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

FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 201729, 2018
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number 001-37482
kraftheinzlogo26.jpg
The Kraft Heinz Company
(Exact name of registrant as specified in its charter)

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

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

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

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

As of October 28, 2017,27, 2018, there were 1,218,467,8361,219,434,812 shares of the registrant’s common stock outstanding.



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



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data.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 EndedFor the Three Months Ended For the Nine Months Ended
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Net sales$6,314
 $6,267
 $19,355
 $19,630
$6,378
 $6,280
 $19,368
 $19,241
Cost of products sold4,000
 4,049
 12,059
 12,503
4,271
 4,077
 12,651
 12,406
Gross profit2,314
 2,218
 7,296
 7,127
2,107
 2,203
 6,717
 6,835
Selling, general and administrative expenses653
 805
 2,163
 2,565
1,037
 665
 2,837
 2,220
Operating income1,661
 1,413
 5,133
 4,562
1,070
 1,538
 3,880
 4,615
Interest expense306
 311
 926
 824
327
 306
 962
 926
Other expense/(income), net(4) (3) 8
 (5)(71) (127) (196) (510)
Income/(loss) before income taxes1,359
 1,105
 4,199
 3,743
814
 1,359
 3,114
 4,199
Provision for/(benefit from) income taxes416
 262
 1,205
 1,045
186
 416
 738
 1,205
Net income/(loss)943
 843
 2,994
 2,698
628
 943
 2,376
 2,994
Net income/(loss) attributable to noncontrolling interest(1) 1
 (2) 10
(2) (1) (3) (2)
Net income/(loss) attributable to Kraft Heinz944
 842
 2,996
 2,688
Preferred dividends
 
 
 180
Net income/(loss) attributable to common shareholders$944
 $842
 $2,996
 $2,508
$630
 $944
 $2,379
 $2,996
Per share data applicable to common shareholders:              
Basic earnings/(loss)$0.78
 $0.69
 $2.46
 $2.06
$0.52
 $0.78
 $1.95
 $2.46
Diluted earnings/(loss)0.77
 0.69
 2.44
 2.05
0.51
 0.77
 1.94
 2.44
Dividends declared0.625
 0.60
 1.825
 1.75
0.625
 0.625
 1.875
 1.825

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 EndedFor the Three Months Ended For the Nine Months Ended
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Net income/(loss)$943
 $843
 $2,994
 $2,698
$628
 $943
 $2,376
 $2,994
Other comprehensive income/(loss), net of tax:              
Foreign currency translation adjustments421
 (148) 1,179
 (294)(146) 421
 (817) 1,179
Net deferred gains/(losses) on net investment hedges(124) 34
 (327) 79
13
 (124) 158
 (327)
Amounts excluded from the effectiveness assessment of net investment hedges3
 
 3
 
Net deferred losses/(gains) on net investment hedges reclassified to net income(2) 
 (2) 
Net deferred gains/(losses) on cash flow hedges(16) (70) 40
 (136)
Net deferred losses/(gains) on cash flow hedges reclassified to net income12
 51
 (10) 97
Net actuarial gains/(losses) arising during the period(4) (251) (13) (251)17
 (4) 70
 (13)
Prior service credits/(costs) arising during the period
 106
 1
 106

 
 
 1
Reclassification of net postemployment benefit losses/(gains)(51) (39) (260) (143)
Net deferred gains/(losses) on cash flow hedges(70) 31
 (136) (1)
Net deferred losses/(gains) on cash flow hedges reclassified to net income51
 (26) 97
 (44)
Net postemployment benefit losses/(gains) reclassified to net income(58) (51) (133) (260)
Total other comprehensive income/(loss)223
 (293) 541
 (548)(177) 223
 (691) 541
Total comprehensive income/(loss)1,166
 550
 3,535
 2,150
451
 1,166
 1,685
 3,535
Comprehensive income/(loss) attributable to noncontrolling interest(1) 3
 (4) 19
(4) (1) (16) (4)
Comprehensive income/(loss) attributable to Kraft Heinz$1,167
 $547
 $3,539
 $2,131
Comprehensive income/(loss) attributable to common shareholders$455
 $1,167
 $1,701
 $3,539

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 30, 2017 December 31, 2016September 29, 2018 December 30, 2017
ASSETS      
Cash and cash equivalents$1,441
 $4,204
$1,366
 $1,629
Trade receivables (net of allowances of $29 at September 30, 2017 and $20 at December 31, 2016)938
 769
Trade receivables (net of allowances of $24 at September 29, 2018 and $23 at December 30, 2017)2,032
 921
Sold receivables427
 129

 353
Income taxes receivable195
 582
Inventories3,188
 2,684
3,287
 2,815
Other current assets1,234
 967
710
 966
Total current assets7,228
 8,753
7,590
 7,266
Property, plant and equipment, net6,934
 6,688
7,216
 7,120
Goodwill44,858
 44,125
44,308
 44,824
Intangible assets, net59,500
 59,297
58,727
 59,449
Other assets1,531
 1,617
1,889
 1,573
TOTAL ASSETS$120,051
 $120,480
$119,730
 $120,232
LIABILITIES AND EQUITY      
Commercial paper and other short-term debt$455
 $645
$973
 $460
Current portion of long-term debt2,755
 2,046
405
 2,743
Trade payables3,947
 3,996
4,312
 4,449
Accrued marketing493
 749
494
 680
Accrued postemployment costs158
 157
Income taxes payable169
 255
104
 152
Interest payable295
 415
315
 419
Other current liabilities1,115
 1,238
978
 1,229
Total current liabilities9,387
 9,501
7,581
 10,132
Long-term debt28,299
 29,713
30,998
 28,333
Deferred income taxes20,898
 20,848
14,215
 14,076
Accrued postemployment costs1,808
 2,038
394
 427
Other liabilities688
 806
964
 1,017
TOTAL LIABILITIES61,080
 62,906
54,152
 53,985
Commitments and Contingencies (Note 13)
 
Commitments and Contingencies (Note 14)
 
Redeemable noncontrolling interest6
 6
Equity:      
Common stock, $0.01 par value (5,000 shares authorized; 1,221 shares issued and 1,218 shares outstanding at September 30, 2017; 1,219 shares issued and 1,217 shares outstanding at December 31, 2016)
12
 12
Common stock, $0.01 par value (5,000 shares authorized; 1,222 shares issued and 1,219 shares outstanding at September 29, 2018; 1,221 shares issued and 1,219 shares outstanding at December 30, 2017)
12
 12
Additional paid-in capital58,695
 58,593
58,793
 58,711
Retained earnings/(deficit)1,360
 588
Retained earnings8,576
 8,589
Accumulated other comprehensive income/(losses)(1,085) (1,628)(1,732) (1,054)
Treasury stock, at cost (3 shares at September 30, 2017 and 2 shares at December 31, 2016)(223) (207)
Treasury stock, at cost (3 shares at September 29, 2018 and 2 shares at December 30, 2017)(264) (224)
Total shareholders' equity58,759
 57,358
65,385
 66,034
Noncontrolling interest212
 216
187
 207
TOTAL EQUITY58,971
 57,574
65,572
 66,241
TOTAL LIABILITIES AND EQUITY$120,051
 $120,480
$119,730
 $120,232

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company
Condensed Consolidated StatementStatements of Equity
(in millions)
(Unaudited)
 Common Stock Additional Paid-in Capital Retained Earnings/(Deficit) Accumulated Other Comprehensive Income/(Losses) Treasury Stock Noncontrolling Interest Total Equity
Balance at December 31, 2016$12
 $58,593
 $588
 $(1,628) $(207) $216
 $57,574
Net income/(loss)
 
 2,996
 
 
 (2) 2,994
Other comprehensive income/(loss)
 
 
 543
 
 (2) 541
Dividends declared-common stock
 
 (2,225) 
 
 
 (2,225)
Exercise of stock options, issuance of other stock awards, and other
 102
 1
 
 (16) 
 87
Balance at September 30, 2017$12
 $58,695
 $1,360
 $(1,085) $(223) $212
 $58,971
 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income/(Losses) Treasury Stock Noncontrolling Interest Total Equity
Balance at December 30, 201712
 58,711
 8,589
 (1,054) (224) 207
 66,241
Net income/(loss) excluding redeemable noncontrolling interest
 
 2,379
 
 
 6
 2,385
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
 
 
 (678) 
 (13) (691)
Dividends declared-common stock
 
 (2,286) 
 
 
 (2,286)
Cumulative effect of accounting standards adopted in the period
 
 (97) 
 
 
 (97)
Exercise of stock options, issuance of other stock awards, and other
 82
 (9) 
 (40) (13) 20
Balance at September 29, 2018$12
 $58,793
 $8,576
 $(1,732) $(264) $187
 $65,572

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 EndedFor the Nine Months Ended
September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income/(loss)$2,994
 $2,698
$2,376
 $2,994
Adjustments to reconcile net income/(loss) to operating cash flows:   
   
Depreciation and amortization790
 1,010
736
 790
Amortization of postretirement benefit plans prior service costs/(credits)(247) (217)(261) (247)
Equity award compensation expense36
 38
44
 36
Deferred income tax provision/(benefit)492
 (28)96
 492
Pension contributions(174) (332)(45) (174)
Impairment losses499
 49
Nonmonetary currency devaluation131
 36
Other items, net(76) (122)17
 (161)
Changes in current assets and liabilities:      
Trade receivables(2,061) (1,443)(2,154) (2,061)
Inventories(580) (481)(663) (580)
Accounts payable123
 480
145
 123
Other current assets(137) (58)(105) (137)
Other current liabilities(1,144) (529)83
 (1,144)
Net cash provided by/(used for) operating activities16
 1,016
899
 16
CASH FLOWS FROM INVESTING ACTIVITIES:      
Cash receipts on sold receivables1,633
 1,850
1,296
 1,633
Capital expenditures(956) (836)(594) (956)
Payments to acquire business, net of cash acquired(248) 
Other investing activities, net47
 70
31
 47
Net cash provided by/(used for) investing activities724
 1,084
485
 724
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments of long-term debt(2,636) (74)(2,727) (2,636)
Proceeds from issuance of long-term debt1,496
 6,981
2,990
 1,496
Proceeds from issuance of commercial paper5,495
 4,296
2,485
 5,495
Repayments of commercial paper(5,709) (3,660)(1,950) (5,709)
Dividends paid-Series A Preferred Stock
 (180)
Dividends paid-common stock(2,161) (2,123)(2,421) (2,161)
Redemption of Series A Preferred Stock
 (8,320)
Other financing activities, net26
 56
(35) 26
Net cash provided by/(used for) financing activities(3,489) (3,024)(1,658) (3,489)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash43
 (17)(128) 43
Cash, cash equivalents, and restricted cash      
Net increase/(decrease)(2,706) (941)(402) (2,706)
Balance at beginning of period4,255
 4,912
1,769
 4,255
Balance at end of period$1,549
 $3,971
$1,367
 $1,549
   
NON-CASH INVESTING ACTIVITIES:   
Beneficial interest obtained in exchange for securitized trade receivables$938
 $1,936

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 30,
2017
 October 2,
2016
Non-cash investing activities:   
Beneficial interest obtained in exchange for securitized trade receivables$1,936
 $1,519

See accompanying notes to the condensed consolidated financial statements.


The Kraft Heinz Company
Notes to Condensed Consolidated Financial Statements
Note 1. Background and Basis of Presentation
Basis of Presentation:Presentation
Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). In management’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.
The condensed consolidated balance sheet data at December 31, 201630, 2017 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. You should read these statements in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2016.30, 2017. The results for interim periods are not necessarily indicative of future or annual results.
Organization:
On July 2, 2015, through a series of transactions, we consummated the merger of Kraft Foods Group, Inc. (“Kraft”) with and into a wholly-owned subsidiary of H.J. Heinz Holding Corporation (“Heinz”) (the “2015 Merger”). At the closing of the 2015 Merger, Heinz was renamed The Kraft Heinz Company (“Kraft Heinz”). Before the consummation of the 2015 Merger, Heinz was controlled by Berkshire Hathaway Inc. and 3G Global Food Holdings, L.P. (“3G Capital”), following their acquisition of H. J. Heinz Company (the “2013 Merger”) on June 7, 2013.New Accounting Pronouncements
Accounting Standards Adopted in the Current Year:
In March 2016,2017, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“ASU”) 2016-092017-07 related to equity-based award accountingthe presentation of net periodic benefit cost (pension and presentation. Under this guidance, excess tax benefits upon the exercise of share- based payment awards are recognized in our tax provision rather than within equity. Cash flows related to excess tax benefits are classified as operating activities rather than financing activities. Additionally, cash flows related to employee tax withholdings on restricted share vesting are classified as financing activities.postretirement cost). This ASU became effective beginning in the first quarter of 2017. Weour fiscal year 2018. Under the new guidance, the service cost component of net periodic benefit cost must be presented in the same statement of income line item as other employee compensation costs arising from services rendered by employees during the period. Other components of net periodic benefit cost must be disaggregated from the service cost component in the statements of income and must be presented outside the operating income subtotal. Additionally, only the service cost component is eligible for capitalization in assets. The new guidance must be applied retrospectively for the statement of income presentation of service cost components and other net periodic benefit cost components and prospectively for the capitalization of service cost components. There is a practical expedient that allows us to use historical amounts disclosed in our Postemployment Benefits footnote as an estimation basis for retrospectively applying the statement of income presentation requirements. In the first quarter of 2018, we adopted this ASU using the guidance relatedpractical expedient described above. The impact of retrospectively adopting this ASU on our historical statement of income is included in the table below. There was no associated impact to excess tax benefits on a prospective basis. As a result, we recognized a tax benefit in our condensed consolidated statement of income of $3 million for the three months and $19 million for the nine months ended Septemberbalance sheet at December 30, 2017 related to our excess tax benefits upon the exercise of share-based payment awards. We retrospectively adopted the guidance related to cash flow classification of employee tax withholdings on restricted share vesting. This guidance did not have a material impact onor our condensed consolidated statement of cash flows for the nine months ended October 2, 2016 or on our consolidated statement of cash flows for the year ended December 31, 2016. Our equity award compensation cost continues to reflect estimated forfeitures.September 30, 2017.
In August 2016, the FASB issued ASU 2016-15 related to the classification of certain cash payments and cash receipts on the statement of cash flows. This ASU provided guidance on eight specific cash flow classification matters, which must be adopted in the same period using a retrospective transition method. We early adopted this ASU in the first quarter of 2017. We now classify consideration received for beneficial interest obtained for transferring trade receivables in securitization transactions as investing activities instead of operating activities. Accordingly, we reclassified $1.9 billion of cash receipts from the payments on sold receivables (which are cash receipts on the underlying trade receivables that have already been securitized) to cash provided by investing activities (from cash provided by operating activities) for the nine months ended October 2, 2016. The related impact on our consolidated statement of cash flows for the year ended December 31, 2016 was $2.6 billion. In connection with the adoption of ASU 2016-15, we also corrected other immaterial cash flow misstatements within operating activities, which overstated the amount of beneficial interest obtained in the non-cash exchange from the securitization of trade receivables. Additionally, we now classify cash payments for debt prepayment and debt extinguishment costs as cash outflows from financing activities rather than cash outflows from operating activities, which had no impact our condensed consolidated statements of cash flows for the nine months ended October 2, 2016 or our consolidated statement of cash flows for the year ended December 31, 2016.

In November 2016, the FASB issued ASU 2016-18 requiring the statement of cash flows to explain the change in restricted cash and restricted cash equivalents, in addition to cash and cash equivalents. We early adopted this ASU in the first quarter of 2017. Accordingly, we restated our cash and cash equivalents balances in the condensed consolidated statements of cash flows to include restricted cash of $51 million at December 31, 2016, $51 million at October 2, 2016, and $75 million at January 3, 2016. Additionally, cash used for investing activities increased by $24 million for the nine months ended October 2, 2016 and increased by $24 million for the year ended December 31, 2016. As required by the ASU, we have provided a reconciliation from cash and cash equivalents as presented on our condensed consolidated balance sheets to cash, cash equivalents, and restricted cash as reported on our condensed consolidated statements of cash flows. See Note 3, Restricted Cash, for this reconciliation, as well as a discussion of the nature of our restricted cash balances.
Recently Issued Accounting Standards:
In May 2014, the FASB issued ASU 2014-09, which superseded previously existing revenue recognition guidance. Under this ASU, companies willmust apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration forto which the company expects to be entitled to in exchange for those goods or services. This ASU will be effective beginning in the first quarter of our fiscal year 2018. The ASU may be applied using a full retrospective method or a modified retrospective transition method, with a cumulative-effect adjustment as of the date of adoption. We currently expect the impact of this guidance to be immaterial to our financial statements and related disclosures. We will adopt this ASU using the full retrospective method on the first day of our fiscal year 2018.
In February 2016, the FASB issued ASU 2016-02, which superseded previously existing leasing guidance. The ASU also provides for certain practical expedients, including the option to expense as incurred the incremental costs of obtaining a contract, if the contract period is intended to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The new guidance requires lessees to reflect most leases on their balance sheets as assets and obligations.for one year or less. This ASU will bewas effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted. The new guidance must be2018. We adopted using a modified retrospective transition, and provides for certain practical expedients. While we are still evaluating the impact this ASU will havein the first quarter of 2018 using the full retrospective method and the practical expedient described above. Upon adoption, we made the following policy elections: (i) we account for shipping and handling costs as contract fulfillment costs, and (ii) we exclude taxes imposed on and collected from customers in revenue producing transactions (e.g., sales, use, and value added taxes) from the transaction price. The impact of adopting this guidance was immaterial to our financial statements and related disclosures,disclosures.
While the impact of the adoption of ASU 2014-09 was immaterial, at the same time we have completed our scoping reviews and have made progressretrospectively corrected immaterial misclassifications in our assessment phase. We have identifiedstatements of income principally related to customer incentive program expenses. The impact on our significant leases by geographystatement of income for the three months ended September 30, 2017 was a decrease to net sales of $34 million, a decrease to cost of products sold of $32 million, and by asset type as well asa decrease to selling, general and administrative expenses (“SG&A”) of $2 million. The impact on our leasing processes which will be impacted bystatement of income for the new standard. We have also made progressnine months ended September 30, 2017 was a decrease to net sales of $114 million, a decrease to cost of products sold of $108 million, and a decrease to SG&A of $6 million. These impacts are included in developing the policy elections we will make upon adoption. We expect that our financial statement disclosures will be expandedtable below. There was no associated impact to present additional details of our leasing arrangements. At this time, we are unable to reasonably estimate the expected increase in assets and liabilities on our condensed consolidated balance sheets upon adoption. We will adopt this ASUsheet at December 30, 2017 or our condensed consolidated statement of cash flows for the nine months ended September 30, 2017.

The impacts of these ASUs and reclassifications on the first dayour historical statements of our fiscal year 2019.income were as follows (in millions):
 For the Three Months Ended For the Nine Months Ended
 September 30, 2017 September 30, 2017
 As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted
Net sales$6,314
 $(34) $6,280
 $19,355
 $(114) $19,241
Cost of products sold4,000
 77
 4,077
 12,059
 347
 12,406
Gross profit2,314
 (111) 2,203
 7,296
 (461) 6,835
Selling, general and administrative expenses653
 12
 665
 2,163
 57
 2,220
Operating income1,661
 (123) 1,538
 5,133
 (518) 4,615
Other expense/(income), net(4) (123) (127) 8
 (518) (510)
Income/(loss) before income taxes1,359
 
 1,359
 4,199
 
 4,199
In October 2016, the FASB issued ASU 2016-16 related to the income tax accounting impacts of intra-entity transfers of assets other than inventory, such as intellectual property and property, plant and equipment. Under the new accounting guidance, current and deferred income taxes should be recognized upon transfer of the assets. Previously, recognition of current and deferred income taxes was prohibited until the asset was sold to an external party. This ASU will bebecame effective beginning in the first quarter of our fiscal year 2018. Early adoption is permitted but must beWe adopted in the first interim period of the annual period for which the ASU is adopted. Thethis new guidance must be adopted on a modified retrospective basis through a cumulative-effect adjustment of $95 million to decrease retained earnings in the first quarter of 2018.
In January 2017, the FASB issued ASU 2017-01 clarifying the definition of a business used in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU provides a screen for companies to determine if an integrated set of assets and activities (“set”) is not a business. If substantially all of the beginningfair value of the adoption period. We will adoptgross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If this screen is not met, the entity then determines if the set meets the minimum requirement of a business. For a set to be a business, it must include an input and a substantive process which together significantly contribute to the ability to create outputs. This ASU onbecame effective beginning in the first dayquarter of our fiscal year 2018. While we are still evaluating the impactWe adopted this ASU on a prospective basis. The adoption of this ASU we currently anticipate a cumulative effect adjustment to retained earnings of approximately $100 million upon adoption.did not impact our financial statements or related disclosures.
In January 2017, the FASB issued ASU 2017-04 related to goodwill impairment testing. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entitiescompanies that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test; however, additional disclosure will be required of those entities.companies. We early adopted this guidance on a prospective basis as of April 1, 2018 (our annual impairment testing date in the second quarter of 2018). As a result of adopting this ASU, we did not perform Step 2 while completing our impairment testing.
In August 2017, the FASB issued ASU 2017-12 related to accounting for hedging activities. This guidance impacted the accounting for financial (e.g., foreign exchange and interest rate) and non-financial (e.g., commodity) hedging activities. We early adopted this guidance on a modified retrospective basis in the third quarter of 2018. Upon adoption, we recognized an insignificant cumulative-effect adjustment to retained earnings. The most significant impacts of adoption are that we now:
Recognize changes in the fair value of excluded components in net income in the current period or in other comprehensive income (and then amortize into net income over the life of the hedging relationship);
Defer changes in the spot rate of the hedging instrument into other comprehensive income, while the excluded component (i.e., forward points or option premiums or discounts) is amortized into net income over the life of the hedging relationship. When the excluded component is released or the forecasted transaction occurs, it is recognized in the same income statement line item affected by the hedged item; and,
Present additional details in our tabular disclosures in the footnotes to the financial statements.
Additionally, ASU 2017-12 eliminated the requirement to separately measure and report hedge ineffectiveness; therefore, we removed disclosures related to hedge ineffectiveness. See our condensed consolidated statements of other comprehensive income, Note 1, Background and Basis of Presentation, Note 10, Financial Instruments, and Note 11, Accumulated Other Comprehensive Income/(Losses), for updated disclosures pursuant to ASU 2017-12.

Accounting Standards Not Yet Adopted:
In February 2016, the FASB issued ASU 2016-02 to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The updated guidance requires lessees to reflect most leases on their balance sheets as assets and obligations. The ASU also provides for certain practical expedients, which we are considering for adoption. This ASU will be effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted. The guidance must be adopted using a modified retrospective transition. Among the practical expedients is an optional transition method that allows companies to apply the guidance at the adoption date and recognize a cumulative-effect adjustment to retained earnings on the adoption date. We plan to elect this practical expedient upon adoption. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures. We have completed our scoping reviews, identified our significant leases by geography and by asset type, and made progress in developing accounting policies and policy elections upon adoption of the standard. We have also developed a lease data extraction strategy and commenced data extraction efforts. Furthermore, we have identified an accounting system to support the future state leasing process and have started to develop our future state process design as part of the overall system implementation. Upon adoption, we expect that our financial statement disclosures will be expanded to present additional details of our leasing arrangements. We expect this guidance to have a significant impact on our financial statements; however, at this time, we are unable to reasonably estimate the expected increase in assets and liabilities on our condensed consolidated balance sheets upon adoption. We will adopt this ASU on the first day of our fiscal year 2019.
In February 2018, the FASB issued ASU 2018-02 related to reclassifying tax effects stranded in accumulated other comprehensive income because of the Tax Cuts and Jobs Act enacted on December 22, 2017 (“U.S. Tax Reform”). U.S. Tax Reform reduced the U.S. federal corporate tax rate from 35.0% to 21.0%. Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, requires the remeasurement of deferred tax assets and liabilities as a result of such changes in tax laws or rates to be presented in net income from continuing operations. However, the related tax effects of such deferred tax assets and liabilities may have been originally recorded in other comprehensive income. This ASU allows companies to reclassify such stranded tax effects from accumulated other comprehensive income to retained earnings. This reclassification adjustment is optional, and if elected, may be applied either to the period of adoption or retrospectively to the period(s) impacted by U.S. Tax Reform. Additionally, this ASU requires companies to disclose the policy election for stranded tax effects as well as the general accounting policy for releasing income tax effects from accumulated other comprehensive income. This ASU will be effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted, including in an interim period. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures as well as the timing of adoption and the application method.
In August 2018, the FASB issued ASU 2018-13 related to fair value measurement disclosures. This ASU removes the requirement to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy and the policy for determining that a transfer has occurred. Additionally, this ASU modifies the disclosures related to the measurement uncertainty for recurring Level 3 fair value measurements (by removing the requirement to disclose sensitivity to future changes) and the timing of liquidation of investee assets (by removing the timing requirement in certain instances). The guidance also requires new disclosures for Level 3 financial assets and liabilities, including the amount and location of unrealized gains and losses recognized in other comprehensive income and additional information related to significant unobservable inputs used in determining Level 3 fair value measurements. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption of the guidance in whole is permitted. Alternatively, companies may early adopt removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Some of the amendments in this ASU must be applied prospectively upon adoption, while other amendments must be applied retrospectively upon adoption. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures as well as the timing of adoption.
In August 2018, the FASB issued ASU 2018-14 related to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The guidance requires sponsors of these plans to provide additional disclosures, including weighted-average interest rates used in the company’s cash balance plans and a narrative description of reasons for any significant gains or losses impacting the benefit obligation for the period. Additionally, this guidance eliminates certain previous disclosure requirements. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption is permitted. This guidance must be applied on a retrospective basis to all periods presented. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures as well as the timing of adoption.

In August 2018, the FASB issued ASU 2018-15 related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption is permitted, for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance must be adopted on a prospective basis. While we are still evaluating the timing of adoption, we currently do not expect this ASU to have a material impact on our financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017-07 related to the presentation of net periodic benefit cost (pension and postretirement cost). This ASU will be effective beginning in the first quarter of our fiscal year 2018. Under the new guidance, the service cost component of net periodic benefit cost must be presented in the same statement of income line item as other employee compensation costs arising from services rendered by employees during the period. Other components of net periodic benefit cost must be disaggregated from the service cost component in the statements of income and must be presented outside the operating income subtotal. Additionally, only the service cost component will be eligible for capitalization in assets. The new guidance must be applied retrospectively for the statement of income presentation of service cost components and other net periodic benefit cost components and prospectively for the capitalization of service cost components. There is a practical expedient that allows us to use historical amounts disclosed in our Postemployment Benefits footnote as an estimation basis for retrospectively applying the statement of income presentation requirements. We plan to use this practical expedient when we adopt this ASU on the first day of our fiscal year 2018. The retrospective impact of adopting ASU 2017-07 in 2018 is expected to be (in millions):
 For the Three Months Ended For the Nine Months Ended For the Year Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
 December 31,
2016
Increase/(decrease) to cost of products sold$109
 $81
 $455
 $259
 $373
Increase/(decrease) to selling, general and administrative expenses14
 14
 63
 66
 93
Increase/(decrease) to operating income(a)
(123) (95) (518) (325) (466)
(a)Includes amortization of prior service costs/(credits), curtailments, special/contractual termination benefits, and certain settlements. These components of net pension and postretirement cost/(benefit) totaled approximately $(80) million for the three months and $(400) million for the nine months ended September 30, 2017, approximately $(70) million for the three months and $(240) million for the nine months ended October 2, 2016, and approximately $(340) million for the year ended December 31, 2016.
In August 2017, the FASB issued ASU 2017-12 related to accounting for hedging activities. This guidance will impact the accounting for our financial (i.e., foreign exchange and interest rate) and non-financial (i.e., commodity) hedging activities. Key components of this ASU that could impact us are as follows:
Grants the ability to hedge the risk associated with the change in a contractually specified component of the purchase or sale of a non-financial item instead of the total contractual price, which could allow more commodity contracts to qualify for hedge accounting;
Requires us to defer the entire change in value of the derivative, including the effective and ineffective portion, into other comprehensive income until the hedged item impacts net income. When released, the deferred hedge gains and losses, including the ineffective portion, will be recognized in the same statement of income line affected by the hedged item;
Allows us to recognize changes in the fair value of excluded components in other comprehensive income (which will be amortized into net income over the life of the derivative) or in net income in the related period;
Changes hedge effectiveness testing, including timing and allowable methods of testing; and,
Requires additional tabular disclosures in the footnotes to the financial statements.
The method for adopting the revised standard is modified retrospective. This ASU will be effective beginning in the first quarter of our fiscal year 2019; however, early adoption is permitted, including in an interim period. This guidance may be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the timing of adoption and the impact this ASU will have on our financial statements and related disclosures.disclosures as well as the timing of adoption and the application method.
Significant Accounting Policies
The following significant accounting policies were updated in 2018 to reflect changes upon adoption of ASU 2014-09, ASU 2017-07, and ASU 2017-12. There were no other changes to our accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2017.
Revenue Recognition:
Our revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations are fulfilled when control passes to our customers. We record revenues net of variable consideration including consumer incentives and performance obligations related to trade promotions, excluding taxes, and including all shipping and handling charges billed to customers (accounting for shipping and handling charges that occur after the transfer of control as fulfillment costs). We also record a refund liability for estimated product returns and customer allowances as reductions to revenues within the same period that the revenue is recognized. We base these estimates principally on historical and current period experience factors. We recognize costs paid to third party brokers to obtain contracts as expenses as our contracts are generally less than one year.
Advertising, Consumer Incentives, and Trade Promotions:
We promote our products with advertising, consumer incentives, and performance obligations related to trade promotions. Consumer incentives and trade promotions include, but are not limited to, discounts, coupons, rebates, performance-based in-store display activities, and volume-based incentives. Variable consideration related to consumer incentive and trade promotion activities is recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization, redemption rates, or current period experience factors. We review and adjust these estimates each quarter based on actual experience and other information.
Postemployment Benefit Plans:
We maintain various retirement plans for the majority of our employees. These include pension benefits, postretirement health care benefits, and defined contribution benefits. The cost of these plans is charged to expense over the working life of the covered employees. We generally amortize net actuarial gains or losses in future periods within other expense/(income), net.
Financial Instruments:
As we source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use a variety of risk management strategies and financial instruments to manage commodity price, foreign currency exchange rate, and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. One way we do this is through actively hedging our risks through the use of derivative instruments. As a matter of policy, we do not use highly leveraged derivative instruments, nor do we use financial instruments for speculative purposes.
Derivatives are recorded on our consolidated balance sheets at fair value, which fluctuates based on changing market conditions.

Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others are not designated as hedging instruments and are marked to market through net income. The gains and losses on cash flow hedges are deferred as a component of accumulated other comprehensive income/(losses) and are recognized in net income at the time the hedged item affects net income, in the same line item as the underlying hedged item. The excluded component on cash flow hedges (i.e., forward points or option premiums or discounts) is recognized in net income over the life of the hedging relationship. We also designate certain derivatives and non-derivatives as net investment hedges to hedge the net assets of certain foreign subsidiaries which are exposed to volatility in foreign currency exchange rates. Changes in the value of these derivatives and remeasurements of our non-derivatives designated as net investment hedges are calculated each period using the spot method, with changes reported in foreign currency translation adjustment within accumulated other comprehensive income/(losses). Such amounts will remain in accumulated other comprehensive income/(losses) until the complete or substantially complete liquidation of our investment in the underlying foreign operations. The excluded component on derivatives designated as net investment hedges is recognized in net income within interest expense. The income statement classification of gains and losses related to derivative instruments not designated as hedging instruments is determined based on the underlying intent of the contracts. Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities. All other cash flows related to derivative instruments are classified in the same line item as the cash flows of the related hedged item, which is generally within operating activities. For additional information on derivative activity within our operating results, see Note 10, Financial Instruments.
To qualify for hedge accounting, a specified level of hedging effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. When a hedging instrument no longer meets the specified level of hedging effectiveness, we reclassify the related hedge gains or losses previously deferred into other comprehensive income/(losses) to net income within other expense/(income), net. We formally document our risk management objectives, our strategies for undertaking the various hedge transactions, the nature of and relationships between the hedging instruments and hedged items, and the method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. If it becomes probable that a forecasted transaction will not occur, the hedge will no longer be effective and all of the derivative gains or losses would be recognized in net income in the current period.
Unrealized gains and losses on our commodity derivatives not designated as hedging instruments are recorded in general corporate expenses until realized. Once realized, the gains and losses are recorded within the applicable segment operating results.
When we use financial instruments, we are exposed to credit risk that a counterparty might fail to fulfill its performance obligations under the terms of our agreement. We minimize our credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure we have with each counterparty, and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of greater than one year be governed by an International Swaps and Derivatives Association master agreement. We are also exposed to market risk as the value of our financial instruments might be adversely affected by a change in foreign currency exchange rates, commodity prices, or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use and the degree of market risk that we hedge with derivative instruments.
Net investment hedges:
We have numerous investments in our foreign subsidiaries, the net assets of which are exposed to volatility in foreign currency exchange rates. We manage this risk by utilizing derivative and non-derivative instruments, including cross-currency swap contracts and certain foreign denominated debt designated as net investment hedges. We exclude the interest accruals on cross-currency swap contracts and the forward points on foreign exchange forward contracts from the assessment and measurement of hedge effectiveness. We recognize the interest accruals on cross-currency swap contracts in net income within interest expense. We amortize the forward points on foreign exchange contracts into net income within interest expense over the life of the hedging relationship.
Foreign currency cash flow hedges:
We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. Our principal foreign currency exposures that are hedged include the British pound sterling, euro, and Canadian dollar. These instruments include foreign exchange forward and option contracts. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment. We exclude forward points and option premiums or discounts from the assessment and measurement of hedge effectiveness and amortize such amounts into net income in the same line item as the underlying hedged item over the life of the hedging relationship.

Interest rate cash flow hedges:
From time to time, we have used derivative instruments, including interest rate swaps, as part of our interest rate risk management strategy. We have primarily used interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations.
Commodity derivatives:
We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity purchase contracts primarily for dairy products, meat products, coffee beans, sugar, vegetable oils, wheat products, corn products, and cocoa products. These commodity purchase contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases and normal sales exception. We also use commodity futures, options, and swaps to economically hedge the price of certain commodity costs, including the commodities noted above, as well as packaging products, diesel fuel, and natural gas. We do not designate these commodity contracts as hedging instruments. We also occasionally use futures to economically cross hedge a commodity exposure.
Subsequent Events
On October 24, 2018, we entered into an agreement with Zydus Wellness Limited (“Zydus”) and Cadila Healthcare Limited (“Cadila”) (collectively, the “Buyers”) to sell 100% of our equity interests in Heinz India Private Limited (“Heinz India”) for approximately $625 million (the “Heinz India Transaction”). In connection with the Heinz India Transaction, we will transfer to the Buyers, among other assets and operations, our global intellectual property rights to several brands, including Complan, Glucon-D, Nycil, and Sampriti. Our core brands (i.e., Heinz and Kraft) will not be transferred. While this transaction is contingent on customary closing conditions, including regulatory approvals, we expect the Heinz India Transaction to be finalized in early 2019.
Note 2. Acquisitions and Divestiture
Cerebos Acquisition
On March 9, 2018 (the “Acquisition Date”), we acquired all of the outstanding equity interests in Cerebos Pacific Limited (“Cerebos”) (the “Cerebos Acquisition”), an Australian and New Zealand food and beverage company with several iconic local brands. The Cerebos business manufactures, markets, and sells food and beverage products, including gravies, sauces, instant coffee, salt, herbs and spices, and tea. Cerebos is included in our condensed consolidated financial statements as of the Acquisition Date. We included the results of Cerebos from March 9 to March 31, 2018 in our condensed consolidated statement of income for the three months ended June 30, 2018. These results were insignificant. The preliminary opening balance sheet of Cerebos was included in our current period condensed consolidated balance sheet. We have not included unaudited pro forma results, prepared in accordance with ASC 805, as if Cerebos had been acquired as of January 1, 2018, as it would not yield significantly different results.
The Cerebos Acquisition was accounted for under the acquisition method of accounting for business combinations. The total consideration paid for Cerebos was approximately $244 million. We utilized estimated fair values at the 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 Cerebos Acquisition is preliminary and subject to adjustments.
The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the Acquisition Date). The primary areas of accounting for the Cerebos Acquisition that are not yet finalized relate to the fair value of certain tangible and intangible 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 necessary 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 Acquisition Date, if any, 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 net income.

The preliminary purchase price allocation to assets acquired and liabilities assumed in the Cerebos Acquisition was (in millions):
Cash$23
Other current assets65
Property, plant and equipment, net75
Identifiable intangible assets100
Trade and other payables(41)
Other non-current liabilities(3)
Net assets acquired219
Goodwill on acquisition25
Total consideration$244
From the Acquisition Date through the end of our third quarter 2018, we made insignificant measurement period adjustments. We made these measurement period adjustments to reflect facts and circumstances that existed as of the Acquisition Date and did not result from intervening events subsequent to such date.
The Cerebos Acquisition preliminarily resulted in $25 million of non tax deductible goodwill relating principally to planned expansion of Cerebos brands into new categories and markets. Goodwill was allocated to our segments as shown in Note 6, Goodwill and Intangible Assets.
The preliminary purchase price allocation to identifiable intangible assets acquired in the Cerebos Acquisition was:
 
Fair Value
(in millions of dollars)
 
Weighted Average Life
(in years)
Definite-lived trademarks$87
 22
Customer-related assets13
 12
Total$100
  
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 plans, and market comparables.
We used carrying values as of the Acquisition Date to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as we determined that they represented the fair value of those items at the Acquisition Date.
We valued finished goods and work-in-process inventory using a net realizable value approach. Raw materials and packaging inventory was valued using the replacement cost approach.
We valued property, plant and equipment using a combination of the income approach, the market approach and the cost approach, which is based on the current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors.
We incurred deal costs of $2 million for the three months and $18 million for the nine months ended September 29, 2018 related to the Cerebos Acquisition.

Other Acquisitions
In the third quarter of 2018, we had two additional acquisitions of businesses. The aggregate consideration paid related to these acquisitions was $27 million. We incurred deal costs related to these acquisitions of $1 million for the three and nine months ended September 29, 2018.
Divestiture
On May 31, 2018, we sold our 50.1% interest in our South African subsidiary to our minority interest partner. The transaction included proceeds of $18 million, which are included in other investing activities, net on the condensed consolidated statement of cash flows for the nine months ended September 29, 2018. We recorded a pre-tax loss on sale of business of approximately $15 million. The pre-tax loss was included in SG&A on the condensed consolidated statements of income for the nine months ended September 29, 2018.
Note 2.3. Integration and Restructuring Expenses
As part of our restructuring activities, we incur expenses that qualify as exit and disposal costs under U.S. GAAP. These include severance and employee benefit costs and other exit costs. Severance and employee benefit costs primarily relate to cash severance, non-cash severance, including accelerated equity award compensation expense, and pension and other termination benefits. Other exit costs primarily relate to lease and contract terminations. We also incur expenses that are an integral component of, and directly attributable to, our restructuring activities, which do not qualify as exit and disposal costs under U.S. GAAP. These include asset-related costs and other implementation costs. Asset-related costs primarily relate to accelerated depreciation and asset impairment charges. Other implementation costs primarily relate to start-up costs of new facilities, professional fees, asset relocation costs, and costs to exit facilities.

facilities, and costs associated with restructuring benefit plans.
Employee severance and other termination benefit packages are primarily determined based on established benefit arrangements, local statutory requirements, or historical benefit practices. We recognize the contractual component of these benefits when payment is probable and estimable; additional elements of severance and termination benefits associated with non-recurring benefits are recognized ratably over each employee’s required future service period. Charges for accelerated depreciation are recognized on long-lived assets that will be taken out of service before the end of their normal service, in which case depreciation estimates are revised to reflect the use of the asset over its shortened useful life. Asset impairments establish a new fair value basis for assets held for disposal or sale, and those assets are written down to expected net realizable value if carrying value exceeds fair value. All other costs are recognized as incurred.
Integration Program:
Following theIn July 2015, Merger, we announced a multi-year program (the “Integration Program”) designed to reduce costs, streamline and simplify our operating structure as well as optimize our production and supply chain network across our businesses in the United States and Canada segments. We expect to incur pre-tax costsAs of $2.1 billion related to theDecember 30, 2017, we had substantially completed our Integration Program. These pre-tax costs are comprised of the following categories:
Organization costs ($400 million) associated with our plans to streamline and simplify our operating structure, resulting in workforce reduction (primarily severance and employee benefit costs).
Footprint costs ($1.3 billion) associated with our plans to optimize our production and supply chain network, resulting in workforce reduction and facility closures and consolidations (primarily asset-related costs and severance and employee benefit costs).
Other costs ($400 million) incurred as a direct result of integration activities, including other exit costs (primarily lease and contract terminations) and other implementation costs (primarily professional services and other third-party fees).
We expect that approximatelyApproximately 60% of thetotal Integration Program expenses will becosts were reflected in cost of products sold and approximately 60% will bewere cash expenditures.
Overall, as part of the Integration Program, we expect to eliminate 5,150 positions, closeclosed net six factories, and consolidateconsolidated our distribution network. At September 30, 2017, the totalnetwork, and eliminated 4,900 positions. The Integration Program liability at September 29, 2018 related primarily to lease terminations in the U.S. and Canada and the elimination of general salaried positions in Canada and factory positions across the United States and Canada, 4,800 of whom have left the Company by September 30, 2017. Additionally, asU.S.
As of September 30, 2017,29, 2018, we have closed net six factories.
Related toincurred cumulative costs of $2,145 million, including $10 million for the Integration Program, we incurred costs ofthree months and $90 million for the nine months ended September 29, 2018 and $79 million for the three months and $157 million for the nine months ended September 30, 2017 and $2222017. The $2,145 million for the three months and $722 million for the nine months ended October 2, 2016. As of September 30, 2017, we have incurred approximately $1.9 billion of cumulative costs under the Integration Program, including $543included $542 million of severance and employee benefit costs, $803$890 million of non-cash asset-related costs, $417$604 million of other implementation costs, and $110$109 million of other exit costs. The related amounts incurred during the three months ended September 29, 2018 were $7 million of non-cash asset-related costs and $3 million of other implementation costs. The related amounts incurred during the nine months ended September 29, 2018 were $3 million of severance and employee benefit costs, $32 million of non-cash asset-related costs, $54 million of other implementation costs, and $1 million of other exit costs.
InWe expect to incur an insignificant amount of additional Integration Program costs in the secondfourth quarter of 2017, we recognized a curtailment gain of $168 million, which was classified as Integration Program expenses. The curtailment was triggered by the number of cumulative headcount reductions after the closure of certain U.S. factories in the second quarter of 2017. The resulting gain is attributed to accelerating a portion of the previously deferred actuarial gains and prior service credits. An additional curtailment gain of $9 million was recognized during the third quarter of 2017 based on additional employee exits associated with these factory closures. See Note 8, Postemployment Benefits, and Note 9, Accumulated Other Comprehensive Income/(Losses), for the related curtailment gain.2018.

Our liability balance for Integration Program 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(a)
 Total
Balance at December 31, 2016$99
 $10
 $109
Charges/(credits)(138) 15
 (123)
Cash payments(55) (3) (58)
Non-cash utilization138
 (3) 135
Balance at September 30, 2017$44
 $19
 $63
 Severance and Employee Benefit Costs 
Other Exit Costs(a)
 Total
Balance at December 30, 2017$24
 $22
 $46
Charges3
 1
 4
Cash payments(8) (3) (11)
Non-cash utilization(9) (5) (14)
Balance at September 29, 2018$10
 $15
 $25
(a) Other exit costs primarily consist of lease and contract terminations.
We expect the liability for severance and employee benefit costs as of September 30, 201729, 2018 to be paid in 2017.by the end of 2019. The liability for other exit costs primarily relates to lease obligations associated with restructuring programs executed prior to the 2015 Merger.obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2019 and 2026.

Restructuring Activities:
In addition to our Integration Program in North America, we have a small number of other restructuring programs globally, which are focused primarily on workforce reduction, and factory closure and consolidation.consolidation, and benefit plan restructuring. Related to these programs, we expect to eliminate approximately 500 employees left the Company1,500 positions, 1,000 of which were eliminated during the nine months ended September 30, 2017.29, 2018. These programs resulted in expenses of $16$188 million forduring the threenine months ended September 30, 2017,29, 2018, including $8$31 million of severance and employee benefit costs, $7$8 million of non-cash asset-related costs, $148 million of other implementation costs, and $1 million of other exit costs. Other restructuring expenses during the three months ended September 29, 2018 were $21 million, including $7 million of severance and employee benefit gains, $7 million of non-cash asset-related costs, and $21 million of other implementation costs. Other restructuring program expenses totaled $16 million for the three months and $80 million for the nine months ended September 30, 2017 were $80 million, including $37 million of severance and employee benefit costs, $1 million of non-cash asset-related costs, $32 million of other implementation costs, and $10 million of other exit costs. Other restructuring program expenses totaled $15 million for the three months and $59 million for the nine months ended October 2, 2016.2017.
Our 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(a)
 Total
Balance at December 31, 2016$12
 $25
 $37
Charges/(credits)37
 10
 47
Cash payments(32) (6) (38)
Non-cash utilization(7) 
 (7)
Balance at September 30, 2017$10
 $29
 $39
 Severance and Employee Benefit Costs 
Other Exit Costs(a)
 Total
Balance at December 30, 2017$16
 $25
 $41
Charges31
 1
 32
Cash payments(23) (5) (28)
Non-cash utilization4
 
 4
Balance at September 29, 2018$28
 $21
 $49
(a) Other exit costs primarily consist of lease and contract terminations.
We expect a substantial portion of the liability for severance and employee benefit costs as of September 30, 201729, 2018 to be paid in 2017.by the end of 2019. The liability for other exit costs primarily relates to lease obligations associated with restructuring programs executed prior to the 2015 Merger.obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 20172019 and 2026.

Total Integration and Restructuring:
Total expensescosts/(credits) related to the Integration Program and restructuring activities, recorded in cost of products sold and selling, general and administrative expensesby income statement caption, were (in millions):
For the Three Months Ended For the Nine Months EndedFor the Three Months Ended For the Nine Months Ended
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Severance and employee benefit costs - COGS$(22) $14
 $(139) $43
$(8) $(17) $17
 $1
Severance and employee benefit costs - SG&A(3) 43
 38
 89
2
 (4) 12
 49
Severance and employee benefit costs - Other expense/(income), net(1) (4) 5
 (151)
Asset-related costs - COGS34
 89
 134
 368
8
 34
 33
 134
Asset-related costs - SG&A8
 9
 21
 35
6
 8
 7
 21
Other costs - COGS68
 49
 129
 121
18
 68
 125
 129
Other costs - SG&A10
 33
 54
 125
6
 10
 21
 54
Other costs - Other expense/(income), net
 
 58
 
$95
 $237
 $237
 $781
$31
 $95
 $278
 $237
We do not include Integration Program and restructuring expenses within Segment Adjusted EBITDA (as defined in Note 15,16, Segment Reporting). The pre-tax impact of allocating such expenses to our segments would have been (in millions):
For the Three Months Ended For the Nine Months EndedFor the Three Months Ended For the Nine Months Ended
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
United States$75
 $161
 $118
 $607
$23
 $75
 $144
 $118
Canada(3) 16
 21
 43
4
 (3) 70
 21
Europe6
 5
 45
 33
EMEA(11) 6
 17
 46
Rest of World
 
 11
 
5
 
 14
 10
General corporate expenses17
 55
 42
 98
10
 17
 33
 42
$95
 $237
 $237
 $781
$31
 $95
 $278
 $237
In the first quarter of 2018, we reorganized our segment structure to move our Middle East and Africa businesses from the Rest of World segment to the Europe, Middle East, and Africa (“EMEA”) reportable segment. We have reflected this change in all historical periods presented. This change did not have a material impact on our current or any prior period results. See Note 16, Segment Reporting, for additional information.

Note 3.4. 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 30, 2017 December 31, 2016
Cash and cash equivalents$1,441
 $4,204
Restricted cash included in other assets (current)108
 42
Restricted cash included in other assets (noncurrent)
 9
Cash, cash equivalents, and restricted cash$1,549
 $4,255
Our restricted cash primarily relates to withholding taxes on our common stock dividends to our only significant international shareholder, 3G Capital.
 September 29,
2018
 December 30, 2017
Cash and cash equivalents$1,366
 $1,629
Restricted cash included in other assets (current)1
 140
Cash, cash equivalents, and restricted cash$1,367
 $1,769
Note 4.5. Inventories
Inventories consisted of the following (in millions):
September 30, 2017 December 31, 2016September 29, 2018 December 30, 2017
Packaging and ingredients$713
 $542
$635
 $560
Work in process464
 388
502
 439
Finished product2,011
 1,754
2,150
 1,816
Inventories$3,188
 $2,684
$3,287
 $2,815
The increase in inventories for the nine months ended September 30, 2017 was primarily due to seasonality in the U.S.

Note 5.6. Goodwill and Intangible Assets
Goodwill:
Changes in the carrying amount of goodwill, by segment, were (in millions):
 United States Canada Europe Rest of World Total
Balance at December 31, 2016$33,696
 $4,913
 $2,778
 $2,738
 $44,125
Translation adjustments and other
 379
 250
 104
 733
Balance at September 30, 2017$33,696
 $5,292
 $3,028
 $2,842
 $44,858
 United States Canada EMEA Rest of World Total
Balance at December 30, 2017$33,700
 $5,246
 $3,238
 $2,640
 $44,824
Impairment losses
 
 
 (164) (164)
Acquisitions
 16
 
 25
 41
Translation adjustments and other
 (132) (125) (136) (393)
Balance at September 29, 2018$33,700
 $5,130
 $3,113
 $2,365
 $44,308
In the first quarter of 2018, we reorganized our segment structure to move our Middle East and Africa businesses from the Rest of World segment to the EMEA reportable segment. We have reflected this change in all historical periods presented. Accordingly, the segment goodwill balances at December 30, 2017 reflect an increase of $179 million in EMEA and a corresponding decrease in Rest of World. This change did not have a material impact on our current or any prior period results. See Note 16, Segment Reporting, for additional information.
See Note 2, Acquisitions and Divestiture, for additional information related to our acquisitions.
Our goodwill balance consists of 20 reporting units and had an aggregate carrying value of $44.3 billion as of September 29, 2018. We test goodwill for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 20172018 annual impairment test as of April 2, 2017.1, 2018. As a result of our 20172018 annual impairment test, therewe recognized a non-cash impairment loss of $164 million in SG&A related to our Australia and New Zealand reporting unit. This impairment loss was no impairmentprimarily due to margin declines in the region. The goodwill carrying value of goodwill. Eachthis reporting unit was $509 million prior to its impairment. Additionally, five of our goodwill20 reporting units each had excess fair value over its carrying value of at leastless than 10% as. As of April 2, 2017.
Ourthe impairment test date, the goodwill balance consists of 18carrying values associated with these reporting units were $4.7 billion for Canada Retail, $424 million for Latin America Exports, $407 million for Northeast Asia, $326 million for Southeast Asia, and had an aggregate carrying$232 million for Other Latin America.
We generally utilize the discounted cash flow method under the income approach to estimate the fair value of $44.9 billion asour reporting units. Some of September 30, 2017. As a majority of our goodwill was recently recordedthe more significant assumptions inherent in connection withestimating the 2013 Merger and the 2015 Merger, representing fair values asinclude the estimated future annual net cash flows for each reporting unit (including net sales, cost of those merger dates, there was notproducts sold, SG&A, working capital, and capital expenditures), income tax rates, and a significant excessdiscount rate that appropriately reflects the risk 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 plans, and guideline companies.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of fair values over carrying values as of April 2, 2017. We have a risk of future impairment to the extent that individual reporting unit performance does not meetunits requires us to make assumptions and estimates regarding our projections. Additionally, iffuture plans, as well as industry and economic conditions. If our current assumptions and estimates, including projected revenues andfuture annual net cash flows, income growth rates, terminal growth rates, competitive and consumer trends, market-based discounttax rates, and other market factors,discount rates, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair value of our goodwill could be adversely affected, leading to a potential impairment in the future. Additionally, as a majority of our goodwill was recorded in connection with business combinations that occurred in 2015 and 2013, representing fair values as of the respective transaction dates, those amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate. No events occurred during the three monthsperiod ended September 30, 201729, 2018 that indicated it was more likely than not that our goodwill was impaired.
Accumulated impairment losses to goodwill were $164 million at September 29, 2018. There were no accumulated impairment losses to goodwill as of Septemberat December 30, 2017.

Indefinite-lived intangible assets:
Indefinite-livedChanges in the carrying amount of indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):
Balance at December 31, 2016$53,307
Translation adjustments380
Impairment losses on indefinite-lived intangible assets(48)
Balance at September 30, 2017$53,639
Balance at December 30, 2017$53,655
Impairment losses(316)
Transfers to definite-lived intangible assets(72)
Translation adjustments(229)
Balance at September 29, 2018$53,038

Our indefinite-lived intangible assets primarily consist of a large number of individual brands and had an aggregate carrying value of $53.0 billion as of September 29, 2018. We test indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 20172018 annual impairment test as of April 2, 2017.1, 2018. As a result of our 20172018 annual impairment test, we recognized a non-cash impairment loss of $101 million in SG&A in the second quarter of 2018. This impairment loss was due to net sales and margin declines related to the Quero brand in Brazil. Additionally, as of April 1, 2018, two brands (ABC and Smart Ones) each had excess fair value over its carrying value of less than 10%. These brands had an aggregate carrying value of $665 million as of April 1, 2018.
In the third quarter of 2018, we recognized a non-cash impairment loss of $215 million in SG&A related to the Smart Ones brand. This impairment loss was primarily due to reduced future investment expectations and continued sales declines in the third quarter of 2018. We transferred the remaining carrying value of Smart Ones to definite-lived intangible assets. No events occurred during the period ended September 29, 2018 that indicated it was more likely than not that our other indefinite-lived intangible assets were impaired.
As a result of our 2017 annual impairment testing, we recognized a non-cash impairment loss of $48 million in selling, general and administrative expenses forSG&A in the nine months ended September 30,second quarter of 2017. This loss was due to continued declines in nutritional beverages in India. The loss was recorded in our EuropeEMEA segment as the related trademark is owned by ouran Italian subsidiary. Each
We generally utilize the excess earnings method under the income approach to estimate the fair value of certain of our other brands had excesslargest 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, 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 plans, and guideline companies.
We generally utilize the relief from royalty method under the income approach to estimate the fair value over its carryingof 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 revenue that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, 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 plans, and guideline companies.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of at least 10% as of April 2, 2017.
Ourindividual indefinite-lived intangible assets primarily consist of a large number of individual brandsrequires us to make assumptions and had an aggregate carrying value of $53.6 billionestimates regarding our future plans, as of September 30, 2017. As a majority of our indefinite-lived intangible assets were recently recorded in connection with the 2013 Mergerwell as industry and the 2015 Merger, representing fair values as of those merger dates, there was not a significant excess of fair values over carrying values as of April 2, 2017. We have a risk of future impairment to the extent individual brand performance does not meet our projections. Additionally, ifeconomic conditions. If our current assumptions and estimates, including projected revenuesfuture annual net cash flows, royalty rates, contributory asset charges, income tax considerations, and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair values of our indefinite-lived intangible assets could be adversely affected, leading to potential impairments in the future. No events occurred during the three months ended September 30, 2017 that indicated it was more likely than not thatAdditionally, as a majority of our indefinite-lived intangible assets were impaired.recorded in connection with business combinations that occurred in 2015 and 2013, representing fair values as of the respective transaction dates, those amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate.
Definite-lived intangible assets:
Definite-lived intangible assets were (in millions):
September 30, 2017 December 31, 2016September 29, 2018 December 30, 2017
Gross 
Accumulated
Amortization
 Net Gross 
Accumulated
Amortization
 NetGross 
Accumulated
Amortization
 Net Gross 
Accumulated
Amortization
 Net
Trademarks$2,381
 $(256) $2,125
 $2,337
 $(172) $2,165
$2,501
 $(372) $2,129
 $2,386
 $(288) $2,098
Customer-related assets4,230
 (502) 3,728
 4,184
 (369) 3,815
4,205
 (660) 3,545
 4,231
 (544) 3,687
Other14
 (6) 8
 13
 (3) 10
19
 (4) 15
 14
 (5) 9
$6,625
 $(764) $5,861
 $6,534
 $(544) $5,990
$6,725
 $(1,036) $5,689
 $6,631
 $(837) $5,794

Amortization expense for definite-lived intangible assets was $75 million for the three months and $215 million for the nine months ended September 29, 2018 and $76 million for the three months and $220 million for the nine months ended September 30, 2017 and was $66 million for the three months and $198 million for the nine months ended October 2, 2016.2017. Aside from amortization expense, the changes in definite-lived intangible assets from December 31, 201630, 2017 to September 30, 201729, 2018 primarily reflect the impactadditions of $100 million related to preliminary purchase accounting for Cerebos, transfers of $72 million from indefinite-lived intangible assets, impairment losses of $19 million, and foreign currency. The impairment of definite-lived intangible assets in the third quarter of 2018 related to trademarks which had carrying values that were deemed not to be recoverable. This non-cash impairment loss was recognized in SG&A. See Note 2, Acquisitions and Divestiture, for additional information related to our acquisition of Cerebos.
We estimate that amortization expense related to definite-lived intangible assets will be approximately $280$290 million for the next twelve monthsyear and approximately $270$280 million for each of the four years thereafter.
Note 6.7. 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 consolidatedour effective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. Additionally, our quarterly income tax provision is determined based on our estimated full year effective tax rate, adjusted for tax attributable to infrequent or unusual items, which are recognized on a discrete period basis in the income tax provision for the period in which they occur.
Our effective tax rate was 22.8% for the three months ended September 29, 2018 compared to 30.6% for the three months ended September 30, 2017 compared to 23.7% for the three months ended October 2, 2016.2017. The increasedecrease in our effective tax rate was mostly driven by the favorable impact of U.S. Tax Reform, primarily related to the lower federal corporate tax rate, which was partially offset by tax associated with certain provisions of U.S. Tax Reform such as the federal tax on GILTI (defined below) and the unfavorable impact of net discrete items. The unfavorable impact of current year net discrete items forwas primarily driven by the current quarter,revaluation of our deferred tax balances due to changes in state tax laws following U.S. Tax Reform and non-deductible currency devaluation losses, which were partially offset by favorability from discrete items, primarily related to reversals of uncertain tax position reserves in the impactU.S. and certain state jurisdictions and changes in estimates of state tax law changes, compared to the favorable impact of foreign tax law changescertain 2017 U.S. income and deferred tax adjustments for the three months ended October 2, 2016.deductions.
Our effective tax rate was 23.7% for the nine months ended September 29, 2018 compared to 28.7% for the nine months ended September 30, 2017 compared to 27.9% for the nine months ended October 2, 2016.2017. The increasedecrease in our effective tax rate was mainlymostly driven by the favorable impact of U.S. Tax Reform, primarily related to the lower federal corporate tax rate, which was partially offset by tax associated with certain provisions of U.S. Tax Reform such as the federal tax on GILTI (defined below) and the unfavorable impact of net discrete items. The unfavorable impact of current year net discrete items was primarily driven by the revaluation of our deferred tax balances due to changes in state tax laws following U.S. Tax Reform as well as the non-deductible impairment of goodwill and currency devaluation losses, which were partially offset by favorability from discrete items, primarily related to changes in estimates of certain 2017 U.S. income and deductions.
U.S. Tax Reform legislation enacted by the federal government on December 22, 2017 significantly changed U.S. tax laws by, among other things, lowering the federal corporate tax rate from 35.0% to 21.0%, effective January 1, 2018, and imposing a higher percentageone-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 30, 2017. Other changes from U.S. Tax Reform include changes to bonus depreciation, revised deductions for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax (“BEAT”), and a deduction for foreign-derived intangible income (“FDII”).
Staff Accounting Bulletin No. 118 (“SAB 118”) issued by the SEC in December 2017 provides us with up to one year to finalize accounting for the impacts of U.S. Tax Reform. While the accounting for U.S Tax Reform impacts is incomplete, we may include provisional amounts when reasonable estimates can be made. As of December 30, 2017, we had made reasonable estimates of our deferred income reflectedtax benefit related to the corporate rate change, the toll charge, and other tax expenses, including a change in our estimated fullindefinite reinvestment assertion related to historic earnings of foreign subsidiaries as of December 30, 2017. In the first quarter of 2018, we recorded a measurement period adjustment to reduce income tax expense and reduce deferred tax liabilities each by approximately $20 million. We recorded insignificant measurement period adjustments in the second and third quarters of 2018.
The ultimate impacts of U.S. Tax Reform may differ from our provisional amounts due to gathering additional information to more precisely compute the amount of tax, changes in interpretations and assumptions, additional regulatory guidance that may be issued, and actions we may take. We expect to revise our U.S. Tax Reform impact estimates as we refine our analysis of the new rules and as new guidance is issued. We expect to finalize accounting for the impacts of U.S. Tax Reform when the 2017 U.S. federal and state income tax returns are filed in 2018.

We have undistributed historic earnings in foreign subsidiaries which are currently not considered to be indefinitely reinvested. We have recorded an estimate of deferred taxes of $94 million as of September 29, 2018 to reflect local country withholding taxes that will be owed when this cash is distributed in the future. Additionally, we consider the unremitted current year effective tax rateearnings 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.
See Note 8, Income Taxes, to our consolidated financial statements for the year ended December 30, 2017 comparedin our Annual Report on Form 10-K for additional information related to 2016.U.S. Tax Reform impacts.

Note 7.8. Employees’ Stock Incentive Plans
Our annual equity award grants and vestingvestings occurred in the first quarter of 2017.2018. Other off-cycle equity grants and vestings may occur throughout the year.
Stock Options:
Our stock option activity and related information was:
Number of Stock Options Weighted Average Exercise Price
(per share)
Number of Stock Options Weighted Average Exercise Price
(per share)
Outstanding at December 31, 201620,560,140
 $37.39
Outstanding at December 30, 201719,289,564
 $41.63
Granted1,572,848
 89.01
2,143,730
 64.37
Forfeited(559,109) 48.13
(906,412) 60.27
Exercised(2,005,638) 32.94
(1,287,760) 29.80
Outstanding at September 30, 201719,568,241
 41.69
Outstanding at September 29, 201819,239,122
 44.08
The aggregate intrinsic value of stock options exercised during the period was $115$46 million for the nine months ended September 30, 2017.29, 2018.
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 31, 2016806,744
 $71.95
Outstanding at December 30, 20171,284,262
 $81.91
Granted1,678,110
 85.03
1,414,883
 58.49
Forfeited(191,072) 82.85
(184,210) 78.36
Vested(136,272) 72.96
(121,035) 73.29
Outstanding at September 30, 20172,157,510
 81.10
Outstanding at September 29, 20182,393,900
 68.78
The aggregate fair value of RSUs that vested during the period was $12$8 million for the nine months ended September 30, 2017.29, 2018.
Performance Share Units:
Our performance share unit (“PSU”) activity and related information was:
 Number of Units 
Weighted Average Grant Date Fair Value
(per share)
Outstanding at December 30, 2017815,383
 $70.16
Granted2,697,450
 56.47
Forfeited(246,364) 63.32
Outstanding at September 29, 20183,266,469
 59.37

Note 8.9. Postemployment Benefits
We capitalize a portion of net pension and postretirement cost/(benefit) into inventory based on our production activities. The amounts capitalized into inventory as of September 29, 2018 and September 30, 2017 are included in the net pension and postretirement cost/(benefit) tables below. Beginning January 1, 2018, only the service cost component of net pension and postretirement cost/(benefit) is capitalized into inventory. As part of the adoption of ASU 2017-07 in the first quarter of 2018, we recognized a one-time favorable credit of $42 million within cost of products sold related to amounts that were previously capitalized into inventory. Included in this credit was $28 million related to prior service credits that were previously capitalized to inventory.
Pension Plans
Components of Net Pension Cost/(Benefit):
Net pension cost/(benefit) consisted of the following (in millions):
For the Three Months Ended For the Nine Months EndedFor the Three Months Ended For the Nine Months Ended
U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. PlansU.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Service cost$3
 $3
 $5
 $6
 $8
 $10
 $13
 $18
$2
 $3
 $4
 $5
 $7
 $8
 $14
 $13
Interest cost45
 52
 17
 21
 136
 158
 49
 64
41
 45
 16
 17
 118
 136
 52
 49
Expected return on plan assets(66) (73) (47) (44) (197) (221) (133) (137)(60) (66) (42) (47) (187) (197) (134) (133)
Amortization of unrecognized losses/(gains)
 
 
 
 
 
 1
 

 
 1
 
 
 
 2
 1
Settlements3
 26
 
 
 3
 20
 
 
(1) 3
 
 
 (3) 3
 58
 
Curtailments
 
 
 
 
 
 (1) 
Special/contractual termination benefits5
 
 
 
 18
 
 8
 

 5
 
 
 
 18
 6
 8
Other
 
 (6) 
 2
 
 (15) 

 
 
 (6) 
 2
 
 (15)
Net pension cost/(benefit)$(10) $8
 $(31) $(17) $(30) $(33) $(77) $(55)$(18) $(10) $(21) $(31) $(65) $(30) $(3) $(77)
We capitalized a portionpresent all non-service cost components of net pension cost/(benefit) into inventory basedwithin other expense/(income), net on our production activities. The amounts capitalized into inventory ascondensed consolidated statements of September 30, 2017 and October 2, 2016 are included in the table above.income.
Employer Contributions:
During the nine months ended September 30, 2017,29, 2018, we contributed $150$45 million to our U.S.non-U.S. pension plans and $24 millionplans. We did not contribute to our non-U.S.U.S. pension plans. Based on our contribution strategy, we plan to make further contributions of approximately $5$10 million to our non-U.S. pension plans during the remainder of 2017.2018. We do not plan to make further contributions to our U.S. pension plans in 2017. Our2018. However, our actual contributions and plans may change due to many factors, including the timing of regulatory approval for the windupwind-up of certaina non-U.S. pension plans,plan, 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.
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 EndedFor the Three Months Ended For the Nine Months Ended
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Service cost$2
 $3
 $7
 $11
$2
 $2
 $6
 $7
Interest cost12
 13
 37
 43
11
 12
 33
 37
Expected return on plan assets(12) 
 (37) 
Amortization of prior service costs/(credits)(77) (90) (250) (252)(77) (77) (233) (250)
Curtailments(9) 
 (177) 

 (9) 
 (177)
Net postretirement cost/(benefit)$(72) $(74) $(383) $(198)$(76) $(72) $(231) $(383)

We capitalized a portionpresent all non-service cost components of net postretirement cost/(benefit) into inventory basedwithin other expense/(income), net on our production activities. The amounts capitalized into inventory ascondensed consolidated statements of income.
Employer Contributions:
During the nine months ended September 30, 2017 and October 2, 2016 are included in the table above.
In the second quarter of 2017,29, 2018, we remeasured certain ofcontributed $20 million to our postretirement plans and recognized a curtailment gainbenefit plans. Based on our contribution strategy, we plan to make further contributions of $168 million. The curtailment was triggered by the number of cumulative headcount reductions after the closure of certain U.S. factories in the second quarter of 2017. The resulting gain is attributedapproximately $10 million to accelerating a portion of the previously deferred actuarial gains and prior service credits. An additional curtailment gain of $9 million was recognizedour postretirement benefit plans during the third quarterremainder of 2017 based on additional employee exits associated with these factory closures. The headcount reductions2018. However, our actual contributions and factory closures were part of our ongoing Integration Program. See Note 2, Integration and Restructuring Expenses, for additional information.

Note 9. Accumulated Other Comprehensive Income/(Losses)
The components of, andplans may change due to many factors, including changes in accumulatedtax, employee benefit, or other comprehensive income/(losses), net oflaws and regulations, tax were as follows (in millions):
 Foreign Currency Translation Adjustments Net Postemployment Benefit Plan Adjustments Net Cash Flow Hedge Adjustments Total
Balance as of December 31, 2016$(2,412) $772
 $12
 $(1,628)
Foreign currency translation adjustments1,181
 
 
 1,181
Net deferred gains/(losses) on net investment hedges(327) 
 
 (327)
Net postemployment benefit gains/(losses) arising during the period
 (12) 
 (12)
Reclassification of net postemployment benefit losses/(gains)
 (260) 
 (260)
Net deferred gains/(losses) on cash flow hedges
 
 (136) (136)
Net deferred losses/(gains) on cash flow hedges reclassified to net income
 
 97
 97
Total other comprehensive income/(loss)854
 (272) (39) 543
Balance as of September 30, 2017$(1,558) $500
 $(27) $(1,085)
Reclassification of net postemployment benefit losses/(gains) included amounts reclassified to net incomedeductibility, significant differences between expected and amounts reclassified into inventory (consistent with our capitalization policy).
The gross amount and related tax benefit/(expense) recorded in, and associated with, each component ofactual postretirement plan asset performance or interest rates, or other comprehensive income/(loss) were as follows (in millions):
 For the Three Months Ended
 September 30,
2017
 October 2,
2016
 Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
Foreign currency translation adjustments$421
 $
 $421
 $(151) $
 $(151)
Net deferred gains/(losses) on net investment hedges(200) 76
 (124) 34
 
 34
Net actuarial gains/(losses) arising during the period(1) (3) (4) (405) 154
 (251)
Prior service credits/(costs) arising during the period
 
 
 172
 (66) 106
Reclassification of net postemployment benefit losses/(gains)(83) 32
 (51) (64) 25
 (39)
Net deferred gains/(losses) on cash flow hedges(76) 6
 (70) 33
 (2) 31
Net deferred losses/(gains) on cash flow hedges reclassified to net income51
 
 51
 (23) (3) (26)
 For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
Foreign currency translation adjustments$1,181
 $
 $1,181
 $(304) $
 $(304)
Net deferred gains/(losses) on net investment hedges(568) 241
 (327) 144
 (65) 79
Net actuarial gains/(losses) arising during the period(11) (2) (13) (405) 154
 (251)
Prior service credits/(costs) arising during the period2
 (1) 1
 172
 (66) 106
Reclassification of net postemployment benefit losses/(gains)(423) 163
 (260) (232) 89
 (143)
Net deferred gains/(losses) on cash flow hedges(147) 11
 (136) (12) 11
 (1)
Net deferred losses/(gains) on cash flow hedges reclassified to net income96
 1
 97
 (43) (1) (44)

The amounts reclassified from accumulated other comprehensive income/(losses) were as follows (in millions):
Accumulated Other Comprehensive Income/(Losses) Component  Reclassified from Accumulated Other Comprehensive Income/(Losses) Affected Line Item in the Statement Where Net Income/(Loss) is Presented
  For the Three Months Ended For the Nine Months Ended  
  September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
  
Losses/(gains) on cash flow hedges:    
    
     Foreign exchange contracts $
 $

$
 $(3) Net sales
     Foreign exchange contracts (2) (1)
(5) (34) Cost of products sold
     Foreign exchange contracts 52
 (23) 98
 (9) Other expense/(income), net
     Interest rate contracts 1
 1

3
 3
 Interest expense
Losses/(gains) on cash flow hedges before income taxes 51
 (23)
96
 (43)  
Losses/(gains) on cash flow hedges, income taxes 
 (3)
1
 (1)  
Losses/(gains) on cash flow hedges $51
 $(26)
$97
 $(44)  
           
Losses/(gains) on postemployment benefits:    
    
Amortization of unrecognized losses/(gains) $
 $
 $1
 $
 (a)
Amortization of prior service costs/(credits) (77) (90)
(250) (252) (a)
Settlement and curtailments losses/(gains) (6) 26

(174) 20
 (a)
Losses/(gains) on postemployment benefits before income taxes (83) (64)
(423) (232)  
Losses/(gains) on postemployment benefits, income taxes 32
 25

163
 89
  
Losses/(gains) on postemployment benefits $(51) $(39)
$(260) $(143)  
(a)
These components are included in the computation of net periodic postemployment benefit costs. See Note 8, Postemployment Benefits, for additional information.
In this note we have excluded activity and balances related to noncontrolling interest (which was primarily comprised of foreign currency translation adjustments) due to its insignificance.factors.
Note 10. Financial Instruments
See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2016 for additional information on our overall risk management strategies, our use of derivatives, and our related accounting policies.
Derivative Volume:
The notional values of our outstanding derivative instruments were (in millions):
Notional Amount
September 30, 2017 December 31, 2016September 29, 2018 December 30, 2017
Commodity contracts$332
 $459
$464
 $272
Foreign exchange contracts3,753
 2,997
3,367
 2,876
Cross-currency contracts2,950
 3,173
9,061
 3,161

The increase in our derivative volume for cross-currency contracts was primarily driven by the addition of new Canadian dollar and British pound sterling cross-currency swaps. A portion of these new contracts is being used to offset existing cross-currency contracts that are no longer designated as hedging instruments. The remaining portion of the new contracts is designated as net investment hedges. There was no material change in market risk of the overall cross-currency contract portfolio during the nine months ended September 29, 2018.
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 30, 2017September 29, 2018
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 Significant Other Observable Inputs
(Level 2)
 Significant Unobservable Inputs
(Level 3)
 Total Fair ValueQuoted 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 LiabilitiesAssets Liabilities Assets Liabilities Assets Liabilities
Derivatives designated as hedging instruments:                          
Foreign exchange contracts$
 $
 $9
 $103
 $
 $
 $9
 $103
Cross-currency contracts
 
 354
 
 
 
 354
 
Foreign exchange contracts(a)
$
 $
 $23
 $5
 $23
 $5
Cross-currency contracts(b)

 
 32
 32
 32
 32
Derivatives not designated as hedging instruments:                          
Commodity contracts(c)8
 14
 
 1
 
 
 8
 15
10
 24
 
 
 10
 24
Foreign exchange contracts
 
 46
 
 
 
 46
 
Cross-currency contracts
 
 
 
 
 
 
 
Foreign exchange contracts(c)

 
 9
 20
 9
 20
Cross-currency contracts(b)

 
 462
 26
 462
 26
Total fair value$8
 $14
 $409
 $104
 $
 $
 $417
 $118
$10
 $24
 $526
 $83
 $536
 $107

December 31, 2016December 30, 2017
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 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 LiabilitiesAssets Liabilities Assets Liabilities Assets Liabilities
Derivatives designated as hedging instruments:                          
Foreign exchange contracts$
 $
 $69
 $13
 $
 $
 $69
 $13
Cross-currency contracts
 
 580
 36
 
 
 580
 36
Foreign exchange contracts(a)
$
 $
 $8
 $42
 $8
 $42
Cross-currency contracts(b)

 
 344
 
 344
 
Derivatives not designated as hedging instruments:                          
Commodity contracts(c)28
 7
 
 
 
 
 28
 7
4
 8
 
 
 4
 8
Foreign exchange contracts
 
 35
 30
 
 
 35
 30
Cross-currency contracts
 
 44
 
 
 
 44
 
Foreign exchange contracts(c)

 
 17
 3
 17
 3
Cross-currency contracts(b)

 
 19
 
 19
 
Total fair value$28
 $7
 $728
 $79
 $
 $
 $756
 $86
$4
 $8
 $388
 $45
 $392
 $53
(a)At September 29, 2018, the fair value of our derivative assets was recorded in other current assets ($21 million) and other assets ($2 million), and the fair value of our derivative liabilities was recorded in other current liabilities. At December 30, 2017, 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 ($41 million) and other liabilities ($1 million).
(b)The fair value of these derivative assets and liabilities was recorded within other assets and other liabilities.
(c)The fair value of these derivative assets and liabilities was recorded within other current assets and 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 $56$73 million at September 30, 201729, 2018 and $67$23 million at December 31, 2016. No material amounts30, 2017. At September 29, 2018, collateral of collateral were received or$26 million was posted related to commodity derivative margin requirements. This was included in other current assets on our derivative assets and liabilitiescondensed consolidated balance sheet at September 30, 2017.29, 2018.
Level 1 financial assets and liabilities consist of commodity future and options contracts and are valued using quoted prices in active markets for identical assets and liabilities.
Level 2 financial assets and liabilities consist of commodity forwards,swaps, foreign exchange forwards, options, and swaps, and cross-currency swaps. Commodity forwardsswaps 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.
There have been no transfers between Levels 1 and 2 in any period presented. 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.
There have been no transfers between Levels 1, 2, and 3 in any period presented.

The fair values of our derivative assets are recorded within other current assets and other assets. The fair values of our liability derivatives are recorded within other current liabilities and other liabilities.
Net Investment Hedging:
At September 30, 2017,29, 2018, we had the principal amounts of foreign denominated debtfollowing items designated as net investment hedges totaledhedges:
Non-derivative foreign denominated debt with principal amounts of €2,550 million and £400 million.million;
At September 30, 2017,Foreign exchange contracts denominated in Chinese renminbi with an aggregate notional amount of $198 million; and,
Cross-currency contracts with notional amounts of £1.0 billion ($1.4 billion) and C$2.1 billion ($1.6 billion).
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 swaps designated as net investment hedges consisted of:
Instrument 
Notional
(local)
(in billions)
 
Notional
(USD)
(in billions)
 Maturity
Cross-currency swap £0.8
 $1.4
 October 2019
Cross-currency swap C$1.8
 $1.6
 December 2019
We also periodically enter into shorter-datedcontracts and foreign exchange contracts that areand remeasurements of our foreign denominated debt.

Interest Rate Hedging:
From time to time we have had derivatives designated as net investment hedges. At September 30, 2017, we had Chinese renminbi foreign exchange contracts with an aggregate USD notional amountinterest rate hedges, including interest rate swaps. We no longer have any outstanding interest rate swaps. We continue to amortize the realized hedge losses that were deferred into accumulated other comprehensive income/(losses) into interest expense through the original maturity of $208 million.the related long-term debt instruments.
Cash Flow Hedge Coverage:
At September 30, 2017,29, 2018, we had entered into foreign exchange contracts designated as hedging instruments, which hedge transactions for the following durations:
foreign exchange contracts for periods not exceeding the next 18 months; and
cross-currency contracts for periods not exceeding the next 27 months.
At September 30, 2017, we had entered into contracts not designated as hedging instruments, which hedge economic risks for the following durations:
commodity contractscash flow hedges for periods not exceeding the next 15 months; and
foreign exchange contracts for periods not exceeding the next five months.
Hedge Ineffectiveness:
We record pre-tax gains or losses reclassified from accumulated other comprehensive income/(losses) due to ineffectiveness for foreign exchange contracts related to forecasted transactions in other expense/(income), net.
Deferred Hedging Gains and Losses:Losses on Cash Flow Hedges:
Based on our valuation at September 30, 201729, 2018 and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized lossesgains for foreign currency cash flow hedges during the next 12 months to be $21approximately $11 million. Additionally, we expect transfers to net income/(loss) of unrealized losses for interest rate cash flow hedges during the next 12 months to be insignificant.
Concentration of Credit Risk:
Counterparties to our foreign exchange derivatives consist of major international financial institutions. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of our credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. We closely monitor the credit risk associated with our counterparties and customers and to date have not experienced material losses.
Economic Hedging:
We enter into certain derivative contracts not designated as hedging instruments in accordance with our risk management strategy which have an economic impact of largely mitigating commodity price risk and foreign currency exposures. Gains and losses are recorded in net income/(loss) as a component of cost of products sold for our commodity contracts and other expense/(income), net for our cross currency and foreign exchange contracts.
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 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
  
Cash flow hedges:          
Foreign exchange contracts $
 $
 $
 $1
 Net sales
Foreign exchange contracts (5) (24) 27
 (49) Cost of products sold
Foreign exchange contracts (excluded component) (2) 
 (2) 
 Cost of products sold
Foreign exchange contracts (12) (52) 19
 (99) Other expense/(income), net
Foreign exchange contracts (excluded component) 2
 
 2
 
 Other expense/(income), net
Net investment hedges:          
Foreign exchange contracts 8
 (6) 10
 (18) SG&A
Foreign exchange contracts (excluded component) 1
 
 1
 
 Interest expense
Cross-currency contracts (18) (81) 78
 (177) SG&A
Cross-currency contracts (excluded component) 6
 
 6
 
 Interest expense
Total gains/(losses) recognized in statements of comprehensive income $(20) $(163) $141
 $(342)  

Derivative Impact on the Statements of Income and Statements of Comprehensive Income:
The following tables present the pre-tax effectamounts of derivative instruments ongains/(losses) reclassified from accumulated other comprehensive income/(losses) to net income/(loss) and the consolidated statements ofaffected income and statements of comprehensive income:statement line items:
 For the Three Months Ended
 September 30,
2017
 October 2,
2016
 Commodity Contracts Foreign Exchange
Contracts
 Cross-Currency Contracts Interest Rate Contracts Commodity Contracts Foreign Exchange
Contracts
 Cross-Currency Contracts Interest Rate
Contracts
 (in millions)
Derivatives designated as hedging instruments:               
Cash flow hedges:               
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)$
 $(76) $
 $
 $
 $33
 $
 $
                
Net investment hedges:               
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
 (6) (81) 
 
 
 49
 
Total gains/(losses) recognized in other comprehensive income/(loss) (effective portion)$
 $(82) $(81) $
 $
 $33
 $49
 $
                
Cash flow hedges reclassified to net income/(loss):               
Net sales$
 $
 $
 $
 $
 $
 $
 $
Cost of products sold (effective portion)
 2
 
 
 
 1
 
 
Other expense/(income), net
 (52) 
 
 
 23
 
 
Interest expense
 
 
 (1) 
 
 
 (1)
 
 (50) 
 (1) 
 24
 
 (1)
Derivatives not designated as hedging instruments:               
Gains/(losses) on derivatives recognized in cost of products sold4
 
 
 
 (17) 
 
 
Gains/(losses) on derivatives recognized in other expense/(income), net
 27
 
 
 
 (4) 2
 
 4
 27
 
 
 (17) (4) 2
 
Total gains/(losses) recognized in statements of income$4
 $(23) $
 $(1) $(17) $20
 $2
 $(1)


 For the Three Months Ended
 September 29,
2018
 September 30,
2017
 Cost of products sold Interest expense Other expense/ (income), net Cost of products sold Interest expense Other expense/ (income), net
 (in millions)
Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded$4,271
 $327
 $(71) $4,077
 $306
 $(127)
            
Gains/(losses) related to derivatives designated as hedging instruments:           
Cash flow hedges:           
Foreign exchange contracts$1
 $
 $(12) $2
 $
 $(52)
Foreign exchange contracts (excluded component)(1) 
 2
 
 
 
Interest rate contracts
 (1) 
 
 (1) 
Net investment hedges:           
Cross-currency contracts (excluded component)
 6
 
 
 
 
Gains/(losses) related to derivatives not designated as hedging instruments:           
Commodity contracts(17) 
 
 4
 
 
Foreign exchange contracts
 
 (12) 
 
 27
Cross-currency contracts
 
 2
 
 
 
Total gains/(losses) recognized in statements of income$(17) $5
 $(20) $6
 $(1) $(25)
 For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 Commodity Contracts Foreign Exchange Contracts Cross-Currency Contracts Interest Rate Contracts Commodity Contracts Foreign Exchange Contracts Cross-Currency Contracts Interest Rate Contracts
 (in millions)
Derivatives designated as hedging instruments:               
Cash flow hedges:               
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)$
 $(147) $
 $
 $
 $(4) $
 $(8)
                
Net investment hedges:               
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
 (18) (177) 
 
 46
 74
 
Total gains/(losses) recognized in other comprehensive income/(loss) (effective portion)$
 $(165) $(177) $
 $
 $42
 $74
 $(8)
                
Cash flow hedges reclassified to net income/(loss):               
Net sales$
 $
 $
 $
 $
 $3
 $
 $
Cost of products sold (effective portion)
 5
 
 
 
 34
 
 
Other expense/(income), net
 (98) 
 
 
 9
 
 
Interest expense
 
 
 (3) 
 
 
 (3)
 
 (93) 
 (3) 
 46
 
 (3)
Derivatives not designated as hedging instruments:               
Gains/(losses) on derivatives recognized in cost of products sold(33) 
 
 
 (6) 
 
 
Gains/(losses) on derivatives recognized in other expense/(income), net
 55
 (2) 
 
 (61) (6) 
 (33) 55
 (2) 
 (6) (61) (6) 
Total gains/(losses) recognized in statements of income$(33) $(38) $(2) $(3) $(6) $(15) $(6) $(3)
 For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 Cost of products sold Interest expense Other expense/ (income), net Cost of products sold Interest expense Other expense/ (income), net
 (in millions)
Total amounts presented in the condensed consolidated statements of income in which the following effects were recorded$12,651
 $962
 $(196) $12,406
 $926
 $(510)
            
Gains/(losses) related to derivatives designated as hedging instruments:           
Cash flow hedges:           
Foreign exchange contracts$(8) $
 $19
 $5
 $
 $(98)
Foreign exchange contracts (excluded component)(1) 
 2
 
 
 
Interest rate contracts
 (3) 
 
 (3) 
Net investment hedges:           
Cross-currency contracts (excluded component)
 6
 
 
 
 
Gains/(losses) related to derivatives not designated as hedging instruments:           
Commodity contracts(32) 
 
 (33) 
 
Foreign exchange contracts
 
 (56) 
 
 55
Cross-currency contracts
 
 1
 
 
 (2)
Total gains/(losses) recognized in statements of income$(41) $3
 $(34) $(28) $(3) $(45)

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 $26 million for the three months and $118 million for the nine months ended September 29, 2018 and pre-tax losses of $113 million for the three months and $373 million for the nine months ended September 30, 2017, and we recognized a pre-tax loss of $15 million for the three months and a pre-tax gain of $24 million for the nine months ended October 2, 2016.2017. These amounts were recognized in other comprehensive income/(loss) for the periods then ended.
Note 11. Accumulated Other Comprehensive Income/(Losses)
The components of, and changes in, accumulated other comprehensive income/(losses), net of tax, were as follows (in millions):
 Foreign Currency Translation Adjustments Net Postemployment Benefit Plan Adjustments Net Cash Flow Hedge Adjustments Total
Balance as of December 30, 2017$(1,587) $549
 $(16) $(1,054)
Foreign currency translation adjustments(804) 
 
 (804)
Net deferred gains/(losses) on net investment hedges158
 
 
 158
Amounts excluded from the effectiveness assessment of net investment hedges3
 
 
 3
Net deferred losses/(gains) on net investment hedges reclassified to net income(2) 
 
 (2)
Net deferred gains/(losses) on cash flow hedges
 
 40
 40
Net deferred losses/(gains) on cash flow hedges reclassified to net income
 
 (10) (10)
Net postemployment benefit gains/(losses) arising during the period
 70
 
 70
Net postemployment benefit losses/(gains) reclassified to net income
 (133) 
 (133)
Total other comprehensive income/(loss)(645) (63) 30
 (678)
Balance as of September 29, 2018$(2,232) $486
 $14
 $(1,732)
Reclassification of net postemployment benefit losses/(gains) included amounts reclassified to net income and amounts reclassified into inventory (consistent with our capitalization policy).
The gross amount and related tax benefit/(expense) recorded in, and associated with, each component of other comprehensive income/(loss) were as follows:
 For the Three Months Ended
 September 29,
2018
 September 30,
2017
 Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
 (in millions)
Foreign currency translation adjustments$(144) $
 $(144) $421
 $
 $421
Net deferred gains/(losses) on net investment hedges16
 (3) 13
 (200) 76
 (124)
Amounts excluded from the effectiveness assessment of net investment hedges7
 (4) 3
 
 
 
Net deferred losses/(gains) on net investment hedges reclassified to net income(6) 4
 (2) 
 
 
Net deferred gains/(losses) on cash flow hedges(17) 1
 (16) (76) 6
 (70)
Net deferred losses/(gains) on cash flow hedges reclassified to net income11
 1
 12
 51
 
 51
Net actuarial gains/(losses) arising during the period22
 (5) 17
 (1) (3) (4)
Net postemployment benefit losses/(gains) reclassified to net income(77) 19
 (58) (83) 32
 (51)

 For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 Before Tax Amount Tax Net of Tax Amount Before Tax Amount Tax Net of Tax Amount
 (in millions)
Foreign currency translation adjustments$(804) $
 $(804) $1,181
 $
 $1,181
Net deferred gains/(losses) on net investment hedges206
 (48) 158
 (568) 241
 (327)
Amounts excluded from the effectiveness assessment of net investment hedges7
 (4) 3
 
 
 
Net deferred losses/(gains) on net investment hedges reclassified to net income(6) 4
 (2) 
 
 
Net deferred gains/(losses) on cash flow hedges46
 (6) 40
 (147) 11
 (136)
Net deferred losses/(gains) on cash flow hedges reclassified to net income(9) (1) (10) 96
 1
 97
Net actuarial gains/(losses) arising during the period93
 (23) 70
 (11) (2) (13)
Prior service credits/(costs) arising during the period
 
 
 2
 (1) 1
Net postemployment benefit losses/(gains) reclassified to net income(177) 44
 (133) (423) 163
 (260)
The amounts reclassified from accumulated other comprehensive income/(losses) were as follows (in millions):
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  
  September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
  
Losses/(gains) on net investment hedges:          
Cross-currency contracts(a)
 $(6) $
 $(6) $
 Interest expense
Losses/(gains) on cash flow hedges:         
Foreign exchange contracts(b)
 
 (2) 9
 (5) Cost of products sold
Foreign exchange contracts(b)
 10
 52
 (21) 98
 Other expense/(income), net
Interest rate contracts 1
 1
 3
 3
 Interest expense
Losses/(gains) on hedges before income taxes 5
 51
 (15) 96
  
Losses/(gains) on hedges, income taxes 5
 
 3
 1
  
Losses/(gains) on hedges $10
 $51
 $(12) $97
  
           
Losses/(gains) on postemployment benefits:         
Amortization of unrecognized losses/(gains) $1
 $
 $2
 $1
 (c)
Amortization of prior service costs/(credits) (77) (77) (233) (250) (c)
Settlement and curtailment losses/(gains) (1) (6) 54
 (174) (c)
Losses/(gains) on postemployment benefits before income taxes (77) (83) (177) (423)  
Losses/(gains) on postemployment benefits, income taxes 19
 32
 44
 163
  
Losses/(gains) on postemployment benefits $(58) $(51) $(133) $(260)  
(a)Represents recognition of the excluded component in net income.
(b)Includes amortization of the excluded component and the effective portion of the related hedges.
(c)
These components are included in the computation of net periodic postemployment benefit costs. See Note 9, Postemployment Benefits, for additional information.
In this note we have excluded activity and balances related to noncontrolling interest due to its insignificance. This activity was primarily related to foreign currency translation adjustments.

Note 11. Financing Arrangements
We utilize accounts receivable securitization and factoring programs (the “Programs”) globally for our working capital needs and to provide efficient liquidity. We operate these Programs such that we generally utilize the majority of the available aggregate cash consideration limits. We account for transfers of receivables pursuant to the Programs as a sale and remove them from our condensed consolidated balance sheets. Under the Programs, we generally receive cash consideration up to a certain limit and record a non-cash exchange for sold receivables for the remainder of the purchase price. We maintain a “beneficial interest,” or a right to collect cash, in the sold receivables. Cash receipts from the payments on sold receivables (which are cash receipts on the underlying trade receivables that have already been securitized in these Programs) are classified as investing activities and presented as cash receipts on sold receivables on our condensed consolidated statements of cash flows. These cash receipts represent the consideration received for beneficial interest obtained for transferring trade receivables in securitization transactions.
The carrying value of trade receivables removed from our condensed consolidated balance sheets in connection with the Programs was $1.1 billion at September 30, 2017 and $1.0 billion at December 31, 2016. The carrying value of the sold receivables, which approximated the fair value, was $427 million at September 30, 2017 and $129 million at December 31, 2016.
See Note 14, Financing Arrangements, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information on the Programs.
Note 12. Venezuela - Foreign Currency and Inflation
We have a subsidiary in Venezuela that manufactures and sells a variety of products, primarily in the condiments and sauces and infant and nutrition categories. We apply highly inflationary accounting to the results of our Venezuelan subsidiary and include these results in our consolidated financial statements. Under highly inflationary accounting, the functional currency of our Venezuelan subsidiary is the U.S. dollar (the reporting currency of Kraft Heinz), although the majority of its transactions are in Venezuelan bolivars. As a result, we must revalue the results of our Venezuelan subsidiary to U.S. dollars. We revalue the income statement using daily weighted average DICOM (as defined below) rates, and we revalue the bolivar denominated monetary assets and liabilities at the period-end DICOM spot rate. The resulting revaluation gains and losses are recorded in current net income, rather than accumulated other comprehensive income. These gains and losses are classified within other expense/(income), net as nonmonetary currency devaluation on our condensed consolidated statements of income.
In February 2018, the Venezuelan government eliminated the official exchange rate, which was available through the Sistema de Divisa Protegida (“DIPRO”) for purchases and sales of certain essential items, including food products. At December 30, 2017, we had outstanding invoice reimbursement requests of $26 million related to the purchase of ingredients and packaging materials for the years 2012 through 2015. Following the elimination of this preferential rate, we determined that these outstanding requests, which were approved by the Venezuelan government, were no longer collectible. There was no impact on our condensed consolidated statements of income for the three and nine months ended September 29, 2018.
Following elimination of the DIPRO rate, the Sistema de Divisa Complementaria (“DICOM”) is the only foreign currency exchange mechanism legally available to us for converting Venezuelan bolivars to U.S. dollars. As of September 29, 2018 we believe the DICOM rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary. We continue to monitor the DICOM rate, and the nonmonetary assets supported by the underlying operations in Venezuela, for impairment.
The auction-based DICOM system was temporarily frozen in September 2017 and reopened in February 2018. The last published DICOM rate before the auction freeze was BsF3,345 per U.S. dollar compared to BsF25,000 per U.S. dollar upon reopening. In August 2018, the Venezuelan government changed the unit for measuring bolivars from the bolivar fuerte (“BsF”) to the bolivar soberano (“BsS”). The conversion ratio is BsF100,000 to BsS1. Upon converting to the bolivar soberano measurement unit, the Venezuelan government further devalued the currency. On August 20, 2018, the published DICOM rate was BsF6,000,000 (BsS60.00) per U.S. dollar compared to approximately BsF249,000 (BsS2.49) per U.S. dollar immediately preceding the conversion to BsS.
The DICOM rate at September 29, 2018 was BsS62.79 per U.S. dollar compared to BsS0.03 at December 30, 2017. We remeasured the bolivar denominated assets and liabilities of our Venezuelan subsidiary at September 29, 2018 using the DICOM spot rate of BsS62.79 per U.S. dollar. We remeasured the income statement of our Venezuelan subsidiary using a weighted average rate of BsS6.10 per U.S. dollar for the three months and BsS2.46 for the nine months ended September 29, 2018. Remeasurements of the monetary assets and liabilities and operating results of our Venezuelan subsidiary at DICOM rates resulted in nonmonetary currency devaluation losses of $64 million for the three months and $131 million for the nine months ended September 29, 2018 and $3 million for the three months and $36 million for the nine months ended September 30, 2017. These losses were recorded in other expense/(income), net in the condensed consolidated statements of income for the periods then ended.
We did not obtain any U.S. dollars at DICOM rates during the three and nine months ended September 29, 2018. In addition to DICOM, there is an unofficial market for obtaining U.S. dollars with Venezuelan bolivars. The exact exchange rate is widely debated but is generally accepted to be substantially higher than the latest published DICOM rate. We have not transacted at any unofficial market rates in 2018 and have no plans to transact at unofficial market rates in the foreseeable future.
Our Venezuelan subsidiary obtains U.S. dollars through exports and royalty payments. These U.S. dollars are primarily used for purchases of tomato paste and spare parts for manufacturing, as well as a limited amount of other operating costs. As of September 29, 2018, our Venezuelan subsidiary has sufficient U.S. dollars to fund these operational needs in the foreseeable future. However, further deterioration of the economic environment or regulation changes could jeopardize our export business. Our Venezuelan subsidiary has increasingly sourced production inputs locally, including tomato paste and sugar, in order to reduce reliance on U.S. dollars, which we expect to continue in the foreseeable future.
Our results of operations in Venezuela reflect a controlled subsidiary. We continue to have sufficient currency liquidity and pricing flexibility to runcontrol our operations. However, the continuing economic uncertainty, strict labor laws, and evolving government controls over imports, prices, currency exchange, and payments present a challenging operating environment. Increased restrictions imposed by the Venezuelan government or further deterioration of the economic environment could impact our ability to control our Venezuelan operations and could lead us to deconsolidate our Venezuelan subsidiary in the future.
At September 30, 2017, there were two exchange rates legally available We currently do not expect to us for converting Venezuelan bolivars to U.S. dollars, including:
the official exchange rate of BsF10 per U.S. dollar available through the Sistema de Divisa Protegida (“DIPRO”), which is available for purchases and sales of essential items, including food products; and
an alternative exchange rate available through the Sistema de Divisa Complementaria (“DICOM”), which is available for all transactions not covered by DIPRO.
We have had no settlements at the DIPRO rate of BsF10 per U.S. dollar in 2017. At September 30, 2017, we had outstanding requests of $26 million for payment of invoices for the purchase of ingredients and packaging materials for the years 2012 through 2015, all of which were requested for payment at BsF6.30 per U.S. dollar (the official exchange rate until March 10, 2016). We have had access to U.S. dollars at DICOM rates in 2017. As of September 30, 2017, we believe the DICOM rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary.
In the second quarter of 2017, the Venezuelan government implemented changes to move DICOM from a free-floating exchange format to an auction-based system. The first auction in May 2017 resulted in amake any new published exchange rate of BsF2,010 per U.S. dollar. Since then, the DICOM rate has increasingly deteriorated and was BsF3,345 at September 30, 2017. Published DICOM rates averaged BsF3,030 per U.S. dollar for the three months and BsF1,707 per U.S. dollar for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017 and October 2, 2016, we remeasured the monetary assets and liabilities, as well as the operating results, of our Venezuelan subsidiary at DICOM rates. These remeasurements resulted in a nonmonetary currency devaluation loss of $3 million for the three months and $36 million for the nine months ended September 30, 2017, and a gain of $6 million for the three months and a loss of $1 million for the nine months ended October 2, 2016. These amounts were recorded in other expense/(income), net, in the condensed consolidated statements of income for the periods then ended.
In the second quarter of 2016, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, resulting in a $53 million loss to write down property, plant and equipment, net, and prepaid spare parts, which was recorded within cost of products sold in the condensed consolidated statements of income for the periods then ended. We continue to monitor the DICOM rate, and the nonmonetary assets supported by the underlying operations in Venezuela, for impairment.investments or contributions into Venezuela.

Note 13. Commitments, Contingencies and Debt
Legal ProceedingsFinancing Arrangements
We are routinely involvedhave utilized accounts receivable securitization and factoring programs (the “Programs”) globally for our working capital needs and to provide efficient liquidity. During 2018, we had Programs in legal proceedings, claims, and governmental inquiries, inspections or investigations (“Legal Matters”) arisingplace in various countries across the ordinary course of our business.
On April 1, 2015, the Commodity Futures Trading Commission (“CFTC”) filed a formal complaint against Mondelēz International (formerly known as Kraft Foods Inc.) and Kraft in the U.S. District Court for the Northern District of Illinois, Eastern Division, related to activities involving the trading of December 2011 wheat futures contracts. The complaint alleges that Mondelēz International and Kraft (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011, (2) violated position limit levels for wheat futures, and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. As previously disclosed by Kraft, these activities arose prior to the October 1, 2012 spin-off of Kraft by Mondelēz International to its shareholders and involve the business now owned and operated by Mondelēz International or its affiliates. The Separation and Distribution Agreement between Kraft and Mondelēz International, dated as of September 27, 2012, governs the allocation of liabilities between Mondelēz International and Kraft and, accordingly, Mondelēz International will predominantly bear the costs of this matter and any monetary penalties or other payments that the CFTC may impose. We do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.
While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.
Debt
Borrowing Arrangements:
We had commercial paper outstanding of $443 million at September 30, 2017 and $642 million at December 31, 2016.
See Note 11, Debt, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information on our borrowing arrangements.
Debt Issuances:
In the third quarter of 2017, Kraft Heinz Foods Company, our wholly owned operating subsidiary, issued $350 million aggregate principal amount of floating rate senior notes due 2019, $650 million aggregate principal amount of floating rate senior notes due 2021, and $500 million aggregate principal amount of floating rate senior notes due 2022 (collectively, the “New Notes”).
We used the net proceeds from the New Notes primarily to repay all amounts outstanding under our $600 million senior unsecured loan facility (“Term Loan Facility”) together with accrued interest thereon, to refinance a portion of our commercial paper program, and for other general corporate purposes.
The New Notes are fully and unconditionally guaranteed as to payment of principal, premium, and interest on a senior unsecured basis.
Debt Issuance Costs:
Debt issuance costs related to the sale of the New Notes in the third quarter of 2017 were insignificant. Debt issuance costs are reflected as a direct deduction of our long-term debt balance on the condensed consolidated balance sheets.
globe. In the second quarter of 2016,2018, we issuedunwound our U.S. securitization program, which represented the majority of our Programs, using proceeds from the issuance of long-term debt and used the proceeds to redeemin June 2018. Additionally, as of September 29, 2018, we had substantially unwound all outstanding shares of our 9.00% cumulative compounding preferred stock, Series A (“Series A Preferred Stock”) on June 7, 2016. The related debt issuance costs were $52 million.international Programs.
Debt Repayments:
InWe operated the second quarterPrograms such that we generally utilized the majority of 2017,the available aggregate cash consideration limits. We accounted for transfers of receivables pursuant to the Programs as a sale and removed them from our condensed consolidated balance sheets. Under the Programs, we repaid $2.0 billion aggregate principal amountgenerally received cash consideration up to a certain limit and recorded a non-cash exchange for sold receivables for the remainder of senior notes that maturedthe purchase price. We maintained a “beneficial interest,” or a right to collect cash, in the period. We fundedsold receivables. Cash receipts from the payments on sold receivables (which are cash receipts on the underlying trade receivables that have already been securitized in these long-term debt repayments primarily withPrograms) are classified as investing activities and presented as cash receipts on hand andsold receivables on our commercial paper programs. Additionally, in the third quartercondensed consolidated statements of 2017, we repaid our $600 million aggregate principal amount Term Loan Facility.
Fair Value of Debt:cash flows.
At September 30, 2017,29, 2018, the aggregate fair value of our total debt was $32.9 billion as compared with a carrying value of $31.5 billion. At December 31, 2016,trade receivables removed from our condensed consolidated balance sheet in connection with the aggregate fair valuePrograms and the cash received and sold receivables recorded in exchange for the sale of our total debt was $33.2 billion as compared with atrade receivables were insignificant. The carrying value of $32.4 billion. Our short-term debt and commercial paper had carrying values that approximated their fair valuestrade receivables removed from our condensed consolidated balance sheets in connection with the Programs was $1.0 billion at SeptemberDecember 30, 2017. In exchange for the sale of trade receivables, we received cash of $673 million at December 30, 2017 and recorded sold receivables of $353 million at December 31, 2016. We determined30, 2017. The carrying value of sold receivables approximated the fair value at September 29, 2018 and December 30, 2017.
In 2018 we acted as servicer for certain of the Programs and did not record any related servicing assets or liabilities as of September 29, 2018 or December 30, 2017 because they were not material to the financial statements.
Our U.S. securitization program utilized a bankruptcy-remote special-purpose entity (“SPE”). The SPE was wholly-owned by a subsidiary of Kraft Heinz, and its sole business consisted of the purchase or acceptance, through capital contributions, of receivables and related assets from a Kraft Heinz subsidiary and the subsequent transfer of such receivables and related assets to a bank. Although the SPE is included in our long-term debt using Level 2 inputs. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

Series A Preferred Stock:
As noted above,condensed consolidated financial statements, it was a separate legal entity with separate creditors who were entitled, upon its liquidation in the second quarter of 2016,2018, to be satisfied out of the SPE's assets prior to any assets or value in the SPE becoming available to Kraft Heinz or its subsidiaries.
Additionally, we redeemed allenter into various structured payable arrangements to facilitate supply from our vendors. Balance sheet classification is based on the nature of the agreements with our various vendors. For certain arrangements, we classify amounts outstanding shares ofwithin other current liabilities on our Series A Preferred Stock.condensed consolidated balance sheets. We funded this redemption primarily through the issuance of long-term debt, as well as other sources of liquidity, includinghad approximately $47 million on our commercial paper program, U.S. securitization program,condensed consolidated balance sheets at September 29, 2018 and cash on hand. In connection with the redemption, all Series A Preferred Stock was canceled and automatically retired, and we no longer pay any associated dividends.approximately $188 million at December 30, 2017 related to these arrangements.
Note 14. Commitments, Contingencies and Debt
Legal Proceedings
We are routinely involved in legal proceedings, claims, and governmental inquiries, inspections or investigations (“Legal Matters”) arising in the ordinary course of our business. While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.
Redeemable Noncontrolling Interest
In 2017, we commenced operations of a joint venture with a minority partner to manufacture, package, market, and distribute refrigerated soups and meal sides. We control operations and include this business in our consolidated results. Our minority partner has put options that, if it chooses to exercise, would require us to purchase portions of its equity interest at a future date. These put options will become exercisable beginning in 2025 (on the eighth anniversary of the product launch date) at a price to be determined at that time based upon an independent third party valuation. The minority partner’s put options are reflected on our condensed consolidated balance sheets as a redeemable noncontrolling interest. We accrete the redeemable noncontrolling interest to its estimated redemption value over the term of the put options. At September 29, 2018, we estimate the redemption value to be approximately $35 million.

Debt
Borrowing Arrangements:
We obtain funding through our U.S. and European commercial paper programs. At September 29, 2018, we had commercial paper outstanding of $971 million with a weighted average interest rate of 1.077%. At December 30, 2017, we had commercial paper outstanding of $448 million with a weighted average interest rate of 1.541%.

In June 2018, we entered into an agreement that became effective on July 6, 2018 to extend the maturity date of our $4.0 billion senior unsecured revolving credit facility from July 6, 2021 to July 6, 2023 and to establish a $400 million euro equivalent swing line facility, which is available under the $4.0 billion revolving credit facility limit for short-term loans denominated in euros on a same day basis.
See Note 16, Debt, to our consolidated financial statements for the year ended December 30, 2017 in our Annual Report on Form 10-K for additional information on our borrowing arrangements.
Debt Issuances:
In June 2018, Kraft Heinz Foods Company, our 100% owned operating subsidiary, issued $300 million aggregate principal amount of 3.375% senior notes due 2021, $1.6 billion aggregate principal amount of 4.000% senior notes due 2023, and $1.1 billion aggregate principal amount of 4.625% senior notes due 2029 (collectively, the “New Notes”). The New Notes are fully and unconditionally guaranteed by Kraft Heinz as to payment of principal, premium, and interest on a senior unsecured basis.
We used approximately $500 million of the proceeds from the New Notes in connection with the wind-down of our U.S. securitization program in the second quarter of 2018. We also used proceeds from the New Notes to refinance a portion of our commercial paper borrowings in the second quarter of 2018, to repay certain notes that matured in July and August 2018, and for other general corporate purposes.
Additionally, in August 2017, Kraft Heinz Foods Company issued $350 million aggregate principal amount of floating rate senior notes due 2019, $650 million aggregate principal amount of floating rate senior notes due 2021, and $500 million aggregate principal amount of floating rate senior notes due 2022 (collectively, the “2017 Notes”). The 2017 Notes are fully and unconditionally guaranteed by Kraft Heinz as to payment of principal, premium, and interest on a senior unsecured basis.
We used the net proceeds from the 2017 Notes primarily to repay all amounts outstanding under our $600 million senior unsecured loan facility (“Term Loan Facility”) together with accrued interest thereon, to refinance a portion of our commercial paper program, and for other general corporate purposes.
Debt Issuance Costs:
Debt issuance costs related to the sale of the New Notes in June 2018 were $15 million. Debt issuance costs related to the sale of the 2017 Notes in August 2017 were insignificant. Debt issuance costs are reflected as a direct deduction of our long-term debt balance on the condensed consolidated balance sheets.
Debt Repayments:
In July and August 2018, we repaid $2.7 billion aggregate principal amount of senior notes that matured in the period. We funded these long-term debt repayments primarily with proceeds from the New Notes issued in June 2018.
Additionally, in June 2017, we repaid $2.0 billion aggregate principal amount of senior notes that matured in the period. We funded these long-term debt repayments primarily with cash on hand and our commercial paper programs.
Fair Value of Debt:
At September 29, 2018, the aggregate fair value of our total debt was $32.1 billion as compared with a carrying value of $32.4 billion. At December 30, 2017, the aggregate fair value of our total debt was $33.0 billion as compared with a carrying value of $31.5 billion. Our short-term debt and commercial paper had carrying values that approximated their fair values at September 29, 2018 and December 30, 2017. 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 15. Earnings Per Share
Our earnings per common share (“EPS”) were:
For the Three Months Ended For the Nine Months EndedFor the Three Months Ended For the Nine Months Ended
September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
(in millions, except per share data)(in millions, except per share data)
Basic Earnings Per Common Share:              
Net income/(loss) attributable to common shareholders$944
 $842
 $2,996
 $2,508
$630
 $944
 $2,379
 $2,996
Weighted average shares of common stock outstanding1,218
 1,218
 1,218
 1,216
1,219
 1,218
 1,219
 1,218
Net earnings/(loss)$0.78
 $0.69
 $2.46
 $2.06
$0.52
 $0.78
 $1.95
 $2.46
Diluted Earnings Per Common Share:              
Net income/(loss) attributable to common shareholders$944
 $842
 $2,996
 $2,508
$630
 $944
 $2,379
 $2,996
Weighted average shares of common stock outstanding1,218
 1,218
 1,218
 1,216
1,219
 1,218
 1,219
 1,218
Effect of dilutive equity awards10
 10
 11
 10
7
 10
 8
 11
Weighted average shares of common stock outstanding, including dilutive effect1,228
 1,228
 1,229
 1,226
1,226
 1,228
 1,227
 1,229
Net earnings/(loss)$0.77
 $0.69
 $2.44
 $2.05
$0.51
 $0.77
 $1.94
 $2.44
We use the treasury stock method to calculate the dilutive effect of outstanding equity awards in the denominator for diluted EPS. Anti-dilutive shares were 6 million for the three months and 5 million for the nine months ended September 29, 2018 and were 2 million for the three months and 1 million for the nine months ended September 30, 2017 and were 1 million for the three months and 3 million for the nine months ended October 2, 2016.2017.
Note 15. Segment Reporting
We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products, throughout the world.
We manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World is comprised of two operating segments: Latin America; and Asia Pacific, Middle East, and Africa (“AMEA”).
In the fourth quarter of 2016, we reorganized our segments to reflect the following:
our Russia business moved from Rest of World to the Europe segment; and
management of our Global Procurement Office moved from one of our European subsidiaries to our global headquarters, which resulted in moving the related costs from the Europe segment to general corporate expenses.
These changes are reflected in all historical periods presented and did not have a material impact on our condensed consolidated financial statements. See Note 18, Segment Reporting, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information related to these changes.
In the third quarter of 2017, we announced our plans to reorganize certain of our international businesses to better align our global geographies. These plans include moving our Middle East and Africa businesses from the AMEA operating segment into the Europe reportable segment, forming the Europe, Middle East, and Africa (“EMEA”) operating segment. The remaining AMEA businesses will become the Asia Pacific (“APAC”) operating segment. We expect these changes to become effective on December 30, 2017. As a result, we expect to restate our Europe and Rest of World segments to reflect these changes for historical periods presented as of December 30, 2017.

Management evaluates segment performance based on several factors, including net sales and segment adjusted earnings before interest, tax, depreciation, and amortization (“Segment Adjusted EBITDA”). Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA 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. These items include depreciation and amortization (including amortization of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, merger costs, unrealized gains/(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, gains/(losses) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and losses).
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
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
Net sales:       
United States$4,380
 $4,395
 $13,566
 $13,802
Canada559
 550
 1,599
 1,692
Europe599
 558
 1,737
 1,766
Rest of World776
 764
 2,453
 2,370
Total net sales$6,314
 $6,267
 $19,355
 $19,630
Segment Adjusted EBITDA was (in millions):
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
Segment Adjusted EBITDA:       
United States$1,440
 $1,349
 $4,478
 $4,360
Canada162
 148
 477
 491
Europe206
 191
 578
 592
Rest of World149
 145
 475
 513
General corporate expenses(28) (30) (93) (115)
Depreciation and amortization (excluding integration and restructuring expenses)(165) (116) (434) (401)
Integration and restructuring expenses(95) (237) (237) (781)
Merger costs
 (4) 
 (33)
Unrealized gains/(losses) on commodity hedges5
 (22) (24) 23
Impairment losses(1) 
 (49) (53)
Nonmonetary currency devaluation
 (1) 
 (4)
Equity award compensation expense (excluding integration and restructuring expenses)(12) (10) (38) (30)
Operating income1,661
 1,413
 5,133
 4,562
Interest expense306
 311
 926
 824
Other expense/(income), net(4) (3) 8
 (5)
Income/(loss) before income taxes$1,359
 $1,105
 $4,199
 $3,743

In the first quarter of 2017, we reorganized the products within our product categories to reflect how we manage our business. We have reflected this change for all historical periods presented. Our net sales by product category were (in millions):
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
Condiments and sauces$1,568
 $1,562
 $4,791
 $4,886
Cheese and dairy1,283
 1,288
 3,901
 4,004
Ambient meals571
 577
 1,695
 1,726
Frozen and chilled meals642
 642
 1,934
 1,895
Meats and seafood663
 670
 2,018
 2,093
Refreshment beverages371
 368
 1,180
 1,218
Coffee331
 337
 1,021
 1,076
Infant and nutrition176
 171
 575
 577
Desserts, toppings and baking220
 216
 649
 661
Nuts and salted snacks202
 237
 686
 752
Other287
 199
 905
 742
Total net sales$6,314
 $6,267
 $19,355
 $19,630
Note 16. Supplemental Financial Information
We fully and unconditionally guarantee the notes issued by our 100% owned operating subsidiary, Kraft Heinz Foods Company. See Note 11, Debt, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional descriptions of these guarantees. None of our other subsidiaries guarantee these notes.
Set forth below are the condensed consolidating financial statements presenting the results of operations, financial position and cash flows of Kraft Heinz (as parent guarantor), Kraft Heinz Foods Company (as subsidiary issuer of the notes), and the non-guarantor subsidiaries on a combined basis and eliminations necessary to arrive at the total reported information on a consolidated basis. This condensed consolidating financial information has been prepared and presented pursuant to the SEC Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” This information is not intended to present the financial position, results of operations, and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among the parent guarantor, subsidiary issuer, and the non-guarantor subsidiaries.

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended September 30, 2017
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $4,170
 $2,286
 $(142) $6,314
Cost of products sold
 2,601
 1,541
 (142) 4,000
Gross profit
 1,569
 745
 
 2,314
Selling, general and administrative expenses
 155
 498
 
 653
Intercompany service fees and other recharges
 776
 (776) 
 
Operating income
 638
 1,023
 
 1,661
Interest expense
 296
 10
 
 306
Other expense/(income), net
 23
 (27) 
 (4)
Income/(loss) before income taxes
 319
 1,040
 
 1,359
Provision for/(benefit from) income taxes
 (11) 427
 
 416
Equity in earnings of subsidiaries944
 614
 
 (1,558) 
Net income/(loss)944
 944
 613
 (1,558) 943
Net income/(loss) attributable to noncontrolling interest
 
 (1) 
 (1)
Net income/(loss) excluding noncontrolling interest$944
 $944
 $614
 $(1,558) $944
          
Comprehensive income/(loss) excluding noncontrolling interest$1,167
 $1,167
 $1,165
 $(2,332) $1,167

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended October 2, 2016
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $4,206
 $2,233
 $(172) $6,267
Cost of products sold
 2,700
 1,521
 (172) 4,049
Gross profit
 1,506
 712
 
 2,218
Selling, general and administrative expenses
 194
 611
 
 805
Intercompany service fees and other recharges
 795
 (795) 
 
Operating income
 517
 896
 
 1,413
Interest expense
 294
 17
 
 311
Other expense/(income), net
 (20) 17
 
 (3)
Income/(loss) before income taxes
 243
 862
 
 1,105
Provision for/(benefit from) income taxes
 (199) 461
 
 262
Equity in earnings of subsidiaries842
 400
 
 (1,242) 
Net income/(loss)842
 842
 401
 (1,242) 843
Net income/(loss) attributable to noncontrolling interest
 
 1
 
 1
Net income/(loss) excluding noncontrolling interest$842
 $842
 $400
 $(1,242) $842
          
Comprehensive income/(loss) excluding noncontrolling interest$547
 $547
 $285
 $(832) $547

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Nine Months Ended September 30, 2017
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $12,941
 $6,856
 $(442) $19,355
Cost of products sold
 7,825
 4,676
 (442) 12,059
Gross profit
 5,116
 2,180
 
 7,296
Selling, general and administrative expenses
 504
 1,659
 
 2,163
Intercompany service fees and other recharges
 3,205
 (3,205) 
 
Operating income
 1,407
 3,726
 
 5,133
Interest expense
 895
 31
 
 926
Other expense/(income), net
 (8) 16
 
 8
Income/(loss) before income taxes
 520
 3,679
 
 4,199
Provision for/(benefit from) income taxes
 (92) 1,297
 
 1,205
Equity in earnings of subsidiaries2,996
 2,384
 
 (5,380) 
Net income/(loss)2,996
 2,996
 2,382
 (5,380) 2,994
Net income/(loss) attributable to noncontrolling interest
 
 (2) 
 (2)
Net income/(loss) excluding noncontrolling interest$2,996
 $2,996
 $2,384
 $(5,380) $2,996
          
Comprehensive income/(loss) excluding noncontrolling interest$3,539
 $3,539
 $4,351
 $(7,890) $3,539

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Nine Months Ended October 2, 2016
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $13,156
 $6,948
 $(474) $19,630
Cost of products sold
 8,273
 4,704
 (474) 12,503
Gross profit
 4,883
 2,244
 
 7,127
Selling, general and administrative expenses
 778
 1,787
 
 2,565
Intercompany service fees and other recharges
 3,320
 (3,320) 
 
Operating income
 785
 3,777
 
 4,562
Interest expense
 782
 42
 
 824
Other expense/(income), net
 66
 (71) 
 (5)
Income/(loss) before income taxes
 (63) 3,806
 
 3,743
Provision for/(benefit from) income taxes
 (349) 1,394
 
 1,045
Equity in earnings of subsidiaries2,688
 2,402
 
 (5,090) 
Net income/(loss)2,688
 2,688
 2,412
 (5,090) 2,698
Net income/(loss) attributable to noncontrolling interest
 
 10
 
 10
Net income/(loss) excluding noncontrolling interest$2,688
 $2,688
 $2,402
 $(5,090) $2,688
          
Comprehensive income/(loss) excluding noncontrolling interest$2,131
 $2,131
 $2,013
 $(4,144) $2,131


The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of September 30, 2017
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS         
Cash and cash equivalents$
 $217
 $1,224
 $
 $1,441
Trade receivables
 4
 934
 
 938
Receivables due from affiliates

 725
 205
 (930) 
Dividends due from affiliates101
 
 
 (101) 
Sold receivables
 
 427
 
 427
Inventories
 2,087
 1,101
 
 3,188
Short-term lending due from affiliates
 2,098
 3,513
 (5,611) 
Other current assets
 3,229
 391
 (2,386) 1,234
Total current assets101
 8,360
 7,795
 (9,028) 7,228
Property, plant and equipment, net
 4,506
 2,428
 
 6,934
Goodwill
 11,067
 33,791
 
 44,858
Investments in subsidiaries58,759
 72,096
 
 (130,855) 
Intangible assets, net
 3,258
 56,242
 
 59,500
Long-term lending due from affiliates
 1,700
 2,000
 (3,700) 
Other assets
 499
 1,032
 
 1,531
TOTAL ASSETS$58,860
 $101,486
 $103,288
 $(143,583) $120,051
LIABILITIES AND EQUITY         
Commercial paper and other short-term debt$
 $443
 $12
 $
 $455
Current portion of long-term debt
 2,583
 172
 
 2,755
Short-term lending due to affiliates
 3,513
 2,098
 (5,611) 
Trade payables
 2,324
 1,623
 
 3,947
Payables due to affiliates
 205
 725
 (930) 
Accrued marketing
 124
 369
 
 493
Accrued postemployment costs
 84
 74
 
 158
Income taxes payable
 
 2,555
 (2,386) 169
Interest payable
 284
 11
 
 295
Dividends due to affiliates
 101
 
 (101) 
Other current liabilities101
 497
 517
 
 1,115
Total current liabilities101
 10,158
 8,156
 (9,028) 9,387
Long-term debt
 27,396
 903
 
 28,299
Long-term borrowings due to affiliates
 2,000
 1,921
 (3,921) 
Deferred income taxes
 1,368
 19,530
 
 20,898
Accrued postemployment costs
 1,508
 300
 
 1,808
Other liabilities
 297
 391
 
 688
TOTAL LIABILITIES101
 42,727
 31,201
 (12,949) 61,080
Total shareholders’ equity58,759
 58,759
 71,875
 (130,634) 58,759
Noncontrolling interest
 
 212
 
 212
TOTAL EQUITY58,759
 58,759
 72,087
 (130,634) 58,971
TOTAL LIABILITIES AND EQUITY$58,860
 $101,486
 $103,288
 $(143,583) $120,051

The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of December 31, 2016
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS         
Cash and cash equivalents$
 $2,830
 $1,374
 $
 $4,204
Trade receivables
 12
 757
 
 769
Receivables due from affiliates
 712
 111
 (823) 
Dividends due from affiliates39
 
 
 (39) 
Sold receivables
 
 129
 
 129
Inventories
 1,759
 925
 
 2,684
Short-term lending due from affiliates
 1,722
 2,956
 (4,678) 
Other current assets
 2,229
 447
 (1,709) 967
Total current assets39
 9,264
 6,699
 (7,249) 8,753
Property, plant and equipment, net
 4,447
 2,241
 
 6,688
Goodwill
 11,067
 33,058
 
 44,125
Investments in subsidiaries57,358
 70,877
 
 (128,235) 
Intangible assets, net
 3,364
 55,933
 
 59,297
Long-term lending due from affiliates
 1,700
 2,000
 (3,700) 
Other assets
 501
 1,116
 
 1,617
TOTAL ASSETS$57,397
 $101,220
 $101,047
 $(139,184) $120,480
LIABILITIES AND EQUITY         
Commercial paper and other short-term debt$
 $642
 $3
 $
 $645
Current portion of long-term debt
 2,032
 14
 
 2,046
Short-term lending due to affiliates
 2,956
 1,722
 (4,678) 
Trade payables
 2,376
 1,620
 
 3,996
Payables due to affiliates
 111
 712
 (823) 
Accrued marketing
 277
 472
 
 749
Accrued postemployment costs
 144
 13
 
 157
Income taxes payable
 
 1,964
 (1,709) 255
Interest payable
 401
 14
 
 415
Dividends due to affiliates
 39
 
 (39) 
Other current liabilities39
 588
 611
 
 1,238
Total current liabilities39
 9,566
 7,145
 (7,249) 9,501
Long-term debt
 28,736
 977
 
 29,713
Long-term borrowings due to affiliates
 2,000
 1,902
 (3,902) 
Deferred income taxes
 1,382
 19,466
 
 20,848
Accrued postemployment costs
 1,754
 284
 
 2,038
Other liabilities
 424
 382
 
 806
TOTAL LIABILITIES39
 43,862
 30,156
 (11,151) 62,906
Total shareholders’ equity57,358
 57,358
 70,675
 (128,033) 57,358
Noncontrolling interest
 
 216
 
 216
TOTAL EQUITY57,358
 57,358
 70,891
 (128,033) 57,574
TOTAL LIABILITIES AND EQUITY$57,397
 $101,220
 $101,047
 $(139,184) $120,480

The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2017
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES         
Net cash provided by/(used for) operating activities$2,161
 $1,185
 $(1,169) $(2,161) $16
CASH FLOWS FROM INVESTING ACTIVITIES         
Cash receipts on sold receivables
 
 1,633
 
 1,633
Capital expenditures
 (622) (334) 
 (956)
Net proceeds from/(payments on) intercompany lending activities
 59
 (267) 208
 
Additional investments in subsidiaries(15) 
 
 15
 
Other investing activities, net
 54
 (7) 
 47
Net cash provided by/(used for) investing activities(15) (509) 1,025
 223
 724
CASH FLOWS FROM FINANCING ACTIVITIES         
Repayments of long-term debt
 (2,625) (11) 
 (2,636)
Proceeds from issuance of long-term debt
 1,496
 
 
 1,496
Proceeds from issuance of commercial paper
 5,495
 
 
 5,495
Repayments of commercial paper
 (5,709) 
 
 (5,709)
Net proceeds from/(payments on) intercompany borrowing activities
 267
 (59) (208) 
Dividends paid-common stock(2,161) (2,161) 
 2,161
 (2,161)
Other intercompany capital stock transactions
 15
 
 (15) 
Other financing activities, net15
 (6) 17
 
 26
Net cash provided by/(used for) financing activities(2,146) (3,228) (53) 1,938
 (3,489)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
 
 43
 
 43
Cash, cash equivalents, and restricted cash:         
Net increase/(decrease)
 (2,552) (154) 
 (2,706)
Balance at beginning of period
 2,869
 1,386
 
 4,255
Balance at end of period$
 $317
 $1,232
 $
 $1,549

The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended October 2, 2016
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES         
Net cash provided by/(used for) operating activities$1,636
 $1,821
 $(805) $(1,636) $1,016
CASH FLOWS FROM INVESTING ACTIVITIES         
Cash receipts on sold receivables
 
 1,850
 
 1,850
Capital expenditures
 (605) (231) 
 (836)
Net proceeds from/(payments on) intercompany lending activities
 565
 (74) (491) 
Additional investments in subsidiaries
 (10) 
 10
 
Return of capital8,987
 
 
 (8,987) 
Other investing activities, net
 100
 (30) 
 70
Net cash provided by/(used for) investing activities8,987
 50
 1,515
 (9,468) 1,084
CASH FLOWS FROM FINANCING ACTIVITIES         
Repayments of long-term debt
 (69) (5) 
 (74)
Proceeds from issuance of long-term debt
 6,978
 3
 
 6,981
Proceeds from issuance of commercial paper
 4,296
 
 
 4,296
Repayments of commercial paper
 (3,660) 
 
 (3,660)
Net proceeds from/(payments on) intercompany borrowing activities
 74
 (565) 491
 
Dividends paid-Series A Preferred Stock(180) 
 
 
 (180)
Dividends paid-common stock(2,123) (2,303) 
 2,303
 (2,123)
Redemption of Series A Preferred Stock(8,320) 
 
 
 (8,320)
Other intercompany capital stock transactions
 (8,320) 10
 8,310
 
Other financing activities, net
 50
 6
 
 56
Net cash provided by/(used for) financing activities(10,623) (2,954) (551) 11,104
 (3,024)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
 
 (17) 
 (17)
Cash, cash equivalents, and restricted cash:         
Net increase/(decrease)
 (1,083) 142
 
 (941)
Balance at beginning of period
 3,253
 1,659
 
 4,912
Balance at end of period$
 $2,170
 $1,801
 $
 $3,971

The following tables provide a reconciliation of cash and cash equivalents, as reported on our unaudited condensed consolidating balance sheets, to cash, cash equivalents, and restricted cash, as reported on our unaudited condensed consolidating statements of cash flows (in millions):
 September 30, 2017
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Cash and cash equivalents$
 $217
 $1,224
 $
 $1,441
Restricted cash included in other assets (current)
 100
 8
 
 108
Cash, cash equivalents, and restricted cash$
 $317
 $1,232
 $
 $1,549
 December 31, 2016
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Cash and cash equivalents$
 $2,830
 $1,374
 $
 $4,204
Restricted cash included in other assets (current)
 39
 3
 
 42
Restricted cash included in other assets (noncurrent)
 
 9
 
 9
Cash, cash equivalents, and restricted cash$
 $2,869
 $1,386
 $
 $4,255

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Description of the Company:Note 16. Segment Reporting
We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products, throughout the world.
In the first quarter of our fiscal year 2018, we reorganized certain of our international businesses to better align our global geographies. As a result, we moved our Middle East and Africa businesses from the historical Asia Pacific, Middle East, and Africa (“AMEA”) operating segment into the historical Europe reportable segment, forming the new EMEA reportable segment. The remaining businesses from the AMEA operating segment became the Asia Pacific (“APAC”) operating segment. We have reflected this change in all historical periods presented.
Therefore, effective in the first quarter of 2018, we manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe.EMEA. Our remaining businesses are combined and disclosed as Rest“Rest of World.World”. Rest of World is comprised ofcomprises two operating segments: Latin America and AMEA.
In the fourth quarter of 2016, we reorganized our segments to reflect the following:
our Russia business moved from Rest of World to the Europe segment; and
management of our Global Procurement Office moved from one of our European subsidiaries to our global headquarters, which resulted in moving the related costs from the Europe segment to general corporate expenses.
These changes are reflected in all historical periods presented and did not have a material impact on our condensed consolidated financial statements. See Note 18, Segment Reporting, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K for additional information related to these changes.
In the third quarter of 2017, we announced our plans to reorganize certain of our international businesses to better align our global geographies. These plans include moving our Middle East and Africa businesses from the AMEA operating segment into the Europe reportable segment, forming the EMEA operating segment. The remaining AMEA businesses will become the APAC operating segment. We expect these changes to become effective on December 30, 2017. As a result, we expect to restate our Europe and Rest of World segments to reflect these changes for historical periods presented as of December 30, 2017.
Items Affecting Comparability of Financial Results
Integration and Restructuring Expenses:
Related to integration and restructuring activities (including the multi-year Integration Program announced following the 2015 Merger), we incurred costs of $95 million for the three months and $237 million for the nine months ended September 30, 2017 and $237 million for the three months and $781 million for the nine months ended October 2, 2016. Integration Program costs included in these totals were $79 million for the three months and $157 million for the nine months ended September 30, 2017 and $222 million for the three months and $722 million for the nine months ended October 2, 2016.
Total Integration Program and restructuring expenses for 2017 included a curtailment gain of $177 million, which was classified as Integration Program expenses. The curtailment was triggered by the number of cumulative headcount reductions after the closure of certain U.S. factories in the second quarter of 2017. The resulting gain is attributed to accelerating a portion of the previously deferred actuarial gains and prior service credits.
We expect to incur pre-tax costs of $2.1 billion related to the Integration Program. As of September 30, 2017, we have incurred cumulative costs of $1.9 billion. These costs primarily include severance and employee benefit costs (including cash and non-cash severance), costs to exit facilities (including non-cash costs such as accelerated depreciation), and other costs incurred as a direct result of integration activities related to the 2015 Merger.
Additionally, we anticipate capital expenditures of approximately $1.4 billion related to the Integration Program. As of September 30, 2017, we have incurred $1.2 billion in capital expenditures since the inception of the Integration Program. The Integration Program is designed to reduce costs, integrate, and optimize our combined organization and is expected to achieve $1.7 billion to $1.8 billion of pre-tax savings by the end of 2017, primarily benefiting the United States and Canada segments. Since the inception of the Integration Program, our cumulative pre-tax savings achieved are approximately $1,575 million.
See Note 2, Integration and Restructuring Expenses, to the condensed consolidated financial statements for additional information.
Series A Preferred Stock:
On June 7, 2016, we redeemed all outstanding shares of our Series A Preferred Stock. We funded this redemption primarily through the issuance of long-term debt in May 2016, as well as other sources of liquidity, including our commercial paper program, U.S. securitization program, and cash on hand.

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
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions, except per share data)   (in millions, except per share data)  
Net sales$6,314
 $6,267
 0.7% $19,355
 $19,630
 (1.4)%
Operating income1,661
 1,413
 17.6% 5,133
 4,562
 12.5 %
Net income/(loss) attributable to common shareholders944
 842
 12.1% 2,996
 2,508
 19.5 %
Diluted earnings/(loss) per share0.77
 0.69
 11.6% 2.44
 2.05
 19.0 %
Net Sales:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions)   (in millions)  
Net sales$6,314
 $6,267
 0.7% $19,355
 $19,630
 (1.4)%
Organic Net Sales(a)
6,272
 6,255
 0.3% 19,377
 19,596
 (1.1)%
(a)
Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 30, 2017 compared to the Three Months Ended October 2, 2016:
Net sales increased 0.7% to $6.3 billion for the three months ended September 30, 2017 compared to the prior period, including the favorable impact of foreign currency (0.4 pp). Organic Net Sales increased 0.3% driven by higher pricing (0.5) partially offset by unfavorable volume/mix (0.2 pp). Higher pricing in Rest of World and the U.S. was partially offset by lower pricing in Canada and Europe. Volume/mix was unfavorable in the U.S., Canada, and Rest of World, partially offset by growth in Europe.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Net sales decreased 1.4% to $19.4 billion for the nine months ended September 30, 2017 compared to the prior period, including the unfavorable impact of foreign currency (0.3 pp). Organic Net Sales decreased 1.1% due to unfavorable volume/mix (1.5 pp) partially offset by higher pricing (0.4 pp). Volume/mix was unfavorable in the U.S. and Canada, which was partially offset by growth in Europe and Rest of World. Higher pricing in Rest of World and the U.S. was partially offset by lower pricing in Canada and Europe.
Net Income:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions)   (in millions)  
Operating income$1,661
 $1,413
 17.6% $5,133
 $4,562
 12.5%
Net income/(loss) attributable to common shareholders944
 842
 12.1% 2,996
 2,508
 19.5%
Adjusted EBITDA(a)
1,929
 1,803
 7.0% 5,915
 5,841
 1.3%
(a)
Adjusted EBITDA is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Three Months Ended September 30, 2017 compared to the Three Months Ended October 2, 2016:
Operating income increased 17.6% to $1.7 billion for the three months ended September 30, 2017 compared to $1.4 billion in the prior period. This increase was primarily due to lower Integration Program and other restructuring expenses in the current period, savings from the Integration Program and other restructuring activities, lower overhead costs, higher pricing, higher unrealized losses on commodity hedges in the prior period, and the favorable impact of foreign currency (0.2 pp), partially offset by higher input costs in local currency.
Net income/(loss) attributable to common shareholders increased 12.1% to $944 million for the three months ended September 30, 2017 compared to $842 million in the prior period. The increase was primarily due to the operating income factors discussed above, partially offset by a higher effective tax rate. Our effective tax rate increased to 30.6% for the three months ended September 30, 2017 compared to 23.7% in the prior period. The increase in our effective tax rate was driven by the unfavorable impact of net discrete items for the current quarter, primarily related to the impact of state tax law changes, compared to the favorable impact of foreign tax law changes and deferred tax adjustments for the three months ended October 2, 2016.
Adjusted EBITDA increased 7.0% to $1.9 billion for the three months ended September 30, 2017 compared to the prior period, primarily due to savings from the Integration Program and other restructuring activities, lower overhead costs, higher pricing, and the favorable impact of foreign currency (0.3 pp), partially offset by higher input costs in local currency. Segment Adjusted EBITDA results were as follows:
United States Segment Adjusted EBITDA increased primarily driven by Integration Program savings, lower overhead costs, and higher pricing, partially offset by unfavorable key commodity costs (which we define as dairy, meat, coffee, and nuts), primarily in meat and cheese.
Europe Segment Adjusted EBITDA increased primarily driven by productivity savings, the favorable impact of foreign currency (2.4 pp), and favorable volume/mix, partially offset by higher input costs in local currency.
Canada Segment Adjusted EBITDA increased primarily driven by Integration Program savings, lower overhead costs, favorable impact of foreign currency (4.2 pp), and improved product mix, partially offset by lower pricing.
Rest of World Segment Adjusted EBITDA increased primarily driven by Organic Net Sales growth, and lower overhead costs, partially offset by higher input costs in local currency, and the unfavorable impact of foreign currency (3.7 pp).
Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Operating income increased 12.5% to $5.1 billion for the nine months ended September 30, 2017 compared to $4.6 billion in the prior period. This increase was primarily due to lower Integration Program and other restructuring expenses in the current period, savings from the Integration Program and other restructuring activities, and lower overhead costs, partially offset by higher input costs in local currency, lower net sales, lower unrealized gains on commodity hedges in the current period, and the unfavorable impact of foreign currency (0.8 pp).
Net income/(loss) attributable to common shareholders increased 19.5% to $3.0 billion for the nine months ended September 30, 2017 compared to $2.5 billion in the prior period. The increase was primarily due to the operating income factors discussed above and the absence of the Series A Preferred Stock dividend in the current period, partially offset by higher interest expense, a higher effective tax rate, and higher other expense/(income), net, detailed as follows:
The Series A Preferred Stock was fully redeemed on June 7, 2016. Accordingly, there was no related dividend for the nine months ended September 30, 2017, compared to an impact of $180 million in the prior period.
Interest expense increased to $926 million for the nine months ended September 30, 2017 compared to $824 million in the prior period. This increase was primarily due to the May 2016 issuances of long-term debt in conjunction with the redemption of our Series A Preferred Stock on June 7, 2016, and borrowings under our commercial paper program, which began in the second quarter of 2016.
Our effective tax rate increased to 28.7% for the nine months ended September 30, 2017 compared to 27.9% in the prior period. The increase in our effective tax rate was mainly driven by the unfavorable impact of a higher percentage of U.S. income reflected in our estimated full year effective tax rate for 2017 compared to 2016.
Other expense/(income), net, was an expense of $8 million for the nine months ended September 30, 2017 compared to income of $5 million in the prior period. This increase was primarily due to a $36 million nonmonetary currency devaluation loss in the current period compared to $1 million in the prior period related to our Venezuelan operations.

Adjusted EBITDA increased 1.3% to $5.9 billion for the nine months ended September 30, 2017 compared to the prior period, primarily driven by savings from the Integration Program and other restructuring activities, and lower overhead costs, partially offset by higher input costs in local currency, a decline in Organic Net Sales, and the unfavorable impact of foreign currency (0.7 pp). Segment Adjusted EBITDA results were as follows:
United States Segment Adjusted EBITDA increased primarily due to Integration Program savings and lower overhead costs in the current period, partially offset by unfavorable key commodity costs, primarily in cheese, meat, and coffee, and volume/mix declines.
Rest of World Segment Adjusted EBITDA decreased primarily due to higher input costs in local currency, increased commercial investments, and the unfavorable impact of foreign currency (3.1 pp), partially offset by Organic Net Sales growth.
Canada Segment Adjusted EBITDA decreased primarily due to a decline in Organic Net Sales, partially offset by Integration Program savings, lower overhead costs in the current period, and the favorable impact of foreign currency (0.6 pp).
Europe Segment Adjusted EBITDA decreased primarily due to higher input costs in local currency and the unfavorable impact of foreign currency (4.7 pp), partially offset by productivity savings.
Diluted EPS:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions, except per share data)   (in millions, except per share data)  
Diluted EPS$0.77
 $0.69
 11.6% $2.44
 $2.05
 19.0%
Adjusted EPS(a)
0.83
 0.83
 % 2.65
 2.41
 10.0%
(a)
Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 30, 2017 compared to the Three Months Ended October 2, 2016:
Diluted EPS increased 11.6% to $0.77 for the three months ended September 30, 2017 compared to $0.69 in the prior period, primarily driven by the net income/(loss) attributable to common shareholders factors discussed above.
 For the Three Months Ended
 September 30,
2017
 October 2,
2016
 $ Change % Change
Diluted EPS$0.77
 $0.69
 $0.08
 11.6%
Integration and restructuring expenses0.06
 0.13
 (0.07)  
Unrealized losses/(gains) on commodity hedges
 0.01
 (0.01)  
Adjusted EPS(a)
$0.83
 $0.83
 $
 %
        
Key drivers of change in Adjusted EPS(a):
       
Results of operations    $0.05
  
Change in effective tax rate and other    (0.05)  
     $
  
(a)
Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Adjusted EPS was $0.83 for the three months ended September 30, 2017 and October 2, 2016, driven by improved Adjusted EBITDA, offset by a higher effective tax rate.

Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Diluted EPS increased 19.0% to $2.44 for the nine months ended September 30, 2017 compared to $2.05 in the prior period, primarily driven by the net income/(loss) attributable to common shareholders factors discussed above.
 For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 $ Change % Change
Diluted EPS$2.44
 $2.05
 $0.39
 19.0%
Integration and restructuring expenses0.14
 0.43
 (0.29)  
Merger costs
 0.02
 (0.02)  
Unrealized losses/(gains) on commodity hedges0.01
 (0.02) 0.03
  
Impairment losses0.03
 0.03
 
  
Nonmonetary currency devaluation0.03
 
 0.03
  
Preferred dividend adjustment(a)

 (0.10) 0.10
  
Adjusted EPS(b)
$2.65
 $2.41
 $0.24
 10.0%
        
Key drivers of change in Adjusted EPS(b):
       
Results of operations    $0.02
  
Change in preferred dividends    0.25
  
Change in interest expense    (0.05)  
Change in other expense/(income), net    0.01
  
Change in effective tax rate and other    0.01
  
     $0.24
  
(a)
For Adjusted EPS, we present the impact of the Series A Preferred Stock dividend payments on an accrual basis. Accordingly, we included an adjustment to EPS to include $180 million of Series A Preferred Stock dividends in the first quarter of 2016 (to reflect the March 7, 2016 Series A Preferred Stock dividend that was paid in December 2015), and to exclude $51 million of Series A Preferred Stock dividends from the second quarter of 2016 (to reflect that it was redeemed on June 7, 2016).
(b)
Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Adjusted EPS increased 10.0% to $2.65 for the nine months ended September 30, 2017 compared to $2.41 in the prior period, primarily driven by the absence of a Series A Preferred Stock dividend in the current period and improved Adjusted EBITDA, partially offset by higher interest expense.
Results of Operations by SegmentAPAC.
Management evaluates segment performance based on several factors, including net sales Organic Net Sales, and Segment Adjusted EBITDA. Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA is a tool that can assist managementdefined as net income/(loss) from continuing operations before interest expense, other expense/(income), net, provision for/(benefit from) income taxes, 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. These items include depreciation and amortization (including amortization(excluding integration and restructuring expenses); in addition to these adjustments, we exclude, when they occur, the impacts of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, mergerdeal 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, gains/(losses) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and losses).

Net Sales:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
 (in millions)
Net sales:       
United States$4,380
 $4,395
 $13,566
 $13,802
Canada559
 550
 1,599
 1,692
Europe599
 558
 1,737
 1,766
Rest of World776
 764
 2,453
 2,370
Total net sales$6,314
 $6,267
 $19,355
 $19,630
Organic Net Sales:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
 (in millions)
Organic Net Sales(a):
       
United States$4,380
 $4,395
 $13,566
 $13,802
Canada537
 550
 1,584
 1,692
Europe577
 558
 1,779
 1,766
Rest of World778
 752
 2,448
 2,336
Total Organic Net Sales$6,272
 $6,255
 $19,377
 $19,596
(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 were:
 Net Sales Impact of Currency Organic Net Sales Price Volume/Mix
Three Months Ended September 30, 2017 compared to
Three Months Ended October 2, 2016
         
United States(0.4)% 0.0 pp (0.4)% 0.4 pp (0.8) pp
Canada1.6 % 4.0 pp (2.4)% (1.9) pp (0.5) pp
Europe7.3 % 3.9 pp 3.4 % (0.7) pp 4.1 pp
Rest of World1.6 % (2.0) pp 3.6 % 3.8 pp (0.2) pp
Kraft Heinz0.7 % 0.4 pp 0.3 % 0.5 pp (0.2) pp
          
Nine Months Ended September 30, 2017 compared to
Nine Months Ended October 2, 2016
         
United States(1.7)% 0.0 pp (1.7)% 0.2 pp (1.9) pp
Canada(5.5)% 0.9 pp (6.4)% (2.4) pp (4.0) pp
Europe(1.6)% (2.3) pp 0.7 % (1.0) pp 1.7 pp
Rest of World3.5 % (1.3) pp 4.8 % 4.1 pp 0.7 pp
Kraft Heinz(1.4)% (0.3) pp (1.1)% 0.4 pp (1.5) pp

Adjusted EBITDA:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
 (in millions)
Segment Adjusted EBITDA:       
United States$1,440
 $1,349
 $4,478
 $4,360
Canada162
 148
 477
 491
Europe206
 191
 578
 592
Rest of World149
 145
 475
 513
General corporate expenses(28) (30) (93) (115)
Depreciation and amortization (excluding integration and restructuring expenses)(165) (116) (434) (401)
Integration and restructuring expenses(95) (237) (237) (781)
Merger costs
 (4) 
 (33)
Unrealized gains/(losses) on commodity hedges5
 (22) (24) 23
Impairment losses(1) 
 (49) (53)
Nonmonetary currency devaluation
 (1) 
 (4)
Equity award compensation expense (excluding integration and restructuring expenses)(12) (10) (38) (30)
Operating income1,661
 1,413
 5,133
 4,562
Interest expense306
 311
 926
 824
Other expense/(income), net(4) (3) 8
 (5)
Income/(loss) before income taxes$1,359
 $1,105
 $4,199
 $3,743
United States:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions)   (in millions)  
Net sales$4,380
 $4,395
 (0.4)% $13,566
 $13,802
 (1.7)%
Organic Net Sales(a)
4,380
 4,395
 (0.4)% 13,566
 13,802
 (1.7)%
Segment Adjusted EBITDA1,440
 1,349
 6.8 % 4,478
 4,360
 2.7 %
(a)
Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 30, 2017 compared to the Three Months Ended October 2, 2016:
Net sales and Organic Net Sales decreased 0.4% to $4.4 billion due to the unfavorable volume/mix (0.8 pp) partially offset by higher pricing (0.4 pp). Unfavorable volume/mix was primarily driven by distribution losses in nuts and cheese as well as lower shipments of meat and coffee, partially offset by gains in refrigerated meal combinations and foodservice. Pricing was higher driven primarily by price increases in cheese and desserts, partially offset by timing of promotional activity in several categories.
Segment Adjusted EBITDA increased 6.8% primarily driven by Integration Program savings, lower overhead costs in the current period, and higher pricing, partially offset by unfavorable key commodity costs, primarily in meat and cheese.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Net sales and Organic Net Sales decreased 1.7% to $13.6 billion due to the unfavorable volume/mix (1.9 pp) partially offset by higher pricing (0.2 pp). Unfavorable volume/mix was primarily driven by distribution losses in cheese and meat, declines in nuts, and lower shipments in foodservice. The declinewas partially offset by gains in refrigerated meal combinations, boxed dinners, and frozen meals. Higher pricing primarily reflected current year price increases in cheese.
Segment Adjusted EBITDA increased 2.7% primarily driven by Integration Program savings and lower overhead costs in the current period, partially offset by unfavorable key commodity costs, primarily in cheese, meat, and, coffee, and volume/mix declines.

Canada:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions)   (in millions)  
Net sales$559
 $550
 1.6 % $1,599
 $1,692
 (5.5)%
Organic Net Sales(a)
537
 550
 (2.4)% 1,584
 1,692
 (6.4)%
Segment Adjusted EBITDA162
 148
 9.0 % 477
 491
 (2.9)%
(a)
Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 30, 2017 compared to the Three Months Ended October 2, 2016:
Net sales increased 1.6% to $559 million, driven by the favorable impact of foreign currency (4.0 pp). Organic Net Sales decreased 2.4% due to lower pricing (1.9 pp) and the unfavorable volume/mix (0.5 pp). Lower pricing was due to higher promotional activity, primarily in cheese. Unfavorable volume/mix was primarily due to lower shipments in boxed dinners, partially offset by growth in condiments and sauces.
Segment Adjusted EBITDA increased 9.0%, including the favorable impact of foreign currency (4.2 pp). Excluding the currency impact, Segment Adjusted EBITDA increased primarily due to Integration Program savings, lower overhead costs in the current period, and improved product mix, which were partially offset by lower pricing.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Net sales decreased 5.5% to $1.6 billion, including the favorable impact of foreign currency (0.9 pp). Organic Net Sales decreased 6.4% due to the unfavorable volume/mix (4.0 pp) and lower pricing (2.4 pp). Volume/mix was unfavorable across several categories and was most pronounced in cheese, coffee, and boxed dinners, primarily due to delayed execution of go-to-market agreements with key retailers and retail distribution losses (primarily in cheese). Lower pricing was primarily due to higher promotional levels versus the prior period.
Segment Adjusted EBITDA decreased 2.9% despite the favorable impact of foreign currency (0.6 pp). Excluding the currency impact, the decrease was primarily due to lower Organic Net Sales, partially offset by Integration Program savings and lower overhead costs in the current period.
Europe:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions)   (in millions)  
Net sales$599
 $558
 7.3% $1,737
 $1,766
 (1.6)%
Organic Net Sales(a)
577
 558
 3.4% 1,779
 1,766
 0.7 %
Segment Adjusted EBITDA206
 191
 7.9% 578
 592
 (2.4)%
(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 30, 2017 compared to the Three Months Ended October 2, 2016:
Net sales increased 7.3% to $599 million, including the favorable impact of foreign currency (3.9 pp). Organic Net Sales increased 3.4% driven by favorable volume/mix (4.1 pp), partially offset by lower pricing (0.7 pp). Favorable volume/mix was primarily driven by growth in condiments and sauces across the region and gains in foodservice, partially offset by ongoing declines in infant nutrition in Italy. Lower pricing was primarily due to higher promotional activity in infant nutrition in Italy.
Segment Adjusted EBITDA increased 7.9%, including the favorable impact of foreign currency (2.4 pp). Excluding the currency impact, the increase was primarily driven by productivity savings and favorable volume/mix, partially offset by higher input costs in local currency.

Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Net sales decreased 1.6% to $1.7 billion, reflecting the unfavorable impact of foreign currency (2.3 pp). Organic Net Sales increased 0.7% driven by favorable volume/mix (1.7 pp), partially offset by lower pricing (1.0 pp). Favorable volume/mix was primarily driven by higher shipments in foodservice and growth in condiments and sauces, partially offset by ongoing declines in infant nutrition in Italy. Lower pricing was primarily due to higher promotional activity in Italy and the UK versus the prior period.
Segment Adjusted EBITDA decreased 2.4%, reflecting the unfavorable impact of foreign currency (4.7 pp). Excluding the currency impact, Segment Adjusted EBITDA increased primarily due to productivity savings, partially offset by higher input costs in local currency.
Rest of World:
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 % Change September 30,
2017
 October 2,
2016
 % Change
 (in millions)   (in millions)  
Net sales$776
 $764
 1.6% $2,453
 $2,370
 3.5 %
Organic Net Sales(a)
778
 752
 3.6% 2,448
 2,336
 4.8 %
Segment Adjusted EBITDA149
 145
 2.7% 475
 513
 (7.6)%
(a)
Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 30, 2017 compared to the Three Months Ended October 2, 2016:
Net sales increased 1.6% to $776 million despite the unfavorable impact of foreign currency (2.0 pp). Organic Net Sales increased 3.6% driven by higher pricing (3.8 pp) partially offset by the unfavorable volume/mix (0.2 pp). Higher pricing was primarily driven by pricing actions taken to offset higher input costs in local currency. Unfavorable volume/mix was primarily due to declines in several markets associated with distributor network re-alignment and lower shipments in Brazil. These volume/mix declines were partially offset by growth in condiments and sauces, primarily in China.
Segment Adjusted EBITDA increased 2.7% despite the unfavorable impact of foreign currency (3.7 pp). Excluding the currency impact, Segment Adjusted EBITDA increased primarily driven by Organic Net Sales growth and lower overhead costs, partially offset by higher input costs in local currency.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended October 2, 2016:
Net sales increased 3.5% to $2.5 billion despite the unfavorable impact of foreign currency (1.3 pp). Organic Net Sales increased 4.8% driven by higher pricing (4.1 pp) and favorable volume/mix (0.7 pp). Higher pricing was primarily driven by pricing actions taken to offset higher input costs in local currency, primarily in Latin America. Favorable volume/mix was primarily driven by growth in condiments and sauces across the region, partially offset by volume/mix declines in several markets associated with distributor network re-alignment.
Segment Adjusted EBITDA decreased 7.6%, including the unfavorable impact of foreign currency (3.1 pp). Excluding the currency impact, Segment Adjusted EBITDA decreased primarily due to higher input costs in local currency and higher commercial investments, partially offset by Organic Net Sales growth.
Liquidity and Capital Resources
We believe that cash generated from our operating activities, securitization programs, commercial paper programs, and Revolving Credit Facility (as defined below) will provide sufficient liquidity to meet our working capital needs, expected Integration Program and restructuring expenditures, planned capital expenditures, contributions to our postemployment benefit plans, future contractual obligations (including repayments of long-term debt), and payment of our anticipated quarterly common stock dividends. We intend to use our cash on hand and our commercial paper programs for daily funding requirements. Overall, we do not expect any negative effects on our funding sources that would have a material effect on our short-term or long-term liquidity.
Cash Flow Activity for 2017 compared to 2016:
Net Cash Provided by/Used for Operating Activities:
Net cash provided by operating activities was $16 million for the nine months ended September 30, 2017 compared to $1.0 billion for the nine months ended October 2, 2016. The decrease in cash provided by operating activities was primarily driven by lower collections on receivables as more were non-cash exchanged for sold receivables and the timing of payments related to income taxes, customer promotional activities, employee bonuses, and interest.

Net Cash Provided by/Used for Investing Activities:
Net cash provided by investing activities was $724 million for the nine months ended September 30, 2017 compared to $1.1 billion for the nine months ended October 2, 2016. The decrease in cash provided by investing activities was primarily due to lower cash inflows from our accounts receivable securitization and factoring programs as well as increased capital expenditures of $120 million. The increase in capital expenditures was primarily attributable to current year investments in facilities and software in Latin America and increased footprint costs as part of our ongoing Integration Program in the U.S. and Canada. We expect 2017 capital expenditures to be approximately $1.1 billion, including capital expenditures required for our ongoing integration and restructuring activities.
Net Cash Provided by/Used for Financing Activities:
Net cash used for financing activities was $3.5 billion for the nine months ended September 30, 2017 compared to $3.0 billion for the nine months ended October 2, 2016. This increase was primarily driven by long-term debt repayments in the second and third quarter of 2017 (partially offset by the New Notes issued in the third quarter of 2017), as well as increased cash distributions related to common stock dividends. Together, these items exceeded prior year net cash outflows related to our Series A Preferred Stock redemption and the related preferred dividends prior to redemption on June 7, 2016. We funded this redemption primarily through the issuance of long-term debt in May 2016, as well as other sources of liquidity, including our commercial paper program, U.S. securitization program, and cash on hand. See Equity and Dividends for additional information on our dividends.
Cash Held by International Subsidiaries:
Of the $1.4 billion cash and cash equivalents on our condensed consolidated balance sheet at September 30, 2017, $1.2 billion was held by international subsidiaries.
We consider the unremitted earnings of our international subsidiaries that have not been previously taxed in the U.S. to be indefinitely reinvested. For those undistributed earnings considered to be indefinitely reinvested, our intent is to reinvest these earnings 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. If we decide at a later date to repatriate these earnings to the U.S., we would be required to pay taxes on these amounts based on the applicable U.S. tax rates net of credits for foreign taxes already paid.
Certain previously taxed earnings have not yet been remitted and certain intercompany loans have not yet been repaid. As a result, in future periods, we believe that we could remit up to approximately $2.1 billion of cash to the U.S. without incurring any additional significant income tax expense.
Total Debt:
We had commercial paper outstanding of $443 million at September 30, 2017 and $642 million at December 31, 2016. The maximum amount of commercial paper outstanding during the nine months ended September 30, 2017 was $1.2 billion.
We maintain our $4.0 billion senior unsecured revolving credit facility (the “Senior Credit Facility”). Subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to $1.0 billion. Our Senior Credit Facility contains customary representations, covenants, and events of default. We repaid the $600 million aggregate principal amount of our previously outstanding Term Loan Facility in the third quarter of 2017, and no amounts were outstanding at September 30, 2017. See Note 13, Commitments, Contingencies and Debt, for additional information. No amounts were drawn on our Senior Credit Facility at September 30, 2017 or during the nine months ended September 30, 2017.
Our long-term debt, including the current portion, was $31.1 billion at September 30, 2017 and $31.8 billion at December 31, 2016. The decrease in long-term debt was primarily due to our repayment of approximately $2.0 billion aggregate principal amount of senior notes that matured in the period and our $600 million aggregate principal amount Term Loan Facility. The decrease was partially offset by approximately $1.5 billion aggregate principal amount of New Notes issued. See Note 13, Commitments, Contingencies and Debt, for additional information. Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all such covenants at September 30, 2017.

Commodity Trends
We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, tomatoes, potatoes, soybean and vegetable oils, sugar and other sweeteners, corn products, and wheat to manufacture our products. In addition, we purchase and use significant quantities of resins, metals, and cardboard to package our products and natural gas to operate our facilities. We continuously monitor worldwide supply and cost trends of these commodities.
We define our key commodities as dairy, meat, coffee, and nuts. During the nine months ended September 30, 2017, we experienced increases in our key commodities, including cheese, meat, and coffee, while costs for nuts were flat. We expect commodity cost volatility to continue over the remainder of the year. We manage commodity cost volatility primarily through pricing and risk management strategies. As a result of these risk management strategies, our commodity costs may not immediately correlate with market price trends.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the third quarter of 2017, we issued approximately $1.5 billion aggregate principal amount of long-term debt. We used the proceeds to repay our Term Loan Facility with an aggregate principal amount of $600 million. See Note 13, Commitments, Contingencies and Debt, for additional information.
In the second quarter of 2017, we repaid $2.0 billion aggregate principal amount of senior notes that matured in the period. We funded these long-term debt repayments primarily with cash on hand and our commercial paper programs.
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 31, 2016.
Equity and Dividends
Series A Preferred Stock Dividends:
On June 7, 2016, we redeemed all outstanding shares of our Series A Preferred Stock, therefore we no longer pay any associated dividends.
Prior to the redemption, we made cash distributions of $180 million in the nine months ended October 2, 2016 related to the Series A Preferred Stock dividend. There were no cash distributions related to our Series A Preferred Stock for the three months ended April 3, 2016 because, concurrent with the declaration of our common stock dividend on December 8, 2015, we also declared and paid the Series A Preferred Stock dividend that would otherwise have been payable on March 7, 2016.
Common Stock Dividends:
We paid common stock dividends of $2.2 billion for the nine months ended September 30, 2017 and $2.1 billion for the nine months ended October 2, 2016. Additionally, on November 1, 2017, our Board of Directors declared a cash dividend of $0.625 per share of common stock, which is payable on December 15, 2017 to shareholders of record on November 17, 2017.
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.
Significant Accounting Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments, and assumptions. Our significant accounting policies are described in Note 1, Background and Basis of Presentation, to our consolidated financial statements for the year ended December 31, 2016 in our Annual Report on Form 10-K. Our significant accounting assumptions and estimates are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2016 in our Annual Report on Form 10-K.
Recently Issued Accounting Standards
See Note 1, Background and Basis of Presentation, to the condensed consolidated financial statements for a discussion of recently issued accounting standards.
Contingencies
See Note 13, Commitments, Contingencies and Debt, to the condensed consolidated 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 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 earnings per common share, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.
Management uses these non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our 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 acquisitions, currency, 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 Venezuela following our June 28, 2015 currency devaluation, 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), net, provision for/(benefit from) income taxes; in addition to these adjustments, we exclude, when they occur, the impacts of depreciation and amortization (excluding integration and restructuring expenses) (including amortization of postretirement benefit plans prior service credits), integration and restructuring expenses, merger costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, nonmonetary currency devaluation (e.g., remeasurement gains and losses), and equity award compensation expense (excluding integration and restructuring expenses). 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
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Net sales:       
United States$4,431
 $4,351
 $13,312
 $13,470
Canada525
 556
 1,573
 1,588
EMEA629
 651
 2,017
 1,895
Rest of World793
 722
 2,466
 2,288
Total net sales$6,378
 $6,280
 $19,368
 $19,241
Segment Adjusted EPS is defined as diluted earnings per share excluding, when they occur,EBITDA was (in millions):
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Segment Adjusted EBITDA:       
United States$1,201
 $1,433
 $4,015
 $4,454
Canada144
 161
 450
 475
EMEA161
 182
 544
 506
Rest of World148
 140
 504
 455
General corporate expenses(38) (28) (128) (93)
Depreciation and amortization (excluding integration and restructuring expenses)(254) (243) (702) (683)
Integration and restructuring expenses(32) (99) (215) (388)
Deal costs(3) 
 (19) 
Unrealized gains/(losses) on commodity hedges(6) 5
 (11) (24)
Impairment losses(234) (1) (499) (49)
Gains/(losses) on sale of business
 
 (15) 
Equity award compensation expense (excluding integration and restructuring expenses)(17) (12) (44) (38)
Operating income1,070
 1,538
 3,880
 4,615
Interest expense327
 306
 962
 926
Other expense/(income), net(71) (127) (196) (510)
Income/(loss) before income taxes$814
 $1,359
 $3,114
 $4,199

In the impactsfirst quarter of integration2018, we reorganized the products within our product categories to reflect how we manage our business. We have reflected this change for all historical periods presented. Net sales by product category were (in millions):
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Condiments and sauces$1,660
 $1,598
 $5,208
 $4,875
Cheese and dairy1,242
 1,278
 3,742
 3,881
Ambient meals577
 593
 1,787
 1,771
Frozen and chilled meals686
 639
 1,909
 1,921
Meats and seafood653
 661
 1,916
 2,010
Refreshment beverages385
 369
 1,194
 1,175
Coffee331
 330
 1,029
 1,017
Infant and nutrition172
 176
 596
 575
Desserts, toppings and baking221
 218
 642
 645
Nuts and salted snacks224
 201
 635
 684
Other227
 217
 710
 687
Total net sales$6,378
 $6,280
 $19,368
 $19,241
Note 17. Supplemental Guarantor Information
We fully and restructuring expenses, merger costs, unrealized losses/(gains)unconditionally guarantee the notes issued by our 100% owned operating subsidiary, Kraft Heinz Foods Company, including the New Notes. See Note 16, Debt, to our consolidated financial statements for the year ended December 30, 2017 in our Annual Report on commodity hedges, impairment losses, losses/(gains) onForm 10-K for additional descriptions of these guarantees, and see Note 14, Commitments, Contingencies and Debt, of this Form 10-Q for a description of the saleNew Notes. None of a business,our other subsidiaries guarantee these notes.
Set forth below are the condensed consolidating financial statements presenting the results of operations, financial position and nonmonetary currency devaluation (e.g.cash flows of Kraft Heinz (as parent guarantor), remeasurement gains and losses)Kraft Heinz Foods Company (as subsidiary issuer of the notes), and including when they occur,the non-guarantor subsidiaries on a combined basis and eliminations necessary to arrive at the total reported information on a consolidated basis. This condensed consolidating financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” This information is not intended to present the financial position, results of operations, and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. Eliminations represent adjustments to reflect preferred stock dividend payments on an accrual basis. We believe Adjusted EPS provides important comparability of underlying operating results, allowing investorseliminate investments in subsidiaries and management to assess operating performance on a consistent basis.intercompany balances and transactions between or among the parent guarantor, subsidiary issuer, and the non-guarantor subsidiaries.

The Kraft Heinz Company
ReconciliationCondensed Consolidating Statements of Net Sales to Organic Net SalesIncome
For the Three Months Ended September 29, 2018
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $4,226
 $2,289
 $(137) $6,378
Cost of products sold
 2,800
 1,608
 (137) 4,271
Gross profit
 1,426
 681
 
 2,107
Selling, general and administrative expenses
 205
 832
 
 1,037
Intercompany service fees and other recharges
 975
 (975) 
 
Operating income
 246
 824
 
 1,070
Interest expense
 311
 16
 
 327
Other expense/(income), net
 (59) (12) 
 (71)
Income/(loss) before income taxes
 (6) 820
 
 814
Provision for/(benefit from) income taxes
 (52) 238
 
 186
Equity in earnings of subsidiaries630
 584
 
 (1,214) 
Net income/(loss)630
 630
 582
 (1,214) 628
Net income/(loss) attributable to noncontrolling interest
 
 (2) 
 (2)
Net income/(loss) excluding noncontrolling interest$630
 $630
 $584
 $(1,214) $630
          
Comprehensive income/(loss) excluding noncontrolling interest$455
 $455
 $423
 $(878) $455

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended September 30, 2017 and October 2, 2016
(dollars in millions)
(Unaudited)
 Net Sales Impact of Currency Organic Net Sales Price Volume/Mix
September 30, 2017         
United States$4,380
 $
 $4,380
    
Canada559
 22
 537
    
Europe599
 22
 577
    
Rest of World776
 (2) 778
    
 $6,314
 $42
 $6,272
    
          
October 2, 2016         
United States$4,395
 $
 $4,395
    
Canada550
 
 550
    
Europe558
 
 558
    
Rest of World764
 12
 752
    
 $6,267
 $12
 $6,255
    
Year-over-year growth rates         
United States(0.4)% 0.0 pp (0.4)% 0.4 pp (0.8) pp
Canada1.6 % 4.0 pp (2.4)% (1.9) pp (0.5) pp
Europe7.3 % 3.9 pp 3.4 % (0.7) pp 4.1 pp
Rest of World1.6 % (2.0) pp 3.6 % 3.8 pp (0.2) pp
Kraft Heinz0.7 % 0.4 pp 0.3 % 0.5 pp (0.2) pp
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $4,146
 $2,277
 $(143) $6,280
Cost of products sold
 2,655
 1,565
 (143) 4,077
Gross profit
 1,491
 712
 
 2,203
Selling, general and administrative expenses
 167
 498
 
 665
Intercompany service fees and other recharges
 776
 (776) 
 
Operating income
 548
 990
 
 1,538
Interest expense
 296
 10
 
 306
Other expense/(income), net
 (67) (60) 
 (127)
Income/(loss) before income taxes
 319
 1,040
 
 1,359
Provision for/(benefit from) income taxes
 (11) 427
 
 416
Equity in earnings of subsidiaries944
 614
 
 (1,558) 
Net income/(loss)944
 944
 613
 (1,558) 943
Net income/(loss) attributable to noncontrolling interest
 
 (1) 
 (1)
Net income/(loss) excluding noncontrolling interest$944
 $944
 $614
 $(1,558) $944
          
Comprehensive income/(loss) excluding noncontrolling interest$1,167
 $1,167
 $1,165
 $(2,332) $1,167

The Kraft Heinz Company
ReconciliationCondensed Consolidating Statements of Net Sales to Organic Net SalesIncome
For the Nine Months Ended September 29, 2018
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $12,693
 $7,082
 $(407) $19,368
Cost of products sold
 8,130
 4,928
 (407) 12,651
Gross profit
 4,563
 2,154
 
 6,717
Selling, general and administrative expenses
 589
 2,248
 
 2,837
Intercompany service fees and other recharges
 3,253
 (3,253) 
 
Operating income
 721
 3,159
 
 3,880
Interest expense
 911
 51
 
 962
Other expense/(income), net
 (234) 38
 
 (196)
Income/(loss) before income taxes
 44
 3,070
 
 3,114
Provision for/(benefit from) income taxes
 (36) 774
 
 738
Equity in earnings of subsidiaries2,379
 2,299
 
 (4,678) 
Net income/(loss)2,379
 2,379
 2,296
 (4,678) 2,376
Net income/(loss) attributable to noncontrolling interest
 
 (3) 
 (3)
Net income/(loss) excluding noncontrolling interest$2,379
 $2,379
 $2,299
 $(4,678) $2,379
          
Comprehensive income/(loss) excluding noncontrolling interest$1,701
 $1,701
 $1,588
 $(3,289) $1,701

The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Nine Months Ended September 30, 2017 and October 2, 2016
(dollars in millions)
(Unaudited)
 Net Sales Impact of Currency Organic Net Sales Price Volume/Mix
September 30, 2017         
United States$13,566
 $
 $13,566
    
Canada1,599
 15
 1,584
    
Europe1,737
 (42) 1,779
    
Rest of World2,453
 5
 2,448
    
 $19,355
 $(22) $19,377
    
          
October 2, 2016         
United States$13,802
 $
 $13,802
    
Canada1,692
 
 1,692
    
Europe1,766
 
 1,766
    
Rest of World2,370
 34
 2,336
    
 $19,630
 $34
 $19,596
    
Year-over-year growth rates         
United States(1.7)% 0.0 pp (1.7)% 0.2 pp (1.9) pp
Canada(5.5)% 0.9 pp (6.4)% (2.4) pp (4.0) pp
Europe(1.6)% (2.3) pp 0.7 % (1.0) pp 1.7 pp
Rest of World3.5 % (1.3) pp 4.8 % 4.1 pp 0.7 pp
Kraft Heinz(1.4)% (0.3) pp (1.1)% 0.4 pp (1.5) pp


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 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
Net income/(loss)$943
 $843
 $2,994
 $2,698
Interest expense306
 311
 926
 824
Other expense/(income), net(4) (3) 8
 (5)
Provision for/(benefit from) income taxes416
 262
 1,205
 1,045
Operating income1,661
 1,413
 5,133
 4,562
Depreciation and amortization (excluding integration and restructuring expenses)165
 116
 434
 401
Integration and restructuring expenses95
 237
 237
 781
Merger costs
 4
 
 33
Unrealized losses/(gains) on commodity hedges(5) 22
 24
 (23)
Impairment losses1
 
 49
 53
Nonmonetary currency devaluation
 1
 
 4
Equity award compensation expense (excluding integration and restructuring expenses)12
 10
 38
 30
Adjusted EBITDA$1,929
 $1,803
 $5,915
 $5,841

 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$
 $12,857
 $6,827
 $(443) $19,241
Cost of products sold
 8,119
 4,730
 (443) 12,406
Gross profit
 4,738
 2,097
 
 6,835
Selling, general and administrative expenses
 558
 1,662
 
 2,220
Intercompany service fees and other recharges
 3,205
 (3,205) 
 
Operating income
 975
 3,640
 
 4,615
Interest expense
 895
 31
 
 926
Other expense/(income), net
 (440) (70) 
 (510)
Income/(loss) before income taxes
 520
 3,679
 
 4,199
Provision for/(benefit from) income taxes
 (92) 1,297
 
 1,205
Equity in earnings of subsidiaries2,996
 2,384
 
 (5,380) 
Net income/(loss)2,996
 2,996
 2,382
 (5,380) 2,994
Net income/(loss) attributable to noncontrolling interest
 
 (2) 
 (2)
Net income/(loss) excluding noncontrolling interest$2,996
 $2,996
 $2,384
 $(5,380) $2,996
          
Comprehensive income/(loss) excluding noncontrolling interest$3,539
 $3,539
 $4,351
 $(7,890) $3,539

The Kraft Heinz Company
ReconciliationCondensed Consolidating Balance Sheets
As of Diluted EPS to Adjusted EPSSeptember 29, 2018
(in millions)
(Unaudited)
 For the Three Months Ended For the Nine Months Ended
 September 30,
2017
 October 2,
2016
 September 30,
2017
 October 2,
2016
Diluted EPS$0.77
 $0.69
 $2.44
 $2.05
Integration and restructuring expenses(a)(c)
0.06
 0.13
 0.14
 0.43
Merger costs(a)(b)

 
 
 0.02
Unrealized losses/(gains) on commodity hedges(a)(b)

 0.01
 0.01
 (0.02)
Impairment losses(a)(b)

 
 0.03
 0.03
Nonmonetary currency devaluation(a)(d)

 
 0.03
 
Preferred dividend adjustment(e)

 
 
 (0.10)
Adjusted EPS$0.83
 $0.83
 $2.65
 $2.41
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS         
Cash and cash equivalents$
 $370
 $996
 $
 $1,366
Trade receivables, net
 919
 1,113
 
 2,032
Receivables due from affiliates
 767
 255
 (1,022) 
Dividends due from affiliates
 
 
 
 
Sold receivables
 
 
 
 
Income taxes receivable
 1,942
 36
 (1,783) 195
Inventories
 2,237
 1,050
 
 3,287
Short-term lending due from affiliates
 1,879
 3,714
 (5,593) 
Other current assets
 365
 347
 (2) 710
Total current assets
 8,479
 7,511
 (8,400) 7,590
Property, plant and equipment, net
 4,567
 2,649
 
 7,216
Goodwill
 11,067
 33,241
 
 44,308
Investments in subsidiaries65,385
 80,480
 
 (145,865) 
Intangible assets, net
 3,109
 55,618
 
 58,727
Long-term lending due from affiliates
 
 2,029
 (2,029) 
Other assets
 728
 1,161
 
 1,889
TOTAL ASSETS$65,385
 $108,430
 $102,209
 $(156,294) $119,730
LIABILITIES AND EQUITY         
Commercial paper and other short-term debt$
 $971
 $2
 $
 $973
Current portion of long-term debt
 392
 13
 
 405
Short-term lending due to affiliates
 3,714
 1,879
 (5,593) 
Trade payables
 2,689
 1,623
 
 4,312
Payables due to affiliates
 255
 767
 (1,022) 
Accrued marketing
 123
 371
 
 494
Income taxes payable
 3
 1,884
 (1,783) 104
Interest payable
 305
 10
 
 315
Dividends due to affiliates
 
 
 
 
Other current liabilities
 467
 513
 (2) 978
Total current liabilities
 8,919
 7,062
 (8,400) 7,581
Long-term debt
 30,025
 973
 
 30,998
Long-term borrowings due to affiliates
 2,029
 394
 (2,423) 
Deferred income taxes
 1,309
 12,906
 
 14,215
Accrued postemployment costs
 166
 228
 
 394
Other liabilities
 597
 367
 
 964
TOTAL LIABILITIES
 43,045
 21,930
 (10,823) 54,152
Redeemable noncontrolling interest
 
 6
 
 6
Total shareholders’ equity65,385
 65,385
 80,086
 (145,471) 65,385
Noncontrolling interest
 
 187
 
 187
TOTAL EQUITY65,385
 65,385
 80,273
 (145,471) 65,572
TOTAL LIABILITIES AND EQUITY$65,385
 $108,430
 $102,209
 $(156,294) $119,730
(a)
Income tax expense associated with these items is based on applicable jurisdictional tax rates and deductibility assessments of individual items.
(b)
Refer to the reconciliation of net income/(loss) to Adjusted EBITDA for the related gross expenses.
(c)
Integration and restructuring expenses include the following gross expenses:
Expenses recorded
The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of December 30, 2017
(in costmillions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS         
Cash and cash equivalents$
 $509
 $1,120
 $
 $1,629
Trade receivables, net
 91
 830
 
 921
Receivables due from affiliates
 716
 207
 (923) 
Dividends due from affiliates135
 
 
 (135) 
Sold receivables
 
 353
 
 353
Income taxes receivable
 1,904
 97
 (1,419) 582
Inventories
 1,846
 969
 
 2,815
Short-term lending due from affiliates
 1,598
 3,816
 (5,414) 
Other current assets
 493
 473
 
 966
Total current assets135
 7,157
 7,865
 (7,891) 7,266
Property, plant and equipment, net
 4,577
 2,543
 
 7,120
Goodwill
 11,067
 33,757
 
 44,824
Investments in subsidiaries66,034
 80,426
 
 (146,460) 
Intangible assets, net
 3,222
 56,227
 
 59,449
Long-term lending due from affiliates
 1,700
 2,029
 (3,729) 
Other assets
 515
 1,058
 
 1,573
TOTAL ASSETS$66,169
 $108,664
 $103,479
 $(158,080) $120,232
LIABILITIES AND EQUITY         
Commercial paper and other short-term debt$
 $448
 $12
 $
 $460
Current portion of long-term debt
 2,577
 166
 
 2,743
Short-term lending due to affiliates
 3,816
 1,598
 (5,414) 
Trade payables
 2,718
 1,731
 
 4,449
Payables due to affiliates
 207
 716
 (923) 
Accrued marketing
 236
 444
 
 680
Income taxes payable
 
 1,571
 (1,419) 152
Interest payable
 404
 15
 
 419
Dividends due to affiliates
 135
 
 (135) 
Other current liabilities135
 473
 621
 
 1,229
Total current liabilities135
 11,014
 6,874
 (7,891) 10,132
Long-term debt
 27,442
 891
 
 28,333
Long-term borrowings due to affiliates
 2,029
 1,919
 (3,948) 
Deferred income taxes
 1,245
 12,831
 
 14,076
Accrued postemployment costs
 184
 243
 
 427
Other liabilities
 716
 301
 
 1,017
TOTAL LIABILITIES135
 42,630
 23,059
 (11,839) 53,985
Redeemable noncontrolling interest
 
 6
 
 6
Total shareholders’ equity66,034
 66,034
 80,207
 (146,241) 66,034
Noncontrolling interest
 
 207
 
 207
TOTAL EQUITY66,034
 66,034
 80,414
 (146,241) 66,241
TOTAL LIABILITIES AND EQUITY$66,169
 $108,664
 $103,479
 $(158,080) $120,232

The Kraft Heinz Company
Condensed Consolidating Statements of products soldCash Flows
For the Nine Months Ended September 29, 2018
(in millions)
(Unaudited)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES         
Net cash provided by/(used for) operating activities$2,421
 $844
 $65
 $(2,431) $899
CASH FLOWS FROM INVESTING ACTIVITIES         
Cash receipts on sold receivables
 
 1,296
 
 1,296
Capital expenditures
 (251) (343) 
 (594)
Payments to acquire business, net of cash acquired
 (244) (4) 
 (248)
Net proceeds from/(payments on) intercompany lending activities
 1,074
 185
 (1,259) 
Additional investments in subsidiaries
 (41) 
 41
 
Return of capital7
 
 
 (7) 
Other investing activities, net
 13
 18
 
 31
Net cash provided by/(used for) investing activities7
 551
 1,152
 (1,225) 485
CASH FLOWS FROM FINANCING ACTIVITIES         
Repayments of long-term debt
 (2,565) (162) 
 (2,727)
Proceeds from issuance of long-term debt
 2,990
 
 
 2,990
Proceeds from issuance of commercial paper
 2,485
 
 
 2,485
Repayments of commercial paper
 (1,950) 
 
 (1,950)
Net proceeds from/(payments on) intercompany borrowing activities
 (185) (1,074) 1,259
 
Dividends paid-common stock(2,421) (2,421) (10) 2,431
 (2,421)
Other intercompany capital stock transactions
 (7) 41
 (34) 
Other financing activities, net(7) (16) (12) 
 (35)
Net cash provided by/(used for) financing activities(2,428) (1,669) (1,217) 3,656
 (1,658)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
 
 (128) 
 (128)
Cash, cash equivalents, and restricted cash:         
Net increase/(decrease)
 (274) (128) 
 (402)
Balance at beginning of period
 644
 1,125
 
 1,769
Balance at end of period$
 $370
 $997
 $
 $1,367

The Kraft Heinz Company
Condensed Consolidating Statements of $80 million forCash Flows
For the three months and $124 million for the nine months endedNine Months Ended September 30, 2017 and $152 million for the three months and $532 million for the nine months ended October 2, 2016;
Expenses recorded (in selling, general and administrative expenses of $15 million for the three months and $113 million for the nine months ended September 30, 2017 and $85 million for the three months and $249 million for the nine months ended October 2, 2016; andmillions)
Expenses recorded in other expense/(income), net, of $2 million for the three months and nine months ended October 2, 2016 (there were no such expenses for the three and nine months ended September 30, 2017).
(d)
Nonmonetary currency devaluation includes the following gross expenses/(income):
Expenses recorded in cost of products sold of $1 million for the three months and $4 million for the nine months ended October 2, 2016 (there were no such expenses for the three and nine months ended September 30, 2017); and(Unaudited)
Expenses/(income) recorded in other expense/(income), net, including expenses of $3 million for the three months and $36 million for the nine months ended September 30, 2017 and income of $6 million for the three months and expense of $1 million for the nine months ended October 2, 2016.
(e)
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES         
Net cash provided by/(used for) operating activities$2,161
 $1,185
 $(1,169) $(2,161) $16
CASH FLOWS FROM INVESTING ACTIVITIES         
Cash receipts on sold receivables
 
 1,633
 
 1,633
Capital expenditures
 (622) (334) 
 (956)
Net proceeds from/(payments on) intercompany lending activities
 59
 (267) 208
 
Additional investments in subsidiaries(15) 
 
 15
 
Other investing activities, net
 54
 (7) 
 47
Net cash provided by/(used for) investing activities(15) (509) 1,025
 223
 724
CASH FLOWS FROM FINANCING ACTIVITIES         
Repayments of long-term debt
 (2,625) (11) 
 (2,636)
Proceeds from issuance of long-term debt
 1,496
 
 
 1,496
Proceeds from issuance of commercial paper
 5,495
 
 
 5,495
Repayments of commercial paper
 (5,709) 
 
 (5,709)
Net proceeds from/(payments on) intercompany borrowing activities
 267
 (59) (208) 
Dividends paid-common stock(2,161) (2,161) 
 2,161
 (2,161)
Other intercompany capital stock transactions
 15
 
 (15) 
Other financing activities, net15
 (6) 17
 
 26
Net cash provided by/(used for) financing activities(2,146) (3,228) (53) 1,938
 (3,489)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
 
 43
 
 43
Cash, cash equivalents, and restricted cash:         
Net increase/(decrease)
 (2,552) (154) 
 (2,706)
Balance at beginning of period
 2,869
 1,386
 
 4,255
Balance at end of period$
 $317
 $1,232
 $
 $1,549
For Adjusted EPS, we present the impact of the Series A Preferred Stock dividend payments on an accrual basis. Accordingly, we included an adjustment to EPS to include $180 million of Series A Preferred Stock dividends in the first quarter of 2016 (to reflect the March 7, 2016 Series A Preferred Stock dividend that was paid in December 2015), and to exclude $51 million of Series A Preferred Stock dividends from the second quarter of 2016 (to reflect that it was redeemed on June 7, 2016).

Forward-Looking StatementsThe following tables provide a reconciliation of cash and cash equivalents, as reported on our unaudited condensed consolidating balance sheets, to cash, cash equivalents, and restricted cash, as reported on our unaudited condensed consolidating statements of cash flows (in millions):
This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Words such as “expect,” “improve,” “assess,” “remain,” “evaluate,” “will,” “plan,” and variations of such words and similar expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our plans, segment changes, growth, taxes, cost savings, impacts of accounting guidance, and dividends. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond our control.
Important factors that affect our business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, increased competition; our ability to maintain, extend and expand our reputation and brand image; our ability to differentiate our products from other brands; the consolidation of retail customers; our ability to predict, identify and interpret changes in consumer preferences and demand; our ability to drive revenue growth in our key product categories, increase our market share, or add products; an impairment of the carrying value of goodwill or other indefinite-lived intangible assets; volatility in commodity, energy and other input costs; changes in our management team or other key personnel; our inability to realize the anticipated benefits from our cost savings initiatives; changes in relationships with significant customers and suppliers; execution of our international expansion strategy; changes in laws and regulations; legal claims or other regulatory enforcement actions; product recalls or product liability claims; unanticipated business disruptions; failure to successfully integrate the business and operations of Kraft Heinz in the expected time frame; our ability to complete or realize the benefits from potential and completed acquisitions, alliances, divestitures or joint ventures; economic and political conditions in the nations in which we operate; the volatility of capital markets; increased pension, labor and people-related expenses; volatility in the market value of all or a portion of the derivatives we use; exchange rate fluctuations; risks associated with information technology and systems, including service interruptions, misappropriation of data or breaches of security; our inability to protect intellectual property rights; impacts of natural events in the locations in which we or our customers, suppliers or regulators operate; our indebtedness and ability to pay such indebtedness; tax law changes or interpretations; restatements of our consolidated financial statements and our ability to remediate material weaknesses; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see ���Risk Factors” below in this Quarterly Report on Form 10-Q. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report, except as required by applicable law or regulation.
 September 29, 2018
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Cash and cash equivalents$
 $370
 $996
 $
 $1,366
Restricted cash included in other assets (current)
 
 1
 
 1
Cash, cash equivalents, and restricted cash$
 $370
 $997
 $
 $1,367
 December 30, 2017
 Parent Guarantor Subsidiary Issuer Non-Guarantor Subsidiaries Eliminations Consolidated
Cash and cash equivalents$
 $509
 $1,120
 $
 $1,629
Restricted cash included in other assets (current)
 135
 5
 
 140
Cash, cash equivalents, and restricted cash$
 $644
 $1,125
 $
 $1,769

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Description of the Company:
We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products throughout the world.
In the first quarter of our fiscal year 2018, we reorganized certain of our international businesses to better align our global geographies. As a result, we moved our Middle East and Africa businesses from the historical AMEA operating segment into the historical Europe reportable segment, forming the new EMEA reportable segment. The remaining businesses from the AMEA operating segment became the APAC operating segment.
Therefore, effective in the first quarter of 2018, we manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and EMEA. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World comprises two operating segments: Latin America and APAC.
See Note 16, Segment Reporting, to the condensed consolidated financial statements for our financial information by segment.
Subsequent Events
On October 24, 2018, we entered into an agreement for the sale of certain assets and operations. See Note 1, Background and Basis of Presentation, to the condensed consolidated financial statements for additional information.
Items Affecting Comparability of Financial Results
Integration and Restructuring Expenses:
At the end of 2017, we had substantially completed our Integration Program, which was designed to reduce costs, integrate, and optimize our combined organization. As of September 29, 2018, we had incurred cumulative pre-tax costs of $2,145 million related to the Integration Program. These costs primarily included severance and employee benefit costs (including cash and non-cash severance), costs to exit facilities (including non-cash costs such as accelerated depreciation), and other costs incurred as a direct result of integration activities. Approximately 60% of total Integration Program costs were cash expenditures. We expect to incur an insignificant amount of additional Integration Program costs in the fourth quarter of 2018. As of September 29, 2018, we had incurred approximately $1.4 billion in capital expenditures since the inception of the Integration Program. We expect to incur additional capital expenditures of approximately $10 million related to the Integration Program in the fourth quarter of 2018.
Related to our restructuring activities, including the Integration Program, we recognized expenses of $31 million for the three months and $278 million for the nine months ended September 29, 2018 and $95 million for the three months and $237 million for the nine months ended September 30, 2017. Integration Program expenses included in these totals were $10 million for the three months and $90 million for the nine months ended September 29, 2018 and $79 million for the three months and $157 million for the nine months ended September 30, 2017.
See Note 3, Integration and Restructuring Expenses, to the condensed consolidated financial statements for additional information.
U.S. Tax Reform:
U.S. Tax Reform legislation enacted by the federal government on December 22, 2017 significantly changed U.S. tax laws by, among other things, lowering the federal corporate tax rate from 35.0% to 21.0%, effective January 1, 2018, and imposing a one-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 30, 2017. Other changes from U.S. Tax Reform include changes to bonus depreciation, revised deductions for executive compensation and interest expense, a tax on GILTI, the BEAT tax, and a deduction for FDII (as defined in Note 7, Income Taxes, to the condensed consolidated financial statements).
Due in part to U.S. Tax Reform, our effective tax rate was 22.8% for the three months ended September 29, 2018 compared to 30.6% for the three months ended September 30, 2017 and 23.7% for the nine months ended September 29, 2018 compared to 28.7% for the nine months ended September 30, 2017.
See Note 7, Income Taxes, to the condensed consolidated financial statements for additional information on U.S. Tax Reform and other drivers of our effective tax rate.

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
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions, except per share data)   (in millions, except per share data)  
Net sales$6,378
 $6,280
 1.6 % $19,368
 $19,241
 0.7 %
Operating income1,070
 1,538
 (30.4)% 3,880
 4,615
 (15.9)%
Net income/(loss) attributable to common shareholders630
 944
 (33.3)% 2,379
 2,996
 (20.6)%
Diluted earnings/(loss) per share0.51
 0.77
 (33.8)% 1.94
 2.44
 (20.5)%
Net Sales:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions)   (in millions)  
Net sales$6,378
 $6,280
 1.6% 19,368
 19,241
 0.7%
Organic Net Sales(a)
6,413
 6,250
 2.6% $19,156
 $19,107
 0.3%
(a)
Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 29, 2018 compared to the Three Months Ended September 30, 2017:
Net sales increased 1.6% to $6.4 billion for the three months ended September 29, 2018 compared to the prior period despite the unfavorable impact of foreign currency (1.6 pp) and the net favorable impact of acquisitions and divestitures (0.6 pp). Organic Net Sales increased 2.6% driven by favorable volume/mix (3.5 pp), partially offset by lower pricing (0.9 pp). Volume/mix was favorable in all segments. Lower pricing in the U.S., Canada, and EMEA offset higher pricing in Rest of World, primarily driven by highly inflationary environments in certain markets within Latin America.
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Net sales increased 0.7% to $19.4 billion for the nine months ended September 29, 2018 compared to the prior period, including the net favorable impact of acquisitions and divestitures (0.4 pp). Organic Net Sales increased 0.3% driven by higher pricing (0.5 pp), partially offset by unfavorable volume/mix (0.2 pp). Higher pricing in Rest of World, primarily driven by highly inflationary environments in certain markets within Latin America, was partially offset by lower pricing in the U.S., EMEA, and Canada. Volume/mix was unfavorable in the U.S. and Canada, partially offset by growth in EMEA and Rest of World.
Net Income:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions)   (in millions)  
Operating income$1,070
 $1,538
 (30.4)% $3,880
 $4,615
 (15.9)%
Net income/(loss) attributable to common shareholders630
 944
 (33.3)% 2,379
 2,996
 (20.6)%
Adjusted EBITDA(a)
1,616
 1,888
 (14.4)% 5,385
 5,797
 (7.1)%
(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 29, 2018 compared to the Three Months Ended September 30, 2017:
Operating income decreased 30.4% to $1.1 billion for the three months ended September 29, 2018 compared to $1.5 billion in the prior period. This decrease was due to higher impairment charges in the current period, higher strategic investments, higher overhead costs, higher input costs, and the unfavorable impact of foreign currency (0.9 pp), partially offset by lower Integration Program and other restructuring expenses. Current period impairment charges were $234 million. See Note 6, Goodwill and Intangible Assets, to the condensed consolidated financial statements for additional information on our impairment charges.
Net income/(loss) attributable to common shareholders decreased 33.3% to $630 million for the three months ended September 29, 2018 compared to $944 million in the prior period. The decrease was due to the operating income factors described above, the unfavorable changes in other expense/(income), net, and higher interest expense, partially offset by a lower effective tax rate in the current period, detailed as follows:
Other expense/(income), net was $71 million of income for the three months ended September 29, 2018 compared to $127 million of income in the prior period. This decrease was primarily due to a $64 million nonmonetary currency devaluation loss in the current period compared to a $3 million loss in the prior period related to our Venezuelan operations. See Note 12, Venezuela - Foreign Currency and Inflation, to the condensed consolidated financial statements for additional information.
Interest expense was $327 million for the three months ended September 29, 2018 compared to $306 million in the prior period. This increase was primarily driven by $3.0 billion aggregate principal amount of long-term debt issued in June 2018. See Note 14, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information.
The effective tax rate decreased to 22.8% for the three months ended September 29, 2018 compared to 30.6% in the prior period. The decrease in our effective tax rate was mostly driven by the favorable impact of U.S. Tax Reform, primarily related to the lower federal corporate tax rate, which was partially offset by tax associated with certain provisions of U.S. Tax Reform such as the federal tax on GILTI and the unfavorable impact of net discrete items. The unfavorable impact of current year net discrete items was primarily driven by the revaluation of our deferred tax balances due to changes in state tax laws following U.S. Tax Reform and non-deductible currency devaluation losses, which were partially offset by favorability from discrete items, primarily related to reversals of uncertain tax position reserves in the U.S. and certain state jurisdictions and changes in estimates of certain 2017 U.S. income and deductions.
Adjusted EBITDA decreased 14.4% to $1.6 billion for the three months ended September 29, 2018 compared to the prior period, primarily due to strategic investments, higher overhead costs, higher input costs, and the unfavorable impact of foreign currency (0.9 pp), partially offset by Organic Net Sales growth. Segment Adjusted EBITDA results were as follows:
United States Segment Adjusted EBITDA decreased primarily due to lower pricing, non-key commodity cost inflation, strategic investments, and higher overhead costs, partially offset by favorable volume/mix and favorable key commodity costs (which we define as dairy, meat, coffee, and nuts).
EMEA Segment Adjusted EBITDA decreased primarily due to higher supply chain costs in the Middle East and Africa, go-to-market investments, and the unfavorable impact of foreign currency (1.3 pp).
Canada Segment Adjusted EBITDA decreased primarily due to lower pricing, the unfavorable impact of foreign currency (4.0 pp), higher overhead costs, and higher input costs.
Rest of World Segment Adjusted EBITDA increased primarily due to Organic Net Sales growth, partially offset by higher input costs in local currency, higher commercial investments, and the unfavorable impact of foreign currency (7.1 pp, including 3.5 pp from the devaluation of the Venezuelan bolivar).
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Operating income decreased 15.9% to $3.9 billion for the nine months ended September 29, 2018 compared to $4.6 billion in the prior period. This decrease was due to higher impairment charges in the current period, higher input costs, and strategic investments, partially offset by lower Integration Program and other restructuring expenses, savings from the Integration Program and other restructuring activities, the benefit from the postemployment benefits accounting change adopted in the first quarter of 2018, and the favorable impact of foreign currency (0.5 pp). Current period impairment charges were $499 million compared to $49 million in the prior period. See Note 6, Goodwill and Intangible Assets, to the condensed consolidated financial statements for additional information on our impairment charges. See Note 1, Background and Basis of Presentation, to the condensed consolidated financial statements for additional information on the postemployment benefits accounting change.

Net income/(loss) attributable to common shareholders decreased 20.6% to $2.4 billion for the nine months ended September 29, 2018 compared to $3.0 billion in the prior period. The decrease was due to the operating income factors described above, the unfavorable changes in other expense/(income), net, and higher interest expense, partially offset by a lower effective tax rate in the current period, detailed as follows:
Other expense/(income), net was $196 million of income for the nine months ended September 29, 2018 compared to $510 million of income in the prior period. This decrease was primarily due to a $168 million non-cash curtailment gain from postretirement plan remeasurements in the second quarter of 2017 compared to a $58 million non-cash settlement charge in the second quarter of 2018 related to the wind-up of a non-U.S. pension plan. In addition, this decrease was due to a $131 million nonmonetary currency devaluation loss in the current period compared to a $36 million loss in the prior period related to our Venezuelan operations. See Note 12, Venezuela - Foreign Currency and Inflation, to the condensed consolidated financial statements for additional information.
Interest expense was $962 million for the nine months ended September 29, 2018 compared to $926 million in the prior period. This increase was primarily driven by $3.0 billion aggregate principal amount of long-term debt issued in June 2018. See Note 14, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information.
The effective tax rate decreased to 23.7% for the nine months ended September 29, 2018 compared to 28.7% in the prior period. The decrease in our effective tax rate was mostly driven by the favorable impact of U.S. Tax Reform, primarily related to the lower federal corporate tax rate, which was partially offset by tax associated with certain provisions of U.S. Tax Reform such as the federal tax on GILTI and the unfavorable impact of net discrete items. The unfavorable impact of current year net discrete items was primarily driven by the revaluation of our deferred tax balances due to changes in state tax laws following U.S. Tax Reform as well as the non-deductible impairment of goodwill and currency devaluation losses, which were partially offset by favorability from discrete items, primarily related to changes in estimates of certain 2017 U.S. income and deductions.
Adjusted EBITDA decreased 7.1% to $5.4 billion for the nine months ended September 29, 2018 compared to the prior period, primarily due to higher input costs, strategic investments, and lower volume/mix, partially offset by savings from the Integration Program and other restructuring activities, higher pricing, and the favorable impact of foreign currency (0.1 pp). Segment Adjusted EBITDA results were as follows:
United States Segment Adjusted EBITDA decreased primarily due to non-key commodity cost inflation, strategic investments, volume/mix declines, and higher overhead costs, partially offset by Integration Program savings, which primarily reflected carryover benefits of 2017 savings.
Canada Segment Adjusted EBITDA decreased primarily due to lower volume/mix, higher input costs in local currency, and lower pricing, partially offset by the favorable impact of foreign currency (1.1 pp).
Rest of World Segment Adjusted EBITDA increased primarily driven by Organic Sales growth, partially offset by higher input costs in local currency, and the unfavorable impact of foreign currency (6.7 pp, including 6.5 pp from the devaluation of the Venezuelan bolivar).
EMEA Segment Adjusted EBITDA increased primarily driven by the favorable impact of foreign currency (5.8 pp), productivity savings, the benefit from the postemployment benefits accounting change adopted in the first quarter of 2018, and volume/mix growth, partially offset by higher supply chain costs in the Middle East and Africa and lower pricing.
Diluted EPS:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions, except per share data)   (in millions, except per share data)  
Diluted EPS$0.51
 $0.77
 (33.8)% $1.94
 $2.44
 (20.5)%
Adjusted EPS(a)
0.78
 0.83
 (6.0)% 2.67
 2.65
 0.8 %
(a)
Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Three Months Ended September 29, 2018 compared to the Three Months Ended September 30, 2017:
Diluted EPS decreased 33.8% to $0.51 for the three months ended September 29, 2018 compared to $0.77 in the prior period, primarily due to the net income/(loss) attributable to common shareholders factors discussed above.
 For the Three Months Ended
 September 29,
2018
 September 30,
2017
 $ Change % Change
Diluted EPS$0.51
 $0.77
 $(0.26) (33.8)%
Integration and restructuring expenses0.03
 0.06
 (0.03)  
Impairment losses0.14
 
 0.14
  
Nonmonetary currency devaluation0.05
 
 0.05
  
U.S. Tax Reform discrete income tax expense/(benefit)
0.05
 
 0.05
  
Adjusted EPS(a)
$0.78
 $0.83
 $(0.05) (6.0)%
        
Key drivers of change in Adjusted EPS(a):
       
Results of operations    $(0.16)  
Change in interest expense    (0.01)  
Change in effective tax rate    0.12
  
     $(0.05)  
(a)
Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Adjusted EPS decreased 6.0% to $0.78 for the three months ended September 29, 2018 compared to $0.83 in the prior period, primarily due to lower Adjusted EBITDA and higher interest expense, partially offset by lower taxes on adjusted earnings in the current period.
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Diluted EPS decreased 20.5% to 1.94 for the nine months ended September 29, 2018 compared to $2.44 in the prior period, primarily due to the net income/(loss) attributable to common shareholders factors discussed above.
 For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 $ Change % Change
Diluted EPS$1.94
 $2.44
 $(0.50) (20.5)%
Integration and restructuring expenses0.19
 0.14
 0.05
  
Deal costs0.01
 
 0.01
  
Unrealized losses/(gains) on commodity hedges0.01
 0.01
 
  
Impairment losses0.33
 0.03
 0.30
  
Losses/(gains) on sale of business0.01
 
 0.01
  
Nonmonetary currency devaluation0.11
 0.03
 0.08
  
U.S. Tax Reform discrete income tax expense/(benefit)
0.07
 
 0.07
  
Adjusted EPS(a)
$2.67
 $2.65
 $0.02
 0.8 %
        
Key drivers of change in Adjusted EPS(a):
       
Change in effective tax rate    $0.29
  
Results of operations    (0.25)  
Change in interest expense    (0.02)  
     $0.02
  
(a)
Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Adjusted EPS increased 0.8% to $2.67 for the nine months ended September 29, 2018 compared to $2.65 in the prior period, primarily driven by lower taxes on adjusted earnings in the current period and the benefit from the postemployment benefits accounting change adopted in the first quarter of 2018, partially offset by lower Adjusted EBITDA, despite the favorable impact of foreign currency, higher depreciation and amortization in the current period, and higher interest 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), net, provision for/(benefit from) income taxes, and depreciation and amortization (excluding integration and restructuring expenses); in addition to these adjustments, we exclude, when they occur, the impacts of integration and restructuring expenses, 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, gains/(losses) on the sale of a business, nonmonetary currency devaluation (e.g., remeasurement gains and losses), and equity award compensation expense (excluding integration and restructuring expenses). 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 functional currency of our Venezuelan subsidiary is the U.S. dollar. As a result, we must revalue the results of our Venezuelan subsidiary to U.S. dollars. We revalue the income statement using daily weighted average DICOM rates, and we revalue the bolivar denominated monetary assets and liabilities at the period-end DICOM spot rate. The resulting revaluation gains and losses are recorded in current net income and are classified within other expense/(income), net as nonmonetary currency devaluation. See Note 12, Venezuela - Foreign Currency and Inflation, to the condensed consolidated financial statements for additional information.
Net Sales:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
 (in millions)
Net sales:       
United States$4,431
 $4,351
 $13,312
 $13,470
Canada525
 556
 1,573
 1,588
EMEA629
 651
 2,017
 1,895
Rest of World793
 722
 2,466
 2,288
Total net sales$6,378
 $6,280
 $19,368
 $19,241
Organic Net Sales:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
 (in millions)
Organic Net Sales(a):
       
United States$4,431
 $4,351
 $13,312
 $13,470
Canada549
 556
 1,554
 1,588
EMEA641
 639
 1,901
 1,852
Rest of World792
 704
 2,389
 2,197
Total Organic Net Sales$6,413
 $6,250
 $19,156
 $19,107
(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 29, 2018 compared to the three and nine months ended September 30, 2017 were:
 Net Sales Currency Acquisitions and Divestitures Organic Net Sales Price Volume/Mix
For the Three Months Ended           
United States1.8 % 0.0 pp 0.0 pp 1.8 % (2.0) pp 3.8 pp
Canada(5.6)% (4.2) pp 0.0 pp (1.4)% (1.5) pp 0.1 pp
EMEA(3.3)% (1.9) pp (2.0) pp 0.6 % (0.7) pp 1.3 pp
Rest of World9.9 % (9.4) pp 6.8 pp 12.5 % 6.2 pp 6.3 pp
Kraft Heinz1.6 % (1.6) pp 0.6 pp 2.6 % (0.9) pp 3.5 pp
            
For the Nine Months Ended           
United States(1.2)% 0.0 pp 0.0 pp (1.2)% (0.3) pp (0.9) pp
Canada(0.9)% 1.3 pp 0.0 pp (2.2)% (0.3) pp (1.9) pp
EMEA6.5 % 5.1 pp (1.3) pp 2.7 % (0.7) pp 3.4 pp
Rest of World7.8 % (5.9) pp 5.0 pp 8.7 % 6.5 pp 2.2 pp
Kraft Heinz0.7 % 0.0 pp 0.4 pp 0.3 % 0.5 pp (0.2) pp
Adjusted EBITDA:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
 (in millions)
Segment Adjusted EBITDA:       
United States$1,201
 $1,433
 $4,015
 $4,454
Canada144
 161
 450
 475
EMEA161
 182
 544
 506
Rest of World148
 140
 504
 455
General corporate expenses(38) (28) (128) (93)
Depreciation and amortization (excluding integration and restructuring expenses)(254) (243) (702) (683)
Integration and restructuring expenses(32) (99) (215) (388)
Deal costs(3) 
 (19) 
Unrealized gains/(losses) on commodity hedges(6) 5
 (11) (24)
Impairment losses(234) (1) (499) (49)
Gains/(losses) on sale of business
 
 (15) 
Equity award compensation expense (excluding integration and restructuring expenses)(17) (12) (44) (38)
Operating income1,070
 1,538
 3,880
 4,615
Interest expense327
 306
 962
 926
Other expense/(income), net(71) (127) (196) (510)
Income/(loss) before income taxes$814
 $1,359
 $3,114
 $4,199

United States:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions)   (in millions)  
Net sales$4,431
 $4,351
 1.8 % $13,312
 $13,470
 (1.2)%
Organic Net Sales(a)
4,431
 4,351
 1.8 % 13,312
 13,470
 (1.2)%
Segment Adjusted EBITDA1,201
 1,433
 (16.2)% 4,015
 4,454
 (9.9)%
(a)
Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Three Months Ended September 29, 2018 compared to the Three Months Ended September 30, 2017:
Net sales and Organic Net Sales increased 1.8% to $4.4 billion primarily driven by favorable volume/mix (3.8 pp), partially offset by lower pricing (2.0 pp). Favorable volume/mix was primarily driven by consumption-led growth in beverages, nuts, and meat. Pricing was lower across most categories, particularly in cheese, meat, and ready-to-drink beverages, partially offset by promotional timing in refrigerated meal combinations.
Segment Adjusted EBITDA decreased 16.2% primarily due to lower pricing, non-key commodity cost inflation, strategic investments, and higher overhead costs, partially offset by favorable volume/mix and favorable key commodity costs.
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Net sales and Organic Net Sales decreased 1.2% to $13.3 billion due to unfavorable volume/mix (0.9 pp) and lower pricing (0.3 pp). Unfavorable volume/mix was primarily driven by lower shipments in cheese, frozen, and nuts. Pricing was lower across most categories, particularly in meat, cheese, and ready-to-drink beverages, partially offset by increases in boxed dinners, condiments and sauces, and promotional timing in refrigerated meal combinations.
Segment Adjusted EBITDA decreased 9.9% primarily due to non-key commodity cost inflation, strategic investments, volume/mix declines, and higher overhead costs, partially offset by Integration Program savings, which primarily reflected carryover benefits of 2017 savings.
Canada:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions)   (in millions)  
Net sales$525
 $556
 (5.6)% $1,573
 $1,588
 (0.9)%
Organic Net Sales(a)
549
 556
 (1.4)% 1,554
 1,588
 (2.2)%
Segment Adjusted EBITDA144
 161
 (10.3)% 450
 475
 (5.2)%
(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 29, 2018 compared to the Three Months Ended September 30, 2017:
Net sales decreased 5.6% to $525 million, partially due to the unfavorable impact of foreign currency (4.2 pp). Organic Net Sales decreased 1.4% due to lower pricing (1.5 pp), partially offset by favorable volume/mix (0.1 pp). Pricing was lower due to increased promotional spending across most categories, partially offset by higher foodservice pricing. Favorable volume/mix was primarily driven by growth in coffee and boxed dinners, partially offset by select product discontinuations.
Segment Adjusted EBITDA decreased 10.3%, partially due to the unfavorable impact of foreign currency (4.0 pp). Excluding the currency impact, Segment Adjusted EBITDA decreased primarily due to lower pricing, higher overhead costs, and higher input costs.
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Net sales decreased 0.9% to $1.6 billion, despite the favorable impact of foreign currency (1.3 pp). Organic Net Sales decreased 2.2% due to unfavorable volume/mix (1.9 pp) and lower pricing (0.3 pp). Unfavorable volume/mix was driven by lower shipments of condiments and sauces, partially offset by higher shipments in cheese and coffee, primarily due to earlier execution of go-to-market agreements with key retailers. Lower pricing in cheese was partially offset by increases across a number of categories, particularly in condiments and sauces, and coffee.

Segment Adjusted EBITDA decreased 5.2%, despite the favorable impact of foreign currency (1.1 pp). Excluding the currency impact, Segment Adjusted EBITDA decreased primarily due to lower volume/mix, higher input costs in local currency, and lower pricing.
EMEA:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions)   (in millions)  
Net sales$629
 $651
 (3.3)% $2,017
 $1,895
 6.5%
Organic Net Sales(a)
641
 639
 0.6 % 1,901
 1,852
 2.7%
Segment Adjusted EBITDA161
 182
 (11.7)% 544
 506
 7.5%
(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 29, 2018 compared to the Three Months Ended September 30, 2017:
Net sales decreased 3.3% to $629 million, due to the unfavorable impacts of acquisitions and divestitures (2.0 pp) and foreign currency (1.9 pp). Organic Net Sales increased 0.6% driven by favorable volume/mix (1.3 pp), partially offset by lower pricing (0.7 pp). Favorable volume/mix was primarily driven by gains in foodservice across all regions and growth in condiments and sauces, including the addition of Kraft products in certain regions. This was partially offset by lower shipments in soup and infant nutrition products. Pricing was lower, primarily driven by the Middle East and Africa, which was partially offset by gains in the UK, Italy, and the Netherlands.
Segment Adjusted EBITDA decreased 11.7%, including the unfavorable impact of foreign currency (1.3 pp). Excluding the currency impact, the decrease was primarily due to higher supply chain costs in the Middle East and Africa and go-to-market investments.
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Net sales increased 6.5% to $2.0 billion, including the favorable impact of foreign currency (5.1 pp) and the unfavorable impact of acquisitions and divestitures (1.3 pp). Organic Net Sales increased 2.7% driven by favorable volume/mix (3.4 pp), partially offset by lower pricing (0.7 pp). Favorable volume/mix was primarily driven by growth in condiments and sauces, including the addition of Kraft products in certain regions, and gains in foodservice. Pricing was lower, primarily driven by the Middle East and Africa and higher promotional activity versus the prior period, primarily in Italy.
Segment Adjusted EBITDA increased 7.5%, including the favorable impact of foreign currency (5.8 pp). Excluding the currency impact, the increase was primarily driven by productivity savings, the benefit from the postemployment benefits accounting change adopted in the first quarter of 2018, and volume/mix growth, partially offset by higher supply chain costs in the Middle East and Africa and lower pricing.
Rest of World:
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 % Change September 29,
2018
 September 30,
2017
 % Change
 (in millions)   (in millions)  
Net sales$793
 $722
 9.9% $2,466
 $2,288
 7.8%
Organic Net Sales(a)
792
 704
 12.5% 2,389
 2,197
 8.7%
Segment Adjusted EBITDA148
 140
 5.9% 504
 455
 10.8%
(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 29, 2018 compared to the Three Months Ended September 30, 2017:
Net sales increased 9.9% to $793 million, despite the unfavorable impact of foreign currency (9.4 pp, including 2.7 pp from the devaluation of the Venezuelan bolivar) and the favorable impact of acquisitions and divestitures (6.8 pp). Organic Net Sales increased 12.5% driven by favorable volume/mix (6.3 pp) and higher pricing (6.2 pp). Favorable volume/mix was driven by growth in condiments and sauces in Latin America, partially offset by lower shipments in South East Asia. Pricing was higher primarily driven by highly inflationary environments in certain markets within Latin America.

Segment Adjusted EBITDA increased 5.9%, despite the unfavorable impact of foreign currency (7.1 pp, including 3.5 pp from the devaluation of the Venezuelan bolivar). Excluding the currency impact, the increase in Segment Adjusted EBITDA was primarily driven by Organic Net Sales growth, partially offset by higher input costs in local currency, and higher commercial investments.
Nine Months Ended September 29, 2018 compared to the Nine Months Ended September 30, 2017:
Net sales increased 7.8% to $2.5 billion, despite the unfavorable impact of foreign currency (5.9 pp, including 4.4 pp from the devaluation of the Venezuelan bolivar) and the favorable impact of acquisitions and divestitures (5.0 pp). Organic Net Sales increased 8.7% driven by higher pricing (6.5 pp) and favorable volume/mix (2.2 pp). Pricing was higher primarily driven by highly inflationary environments in certain markets within Latin America. Favorable volume/mix was primarily driven by growth across several categories, which was most pronounced in condiments and sauces, partially offset by lower shipments in Southeast Asia.
Segment Adjusted EBITDA increased 10.8%, despite the unfavorable impact of foreign currency (6.7 pp, including 6.5 pp from the devaluation of the Venezuelan bolivar). Excluding the currency impact, the increase in Segment Adjusted EBITDA was primarily driven by Organic Net Sales growth, partially offset by higher input costs in local currency.
Liquidity and Capital Resources
We believe that cash generated from our operating activities, commercial paper programs, and Senior Credit Facility (as defined below) will provide sufficient liquidity to meet our working capital needs, restructuring expenditures, planned capital expenditures, contributions to our postemployment benefit plans, future contractual obligations (including repayments of long-term debt), and payment of our anticipated quarterly common stock dividends. We intend to use our cash on hand and our commercial paper programs for daily funding requirements. Overall, we do not expect any negative effects on our funding sources that would have a material effect on our short-term or long-term liquidity.
Cash Flow Activity for 2018 compared to 2017:
Net Cash Provided by/Used for Operating Activities:
Net cash provided by operating activities was $899 million for the nine months ended September 29, 2018 compared to $16 million for the nine months ended September 30, 2017. This increase was primarily driven by the timing of income tax payments, a federal tax refund received in the first quarter of 2018, decreased cash payments for employee bonuses in 2018, and decreased pension plan contributions in 2018.
Net Cash Provided by/Used for Investing Activities:
Net cash provided by investing activities was $485 million for the nine months ended September 29, 2018 compared to $724 million for the nine months ended September 30, 2017. This decrease was primarily due to lower cash collections on previously sold receivables, as we had substantially unwound all of our Programs as of the end of the third quarter 2018, and the cash paid to acquire Cerebos in the current period. These decreases in cash provided by investing activities were partially offset by decreased capital expenditures, which was driven by the wind-up of Integration Program footprint costs in the prior year. We expect 2018 capital expenditures to be approximately $850 million. See Note 13, Financing Arrangements, to the condensed consolidated financial statements for additional information on our Programs. See Note 2, Acquisitions and Divestiture, to the condensed consolidated financial statementsfor additional information on the Cerebos acquisition. See Note 3, Integration and Restructuring Expenses, to the condensed consolidated financial statements for additional information on the Integration Program.
Net Cash Provided by/Used for Financing Activities:
Net cash used for financing activities was $1.7 billion for the nine months ended September 29, 2018 compared to $3.5 billion for the nine months ended September 30, 2017. This decrease was primarily driven by increased proceeds from long-term debt issuances and increased proceeds from commercial paper issuances (net of repayments) in the current period. These changes were partially offset by increased cash distributions related to our common stock dividends, as well as higher repayments of long-term debt. See Note 14, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information on our long-term debt issuances and repayments. See Equity and Dividends for additional information on our dividends.
Cash Held by International Subsidiaries:
Of the $1.4 billion cash and cash equivalents on our condensed consolidated balance sheet at September 29, 2018, $1.0 billion was held by international subsidiaries.
We have undistributed historic earnings in foreign subsidiaries which are currently not considered to be indefinitely reinvested. We have recorded an estimate of deferred taxes of $94 million as of September 29, 2018 to reflect local country withholding taxes that will be owed when this cash is distributed in the future. Additionally, we consider the unremitted current year 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.

Total Debt:
We obtained funding through our U.S. and European commercial paper programs in 2018. We had commercial paper outstanding of $971 million at September 29, 2018 and $448 million at December 30, 2017. The maximum amount of commercial paper outstanding during the nine months ended September 29, 2018 was $1.1 billion.
We maintain our $4.0 billion senior unsecured revolving credit facility (the “Senior Credit Facility”). Subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to $1.0 billion. Our Senior Credit Facility contains customary representations, covenants, and events of default. No amounts were drawn on our Senior Credit Facility at September 29, 2018 or during the nine months ended September 29, 2018. In June 2018, we entered into an agreement that became effective on July 6, 2018 to extend the maturity date of our $4.0 billion senior unsecured revolving credit facility from July 6, 2021 to July 6, 2023 and to establish 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.
Our long-term debt, including the current portion, was $31.4 billion at September 29, 2018 and $31.1 billion at December 30, 2017. The increase in our long-term debt was primarily related to the $3.0 billion aggregate principal amount of New Notes issued in June 2018, partially offset by repayments of $2.7 billion aggregate principal amount of senior notes that matured in July and August 2018. Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all such covenants at September 29, 2018.
See Note 14, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information on our borrowing arrangements and long-term debt.
Commodity Trends
We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, tomatoes, potatoes, soybean and vegetable oils, sugar and other sweeteners, corn products, and wheat products to manufacture our products. In addition, we purchase and use significant quantities of resins, metals, and cardboard to package our products and natural gas to operate our facilities. We continuously monitor worldwide supply and cost trends of these commodities.
We define our key commodities in the United States and Canada as dairy, meat, coffee, and nuts. During the nine months ended September 29, 2018, we experienced cost decreases for dairy, meat, and coffee, while costs for nuts increased. 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 30, 2017 for additional information on how we manage commodity costs.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In June 2018, we issued approximately $3.0 billion aggregate principal amount of long-term debt. We used approximately $500 million of the proceeds from the New Notes in connection with the wind-down of our U.S. securitization program in the second quarter of 2018. We also used proceeds from the New Notes to refinance a portion of our commercial paper borrowings in the second quarter of 2018, to repay certain notes that matured in July and August 2018, and for other general corporate purposes. See Note 14, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for additional information.
In the second quarter of 2018, we unwound our U.S. securitization program, which represented the majority of our Programs, using proceeds from the issuance of long-term debt in June 2018. Additionally, as of September 29, 2018, we had substantially unwound all of our international Programs. See Note 13, Financing Arrangements, to the condensed consolidated financial statements for additional information.
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 30, 2017.

Equity and Dividends
Common Stock Dividends:
We paid common stock dividends of $2.4 billion for the nine months ended September 29, 2018 and $2.2 billion for the nine months ended September 30, 2017. Additionally, on November 1, 2018, our Board of Directors declared a cash dividend of $0.625 per share of common stock, which is payable on December 14, 2018 to shareholders of record on November 16, 2018.
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.
Significant Accounting Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments, and assumptions. Our significant accounting assumptions and estimates are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 30, 2017 in our Annual Report on Form 10-K.
Our significant accounting policies are described in Note 1, Background and Basis of Presentation, to the consolidated financial statements for the year ended December 30, 2017 in our Annual Report on Form 10-K. See Note 1, Background and Basis of Presentation, to the condensed consolidated financial statements for updates to our significant accounting policies during the nine months ended September 29, 2018.
New Accounting Pronouncements
See Note 1, Background and Basis of Presentation, to the condensed consolidated financial statements for a discussion of new accounting pronouncements.
Contingencies
See Note 14, Commitments, Contingencies and Debt, to the condensed consolidated 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 Venezuela, 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), net, provision for/(benefit from) income taxes, and depreciation and amortization (excluding integration and restructuring expenses); in addition to these adjustments, we exclude, when they occur, the impacts of integration and restructuring expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, nonmonetary currency devaluation (e.g., remeasurement gains and losses), and equity award compensation expense (excluding integration and restructuring expenses). Adjusted EBITDA 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 EPS is defined as diluted earnings per share excluding, when they occur, the impacts of integration and restructuring expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, nonmonetary currency devaluation (e.g., remeasurement gains and losses), and U.S. Tax Reform discrete income tax expense/(benefit), 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.

The Kraft Heinz Company
Reconciliation of Net Sales to Organic Net Sales
(dollars in millions)
(Unaudited)
 Net Sales Currency Acquisitions and Divestitures Organic Net Sales Price Volume/Mix
Three Months Ended September 29, 2018           
United States$4,431
 $
 $
 $4,431
    
Canada525
 (24) 
 549
    
EMEA629
 (12) 
 641
    
Rest of World793
 (46) 47
 792
    
Kraft Heinz$6,378
 $(82) $47
 $6,413
    
            
Three Months Ended September 30, 2017           
United States$4,351
 $
 $
 $4,351
    
Canada556
 
 
 556
    
EMEA651
 
 12
 639
    
Rest of World722
 18
 
 704
    
Kraft Heinz$6,280
 $18
 $12
 $6,250
    
Year-over-year growth rates           
United States1.8 % 0.0 pp 0.0 pp 1.8 % (2.0) pp 3.8 pp
Canada(5.6)% (4.2) pp 0.0 pp (1.4)% (1.5) pp 0.1 pp
EMEA(3.3)% (1.9) pp (2.0) pp 0.6 % (0.7) pp 1.3 pp
Rest of World9.9 % (9.4) pp 6.8 pp 12.5 % 6.2 pp 6.3 pp
Kraft Heinz1.6 % (1.6) pp 0.6 pp 2.6 % (0.9) pp 3.5 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 29, 2018           
United States$13,312
 $
 $
 $13,312
    
Canada1,573
 19
 
 1,554
    
EMEA2,017
 97
 19
 1,901
    
Rest of World2,466
 (33) 110
 2,389
    
Kraft Heinz$19,368
 $83
 $129
 $19,156
    
            
Nine Months Ended September 30, 2017           
United States$13,470
 $
 $
 $13,470
    
Canada1,588
 
 
 1,588
    
EMEA1,895
 
 43
 1,852
    
Rest of World2,288
 91
 
 2,197
    
Kraft Heinz$19,241
 $91
 $43
 $19,107
    
Year-over-year growth rates           
United States(1.2)% 0.0 pp 0.0 pp (1.2)% (0.3) pp (0.9) pp
Canada(0.9)% 1.3 pp 0.0 pp (2.2)% (0.3) pp (1.9) pp
EMEA6.5 % 5.1 pp (1.3) pp 2.7 % (0.7) pp 3.4 pp
Rest of World7.8 % (5.9) pp 5.0 pp 8.7 % 6.5 pp 2.2 pp
Kraft Heinz0.7 % 0.0 pp 0.4 pp 0.3 % 0.5 pp (0.2) pp

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 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Net income/(loss)$628
 $943
 $2,376
 $2,994
Interest expense327
 306
 962
 926
Other expense/(income), net(71) (127) (196) (510)
Provision for/(benefit from) income taxes186
 416
 738
 1,205
Operating income1,070
 1,538
 3,880
 4,615
Depreciation and amortization (excluding integration and restructuring expenses)254
 243
 702
 683
Integration and restructuring expenses32
 99
 215
 388
Deal costs3
 
 19
 
Unrealized losses/(gains) on commodity hedges6
 (5) 11
 24
Impairment losses234
 1
 499
 49
Losses/(gains) on sale of business
 
 15
 
Equity award compensation expense (excluding integration and restructuring expenses)17
 12
 44
 38
Adjusted EBITDA$1,616
 $1,888
 $5,385
 $5,797

The Kraft Heinz Company
Reconciliation of Diluted EPS to Adjusted EPS
(Unaudited)
 For the Three Months Ended For the Nine Months Ended
 September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Diluted EPS$0.51
 $0.77
 $1.94
 $2.44
Integration and restructuring expenses(a)(b)
0.03
 0.06
 0.19
 0.14
Deal costs(a)(c)

 
 0.01
 
Unrealized losses/(gains) on commodity hedges(a)(d)

 
 0.01
 0.01
Impairment losses(a)(e)
0.14
 
 0.33
 0.03
Losses/(gains) on sale of business(a)(f)

 
 0.01
 
Nonmonetary currency devaluation(a)(g)
0.05
 
 0.11
 0.03
U.S. Tax Reform discrete income tax expense/(benefit)(h)
0.05
 
 0.07
 
Adjusted EPS$0.78
 $0.83
 $2.67
 $2.65
(a)Income tax expense associated with these items is based on applicable jurisdictional tax rates and deductibility assessments of individual items.
(b)Integration and restructuring included the following gross expenses/(income):
Expenses recorded in cost of products sold were $18 million for the three months and $175 million for the nine months ended September 29, 2018 and $85 million for the three months and $264 million for the nine months ended September 30, 2017.
Expenses recorded in SG&A were $14 million for the three months and $40 million for the nine months ended September 29, 2018 and $14 million for the three months and $124 million for the nine months ended September 30, 2017.
Expenses/(income) recorded in other expense/(income), net, were income of $1 million for the three months and expenses of $63 million for the nine months ended September 29, 2018 and income of $4 million for the three months and $151 million for the nine months ended September 30, 2017.
(c)Deal costs included the following gross expenses:
Expenses recorded in cost of products sold were $4 million for the nine months ended September 29, 2018 (there were no such expenses for the three months ended September 29, 2018 or the three or nine months ended September 30, 2017).
Expenses recorded in SG&A were $3 million for the three months and $15 million for the nine months ended September 29, 2018 (there were no such expenses for the three or nine months ended September 30, 2017).
(d)Unrealized losses/(gains) on commodity hedges were recorded in cost of products sold, including gross expenses of $6 million for the three months and $11 million for the nine months ended September 29, 2018 and gross income of $5 million for the three months and gross expenses of $24 million for the nine months ended September 30, 2017.
(e)
Impairment losses were recorded in SG&A, including $234 million for the three months and $499 million for the nine months ended September 29, 2018 and $1 million for the three months and $49 million for the nine months ended September 30, 2017. See Note 6, Goodwill and Intangible Assets, to the condensed consolidated financial statements for additional information.
(f)
Losses/(gains) on sale of business were recorded in SG&A, including gross expenses of $15 million for the nine months ended September 29, 2018 (there were no such expenses for the three months ended September 29, 2018 or the three or nine months ended September 30, 2017). See Note 2, Acquisitions and Divestiture, to the condensed consolidated financial statements for additional information.
(g)Nonmonetary currency devaluation was recorded in other expense/(income), net, including gross expenses of $64 million for the three months and $131 million for the nine months ended September 29, 2018 and $3 million for the three months and $36 million for the nine months ended September 30, 2017.
(h)
U.S. Tax Reform discrete income tax expense/(benefit) included expenses of $55 million for the three months and $79 million for the nine months ended September 29, 2018 (there were no such expenses for the three or nine months ended September 30, 2017). Expenses for the three and nine months ended September 29, 2018 primarily related to the revaluation of our deferred tax balances due to changes in state tax laws following U.S. Tax Reform. These expenses were partially offset by benefits related to the release of U.S. tax reserves and changes in estimates of certain 2017 U.S. income and deductions. Additionally, expenses for the nine months ended were partially offset by U.S. Tax Reform measurement period adjustments. See Note 7, Income Taxes, to the condensed consolidated financial statements for additional information.

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,” 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, cost savings, and dividends. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond our control.
Important factors that affect our business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, operating in a highly competitive industry; changes in the retail landscape or the loss of key retail customers; our ability to maintain, extend, and expand our reputation and brand image; the impacts of our international operations; our ability to leverage our brand value to compete against retailer brands and other economy brands; our ability to predict, identify and interpret changes in consumer preferences and demand; our ability to drive revenue growth in our key product categories, increase our market share, or add products; an impairment of the carrying value of goodwill or other indefinite-lived intangible assets; volatility in commodity, energy, and other input costs; changes in our management team or other key personnel; our ability to realize the anticipated benefits from our cost savings initiatives; changes in relationships with significant customers and suppliers; the execution of our international expansion strategy; tax law changes or interpretations; legal claims or other regulatory enforcement actions; product recalls or product liability claims; unanticipated business disruptions; our ability to complete or realize the benefits from potential and completed acquisitions, alliances, divestitures, or joint ventures; economic and political conditions in the United States and in various other nations in which we operate; volatility of capital markets and other macroeconomic factors; increased pension, labor, and people-related expenses; volatility in the market value of all or a portion of the derivatives we use; exchange rate fluctuations; risks associated with information technology and systems, including service interruptions, misappropriation of data, or breaches of security; our ability to protect intellectual property rights; impacts of natural events in the locations in which we or our customers, suppliers, or regulators operate; our indebtedness and ability to pay such indebtedness; our ownership structure; the impact of future sales of our common stock in the public markets; our ability to continue to pay a regular dividend; restatements of our consolidated financial statements; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see “Risk Factors” disclosed in our Annual Report on Form 10-K for the year ended December 30, 2017. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report, except as required by applicable law or regulation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risk during the nine months ended September 30, 2017.29, 2018. For additional information, refer to our Annual Report on Form 10-K for the year ended December 31, 2016.30, 2017.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report to determine ifreport. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the period covered by this report,September 29, 2018, were effective and provided reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, we concluded that our disclosure controls and procedures were not effective as of September 30, 2017 due to the material weakness in internal control over financial reporting related to the misapplication of ASU 2016-15, as described below.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. We did not maintain effective controls over the adoption of new accounting standards. Specifically, we did not maintain effective controls to evaluate and document the impact of new accounting standards, including communication with the appropriate individuals in coming to our conclusions on the application of new standards.
This control deficiency resulted in the misstatement of our operating and investing cash flows and related financial disclosures, and in the restatement of our consolidated financial statements for the quarters ended April 1, 2017 and July 1, 2017, including the comparable prior periods. Additionally, this control deficiency could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.  Accordingly, our management has determined that this control deficiency constitutes a material weakness.
Remediation of Material Weakness
The remediation of this material weakness will primarily include steps to improve the evaluation and documentation of new accounting standards’ impacts and communication with the appropriate individuals. We plan to have these remediation steps in place during our 2017 fiscal year but will allow for testing to determine operating effectiveness before concluding on remediation.
Changes in Internal Control Over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer, with other members of management, evaluated the changes in our internal control over financial reporting during the three months ended September 30, 2017.29, 2018. We determined that there were no changes in our internal control over financial reporting during the three months ended September 30, 201729, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 13,14, Commitments, Contingencies and Debt, to the condensed consolidated financial statements for a discussion of legal proceedings.

Item 1A. Risk Factors.
We recently restated our condensed consolidated financial statements as of and for the quarters ended April 1, 2017 and July 1, 2017 and, relatedly, identified a material weakness in our internal control over financial reporting that could, if not remediated, result in additional material misstatements in our financial statements.
On November 6, 2017, we restated our consolidated financial statements for the quarters ended April 1, 2017 and July 1, 2017.  Our financial statements were restated to correctly classify cash receipts from the payments on sold receivables (which are cash receipts on the underlying trade receivables that have already been securitized) to cash provided by investing activities (from cash provided by operating activities) within our condensed consolidated statements of cash flows. In connection with these restatements, management identified a material weakness in our internal control over financial reporting. As a result of this material weakness, our management concluded that we did not maintain effective internal control over financial reporting as of April 1, 2017 and July 1, 2017. Our Quarterly Reports on Forms 10-Q for the quarters ended April 1, 2017 and July 1, 2017 were amended to, among other things, reflect the change in management's conclusion regarding the effectiveness of our disclosure controls and procedures and internal control over financial reporting. We plan to have these remediation steps in place during our 2017 fiscal year but will allow for testing to determine operating effectiveness before concluding on remediation. If our remedial measures are insufficient to address the material weakness, if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future or we otherwise must restate our financial statements, it could materially and adversely affect our business and results of operations or financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the weaknesses or deficiencies, subject us to fines, penalties, investigations or judgments, harm our reputation or otherwise cause a decline in investor confidence.
There have been no other material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.30, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Our share repurchase activity in the three months ended September 30, 201729, 2018 was:
  
Total Number
of Shares(a)
 
Average Price 
Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(b)
 Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
7/2/2017 - 8/5/2017 3,260
 $84.86
 
  
8/6/2017 - 9/2/2017 1,964
 82.78
 
  
9/3/2017 - 9/30/2017 443
 79.76
 
 $
For the Three Months Ended September 30, 2017 5,667
   
  
  
Total Number
of Shares(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
7/1/2018 - 8/4/2018 44,567
 $61.53
 
 $
8/5/2018 - 9/1/2018 91,967
 59.62
 
 
9/2/2018 - 9/29/2018 32,511
 57.07
 
 
Total 169,045
   
  
(a)  
Includes the following types of share repurchase activity, when they occur: (1) shares repurchased in connection with the exercise of stock options (including periodic repurchases using accumulated option exercise proceeds), (2) shares withheld for tax liabilities associated with the vesting of RSUs, and (3) shares repurchased related to employee benefit programs (including our annual bonus swap program). or to offset the dilutive effect of equity issuances.
(b) 
We do not have any publicly announced share repurchase plans or programs.

Item 6. Exhibits.
Exhibit No. Descriptions
4.1
4.2
31.1 
31.2 
32.1 
32.2 
101.1 The following materials from The Kraft Heinz Company’s Quarterly Report on Form 10-Q for the period ended September 30, 201729, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Equity, (iv) the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Cash Flows, (vi) Notes to Condensed Consolidated Financial Statements, and (vii) document and entity information.

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:November 6, 20172, 2018  
  By: /s/ David H. Knopf
   David H. Knopf
   Executive Vice President and Chief Financial Officer
   (Duly Authorized Officer and Principal Financial Officer)

  The Kraft Heinz Company
Date:November 6, 20172, 2018  
  By: /s/ Christopher R. SkingerVince Garlati
   Christopher R. SkingerVince Garlati
   Vice President, Global Controller
   (Principal Accounting Officer)

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