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Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-17 · 188 added, 234 removed, 464 unchanged (48% of the section changed)

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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.

In the second quarter of 2022, our internal reporting and reportable segments changed.

We combined our United States and Canada zones to form the North America zone as a result of previously announced organizational changes, which are intended to advance and support our long-term growth plans by streamlining and synergizing our United States and Canada businesses.

Subsequently, we manage and report our operating results through two reportable segments defined by geographic region:

North America and International.

We have reflected this change in all historical periods presented.

See Note 20, Segment Reporting , in Item 8, Financial Statements and Supplementary Data , for our financial information by segment.

Acquisitions and Divestitures:

In 2021, we completed the sale of certain assets in our global nuts business (the “Nuts Transaction”) as well as the sale of certain assets in our global cheese businesses (the “Cheese Transaction”).

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 through the date of each sale.

Additionally, in 2021, we completed the acquisition of Assan Gıda Sanayi ve Ticaret A.Ş.

In 2022, we completed the acquisition of Companhia Hemmer Indústria e Comércio (the “Hemmer Acquisition”) and Just Spices GmbH (the “Just Spices Acquisition”), both of which are in our International segment.

Additionally, in 2022, we completed the sale of our business-to-business powdered cheese business (the “Powdered Cheese Transaction”).

The Powdered Cheese Transaction is not considered a strategic shift that will have a major effect on our operations or financial results;

therefore, the results of this business are included in continuing operations through the date of sale.

In 2021, we completed the acquisition of Assan Gıda Sanayi ve Ticaret A.Ş.

(the “Assan Foods Acquisition”) and BR Spices Indústria e Comércio de Alimentos Ltda (the “BR Spices Acquisition”), both of which are in our International segment .

Additionally, in 2021, we completed the sale of certain assets in our global nuts business (the “Nuts Transaction”) as well as the sale of certain assets in our global cheese businesses (the “Cheese Transaction”).

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 through the date of each sale in the prior year period.

See Note 4, Acquisitions and Divestitures , in Item 8, Financial Statements and Supplementary Data , for additional information.

Conflict Between Russia and Ukraine:

For the year ended December 31, 2022, approximately 1% of consolidated net sales, net income/(loss), and Adjusted EBITDA were generated from our business in Russia.

For the year ended December 25, 2021, approximately 1% of consolidated net sales were generated from our business in Russia, while net income/(loss) and Adjusted EBITDA were each insignificant.

As of December 31, 2022, we had 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, soybean and vegetable oils, energy, corn products, and wheat products due to overall market demand, inflationary pressures, and, in part, to the negative impact of the conflict between Russia and Ukraine on the global economy.

We will continue to monitor the impact that this conflict has on our business;

however, through 2022, the conflict between Russia and Ukraine did not have a material impact on our financial condition, results of operations, or cash flows.

Items Affecting Comparability of Financial Results

Impairment Losses:

Our results of operations reflect goodwill impairment losses of $318 million and intangible asset impairment losses of $1.3 billion in 2021 compared to goodwill impairment losses of $2.3 billion and intangible asset impairment losses of $1.1 billion in 2020.

Our results of operations reflect goodwill impairment losses of $444 million, intangible asset impairment losses of $469 million, and property, plant, and equipment, net asset impairment losses of $86 million in 2022 compared to goodwill impairment losses of $318 million and intangible asset impairment losses of $1.3 billion in 2021.

See Note 4, Acquisitions and Divestitures , and Note 8, Goodwill and Intangible Assets , in Item 8, Financial Statements and Supplementary Data , for additional information on these impairment losses.

COVID-19 Impacts:

We have been actively monitoring the impact of COVID-19 on our business.

In 2020, particularly in March and April, we experienced consolidated net sales growth as higher demand for our retail products more than offset declines in our foodservice business.

In 2021, we continued to experience strong retail demand compared to pre-pandemic periods.

However, retail consumption declined when compared to the comparable 2020 period based on the strong consumer demand early on in the COVID-19 pandemic, particularly in March and April 2020.

Beginning in the second quarter of 2021 and continuing through year end, our foodservice business experienced increased consumer demand compared to the comparable 2020 periods, which were negatively impacted by the COVID-19 pandemic.

However, we continue to see decreased foodservice demand in certain parts of our global business, including the United States and Canada, compared to pre-pandemic periods.

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 .

We operate on a 52- or 53-week fiscal year ending on the last Saturday in December in each calendar year.

Our 2022 fiscal year ended December 31, 2022 includes a 53rd week of activity.

Our 2021 fiscal year was a 52-week period that ended on December 25, 2021.

Inflation and Supply Chain Impacts:

In 2021, we experienced 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 at least 2022.

During the year ended December 31, 2022, we continued to experience increasing commodity costs and supply chain costs, including procurement, logistics, and manufacturing costs, largely due to inflationary pressures, as compared to the prior year period.

We expect these costs to continue to increase and inflation to remain elevated through 2023.

While these costs have a negative impact on our results of operations, we are currently taking measures to mitigate, and expect to continue to take measures to mitigate, the impact of this inflation through pricing actions and efficiency gains.

However, we expect that there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.

Additionally, the pricing actions we take could result in a decrease in market share.

Additionally, given the increased demand for our products combined with industry-wide supply chain issues, 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.

However, until these capacity constraints are alleviated, these constraints have the potential to impact our service levels, market share, financial condition, results of operations, or cash flows.

We have observed an increasingly competitive labor market.

Increased employee turnover, changes in the availability of our workers, including 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.

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.

Additionally, the pricing actions we take have, in some instances, negatively impacted, and could continue to negatively impact, our market share.

Further, given the current level of demand for our products combined with industry-wide supply chain issues, we have experienced capacity constraints for certain products when demand has exceeded our current manufacturing capacity.

As discussed in Liquidity and Capital Resources , we continue to focus on rebuilding inventory and expanding capacity through increased capital investments, which have resulted in an increased ability to meet customer demand.

However, these capacity constraints have negatively impacted, and could continue to negatively impact, our market share, financial condition, results of operations, or cash flows, until we return to optimal service levels.

Results of Operations

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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 consolidated financial statements see Non-GAAP Financial Measures.

For additional information and reconciliations to the most closely comparable financial measures presented in our consolidated financial statements, which are calculated in accordance with U.S.

GAAP see Non-GAAP Financial Measures.

Consolidated Results of Operations

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Fiscal Year 2022 Compared to Fiscal Year 2021:

Net sales decreased 0.5% to $26.0 billion in 2021 compared to $26.2 billion in 2020, including the unfavorable impact of divestitures (3.5 pp) and the favorable impact of foreign currency (1.2 pp).

Organic Net Sales increased 1.8% to $23.7 billion in 2021 compared to $23.3 billion in 2020, driven by higher pricing (2.3 pp), which more than offset unfavorable volume/mix (0.5 pp).

Pricing was higher across all segments, while unfavorable volume/mix in our United States and Canada segments more than offset favorable volume/mix in our International segment.

Net sales increased 1.7% to $26.5 billion in 2022 compared to $26.0 billion in 2021, including the unfavorable impacts of acquisitions and divestitures (8.0 pp) and foreign currency (2.0 pp) and the favorable impact of a 53rd week of shipments (1.9 pp).

Organic Net Sales increased 9.8% to $26.2 billion in 2022 compared to $23.9 billion in 2021, primarily driven by higher pricing (13.2 pp), which more than offset unfavorable volume/mix (3.4 pp).

Pricing was higher in both segments, while volume/mix was unfavorable in both segments.

Net Income/(Loss):

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Fiscal Year 2022 Compared to Fiscal Year 2021:

Operating income/(loss) increased to $3.5 billion in 2021 compared to $2.1 billion in 2020, primarily driven by lower non-cash impairment losses in the current year.

Non-cash impairment losses were $1.6 billion in 2021 compared to $3.4 billion in 2020.

The remaining change in operating income/(loss) was a decrease of $447 million, primarily due to higher supply chain costs, reflecting inflationary pressure in logistics, procurement, and manufacturing costs;

higher commodity costs, including key commodity (which we define as dairy, meat, and coffee) and packaging costs;

the unfavorable impact of divestitures;

higher restructuring expenses in the current period;

and costs relating to the settlement of the previously disclosed SEC investigation.

These decreases to operating income/(loss) more than offset efficiency gains, higher Organic Net Sales, the favorable impact of foreign currency, lower general corporate expenses, and lower depreciation and amortization expense.

Net income/(loss) increased 183.7% to $1.0 billion in 2021 compared to $361 million in 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 interest expense and higher tax expense.

Other expense/(income) was flat year over year.

• Interest expense was $2.0 billion in 2021 compared to $1.4 billion in 2020.

This increase was primarily driven by a $917 million loss on extinguishment of debt recognized in the current year period related to the $6.0 billion reduction in our aggregate principal amount of senior notes from our tender offers, debt redemptions, and open-market debt repurchases in 2021 compared to a $124 million loss on extinguishment of debt recognized in the prior year in connection with our tender offer and debt redemptions in 2020.

The 2020 period also included $22 million of interest expense 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 of approximately $118 million compared to the prior year period, as our long-term debt balance and associated interest expense were reduced through tender offers, debt redemptions, debt repurchases, and repayments.

Operating income/(loss) increased 5.0% to $3.6 billion in 2022 compared to $3.5 billion in 2021, primarily driven by higher pricing, lower non-cash impairment losses in the current year period, efficiency gains, and the favorable impact of a 53rd week of shipments, which more than offset higher supply chain costs, reflecting inflationary pressure in procurement, logistics, and manufacturing costs;

higher commodity costs (mainly in dairy, packaging materials, soybean and vegetable oils, energy, and meat);

the unfavorable impact of acquisitions and divestitures;

unfavorable volume/mix;

and an accrual related to the previously disclosed securities class action lawsuit.

Net income/(loss) increased 131.3% to $2.4 billion in 2022 compared to $1.0 billion in 2021.

This increase was driven by lower interest expense, the operating income/(loss) factors discussed above, and lower tax expense, which more than offset unfavorable changes in other expense/(income).

• Interest expense was $921 million in 2022 compared to $2.0 billion in 2021.

This decrease was primarily due to a $38 million net gain on extinguishment of debt recognized in the current year period in connection with our debt repurchases in 2022 compared to a $917 million loss on extinguishment of debt recognized in the prior year period in connection with our tender offers, debt redemptions, and debt repurchases in 2021.

The remaining change in interest expense was a decrease of approximately $171 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 and approximately $1.5 billion in 2022 through repurchases and repayments.

• Our effective tax rate was 20.2% in 2022 compared to 40.1% in 2021.

Our 2021 effective tax rate was unfavorably impacted by rate reconciling items, primarily the tax impacts related to acquisitions and divestitures, which mainly reflect the impacts of the Nuts Transaction and Cheese Transaction, partially offset by current year capital losses;

Our 2022 effective tax rate was impacted by the favorable geographic mix of pre-tax income in various non-U.S.

jurisdictions and certain favorable items, primarily the decrease in deferred tax liabilities due to the merger of certain foreign entities, the revaluation of deferred tax balances due to changes in state tax laws, and changes in estimates of certain 2021 U.S.

income and deductions.

This impact was partially offset by the impact of certain unfavorable items, primarily non-deductible goodwill impairments, the impact of the federal tax on global intangible low-taxed income (“GILTI”), and the establishment of uncertain tax positions and valuation allowance reserves.

the revaluation of our deferred tax balances due to changes in international and state tax rates, mainly an increase in U.K.

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jurisdictions.

Our 2020 effective tax rate was unfavorably impacted by rate reconciling items, primarily related to non-deductible goodwill impairments, the impact of the federal tax on GILTI, and the revaluation of our deferred tax balances due to changes in international tax laws.

These impacts were partially offset by a more favorable geographic mix of pre-tax income in various non-U.S.

jurisdictions and the favorable impact of establishing certain deferred tax assets for state tax deductions.

• Other expense/(income) was $253 million of income in 2022 compared to $295 million of income in 2021.

This change was primarily driven by an $86 million net loss on derivative activities in 2021 compared to a $154 million net gain on derivative activities in 2020 and a $115 million decrease in non-cash amortization of postemployment benefit plans prior service credits as compared to the prior year period.

These impacts were partially offset by a $101 million net foreign exchange gain in 2021 compared to a $162 million net foreign exchange loss in 2020, a $44 million net gain on sales of businesses in 2021 compared to a $2 million net loss on sales of businesses in 2020, and a $26 million loss on the dissolution of a joint venture in 2020.

Adjusted EBITDA decreased 4.5% to $6.4 billion in 2021 compared to $6.7 billion in 2020, including the unfavorable impact of divestitures (2.2 pp) and the favorable impact of foreign currency (0.9 pp).

Lower Adjusted EBITDA in the United States more than offset lower general corporate expenses and Adjusted EBITDA growth in our Canada and International segments.

This change was primarily driven by a $79 million decrease in net pension and postretirement non-service benefits and a $25 million net gain on sales of businesses in 2022 compared to a $44 million net gain on sales of businesses in 2021.

These impacts were partially offset by a $50 million net loss on derivative activities in 2022 compared to an $86 million net loss on derivative activities in 2021 and a $12 million increase in interest income as compared to the prior year period.

Adjusted EBITDA decreased 5.8% to $6.0 billion in 2022 compared to $6.4 billion in 2021, primarily due to higher supply chain costs, reflecting inflationary pressure in procurement, logistics, and manufacturing costs;

higher commodity costs (mainly in dairy, packaging materials, soybean and vegetable oils, energy, and meat);

the unfavorable impact of acquisitions and divestitures (6.1 pp);

unfavorable volume/mix;

and the unfavorable impact of foreign currency (1.3 pp), which more than offset higher pricing, efficiency gains, and the favorable impact of a 53rd week of shipments (1.9 pp).

Diluted Earnings Per Share (“EPS”):

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Certain non-ordinary course legal and regulatory matters 0.13 0.05 0.08

Losses/(gains) on sale of business (a)

0.15 (0.01) 0.16

Debt prepayment and extinguishment costs 0.59 0.08 0.51

Losses/(gains) on sale of business (0.01) 0.15 (0.16)

Other losses/(gains) related to acquisitions and divestitures (0.02) — (0.02)

Nonmonetary currency devaluation 0.01 — 0.01

Debt prepayment and extinguishment (benefit)/costs (0.03) 0.59 (0.62)

Certain significant discrete income tax items

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$ 2.78 $ 2.93 $ (0.15) (5.1) %

Key drivers of change in Adjusted EPS (b) :

Key drivers of change in Adjusted EPS (a) :

Results of operations $ 0.01

Results of divested operations (0.26)

53rd week 0.06

Interest expense 0.13

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Effective tax rate (0.06)

Effect of dilutive equity awards (c)

(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 8, Financial Statements and Supplementary Data , for additional information.

(b) Adjusted EPS is a non-GAAP financial measure.

(a) 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 changes in weighted average shares outstanding, primarily due to the dilutive effect of outstanding equity awards.

Adjusted EPS increased 1.7% to $2.93 in 2021 compared to $2.88 in 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, which includes the impact of our divestitures, higher equity award compensation expense, and unfavorable changes in other expense/(income).

Adjusted EPS decreased 5.1% to $2.78 in 2022 compared to $2.93 in 2021 primarily due to lower Adjusted EBITDA, which includes the unfavorable impact of our divestitures, higher taxes on adjusted earnings, and unfavorable changes in other expense/(income), which more than offset lower interest expense, the favorable impact of a 53rd week of shipments, higher divestiture-related license income, and lower equity award compensation expense.

Results of Operations by Segment

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See Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data , for additional information.

We apply highly inflationary accounting to the results of our subsidiaries in Venezuela, Argentina, and Turkey, which are all in our International segment.

December 31, 2022 December 25, 2021

(in millions)

United States $ 18,604 $ 19,204

North America $ 20,340 $ 20,351

International 6,145 5,691

Canada 1,747 1,640

Total net sales $ 26,485 $ 26,042

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Organic Net Sales (a) :

United States $ 16,667 $ 16,403

North America $ 20,050 $ 18,361

International 6,199 5,556

Canada 1,584 1,591

Total Organic Net Sales $ 26,249 $ 23,917

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Drivers of the changes in net sales and Organic Net Sales were:

Net Sales Currency Acquisitions and Divestitures Organic Net Sales Price Volume/Mix

Net Sales Currency Acquisitions and Divestitures 53rd Week Organic Net Sales Price Volume/Mix

2022 Compared to 2021

United States (3.1) % 0.0 pp (4.7) pp 1.6 % 2.1 pp (0.5) pp

International 6.5 % 3.4 pp 0.0 pp 3.1 % 2.6 pp 0.5 pp

Canada 6.5 % 7.0 pp (0.1) pp (0.4) % 2.9 pp (3.3) pp

Kraft Heinz (0.5) % 1.2 pp (3.5) pp 1.8 % 2.3 pp (0.5) pp

North America (0.1) % (0.4) pp (10.8) pp 1.9 pp 9.2 % 13.0 pp (3.8) pp

International 8.0 % (8.1) pp 2.8 pp 1.7 pp 11.6 % 13.5 pp (1.9) pp

Kraft Heinz 1.7 % (2.0) pp (8.0) pp 1.9 pp 9.8 % 13.2 pp (3.4) pp

Adjusted EBITDA:

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Segment Adjusted EBITDA:

United States $ 5,157 $ 5,557

North America $ 5,284 $ 5,576

International 1,017 1,066

Canada 419 389

General corporate expenses (298) (271)

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Certain non-ordinary course legal and regulatory matters (210) (62)

Equity award compensation expense (excluding restructuring activities) (197) (156)

Equity award compensation expense (148) (197)

Operating income/(loss) 3,634 3,460

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Income/(loss) before income taxes $ 2,966 $ 1,708

United States:

North America:

2022 Compared to 2021

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Fiscal Year 2022 Compared to Fiscal Year 2021:

Net sales decreased 3.1% to $18.6 billion in 2021 compared to $19.2 billion in 2020, including the unfavorable impact of divestitures (4.7 pp).

Net sales decreased 0.1% to $20.3 billion in 2022 compared to $20.4 billion in 2021, including the unfavorable impacts of divestitures (10.8 pp) and foreign currency (0.4 pp), partially offset by the favorable impact of a 53rd week of shipments (1.9 pp).

Organic Net Sales increased 9.2% to $20.1 billion in 2022 compared to $18.4 billion in 2021, driven by higher pricing (13.0 pp), which more than offset unfavorable volume/mix (3.8 pp).

Higher pricing was primarily driven by increases to mitigate rising input costs.

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 7.2% to $5.2 billion in 2021 compared to $5.6 billion in 2020, including the unfavorable impact of divestitures (2.5 pp).

The remaining change was primarily due to higher commodity costs, including key commodity and packaging costs;

higher supply chain costs, reflecting inflationary pressure in logistics, procurement, and manufacturing costs;

and lower volume more than offset higher pricing and efficiency gains.

Unfavorable volume/mix was primarily due to declines in frozen, meat, condiments and sauces, coffee, ready-to-drink beverages, and desserts.

Segment Adjusted EBITDA decreased 5.2% to $5.3 billion in 2022 compared to $5.6 billion in 2021, primarily due to higher commodity costs (mainly in dairy, packaging materials, soybean and vegetable oils, meat, and energy);

higher supply chain costs, reflecting inflationary pressure in procurement, logistics, and manufacturing costs;

the unfavorable impact of the Cheese Transaction and Nuts Transaction (6.7 pp);

unfavorable volume/mix;

and the unfavorable impact of foreign currency (0.2 pp).

These decreases to Segment Adjusted EBITDA more than offset higher pricing, efficiency gains, and the favorable impact of a 53rd week of shipments (1.9 pp).

International:

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Fiscal Year 2022 Compared to Fiscal Year 2021:

Net sales increased 6.5% to $5.7 billion in 2021 compared to $5.3 billion in 2020, including the favorable impact of foreign currency (3.4 pp).

Acquisitions and divestitures had an insignificant impact on net sales.

Organic Net Sales increased 3.1% to $5.5 billion in 2021 compared to $5.3 billion in 2020, driven by higher pricing (2.6 pp) and favorable volume/mix (0.5 pp).

Net sales increased 8.0% to $6.1 billion in 2022 compared to $5.7 billion in 2021, including the favorable impacts of acquisitions and divestitures (2.8 pp) and a 53rd week of shipments (1.7 pp) and the unfavorable impact of foreign currency (8.1 pp).

Organic Net Sales increased 11.6% to $6.2 billion in 2022 compared to $5.6 billion in 2021, driven by higher pricing (13.5 pp), which more than offset unfavorable volume/mix (1.9 pp).

Higher pricing included increases across markets primarily to mitigate rising input costs.

Favorable volume/mix was primarily driven by higher foodservice sales in the current year period.

Segment Adjusted EBITDA increased 0.7% to $1.1 billion in 2021 compared to $1.1 billion in 2020, primarily driven by efficiency gains, higher pricing, favorable mix, and the favorable impact of foreign currency (3.7 pp), which more than offset higher supply chain costs, reflecting inflationary pressure in manufacturing, procurement, and logistics;

higher commodity costs;

and lower volume.

2021 Compared to 2020

December 25, 2021 December 26, 2020 % Change

(in millions)

Net sales $ 1,747 $ 1,640 6.5 %

Organic Net Sales (a)

1,584 1,591 (0.4) %

Segment Adjusted EBITDA 419 389 7.8 %

(a) Organic Net Sales is a non-GAAP financial measure.

See the Non-GAAP Financial Measures section at the end of this item.

Fiscal Year 2021 Compared to Fiscal Year 2020:

Net sales increased 6.5% to $1.7 billion in 2021 compared to $1.6 billion in 2020, including the favorable impact of foreign currency (7.0 pp) and the unfavorable impact of divestitures (0.1 pp).

Organic Net Sales decreased 0.4% to $1.6 billion in 2021 compared to $1.6 billion in 2020, due to unfavorable volume/mix (3.3 pp), which more than offset higher pricing (2.9 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 to mitigate rising input costs, particularly in condiments and sauces and foodservice.

Segment Adjusted EBITDA increased 7.8% to $419 million in 2021 compared to $389 million in 2020, primarily driven by higher pricing, efficiency gains, and the favorable impact of foreign currency (7.1 pp), which more than offset lower volume;

higher supply chain costs, reflecting inflationary pressure in manufacturing, procurement, and logistics;

and higher commodity costs.

Unfavorable volume/mix was primarily due to declines across categories in Australia and New Zealand, declines in boxed dinners and condiments and sauces in the United Kingdom, and declines in condiments and sauces and infant nutrition in Russia, which more than offset higher foodservice sales across most markets and growth in Brazil.

Segment Adjusted EBITDA decreased 4.6% to $1.0 billion in 2022 compared to $1.1 billion in 2021, primarily due to higher supply chain costs, reflecting inflationary pressure in procurement, logistics, and manufacturing costs;

higher commodity costs, including in packaging and energy;

the unfavorable impact of foreign currency (7.2 pp);

and unfavorable volume/mix, which more than offset higher pricing, efficiency gains, and the favorable impact of a 53rd week of shipments (1.6 pp).

Liquidity and Capital Resources

We believe that cash generated from our operating activities and Senior Credit Facility will provide sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations, payment of our anticipated quarterly dividends, planned capital expenditures, restructuring expenditures, and contributions to our postemployment benefit plans for the next 12 months and to fund our announced acquisitions.

We believe that cash generated from our operating activities, commercial paper programs, and Senior Credit Facility will provide sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations, payment of our anticipated quarterly dividends, planned capital expenditures, restructuring expenditures, and contributions to our postemployment benefit plans for the next 12 months.

An additional potential source of liquidity is access to capital markets.

We intend to use our cash on hand for daily funding requirements.

We intend to use our cash on hand and commercial paper programs for daily funding requirements.

Acquisitions and Divestitures:

In the first quarter of 2022, we closed the Just Spices Acquisition for cash consideration of approximately $243 million.

In the second quarter of 2022, we closed the Hemmer Acquisition for cash consideration of approximately $279 million.

In the fourth quarter of 2022, we received approximately $108 million of cash consideration following the closing of the Powdered Cheese Transaction.

In the second quarter of 2021, we received approximately $3.4 billion of cash consideration following the closing of the Nuts Transaction.

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In the fourth quarter of 2021, we received approximately $3.2 billion of cash consideration following the closing of the Cheese Transaction.

In connection with the Cheese Transaction, we expect to pay cash taxes of approximately $620 million in the first half of 2022, primarily to U.S.

In connection with the Cheese Transaction, we paid approximately $620 million of cash taxes in the second quarter of 2022, primarily to U.S.

federal and state tax authorities.

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Additionally, in the fourth quarter of 2021, we completed the Assan Foods Acquisition, which included cash consideration of approximately $70 million, and the BR Spices Acquisition for an insignificant amount of cash consideration.

In January 2022, we closed on our purchase of a majority stake in Just Spices GmbH for cash consideration of approximately $243 million.

We expect to close on our purchase of a majority stake in Companhia Hemmer Indústria e Comércio in the first half of 2022 for cash consideration of approximately 1.2 billion Brazilian reais (approximately $211 million at December 25, 2021).

See Note 4, Acquisitions and Divestitures , in Item 8, Financial Statements and Supplementary Data , for additional information on our acquisitions and divestitures.

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Net cash provided by operating activities was $2.5 billion for the year ended December 31, 2022 compared to $5.4 billion for the year ended December 25, 2021.

This increase was primarily driven by proceeds from the sale of licenses in connection with the Cheese Transaction, favorable changes in accounts payable compared to the prior year, largely due to favorable payment terms, and lower cash outflows for inventories.

These impacts were partially offset by higher cash tax payments on divestitures in 2021 related to the Nuts Transaction, higher cash outflows for variable compensation in 2021 compared to 2020, higher cash outflows from increased promotional activity versus the prior year period, and lower Adjusted EBITDA.

This decrease was primarily driven by proceeds from the sale of licenses in connection with the Cheese Transaction in 2021, higher cash outflows for inventories, primarily related to stock rebuilding, increased input costs, and the acceleration of payments to suppliers attributed to the wind-down of our existing product financing arrangements, as well as lower Adjusted EBITDA.

These impacts were partially offset by lower cash outflows for interest primarily due to the reduction of long-term debt throughout 2022 and 2021.

Net Cash Provided by/Used for Investing Activities:

Net cash provided by investing activities was $4.0 billion for the year ended December 25, 2021 compared to net cash used for investing activities of $522 million for the year ended December 26, 2020.

This change was primarily driven by proceeds from the sale of net assets in connection with the Nuts Transaction and the Cheese Transaction in the current year, partially offset by higher capital expenditures in 2021 compared to 2020 and the payments for the Assan Foods Acquisition and the BR Spices Acquisition in 2021.

Net cash used for investing activities was $1.1 billion for the year ended December 31, 2022 compared to net cash provided by investing activities of $4.0 billion for the year ended December 25, 2021.

This decrease was primarily driven by proceeds from the Nuts Transaction and Cheese Transaction in 2021, as well as payments for the Just Spices Acquisition and Hemmer Acquisition in 2022.

These impacts were partially offset by increased proceeds from the settlement of net investment hedges and proceeds from the Powdered Cheese Transaction in 2022.

We had 2022 capital expenditures of $916 million compared to 2021 capital expenditures of $905 million.

This increase is primarily due to increased capital investments, largely for capacity expansion, and the COVID-19 pandemic, which caused delays in our planned 2020 projects and spend.

We expect 2022 capital expenditures to be approximately $1.0 billion, primarily driven by increased capital investments, largely for capacity expansion and cost improvement projects, maintenance, and technology.

We expect 2023 capital expenditures to be approximately $1.1 billion, primarily driven by capital investments for capacity expansion, maintenance, cost improvement and innovation projects, and technology.

Net Cash Provided by/Used for Financing Activities:

Net cash used for financing activities was $3.7 billion for the year ended December 31, 2022 compared to $9.3 billion for the year ended December 25, 2021.

This change was primarily due to prior year proceeds from long-term debt issuances, higher repayments of long-term debt and debt prepayment and extinguishment costs in 2021 compared to 2020, and higher cash outflows related to equity awards in 2021 compared to 2020.

See Note 17, Debt , in Item 8, Financial Statements and Supplementary Data , for additional information on our long-term debt activity.

This change was primarily due to higher repayments of long-term debt and debt prepayment and extinguishment costs in 2021 related to our tender offers, debt repurchases, and debt redemptions in 2021.

See Note 16, Debt , in Item 8, Financial Statements and Supplementary Data , for additional information on our debt repayments.

Cash Held by International Subsidiaries:

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cash requirements.

The amount of unrecognized deferred tax liabilities for local country withholding taxes that would be owed related to our 2018 through 2021 accumulated earnings of certain international subsidiaries is approximately $50 million.

The amount of unrecognized deferred tax liabilities for local country withholding taxes that would be owed, if repatriated, related to our 2018 through 2022 accumulated earnings of certain international subsidiaries is approximately $50 million.

Our undistributed historic earnings in foreign subsidiaries through December 31, 2017 are currently not considered to be indefinitely reinvested.

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Supplier participation in these agreements is voluntary.

We estimate that the amounts outstanding under these programs were $820 million at December 25, 2021 and $740 million at December 26, 2020.

We estimate that the amounts outstanding under these programs were $1.1 billion at December 31, 2022 and $820 million at December 25, 2021.

Product Financing Arrangements:

We enter into various product financing arrangements to facilitate supply from our vendors.

In the fourth quarter of 2022, we began to wind-down our existing product financing arrangements, with final impacts of the wind-down expected to extend into 2023.

We continue to have access to these programs to facilitate supply from our vendors in the future, if we choose to do so.

See Note 14, Financing Arrangements , in Item 8, Financial Statements and Supplementary Data , for additional information on our product financing arrangements.

Borrowing Arrangements:

As of the date of this filing, our long-term debt is rated BBB- by S&P Global Ratings (“S&P”), BBB by Fitch Ratings (“Fitch”) and Baa3 by Moody’s Investor Services, Inc.

(“Moody’s”), with a positive outlook from S&P and a stable outlook from Fitch and Moody’s.

In February 2020, Fitch and 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, with a positive outlook from Fitch and S&P and a stable outlook from Moody’s.

We have historically obtained funding through our U.S.

and European commercial paper programs.

We had no commercial paper outstanding at December 25, 2021, at December 26, 2020, or during the years ended December 25, 2021 or December 26, 2020.

We maintain our Senior Credit Facility, which, following the execution of a commitment increase amendment to the Credit Agreement in October 2020 and the extension letter agreement in April 2021, provides 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 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 December 25, 2021, at December 26, 2020, or during the years ended December 25, 2021 and December 28, 2019.

The Credit Agreement 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.

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.

Our long-term credit rating was upgraded from BB+ to BBB- by S&P in March 2022 and by Fitch in May 2022.

Fitch upgraded our long-term debt credit rating from BBB- to BBB in November 2022.

From time to time, we obtain funding through our commercial paper programs.

We had no commercial paper outstanding at December 31, 2022, at December 25, 2021, or during the year ended December 25, 2021.

The maximum amount of commercial paper outstanding during the year ended December 31, 2022 was $198 million, under our U.S.

commercial paper program.

Our Senior Credit Facility provides for a revolving commitment of $4.0 billion through July 8, 2027.

Subject to certain conditions, we may increase the amount of revolving commitments and/or add tranches of term loans in a combined aggregate amount of up to $1.0 billion.

No amounts were drawn on our Senior Credit Facility at December 31, 2022, our previous credit facility (the “Previous Senior Credit Facility”) at December 25, 2021, or on either the Senior Credit Facility or Previous Senior Credit Facility during the years ended December 31, 2022 and December 25, 2021.

Our credit agreement contains customary representations, warranties, and covenants that are typical for these types of facilities and could, upon the occurrence of certain events of default, restrict our ability to access our Senior Credit Facility.

We were in compliance with all financial covenants as of December 31, 2022.

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Our long-term debt, including the current portion, was $20.1 billion at December 31, 2022 and $21.8 billion at December 25, 2021.

This decrease was primarily driven by the approximately $4.1 billion aggregate principal amount of senior notes that were settled in connection with tender offers in 2021, the approximately $1.2 billion aggregate principal amount of senior notes redeemed in 2021, the approximately $738 million aggregate principal amount of senior notes repurchased under Rule 10b5-1 plans in 2021, the $111 million aggregate principal amount of senior notes that were repaid at maturity 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 and proceeds from the Nuts Transaction to fund our tender offers in the second quarter of 2021 and our debt redemption and open market debt repurchases in the third quarter of 2021 and to pay fees and expenses in connection therewith.

We used proceeds from the Cheese Transaction to fund our open market repurchases and tender offer in the fourth quarter of 2021 and to pay fees and expenses in connection therewith.

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

This decrease was primarily due to approximately $315 million aggregate principal amount of floating rate senior notes that were repaid at maturity in August 2022, approximately $381 million aggregate principal amount of senior notes that were repaid at maturity in June 2022, approximately $6 million aggregate principal amount of senior notes that were repaid at maturity in March 2022, and approximately $755 million aggregate principal amount of senior notes repurchased in connection with the debt repurchases in 2022, as well as changes in foreign currency exchange rates on our foreign-denominated debt.

We used cash on hand to fund our debt repurchases in 2022 and to pay related fees and expenses.

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

We may from time to time seek to retire or purchase our outstanding debt through redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately negotiated transactions, Rule 10b5-1 plans, or otherwise.

Our long-term debt contains customary representations, covenants, and events of default.

We were in compliance with all financial covenants during the year ended December 25, 2021.

We were in compliance with all financial covenants as of December 31, 2022.

See Note 16, Debt , in Item 8, Financial Statements and Supplementary Data , for additional information on our long-term debt activity.

See Note 4, Acquisitions and Divestitures , in Item 8, Financial Statements and Supplementary Data , for additional information on the Nuts Transaction and Cheese Transaction.

Equity and Dividends:

We paid common stock dividends of $2.0 billion in 2021, 2020, and 2019.

We paid dividends on our common stock of $2.0 billion in 2022, 2021, and 2020, respectively.

Additionally, in the first quarter of 2023, our Board declared a cash dividend of $0.40 per share of common stock, which is payable on March 31, 2023 to stockholders of record on March 10, 2023.

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Total $ 2,414 $ 3,487 $ 5,833 $ 25,412 $ 37,146

(a) Amounts represent the expected cash payments of our long-term debt, including interest on variable and fixed rate long-term debt.

Interest on variable rate long-term debt is calculated based on interest rates at December 25, 2021.

(a) Amounts represent the expected cash payments of our long-term debt, including interest on long-term debt.

(b) Amounts represent the expected cash payments of our finance leases, including expected cash payments of interest expense.

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The timing of payments will depend on the progress of examinations with tax authorities.

We do not expect a significant tax payment related to these obligations within the next year.

We are unable to make a reasonably reliable estimate as to if or when any significant cash settlements with taxing authorities may occur;

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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.

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).

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Commodity Trends

We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, soybean and vegetable oils, sugar and other sweeteners, tomatoes, potatoes, corn products, wheat products, nuts, and cocoa products, to manufacture our products.

We purchase and use large quantities of commodities, including dairy products, meat products, soybean and vegetable oils, tomatoes, coffee beans, sugar and other sweeteners, other fruits and vegetables, corn products, wheat products, and potatoes, to manufacture our products.

In addition, we purchase and use significant quantities of resins, fiberboard, metals, and cardboard to package our products, and we use electricity, diesel fuel, and natural gas in the manufacturing and distribution of our products.

We continuously monitor worldwide supply and cost trends of these commodities.

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.

In 2021, we experienced cost increases for meat and coffee, while costs for dairy decreased.

We also experienced cost increases for packaging materials due to market demand.

We anticipate higher commodity costs to continue through at least 2022 due to inflationary pressures.

During the year ended December 31, 2022, we experienced higher commodity costs primarily for dairy, packaging materials, soybean and vegetable oils, energy (including diesel fuel, electricity, and natural gas), and meat as compared to the prior year period.

These increases were primarily driven by overall market demand, inflationary pressures, and, in part, by the negative impact of the conflict between Russia and Ukraine on the global economy.

We anticipate commodity costs to continue to increase and inflation to remain elevated through 2023.

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.

In 2021, dairy commodities, primarily milk and cheese, were the most significant cost components of our cheese products.

Following the closing of the Cheese Transaction, we expect dairy commodities, primarily milk, cream, and cheese, to be the most significant components of our cheese products in 2022.

In 2022, dairy commodities, primarily milk, cream, and cheese, were the most significant cost components of our cheese products.

We purchase our dairy raw material requirements from independent third parties, such as agricultural cooperatives and independent processors.

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meats influence the prices of these meat products.

The most significant cost component of our coffee products is coffee beans, which we purchase on global markets.

Quality and availability of supply, currency fluctuations, and consumer demand for coffee products impact coffee bean prices.

Critical Accounting Estimates

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We then review and adjust these estimates each quarter based on actual experience and other information.

In 2021, we updated our definition of advertising expenses to reflect a more comprehensive view of costs that promote our brands to create or stimulate a desire to buy our products.

Our definition of advertising expenses now includes advertising production costs, in-store advertising costs, agency fees, brand promotions and events, and sponsorships, in addition to costs to obtain advertising in television, radio, print, digital, and social channels.

We have reflected these changes in all historical periods presented.

Our definition of advertising expenses includes advertising production costs, in-store advertising costs, agency fees, brand promotions and events, and sponsorships, in addition to costs to obtain advertising in television, radio, print, digital, and social channels.

We recorded advertising expenses of $945 million in 2022, $1,039 million in 2021, and $1,070 million in 2020.

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Goodwill and Intangible Assets:

As of December 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 $31.3 billion at December 25, 2021.

As of December 31, 2022, we maintain 11 reporting units, seven of which comprise our goodwill balance.

These seven reporting units had an aggregate goodwill carrying amount of $30.8 billion at December 31, 2022.

Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $38.6 billion as of December 31, 2022.

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.

We test our reporting units and brands for impairment annually as of the first day of our third 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, disposals of significant brands or components of our business, unexpected business disruptions (for example due to a natural disaster, pandemic, or loss of a customer, supplier, or other significant business relationship), unexpected significant declines in operating results, significant adverse changes in the markets in which we operate, changes in income tax rates, changes in interest rates, or changes in management strategy.

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If the carrying amount of a reporting unit or brand exceeds its estimated fair value, we record an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed the associated carrying amount of goodwill.

See Note 8, Goodwill and Intangible Assets , in Item 8, Financial Statements and Supplementary Data , for a discussion of the timing of the annual impairment test.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors.

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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.

Our current expectations also include certain assumptions that could be negatively impacted if we are unable to meet our pricing expectations in relation to inflation.

If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units or brands might become impaired in the future.

Additionally, any decisions to divest certain non-strategic assets has led, and could in the future lead, to goodwill or intangible asset impairments.

In 2020 and 2021, the COVID-19 pandemic has produced 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 $154 million as of December 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, 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 8, Financial Statements and Supplementary Data , 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 their latest 2021 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 their latest 2021 impairment testing date and included:

Enhancers, Specialty, and Away from Home (ESA), Kids, Snacks, and Beverages (KSB), Meal Foundations and Coffee (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 their latest 2021 impairment testing 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 its latest 2021 impairment testing date.

Our reporting units that have less than 3% excess fair value over carrying amount as of their latest 2021 impairment testing 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.

Additionally, our reporting units with no goodwill carrying amount as of their latest 2021 impairment testing date are at risk of future impairment to the extent there is newly acquired goodwill assigned to the reporting unit and the fair value of the reporting unit (including the acquisition fair value) does not exceed the carrying amount of the reporting unit (including the acquired net assets).

Brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of $21.3 billion as of their latest 2021 impairment testing 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 their latest 2021 impairment testing 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 their latest 2021 impairment testing date, these amounts are also associated with the 2013 Heinz Acquisition and the 2015 Merger and are recorded on our consolidated balance sheet at their estimated acquisition date fair values.

Accordingly, these and other reporting units and brands that have 20% or less excess fair value over carrying amount as of the Q3 2022 Annual Impairment Test 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 after impairment of $16.4 billion as of the Q3 2022 Annual Impairment Test and included Taste, Meals, and Away from Home (TMA), Canada and North America Coffee (CNAC), and Continental Europe.

Reporting units with between 20-50% fair value over carrying amount had an aggregate goodwill carrying amount of $14.5 billion as of the Q3 2022 Annual Impairment Test and included Fresh, Beverages, and Desserts (FBD), Northern Europe, Asia, and Latin America (LATAM).

Our reporting units that have less than 1% excess fair value over carrying amount as of the Q3 2022 Annual Impairment Test are considered at a heightened risk of future impairments and include our CNAC and Continental Europe reporting units, which had an aggregate goodwill carrying amount after impairment of $2.4 billion.

Our four remaining reporting units had no goodwill carrying amount at the time of the Q3 2022 Annual Impairment Test.

Brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of $16.6 billion as of the Q3 2022 Annual Impairment Test and included Kraft , Oscar Mayer , Miracle Whip , Ore-Ida , Maxwell House , Cool Whip , Jet Puffed , and Plasmon .

The aggregate carrying amount of brands with fair value over carrying amount between 20-50% was $2.5 billion as of the Q3 2022 Annual Impairment Test.

Although the remaining brands, with a carrying amount of $19.4 billion, have more than 50% excess fair value over carrying amount as of the Q3 2022 Annual Impairment Test, these amounts are also associated with the 2013 Heinz Acquisition and the 2015 Merger and were initially recorded at the time of acquisition on our 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 their latest 2021 impairment testing 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 $14.2 billion.

Our brands that have less than 5% excess fair value over carrying amount as of the Q3 2022 Annual Impairment Test are considered at a heightened risk of future impairments and include our Kraft , Ore-Ida , Jet Puffed , and Plasmon brands, which had an aggregate carrying amount of $11.3 billion.

We generally utilize the discounted cash flow method under the income approach to estimate the fair value of our reporting units.

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We received total consideration of approximately $3.3 billion, which included approximately $1.6 billion primarily attributed to the Kraft and Velveeta licenses that we granted to Lactalis and approximately $141 million attributed to the Cracker Barrel license that Lactalis granted to us, the amounts of which were based on the estimated fair values of the licensed portion of each brand as of the closing date of the Cheese Transaction.

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 fourth quarter of 2021, at the time the licensed rights were granted, we reassessed the remaining fair value of the retained portions of the Kraft and Velveeta brands and recorded a non-cash intangible asset impairment loss related to the Kraft brand of approximately $1.24 billion, which was recognized in SG&A.

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 their latest 2021 impairment testing date for each reporting unit or brand, were as follows:

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 Q3 2022 Annual Impairment Test for each reporting unit or brand, were as follows:

Goodwill or Brand Carrying Amount

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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 their latest 2021 impairment testing 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):

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 Q3 2022 Annual Impairment Test for each of these reporting units and brands, these isolated changes, which are reasonably possible to occur, would have led to the following increase/(decrease) in the aggregate fair value of these reporting units and brands (in billions):

Discount Rate Long-Term Growth Rate Royalty Rate

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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 Organic Net Sales, Adjusted EBITDA, and Adjusted EPS provide important comparability of underlying operating results, allowing investors and management to assess the Company’s operating performance on a consistent basis.

Management believes that presenting our non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results.

We believe that the presentation of these non-GAAP financial measures, when considered together with the corresponding U.S.

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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 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 and divestiture-related license income, as management believes such matters, when they occur, do not directly reflect our underlying operations.

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

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

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 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.

The Kraft Heinz Company

1 unchanged sentence

(dollars in millions)

Net Sales Currency Acquisitions and Divestitures Organic Net Sales Price Volume/Mix

United States $ 18,604 $ — $ 1,937 $ 16,667

Net Sales Currency Acquisitions and Divestitures 53rd Week Organic Net Sales Price Volume/Mix

North America $ 20,340 $ (67) $ — $ 357 $ 20,050

International 6,145 (430) 279 97 6,199

Canada 1,747 114 49 1,584

Kraft Heinz $ 26,485 $ (497) $ 279 $ 454 $ 26,249

United States $ 19,204 $ — $ 2,801 $ 16,403

North America $ 20,351 $ — $ 1,990 $ — $ 18,361

International 5,691 26 109 — 5,556

Canada 1,640 — 49 1,591

Kraft Heinz $ 26,042 $ 26 $ 2,099 $ — $ 23,917

Year-over-year growth rates

United States (3.1) % 0.0 pp (4.7) pp 1.6 % 2.1 pp (0.5) pp

International 6.5 % 3.4 pp 0.0 pp 3.1 % 2.6 pp 0.5 pp

Canada 6.5 % 7.0 pp (0.1) pp (0.4) % 2.9 pp (3.3) pp

Kraft Heinz (0.5) % 1.2 pp (3.5) pp 1.8 % 2.3 pp (0.5) pp

North America (0.1) % (0.4) pp (10.8) pp 1.9 pp 9.2 % 13.0 pp (3.8) pp

International 8.0 % (8.1) pp 2.8 pp 1.7 pp 11.6 % 13.5 pp (1.9) pp

Kraft Heinz 1.7 % (2.0) pp (8.0) pp 1.9 pp 9.8 % 13.2 pp (3.4) pp

The Kraft Heinz Company

14 unchanged sentences

Certain non-ordinary course legal and regulatory matters 210 62

Equity award compensation expense (excluding restructuring activities) 197 156

Equity award compensation expense 148 197

Adjusted EBITDA $ 6,003 $ 6,371

8 unchanged sentences

Losses/(gains) on sale of business (e)

Debt prepayment and extinguishment costs (f)

Certain significant discrete income tax items (g)

Other losses/(gains) related to acquisitions and divestitures (f)

Nonmonetary currency devaluation (g)

Debt prepayment and extinguishment (benefit)/costs (h)

Certain significant discrete income tax items (i)

Adjusted EPS $ 2.78 $ 2.93

(a) Gross expenses/(income) included in restructuring activities were expenses of $84 million ($64 million after-tax) in 2021 and income of $2 million ($3 million after-tax) in 2020 and were recorded in the following income statement line items:

• Cost of products sold included expenses of $13 million in 2021 and income of $20 million in 2020;

(a) Gross expenses/(income) included in restructuring activities were expenses of $74 million ($56 million after-tax) in 2022 and $84 million ($64 million after-tax) in 2021 and were recorded in the following income statement line items:

• Cost of products sold included expenses of $27 million in 2022 and $13 million in 2021;

• SG&A included expenses of $47 million in 2022 and $70 million in 2021;

• Other expense/(income) included expenses of $1 million in 2021 and income of $17 million in 2020.

(b) Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges were expenses of $17 million ($13 million after-tax) in 2021 and income of $6 million ($4 million after-tax) in 2020 and were recorded in cost of products sold.

• Other expense/(income) included expenses of $1 million in 2021.

(b) Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges were expenses of $63 million ($48 million after-tax) in 2022 and $17 million ($13 million after-tax) in 2021 and were recorded in cost of products sold.

• Goodwill impairment losses of $318 million ($318 million after-tax) in 2021 and $2.3 billion ($2.3 billion after-tax) in 2020, which were recorded in SG&A;

• Intangible asset impairment losses of $1.3 billion ($1.0 billion after-tax) in 2021 and $1.1 billion ($829 million after-tax) in 2020, which were recorded in SG&A;

• Goodwill impairment losses of $444 million ($444 million after-tax) in 2022 and $318 million ($318 million after-tax) in 2021, which were recorded in SG&A;

• Intangible asset impairment losses of $469 million ($358 million after-tax) in 2022 and $1.3 billion ($1.0 billion after-tax) in 2021, which were recorded in SG&A;

• Property, plant and equipment asset impairment losses of $86 million ($65 million after-tax) in 2022, which were recorded in cost of products sold.

(d) Gross expenses included in certain non-ordinary course legal and regulatory matters were $62 million ($62 million after-tax) in 2021 and were recorded in SG&A.

These expenses relate to the settlement of the previously disclosed SEC investigation.

(e) Gross expenses/(income) included in losses/(gains) on sale of business were income of $44 million (expenses of $181 million after-tax) in 2021 and expenses of $2 million (income of $6 million after-tax) in 2020 and were recorded in other expense/(income).

(f) Gross expenses included in debt prepayment and extinguishment costs were $917 million ($728 million after-tax) in 2021 and $124 million ($93 million after-tax) in 2020 and were recorded in interest expense.

(g) Certain significant discrete income tax items were an expense of $235 million in 2021 and a benefit of $81 million in 2020.

(d) Gross expenses included in certain non-ordinary course legal and regulatory matters were $210 million ($161 million after-tax) in 2022 and $62 million ($62 million after-tax) in 2021 and were recorded in SG&A.

The 2022 expenses relate to an accrual in connection with the previously disclosed securities class action lawsuit.

The 2021 expenses relate to the settlement of the previously disclosed SEC investigation.

See Note 15, Commitments and Contingencies , in Item 8, Financial Statements and Supplementary Data , for additional information.

(e) Gross expenses/(income) included in losses/(gains) on sale of business were income of $25 million ($17 million after-tax) in 2022 and income of $44 million (expenses of $181 million after-tax) in 2021 and were recorded in other expense/(income).

(f) Gross expenses/(income) included in other losses/(gains) related to acquisitions and divestitures were income of $38 million ($29 million after-tax) in 2022 and were recorded in other expense/(income).

(g) Gross expenses included in nonmonetary currency devaluation were $17 million ($17 million after-tax) in 2022 and were recorded in other expense/(income).

(h) Gross expenses/(income) included in debt prepayment and extinguishment (benefit)/costs were income of $38 million ($35 million after-tax) in 2022 and expenses of $917 million ($728 million after-tax) in 2021 and were recorded in interest expense.

(i) Certain significant discrete income tax items were an expense of $235 million in 2021.

The impact in 2021 relates to the revaluation of our deferred tax balances due to an increase in U.K.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis