Losses/(gains) on hedges before income taxes	31		46
Losses/(gains) on hedges, income taxes	Losses/(gains) on hedges, income taxes	(12)		22		(30)		25			Losses/(gains) on hedges, income taxes	(17)		(22)
Losses/(gains) on hedges	Losses/(gains) on hedges	$	19	$	(32)	$	39	$	(104)		Losses/(gains) on hedges	$	14	$	24
Losses/(gains) on postemployment benefits:	Losses/(gains) on postemployment benefits:										Losses/(gains) on postemployment benefits:
Amortization of unrecognized losses/(gains)~~(d)~~(c)	Amortization of unrecognized losses/(gains)~~(d)~~(c)	$	(3)	$	(3)	$	(10)	$	(9)		Amortization of unrecognized losses/(gains)~~(d)~~(c)	$	(4)	$	(4)
Amortization of prior service costs/(credits)~~(d)~~(c)	Amortization of prior service costs/(credits)~~(d)~~(c)	(2)		(31)		(5)		(92)			Amortization of prior service costs/(credits)~~(d)~~(c)	(4)		(2)
Settlement and curtailment losses/(gains)~~(d)~~(c)	Settlement and curtailment losses/(gains)~~(d)~~(c)	(3)		(3)		(9)		(3)			Settlement and curtailment losses/(gains)~~(d)~~(c)	—		(1)

Losses/(gains) on postemployment benefits before income taxes	Losses/(gains) on postemployment benefits before income taxes	(8)		(37)		(24)		(104)			Losses/(gains) on postemployment benefits before income taxes	(8)		(7)
Losses/(gains) on postemployment benefits, income taxes	Losses/(gains) on postemployment benefits, income taxes	3		8		6		26			Losses/(gains) on postemployment benefits, income taxes	4		1
Losses/(gains) on postemployment benefits	Losses/(gains) on postemployment benefits	$	(5)	$	(29)	$	(18)	$	(78)		Losses/(gains) on postemployment benefits	$	(4)	$	(6)

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

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

(c) ~~Represents amortization of realized hedge losses that were deferred into accumulated other comprehensive income/(losses) through the maturity of the related long-term debt instruments.~~

~~(d)~~ These components are included in the computation of net periodic postemployment benefit costs. See Note 11, Postemployment Benefits, for additional information.

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

Note 14. Financing Arrangements

We enter into various product financing arrangements to facilitate supply from our vendors. Balance sheet classification is based on the nature of the arrangements. We have concluded that our obligations to our suppliers, including amounts due and scheduled payment terms, are impacted by their participation in the program and therefore we classify amounts outstanding within other current liabilities on our condensed consolidated balance sheets. We had approximately ~~$103~~$221 million at ~~September 25, 2021~~March 26, 2022 and approximately ~~$236~~$215 million at December ~~26, 2020~~25, 2021 on our condensed consolidated balance sheets related to these arrangements.

Transfers of Financial Assets:

~~During the fourth quarter of~~Since 2020, we ~~entered into~~have had a nonrecourse accounts receivable factoring program whereby certain eligible receivables are sold to third party financial institutions in exchange for cash. The program provides us with an additional means for managing liquidity. Under the terms of the arrangement, we act as the collecting agent on behalf of the financial institutions to collect amounts due from customers for the receivables sold. We account for the transfer of receivables as a true sale at the point control is transferred through derecognition of the receivable on our condensed consolidated balance sheet. No receivables were sold under this accounts receivable factoring program during the three ~~or nine~~ months ended ~~September 25,~~March 26, 2022 or the three months ended March 27, 2021, and there were no amounts outstanding ~~at September 25, 2021~~as of March 26, 2022 or December ~~26, 2020.~~25, 2021. Any proceeds from the sales of receivables are included in cash ~~flows~~ from operating activities onin the condensed consolidated statements of cash flows.

Note 15. Commitments, Contingencies, and Debt

Legal Proceedings

We are involved in legal proceedings, claims, and governmental inquiries, inspections, or investigations (“Legal Matters”) arising in the ordinary course of our business. While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve the Legal Matters that are currently pending will have a material adverse effect on our financial condition, results of operations, or cash flows.

Class Actions and Stockholder Derivative Actions:

The Kraft Heinz Company and certain of our current and former officers and directors are currently defendants in a consolidated securities class action lawsuit pending in the United States District Court for the Northern District of Illinois, Union Asset Management Holding AG, et al. v. The Kraft Heinz Company, et al. The consolidated amended class action complaint, which was filed on August 14, 2020 and also names 3G Capital, Inc. and several of its subsidiaries and affiliates ~~(“3G~~(the “3G Entities”) as defendants, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, based on allegedly materially false or misleading statements and omissions in public statements, press releases, investor presentations, earnings calls, Company documents, and SEC filings regarding the Company’s business, financial results, and internal controls, and further alleges the 3G Entities engaged in insider trading and misappropriated the Company’s material, non-public information. The plaintiffs seek damages in an unspecified amount, attorneys’ fees, and other relief. The Company filed a motion to dismiss the consolidated amended class action complaint, which motion the court denied in an order dated August 11, 2021.

In addition, our Employee Benefits Administration Board and certain of The Kraft Heinz Company’s current and former officers and employees are currently defendants in an Employee Retirement Income Security Act (“ERISA”) class action lawsuit, ~~Osborne v. Employee Benefits Administration Board of Kraft Heinz, et al., which is pending in the United States District Court for the Northern District of Illinois.~~ Plaintiffs in the lawsuit purport to represent a class of current and former employees who were participants in and beneficiaries of various retirement plans which were co-invested in a commingled investment fund known as the Kraft Foods Savings Plan Master Trust (the “Master Trust”) during the period of May 4, 2017 through February 21, 2019. An amended complaint was filed on June 28, 2019. The amended complaint alleges violations of Section 502 of ERISA based on alleged breaches of obligations as fiduciaries subject to ERISA by allowing the Master Trust to continue investing in our common stock, and alleges additional breaches of fiduciary duties by current and former officers for their purported failure to monitor Master Trust fiduciaries. The plaintiffs seek damages in an unspecified amount, attorneys’ fees, and other relief. The Company filed a motion ~~to dismiss the amended complaint, which motion the court granted in an order dated August 23, 2021, before entering judgment in favor of the Company~~for class certification on ~~September 14, 2021. The plaintiffs filed a notice of appeal on October 13, 2021.~~March 28, 2022.

Certain of The Kraft Heinz Company’s current and former officers and directors and the 3G Entities are also named as defendants in a stockholder derivative action, In re Kraft Heinz Shareholder Derivative Litigation, which had been previously consolidated in the United States District Court for the Western District of Pennsylvania, and is now pending in the United States District Court for the Northern District of Illinois. ~~That~~The court appointed lead plaintiffs and plaintiffs’ counsel on October 21, 2021, and lead plaintiffs filed a consolidated amended complaint ~~which was filed~~ on ~~July 31, 2019,~~November 22, 2021. The consolidated amended complaint asserts state law claims for alleged breaches of fiduciary duties and unjust enrichment, as well as federal claims for contribution for alleged violations of Sections 10(b) and 21D of the Exchange Act and Rule 10b-5 promulgated thereunder, based on allegedly materially false or misleading statements and omissions in public statements and SEC filings, and for implementing cost cutting measures that allegedly damaged the Company. The plaintiffs seek damages in an ~~unspecific~~unspecified amount, attorneys’ fees, and other relief. ~~The court appointed lead plaintiffs and plaintiffs’ counsel on October 21, 2021. We expect the lead plaintiffs to file a consolidated amended complaint.~~

Certain of The Kraft Heinz Company’s current and former officers and directors and the 3G Entities are also named as defendants in a consolidated stockholder derivative action, In re Kraft Heinz Company Derivative Litigation, which was filed in the Delaware Court of Chancery. The consolidated amended complaint, which was filed on April 27, 2020, alleges state law claims, contending that the 3G Entities were controlling ~~shareholders~~stockholders who owed fiduciary duties to the Company, and that they breached those duties by allegedly engaging in insider trading and misappropriating the Company’s material, non-public information. The complaint further alleges that certain of The Kraft Heinz Company’s current and former officers and directors breached their fiduciary duties to the Company by purportedly making materially misleading statements and omissions regarding the Company’s financial performance and the impairment of its goodwill and intangible assets, and by supposedly approving or allowing the 3G Entities’ alleged insider trading. The complaint seeks relief against the defendants in the form of damages, disgorgement of all profits obtained from the alleged insider trading, contribution and indemnification, and an award of attorneys’ fees and costs. The defendants filed a motion to dismiss the consolidated amended complaint, which motion the court granted in an order dated December 15, 2021. The plaintiffs filed a notice of appeal on January 13, 2022.

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

~~United States Government Investigations:~~

On September 3, 2021, The Kraft Heinz Company reached a settlement with the SEC, concluding and resolving in its entirety the previously disclosed SEC investigation. Under the terms of the settlement, we, without admitting or denying the findings in the administrative order issued by the SEC, agreed to pay a civil penalty of $62 million and to cease and desist from violations of specified provisions of the federal securities laws and rules promulgated thereunder. We recorded an accrual for the full amount of the penalty in the second quarter of 2021, which was reflected in other current liabilities on the condensed consolidated balance sheet at June 26, 2021 and in SG&A on the condensed consolidated statements of income, and paid the penalty in the third quarter of 2021. As previously disclosed, the United States Attorney’s Office for the Northern District of Illinois (“USAO”) had been reviewing the matter. We have not received any contact from the USAO within the past 18 months.

Debt

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

Borrowing Arrangements:

On July 6, 2015, together with Kraft Heinz Foods Company (“KHFC”), our 100% owned operating subsidiary, we entered into a credit agreement (as amended, the “Credit Agreement”), which provides for a $4.0 billion senior unsecured revolving credit facility (as amended, the “Senior Credit Facility”). In June 2018, we entered into an agreement effective on July 6, 2018 to extend the maturity date of our Senior Credit Facility from July 6, 2021 to July 6, 2023 and to provide a $400 million euro equivalent swing line facility, which is available under the $4.0 billion Senior Credit Facility limit, for short-term loans denominated in euros on a same-day basis. In March 2020, we entered into an extension letter agreement (the “2020 Extension Agreement”), which extends $3.9 billion under the Senior Credit Facility from July 6, 2023 to July 6, 2024. The revolving loans and commitments of each lender that did not agree to the 2020 Extension Agreement continue to terminate on July 6, 2023. On October 9, 2020, we entered into the Commitment Increase Amendment (the “Amendment”) to the Credit Agreement, which provides for incremental revolving commitments by 2 additional lenders in the amount of $50 million each, or $100 million in aggregate. Following the execution of the Amendment, the Senior Credit Facility provides for $4.1 billion through July 6, 2023 and $4.0 billion through July 6, 2024. On April 9, 2021, we entered into an extension letter agreement (the “2021 Extension Agreement”), which extends the maturity date of $4.0 billion under the Senior Credit Facility from July 6, 2024 to July 6, 2025.

In the first quarter of 2020, as a precautionary measure to preserve financial flexibility in light of the uncertainty in the global economy resulting from the COVID-19 pandemic, we borrowed $4.0 billion under our Senior Credit Facility. We repaid the full $4.0 billion during the second quarter of 2020. No amounts were drawn on our Senior Credit Facility at September 25, 2021, at December 26, 2020, or during the nine months ended September 25, 2021.

The Senior Credit Facility contains representations, warranties, and covenants that are typical for these types of facilities and could upon the occurrence of certain events of default restrict our ability to access our Senior Credit Facility. Our Senior Credit Facility requires us to maintain a minimum shareholders’ equity (excluding accumulated other comprehensive income/(losses)) of at least $35 billion. We were in compliance with this covenant as of September 25, 2021.

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

In March 2020, together with KHFC, we entered into an uncommitted revolving credit line agreement, which provides for borrowings up to $300 million. Each borrowing under this uncommitted revolving credit line agreement is due within six months of the disbursement date. In March 2021, we amended the uncommitted revolving credit line agreement to extend the final maturity date of the agreement from June 9, 2021 to June 9, 2022. As of September 25, 2021, no amounts had been drawn on this facility.

See Note ~~18,~~17, Debt, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for ~~additional~~ information on our borrowing arrangements.

Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all financial covenants as of March 26, 2022.

~~Long-term Debt Transactions:~~

The table below summarizes our aggregate principal amount of long-term debt outstanding, excluding financing leases, before and after our current year debt transactions, specifically tender offers, debt redemptions, open-market debt repurchases, and debt repayments (in millions):

Aggregate Principal Amount Outstanding as of December 26, 2020 Tender Offers Open Market Debt Repurchases Debt Redemptions Debt Repayments Aggregate Principal Amount Outstanding as of September 25, 2021
3.500% senior notes due June 2022(a)
$ 631 $ — $ — $ — $ — $ 631
4.000% senior notes due June 2023(a)(d)
447 — — 447 — —
3.950% senior notes due July 2025(a)(f)
1,609 812 — 797 — —
3.000% senior notes due June 2026(a)(c)
2,000 88 36 — — 1,876
6.375% senior notes due July 2028(b)
235 17 — — — 218
4.625% senior notes due January 2029(b)(c)(e)
1,100 345 28 — — 727
3.750% senior notes due April 2030(b)(c)
1,000 254 3 — — 743
6.750% senior notes due March 2032(b)
437 66 — — — 371
5.000% senior notes due July 2035(b)(c)(e)
1,000 187 15 — — 798
6.875% senior notes due January 2039(b)(c)(e)
878 29 15 — — 834
7.125% senior notes due August 2039(b)(c)
931 51 4 — — 876
4.625% senior notes due October 2039(b)(e)
500 101 — — — 399
6.500% senior notes due February 2040(b)(c)(e)
788 39 18 — — 731
5.000% senior notes due June 2042(b)(c)(e)
2,000 334 68 — — 1,598
5.200% senior notes due July 2045(c)(e)
2,000 — 144 — — 1,856
4.375% senior notes due June 2046(c)(e)
3,000 — 97 — — 2,903
Floating rate senior notes due February 2021(g)
111 — — — 111 —
3.125% senior notes due September 2021(g)
34 0 0 0 34 —
Other long-term debt(h)
9,192 — — — — 9,073
Total $ 27,893 $ 2,323 $ 428 $ 1,244 $ 145 $ 23,634

~~(a) Included in the Q1~~ 2021 Tender ~~Offer (defined below).~~Offer:

~~(b) Included in the Q2 2021 Tender Offers (defined below).~~

~~(c) Included in the Q2 2021 Repurchases (defined below).~~

~~(d) Included in the Q2 2021 Debt Redemption (defined below).~~

~~(e) Included in the Q3 2021 Repurchases (defined below).~~

~~(f) Included in the Q3 2021 Debt Redemption (defined below).~~

~~(g) Repaid at maturity.~~

(h) Represents the aggregate principal amount of all of our long-term debt obligations, excluding finance leases, that were not impacted by current year debt transactions. Foreign-denominated long-term debt is reflected at the foreign currency exchange rate in effect at each period end.

~~Tender Offers:~~

~~2021 Tender Offers~~

In February 2021, ~~KHFC~~Kraft Heinz Foods Company (“KHFC”) commenced a cash tender offer to purchase up to the maximum combined aggregate purchase price of $1.0 billion, including principal and premium but excluding accrued and unpaid interest (the “2021 Maximum Tender Amount”), of its outstanding 3.950% senior notes due July 2025, 3.000% senior notes due June 2026, 4.000% senior notes due June 2023, and 3.500% senior notes due June 2022 (the “Q1 2021 Tender Offer”), listed in order of priority. Based on participation, KHFC elected to settle the Q1 2021 Tender Offer on the early settlement date, March 9, 2021. Since the aggregate purchase price of the senior notes validly tendered and not validly withdrawn as of the early tender time exceeded the 2021 Maximum Tender Amount, we did not accept for purchase any of the 3.500% senior notes due June 2022 or the 4.000% senior notes due June 2023. The aggregate principal amount of senior notes validly tendered and accepted was approximately $900 million. ~~Refer to the table above for the amount extinguished by senior notes in the Q1 2021 Tender Offer.~~

In June 2021, KHFC commenced cash tender offers to purchase up to the maximum combined aggregate purchase price of $2.8 billion, including principal and premium but excluding accrued and unpaid interest, of its 5.000% Senior Note due June 2042, 5.000% Senior Notes due July 2035, 4.625% Senior Notes due January 2029, 4.625% Senior Notes due October 2039, 3.750% Senior Notes due April 2030, 6.500% Senior Notes due February 2040, 6.375% Senior Notes due July 2028, 6.750% Senior Notes due March 2032, 6.875% Senior Notes due January 2039, and 7.125% Senior Notes Due August 2039 (the “Q2 2021 Tender Offers” and, together with the Q1 2021 Tender Offer, the “2021 Tender Offers”), listed in order of priority. KHFC settled the Q2 2021 Tender Offers on June 14, 2021 and June 16, 2021. The aggregate principal amount of senior notes validly tendered and accepted was approximately $1.4 billion. Refer to the table above for the amount extinguished by senior notes in the Q2 2021 Tender Offers.

Related to the 2021 Tender Offers, we recognized a loss on extinguishment of debt of $362 million within interest expense on the condensed consolidated statement of income for the nine months ended September 25, 2021, which included a loss of $106 million in the first quarter of 2021 related to the Q1 2021 Tender Offer and a loss of $256 million in the second quarter of 2021 related to the Q2 2021 Tender Offers. These losses primarily reflect the payment of early tender premiums and fees associated with the 2021 Tender Offers as well as the write-off of unamortized premiums, debt issuance costs, and discounts. Related to the 2021 Tender Offers, we recognized debt prepayment and extinguishment costs of $369 million on the condensed consolidated statement of cash flows for the nine months ended September 25, 2021, which reflects the $362 million loss on extinguishment of debt adjusted for the non-cash write-off of unamortized premiums of $20 million, unamortized debt issuance costs of $7 million, and unamortized discounts of $6 million.

~~2020 Tender Offer~~

In May 2020, KHFC commenced a cash tender offer to purchase up to the maximum combined aggregate purchase price of $2.2 billion, excluding accrued and unpaid interest (the “2020 Maximum Tender Amount”), of its outstanding floating rate senior notes due February 2021, 3.500% senior notes due June 2022, 3.500% senior notes due July 2022, floating rate senior notes due August 2022, 4.000% senior notes due June 2023, 3.950% senior notes due July 2025, and 3.000% senior notes due June 2026 (the “2020 Tender Offer”), listed in order of priority. As a result of the 2020 Tender Offer, KHFC extinguished approximately $2.1 billion aggregate principal amounts of senior notes in the second quarter of 2020. None of the 3.000% senior notes due June 2026 were tendered based on the aggregate principal amount of senior notes validly tendered exceeding the 2020 Maximum Tender Amount. See Note ~~18,~~17, Debt, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for ~~additional information on~~ the ~~2020~~amount extinguished by senior notes in the Q1 2021 Tender Offer.

In connection with the ~~2020~~Q1 2021 Tender Offer, we recognized a loss on extinguishment of debt of ~~$71~~$106 million within interest expense on the condensed consolidated statement of income for the ~~nine~~three months ended ~~September 26, 2020.~~March 27, 2021. This loss primarily reflects the payment of early tender premiums and fees associated with the ~~2020~~Q1 2021 Tender Offer as well as the write-off of unamortized debt issuance costs ~~premiums,~~ and discounts. Related to the ~~2020~~Q1 2021 Tender Offer, we recognized debt prepayment and extinguishment costs of ~~$68~~$103 million on the condensed consolidated statement of cash flows for the ~~nine~~three months ended September 26, 2020, which reflect the $71 million loss on extinguishment of debt adjusted for the non-cash write-off of unamortized premiums of $1 million, unamortized debt issuance costs of $3 million, and unamortized discounts of $1 million.

~~Open Market Debt Repurchases:~~

During the nine months ended September 25, 2021, we repurchased approximately $428 million of certain of our senior notes under Rule 10b5-1 plans, including $207 million in the second quarter of 2021 (the “Q2 2021 Repurchases”) and $221 million in the third quarter of 2021 (the “Q3 2021 Repurchases” and, together with the Q2 2021 Repurchases, the “2021 Repurchases”). Refer to the table above to see which senior notes had amounts extinguished as part of the 2021 Repurchases.

In connection with the 2021 Repurchases, we recognized a loss on extinguishment of debt of approximately $80 million within interest expense on the condensed consolidated statement of income for the nine months ended September 25,March 27, 2021, which ~~included a loss of $28 million in~~reflects the second quarter of 2021 related to the Q2 2021 Repurchases and a loss of $52 million in the third quarter of 2021 related to the Q3 2021 Repurchases. These losses primarily reflect the payment of premiums associated with the repurchases as well as the write-off of unamortized debt issuance costs, premiums, and discounts. Related to the 2021 Repurchases, we recognized debt prepayment and extinguishment costs of $82 million on the condensed consolidated statement of cash flows for the nine months ended September 25, 2021, which reflect the $80 million loss on extinguishment of debt adjusted for the non-cash write-off of unamortized premiums of $5 million, unamortized discounts of $1 million, and unamortized debt issuance costs of $2 million.

In the third quarter of 2021, we initiated purchase transactions for approximately $44 million aggregate principal amount of certain of our senior notes due in February 2040, July 2045, and June 2046, which settled in the fourth quarter of 2021. These notes were included in the current portion of long-term debt on our condensed consolidated balance sheet at September 25, 2021. Our condensed consolidated financial statements as of September 25, 2021 do not reflect the extinguishment of these notes as they occurred in the fourth quarter of 2021.

~~Debt Redemptions:~~

~~2021 Debt Redemptions~~

In April 2021, KHFC issued a notice of redemption of all of its 4.000% senior notes due June 2023, effective May 1, 2021 (the “Q2 2021 Debt Redemption”). Prior to the redemption, approximately $447 million aggregate principal amount was outstanding.

In June 2021, KHFC issued a notice of redemption of all of its 3.950% senior notes due July 2025, effective July 14, 2021 (the “Q3 2021 Debt Redemption” and, together with the Q2 2021 Debt Redemption, the “2021 Debt Redemptions”). Prior to the redemption, approximately $797 million aggregate principal amount was outstanding.

In connection with the 2021 Debt Redemptions, we recognized a loss on extinguishment of debt of $129 million within interest expense on the condensed consolidated statement of income for the nine months ended September 25, 2021, which included a loss of $34 million in the second quarter of 2021 related to the Q2 2021 Debt Redemption and a loss of $95 million in the third quarter of 2021 related to the Q3 2021 Debt Redemption. These losses primarily reflect the payment of premiums and fees associated with the redemptions as well as the write-off of unamortized debt issuance costs. Related to the 2021 Debt Redemptions, we recognized debt prepayment and extinguishment costs of $126 million on the condensed consolidated statement of cash flows for the nine months ended September 25, 2021, which reflect the $129$106 million loss on extinguishment of debt adjusted for the non-cash write-off of unamortized debt issuance costs of ~~$3 million.~~

~~2020 Debt Redemptions~~

~~Concurrently with the commencement~~$2 million and unamortized discounts of the 2020 Tender Offer, KHFC issued a notice of conditional redemption of all of its $300 million outstanding aggregate principal amount of 3.375% senior notes due June 2021 and $976 million outstanding aggregate principal amount of 4.875% second lien senior notes due 2025 (the “2020 Debt Redemptions”). The 2020 Debt Redemptions were effective and completed in the second quarter of 2020.

In connection with the 2020 Debt Redemptions, we recognized a loss on extinguishment of debt of $38 million within interest expense on the condensed consolidated statement of income for the nine months ended September 26, 2020. This loss primarily reflects the payment of premiums and fees associated with the redemptions as well as the write-off of unamortized debt issuance costs. Related to the 2020 Debt Redemptions, we recognized debt prepayment and extinguishment costs of $33 million on the consolidated statement of cash flows for the nine months ended September 26, 2020, which reflect the $38 million loss on extinguishment of debt adjusted for the non-cash write-off of unamortized debt issuance costs of $5$1 million.

Debt ~~Issuances:~~Repayments:

In ~~May 2020, KHFC issued $1,350~~March 2022, we repaid $6 million aggregate principal amount of ~~3.875%~~ senior notes ~~due May 2027, $1,350 million aggregate principal amount of 4.250% senior notes due March 2031, and $800 million aggregate principal amount of 5.500% senior notes due June 2050 (collectively,~~that matured in the “2020 Notes”). The 2020 Notes are fully and unconditionally guaranteed by The Kraft Heinz Company as to payment of principal, premium, and interest on a senior unsecured basis. We used the proceeds from the 2020 Notes to fund the 2020 Tender Offer and 2020 Debt Redemptions and to pay fees and expenses in connection therewith.

~~Debt Issuance Costs:~~

~~Debt issuance costs related to the 2020 Notes were $31 million.~~

~~Debt Repayments:~~period.

In February 2021, we repaid $111 million aggregate principal amount of senior notes that matured in the period.

~~In September 2021, we repaid $34 million aggregate principal amount of senior notes that matured in the period.~~

~~In February 2020, we repaid $405 million aggregate principal amount of senior notes that matured in the period.~~

~~In July 2020, we repaid $200 million aggregate principal amount of senior notes and 500 million Canadian dollars aggregate principal amount of senior notes that matured in the period.~~

Fair Value of Debt:

At ~~September~~March 26, 2022, the aggregate fair value of our total debt was $22.5 billion as compared with a carrying value of $21.8 billion. At December 25, 2021, the aggregate fair value of our total debt was ~~$28.4~~$25.7 billion as compared with a carrying value of ~~$24.0 billion. At December 26, 2020, the aggregate fair value of our total debt was $32.1 billion as compared with a carrying value of $28.3~~$21.8 billion. Our short-term debt had a carrying value that approximated its fair value at ~~September 25, 2021~~March 26, 2022 and December ~~26, 2020.~~25, 2021. We determined the fair value of our long-term debt using Level 2 inputs. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

Note 16. Earnings Per Share

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


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
		(in millions, except per share data)									(in millions, except per share data)
Basic Earnings Per Common Share:	Basic Earnings Per Common Share:									Basic Earnings Per Common Share:
Net income/(loss) attributable to common shareholders	Net income/(loss) attributable to common shareholders	$	733	$	597	$	1,269	$	(676)	Net income/(loss) attributable to common shareholders	$	776	$	563
Weighted average shares of common stock outstanding	Weighted average shares of common stock outstanding	1,225		1,223		1,224		1,222		Weighted average shares of common stock outstanding	1,225		1,223
Net earnings/(loss)	Net earnings/(loss)	$	0.60	$	0.49	$	1.04	$	(0.55)	Net earnings/(loss)	$	0.63	$	0.46
Diluted Earnings Per Common Share:	Diluted Earnings Per Common Share:									Diluted Earnings Per Common Share:
Net income/(loss) attributable to common shareholders	Net income/(loss) attributable to common shareholders	$	733	$	597	$	1,269	$	(676)	Net income/(loss) attributable to common shareholders	$	776	$	563
Weighted average shares of common stock outstanding	Weighted average shares of common stock outstanding	1,225		1,223		1,224		1,222		Weighted average shares of common stock outstanding	1,225		1,223
Effect of dilutive equity awards	Effect of dilutive equity awards	11		6		11		—		Effect of dilutive equity awards	9		9
Weighted average shares of common stock outstanding, including dilutive effect	Weighted average shares of common stock outstanding, including dilutive effect	1,236		1,229		1,235		1,222		Weighted average shares of common stock outstanding, including dilutive effect	1,234		1,232
Net earnings/(loss)	Net earnings/(loss)	$	0.59	$	0.49	$	1.03	$	(0.55)	Net earnings/(loss)	$	0.63	$	0.46

We use the treasury stock method to calculate the dilutive effect of outstanding equity awards in the denominator for diluted EPS. We had net losses attributable to common shareholders for the nine months ended September 26, 2020. Therefore, we have excluded the dilutive effects of equity awards for the nine months ended September 26, 2020 as their inclusion would have had an anti-dilutive effect on EPS. Anti-dilutive shares were 8 million for the three months ~~and 7 million for the nine months~~ ended ~~September 25, 2021~~March 26, 2022 and 8 million for the three months ~~and 16 million for the nine months~~ ended ~~September 26, 2020.~~March 27, 2021.

Note 17. Segment Reporting

We manage and report our operating results through 3 reportable segments defined by geographic region: United States, International, and Canada.

Management evaluates segment performance based on several factors, including net sales and Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, we exclude, when they occur, the impacts of divestiture-related license income (e.g., income related to the sale of licenses in connection with the Cheese Transaction), restructuring activities, deal costs, unrealized gains/(losses) on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment’s operating results), impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities). Segment Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources.

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

Net sales by segment were (in millions):


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Net sales:	Net sales:									Net sales:
United States	United States	$	4,521	$	4,710	$	13,867	$	14,122	United States	$	4,214	$	4,608
International	International	1,383		1,325		4,190		3,931		International	1,444		1,394
Canada	Canada	420		406		1,276		1,193		Canada	387		392
Total net sales	Total net sales	$	6,324	$	6,441	$	19,333	$	19,246	Total net sales	$	6,045	$	6,394

Segment Adjusted EBITDA was (in millions):


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Segment Adjusted EBITDA:	Segment Adjusted EBITDA:									Segment Adjusted EBITDA:
United States	United States	$	1,173	$	1,363	$	3,827	$	4,050	United States	$	1,091	$	1,280
International	International	252		277		821		797		International	242		283
Canada	Canada	100		103		304		268		Canada	82		87
General corporate expenses	General corporate expenses	(46)		(76)		(187)		(234)		General corporate expenses	(73)		(70)
Depreciation and amortization (excluding restructuring activities)	Depreciation and amortization (excluding restructuring activities)	(228)		(232)		(677)		(722)		Depreciation and amortization (excluding restructuring activities)	(217)		(222)
Divestiture-related license income										Divestiture-related license income	14		—
Restructuring activities	Restructuring activities	(15)		(8)		(52)		(12)		Restructuring activities	(19)		(18)
Deal costs	Deal costs	(2)		(9)		(8)		(9)		Deal costs	(8)		(7)
Unrealized gains/(losses) on commodity hedges	Unrealized gains/(losses) on commodity hedges	(27)		70		12		(47)		Unrealized gains/(losses) on commodity hedges	92		37
Impairment losses	Impairment losses	—		(300)		(343)		(3,399)		Impairment losses	(55)		(230)
Certain non-ordinary course legal and regulatory matters		—		—		(62)		—

Equity award compensation expense (excluding restructuring activities)	Equity award compensation expense (excluding restructuring activities)	(51)		(41)		(155)		(114)		Equity award compensation expense (excluding restructuring activities)	(34)		(51)
Operating income/(loss)	Operating income/(loss)	1,156		1,147		3,480		578		Operating income/(loss)	1,115		1,089
Interest expense	Interest expense	415		314		1,443		1,066		Interest expense	242		415
Other expense/(income)	Other expense/(income)	(138)		(73)		(191)		(232)		Other expense/(income)	(98)		(30)
Income/(loss) before income taxes	Income/(loss) before income taxes	$	879	$	906	$	2,228	$	(256)	Income/(loss) before income taxes	$	971	$	704

Net sales by platform were (in millions):


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Taste Elevation	Taste Elevation	$	1,873	$	1,836	$	5,709	$	5,318	Taste Elevation	$	1,830	$	1,692
Fast Fresh Meals	Fast Fresh Meals	1,590		1,561		4,674		4,668		Fast Fresh Meals	1,358		1,625
Easy Meals Made Better	Easy Meals Made Better	1,236		1,159		3,541		3,585		Easy Meals Made Better	1,238		1,201
Real Food Snacking	Real Food Snacking	332		598		1,454		1,682		Real Food Snacking	315		581
Flavorful Hydration	Flavorful Hydration	440		437		1,345		1,276		Flavorful Hydration	455		411
Easy Indulgent Desserts	Easy Indulgent Desserts	246		244		710		693		Easy Indulgent Desserts	217		212
Other	Other	607		606		1,900		2,024		Other	632		672
Total net sales	Total net sales	$	6,324	$	6,441	$	19,333	$	19,246	Total net sales	$	6,045	$	6,394

In the fourth quarter of 2021, following the divestiture of certain of our global cheese businesses, we reorganized certain products within our platforms to reflect how we plan to manage our business going forward, including the role assigned to these products and platforms within our business. We have reflected these changes in all historical periods presented.

Net sales by product category were (in millions):


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Condiments and sauces	Condiments and sauces	$	1,789	$	1,696	$	5,432	$	5,030	Condiments and sauces	$	1,827	$	1,682
Cheese and dairy	Cheese and dairy	1,217		1,226		3,645		3,636		Cheese and dairy	885		1,233
Ambient foods	Ambient foods	724		691		2,059		2,128		Ambient foods	722		698
Frozen and chilled foods	Frozen and chilled foods	666		669		1,997		1,929		Frozen and chilled foods	674		674
Meats and seafood	Meats and seafood	679		637		1,958		1,871		Meats and seafood	628		611
Refreshment beverages	Refreshment beverages	443		438		1,352		1,281		Refreshment beverages	456		411
Coffee	Coffee	200		218		614		808		Coffee	214		210
Infant and nutrition	Infant and nutrition	115		113		341		338		Infant and nutrition	104		107
Desserts, toppings and baking		277		274		801		780
Desserts, toppings, and baking										Desserts, toppings, and baking	246		242
Nuts and salted snacks	Nuts and salted snacks	6		250		458		754		Nuts and salted snacks	—		251
Other	Other	208		229		676		691		Other	289		275
Total net sales	Total net sales	$	6,324	$	6,441	$	19,333	$	19,246	Total net sales	$	6,045	$	6,394

Note 18. Other Financial Data

Condensed Consolidated Statements of Income Information

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


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Amortization of prior service costs/(credits)		$	(2)	$	(31)	$	(5)	$	(92)
Amortization of postemployment benefit plans prior service costs/(credits)										Amortization of postemployment benefit plans prior service costs/(credits)	$	(4)	$	(2)
Net pension and postretirement non-service cost/(benefit)(a)	Net pension and postretirement non-service cost/(benefit)(a)	(55)		(45)		(162)		(131)		Net pension and postretirement non-service cost/(benefit)(a)	(46)		(50)
Loss/(gain) on sale of business~~(b)~~	Loss/(gain) on sale of business~~(b)~~	(76)		—		(11)		2		Loss/(gain) on sale of business~~(b)~~	1		19
Interest income	Interest income	(4)		(6)		(13)		(23)		Interest income	(5)		(5)
Foreign exchange losses/(gains)	Foreign exchange losses/(gains)	(26)		57		(56)		81		Foreign exchange losses/(gains)	(32)		(36)
Derivative losses/(gains)	Derivative losses/(gains)	23		(50)		54		(77)		Derivative losses/(gains)	(11)		42
Other miscellaneous expense/(income)	Other miscellaneous expense/(income)	2		2		2		8		Other miscellaneous expense/(income)	(1)		2
Other expense/(income)	Other expense/(income)	$	(138)	$	(73)	$	(191)	$	(232)	Other expense/(income)	$	(98)	$	(30)

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

~~(b) Includes a gain on the remeasurement of a disposal group that was reclassified as held and used in the third quarter of 2021.~~

We present all non-service cost components of net pension cost/(benefit) and net postretirement cost/(benefit) within other expense/(income) on our condensed consolidated statements of income. See Note 11, Postemployment Benefits, for additional information on these components, including any curtailments and settlements, as well as information on our prior service credit amortization. See Note 4, Acquisitions and Divestitures, for additional information related to our loss/(gain) on sale of business. See Note 12, Financial Instruments, for information related to our derivative impacts.

Other expense/(income) was ~~$138~~$98 million of income for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$73~~$30 million of income for the three months ended ~~September 26, 2020.~~March 27, 2021. This change was primarily driven by ~~a $26 million net foreign exchange gain in the third quarter of 2021 compared to a $57 million net foreign exchange loss in the third quarter of 2020, a $76~~an $11 million net gain on ~~sales of businesses~~derivative activities in the ~~third~~first quarter of ~~2021, primarily related~~2022 compared to a business in our International segment that no longer met the held for sale criteria, and a $10 million increase in net pension and postretirement non-service benefits as compared to the prior year period. These impacts were partially offset by a $23$42 million net loss on derivative activities in the ~~third~~first quarter of 2021 and a $1 million loss on sale of business in the first quarter of 2022 compared to a ~~$50 million net gain on derivative activities in the third quarter of 2020 and a $29 million decrease in amortization of prior service credits as compared to the prior year period.~~

Other expense/(income) was $191 million of income for the nine months ended September 25, 2021 compared to $232 million of income for the nine months ended September 26, 2020. This change was primarily driven by a $54 million net loss on derivative activities in 2021 compared to a $77 million net gain on derivative activities in 2020, and an $87 million decrease in amortization of prior service credits as compared to the prior year period. These impacts were partially offset by a $56 million net foreign exchange gain in 2021 compared to an $81 million net foreign exchange loss in 2020, a $31 million increase in net pension and postretirement non-service benefits as compared to the prior year period, and an $11 million net gain on sales of businesses in 2021 compared to a $2$19 million net loss on sales of businesses in ~~2020.~~the first quarter of 2021.

3829

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

Overview

Objective:

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

Description of the Company:

We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products throughout the world.

We manage and report our operating results through three reportable segments defined by geographic region: United States, International, and Canada.

During the fourth quarter of 2021, certain organizational changes were announced that will impact our future internal reporting and reportable segments. As a result of these changes, we plan to combine our United States and Canada zones to form the North America zone and expect to have two reportable segments, North America and International. We expect that any change to our reportable segments will be effective in the second quarter of 2022.

See Note 17, Segment Reporting, in Item 1, Financial Statements, for our financial information by segment.

~~Items Affecting Comparability~~Acquisitions and Divestitures:

In the first quarter of ~~Financial Results~~

~~Impairment Losses:~~

~~Our~~2022, we closed the Just Spices Acquisition and, in the fourth quarter of 2021, we closed the Assan Foods Acquisition, both in our International segment. Additionally, we completed the Nuts Transaction in the second quarter of 2021 and the Cheese Transaction in the fourth quarter of 2021. The Nuts Transaction and the Cheese Transaction are not, individually or in the aggregate, considered a strategic shift that will have a major effect on our operations or financial results; therefore, the results of these businesses are included in continuing operations ~~reflect goodwill impairment losses~~through the date of ~~$265 million and intangible asset impairment losses of $78 million for~~each sale in the ~~nine months ended September 25, 2021 compared to goodwill impairment losses of $2.3 billion and intangible asset impairment losses of $1.1 billion for the nine months ended September 26, 2020.~~prior year period. See Note 8,4, ~~Goodwill~~Acquisitions and ~~Intangible Assets~~Divestitures, in Item 1, Financial Statements, for additional ~~information~~information.

Russia and Ukraine Conflict:

For the year ended December 25, 2021 and for the three months ended March 26, 2022, approximately 1% of consolidated net sales were generated from our business in Russia. Additionally, net income/(loss) and Adjusted EBITDA from our business in Russia were each insignificant in 2021 and in the first quarter of 2022. We have approximately 1,100 employees in Russia. We have no operations or employees in Ukraine and insignificant net sales through distributors. Further, we have experienced cost increases globally for certain commodities, including packaging materials, energy, soybean and vegetable oils, corn products, and wheat products due to overall market demand and, in part, to the negative impact of the conflict between Russia and Ukraine on ~~these impairment losses.~~the global economy. We will continue to monitor the impact that this conflict has on our business; however, to date, the conflict between Russia and Ukraine has not had a material impact on our financial condition, results of operations, or cash flows.

Items Affecting Comparability of Financial Results

COVID-19 Impacts:

We ~~have been actively monitoring~~continue to monitor the impact of COVID-19 on our business. ~~During~~In the ~~nine months ended September 26, 2020, particularly in March and April 2020, we experienced consolidated net sales growth as higher~~first quarter of 2021, demand for our retail products ~~more than offset declines in our foodservice business. During the nine months ended September 25, 2021, we continued to experience~~remained strong ~~retail demand compared to pre-pandemic periods. However, retail consumption declined when~~ compared to the comparable ~~2020~~pre-pandemic period, ~~based on the strong consumer demand early on in the COVID-19 pandemic, particularly in March and April 2020. In the second and third quarters of 2021,~~while our foodservice business ~~experienced increased~~continued to experience decreased consumer demand compared to the comparable ~~prior year periods, which were negatively impacted by~~pre-pandemic period. In the ~~COVID-19 pandemic. We continue to see decreased~~first quarter of 2022, our foodservice business was in varying levels of recovery globally, with our International segment experiencing increased consumer demand ~~in certain parts of~~and our ~~global business, including the~~ United States and Canada segments experiencing decreased consumer demand compared to the comparable pre-pandemic ~~periods.~~period. COVID-19 and its impacts are unprecedented and continuously evolving, and the long-term impacts to our financial condition and results of operations are still uncertain.

~~See~~
~~Liquidity and Capital Resources~~ ~~for additional information related to the impact of COVID-19 on our overall results. For information related to the impact of COVID-19 on our segment results see~~ ~~Results of Operations by Segment~~.

Inflation and Supply Chain Impacts:

During the ~~nine~~three months ended ~~September 25, 2021,~~March 26, 2022, we ~~experienced~~have continued to experience higher than expected commodity costs and supply chain costs, including logistics, procurement, and manufacturing costs, largely due to inflationary pressures. We expect this cost inflation to remain elevated through ~~the remainder of 2021 and to continue into~~ at least the ~~first half~~remainder of 2022. While these costs have a negative impact on our results of operations, we are currently ~~managing~~taking measures to mitigate, and expect to continue to ~~manage~~take measures to mitigate, the impact of this inflation through pricing actions and efficiency gains. However, there has been, and we expect that there could continue to be, a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. ~~Currently,~~Additionally, the pricing actions we ~~expect to experience high-single-digit gross cost inflation as~~take could result in a ~~percentage of cost of products sold~~decrease in ~~the second half of 2021, though this is an estimate and could change as circumstances evolve.~~market share.

~~Additionally,~~Further, given the increased demand for our products combined with industry-wide supply chain issues and our focus on rebuilding inventory, we have experienced capacity constraints for certain products when demand has exceeded our current manufacturing capacity. As discussed in Liquidity and Capital Resources, we are working to expand capacity through increased capital investments. We are also focused on increasing capacity through labor-related initiatives, including additional shifts and temporary labor. However, until these capacity constraints are alleviated, these constraints have ~~the potential to~~negatively impacted and could again negatively impact our service levels, market share, financial condition, results of operations, or cash flows.

~~While we have not experienced any material labor shortage to date, we~~We have observed an increasingly competitive labor market. Increased employee turnover, changes in the availability of our workers, orincluding as a result of COVID-19-related absences, and labor shortages in our supply chain have resulted in, and could continue to result in, increased costs and have, and could again, impact our ability to meet consumer demand, both of which could negatively affect our financial condition, results of operations, or cash flows.

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						For the Nine Months Ended							For the Three Months Ended
		September 25, 2021		September 26, 2020		% Change		September 25, 2021		September 26, 2020		% Change			March 26, 2022		March 27, 2021		% Change
		(in millions, except per share data)						(in millions, except per share data)							(in millions, except per share data)
Net sales	Net sales	$	6,324	$	6,441	(1.8)	%	$	19,333	$	19,246	0.5	%	Net sales	$	6,045	$	6,394	(5.5)	%
Operating income/(loss)	Operating income/(loss)	1,156		1,147		0.8	%	3,480		578		502.3	%	Operating income/(loss)	1,115		1,089		2.4	%
Net income/(loss)	Net income/(loss)	736		598		23.2	%	1,279		(673)		289.9	%	Net income/(loss)	781		568		37.5	%
Net income/(loss) attributable to common shareholders	Net income/(loss) attributable to common shareholders	733		597		23.0	%	1,269		(676)		287.6	%	Net income/(loss) attributable to common shareholders	776		563		37.8	%
Diluted EPS	Diluted EPS	0.59		0.49		20.4	%	1.03		(0.55)		287.3	%	Diluted EPS	0.63		0.46		37.0	%

Net Sales:


		For the Three Months Ended						For the Nine Months Ended							For the Three Months Ended
		September 25, 2021		September 26, 2020		% Change		September 25, 2021		September 26, 2020		% Change			March 26, 2022		March 27, 2021		% Change
		(in millions)						(in millions)							(in millions)
Net sales	Net sales	$	6,324	$	6,441	(1.8)	%	$	19,333	$	19,246	0.5	%	Net sales	$	6,045	$	6,394	(5.5)	%
Organic Net Sales(a)	Organic Net Sales(a)	6,260		6,182		1.3	%	18,566		18,466		0.5	%	Organic Net Sales(a)	6,081		5,694		6.8	%

(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 ~~September 25, 2021~~March 26, 2022 Compared to the Three Months Ended ~~September 26, 2020:~~March 27, 2021:

Net sales decreased ~~1.8%~~5.5% to ~~$6.3~~$6.0 billion for the three months ended ~~September 25, 2021~~March 26, 2022 compared to $6.4 billion for the three months ended ~~September 26, 2020,~~March 27, 2021, including the unfavorable ~~impact~~impacts of acquisitions and divestitures ~~(4.0~~(11.2 pp) and ~~the favorable impact of~~ foreign currency ~~(0.9~~(1.1 pp). Organic Net Sales increased ~~1.3%~~6.8% to ~~$6.3~~$6.1 billion for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$6.2~~$5.7 billion for the three months ended ~~September 26, 2020,~~March 27, 2021, primarily driven by higher pricing ~~(1.5~~(9.0 pp), which more than offset unfavorable volume/mix ~~(0.2 pp). Pricing was higher across all segments, while volume/mix was unfavorable in our Canada and United States segments and flat in our International segment.~~

~~Nine Months Ended September 25, 2021 Compared to the Nine Months Ended September 26, 2020:~~

Net sales increased 0.5% to $19.3 billion for the nine months ended September 25, 2021 compared to $19.2 billion for the nine months ended September 26, 2020, including the favorable impact of foreign currency (1.6 pp) and the unfavorable impact of divestitures (1.6 pp). Organic Net Sales increased 0.5% to $18.6 billion for the nine months ended September 25, 2021 compared to $18.5 billion for the nine months ended September 26, 2020, driven by higher pricing (1.5 pp), which more than offset unfavorable volume/mix (1.0(2.2 pp). Pricing was higher across all segments, while volume/mix was unfavorable across all segments.

Net Income/(Loss):


		For the Three Months Ended						For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		% Change		September 25, 2021	September 26, 2020	% Change			March 26, 2022		March 27, 2021		% Change
		(in millions)						(in millions)					(in millions)
Operating income/(loss)	Operating income/(loss)	$	1,156	$	1,147	0.8	%	3,480	578	502.3	%	Operating income/(loss)	$	1,115	$	1,089	2.4	%
Net income/(loss)	Net income/(loss)	736		598		23.2	%	1,279	(673)	289.9	%	Net income/(loss)	781		568		37.5	%
Net income/(loss) attributable to common shareholders	Net income/(loss) attributable to common shareholders	733		597		23.0	%	1,269	(676)	287.6	%	Net income/(loss) attributable to common shareholders	776		563		37.8	%
Adjusted EBITDA(a)	Adjusted EBITDA(a)	1,479		1,667		(11.3)	%	4,765	4,881	(2.4)	%	Adjusted EBITDA(a)	1,342		1,580		(15.1)	%

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

Three Months Ended ~~September 25, 2021~~March 26, 2022 Compared to the Three Months Ended ~~September 26, 2020:~~March 27, 2021:

Operating income/(loss) increased 2.4% to ~~$1.2~~$1.1 billion for the three months ended ~~September 25, 2021~~March 26, 2022 compared to $1.1 billion for the three months ended ~~September 26, 2020,~~March 27, 2021, primarily driven by ~~a $300 million~~higher pricing, lower non-cash ~~goodwill~~ impairment ~~loss~~losses in the ~~prior~~current year period, ~~related to the Cheese Transaction,~~ and efficiency gains, ~~higher Organic Net Sales, and lower general corporate expenses. These increases to operating income/(loss)~~which more than offset higher commodity costs, primarily in dairy, packaging materials, and meat; higher supply chain costs, reflecting inflationary pressure in procurement, logistics, ~~procurement,~~ and manufacturing costs; higher commodity costs, including key commodity (which we define as dairy, meat, and coffee) and packaging costs; unrealized losses on commodity hedges in the current year period compared to unrealized gains on commodity hedges in the prior year period; and the unfavorable impact of divestitures.

Net income/(loss) increased ~~23.2%~~37.5% to ~~$736~~$781 million for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$598~~$568 million for the three months ended ~~September 26, 2020.~~March 27, 2021. This increase was driven by lower ~~tax~~interest expense, favorable changes in other expense/(income), and the operating income/(loss) factors discussed above, which more than offset higher tax expense.

•Interest expense was $242 million for the three months ended March 26, 2022 compared to $415 million for the three months ended March 27, 2021. This decrease was primarily due to a $106 million loss on extinguishment of debt recognized in the prior year period in connection with the Q1 2021 Tender Offer. The remaining change in interest ~~expense.~~expense was a decrease of approximately $67 million compared to the prior year period, as our aggregate principal amount of senior notes was reduced by approximately $6.2 billion in 2021 through tender offers, redemptions, repurchases, and repayments.

•Other expense/(income) was $98 million of income for the three months ended March 26, 2022 compared to $30 million of income for the three months ended March 27, 2021. This change was primarily driven by an $11 million net gain on derivative activities in the first quarter of 2022 compared to a $42 million net loss on derivative activities in the first quarter of 2021 and a $1 million loss on sale of business in the first quarter of 2022 compared to a $19 million net loss on sales of businesses in the first quarter of 2021.

•Our effective tax rate for the three months ended ~~September 25, 2021~~March 26, 2022 was an expense of ~~16.2%~~19.6% on pre-tax income. Our effective tax rate was favorably impacted by ~~a favorable~~the geographic mix of pre-tax income in various non-U.S. jurisdictions and the impact of certain ~~favorable~~ net discrete items, primarily the reversal of uncertain tax ~~impact related to a business~~position reserves in ~~our International segment that no longer met the held for sale criteria and the revaluation of our deferred tax balances due to changes in state tax rates.~~certain foreign jurisdictions. Our effective tax rate for the three months ended ~~September 26, 2020~~March 27, 2021 was an expense of ~~34.1%~~19.3% on pre-tax income. Our effective tax rate was ~~unfavorably~~favorably impacted by ~~certain net discrete items, primarily~~ the revaluation of our deferred tax balances due to changes in international tax laws (7.8%) and non-deductible goodwill impairment (7.1%) related to the Cheese Transaction. These impacts were partially offset by the reversal of uncertain tax position reserves in the U.S. and certain state jurisdictions and favorable changes in estimates of certain 2019 U.S. income and deductions.

•Other expense/(income) was $138 million of income for the three months ended September 25, 2021 compared to $73 million of income for the three months ended September 26, 2020. This change was primarily driven by a $26 million net foreign exchange gain in the third quarter of 2021 compared to a $57 million net foreign exchange loss in the third quarter of 2020, a $76 million net gain on sales of businesses in the third quarter of 2021, primarily related to a business in our International segment that no longer met the held for sale criteria, and a $10 million increase in net pension and postretirement non-service benefits as compared to the prior year period. These impacts were partially offset by a $23 million net loss on derivative activities in the third quarter of 2021 compared to a $50 million net gain on derivative activities in the third quarter of 2020 and a $29 million decrease in amortization of prior service credits as compared to the prior year period.

•Interest expense was $415 million for the three months ended September 25, 2021 compared to $314 million for the three months ended September 26, 2020. This increase was primarily driven by a $147 million loss on extinguishment of debt recognized in the current year period in connection with the Q3 2021 Debt Redemption and the Q3 2021 Repurchases. The remaining change in interest expense was a decrease compared to the prior year period as our long-term debt balance was reduced through tender offers, redemptions, repurchases, and repayments.

Adjusted EBITDA decreased 11.3% to $1.5 billion for the three months ended September 25, 2021 compared to $1.7 billion for the three months ended September 26, 2020, as lower Adjusted EBITDA in the United States, International, and Canada segments more than offset lower general corporate expenses and the favorable impact of foreign currency (0.6 pp).

~~Nine Months Ended September 25, 2021 Compared to the Nine Months Ended September 26, 2020:~~

Operating income/(loss) increased to $3.5 billion for the nine months ended September 25, 2021 compared to $578 million for the nine months ended September 26, 2020, primarily driven by lower non-cash impairment losses in the current year period. Non-cash impairment losses were $343 million for the nine months ended September 25, 2021 compared to $3.4 billion for the nine months ended September 26, 2020. The remaining change in operating income/(loss) was a decrease of $154 million, primarily due to higher supply chain costs, reflecting inflationary pressure in logistics, procurement, and manufacturing costs; higher commodity costs, including key commodity and packaging costs; costs relating to the settlement of the previously disclosed SEC investigation; and the unfavorable impact of divestitures. These decreases to operating income/(loss) more than offset efficiency gains, higher Organic Net Sales, unrealized gains on commodity hedges in the current year period compared to unrealized losses on commodity hedges in the prior year period, lower depreciation and amortization expense, lower general corporate expenses, and the favorable impact of foreign currency.

Net income/(loss) increased 289.9% to income of $1.3 billion for the nine months ended September 25, 2021 compared to a loss of $673 million for the nine months ended September 26, 2020. This increase was driven by the operating income/(loss) factors discussed above (primarily lower non-cash impairment losses in the current year period), which more than offset higher tax expense, higher interest expense, and unfavorable changes in other expense/(income).

•Our effective tax rate for the nine months ended September 25, 2021 was an expense of 42.6% on pre-tax income. Our effective tax rate was unfavorably impacted by certain net discrete items, primarily the tax impact related to the Nuts Transaction (13.0%), the revaluation of our deferred tax balances due to changes in international and state tax rates (9.0%), mainly an increase in U.K. tax rates, and non-deductible goodwill impairments (3.2%). These impacts were partially offset by a favorable geographic mix of pre-tax income ~~in various non-U.S. jurisdictions~~ and the impact of certain net discrete items, including the reversal of uncertain tax position reserves in certain U.S. state and foreign ~~jurisdictions. Our effective tax rate for the nine months ended September 26, 2020 was an expense~~jurisdictions, favorable changes in estimates of ~~163.1% on pre-tax losses. Our effective tax rate was unfavorably impacted by~~ certain ~~net discrete items, primarily related to non-deductible goodwill impairments (202.8%)~~foreign taxes, and the revaluation of our deferred tax balances due to changes in ~~international~~U.S. state tax ~~laws.~~rates. These impacts were partially offset by the unfavorable impact of certain net discrete items, ~~including the favorable impact of establishing certain deferred tax assets for state tax deductions.~~

•~~Interest expense was $1.4 billion for the nine months ended September 25, 2021 compared~~primarily due to $1.1 billion for the nine months ended September 26, 2020. This increase was primarily driven by a $571 million loss on extinguishment of debt recognized in the current year period in connection with the 2021 Tender Offers, the 2021 Debt Redemptions, and the 2021 Repurchases compared to a $109 million loss on extinguishment of debt recognized in the prior year in connection with the 2020 Tender Offer and 2020 Debt Redemptions, as well as $22 million of interest expensenon-deductible goodwill impairment (8.2%) related to the $4.0 billion drawn on our Senior Credit Facility in the first quarter of 2020 and repaid in the second quarter of 2020. The remaining change in interest expense was a decrease compared to the prior year period as our long-term debt balance was reduced through tender offers, redemptions, repurchases, and repayments.

•Other expense/(income) was $191 million of income for the nine months ended September 25, 2021 compared to $232 million of income for the nine months ended September 26, 2020. This change was primarily driven by a $54 million net loss on derivative activities in 2021 compared to a $77 million net gain on derivative activities in 2020, and an $87 million decrease in amortization of prior service credits as compared to the prior year period. These impacts were partially offset by a $56 million net foreign exchange gain in 2021 compared to an $81 million net foreign exchange loss in 2020, a $31 million increase in net pension and postretirement non-service benefits as compared to the prior year period, and an $11 million net gain on sales of businesses in 2021 compared to a $2 million net loss on sales of businesses in 2020.Nuts Transaction.

Adjusted EBITDA decreased ~~2.4%~~15.1% to ~~$4.8~~$1.3 billion for the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$4.9~~$1.6 billion for the ~~nine~~three months ended ~~September 26, 2020, including~~March 27, 2021, primarily due to higher commodity costs, mainly in dairy, packaging materials, and meat; higher supply chain costs, reflecting inflationary pressure in procurement, logistics, and manufacturing costs; the ~~favorable~~unfavorable impact of divestitures (7.2 pp); and the unfavorable impact of foreign currency ~~(1.2~~(0.6 pp)~~. Lower Adjusted EBITDA in the United States~~, which more than offset ~~lower general corporate expenses~~higher pricing and ~~Adjusted EBITDA growth in our Canada and International segments.~~efficiency gains.

Diluted EPS:


		For the Three Months Ended						For the Nine Months Ended							For the Three Months Ended
		September 25, 2021		September 26, 2020		% Change		September 25, 2021		September 26, 2020		% Change			March 26, 2022		March 27, 2021		% Change
		(in millions, except per share data)													(in millions, except per share data)
Diluted EPS	Diluted EPS	$	0.59	$	0.49	20.4	%	$	1.03	$	(0.55)	287.3	%	Diluted EPS	$	0.63	$	0.46	37.0	%
Adjusted EPS(a)	Adjusted EPS(a)	0.65		0.70		(7.1)	%	2.15		2.09		2.9	%	Adjusted EPS(a)	0.60		0.72		(16.7)	%

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

4232

Three Months Ended ~~September 25, 2021~~March 26, 2022 Compared to the Three Months Ended ~~September 26, 2020:~~March 27, 2021:

Diluted EPS increased ~~20.4%~~37.0% to ~~$0.59~~$0.63 for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$0.49~~$0.46 for the three months ended ~~September 26, 2020,~~March 27, 2021, primarily driven by the net income/(loss) factors discussed above.


		For the Three Months Ended									For the Three Months Ended
		September 25, 2021		September 26, 2020		$ Change		% Change			March 26, 2022		March 27, 2021		$ Change		% Change
Diluted EPS	Diluted EPS	$	0.59	$	0.49	$	0.10	20.4	%	Diluted EPS	$	0.63	$	0.46	$	0.17	37.0	%
Restructuring activities	Restructuring activities	0.01		0.01		—				Restructuring activities	0.01		0.01		—

Unrealized losses/(gains) on commodity hedges	Unrealized losses/(gains) on commodity hedges	0.02		(0.04)		0.06				Unrealized losses/(gains) on commodity hedges	(0.05)		(0.02)		(0.03)
Impairment losses	Impairment losses	—		0.24		(0.24)				Impairment losses	0.03		0.19		(0.16)

Losses/(gains) on sale of business~~(a)~~	Losses/(gains) on sale of business~~(a)~~	(0.06)		—		(0.06)				Losses/(gains) on sale of business~~(a)~~	—		0.02		(0.02)
Other losses/(gains) related to acquisitions and divestitures										Other losses/(gains) related to acquisitions and divestitures	(0.02)		—		(0.02)
Debt prepayment and extinguishment costs	Debt prepayment and extinguishment costs	0.09		—		0.09				Debt prepayment and extinguishment costs	—		0.06		(0.06)

Adjusted EPS(a)	Adjusted EPS(a)	$	0.65	$	0.70	$	(0.05)	(7.1)	%	Adjusted EPS(a)	$	0.60	$	0.72	$	(0.12)	(16.7)	%

Key drivers of change in Adjusted EPS(b):
Key drivers of change in Adjusted EPS(a):										Key drivers of change in Adjusted EPS(a):
Results of operations	Results of operations					$	(0.09)			Results of operations					$	(0.06)
Results of divested operations	Results of divested operations					(0.03)				Results of divested operations					(0.08)
Interest expense	Interest expense					0.02				Interest expense					0.04
Other expense/(income)	Other expense/(income)					(0.01)				Other expense/(income)					0.01
Effective tax rate	Effective tax rate					0.06				Effective tax rate					(0.03)
						$	(0.05)								$	(0.12)

(a) ~~Includes a gain on the remeasurement of a disposal group that was reclassified as held and used in the third quarter of 2021. See Note 4,~~ ~~Acquisitions and Divestitures, in Item 1,~~ ~~Financial Statements, for additional information.~~

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

Adjusted EPS decreased ~~7.1%~~16.7% to ~~$0.65~~$0.60 for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$0.70~~$0.72 for the three months ended ~~September 26, 2020~~March 27, 2021. This decrease was primarily due to lower Adjusted EBITDA, which includes the unfavorable impact of our divestitures, and higher ~~equity award compensation expense, and unfavorable changes in other expense/(income),~~taxes on adjusted earnings, which more than offset lower ~~taxes on adjusted earnings and lower~~ interest ~~expense.~~

~~Nine Months Ended September 25, 2021 Compared to the Nine Months Ended September 26, 2020:~~

Diluted EPS increased 287.3% to earnings of $1.03 for the nine months ended September 25, 2021 compared to a loss of $0.55 for the nine months ended September 26, 2020 primarily driven by the net income/(loss) factors discussed above.

For the Nine Months Ended
September 25, 2021 September 26, 2020 $ Change % Change
Diluted EPS $ 1.03 $ (0.55) $ 1.58 287.3 %
Restructuring activities 0.03 0.01 0.02
Unrealized losses/(gains) on commodity hedges (0.01) 0.03 (0.04)
Impairment losses 0.26 2.60 (2.34)
Certain non-ordinary course legal and regulatory matters 0.05 — 0.05
Losses/(gains) on sale of business(a)
0.23 — 0.23
Debt prepayment and extinguishment costs 0.37 0.07 0.30
Discrete income tax items 0.19 (0.07) 0.26
Adjusted EPS(a)
$ 2.15 $ 2.09 $ 0.06 2.9 %
Key drivers of change in Adjusted EPS(b):
Results of operations $ (0.03)
Results of divested operations (0.04)
Interest expense 0.05
Other expense/(income) (0.04)
Effective tax rate 0.14
Effect of dilutive equity awards(c)
(0.02)
$ 0.06

~~(a) Includes a gain on the remeasurement of a disposal group that was reclassified as held and used in the third quarter of 2021. See Note 4,~~ ~~Acquisitions and Divestitures, in Item 1,~~ ~~Financial Statements, for additional information.~~

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

(c) Represents the impact of excluding the dilutive effects of equity awards for the nine months ended September 26, 2020 as their inclusion would have had an anti-dilutive effect on EPS due to net losses attributable to common shareholders for the same period.

Adjusted EPS increased 2.9% to $2.15 for the nine months ended September 25, 2021 compared to $2.09 for the nine months ended September 26, 2020 primarily driven by lower taxes on adjusted earnings, lower interest expense, and lower depreciation and amortization costs, which more than offset lower Adjusted EBITDA, unfavorable changes in other expense/(income), and higher equity award compensation expense.

Results of Operations by Segment

Management evaluates segment performance based on several factors, including net sales, Organic Net Sales, and Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, we exclude, when they occur, the impacts of divestiture-related license income (e.g., income related to the sale of licenses in connection with the Cheese Transaction), restructuring activities, deal costs, unrealized gains/(losses) on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment’s operating results), impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities). Segment Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.

Under highly inflationary accounting, the financial statements of a subsidiary are remeasured into our reporting currency (U.S. dollars) based on the legally available exchange rate at which we expect to settle the underlying transactions. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in ~~net income/(loss),~~other expense/(income) on our condensed consolidated statement of income, as nonmonetary currency devaluation, rather than accumulated other comprehensive income/(losses) on ~~the~~our condensed consolidated balance sheet, until such time as the economy is no longer considered highly inflationary. ~~The exchange gains and losses from remeasurement are recorded in current net income and are classified within other expense/(income), as nonmonetary currency devaluation.~~ See Note 2, Significant Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~26, 2020,~~25, 2021, for additional information.

4433

Net Sales:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
		(in millions)									(in millions)
Net sales:	Net sales:									Net sales:
United States	United States	$	4,521	$	4,710	$	13,867	$	14,122	United States	$	4,214	$	4,608
International	International	1,383		1,325		4,190		3,931		International	1,444		1,394
Canada	Canada	420		406		1,276		1,193		Canada	387		392
Total net sales	Total net sales	$	6,324	$	6,441	$	19,333	$	19,246	Total net sales	$	6,045	$	6,394

Organic Net Sales:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
		(in millions)									(in millions)
Organic Net Sales(a):	Organic Net Sales(a):									Organic Net Sales(a):
United States	United States	$	4,521	$	4,464	$	13,421	$	13,377	United States	$	4,214	$	3,930
International	International	1,344		1,314		3,970		3,900		International	1,479		1,386
Canada	Canada	395		404		1,175		1,189		Canada	388		378
Total Organic Net Sales	Total Organic Net Sales	$	6,260	$	6,182	$	18,566	$	18,466	Total Organic Net Sales	$	6,081	$	5,694

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

Drivers of the changes in net sales and Organic Net Sales for the three ~~and nine~~ months ended ~~September 25, 2021~~March 26, 2022 compared to the three ~~and nine~~ months ended ~~September 26, 2020~~March 27, 2021 were:

Net Sales Currency Acquisitions and Divestitures Organic Net Sales Price Volume/Mix
For the Three Months Ended
United States (4.0) % 0.0 pp (5.3) pp 1.3 % 1.4 pp (0.1) pp
International 4.4 % 2.6 pp (0.4) pp 2.2 % 2.2 pp 0.0 pp
Canada 3.4 % 5.7 pp (0.4) pp (1.9) % 0.2 pp (2.1) pp
Kraft Heinz (1.8) % 0.9 pp (4.0) pp 1.3 % 1.5 pp (0.2) pp

Net Sales

Currency

Acquisitions and Divestitures

Organic Net Sales

Price

Volume/Mix

Net Sales

Currency

Acquisitions and Divestitures

Organic Net Sales

Price

Volume/Mix

For the Nine Months Ended

For the Three Months Ended

United States

(1.8)

0.0 pp

(2.1) pp

0.3

1.3 pp

(1.0) pp

United States

(8.5)

0.0 pp

(15.7) pp

7.2

9.3 pp

(2.1) pp

International

6.6

5.0 pp

(0.2) pp

1.8

2.1 pp

(0.3) pp

International

3.6

(4.9) pp

1.8 pp

6.7

8.2 pp

(1.5) pp

Canada

7.0

8.3 pp

(0.1) pp

(1.2)

2.2 pp

(3.4) pp

Canada

(1.5)

(0.2) pp

(3.8) pp

2.5

8.0 pp

(5.5) pp

Kraft Heinz

0.5

1.6 pp

(1.6) pp

0.5

1.5 pp

(1.0) pp

Kraft Heinz

(5.5)

(1.1) pp

(11.2) pp

6.8

9.0 pp

(2.2) pp

4534

Adjusted EBITDA:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
		(in millions)									(in millions)
Segment Adjusted EBITDA:	Segment Adjusted EBITDA:									Segment Adjusted EBITDA:
United States	United States	$	1,173	$	1,363	$	3,827	$	4,050	United States	$	1,091	$	1,280
International	International	252		277		821		797		International	242		283
Canada	Canada	100		103		304		268		Canada	82		87
General corporate expenses	General corporate expenses	(46)		(76)		(187)		(234)		General corporate expenses	(73)		(70)
Depreciation and amortization (excluding restructuring activities)	Depreciation and amortization (excluding restructuring activities)	(228)		(232)		(677)		(722)		Depreciation and amortization (excluding restructuring activities)	(217)		(222)
Divestiture-related license income										Divestiture-related license income	14		—
Restructuring activities	Restructuring activities	(15)		(8)		(52)		(12)		Restructuring activities	(19)		(18)
Deal costs	Deal costs	(2)		(9)		(8)		(9)		Deal costs	(8)		(7)
Unrealized gains/(losses) on commodity hedges	Unrealized gains/(losses) on commodity hedges	(27)		70		12		(47)		Unrealized gains/(losses) on commodity hedges	92		37
Impairment losses	Impairment losses	—		(300)		(343)		(3,399)		Impairment losses	(55)		(230)
Certain non-ordinary course legal and regulatory matters		—		—		(62)		—

Equity award compensation expense (excluding restructuring activities)	Equity award compensation expense (excluding restructuring activities)	(51)		(41)		(155)		(114)		Equity award compensation expense (excluding restructuring activities)	(34)		(51)
Operating income/(loss)	Operating income/(loss)	1,156		1,147		3,480		578		Operating income/(loss)	1,115		1,089
Interest expense	Interest expense	415		314		1,443		1,066		Interest expense	242		415
Other expense/(income)	Other expense/(income)	(138)		(73)		(191)		(232)		Other expense/(income)	(98)		(30)
Income/(loss) before income taxes	Income/(loss) before income taxes	$	879	$	906	$	2,228	$	(256)	Income/(loss) before income taxes	$	971	$	704

United States:


		For the Three Months Ended						For the Nine Months Ended							For the Three Months Ended
		September 25, 2021		September 26, 2020		% Change		September 25, 2021		September 26, 2020		% Change			March 26, 2022		March 27, 2021		% Change
		(in millions)						(in millions)							(in millions)
Net sales	Net sales	$	4,521	$	4,710	(4.0)	%	$	13,867	$	14,122	(1.8)	%	Net sales	$	4,214	$	4,608	(8.5)	%
Organic Net Sales(a)	Organic Net Sales(a)	4,521		4,464		1.3	%	13,421		13,377		0.3	%	Organic Net Sales(a)	4,214		3,930		7.2	%
Segment Adjusted EBITDA	Segment Adjusted EBITDA	1,173		1,363		(14.0)	%	3,827		4,050		(5.5)	%	Segment Adjusted EBITDA	1,091		1,280		(14.8)	%

(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 ~~September 25, 2021~~March 26, 2022 Compared to the Three Months Ended ~~September 26, 2020:~~March 27, 2021:

Net sales decreased ~~4.0%~~8.5% to ~~$4.5~~$4.2 billion for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$4.7~~$4.6 billion for the three months ended ~~September 26, 2020,~~March 27, 2021, including the unfavorable impact of divestitures ~~(5.3~~(15.7 pp). Organic Net Sales increased ~~1.3%~~7.2% to ~~$4.5~~$4.2 billion for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$4.5~~$3.9 billion for the three months ended ~~September 26, 2020,~~March 27, 2021, driven by higher pricing ~~(1.4~~(9.3 pp), which more than offset unfavorable volume/mix ~~(0.1~~(2.1 pp). Higher pricing was primarily driven by increases to ~~reflect inflation-justified pricing.~~mitigate rising input costs. Unfavorable volume/mix was primarily due to ~~unfavorable changes~~declines in ~~retail inventory levels~~frozen, meat, and ~~extraordinary COVID-19-related retail takeaway in the prior year period,~~condiments and sauces, which more than offset ~~higher~~increases in foodservice ~~sales in the current year period.~~and cheese.

Segment Adjusted EBITDA decreased ~~14.0%~~14.8% to ~~$1.2~~$1.1 billion for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$1.4~~$1.3 billion for the three months ended ~~September 26, 2020,~~March 27, 2021, as higher commodity costs, ~~including key commodity~~primarily in dairy, packaging materials, and ~~packaging costs;~~meat; higher supply chain costs, reflecting inflationary pressure in logistics, procurement, and manufacturing costs; the impact of the Cheese Transaction and Nuts Transaction; and ~~unfavorable mix more than offset higher pricing and efficiency gains.~~

~~Nine Months Ended September 25, 2021 Compared to the Nine Months Ended September 26, 2020:~~

Net sales decreased 1.8% to $13.9 billion for the nine months ended September 25, 2021 compared to $14.1 billion for the nine months ended September 26, 2020, including the unfavorable impact of divestitures (2.1 pp). Organic Net Sales increased 0.3% to $13.4 billion for the nine months ended September 25, 2021 compared to $13.4 billion for the nine months ended September 26, 2020, driven by higher pricing (1.3 pp), which more than offset unfavorable volume/mix (1.0 pp). Higher pricing was primarily driven by increases to reflect inflation-justified pricing. Unfavorable volume/mix was primarily due to extraordinary COVID-19-related retail takeaway and the negative impact from exiting the ~~McCafé~~ ~~licensing agreement, both in the prior year period, which more than offset higher foodservice sales and favorable changes in retail inventory levels versus the prior year period.~~

Segment Adjusted EBITDA decreased 5.5% to $3.8 billion for the nine months ended September 25, 2021 compared to $4.1 billion for the nine months ended September 26, 2020, as higher supply chain costs, reflecting inflationary pressure in logistics, procurement, and manufacturing costs, higher commodity costs, including key commodity and packaging costs, the impact of the Nuts Transaction, and lower volume declines more than offset higher pricing and efficiency gains.

International:


		For the Three Months Ended						For the Nine Months Ended							For the Three Months Ended
		September 25, 2021		September 26, 2020		% Change		September 25, 2021		September 26, 2020		% Change			March 26, 2022		March 27, 2021		% Change
		(in millions)						(in millions)							(in millions)
Net sales	Net sales	$	1,383	$	1,325	4.4	%	$	4,190	$	3,931	6.6	%	Net sales	$	1,444	$	1,394	3.6	%
Organic Net Sales(a)	Organic Net Sales(a)	1,344		1,314		2.2	%	3,970		3,900		1.8	%	Organic Net Sales(a)	1,479��		1,386		6.7	%
Segment Adjusted EBITDA	Segment Adjusted EBITDA	252		277		(9.1)	%	821		797		3.0	%	Segment Adjusted EBITDA	242		283		(14.4)	%

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

Three Months Ended March 26, 2022 Compared to the Three Months Ended March 27, 2021:

Net sales increased 3.6% to $1.4 billion for the three months ended March 26, 2022 compared to $1.4 billion for the three months ended March 27, 2021, including the unfavorable impact of foreign currency (4.9 pp) and the favorable impact of acquisitions and divestitures (1.8 pp). Organic Net Sales increased 6.7% to $1.5 billion for the three months ended March 26, 2022 compared to $1.4 billion for the three months ended March 27, 2021, driven by higher pricing (8.2 pp), which more than offset unfavorable volume/mix was (1.5 pp). Higher pricing included increases across markets primarily to mitigate rising input costs. Unfavorable volume/mix was primarily due to declines in boxed dinners and condiments and sauces in the United Kingdom, condiments and sauces in China, and beverages in Australia and New Zealand, which more than offset higher foodservice sales across most markets and condiments and sauces growth in Brazil.

Segment Adjusted EBITDA decreased 14.4% to $242 million for the three months ended March 26, 2022 compared to $283 million for the three months ended March 27, 2021, primarily due to higher supply chain costs, reflecting inflationary pressure in procurement, manufacturing, and logistics costs; higher commodity costs; unfavorable volume/mix; and the unfavorable impact of foreign currency (3.6 pp), which more than offset higher pricing and efficiency gains.

Canada:


	For the Three Months Ended
	March 26, 2022		March 27, 2021		% Change
	(in millions)
Net sales	$	387	$	392	(1.5)	%
Organic Net Sales(a)	388		378		2.5	%
Segment Adjusted EBITDA	82		87		(5.8)	%

(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 ~~September 25, 2021~~March 26, 2022 Compared to the Three Months Ended ~~September 26, 2020:~~March 27, 2021:

Net sales ~~increased 4.4%~~decreased 1.5% to ~~$1.4 billion~~$387 million for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$1.3 billion~~$392 million for the three months ended ~~September 26, 2020,~~March 27, 2021 including the ~~favorable impact~~unfavorable impacts of divestitures (3.8 pp) and foreign currency ~~(2.6 pp) and the unfavorable impact of divestitures (0.4~~(0.2 pp). Organic Net Sales increased ~~2.2%~~2.5% to ~~$1.3 billion~~$388 million for the three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$1.3 billion~~$378 million for the three months ended ~~September 26, 2020,~~March 27, 2021, driven by higher pricing ~~(2.2~~(8.0 pp), ~~while~~which more than offset unfavorable volume/mix (5.5 pp). Pricing was ~~flat. Higher pricing included~~higher primarily driven by increases ~~across markets. Flat~~to mitigate rising input costs. Unfavorable volume/mix was primarily due to declines in ~~China, which offset higher foodservice sales in the current year period.~~

Segment Adjusted EBITDA decreased 9.1% to $252 million for the three months ended September 25, 2021 compared to $277 million for the three months ended September 26, 2020, primarily due to higher supply chain costs, reflecting inflationary pressure in manufacturing, procurement,condiments and ~~logistics; higher commodity costs;~~sauces and ~~declines in China, which more than offset efficiency gains, higher pricing, and the favorable impact of foreign currency (2.2 pp).~~

~~Nine Months Ended September 25, 2021 Compared to the Nine Months Ended September 26, 2020:~~

Net sales increased 6.6% to $4.2 billion for the nine months ended September 25, 2021 compared to $3.9 billion for the nine months ended September 26, 2020, including the favorable impact of foreign currency (5.0 pp) and the unfavorable impact of divestitures (0.2 pp). Organic Net Sales increased 1.8% to $4.0 billion for the nine months ended September 25, 2021 compared to $3.9 billion for the nine months ended September 26, 2020, driven by higher pricing (2.1 pp), which more than offset unfavorable volume/mix (0.3 pp). Higher pricing included increases across markets. Unfavorable volume/mix was primarily due to extraordinary COVID-19-related retail takeaway in the prior year period and declines in China,coffee, which more than offset higher foodservice sales in the current year period.

Segment Adjusted EBITDA ~~increased 3.0%~~decreased 5.8% to ~~$821~~$82 million for the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$797~~$87 million for the ~~nine~~three months ended ~~September 26, 2020,~~March 27, 2021, primarily ~~driven by efficiency gains,~~due to higher ~~pricing, and the favorable impact of foreign currency (5.0 pp), which more than offset~~commodity costs; higher supply chain costs, reflecting inflationary pressure in ~~procurement, manufacturing,~~logistics and ~~logistics; higher commodity costs; and~~procurement; lower ~~volume.~~

~~Canada:~~

For the Three Months Ended For the Nine Months Ended
September 25, 2021 September 26, 2020 % Change September 25, 2021 September 26, 2020 % Change
(in millions) (in millions)
Net sales $ 420 $ 406 3.4 % $ 1,276 $ 1,193 7.0 %
Organic Net Sales(a)
395 404 (1.9) % 1,175 1,189 (1.2) %
Segment Adjusted EBITDA 100 103 (2.1) % 304 268 13.4 %

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

~~Three Months Ended September 25, 2021 Compared to the Three Months Ended September 26, 2020:~~

Net sales increased 3.4% to $420 million for the three months ended September 25, 2021 compared to $406 million for the three months ended September 26, 2020 including the favorable impact of foreign currency (5.7 pp)volume, and the unfavorable impact of divestitures, (0.4 pp). Organic Net Sales decreased 1.9% to $395 million for the three months ended September 25, 2021 compared to $404 million for the three months ended September 26, 2020, due to unfavorable volume/mix (2.1 pp), which more than offset higher pricing (0.2 pp). Unfavorable volume/mix was primarily due to extraordinary COVID-19-related retail takeaway in the prior year period, which more than offset higher foodservice sales in the current year period. Pricing was higher primarily driven by increases in foodservice and ~~condiments and sauces due, in part, to inflation, which more than offset higher promotional costs versus the prior year.~~

Segment Adjusted EBITDA decreased 2.1% to $100 million for the three months ended September 25, 2021 compared to $103 million for the three months ended September 26, 2020, primarily due to higher supply chain costs, reflecting inflationary pressure in procurement and manufacturing, and lower volume, which more than offset efficiency ~~gains and the favorable impact of foreign currency (5.3 pp).~~

~~Nine Months Ended September 25, 2021 Compared to the Nine Months Ended September 26, 2020:~~

Net sales increased 7.0% to $1.3 billion for the nine months ended September 25, 2021 compared to $1.2 billion for the nine months ended September 26, 2020 including the favorable impact of foreign currency (8.3 pp) and the unfavorable impact of divestitures (0.1 pp). Organic Net Sales decreased 1.2% to $1.2 billion for the nine months ended September 25, 2021 compared to $1.2 billion for the nine months ended September 26, 2020, due to unfavorable volume/mix (3.4 pp), which more than offset higher pricing (2.2 pp). Unfavorable volume/mix was primarily due to extraordinary COVID-19-related retail takeaway in the prior year period, which more than offset higher foodservice sales in the current year period. Pricing was higher primarily driven by increases in foodservice and condiments and sauces due, in part, to inflation.

Segment Adjusted EBITDA increased 13.4% to $304 million for the nine months ended September 25, 2021 compared to $268 million for the nine months ended September 26, 2020, primarily driven by efficiency gains, higher pricing, and the favorable impact of foreign currency (9.0 pp), which more than offset lower volume and higher supply chain costs, reflecting inflationary pressure in manufacturing, procurement, and logistics.gains.

Liquidity and Capital Resources

In February 2020, Fitch Ratings (“Fitch”) and S&P Global Ratings (“S&P”) downgraded our long-term credit rating from BBB- to BB+. These downgrades adversely affect our ability to access the commercial paper market. In addition, we could experience an increase in interest costs as a result of the downgrades. These downgrades do not constitute a default or event of default under any of our debt instruments. Limitations on or elimination of our ability to access the commercial paper program may require us to borrow under the Senior Credit Facility, if necessary to meet liquidity needs. Our ability to borrow under the Senior Credit Facility is not affected by the downgrades. As of the date of this filing, our long-term debt is rated BB+ by both Fitch and S&P and Baa3 by Moody’s Investor Services, Inc. (“Moody’s”), with a positive outlook from Fitch and a stable outlook from Moody’s and S&P.

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

Acquisitions and Divestitures:

In the first quarter of 2022, we closed the Just Spices Acquisition for cash consideration of approximately $243 million. In the second quarter of ~~2021,~~2022, we ~~received approximately $3.4 billion of~~closed the Hemmer Acquisition for preliminary cash consideration ~~following the closing~~ of ~~the Nuts Transaction.~~ approximately $252 million.

In connection with the ~~Nuts~~Cheese Transaction, ~~we paid approximately $525 million of cash taxes in the third quarter of 2021, and we expect to pay additional cash taxes of approximately $175 million~~which closed in the fourth quarter of 2021, we expect to pay cash taxes of approximately $620 million in the second quarter of 2022, primarily to U.S. federal and state tax authorities. We primarily utilized the post-tax transaction proceeds, along with cash on hand, to fund opportunistic repayments of long-term debt, including the Q2 2021 Tender Offers, the Q3 2021 Debt Redemption, and the Q3 2021 Repurchases.

See Note ~~15,~~4, ~~Commitments, Contingencies,~~Acquisitions and ~~Debt~~Divestitures, in Item 1, Financial Statements, for additional information on ~~these debt transactions.~~our acquisitions and divestitures.

Cash Flow Activity for the ~~Nine~~Three Months Ended ~~September 25, 2021~~March 26, 2022 Compared to the ~~Nine~~Three Months Ended ~~September 26, 2020:~~March 27, 2021:

Net Cash Provided by/Used for Operating Activities:

Net cash provided by operating activities was ~~$2.4 billion~~$486 million for the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 compared to ~~$3.3 billion~~$810 million for the ~~nine~~three months ended ~~September 26, 2020.~~March 27, 2021. This decrease was primarily driven by ~~higher cash tax payments on divestitures in 2021 related to the Nuts Transaction,~~lower Adjusted EBITDA and higher cash outflows for ~~variable compensation in 2021 compared~~inventories primarily related to ~~2020, higher cash outflows from~~stock rebuilding and increased ~~promotional activity versus the prior year period, and lower Adjusted EBITDA.~~input costs. These impacts were partially offset by lower cash outflows for ~~inventories~~interest primarily due to prior year reduction of long-term debt and ~~favorable changes~~lower cash outflows for variable compensation in ~~accounts payable~~2022 compared to ~~the prior year, largely due to the timing of purchases and favorable payment terms.~~2021.

Net Cash Provided by/Used for Investing Activities:

Net ~~cash provided by investing activities was $2.7 billion for the nine months ended September 25, 2021 compared to net~~ cash used for investing activities ~~of $362~~was $469 million for the ~~nine~~three months ended ~~September~~March 26, ~~2020.~~2022 compared to $216 million for the three months ended March 27, 2021. This change was primarily driven by ~~proceeds from~~payments for the ~~Nuts~~Just Spices Acquisition and working capital adjustments related to the Cheese Transaction, ~~in the current year,~~which were partially offset by ~~higher~~lower capital expenditures in ~~2021~~2022 compared to ~~2020.~~2021. We expect ~~2021~~2022 capital expenditures to be approximately $1.0 billion as compared to ~~2020~~2021 capital expenditures of ~~$596~~$905 million. ~~This increase is~~Our 2022 capital expenditures are primarily ~~due to increased~~for capital investments, largely for capacity expansion and cost improvement projects, maintenance, and technology. See Note 4, Acquisitions and Divestitures, in Item 1, Financial Statements, for additional information on the ~~COVID-19 pandemic, which caused delays in our planned 2020 projects~~Just Spices Acquisition and ~~spend. Given~~ the ~~continuing COVID-19 pandemic, our estimates of 2021 capital expenditures are subject to change.~~Cheese Transaction.

Net Cash Provided by/Used for Financing Activities:

Net cash used for financing activities was ~~$6.3~~$485 million for the three months ended March 26, 2022 compared to $1.6 billion for the ~~nine~~three months ended ~~September 25, 2021 compared to $2.5 billion for the nine months ended September 26, 2020.~~March 27, 2021. This change was primarily due to ~~prior year proceeds from issuance~~higher repayments of ~~the 2020 Notes~~long-term debt and ~~higher~~ debt prepayment and extinguishment costs ~~as well as higher cash outflows~~in 2021 related to ~~equity awards in~~the Q1 2021 ~~compared to 2020. These impacts were partially offset by lower repayments of long-term debt in the current year.~~Tender Offer. See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information on our debt ~~repayments and 2020 Notes.~~repayments.

Cash Held by International Subsidiaries:

Of the ~~$2.3~~$3.0 billion cash and cash equivalents on our condensed consolidated balance sheet at ~~September 25, 2021, $1.2 billion~~March 26, 2022, $979 million was held by international subsidiaries.

Subsequent to January 1, 2018, we consider the unremitted earnings of certain international subsidiaries that impose local country taxes on dividends to be indefinitely reinvested. For those undistributed earnings considered to be indefinitely reinvested, our intent is to reinvest these funds in our international operations, and our current plans do not demonstrate a need to repatriate the accumulated earnings to fund our U.S. cash requirements. The amount of unrecognized deferred tax liabilities for local country withholding taxes that would be owed related to our 2018 through ~~2021~~2022 accumulated earnings of certain international subsidiaries is approximately $55 million.

Our undistributed historic earnings in foreign subsidiaries through December 30, 2017 are currently not considered to be indefinitely reinvested. Related to these undistributed historic earnings, we had recorded a deferred tax liability of approximately ~~$20~~$10 million on approximately ~~$350~~$135 million of historic earnings at ~~September 25, 2021~~March 26, 2022 and a deferred tax liability of approximately ~~$20~~$10 million on approximately ~~$300~~$135 million of historic earnings at December ~~26, 2020.~~25, 2021. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed.

Trade Payables Programs:

In order to manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. Our current payment terms with our suppliers, which we deem to be commercially reasonable, generally range from 0 to 200 days. We also maintain agreements with third party administrators that allow participating suppliers to track payment obligations from us, and, at the sole discretion of the supplier, sell one or more of those payment obligations to participating financial institutions. We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Supplier participation in these agreements is voluntary. We estimate that the amounts outstanding under these programs were ~~$785~~$795 million at ~~September 25, 2021~~March 26, 2022 and ~~$740~~$820 million at December ~~26, 2020.~~25, 2021.

Borrowing Arrangements:

As of the date of this filing, our long-term debt is rated BBB- by S&P Global Ratings (“S&P”), Baa3 by Moody’s Investor Services, Inc. (“Moody’s”), and BB+ by Fitch Ratings (“Fitch”), with a positive outlook from Fitch and S&P and a stable outlook from Moody’s. In February 2020, Fitch and S&P downgraded our long-term credit rating from BBB- to BB+. These downgrades adversely affected our ability to access the commercial paper market. These downgrades did not constitute a default or event of default under any of our debt instruments. Our ability to borrow under the Senior Credit Facility was not affected by the downgrades. In March 2022, S&P upgraded our long-term credit rating from BB+ to BBB-.

4937

~~Borrowing Arrangements:~~

We maintain our Senior Credit Facility, which, following ~~the execution of the Amendment~~certain amendments made in ~~October~~ 2020 and ~~the 2021 Extension Agreement in April~~ 2021, provides ~~aggregate commitments~~for a revolving commitment of $4.1 billion through July 6, 2023 and $4.0 billion through July 6, 2025. 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 $900 million.

In the first quarter of 2020, as a precautionary measure to preserve financial flexibility in light of the uncertainty in the global economy resulting from the COVID-19 pandemic, we borrowed $4.0 billion under our Senior Credit Facility. We repaid the full $4.0 billion during the second quarter of 2020. No amounts were drawn on our Senior Credit Facility at ~~September~~March 26, 2022, at December 25, 2021, ~~at December 26, 2020,~~ or during the ~~nine~~three months ended ~~September 25,~~March 26, 2022 or March 27, 2021.

The credit agreement dated July 6, 2015, as amended, which provides the Senior Credit Facility, contains representations, warranties, and covenants that are typical for these types of facilities and could upon the occurrence of certain events of default restrict our ability to access our Senior Credit Facility. We were in compliance with all financial covenants ~~during the nine months ended September 25, 2021.~~as of March 26, 2022.

Long-Term Debt:

Our long-term debt, including the current portion, was ~~$24.0~~$21.7 billion at ~~September 25, 2021~~March 26, 2022 and ~~$28.3~~$21.8 billion at December 26, 2020. This decrease was primarily related to the approximately $2.3 billion aggregate principal amount of senior notes that were validly tendered and accepted in connection with the 2021 Tender Offers, the $1.2 billion aggregate principal amount of senior notes redeemed in connection with the 2021 Debt Redemptions, the approximately $428 million aggregate principal amount of senior notes repurchased in connection with the 2021 Repurchases, the $11125, 2021. In March 2022, we repaid $6 million aggregate principal amount of senior notes that ~~were repaid at maturity~~matured in ~~February 2021, and~~ the $34 million aggregate principal amount of senior notes that were repaid at maturity in September 2021. We used cash on hand to fund the Q1 2021 Tender Offer, the Q2 2021 Debt Redemption, and the Q2 2021 Repurchases and to pay fees and expenses in connection therewith. We used proceeds from the Nuts Transaction along with cash on hand to fund the Q2 2021 Tender Offers, the Q3 2021 Debt Redemption, and the Q3 2021 Repurchases and to pay fees and expenses in connection therewith.

~~In the fourth~~first quarter of ~~2021, we also used cash on hand to repurchase approximately $44 million of certain of our senior notes due in February 2040, July 2045, and June 2046 under a Rule 10b5-1 plan.~~2022.

We have aggregate principal amounts of senior notes of approximately ~~$6 million maturing in March 2022, approximately $631~~$381 million maturing in June 2022 and approximately $315 million maturing in August 2022.

In September 2020, we entered into the Cheese Transaction, which includes approximately $3.2 billion of cash consideration. The Cheese Transaction is expected to close in the fourth quarter of 2021, subject to customary closing conditions, including regulatory approvals. We expect to use post-tax transaction proceeds from the Cheese Transaction, along with cash generated from our operating activities, to support our capital allocation priorities, including investments in the business and opportunistic repayments of long-term debt. See Note 4, ~~Acquisitions and Divestitures, in Item 1,~~ ~~Financial Statements, for additional information on the Cheese Transaction.~~

Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all financial covenants ~~during the nine months ended September 25, 2021.~~as of March 26, 2022.

See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information on our long-term debt activity ~~in 2021~~ and Note ~~18,~~17, Debt, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for additional information on our borrowing arrangements and long-term debt.

Equity and Dividends:

We paid common stock dividends of $490 million for the three months ended March 26, 2022 and $489 million for the three months ended March 27, 2021. Additionally, in the second quarter of 2022, our Board of Directors declared a cash dividend of $0.40 per share of common stock, which is payable on June 24, 2022 to stockholders of record on May 27, 2022.

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

Aggregate Contractual Obligations:

There were no material changes to our aggregate contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Supplemental Guarantor Information:

The Kraft Heinz Company (as the “Parent Guarantor”) fully and unconditionally guarantees all the senior unsecured registered notes (collectively, the “KHFC Senior Notes”) issued by KHFC, our 100% owned operating subsidiary (the “Guarantee”). See Note ~~15,~~ ~~Commitments, Contingencies, and Debt, in Item 1,~~ ~~Financial Statements, and Note 18,~~17, Debt, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for additional descriptions of these guarantees.

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

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

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

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

Summarized Statement of Income


	For the ~~Nine~~Three Months Ended
	~~September 25, 2021~~March 26, 2022
Net sales	$	~~12,943~~3,918
Gross profit(a)	~~4,720~~1,438
~~Goodwill impairment losses~~	~~230~~

Intercompany service fees and other recharges	~~2,875~~902
Operating income/(loss)	~~849~~319
Equity in earnings/(losses) of subsidiaries	~~1,674~~568
Net income/(loss)	~~1,269~~776
Net income/(loss) attributable to common shareholders	~~1,269~~776

(a) For the ~~nine~~three months ended ~~September 25, 2021,~~March 26, 2022, the Obligor Group recorded ~~$335~~$93 million of net sales to the non-guarantor subsidiaries and ~~$23~~$7 million of purchases from the non-guarantor subsidiaries.

Summarized Balance Sheets


		September 25, 2021		December 26, 2020			March 26, 2022		December 25, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets	$	6,443	$	6,978	Current assets	$	6,528	$	6,484
Current assets due from affiliates(a)	Current assets due from affiliates(a)	2,765		3,233		Current assets due from affiliates(a)	1,654		2,890
Non-current assets	Non-current assets	5,393		5,562		Non-current assets	5,217		5,709
Goodwill	Goodwill	8,860		10,510		Goodwill	8,860		8,860
Intangible assets, net	Intangible assets, net	2,252		2,475		Intangible assets, net	2,192		2,222
Non-current assets due from affiliates(b)	Non-current assets due from affiliates(b)	207		207		Non-current assets due from affiliates(b)	207		207
LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities	Current liabilities	$	5,182	$	4,611	Current liabilities	$	5,002	$	5,091
Current liabilities due to affiliates(a)	Current liabilities due to affiliates(a)	5,610		5,160		Current liabilities due to affiliates(a)	3,133		5,922
Non-current liabilities	Non-current liabilities	25,137		30,251		Non-current liabilities	23,198		23,120
Non-current liabilities due to affiliates(b)	Non-current liabilities due to affiliates(b)	637		2,000		Non-current liabilities due to affiliates(b)	599		600

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

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

Commodity Trends

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

Following the closing of the Nuts Transaction in the second quarter of 2021, our purchase and use of nuts has significantly decreased. As such, we no longer consider nuts to be one of our key commodities in the United States and Canada.

~~We define our key commodities in the United States and Canada as dairy, meat, and coffee.~~ During the ~~nine~~three months ended ~~September 25, 2021,~~March 26, 2022, we experienced ~~cost increases for meat and coffee, while~~higher commodity costs for dairy, ~~decreased.~~packaging materials, and meat as compared to the prior year period. We also experienced cost increases for ~~packaging materials due to~~energy, including diesel fuel, electricity, and natural gas; soybean and vegetable oils; corn products; and wheat products. These increases are primarily driven by overall market ~~demand.~~demand and, in part, by the negative impact of the conflict between Russia and Ukraine on the global economy. We anticipate higher commodity costs ~~for the remainder of 2021 and~~ to continue ~~into~~through at least ~~the first half of~~ 2022 due to inflationary pressures. We manage commodity cost volatility primarily through pricing and risk management strategies. As a result of these risk management strategies, our commodity costs may not immediately correlate with market price trends.

See our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for additional information on how we manage commodity costs.

~~Off-Balance Sheet Arrangements and Aggregate Contractual Obligations~~

During the nine months ended September 25, 2021, we completed the 2021 Tender Offers, 2021 Repurchases, and the 2021 Debt Redemptions, which reduced our long-term debt maturing in 2023, 2025, 2026, and thereafter. See Note 15, ~~Commitments, Contingencies, and Debt, in Item 1,~~ ~~Financial Statements~~, for additional information. Additionally, in the third quarter of 2021, we entered into a financing lease with a future minimum lease commitment of approximately $375 million. This 15-year lease has not yet commenced. We expect to take control of the leased asset in the third quarter of 2022. There were no other material changes to our off-balance sheet arrangements or aggregate contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

~~Equity and Dividends~~

We paid common stock dividends of $1.5 billion for the nine months ended September 25, 2021 and $1.5 billion for the nine months ended September 26, 2020. Additionally, in the fourth quarter of 2021, our Board of Directors declared a cash dividend of $0.40 per share of common stock, which is payable on December 17, 2021 to shareholders of record on November 26, 2021.

Critical Accounting Estimates

Our significant accounting policies are described in Note 2, Significant Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~26, 2020.~~25, 2021.

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments, and assumptions. ~~Our critical accounting estimates and assumptions related to goodwill and intangible assets are described below.~~ See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December ~~26, 2020~~25, 2021 for a discussion of our other critical accounting estimates and assumptions.

~~Goodwill and Intangible Assets:~~

As of September 25, 2021, we maintain 14 reporting units, nine of which comprise our goodwill balance. These nine reporting units had an aggregate goodwill carrying amount of $31.4 billion at September 25, 2021. Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $40.7 billion as of September 25, 2021.

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

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units and brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or any factors that could be affected by COVID-19, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units or brands might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets could lead to the impairment of one or more of our reporting units or brands in the future.

In 2020 and continuing into 2021, the COVID-19 pandemic produced and has continued to produce a short-term beneficial financial impact to our consolidated results. Retail sales have increased compared to pre-pandemic periods due to higher than anticipated consumer demand for our products. The foodservice channel, however, has experienced a negative impact from prolonged social distancing mandates limiting access to and capacity at away-from-home establishments for a longer period of time than was expected when they were originally put in place. Our Canada Foodservice reporting unit is the most exposed of our reporting units to the long-term impacts to away-from-home establishments as it is our only standalone foodservice reporting unit. While our other reporting units have varying levels of exposure to the foodservice channel, they also have exposure to the retail channel, which offsets some of the risk associated with the potential long-term impacts of shifts in net sales between retail and away-from-home establishments. Our Canada Foodservice reporting unit was impaired during our 2020 annual impairment test, reflecting our best estimate at that time of the future outlook and risks of this business. The Canada Foodservice reporting unit maintains an aggregate goodwill carrying amount of approximately $156 million as of September 25, 2021. A number of factors could result in further future impairments of our foodservice businesses, including but not limited to: mandates around closures of dining rooms in restaurants, distancing of people within establishments resulting in fewer customers, the total number of restaurant closures, forthcoming changes in consumer preferences or regulatory requirements over product formats (e.g., table top packaging vs. single serve packaging), and consumer trends of dining-in versus dining-out. Given the evolving nature of and uncertainty driven by the COVID-19 pandemic, we will continue to evaluate the impact on our reporting units as adverse changes to these assumptions could result in future impairments.

As we consider the ongoing impact of the COVID-19 pandemic with regard to our indefinite-lived intangible assets, a number of factors could have a future adverse impact on our brands, including changes in consumer and consumption trends in both the short and long term, the extent of government mandates to shelter in place, total number of restaurant closures, economic declines, and reductions in consumer discretionary income. We have seen an increase in our retail business, as compared to pre-pandemic levels, in the short term that has more than offset declines in our foodservice business over the same period. Our brands are generally common across both the retail and foodservice businesses and the fair value of our brands are subject to a similar mix of positive and negative factors. Given the evolving nature and uncertainty driven by the COVID-19 pandemic, we will continue to evaluate the impact on our brands.

~~As detailed in Note 8,~~ ~~Goodwill and Intangible Assets, in Item 1,~~ ~~Financial Statements~~, we recorded impairment losses related to goodwill and indefinite-lived intangible assets. Our reporting units and brands that were impaired were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other reporting units and brands that have 20% or less excess fair value over carrying amount as of the 2021 annual impairment testing date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future.

Reporting units with 20% or less fair value over carrying amount had an aggregate goodwill carrying amount of $28.3 billion as of the 2021 annual impairment test date and included: ESA, KSB, MFC, Canada Retail, Canada Foodservice, and Puerto Rico. Reporting units with between 20-50% fair value over carrying amount had an aggregate goodwill carrying amount of $2.2 billion as of the 2021 annual impairment test date and included Northern Europe and Asia. The Continental Europe reporting unit had a fair value over carrying amount in excess of 50% and a goodwill carrying amount of $961 million as of the 2021 annual impairment test date. Our reporting units that have less than 3% excess fair value over carrying amount as of the 2021 annual impairment test date are considered at a heightened risk of future impairments and include our Canada Retail and Puerto Rico reporting units, which had an aggregate goodwill carrying amount of $1.4 billion.

~~Brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of $22.5 billion as of the 2021 annual impairment test date and included:~~ ~~Kraft~~, ~~Oscar Mayer~~, ~~Velveeta~~, ~~Miracle Whip~~, ~~Lunchables~~, ~~Ore-Ida~~, ~~Maxwell House~~, ~~Classico~~, ~~Cool Whip~~, ~~Jet Puffed~~, ~~Plasmon, and~~ ~~Wattie’s~~. The aggregate carrying amount of brands with fair value over carrying amount between 20-50% was $6.5 billion as of the 2021 annual impairment test date. Although the remaining brands, with a carrying amount of $11.8 billion, have more than 50% excess fair value over carrying amount as of the 2021 annual impairment testing date, these amounts are also associated with the 2013 Heinz Acquisition and the 2015 Merger and are recorded on the condensed consolidated balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments. Our brands that have less than 3% excess fair value over carrying amount as of the 2021 annual impairment test date are considered at a heightened risk of future impairments and include our ~~Kraft~~, ~~Miracle Whip~~, ~~Ore-Ida~~, ~~Maxwell House~~, ~~Classico, and~~ ~~Plasmon~~ ~~brands, which had an aggregate carrying amount of $15.4 billion.~~

We generally utilize the discounted cash flow method under the income approach to estimate the fair value of our reporting units. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, cost of products sold, SG&A, depreciation and amortization, working capital, and capital expenditures), income tax rates, long-term growth rates, and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management’s plans, and guideline companies.

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

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

~~As detailed in Note 4,~~ ~~Acquisitions and Divestitures, in Item 1,~~ ~~Financial Statements~~, in the third quarter of 2020, we entered into the Cheese Transaction for total consideration of approximately $3.34 billion. The total consideration includes approximately $1.59 billion attributed to the ~~Kraft~~ ~~and~~ ~~Velveeta~~ ~~licenses that we will grant to Lactalis and approximately $140 million attributed to the~~ ~~Cracker Barrel~~ license that Lactalis will grant to us, the amounts of which were based on the estimated fair values of the licensed portion of each brand. We utilized the excess earnings method under the income approach to estimate the fair value of the licensed portion of the ~~Kraft~~ ~~brand and the relief from royalty method under the income approach to estimate the fair value of the licensed portions of the~~ ~~Velveeta~~ ~~brand and the~~ ~~Cracker Barrel~~ brand. Some of the more significant assumptions inherent in estimating these fair values include the estimated future annual net sales and net cash flows for each brand, contributory asset charges, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, and a discount rate that reflects the level of risk associated with the future earnings attributable to each brand. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, and guideline companies. In the second quarter of 2021, we assessed the fair value less costs to sell of the net assets of the Cheese Disposal Group and recorded an estimated pre-tax loss on sale of business of approximately $27 million, which was recognized in other expense/(income). As of September 25, 2021, we assessed the fair value less costs to sell of the net assets of the Cheese Disposal Group, and no additional pre-tax loss on sale of business was recorded.

~~At the time the licensed rights are granted, we will reassess the remaining fair value of the retained portions of the~~ ~~Kraft~~ ~~and~~ ~~Velveeta~~ brands and may record a charge to reduce the intangible asset carrying amounts to reflect the lower future cash flows expected to be generated after monetization of the licensed portion of each brand. If the Cheese Transaction had closed in the third quarter of 2021, we would have recorded an indefinite-lived intangible asset non-cash impairment loss of approximately $1.25 billion. The actual impairment loss will depend upon the excess fair value, if any, over carrying amount for each brand at the time we grant the perpetual licenses, which will be on the closing date of the Cheese Transaction. Changes in the fair value of the retained and licensed portions of each brand will impact the amount of any potential charges and the amount of license income that will be recognized, which, at this time, we would not expect to exceed the fair value of the perpetual licenses.

The discount rates, long-term growth rates, and royalty rates used to estimate the fair values of our reporting units and our brands with 20% or less excess fair value over carrying amount, as well as the goodwill or brand carrying amounts, as of the 2021 annual impairment test date for each reporting unit or brand, were as follows:

Goodwill or Brand Carrying Amount
(in billions) Discount Rate Long-Term Growth Rate Royalty Rate
Minimum Maximum Minimum Maximum Minimum Maximum
Reporting units $ 28.3 6.5 % 7.0 % 1.0 % 1.5 %
Brands
(excess earnings method) 16.3 7.0 % 7.2 % 0.8 % 1.5 %
Brands
(relief from royalty method) 6.2 7.0 % 7.5 % 0.5 % 2.0 % 5.0 % 20.0 %

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

If we had changed the assumptions used to estimate the fair value of our reporting units and brands with 20% or less excess fair value over carrying amount, as of the 2021 annual impairment test date for each of these reporting units and brands, these isolated changes, which are reasonably possible to occur, would have led to the following increase/(decrease) in the aggregate fair value of these reporting units and brands (in billions):

Discount Rate Long-Term Growth Rate Royalty Rate
50-Basis-Point 25-Basis-Point 100-Basis-Point
Increase Decrease Increase Decrease Increase Decrease
Reporting units $ (5.6) $ 6.8 $ 3.2 $ (2.9)
Brands (excess earnings method) (1.2) 1.4 0.5 (0.5)
Brands (relief from royalty method) (0.5) 0.7 0.2 (0.2) $ 0.6 $ (0.6)

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

~~See Note 8,~~ ~~Goodwill and Intangible Assets, in Item 1,~~ ~~Financial Statements, for our impairment testing results.~~

New Accounting Pronouncements

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

Contingencies

See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for a discussion of our contingencies.

Non-GAAP Financial Measures

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

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

Management uses these non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our underlying operations. 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 currency, acquisitions and divestitures, and a 53rd week of shipments. We calculate the impact of currency on net sales by holding exchange rates constant at the previous year’s exchange rate, with the exception of highly inflationary subsidiaries, for which we calculate the previous year’s results using the current year’s exchange rate. Organic Net Sales is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.

Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, we exclude, when they occur, the impacts of divestiture-related license income (e.g., income related to the sale of licenses in connection with the Cheese Transaction), restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities). Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. In the second quarter of 2021, we revised the definition of Adjusted EBITDA to adjust for the impact of certain legal and regulatory matters arising outside the ordinary course of our business, as management believes such matters, when they occur, do not directly reflect our underlying operations.

Adjusted EPS is defined as diluted ~~earnings per share~~EPS excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, losses/(gains) on the sale of a business, other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g., remeasurement gains and losses), debt prepayment and extinguishment costs, and certain significant discrete income tax items (e.g., U.S. and non-U.S. tax reform), and including, when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. We believe Adjusted EPS provides important comparability of underlying operating results, allowing investors and management to assess operating performance on a consistent basis. In the second quarter of 2021, we revised the definition of Adjusted EPS to adjust for the impact of certain legal and regulatory matters arising outside the ordinary course of our business and certain significant discrete income tax items beyond U.S. tax reform, as management believes such matters, when they occur, do not directly reflect our underlying operations.

5741

The Kraft Heinz Company

Reconciliation of Net Sales to Organic Net Sales

(dollars in millions)

(Unaudited)


		Net Sales		Currency		Acquisitions and Divestitures		Organic Net Sales		Price	Volume/Mix		Net Sales		Currency		Acquisitions and Divestitures		Organic Net Sales		Price	Volume/Mix
Three Months Ended September 25, 2021
Three Months Ended March 26, 2022												Three Months Ended March 26, 2022
United States	United States	$	4,521	$	—	$	—	$	4,521			United States	$	4,214	$	—	$	—	$	4,214
International	International	1,383		39		—		1,344				International	1,444		(65)		30		1,479
Canada	Canada	420		25		—		395				Canada	387		(1)		—		388
Kraft Heinz	Kraft Heinz	$	6,324	$	64	$	—	$	6,260			Kraft Heinz	$	6,045	$	(66)	$	30	$	6,081

Three Months Ended September 26, 2020
Three Months Ended March 27, 2021												Three Months Ended March 27, 2021
United States	United States	$	4,710	$	—	$	246	$	4,464			United States	$	4,608	$	—	$	678	$	3,930
International	International	1,325		6		5		1,314				International	1,394		3		5		1,386
Canada	Canada	406		—		2		404				Canada	392		—		14		378
Kraft Heinz	Kraft Heinz	$	6,441	$	6	$	253	$	6,182			Kraft Heinz	$	6,394	$	3	$	697	$	5,694


Year-over-year growth rates	Year-over-year growth rates									Year-over-year growth rates
United States	United States	(4.0)	%	0.0 pp	(5.3) pp	1.3	%	1.4 pp	(0.1) pp	United States	(8.5)	%	0.0 pp	(15.7) pp	7.2	%	9.3 pp	(2.1) pp
International	International	4.4	%	2.6 pp	(0.4) pp	2.2	%	2.2 pp	0.0 pp	International	3.6	%	(4.9) pp	1.8 pp	6.7	%	8.2 pp	(1.5) pp
Canada	Canada	3.4	%	5.7 pp	(0.4) pp	(1.9)	%	0.2 pp	(2.1) pp	Canada	(1.5)	%	(0.2) pp	(3.8) pp	2.5	%	8.0 pp	(5.5) pp
Kraft Heinz	Kraft Heinz	(1.8)	%	0.9 pp	(4.0) pp	1.3	%	1.5 pp	(0.2) pp	Kraft Heinz	(5.5)	%	(1.1) pp	(11.2) pp	6.8	%	9.0 pp	(2.2) pp

~~The Kraft Heinz Company~~

~~Reconciliation of Net Sales to Organic Net Sales~~

~~(dollars in millions)~~

~~(Unaudited)~~
Net Sales Currency Acquisitions and Divestitures Organic Net Sales Price Volume/Mix
Nine Months Ended September 25, 2021
United States $ 13,867 $ — $ 446 $ 13,421
International 4,190 211 9 3,970
Canada 1,276 100 1 1,175
Kraft Heinz $ 19,333 $ 311 $ 456 $ 18,566
Nine Months Ended September 26, 2020
United States $ 14,122 $ — $ 745 $ 13,377
International 3,931 17 14 3,900
Canada 1,193 — 4 1,189
Kraft Heinz $ 19,246 $ 17 $ 763 $ 18,466

Year-over-year growth rates
United States (1.8) % 0.0 pp (2.1) pp 0.3 % 1.3 pp (1.0) pp
International 6.6 % 5.0 pp (0.2) pp 1.8 % 2.1 pp (0.3) pp
Canada 7.0 % 8.3 pp (0.1) pp (1.2) % 2.2 pp (3.4) pp
Kraft Heinz 0.5 % 1.6 pp (1.6) pp 0.5 % 1.5 pp (1.0) pp

5942

The Kraft Heinz Company

Reconciliation of Net Income/(Loss) to Adjusted EBITDA

(in millions)

(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Net income/(loss) $ 736 $ 598 $ 1,279 $ (673)
Interest expense 415 314 1,443 1,066
Other expense/(income) (138) (73) (191) (232)
Provision for/(benefit from) income taxes 143 308 949 417
Operating income/(loss) 1,156 1,147 3,480 578
Depreciation and amortization (excluding restructuring activities) 228 232 677 722
Restructuring activities 15 8 52 12
Deal costs 2 9 8 9
Unrealized losses/(gains) on commodity hedges 27 (70) (12) 47
Impairment losses — 300 343 3,399
Certain non-ordinary course legal and regulatory matters — — 62 —
Equity award compensation expense (excluding restructuring activities) 51 41 155 114
Adjusted EBITDA $ 1,479 $ 1,667 $ 4,765 $ 4,881


	For the Three Months Ended
	March 26, 2022		March 27, 2021
Net income/(loss)	$	781	$	568
Interest expense	242		415
Other expense/(income)	(98)		(30)
Provision for/(benefit from) income taxes	190		136
Operating income/(loss)	1,115		1,089
Depreciation and amortization (excluding restructuring activities)	217		222
Divestiture-related license income	(14)		—
Restructuring activities	19		18
Deal costs	8		7
Unrealized losses/(gains) on commodity hedges	(92)		(37)
Impairment losses	55		230

Equity award compensation expense (excluding restructuring activities)	34		51
Adjusted EBITDA	$	1,342	$	1,580

6043

The Kraft Heinz Company

Reconciliation of Diluted EPS to Adjusted EPS

(Unaudited)


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Diluted EPS	Diluted EPS	$	0.59	$	0.49	$	1.03	$	(0.55)	Diluted EPS	$	0.63	$	0.46
Restructuring activities(a)	Restructuring activities(a)	0.01		0.01		0.03		0.01		Restructuring activities(a)	0.01		0.01

Unrealized losses/(gains) on commodity hedges(b)	Unrealized losses/(gains) on commodity hedges(b)	0.02		(0.04)		(0.01)		0.03		Unrealized losses/(gains) on commodity hedges(b)	(0.05)		(0.02)
Impairment losses(c)	Impairment losses(c)	—		0.24		0.26		2.60		Impairment losses(c)	0.03		0.19
Certain non-ordinary course legal and regulatory matters(d)		—		—		0.05		—

Losses/(gains) on sale of business~~(e)~~(d)	Losses/(gains) on sale of business~~(e)~~(d)	(0.06)		—		0.23		—		Losses/(gains) on sale of business~~(e)~~(d)	—		0.02
Other losses/(gains) related to acquisitions and divestitures(e)										Other losses/(gains) related to acquisitions and divestitures(e)	(0.02)		—
Debt prepayment and extinguishment costs(f)	Debt prepayment and extinguishment costs(f)	0.09		—		0.37		0.07		Debt prepayment and extinguishment costs(f)	—		0.06
Certain significant discrete income tax items(g)		—		—		0.19		(0.07)

Adjusted EPS	Adjusted EPS	$	0.65	$	0.70	$	2.15	$	2.09	Adjusted EPS	$	0.60	$	0.72

(a) Gross expenses included in restructuring activities were ~~$15~~$19 million ($1214 million after-tax) for the three months ended March 26, 2022 and ~~$52~~$18 million ($~~40 million after-tax) for the nine months ended September 25, 2021 and $9 million ($7~~13 million after tax) for the three months ~~and $13 million ($10 million after-tax) for the nine months~~ ended ~~September 26, 2020~~March 27, 2021 and were recorded in the following income statement line items:

•Cost of products sold included expenses of $4 million for the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 and ~~income of~~ $3 million for the three months ~~and $4 million for the nine months~~ ended ~~September 26, 2020;~~March 27, 2021; and

•SG&A included expenses of $15 million for the three months ended March 26, 2022 and ~~$48 million for the nine months ended September 25, 2021 and $11~~$15 million for the three months ~~and $16 million for the nine months~~ ended ~~September 26, 2020.~~

•~~Other expense/(income) included expenses of $1 million for the three and nine months ended September 26, 2020.~~March 27, 2021.

(b) Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges were ~~expenses~~income of ~~$27~~$92 million ($2069 million after-tax) for the three months ended March 26, 2022 and ~~income of $12~~$37 million ($~~9 million after-tax) for the nine months ended September 25, 2021 and income of $70 million ($54~~27 million after-tax) for the three months ~~and expenses of $47 million ($35 million after-tax) for the nine months~~ ended ~~September 26, 2020~~March 27, 2021 and were recorded in cost of products sold.

• ~~Goodwill~~Income related to goodwill impairment ~~losses~~ of ~~$265~~$11 million ($~~265 million after-tax) for the nine months ended September 25, 2021 and $300 million ($300~~11 million after-tax) for the three months ended March 26, 2022 and ~~$2.3 billion ($2.3 billion after-tax) for the nine months ended September 26, 2020; and~~

~~• Intangible asset~~goodwill impairment losses of ~~$78~~$230 million ($59230 million after-tax) for the ~~nine~~three months ended ~~September 25, 2021 and $1.1 billion ($829 million after-tax) for the nine months ended September 26, 2020.~~

~~(d) Gross expenses included in certain non-ordinary course legal and regulatory matters were $62 million ($62 million after-tax) for the nine months ended September 25,~~March 27, 2021 and were recorded in SG&A. ~~These expenses relate to~~

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

~~(e)~~(d) Gross expenses/(income) included in losses/(gains) on sale of business were ~~income~~expenses of ~~$76~~$1 million ($721 million after-tax) for the three months ended March 26, 2022 and ~~income of $11~~$19 million ~~(expenses of $280~~($19 million after-tax) for the ~~nine~~three months ended ~~September 25,~~March 27, 2021 ~~and expenses of $2 million ($2 million after-tax) for the nine months ended September 26, 2020~~ and were recorded in other expense/(income). ~~The impact~~

(e) Gross expenses/(income) included in ~~2021 includes a gain on~~other losses/(gains) related to acquisitions and divestitures were income of $38 million ($29 million after-tax) for the ~~remeasurement of a disposal group, which was reclassified as held~~three months ended March 26, 2022 and ~~used~~were recorded in ~~the third quarter of 2021.~~other expense/(income).

(f) Gross expenses included in debt prepayment and extinguishment costs were ~~$147~~$106 million ($~~115~~80 million after-tax) for the three months ~~and $571 million ($450 million after-tax) for the nine months~~ ended ~~September 25,~~March 27, 2021 ~~and $109 million ($82 million after-tax) for the nine months ended September 26, 2020~~ and were recorded in interest expense.

(g) Certain significant discrete income tax items were a benefit of $1 million for the three months and an expense of $235 million for the nine months ended September 25, 2021 and a benefit of $81 million for the nine months ended September 26, 2020. The impact in 2021 relates to the revaluation of our deferred tax balances due to an increase in U.K. tax rates. The benefit in 2020 relates to the revaluation of our deferred tax balances due to changes in state tax laws following U.S. tax reform and subsequent clarification or interpretation of state tax laws.

6144

~~Forward-Looking Statements~~

Important factors that may 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, the impacts of COVID-19 and government and consumer responses; operating in a highly competitive industry; our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in our relationships with significant customers or suppliers, or in other business relationships; our ability to maintain, extend, and expand our reputation and brand image; our ability to leverage our brand value to compete against private label products; our ability to drive revenue growth in our key product categories or platforms, increase our market share, or add products that are in faster-growing and more profitable categories; product recalls or other product liability claims; our ability to identify, complete, or realize the benefits from strategic acquisitions, alliances, divestitures, joint ventures, or other investments; our ability to successfully execute our strategic initiatives; the impacts of our international operations; our ability to protect intellectual property rights; our ownership structure; our ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve our competitiveness; our level of indebtedness, as well as our ability to comply with covenants under our debt instruments; additional impairments of the carrying amounts of goodwill or other indefinite-lived intangible assets; foreign exchange rate fluctuations; volatility in commodity, energy, and other input costs; volatility in the market value of all or a portion of the commodity derivatives we use; compliance with laws and regulations and related legal claims or regulatory enforcement actions; failure to maintain an effective system of internal controls; a downgrade in our credit rating; the impact of future sales of our common stock in the public market; our ability to continue to pay a regular dividend and the amounts of any such dividends; unanticipated business disruptions and natural events in the locations in which we or our customers, suppliers, distributors, or regulators operate; economic and political conditions in the United States and in various other nations where we do business; changes in our management team or other key personnel and our ability to hire or retain key personnel or a highly skilled and diverse global workforce; risks associated with information technology and systems, including service interruptions, misappropriation of data, or breaches of security; increased pension, labor, and people-related expenses; changes in tax laws and interpretations; volatility of capital markets and other macroeconomic factors; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see Item 1A, ~~Risk Factors, in our Annual Report on Form 10-K for the year ended December 26, 2020 and Item 1A,~~ ~~Risk Factors~~, of this Quarterly Report on Form 10-Q. We disclaim and do not undertake any obligation to update, revise, or withdraw any forward-looking statement in this report, except as required by applicable law or regulation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our market risk during the ~~nine~~three months ended ~~September 25, 2021.~~March 26, 2022. For additional information, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the year ended December ~~26, 2020.~~25, 2021.

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, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September 25, 2021.~~March 26, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of ~~September 25, 2021,~~March 26, 2022, were effective and provided reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~September 25, 2021~~March 26, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6345

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements.

Item 1A. Risk Factors.

~~The following updated risk factor is in addition~~There have been no material changes to ~~our~~the risk factors ~~included in Item 1A,~~ ~~Risk Factors~~,disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020, that could affect our business, financial condition, and results of operations. This risk factor, along with the risk factors included in our Annual Report on Form 10-K, should be considered in connection with the forward-looking statements included in this Quarterly Report on Form 10-Q because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements.

~~Our compliance with laws and regulations, and related legal claims or regulatory enforcement actions, could expose us to significant liabilities and damage our reputation.~~

As a large, global food and beverage company, we operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Various laws and regulations govern our practices including, but not limited to, those related to advertising and marketing, product claims and labeling, the environment, intellectual property, consumer protection and product liability, commercial disputes, trade and export controls, anti-trust, data privacy, labor and employment, workplace health and safety, and tax. As a consequence, we face a heightened risk of legal claims and regulatory enforcement actions in the ordinary course of business. In addition, the imposition of new laws, changes in laws or regulatory requirements or changing interpretations thereof, and differing or competing regulations and standards across the markets where our products are made, manufactured, distributed, and sold have in the past and could continue to result in higher compliance costs, capital expenditures, and higher production costs, adversely impacting our product sales, financial condition, and results of operations. Furthermore, actions we have taken or may take, or decisions we have made or may make, in response to the COVID-19 pandemic, may result in investigations, legal claims, or litigation against us.

As a result of any such legal claims or regulatory enforcement actions, we could be subject to monetary judgments, settlements, and civil and criminal actions, including fines, injunctions, product recalls, penalties, disgorgement of profits, or activity restrictions, which could materially and adversely affect our reputation, product sales, financial condition, results of operations, and cash flows. We evaluate these legal claims and regulatory enforcement actions to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and disclose relevant material litigation claims, legal proceedings, or regulatory enforcement actions as appropriate and in accordance with SEC rules and U.S. GAAP. Our assessments and estimates are based on the information available to management at the time and involve a significant amount of judgment. Actual outcomes or losses may differ materially from our current assessments and estimates. In addition, even if a claim is unsuccessful, without merit, or not pursued to completion, the cost of defending against or responding to such a claim, including expenses and management time, could adversely affect our financial condition and operating results.25, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Our share repurchase activity in the three months ended ~~September 25, 2021~~March 26, 2022 was:

Total Number
of Shares Purchased(a)
Average Price
Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(b)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
6/27/2021 - 7/31/2021 9,113 $ 41.02 — $ —
8/1/2021 - 8/28/2021 1,821,616 37.99 — —
8/29/2021 - 9/25/2021 48,701 36.81 — —
Total 1,879,430 —


	Total Number of Shares Purchased(a)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(b)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
12/26/2021 - 1/29/2022	134,967	$	37.09	—	$	—
1/30/2022 - 2/26/2022	168,796	36.47		—	—
2/27/2022 - 3/26/2022	693,712	39.51		—	—
Total	997,475			—

(a) ~~Composed of the following types of share repurchase activity, when they occur:~~Includes (1) shares repurchased ~~in connection with~~to offset the dilutive effect of the exercise of stock options ~~(including periodic repurchases~~ using option exercise ~~proceeds),~~proceeds and the vesting of RSUs and PSUs and (2) shares withheld for tax liabilities associated with the vesting of RSUs and ~~PSUs, and (3) shares repurchased related to employee benefit programs (including our annual bonus swap program) or to offset the dilutive effect of equity issuances.~~PSUs.

(b) We do not have any publicly-announced share repurchase plans or programs.

6446

Item 6. Exhibits.


Exhibit No.						Descriptions
10.1						Form of The Kraft Heinz Company 2020 Omnibus Incentive Plan Deferred Stock Award Agreement.+*
22.1						List of Guarantor Subsidiaries.*
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 ~~September 25, 2021~~March 26, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows, (vi) Notes to Condensed Consolidated Financial Statements, and (vii) document and entity information.*
104.1						The cover page from The Kraft Heinz Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 25, 2021,~~March 26, 2022, formatted in inline XBRL.*

+						Indicates a management contract or compensatory plan or arrangement.
*						Filed herewith.
**						Furnished herewith.

6547

SIGNATURES

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:	~~October~~April 28, ~~2021~~2022
		By:	/s/ ~~Paulo Basilio~~Andre Maciel
			~~Paulo Basilio~~Andre Maciel
			Executive Vice President and Global Chief Financial Officer
			(Duly Authorized Officer and Principal Financial Officer)


		The Kraft Heinz Company
Date:	~~October~~April 28, ~~2021~~2022
		By:	/s/ Vince Garlati
			Vince Garlati
			Vice President, Global Controller
			(Principal Accounting Officer)

6648


	September 25, 2021
	Cheese Transaction		Other		Total
ASSETS

Inventories	$	346	$	—	$	346
Property, plant and equipment, net	255		2		257
Goodwill (net of impairment of $300)	281		—		281
Intangible assets, net	850		—		850
Other	5		—		5
Reserve for disposal groups	(13)		—		(13)
Total assets held for sale	$	1,724	$	2	$	1,726
LIABILITIES
Other	6		—		6
Total liabilities held for sale	$	6	$	—	$	6


	Aggregate Principal Amount Outstanding as of December 26, 2020		Tender Offers		Open Market Debt Repurchases		Debt Redemptions		Debt Repayments		Aggregate Principal Amount Outstanding as of September 25, 2021
3.500% senior notes due June 2022(a)	$	631	$	—	$	—	$	—	$	—	$	631
4.000% senior notes due June 2023(a)(d)	447		—		—		447		—		—
3.950% senior notes due July 2025(a)(f)	1,609		812		—		797		—		—
3.000% senior notes due June 2026(a)(c)	2,000		88		36		—		—		1,876
6.375% senior notes due July 2028(b)	235		17		—		—		—		218
4.625% senior notes due January 2029(b)(c)(e)	1,100		345		28		—		—		727
3.750% senior notes due April 2030(b)(c)	1,000		254		3		—		—		743
6.750% senior notes due March 2032(b)	437		66		—		—		—		371
5.000% senior notes due July 2035(b)(c)(e)	1,000		187		15		—		—		798
6.875% senior notes due January 2039(b)(c)(e)	878		29		15		—		—		834
7.125% senior notes due August 2039(b)(c)	931		51		4		—		—		876
4.625% senior notes due October 2039(b)(e)	500		101		—		—		—		399
6.500% senior notes due February 2040(b)(c)(e)	788		39		18		—		—		731
5.000% senior notes due June 2042(b)(c)(e)	2,000		334		68		—		—		1,598
5.200% senior notes due July 2045(c)(e)	2,000		—		144		—		—		1,856
4.375% senior notes due June 2046(c)(e)	3,000		—		97		—		—		2,903
Floating rate senior notes due February 2021(g)	111		—		—		—		111		—
3.125% senior notes due September 2021(g)	34		0		0		0		34		—
Other long-term debt(h)	9,192		—		—		—		—		9,073
Total	$	27,893	$	2,323	$	428	$	1,244	$	145	$	23,634


	Goodwill or Brand Carrying Amount (in billions)		Discount Rate				Long-Term Growth Rate				Royalty Rate
			Minimum		Maximum		Minimum		Maximum		Minimum		Maximum
Reporting units	$	28.3	6.5	%	7.0	%	1.0	%	1.5	%
Brands (excess earnings method)	16.3		7.0	%	7.2	%	0.8	%	1.5	%
Brands (relief from royalty method)	6.2		7.0	%	7.5	%	0.5	%	2.0	%	5.0	%	20.0	%