Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). In management’s opinion, these interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary to fairly state our results for the periods presented.
The condensed consolidated balance sheet data at December 29, 2018 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These statements should be read in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 29, 2018. The results for interim periods are not necessarily indicative of future or annual results.
Principles of Consolidation
The consolidated financial statements include Kraft Heinz and all of our controlled subsidiaries. All intercompany transactions are eliminated.
Reportable Segments
We manage and report our operating results through four segments. We have three reportable segments defined by geographic region: United States, Canada, and Europe, Middle East, and Africa (“EMEA”). Our remaining businesses are combined and disclosed as “Rest of World.” Rest of World comprises two operating segments: Latin America and Asia Pacific (“APAC”).
During the third quarter of 2019, certain organizational changes were announced that will likely impact our internal reporting in 2020 and, as a result, will require us to evaluate the potential impact on our reportable segments. We continue to assess the potential impact of these announced organizational changes and will consider the impact of any further changes that may be announced. We expect that any change to our reportable segments would be effective in the first quarter of 2020.
Use of Estimates
We prepare our condensed consolidated financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates, and assumptions that affect the reported amount of assets, liabilities, reserves, and expenses. These accounting policy elections, estimates, and assumptions are based on our best estimates and judgments. We evaluate our policy elections, estimates, and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates to be reasonable given the current facts available. We adjust our policy elections, estimates, and assumptions when facts and circumstances dictate. Market volatility, including foreign currency exchange rates, increases the uncertainty inherent in our estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from estimates. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our condensed consolidated financial statements.
Reclassifications
We made reclassifications to certain previously reported financial information to conform to our current period presentation.
Held for Sale
At December 29, 2018, we had classified certain assets and liabilities as held for sale in our condensed consolidated balance sheet primarily relating to the previously announced divestiture of our equity interests in a subsidiary in India and our divestiture of certain assets and operations in Canada, which closed in January and July 2019, respectively. At September 28, 2019, the assets and liabilities identified as held for sale in our condensed consolidated balance sheet reflect the closing of these two transactions and the remaining balances represent certain assets globally that are held for sale. See Note 5, Acquisitions and Divestitures, for additional information.
Note 2. Restatement of Previously Issued Condensed Consolidated Financial Statements
We have restated herein our condensed consolidated financial statements at September 29, 2018 and for the three and nine months ended September 29, 2018. We have also restated impacted amounts within the accompanying footnotes to the condensed consolidated financial statements.
Restatement Background
As previously disclosed on February 21, 2019, we received a subpoena from the SEC in October 2018 related to our procurement area, specifically the accounting policies, procedures, and internal controls related to our procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to agreements with our suppliers. Following the receipt of this subpoena, we, together with external counsel and forensic accountants, and subsequently, under the oversight of the Audit Committee of our Board of Directors (the “Audit Committee”), conducted an internal investigation into the procurement area and related matters. As a result of the findings from this internal investigation, which was completed prior to the filing of our Annual Report on Form 10-K for the year ended December 29, 2018 on June 7, 2019 and which identified that multiple employees in the procurement area engaged in misconduct, we corrected prior period misstatements that generally increased the total cost of products sold in prior financial periods. These misstatements principally related to the incorrect timing of when certain cost and rebate elements associated with supplier contracts and related arrangements were initially recognized.
In connection with the internal investigation, we also conducted a comprehensive review of supplier contracts and related arrangements to identify other potential misstatements in the timing of the recognition of supplier rebates, incentive payments, and pricing arrangements. The review identified further misstatements, which we also investigated and have been unable to conclude if they resulted from the misconduct described above. These misstatements are described in more detail in restatement reference (a) below.
Our internal investigation and review identified adjustments that resulted in an understatement of cost of products sold totaling $208 million, including misstatements of $175 million relating to the periods up through September 29, 2018 that were restated in our Annual Report on Form 10-K for the year ended December 29, 2018. The misstatements of cost of products sold related to our internal investigation and review were $22 million for the nine months ended September 29, 2018, including a $4 million overstatement for the first quarter and understatements of $13 million for the second quarter and $13 million for the third quarter. We do not believe that the misstatements are quantitatively material to any period presented in our prior financial statements. However, due to the qualitative nature of the matters identified in our internal investigation, including the number of years over which the misconduct occurred and the number of transactions, suppliers, and procurement employees involved, we determined that it would be appropriate to correct the misstatements in our previously issued annual and interim consolidated financial statements by restating such financial statements. The restatement also included corrections for additional identified out-of-period and uncorrected misstatements in the impacted periods.
Accordingly, we have restated herein our unaudited condensed consolidated financial statements at September 29, 2018 and for the three and nine months ended September 29, 2018, in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections. In addition to the misstatements related to the supplier contracts and related arrangements, including the misstatements related to lease classification described in restatement reference (b) below, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our condensed consolidated financial statements. These misstatements were related to balance sheet misclassifications, income taxes, impairments, and other misstatements, all of which are described in more detail in restatement references (c) through (f) below.
Description of Misstatements
Misstatements Associated with Supplier Contracts and Related Arrangements
(a) Supplier Rebates
We recorded adjustments to correct the misstatements found as a result of the internal investigation related to procurement described above. In connection with the internal investigation, we also conducted a comprehensive review of supplier contracts and related arrangements to identify other potential misstatements in the timing of the recognition of supplier rebates, incentive payments, and pricing arrangements. The review identified further misstatements, which we also investigated and have been unable to conclude if they resulted from the misconduct described above. These misstatements were primarily related to certain supplier contracts and related arrangements where the allocation of value of all or a portion of rebates and up-front payments to contractual elements in the current period should have been deferred and recognized over an applicable contractual period. We corrected these misstatements to defer the up-front consideration from suppliers when the retention or receipt of that consideration was contingent upon future events and to correctly recognize the consideration as a reduction of cost of products sold over the terms of the arrangements with the suppliers. The impacts of the supplier rebate misstatements are discussed in restatement reference (a) throughout this note.
(b) Capital Leases
As part of our review of supplier contracts and related arrangements in connection with the internal investigation, we evaluated additional elements of such arrangements, including the classification of embedded lease provisions as capital or operating. We had initially classified certain embedded lease provisions as capital leases and allocated their fixed consideration to the lease components. As a result of our analysis, and also taking into consideration, among other elements, the total value of supplier contracts and related arrangements, we determined that the classification of the embedded lease element for certain contracts should have been classified as an operating lease instead of a capital lease. In addition, we identified certain arrangements that were improperly accounted for as embedded capital leases. The impacts of the capital lease misstatements are discussed in restatement reference (b) throughout this note.
Additional Misstatements
(c) Balance Sheet Misclassifications
We recorded adjustments to recognize certain balance sheet misclassifications in the correct period. These adjustments primarily related to the classification of products held at co-packer locations. The impacts of the balance sheet misclassifications are discussed in restatement reference (c) throughout this note.
(d) Income Taxes
We recorded adjustments to recognize certain income tax items in the correct period, primarily deferred tax adjustments related to a Brazilian subsidiary, as well as return-to-provision adjustments and various other misclassifications. The income tax impacts of all misstatements outside of this category are included in their respective misstatement categories. The impacts of income tax misstatements are discussed in restatement reference (d) throughout this note.
(e) Impairments
We recorded adjustments to recognize certain non-cash impairment losses in the correct period. In 2018, we had determined that a definite-lived intangible asset had been impaired in the fourth quarter of 2016 due to a license termination in that period and recorded an out-of-period correction to recognize the non-cash impairment loss. In addition, we recorded an adjustment to correct goodwill impairment losses related to our Australia and New Zealand reporting unit, which had been overstated in the second quarter of 2018. The impacts of the impairment misstatements are discussed in restatement reference (e) throughout this note.
(f) Other
We recorded adjustments to correct other identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our condensed consolidated financial statements. These other misstatements were primarily related to structured payable and product financing arrangements, inventory write-offs, certain accrued liabilities, and other misstatements within net sales and certain income tax and balance sheet accounts. The impacts of the other misstatements are discussed in restatement reference (f) throughout this note.
Description of Restatement Tables
Below, we have presented a reconciliation from the as previously reported to the restated values for each of our condensed consolidated financial statements at September 29, 2018 and for the three and nine months ended September 29, 2018. The values as previously reported were derived from our Quarterly Report on Form 10-Q for the quarter ended September 29, 2018 filed on November 2, 2018.
The Kraft Heinz Company
Condensed Consolidated Statement of Income
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 29, 2018
|
|
|
As Previously Reported
|
|
Restatement Impacts
|
|
Restatement Reference
|
|
As Restated
|
|
Net sales
|
$
|
6,378
|
|
|
$
|
5
|
|
|
(f)
|
|
$
|
6,383
|
|
|
Cost of products sold
|
4,271
|
|
|
18
|
|
|
(a)(b)(f)
|
|
4,289
|
|
|
Gross profit
|
2,107
|
|
|
(13
|
)
|
|
|
|
2,094
|
|
|
Selling, general and administrative expenses, excluding impairment losses
|
803
|
|
|
—
|
|
|
(f)
|
|
803
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Intangible asset impairment losses
|
234
|
|
|
(17
|
)
|
|
(e)
|
|
217
|
|
|
Selling, general and administrative expenses
|
1,037
|
|
|
(17
|
)
|
|
|
|
1,020
|
|
|
Operating income/(loss)
|
1,070
|
|
|
4
|
|
|
|
|
1,074
|
|
|
Interest expense
|
327
|
|
|
(1
|
)
|
|
(b)(f)
|
|
326
|
|
|
Other expense/(income)
|
(71
|
)
|
|
—
|
|
|
|
|
(71
|
)
|
|
Income/(loss) before income taxes
|
814
|
|
|
5
|
|
|
|
|
819
|
|
|
Provision for/(benefit from) income taxes
|
186
|
|
|
15
|
|
|
(a)(b)(d)(e)(f)
|
|
201
|
|
|
Net income/(loss)
|
628
|
|
|
(10
|
)
|
|
|
|
618
|
|
|
Net income/(loss) attributable to noncontrolling interest
|
(2
|
)
|
|
1
|
|
|
(f)
|
|
(1
|
)
|
|
Net income/(loss) attributable to common shareholders
|
$
|
630
|
|
|
$
|
(11
|
)
|
|
|
|
$
|
619
|
|
|
Per share data applicable to common shareholders:
|
|
|
|
|
|
|
|
|
Basic earnings/(loss)
|
$
|
0.52
|
|
|
$
|
(0.01
|
)
|
|
|
|
$
|
0.51
|
|
|
Diluted earnings/(loss)
|
0.51
|
|
|
(0.01
|
)
|
|
|
|
0.50
|
|
(a) Supplier Rebates—The correction of these misstatements resulted in an increase to cost of products sold of $13 million and a decrease to provision for income taxes of $2 million for the three months ended September 29, 2018.
(b) Capital Leases—The correction of these misstatements resulted in an increase to cost of products sold of less than $1 million, a decrease to interest expense of $1 million, and an increase to provision for income taxes of less than $1 million for the three months ended September 29, 2018.
(c) Balance Sheet Misclassifications—None.
(d) Income Taxes—The correction of these misstatements resulted in an increase to provision for income taxes of $14 million for the three months ended September 29, 2018.
(e) Impairments—The correction of these misstatements resulted in a decrease to SG&A of $17 million and an increase to provision for income taxes of $4 million for the three months ended September 29, 2018.
(f) Other—The correction of these misstatements resulted in an increase to net sales of $5 million, an increase to cost of products sold of $5 million, an increase to SG&A of less than $1 million, a decrease to interest expense of less than $1 million, a decrease to provision for income taxes of $1 million, and a decrease to net loss attributable to noncontrolling interest of $1 million for the three months ended September 29, 2018.
The Kraft Heinz Company
Condensed Consolidated Statement of Income
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 29, 2018
|
|
|
As Previously Reported
|
|
Restatement Impacts(1)
|
|
Restatement Reference
|
|
As Restated
|
|
Net sales
|
$
|
19,368
|
|
|
$
|
9
|
|
|
(f)
|
|
$
|
19,377
|
|
|
Cost of products sold
|
12,651
|
|
|
21
|
|
|
(a)(b)(f)
|
|
12,672
|
|
|
Gross profit
|
6,717
|
|
|
(12
|
)
|
|
|
|
6,705
|
|
|
Selling, general and administrative expenses, excluding impairment losses
|
2,338
|
|
|
(15
|
)
|
|
(f)
|
|
2,323
|
|
|
Goodwill impairment losses
|
164
|
|
|
(31
|
)
|
|
(e)
|
|
133
|
|
|
Intangible asset impairment losses
|
335
|
|
|
(17
|
)
|
|
(e)
|
|
318
|
|
|
Selling, general and administrative expenses
|
2,837
|
|
|
(63
|
)
|
|
|
|
2,774
|
|
|
Operating income/(loss)
|
3,880
|
|
|
51
|
|
|
|
|
3,931
|
|
|
Interest expense
|
962
|
|
|
(3
|
)
|
|
(b)(f)
|
|
959
|
|
|
Other expense/(income)
|
(196
|
)
|
|
15
|
|
|
|
|
(181
|
)
|
|
Income/(loss) before income taxes
|
3,114
|
|
|
39
|
|
|
|
|
3,153
|
|
|
Provision for/(benefit from) income taxes
|
738
|
|
|
41
|
|
|
(a)(b)(d)(e)(f)
|
|
779
|
|
|
Net income/(loss)
|
2,376
|
|
|
(2
|
)
|
|
|
|
2,374
|
|
|
Net income/(loss) attributable to noncontrolling interest
|
(3
|
)
|
|
1
|
|
|
(f)
|
|
(2
|
)
|
|
Net income/(loss) attributable to common shareholders
|
$
|
2,379
|
|
|
$
|
(3
|
)
|
|
|
|
$
|
2,376
|
|
|
Per share data applicable to common shareholders:
|
|
|
|
|
|
|
|
|
Basic earnings/(loss)
|
$
|
1.95
|
|
|
$
|
—
|
|
|
|
|
$
|
1.95
|
|
|
Diluted earnings/(loss)
|
1.94
|
|
|
—
|
|
|
|
|
1.94
|
|
|
|
|
|
(1)
|
We have reclassified our $15 million pre-tax loss on the sale of our South African business from SG&A to other expense/(income) in order to conform with current period presentation. This reclassification has been included in the restatement impacts column above.
|
(a) Supplier Rebates—The correction of these misstatements resulted in an increase to cost of products sold of $22 million and a decrease to provision for income taxes of $3 million for the nine months ended September 29, 2018.
(b) Capital Leases—The correction of these misstatements resulted in an increase to cost of products sold of $1 million, a decrease to interest expense of $3 million, and an increase to provision for income taxes of less than $1 million for the nine months ended September 29, 2018.
(c) Balance Sheet Misclassifications—None.
(d) Income Taxes—The correction of these misstatements resulted in an increase to provision for income taxes of $40 million for the nine months ended September 29, 2018.
(e) Impairments—The correction of these misstatements resulted in a decrease to SG&A of $48 million and an increase to provision for income taxes of $4 million for the nine months ended September 29, 2018.
(f) Other—The correction of these misstatements resulted in an increase to net sales of $9 million, a decrease to cost of products sold of $2 million, an increase to SG&A of less than $1 million, a decrease to interest expense of less than $1 million, an increase to provision for income taxes of less than $1 million, and a decrease to net loss attributable to noncontrolling interest of $1 million for the nine months ended September 29, 2018.
The Kraft Heinz Company
Condensed Consolidated Statement of Comprehensive Income
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 29, 2018
|
|
|
As Previously Reported
|
|
Restatement Impacts
|
|
Restatement Reference
|
|
As Restated
|
|
Net income/(loss)
|
$
|
628
|
|
|
$
|
(10
|
)
|
|
(a)(b)(d)(e)(f)
|
|
$
|
618
|
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(146
|
)
|
|
2
|
|
|
(b)(d)(e)
|
|
(144
|
)
|
|
Net deferred gains/(losses) on net investment hedges
|
13
|
|
|
—
|
|
|
|
|
13
|
|
|
Amounts excluded from the effectiveness assessment of net investment hedges
|
3
|
|
|
—
|
|
|
|
|
3
|
|
|
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)
|
(2
|
)
|
|
—
|
|
|
|
|
(2
|
)
|
|
Net deferred gains/(losses) on cash flow hedges
|
(16
|
)
|
|
—
|
|
|
|
|
(16
|
)
|
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)
|
12
|
|
|
—
|
|
|
|
|
12
|
|
|
Net actuarial gains/(losses) arising during the period
|
17
|
|
|
—
|
|
|
|
|
17
|
|
|
Net postemployment benefit losses/(gains) reclassified to net income/(loss)
|
(58
|
)
|
|
—
|
|
|
|
|
(58
|
)
|
|
Total other comprehensive income/(loss)
|
(177
|
)
|
|
2
|
|
|
|
|
(175
|
)
|
|
Total comprehensive income/(loss)
|
451
|
|
|
(8
|
)
|
|
|
|
443
|
|
|
Comprehensive income/(loss) attributable to noncontrolling interest
|
(4
|
)
|
|
1
|
|
|
(f)
|
|
(3
|
)
|
|
Comprehensive income/(loss) attributable to Kraft Heinz
|
$
|
455
|
|
|
$
|
(9
|
)
|
|
|
|
$
|
446
|
|
The $10 million decrease to net income was primarily driven by misstatements in the income taxes and supplier rebates categories, partially offset by misstatements in the impairments, capital leases, and other categories. See additional descriptions of the net income impacts in the consolidated statement of income for the three months ended September 29, 2018 section above.
The $2 million change to foreign currency translation adjustments is the result of misstatements in the income taxes, capital leases, and impairments categories.
The Kraft Heinz Company
Condensed Consolidated Statement of Comprehensive Income
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 29, 2018
|
|
|
As Previously Reported
|
|
Restatement Impacts
|
|
Restatement Reference
|
|
As Restated
|
|
Net income/(loss)
|
$
|
2,376
|
|
|
$
|
(2
|
)
|
|
(a)(b)(d)(e)(f)
|
|
$
|
2,374
|
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(817
|
)
|
|
8
|
|
|
(b)(d)(e)
|
|
(809
|
)
|
|
Net deferred gains/(losses) on net investment hedges
|
158
|
|
|
—
|
|
|
|
|
158
|
|
|
Amounts excluded from the effectiveness assessment of net investment hedges
|
3
|
|
|
—
|
|
|
|
|
3
|
|
|
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)
|
(2
|
)
|
|
—
|
|
|
|
|
(2
|
)
|
|
Net deferred gains/(losses) on cash flow hedges
|
40
|
|
|
—
|
|
|
|
|
40
|
|
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)
|
(10
|
)
|
|
—
|
|
|
|
|
(10
|
)
|
|
Net actuarial gains/(losses) arising during the period
|
70
|
|
|
—
|
|
|
|
|
70
|
|
|
Net postemployment benefit losses/(gains) reclassified to net income/(loss)
|
(133
|
)
|
|
—
|
|
|
|
|
(133
|
)
|
|
Total other comprehensive income/(loss)
|
(691
|
)
|
|
8
|
|
|
|
|
(683
|
)
|
|
Total comprehensive income/(loss)
|
1,685
|
|
|
6
|
|
|
|
|
1,691
|
|
|
Comprehensive income/(loss) attributable to noncontrolling interest
|
(16
|
)
|
|
1
|
|
|
(f)
|
|
(15
|
)
|
|
Comprehensive income/(loss) attributable to Kraft Heinz
|
$
|
1,701
|
|
|
$
|
5
|
|
|
|
|
$
|
1,706
|
|
The $2 million decrease to net income was primarily driven by misstatements in the income taxes and supplier rebates categories, partially offset by misstatements in the impairments, other, and capital leases categories. See additional descriptions of the net income impacts in the consolidated statement of income for the nine months ended September 29, 2018 section above.
The $8 million change in foreign currency translation adjustments is the result of misstatements in the income taxes, capital leases, and impairments categories.
The Kraft Heinz Company
Condensed Consolidated Balance Sheet
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2018
|
|
|
As Previously Reported
|
|
Restatement Impacts
|
|
Restatement Reference
|
|
As Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,366
|
|
|
$
|
—
|
|
|
|
|
$
|
1,366
|
|
|
Trade receivables (net of allowances of $24 at September 29, 2018)
|
2,032
|
|
|
—
|
|
|
|
|
2,032
|
|
|
Sold receivables
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Income taxes receivable
|
195
|
|
|
8
|
|
|
(a)(b)(d)(f)
|
|
203
|
|
|
Inventories
|
3,287
|
|
|
(73
|
)
|
|
(c)(f)
|
|
3,214
|
|
|
Prepaid expenses
|
389
|
|
|
—
|
|
|
|
|
389
|
|
|
Other current assets
|
321
|
|
|
31
|
|
|
(a)(c)
|
|
352
|
|
|
Total current assets
|
7,590
|
|
|
(34
|
)
|
|
|
|
7,556
|
|
|
Property, plant and equipment, net
|
7,216
|
|
|
(142
|
)
|
|
(b)(f)
|
|
7,074
|
|
|
Goodwill
|
44,308
|
|
|
31
|
|
|
(e)(f)
|
|
44,339
|
|
|
Intangible assets, net
|
58,727
|
|
|
—
|
|
|
|
|
58,727
|
|
|
Other non-current assets
|
1,889
|
|
|
(10
|
)
|
|
(d)
|
|
1,879
|
|
|
TOTAL ASSETS
|
$
|
119,730
|
|
|
$
|
(155
|
)
|
|
|
|
$
|
119,575
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
$
|
973
|
|
|
$
|
—
|
|
|
|
|
$
|
973
|
|
|
Current portion of long-term debt
|
405
|
|
|
(34
|
)
|
|
(b)(f)
|
|
371
|
|
|
Trade payables
|
4,312
|
|
|
(74
|
)
|
|
(f)
|
|
4,238
|
|
|
Accrued marketing
|
494
|
|
|
—
|
|
|
|
|
494
|
|
|
Interest payable
|
315
|
|
|
—
|
|
|
|
|
315
|
|
|
Other current liabilities
|
1,082
|
|
|
149
|
|
|
(a)(f)
|
|
1,231
|
|
|
Total current liabilities
|
7,581
|
|
|
41
|
|
|
|
|
7,622
|
|
|
Long-term debt
|
30,998
|
|
|
(111
|
)
|
|
(b)(f)
|
|
30,887
|
|
|
Deferred income taxes
|
14,215
|
|
|
9
|
|
|
(a)(d)(f)
|
|
14,224
|
|
|
Accrued postemployment costs
|
394
|
|
|
—
|
|
|
|
|
394
|
|
|
Other non-current liabilities
|
964
|
|
|
71
|
|
|
(a)
|
|
1,035
|
|
|
TOTAL LIABILITIES
|
54,152
|
|
|
10
|
|
|
|
|
54,162
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
6
|
|
|
—
|
|
|
|
|
6
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value (5,000 shares authorized; 1,222 shares issued and 1,219 shares outstanding at September 29, 2018)
|
12
|
|
|
—
|
|
|
|
|
12
|
|
|
Additional paid-in capital
|
58,793
|
|
|
(77
|
)
|
|
(c)
|
|
58,716
|
|
|
Retained earnings/(deficit)
|
8,576
|
|
|
(97
|
)
|
|
(a)(b)(c)(d)(e)(f)
|
|
8,479
|
|
|
Accumulated other comprehensive income/(losses)
|
(1,732
|
)
|
|
8
|
|
|
(b)(d)(e)
|
|
(1,724
|
)
|
|
Treasury stock, at cost (3 shares at September 29, 2018)
|
(264
|
)
|
|
—
|
|
|
|
|
(264
|
)
|
|
Total shareholders' equity
|
65,385
|
|
|
(166
|
)
|
|
|
|
65,219
|
|
|
Noncontrolling interest
|
187
|
|
|
1
|
|
|
(f)
|
|
188
|
|
|
TOTAL EQUITY
|
65,572
|
|
|
(165
|
)
|
|
|
|
65,407
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
119,730
|
|
|
$
|
(155
|
)
|
|
|
|
$
|
119,575
|
|
(a) Supplier Rebates—The correction of these misstatements resulted in an increase to income taxes receivable of $1 million, a decrease to other current assets of $36 million, an increase to other current liabilities of $66 million, a decrease to deferred income taxes of $40 million, an increase to other non-current liabilities of $71 million, and a decrease to retained earnings of $132 million at September 29, 2018.
(b) Capital Leases—The correction of these misstatements resulted in a decrease to income taxes receivable of less than $1 million, a decrease to property, plant and equipment, net, of $141 million, a decrease to current portion of long-term debt of $32 million, a decrease to long-term debt of $111 million, an increase to retained earnings of $2 million, and a decrease to accumulated other comprehensive losses of less than $1 million at September 29, 2018.
(c) Balance Sheet Misclassifications—The correction of these misstatements resulted in a decrease to inventories of $67 million, an increase to other current assets of $67 million, a decrease to additional paid-in capital of $77 million, and an increase to retained earnings of $77 million at September 29, 2018.
(d) Income Taxes—The correction of these misstatements resulted in an increase to income taxes receivable of $3 million, a decrease to other non-current assets of $10 million, an increase to deferred income taxes of $50 million, a decrease to retained earnings of $66 million, and a decrease to accumulated other comprehensive losses of $9 million at September 29, 2018.
(e) Impairments—The correction of these misstatements resulted in an increase to goodwill of $30 million, an increase to retained earnings of $31 million, and an increase to accumulated other comprehensive losses of $1 million at September 29, 2018.
(f) Other—The correction of these misstatements resulted in an increase to income taxes receivable of $4 million, a decrease to inventories of $6 million, a decrease to property, plant and equipment, net of $1 million, an increase to goodwill of $1 million, a decrease to current portion of long-term debt of $2 million, a decrease to trade payables of $74 million, an increase to other current liabilities of $83 million, an increase to long-term debt of less than $1 million, a decrease to deferred income taxes of $1 million, and a decrease to retained earnings of $9 million, and an increase to noncontrolling interest of $1 million at September 29, 2018.
The cumulative effect of misstatements corrected in periods prior to December 31, 2017 resulted in a reduction to retained earnings of $94 million. The correction of misstatements in the nine months ended September 29, 2018 resulted in a decrease to retained earnings of $3 million. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in our Annual Report on Form 10-K for the year ended December 29, 2018 for additional information.
The Kraft Heinz Company
Condensed Consolidated Statement of Equity
For the Three Months Ended March 31, 2018, June 30, 2018, and September 29, 2018
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously Reported
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings/(Deficit)
|
|
Accumulated Other Comprehensive Income/(Losses)
|
|
Treasury Stock, at Cost
|
|
Noncontrolling Interest
|
|
Total Equity
|
|
Balance at December 30, 2017
|
$
|
12
|
|
|
$
|
58,711
|
|
|
$
|
8,589
|
|
|
$
|
(1,054
|
)
|
|
$
|
(224
|
)
|
|
$
|
207
|
|
|
$
|
66,241
|
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
993
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
998
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
(5
|
)
|
|
74
|
|
|
Dividends declared-common stock ($0.625 per share)
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
Cumulative effect of accounting standards adopted in the period
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
Exercise of stock options, issuance of other stock awards, and other
|
—
|
|
|
22
|
|
|
(7
|
)
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(1
|
)
|
|
Balance at March 31, 2018
|
12
|
|
|
58,733
|
|
|
8,718
|
|
|
(975
|
)
|
|
(240
|
)
|
|
207
|
|
|
66,455
|
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
756
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
756
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(582
|
)
|
|
—
|
|
|
(6
|
)
|
|
(588
|
)
|
|
Dividends declared-common stock ($0.625 per share)
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
Exercise of stock options, issuance of other stock awards, and other
|
—
|
|
|
33
|
|
|
(2
|
)
|
|
—
|
|
|
(14
|
)
|
|
(13
|
)
|
|
4
|
|
|
Balance at June 30, 2018
|
12
|
|
|
58,766
|
|
|
8,710
|
|
|
(1,557
|
)
|
|
(254
|
)
|
|
188
|
|
|
65,865
|
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
630
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
631
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(175
|
)
|
|
—
|
|
|
(2
|
)
|
|
(177
|
)
|
|
Dividends declared-common stock ($0.625 per share)
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
Cumulative effect of accounting standards adopted in the period
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Exercise of stock options, issuance of other stock awards, and other
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
17
|
|
|
Balance at September 29, 2018
|
$
|
12
|
|
|
$
|
58,793
|
|
|
$
|
8,576
|
|
|
$
|
(1,732
|
)
|
|
$
|
(264
|
)
|
|
$
|
187
|
|
|
$
|
65,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement Impacts
|
|
|
Restatement Reference
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings/(Deficit)
|
|
Accumulated Other Comprehensive Income/(Losses)
|
|
Treasury Stock, at Cost
|
|
Noncontrolling Interest
|
|
Total Equity
|
|
Balance at December 30, 2017
|
|
|
$
|
—
|
|
|
$
|
(77
|
)
|
|
$
|
(94
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(171
|
)
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
(a)(b)(d)(e)(f)
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
(b)(d)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Dividends declared-common stock ($0.625 per share)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cumulative effect of accounting standards adopted in the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options, issuance of other stock awards, and other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at March 31, 2018
|
|
|
—
|
|
|
(77
|
)
|
|
(84
|
)
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
(161
|
)
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
(a)(b)(d)(e)(f)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
(b)(d)(e)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
Dividends declared-common stock ($0.625 per share)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options, issuance of other stock awards, and other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at June 30, 2018
|
|
|
—
|
|
|
(77
|
)
|
|
(86
|
)
|
|
6
|
|
|
—
|
|
|
—
|
|
|
(157
|
)
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
(a)(b)(d)(e)(f)
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(10
|
)
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
(b)(d)(e)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Dividends declared-common stock ($0.625 per share)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cumulative effect of accounting standards adopted in the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options, issuance of other stock awards, and other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at September 29, 2018
|
|
|
$
|
—
|
|
|
$
|
(77
|
)
|
|
$
|
(97
|
)
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings/(Deficit)
|
|
Accumulated Other Comprehensive Income/(Losses)
|
|
Treasury Stock, at Cost
|
|
Noncontrolling Interest
|
|
Total Equity
|
|
Balance at December 30, 2017
|
$
|
12
|
|
|
$
|
58,634
|
|
|
$
|
8,495
|
|
|
$
|
(1,054
|
)
|
|
$
|
(224
|
)
|
|
$
|
207
|
|
|
$
|
66,070
|
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
1,003
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
1,008
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
(5
|
)
|
|
74
|
|
|
Dividends declared-common stock ($0.625 per share)
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
Cumulative effect of accounting standards adopted in the period
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
Exercise of stock options, issuance of other stock awards, and other
|
—
|
|
|
22
|
|
|
(7
|
)
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(1
|
)
|
|
Balance at March 31, 2018
|
12
|
|
|
58,656
|
|
|
8,634
|
|
|
(975
|
)
|
|
(240
|
)
|
|
207
|
|
|
66,294
|
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
754
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
754
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(576
|
)
|
|
—
|
|
|
(6
|
)
|
|
(582
|
)
|
|
Dividends declared-common stock ($0.625 per share)
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
Exercise of stock options, issuance of other stock awards, and other
|
—
|
|
|
33
|
|
|
(2
|
)
|
|
—
|
|
|
(14
|
)
|
|
(13
|
)
|
|
4
|
|
|
Balance at June 30, 2018
|
12
|
|
|
58,689
|
|
|
8,624
|
|
|
(1,551
|
)
|
|
(254
|
)
|
|
188
|
|
|
65,708
|
|
|
Net income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
621
|
|
|
Other comprehensive income/(loss) excluding redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(173
|
)
|
|
—
|
|
|
(2
|
)
|
|
(175
|
)
|
|
Dividends declared-common stock ($0.625 per share)
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(762
|
)
|
|
Cumulative effect of accounting standards adopted in the period
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Exercise of stock options, issuance of other stock awards, and other
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
17
|
|
|
Balance at September 29, 2018
|
$
|
12
|
|
|
$
|
58,716
|
|
|
$
|
8,479
|
|
|
$
|
(1,724
|
)
|
|
$
|
(264
|
)
|
|
$
|
188
|
|
|
$
|
65,407
|
|
See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the three and nine months ended September 29, 2018 sections above.
The Kraft Heinz Company
Consolidated Statement of Cash Flows
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 29, 2018
|
|
|
As Previously Reported
|
|
Restatement Impacts
|
|
Restatement Reference
|
|
As Restated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
$
|
2,376
|
|
|
$
|
(2
|
)
|
|
(a)(b)(d)(e)(f)
|
|
$
|
2,374
|
|
|
Adjustments to reconcile net income/(loss) to operating cash flows:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
736
|
|
|
(24
|
)
|
|
(b)(f)
|
|
712
|
|
|
Amortization of postretirement benefit plans prior service costs/(credits)
|
(261
|
)
|
|
—
|
|
|
|
|
(261
|
)
|
|
Equity award compensation expense
|
44
|
|
|
—
|
|
|
|
|
44
|
|
|
Deferred income tax provision/(benefit)
|
96
|
|
|
8
|
|
|
(a)(d)(e)(f)
|
|
104
|
|
|
Postemployment benefit plan contributions
|
(64
|
)
|
|
—
|
|
|
|
|
(64
|
)
|
|
Goodwill and intangible asset impairment losses
|
499
|
|
|
(48
|
)
|
|
(e)
|
|
451
|
|
|
Nonmonetary currency devaluation
|
131
|
|
|
—
|
|
|
|
|
131
|
|
|
Loss/(gain) on sale of business
|
15
|
|
|
—
|
|
|
|
|
15
|
|
|
Other items, net
|
21
|
|
|
(1
|
)
|
|
(a)(f)
|
|
20
|
|
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
(2,154
|
)
|
|
—
|
|
|
|
|
(2,154
|
)
|
|
Inventories
|
(663
|
)
|
|
18
|
|
|
(c)(f)
|
|
(645
|
)
|
|
Accounts payable
|
145
|
|
|
(15
|
)
|
|
(f)
|
|
130
|
|
|
Other current assets
|
(105
|
)
|
|
2
|
|
|
(a)(c)
|
|
(103
|
)
|
|
Other current liabilities
|
83
|
|
|
41
|
|
|
(a)(b)(d)(f)
|
|
124
|
|
|
Net cash provided by/(used for) operating activities
|
899
|
|
|
(21
|
)
|
|
|
|
878
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash receipts on sold receivables
|
1,296
|
|
|
—
|
|
|
|
|
1,296
|
|
|
Capital expenditures
|
(594
|
)
|
|
—
|
|
|
|
|
(594
|
)
|
|
Payments to acquire business, net of cash acquired
|
(248
|
)
|
|
—
|
|
|
|
|
(248
|
)
|
|
Proceeds from sale of business
|
18
|
|
|
—
|
|
|
|
|
18
|
|
|
Other investing activities, net
|
13
|
|
|
—
|
|
|
|
|
13
|
|
|
Net cash provided by/(used for) investing activities
|
485
|
|
|
—
|
|
|
|
|
485
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
(2,727
|
)
|
|
21
|
|
|
(b)(f)
|
|
(2,706
|
)
|
|
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
|
)
|
|
Dividends paid - common stock
|
(2,421
|
)
|
|
—
|
|
|
|
|
(2,421
|
)
|
|
Other financing activities, net
|
(35
|
)
|
|
—
|
|
|
|
|
(35
|
)
|
|
Net cash provided by/(used for) financing activities
|
(1,658
|
)
|
|
21
|
|
|
|
|
(1,637
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
(128
|
)
|
|
—
|
|
|
|
|
(128
|
)
|
|
Cash, cash equivalents, and restricted cash
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
|
(402
|
)
|
|
—
|
|
|
|
|
(402
|
)
|
|
Balance at beginning of period
|
1,769
|
|
|
—
|
|
|
|
|
1,769
|
|
|
Balance at end of period
|
$
|
1,367
|
|
|
$
|
—
|
|
|
|
|
$
|
1,367
|
|
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Beneficial interest obtained in exchange for securitized trade receivables
|
$
|
938
|
|
|
$
|
—
|
|
|
|
|
$
|
938
|
|
See descriptions of the net income impacts in the condensed consolidated statement of income for the nine months ended September 29, 2018 section above.
The misstatements in the capital leases misclassifications category resulted in a decrease to net cash flows provided by operating activities of $21 million and a decrease to net cash flows used for financing activities of $21 million for the nine months ended September 29, 2018.
The misstatements in the other misclassifications category resulted in a decrease to net cash flows provided by operating activities of less than $1 million and a decrease to net cash flows used for financing activities of less than $1 million for the nine months ended September 29, 2018.
No other misstatements impacted the classifications between net operating, net investing, or net financing cash flow activities for the nine months ended September 29, 2018.
Note 3. Significant Accounting Policies
The following significant accounting policy was updated in the first quarter of 2019 to reflect changes upon adoption of ASU 2016-02. 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 29, 2018.
Leases:
We determine whether a contract is or contains a lease at contract inception based on the presence of identified assets and our right to obtain substantially all of the economic benefit from or to direct the use of such assets. When we determine a lease exists, we record a right-of-use (“ROU”) asset and corresponding lease liability on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized at commencement date at the value of the lease liability and are adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the lease term. As the discount rate implicit in the lease is not readily determinable in most of our leases, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We do not record lease contracts with a term of 12 months or less on our consolidated balance sheets.
We recognize fixed lease expense for operating leases on a straight-line basis over the lease term. For finance leases, we recognize amortization expense on the ROU asset and interest expense on the lease liability over the lease term.
We have lease agreements with non-lease components that relate to the lease components (e.g., common area maintenance such as cleaning or landscaping, insurance, etc.). We account for each lease and any non-lease components associated with that lease as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease costs.
Certain leasing arrangements require variable payments that are dependent on usage or output or may vary for other reasons, such as insurance and tax payments. Variable lease payments that do not depend on an index or rate are excluded from lease payments in the measurement of the ROU asset and lease liability and are recognized as expense in the period in which the payment occurs.
Our lease agreements do not include significant restrictions or covenants, and residual value guarantees are generally not included within our operating leases.
Note 4. New Accounting Standards
Accounting Standards Adopted in the Current Year
Leases:
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“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 the majority of leases on their balance sheets as assets and obligations. This ASU became effective beginning in the first quarter of our fiscal year 2019. We adopted this ASU in the first quarter of 2019 using a modified retrospective transition method and elected the following practical expedients: (i) the optional transition method that allows us to apply the guidance at the adoption date and recognize any adjustments that result from applying Accounting Standards Codification (“ASC”) Topic 842, Leases, to existing leases as a cumulative-effect adjustment to the opening balance of retained earnings/(deficit) in the period of adoption (i.e., the effective date); (ii) the package of practical expedients that allows us to carry forward our determination of whether a lease exists, the classification of a lease, and whether initial direct lease costs exist for purposes of transition to the new standard; (iii) the land easement option, which allows us to continue to use prior accounting conclusions reached in our accounting for land easements; and (iv) the short-term lease exemption whereby we will not record an asset or liability for short-term leases. The most significant impact of adoption on our condensed consolidated financial statements was the recognition of ROU assets and lease liabilities for operating leases. Our accounting for finance leases remained substantially unchanged. Upon adoption, we had total lease assets of $821 million and total lease liabilities of $887 million. The adoption of this ASU did not result in a cumulative-effect adjustment to the opening balance of retained earnings/(deficit) and did not impact our condensed consolidated statements of income or our cash flows. See Note 3, Significant Accounting Policies, for our lease accounting policy and Note 18, Leases, for additional information related to our lease arrangements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income:
In February 2018, the FASB issued ASU 2018-02 related to reclassifying tax effects stranded in accumulated other comprehensive income/(losses) because of the Tax Cuts and Jobs Act (“U.S. Tax Reform”) enacted on December 22, 2017. U.S. Tax Reform reduced the U.S. federal corporate tax rate from 35.0% to 21.0%. 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/(loss) from continuing operations. However, the related tax effects of such deferred tax assets and liabilities may have been originally recorded in other comprehensive income/(loss). This ASU allows companies to reclassify such stranded tax effects from accumulated other comprehensive income/(losses) to retained earnings/(deficit). 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/(losses). This ASU became effective beginning in the first quarter of our fiscal year 2019. We adopted this ASU on the first day of our fiscal year 2019 and made the policy election to reclassify stranded tax effects from accumulated other comprehensive income/(losses) to retained earnings/(deficit) in the period of adoption. The impact of this policy election was an increase to retained earnings/(deficit) and a corresponding decrease to accumulated other comprehensive income/(losses) of $136 million. We generally release income tax effects from accumulated other comprehensive income/(losses) when the entire portfolio of the item giving rise to the tax effect is disposed of, liquidated, or terminated.
Accounting Standards Not Yet Adopted
Measurement of Current Expected Credit Losses:
In June 2016, the FASB issued ASU 2016-13 to update the methodology used to measure current expected credit losses (“CECL”). This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. This ASU will be effective beginning in the first quarter of our fiscal year 2020. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures.
Fair Value Measurement Disclosures:
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, the policy for determining that a transfer has occurred, and valuation processes for Level 3 fair value measurements. 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/(loss) 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. Certain of the amendments in this ASU must be applied prospectively upon adoption, while other amendments must be applied retrospectively upon adoption. We elected to early adopt the provisions related to removing disclosures in the fourth quarter of our fiscal year 2018 on a retrospective basis. Accordingly, we removed certain disclosures from Note 12, Postemployment Benefits and Note 13, Financial Instruments, in our Annual Report on Form 10-K for the year ended December 29, 2018. There was no other impact to our financial statement disclosures as a result of early adopting the provisions related to removing disclosures. We are currently evaluating the disclosure impact of the provisions related to modifying and adding disclosures.
Disclosure Requirements for Certain Employer-Sponsored Benefit Plans:
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. 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.
Implementation Costs Incurred in Hosted Cloud Computing Service Arrangements:
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. This guidance may be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures as well as the application method.
Note 5. Acquisitions and Divestitures
Acquisitions
Primal Acquisition:
On January 3, 2019 (the “Primal Acquisition Date”), we acquired 100% of the outstanding equity interests in Primal Nutrition, LLC (“Primal Nutrition”) (the “Primal Acquisition”), a better-for-you brand primarily focused on condiments, sauces, and dressings, with growing product lines in healthy snacks and other categories. The Primal Kitchen brand holds leading positions in the e-commerce and natural channels. The results of Primal Nutrition have been included in our condensed consolidated financial statements for the three and nine months ended September 28, 2019. We have not included unaudited pro forma results as it would not yield significantly different results.
The Primal Acquisition was accounted for under the acquisition method of accounting for business combinations. The total cash consideration paid for Primal Nutrition was $201 million. We utilized estimated fair values at the Primal Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The fair value estimates of the assets acquired and liabilities assumed were subject to adjustment during the measurement period (up to one year from the Primal Acquisition Date). The purchase price allocation for the Primal Acquisition was final as of September 28, 2019.
The final purchase price allocation to assets acquired and liabilities assumed in the Primal Acquisition was (in millions):
|
|
|
|
|
|
|
|
Cash
|
$
|
2
|
|
|
Other current assets
|
15
|
|
|
Identifiable intangible assets
|
66
|
|
|
Current liabilities
|
(6
|
)
|
|
Net assets acquired
|
77
|
|
|
Goodwill on acquisition
|
124
|
|
|
Total consideration
|
$
|
201
|
|
The Primal Acquisition resulted in $124 million of non tax deductible goodwill relating principally to planned expansion of the Primal Kitchen brand into new channels and categories. This goodwill was allocated to the United States segment as shown in Note 9, Goodwill and Intangible Assets.
The purchase price allocation to identifiable intangible assets acquired in the Primal Acquisition was:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
(in millions of dollars)
|
|
Weighted Average Life
(in years)
|
|
Definite-lived trademarks
|
$
|
52.5
|
|
|
15
|
|
Customer-related assets
|
13.5
|
|
|
20
|
|
Total
|
$
|
66.0
|
|
|
|
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 Primal Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at the Primal Acquisition Date.
Cerebos Acquisition:
On March 9, 2018 (the “Cerebos Acquisition Date”), we acquired 100% of the outstanding equity interests in Cerebos Pacific Limited (“Cerebos”) (the “Cerebos Acquisition”), an Australian food and beverage company.
The Cerebos Acquisition was accounted for under the acquisition method of accounting for business combinations. The total cash consideration paid for Cerebos was $244 million. We utilized estimated fair values at the Cerebos Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. Such allocation was final as of December 29, 2018.
See Note 5, Acquisitions and Divestitures, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 29, 2018 for the final purchase price allocation, valuation methodology, and other information related to the Cerebos Acquisition.
Other Acquisitions
In the third quarter of 2018, we had two additional acquisitions of businesses, including The Ethical Bean Coffee Company Ltd., a Canadian-based coffee roaster, and Wellio, Inc., a full-service meal planning and preparation technology start-up in the U.S. The aggregate consideration paid related to these acquisitions was $27 million.
Related to our acquisitions, we incurred aggregate deal costs of $2 million for the nine months ended September 28, 2019 and $3 million for the three months and $19 million for the nine months ended September 29, 2018. There were no deal costs related to acquisitions for the three months ended September 28, 2019. We recognized these deal costs in SG&A.
Divestitures
Heinz India Transaction:
In October 2018, we entered into a definitive agreement with two third-parties, Zydus Wellness Limited and Cadila Healthcare Limited (collectively, the “Buyers”), to sell 100% of our equity interests in Heinz India Private Limited (“Heinz India”) for approximately 46 billion Indian rupees (approximately $655 million at January 30, 2019) (the “Heinz India Transaction”). In connection with the Heinz India Transaction, we transferred 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) were not transferred. The Heinz India Transaction closed on January 30, 2019 (the “Heinz India Closing Date”). We recognized a pre-tax gain of $246 million in the first quarter of 2019. Additionally, in the third quarter of 2019, we recognized a recovery of local India taxes of $3 million, which was classified as gain on sale of business. As a result, we recognized pre-tax gains of $3 million for the three months and $249 million for the nine months ended September 28, 2019. These pre-tax gains were included in other expense/(income).
The components of the pre-tax gain were as follows (in millions):
|
|
|
|
|
|
|
|
Proceeds
|
$
|
655
|
|
|
Less investment in Heinz India
|
(355
|
)
|
|
Recognition of tax indemnification
|
(48
|
)
|
|
Other
|
(3
|
)
|
|
Pre-tax gain on sale of Heinz India
|
$
|
249
|
|
In connection with the Heinz India Transaction we agreed to indemnify the Buyers from and against any tax losses for any taxable period prior to the Heinz India Closing Date, including taxes for which we are liable as a result of any transaction that occurred on or before such date. To determine the fair value of our tax indemnity we made various assumptions, including the range of potential dates the tax matters will be resolved, the range of potential future cash flows, the probabilities associated with potential resolution dates and potential future cash flows, and the discount rate. We recorded tax indemnity liabilities related to the Heinz India Transaction totaling approximately $48 million, including $18 million in other current liabilities and $30 million in other non-current liabilities on our condensed consolidated balance sheet as of the Heinz India Closing Date. We also recorded a corresponding $48 million reduction of the gain on the Heinz India Transaction within other expense/(income) in our condensed consolidated statement of income in the first quarter of 2019. Future changes to the fair value of these tax indemnity liabilities will continue to impact other expense/(income) throughout the life of the exposures as a component of the gain on sale for the Heinz India Transaction.
The other component of the pre-tax gain on the sale of Heinz India in the table above primarily related to losses on net investment hedges of our investment in Heinz India, which were settled in the first quarter of 2019, and were partially offset by the local India tax recovery in the third quarter of 2019.
Canada Natural Cheese Transaction:
In November 2018, we entered into a definitive agreement with a third-party, Parmalat SpA (“Parmalat”), to sell certain assets in our natural cheese business in Canada for approximately 1.6 billion Canadian dollars (approximately $1.2 billion at July 2, 2019) (the “Canada Natural Cheese Transaction”). In connection with the Canada Natural Cheese Transaction, we transferred certain assets to Parmalat, including the intellectual property rights to Cracker Barrel in Canada and P’Tit Quebec globally. The Canada Natural Cheese Transaction closed on July 2, 2019. We recognized a pre-tax gain of $241 million, which was included in other expense/(income) for the three and nine months ended September 28, 2019.
The components of the pre-tax gain were as follows (in millions):
|
|
|
|
|
|
|
|
Proceeds
|
$
|
1,236
|
|
|
Less carrying value of Canada Natural Cheese net assets
|
(996
|
)
|
|
Other
|
1
|
|
|
Pre-tax gain resulting from Canada Natural Cheese Transaction
|
$
|
241
|
|
South Africa Transaction:
On May 31, 2018, we sold our 50.1% interest in our South African subsidiary to our minority interest partner. This transaction included proceeds of $18 million. We recorded a pre-tax loss on the sale of a business of approximately $15 million, which was included in other expense/(income) on the condensed consolidated statements of income for the nine months ended September 29, 2018.
We incurred aggregate deal costs related to our divestitures of $6 million for the three months and $17 million for the nine months ended September 28, 2019. We recognized these deal costs in SG&A.
Held for Sale
Our assets and liabilities held for sale, by major class, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
December 29, 2018
|
|
ASSETS
|
|
|
|
|
Inventories
|
$
|
—
|
|
|
$
|
92
|
|
|
Property, plant and equipment, net
|
26
|
|
|
139
|
|
|
Goodwill
|
—
|
|
|
669
|
|
|
Intangible assets, net
|
9
|
|
|
437
|
|
|
Other
|
—
|
|
|
39
|
|
|
Total assets held for sale
|
$
|
35
|
|
|
$
|
1,376
|
|
|
LIABILITIES
|
|
|
|
|
Total liabilities held for sale
|
$
|
2
|
|
|
$
|
55
|
|
The change in assets and liabilities held for sale during the nine months ended September 28, 2019 was primarily related to the Heinz India Transaction closing on January 30, 2019 and the Canada Natural Cheese Transaction closing on July 2, 2019. The balances held for sale at September 28, 2019 primarily relate to land and manufacturing equipment.
Note 6. Restructuring Activities
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, costs to exit 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.
Restructuring Activities:
We have restructuring programs globally, which are focused primarily on workforce reduction and factory closure and consolidation. As of September 28, 2019, related to these programs, we expect to eliminate approximately 450 positions, primarily outside the U.S. Of these expected reductions, 300 positions were eliminated during the nine months ended September 28, 2019. These programs resulted in expenses of $56 million during the nine months ended September 28, 2019, including $5 million of credits in severance and employee benefit costs, $20 million of non-cash asset-related costs, and $41 million of other implementation costs. Restructuring expenses during the three months ended September 28, 2019 were $15 million, including $2 million of credits in severance and employee benefit costs, $8 million of non-cash asset-related costs, and $9 million of other implementation costs. Restructuring expenses totaled $21 million for the three months and $188 million for the nine months ended September 29, 2018.
Our net liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP (i.e., severance and employee benefit costs and other exit costs) was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Benefit Costs
|
|
Other Exit Costs
|
|
Total
|
|
Balance at December 29, 2018
|
$
|
32
|
|
|
$
|
33
|
|
|
$
|
65
|
|
|
Charges/(credits)
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|
Cash payments
|
(16
|
)
|
|
(7
|
)
|
|
(23
|
)
|
|
Balance at September 28, 2019
|
$
|
11
|
|
|
$
|
26
|
|
|
$
|
37
|
|
We expect the liability for severance and employee benefit costs as of September 28, 2019 to be paid by the end of 2020. The liability for other exit costs primarily relates to lease obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2019 and 2026.
Integration Program:
At the end of 2017, we had substantially completed our multi-year program announced following the merger of Kraft Foods Group, Inc. with and into a wholly-owned subsidiary of H. J. Heinz Holding Corporation (“Heinz”) (the “2015 Merger”) (the “Integration Program”), which was designed to reduce costs and integrate and optimize our combined organization, primarily in the U.S. and Canada reportable segments.
We incurred pre-tax costs related to the Integration Program of $10 million during the three months and $90 million during the nine months ended September 29, 2018. No such expenses were incurred during the three or nine months ended September 28, 2019.
Total Expenses:
Total expense/(income) related to restructuring activities, including the Integration Program, by income statement caption, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Severance and employee benefit costs - COGS
|
$
|
(1
|
)
|
|
$
|
(8
|
)
|
|
$
|
(4
|
)
|
|
$
|
17
|
|
|
Severance and employee benefit costs - SG&A
|
(1
|
)
|
|
2
|
|
|
(1
|
)
|
|
12
|
|
|
Severance and employee benefit costs - Other expense/(income)
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
5
|
|
|
Asset-related costs - COGS
|
8
|
|
|
8
|
|
|
11
|
|
|
33
|
|
|
Asset-related costs - SG&A
|
—
|
|
|
6
|
|
|
9
|
|
|
7
|
|
|
Other costs - COGS
|
5
|
|
|
18
|
|
|
20
|
|
|
125
|
|
|
Other costs - SG&A
|
4
|
|
|
6
|
|
|
21
|
|
|
21
|
|
|
Other costs - Other expense/(income)
|
—
|
|
|
—
|
|
|
—
|
|
|
58
|
|
|
|
$
|
15
|
|
|
$
|
31
|
|
|
$
|
56
|
|
|
$
|
278
|
|
We do not include our restructuring activities, including the Integration Program, within Segment Adjusted EBITDA (as defined in Note 20, 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 Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
United States
|
$
|
8
|
|
|
$
|
23
|
|
|
$
|
34
|
|
|
$
|
144
|
|
|
Canada
|
4
|
|
|
4
|
|
|
10
|
|
|
70
|
|
|
EMEA
|
—
|
|
|
(11
|
)
|
|
4
|
|
|
17
|
|
|
Rest of World
|
2
|
|
|
5
|
|
|
3
|
|
|
14
|
|
|
General corporate expenses
|
1
|
|
|
10
|
|
|
5
|
|
|
33
|
|
|
|
$
|
15
|
|
|
$
|
31
|
|
|
$
|
56
|
|
|
$
|
278
|
|
Note 7. 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 28, 2019
|
|
December 29, 2018
|
|
Cash and cash equivalents
|
$
|
2,315
|
|
|
$
|
1,130
|
|
|
Restricted cash included in other current assets
|
1
|
|
|
1
|
|
|
Restricted cash included in other non-current assets
|
—
|
|
|
5
|
|
|
Cash, cash equivalents, and restricted cash
|
$
|
2,316
|
|
|
$
|
1,136
|
|
Note 8. Inventories
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
December 29, 2018
|
|
Packaging and ingredients
|
$
|
634
|
|
|
$
|
510
|
|
|
Work in process
|
367
|
|
|
343
|
|
|
Finished product
|
2,157
|
|
|
1,814
|
|
|
Inventories
|
$
|
3,158
|
|
|
$
|
2,667
|
|
At December 29, 2018, inventories excluded amounts classified as held for sale. See Note 5, Acquisitions and Divestitures, for additional information.
Note 9. Goodwill and Intangible Assets
Goodwill:
Changes in the carrying amount of goodwill, by segment, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
EMEA
|
|
Rest of World
|
|
Total
|
|
Balance at December 29, 2018
|
$
|
29,597
|
|
|
$
|
2,438
|
|
|
$
|
3,074
|
|
|
$
|
1,394
|
|
|
$
|
36,503
|
|
|
Impairment losses
|
(118
|
)
|
|
—
|
|
|
(292
|
)
|
|
(334
|
)
|
|
(744
|
)
|
|
Acquisitions
|
124
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
130
|
|
|
Translation adjustments and other
|
(2
|
)
|
|
73
|
|
|
(109
|
)
|
|
(25
|
)
|
|
(63
|
)
|
|
Balance at September 28, 2019
|
$
|
29,601
|
|
|
$
|
2,511
|
|
|
$
|
2,679
|
|
|
$
|
1,035
|
|
|
$
|
35,826
|
|
In the first quarter of 2019, we completed the acquisition of Primal Nutrition. Additionally, at December 29, 2018, goodwill excluded amounts classified as held for sale. See Note 5, Acquisitions and Divestitures, for additional information related to this acquisition, as well as amounts held for sale.
We maintain 19 reporting units, 12 of which comprise our goodwill balance. These 12 reporting units had an aggregate carrying amount of $35.8 billion as of September 28, 2019. We test our reporting units for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
In connection with the preparation of the first quarter financial statements, which occurred concurrently with the preparation of the second quarter financial statements due to the delay in the filing of our Annual Report on Form 10-K for the year ended December 29, 2018, we concluded that it was more likely than not that the fair values of three of our 19 reporting units (EMEA East, Brazil and Latin America Exports) were below their carrying amounts. The factors that led to this conclusion included: (i) changes in management structure which triggered the reorganization of the EMEA East and Latin America Exports reporting units in the first quarter; (ii) new management in certain of these reporting units coupled with the development of our five-year operating plan assumptions for each of these reporting units in the first quarter, which established revised expectations and priorities for the coming years in response to current market factors, such as lower revenue growth and margin expectations; (iii) increases in discount rates used to value reporting units in these regions due to expectations of increased risk in these emerging markets; and (iv) fluctuations in forecasted foreign exchange rates in certain countries.
We recognized a non-cash impairment loss of $620 million in SG&A in the first quarter of 2019 related to the three reporting units noted above that are contained within our EMEA and Rest of World segments. We determined the factors contributing to the impairment loss were the result of circumstances that arose during the first quarter of 2019.
We recognized a $286 million impairment loss in our EMEA East reporting unit within our EMEA segment. In the first quarter of 2019, we reorganized our reporting units to combine Russia, Poland, Middle East, and Distributors operations into the EMEA East reporting unit as a result of changing our management structure. Following this reorganization, we established a new management team in the region at the beginning of 2019 that developed a new five-year operating plan for the region, which established a revised downward outlook for net sales, margin, and cash flows in response to lower expectations for margin and revenue growth opportunities in the region. As a result of this planning process, management revised its expectations downward in relation to the anticipated long-term impact of white space growth opportunities in MEA and the impact of discounter store growth in Russia. Additionally, there were declines in forecasted foreign exchange rates in the region. After the impairment, the goodwill carrying amount of the EMEA East reporting unit was approximately $144 million.
We recognized a $205 million impairment loss in our Brazil reporting unit within our Rest of World segment. During the first quarter, we observed lower than expected performance in launches of new products coupled with the de-listing of certain existing products as well as higher costs due to changes in our sourcing approach to support revenue growth plans. We developed a new five-year operating plan for the region in the first quarter of 2019, which produced a revised outlook for net sales and margins in contemplation of these events and after considering their potential long-term impacts. Additionally, there were declines in forecasted foreign exchange rates in the region. The impairment of the Brazil reporting unit represents all of the goodwill of that reporting unit.
We recognized a $129 million impairment loss in our Latin America Exports reporting unit within our Rest of World segment. In the first quarter of 2019, we reorganized our reporting units to combine Puerto Rico and our Other Latin America Exports business with Costa Rica, Panama, Colombia, Argentina, and Andinos operations (which were part of the previously fully impaired Other Latin America reporting unit and thus had previously been identified as having a fair value less than carrying amount) into the Latin America Exports reporting unit as a result of changing our management structure. We developed a new five-year operating plan for the region in the first quarter of 2019, which produced a revised downward outlook for net sales and margins and adjusted cash flow forecasts to reflect lower expectations in the market, higher costs associated with changes in our sourcing approach, and increased investments in the business to support growth in these emerging markets. After the impairment, the goodwill carrying amount of the Latin America Exports reporting unit was approximately $297 million.
We performed our 2019 annual impairment test as of March 31, 2019, which is the first day of our second quarter in 2019 (this was performed concurrently with the preparation of the first and second quarter 2019 financial statements due to the delay in the filing of our Annual Report on Form 10-K for the year ended December 29, 2018). We utilized the discounted cash flow method under the income approach to estimate the fair value of our reporting units. Through the performance of the 2019 annual impairment test, we identified an impairment related to the U.S. Refrigerated reporting unit. This impairment was primarily due to an increase in the discount rate assumption used for the fair value estimation. The increase in the discount rate was applied to reflect a market participants’ perceived risk in the valuation implied by the sustained reduction in our stock price and, hence, market capitalization (which decreased approximately 25% from December 29, 2018 to the March 31, 2019 annual impairment test date and sustained this decline through June 29, 2019). Since this valuation assumption change was made in connection with the annual impairment test in the second quarter of 2019 and was not indicative of events or conditions that would have constituted a triggering event during the first quarter of 2019, we recorded a non-cash impairment loss of $118 million in SG&A in the second quarter of 2019 within our United States segment. The goodwill carrying amount of this reporting unit was $7.0 billion after the impairment.
The goodwill carrying amounts associated with an additional six reporting units, which each had excess fair value over its carrying amount of 10% or less based on the results of our 2019 annual impairment assessment, were $18.6 billion for U.S. Grocery, $3.9 billion for U.S. Foodservice, $2.1 billion for Canada Retail, $370 million for Australia and New Zealand, $368 million for Canada Foodservice, and $83 million for Northeast Asia as of the annual impairment test date. The goodwill carrying amount associated with one additional reporting unit, which had excess fair value over its carrying amount between 10-20%, was $593 million for Continental Europe as of the annual impairment test date. The aggregate goodwill carrying amount of reporting units with fair value over carrying amount between 20-50% was $2.4 billion as of the annual impairment test date, and there were no reporting units with fair value over carrying amount in excess of 50%.
As a result of our 2018 annual impairment test, we recognized a non-cash impairment loss of $133 million in SG&A related to our Australia and New Zealand reporting unit in the second quarter of 2018. This impairment loss was primarily due to margin declines in the region.
Accumulated impairment losses to goodwill were $7.8 billion at September 28, 2019.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, change, or if management’s expectations or plans otherwise change, including as a result of updates to our global five-year operating plan, then one or more of our reporting units might become impaired in the future. Our reporting units that were impaired in 2018 and 2019 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other individual reporting units that have 20% or less excess fair value over carrying amount as of the 2019 annual impairment test date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining reporting units have more than 20% excess fair value over carrying amount as of the 2019 annual impairment test date, these amounts are also associated with the 2013 Heinz acquisition and the 2015 Merger and are recorded on the balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments.
Indefinite-lived intangible assets:
Changes in the carrying amount of indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
$
|
43,966
|
|
|
Impairment losses
|
(474
|
)
|
|
Reclassified to assets held for sale
|
(9
|
)
|
|
Translation adjustments
|
(89
|
)
|
|
Balance at September 28, 2019
|
$
|
43,394
|
|
At September 28, 2019 and December 29, 2018, indefinite-lived intangible assets excluded amounts classified as held for sale. See Note 5, Acquisitions and Divestitures, for additional information on amounts held for sale.
Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $43.4 billion as of September 28, 2019. We test our brands for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a brand is less than its carrying amount.
We performed our 2019 annual impairment test as of March 31, 2019, which is the first day of our second quarter in 2019. As a result of our 2019 annual impairment test, we recognized a non-cash impairment loss of $474 million in SG&A in the second quarter of 2019 primarily related to six brands (Miracle Whip, Velveeta, Lunchables, Maxwell House, Philadelphia, and Cool Whip). This impairment loss was recorded in our United States segment, consistent with the ownership of the trademarks. The impairment for these brands was largely due to an increase in the discount rate assumptions used for the fair value estimations. The increase in the discount rate was applied to reflect a market participants’ perceived risk in the valuation implied by the sustained reduction in our stock price and, hence, market capitalization (which decreased approximately 25% from December 29, 2018 to the March 31, 2019 annual impairment test date and sustained this decline through June 29, 2019).
For Miracle Whip and Maxwell House, the reduction in fair value was also driven by lower expectations of near and long-term net sales growth that were adjusted in the second quarter of 2019 due to anticipated trends in consumer preferences. For Lunchables, the reduction in fair value was also due to lower forecasted net sales and royalty rate assumptions associated with lower profit margin expectations driven by pricing actions at certain customers. For Velveeta, Philadelphia, and Cool Whip, no assumption changes other than the discount rate had a meaningful impact on the estimated fair value of brands. Since these valuation assumption changes were made in connection with the annual impairment test in the second quarter of 2019 and were not indicative of events or conditions that would have constituted a triggering event during the first quarter of 2019, we recorded the non-cash impairment loss in the second quarter of 2019. These brands had an aggregate carrying value of $13.5 billion prior to this impairment and $13.0 billion after impairment.
The aggregate carrying amount associated with an additional three brands (Kraft, Planters, and ABC), which each had excess fair value over its carrying amount of 10% or less, was $13.4 billion as of the annual impairment test date. The aggregate carrying amount of an additional three brands (Oscar Mayer, Jet Puffed, and Quero), which each had fair value over its carrying amount of between 10-20%, was $3.6 billion as of the annual impairment test date. The aggregate carrying amount of brands with fair value over carrying amount between 20-50% was $4.2 billion, and the aggregate carrying amount of brands with fair value over carrying amount in excess of 50% was $9.3 billion as of the annual impairment test date.
As a result of our 2018 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.
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.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, change, or if management’s expectations or plans otherwise change, including as a result of updates to our global five-year operating plan, then one or more of our brands might become impaired in the future. Our brands that were impaired in 2018 and 2019 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other individual brands that have 20% or less excess fair value over carrying amount as of the 2019 annual impairment test date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining brands have more than 20% excess fair value over carrying amount as of the 2019 annual impairment test date, these amounts are also associated with the 2013 Heinz acquisition and the 2015 Merger and are recorded on the balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments.
Definite-lived intangible assets:
Definite-lived intangible assets were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
December 29, 2018
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Trademarks
|
$
|
2,456
|
|
|
$
|
(443
|
)
|
|
$
|
2,013
|
|
|
$
|
2,474
|
|
|
$
|
(402
|
)
|
|
$
|
2,072
|
|
|
Customer-related assets
|
4,094
|
|
|
(799
|
)
|
|
3,295
|
|
|
4,097
|
|
|
(681
|
)
|
|
3,416
|
|
|
Other
|
14
|
|
|
(2
|
)
|
|
12
|
|
|
18
|
|
|
(4
|
)
|
|
14
|
|
|
|
$
|
6,564
|
|
|
$
|
(1,244
|
)
|
|
$
|
5,320
|
|
|
$
|
6,589
|
|
|
$
|
(1,087
|
)
|
|
$
|
5,502
|
|
Amortization expense for definite-lived intangible assets was $66 million for the three months and $214 million for the nine months ended September 28, 2019 and $75 million for the three months and $214 million for the nine months ended September 29, 2018. Aside from amortization expense, the changes in definite-lived intangible assets from December 29, 2018 to September 28, 2019 primarily reflect additions of $66 million related to purchase accounting for Primal Nutrition, impairment losses of $5 million, and foreign currency. Definite-lived intangible assets at December 29, 2018 excluded amounts classified as held for sale. See Note 5, Acquisitions and Divestitures, for additional information related to our acquisition of Primal Nutrition, as well as amounts held for sale.
We estimate that amortization expense related to definite-lived intangible assets will be approximately $273 million for the next year and approximately $273 million for each of the four years thereafter.
Note 10. Income Taxes
The provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment; accordingly, the consolidated effective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. Additionally, small movements in tax rates due to a change in tax law or a change in tax rates that causes us to revalue our deferred tax balances produces volatility in our effective tax rate. Our quarterly income tax provision is determined based on our estimated full year effective tax rate, adjusted for tax attributable to infrequent or unusual items, which are recognized on a discrete period basis in the income tax provision for the period in which they occur.
Our effective tax rate was 22.6% for the three months ended September 28, 2019 compared to 24.6% for the three months ended September 29, 2018. The decrease in our effective tax rate was primarily driven by a decrease in unfavorable net discrete items. Current year unfavorable impacts from net discrete items were primarily related to tax impacts for divestitures, specifically related to the Canada Natural Cheese Transaction, the impact of which was partially offset by the reversal of certain deferred withholding tax liabilities resulting from the ratification of the U.S. tax treaty with Spain. In the prior year, we had unfavorable impacts from net discrete items primarily related to the revaluation of our deferred tax balances due to changes in state tax laws, non-deductible currency devaluation losses, and non-deductible goodwill impairments, which were partially offset by the favorable impact of reversal 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.
Our effective tax rate was 25.0% for the nine months ended September 28, 2019 compared to 24.7% for the nine months ended September 29, 2018. The increase in our effective tax rate was primarily driven by the less favorable geographic mix of pre-tax income in various non-U.S. jurisdictions, partially offset by a decrease in unfavorable net discrete items. Current year unfavorable impacts from net discrete items primarily related to non-deductible goodwill impairment and the tax impacts from the Heinz India and Canada Natural Cheese Transactions, the impacts of which were partially offset by the reversal of uncertain tax position reserves in the U.S. and certain state jurisdictions and changes in estimates of certain 2018 U.S. income and deductions. In the prior year, we had an unfavorable impact from net discrete items, primarily related to the revaluation of our deferred tax balances due to changes in state tax laws, non-deductible currency devaluation losses, and non-deductible goodwill impairments, which were partially offset by the reversal 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.
Note 11. Employees’ Stock Incentive Plans
Stock Options:
Our stock option activity and related information was:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
|
Weighted Average Exercise Price
(per share)
|
|
Outstanding at December 29, 2018
|
18,259,965
|
|
|
$
|
44.64
|
|
|
Granted
|
1,880,648
|
|
|
25.41
|
|
|
Forfeited
|
(1,279,549
|
)
|
|
66.59
|
|
|
Exercised
|
(469,687
|
)
|
|
23.19
|
|
|
Outstanding at September 28, 2019
|
18,391,377
|
|
|
41.70
|
|
The aggregate intrinsic value of stock options exercised during the period was $8 million for the nine months ended September 28, 2019.
Restricted Stock Units:
Our restricted stock unit (“RSU”) activity and related information was:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
(per share)
|
|
Outstanding at December 29, 2018
|
2,338,958
|
|
|
$
|
68.49
|
|
|
Granted
|
7,867,566
|
|
|
25.64
|
|
|
Forfeited
|
(695,969
|
)
|
|
54.66
|
|
|
Vested
|
(58,152
|
)
|
|
84.95
|
|
|
Outstanding at September 28, 2019
|
9,452,403
|
|
|
33.74
|
|
The aggregate fair value of RSUs that vested during the period was $2 million for the nine months ended September 28, 2019.
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 29, 2018
|
3,252,056
|
|
|
$
|
59.24
|
|
|
Forfeited
|
(955,880
|
)
|
|
58.10
|
|
|
Outstanding at September 28, 2019
|
2,296,176
|
|
|
59.72
|
|
Note 12. Postemployment Benefits
We capitalize a portion of net pension and postretirement cost/(benefit) into inventory based on our production activities. 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
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Service cost
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
Interest cost
|
41
|
|
|
41
|
|
|
12
|
|
|
16
|
|
|
Expected return on plan assets
|
(58
|
)
|
|
(60
|
)
|
|
(34
|
)
|
|
(42
|
)
|
|
Amortization of prior service costs/(credits)
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Amortization of unrecognized losses/(gains)
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Settlements
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
Special/contractual termination benefits
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Other
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Net pension cost/(benefit)
|
$
|
(15
|
)
|
|
$
|
(18
|
)
|
|
$
|
(14
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Service cost
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
14
|
|
|
Interest cost
|
122
|
|
|
118
|
|
|
38
|
|
|
52
|
|
|
Expected return on plan assets
|
(172
|
)
|
|
(187
|
)
|
|
(107
|
)
|
|
(134
|
)
|
|
Amortization of prior service costs/(credits)
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Amortization of unrecognized losses/(gains)
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Settlements
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
58
|
|
|
Curtailments
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Special/contractual termination benefits
|
—
|
|
|
—
|
|
|
1
|
|
|
6
|
|
|
Other
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Net pension cost/(benefit)
|
$
|
(44
|
)
|
|
$
|
(65
|
)
|
|
$
|
(52
|
)
|
|
$
|
(3
|
)
|
We present all non-service cost components of net pension cost/(benefit) within other expense/(income) on our condensed consolidated statements of income.
Employer Contributions:
Related to our non-U.S. pension plans, we contributed $15 million during the nine months ended September 28, 2019 and plan to make further contributions of approximately $4 million during the remainder of 2019. Related to our U.S. pension plans, we did not contribute during the nine months ended September 28, 2019 and do not plan to make contributions during the remainder of 2019. Our actual contributions and plans may change due to many factors, including changes in tax, employee benefit, or other laws and regulations, tax deductibility, significant differences between expected and actual pension asset performance or interest rates, or other factors.
Postretirement Plans
Components of Net Postretirement Cost/(Benefit):
Net postretirement cost/(benefit) consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Service cost
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
Interest cost
|
12
|
|
|
11
|
|
|
35
|
|
|
33
|
|
|
Expected return on plan assets
|
(13
|
)
|
|
(12
|
)
|
|
(40
|
)
|
|
(37
|
)
|
|
Amortization of prior service costs/(credits)
|
(77
|
)
|
|
(77
|
)
|
|
(230
|
)
|
|
(233
|
)
|
|
Amortization of unrecognized losses/(gains)
|
(2
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
Curtailments
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
Net postretirement cost/(benefit)
|
$
|
(83
|
)
|
|
$
|
(76
|
)
|
|
$
|
(241
|
)
|
|
$
|
(231
|
)
|
We present all non-service cost components of net postretirement cost/(benefit) within other expense/(income) on our condensed consolidated statements of income.
Employer Contributions:
During the nine months ended September 28, 2019, we contributed $8 million to our postretirement benefit plans. We plan to make further contributions of approximately $4 million to our postretirement benefit plans during the remainder of 2019. Our actual contributions and plans may change due to many factors, including changes in tax, employee benefit, or other laws and regulations, tax deductibility, significant differences between expected and actual postretirement plan asset performance or interest rates, or other factors.
Note 13. Financial Instruments
See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 29, 2018 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 28, 2019
|
|
December 29, 2018
|
|
Commodity contracts
|
$
|
587
|
|
|
$
|
478
|
|
|
Foreign exchange contracts
|
2,602
|
|
|
3,263
|
|
|
Cross-currency contracts
|
10,146
|
|
|
10,146
|
|
Fair Value of Derivative Instruments:
The fair values and the levels within the fair value hierarchy of derivative instruments recorded on the consolidated balance sheets were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Total Fair Value
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(a)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
12
|
|
|
$
|
23
|
|
|
$
|
12
|
|
|
Cross-currency contracts(b)
|
—
|
|
|
—
|
|
|
348
|
|
|
98
|
|
|
348
|
|
|
98
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(c)
|
17
|
|
|
11
|
|
|
1
|
|
|
1
|
|
|
18
|
|
|
12
|
|
|
Foreign exchange contracts(a)
|
—
|
|
|
—
|
|
|
4
|
|
|
25
|
|
|
4
|
|
|
25
|
|
|
Cross-currency contracts(b)
|
—
|
|
|
—
|
|
|
593
|
|
|
144
|
|
|
593
|
|
|
144
|
|
|
Total fair value
|
$
|
17
|
|
|
$
|
11
|
|
|
$
|
969
|
|
|
$
|
280
|
|
|
$
|
986
|
|
|
$
|
291
|
|
|
|
|
|
(a)
|
At September 28, 2019, the fair value of our derivative assets was recorded in other current assets ($23 million) and other non-current assets ($4 million) the fair value of our derivative liabilities was recorded in other current liabilities ($35 million) and other non-current liabilities ($2 million).
|
|
|
|
|
(b)
|
At September 28, 2019, the fair value of our derivative assets was recorded in other current assets ($593 million) and other non-current assets ($348 million), and the fair value of our derivative liabilities was recorded in other current liabilities ($144 million) and other non-current liabilities ($98 million).
|
|
|
|
|
(c)
|
At September 28, 2019, the fair value of our derivative assets was recorded in other current assets ($17 million) and other non-current assets ($1 million) and the fair value of derivative liabilities was recorded in other current liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2018
|
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Total Fair Value
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(a)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51
|
|
|
$
|
26
|
|
|
$
|
51
|
|
|
$
|
26
|
|
|
Cross-currency contracts(b)
|
—
|
|
|
—
|
|
|
139
|
|
|
3
|
|
|
139
|
|
|
3
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(a)
|
5
|
|
|
27
|
|
|
—
|
|
|
2
|
|
|
5
|
|
|
29
|
|
|
Foreign exchange contracts(a)
|
—
|
|
|
—
|
|
|
5
|
|
|
42
|
|
|
5
|
|
|
42
|
|
|
Cross-currency contracts(b)
|
—
|
|
|
—
|
|
|
557
|
|
|
119
|
|
|
557
|
|
|
119
|
|
|
Total fair value
|
$
|
5
|
|
|
$
|
27
|
|
|
$
|
752
|
|
|
$
|
192
|
|
|
$
|
757
|
|
|
$
|
219
|
|
|
|
|
|
(a)
|
The fair value of derivative assets was recorded in other current assets and the fair value of derivative liabilities was recorded in other current liabilities.
|
|
|
|
|
(b)
|
The fair value of derivative assets was recorded in other current assets ($557 million) and other non-current assets ($139 million), and the fair value of derivative liabilities was recorded within other current liabilities ($119 million) and other non-current liabilities ($3 million).
|
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 consolidated balance sheets. If the derivative financial instruments had been netted on the consolidated balance sheets, the asset and liability positions each would have been reduced by $221 million at September 28, 2019 and $124 million at December 29, 2018. No significant amounts of collateral were received or posted on our derivative assets and liabilities at September 28, 2019.
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 swaps, foreign exchange forwards, options, and swaps, and cross-currency swaps. Commodity swaps are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign exchange forwards and swaps are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Foreign exchange options are valued using an income approach based on a Black-Scholes-Merton formula. This formula uses present value techniques and reflects the time value and intrinsic value based on observable market rates. Cross-currency swaps are valued based on observable market spot and swap rates.
We did not have any Level 3 financial assets or liabilities in any period presented.
Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.
Net Investment Hedging:
At September 28, 2019, we had the following items designated as net investment hedges:
|
|
|
|
•
|
Non-derivative foreign denominated debt with principal amounts of €2,550 million and £400 million;
|
|
|
|
|
•
|
Cross-currency contracts with notional amounts of £1.0 billion ($1.4 billion), C$2.1 billion ($1.6 billion), and ¥9.6 billion ($85 million); and
|
|
|
|
|
•
|
Foreign exchange contracts denominated in Chinese renminbi with an aggregate notional amount of $161 million.
|
We periodically use non-derivative instruments such as non-U.S. dollar financing transactions or non-U.S. dollar assets or liabilities, including intercompany loans, to hedge the exposure of changes in underlying foreign currency denominated subsidiary net assets, and they are designated as net investment hedges. At September 28, 2019, we had a euro intercompany loan with aggregate notional amount of $120 million.
The component of the gains and losses on our net investment in these designated foreign operations, driven by changes in foreign exchange rates, are economically offset by fair value movements on the effective portion of our cross-currency contracts and foreign exchange contracts and remeasurements of our foreign denominated debt.
Cash Flow Hedge Coverage:
At September 28, 2019, we had entered into foreign exchange contracts designated as cash flow hedges for periods not exceeding the next two years and into cross-currency contracts designated as cash flow hedges for periods not exceeding the next five years.
Deferred Hedging Gains and Losses on Cash Flow Hedges:
Based on our valuation at September 28, 2019 and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized gains on foreign currency cash flow hedges and cross-currency cash flow hedges during the next 12 months to be insignificant. Additionally, we expect transfers to net income/(loss) of unrealized losses on interest rate cash flow hedges during the next 12 months to be insignificant.
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 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
Net sales
|
|
Foreign exchange contracts
|
|
8
|
|
|
(5
|
)
|
|
(19
|
)
|
|
27
|
|
|
Cost of products sold
|
|
Foreign exchange contracts (excluded component)
|
|
1
|
|
|
(2
|
)
|
|
1
|
|
|
(2
|
)
|
|
Cost of products sold
|
|
Foreign exchange contracts
|
|
—
|
|
|
(12
|
)
|
|
(22
|
)
|
|
19
|
|
|
Other expense/(income)
|
|
Foreign exchange contracts (excluded component)
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Other expense/(income)
|
|
Cross-currency contracts
|
|
43
|
|
|
—
|
|
|
62
|
|
|
—
|
|
|
Other expense/(income)
|
|
Cross-currency contracts (excluded component)
|
|
7
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
Other expense/(income)
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
5
|
|
|
8
|
|
|
18
|
|
|
10
|
|
|
Other expense/(income)
|
|
Foreign exchange contracts (excluded component)
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
1
|
|
|
Interest expense
|
|
Cross-currency contracts
|
|
66
|
|
|
(18
|
)
|
|
28
|
|
|
78
|
|
|
Other expense/(income)
|
|
Cross-currency contracts (excluded component)
|
|
8
|
|
|
6
|
|
|
22
|
|
|
6
|
|
|
Interest expense
|
|
Total gains/(losses) recognized in statements of comprehensive income
|
|
$
|
138
|
|
|
$
|
(20
|
)
|
|
$
|
109
|
|
|
$
|
141
|
|
|
|
Derivative Impact on the Statements of Income:
The following tables present the pre-tax amounts of derivative gains/(losses) reclassified from accumulated other comprehensive income/(losses) to net income/(loss) and the affected income statement line items (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
Cost of products sold
|
|
Interest expense
|
|
Other expense/ (income)
|
|
Cost of products sold
|
|
Interest expense
|
|
Other expense/ (income)
|
|
Total amounts presented in the consolidated statements of income in which the following effects were recorded
|
$
|
4,129
|
|
|
$
|
398
|
|
|
$
|
(380
|
)
|
|
$
|
4,289
|
|
|
$
|
326
|
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) related to derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
Foreign exchange contracts (excluded component)
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
2
|
|
|
Interest rate contracts
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cross-currency contracts (excluded component)
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency contracts (excluded component)
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
Gains/(losses) related to derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Total gains/(losses) recognized in statements of income
|
$
|
(7
|
)
|
|
$
|
7
|
|
|
$
|
38
|
|
|
$
|
(17
|
)
|
|
$
|
5
|
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
Cost of products sold
|
|
Interest expense
|
|
Other expense/ (income)
|
|
Cost of products sold
|
|
Interest expense
|
|
Other expense/ (income)
|
|
Total amounts presented in the consolidated statements of income in which the following effects were recorded
|
$
|
12,401
|
|
|
$
|
1,035
|
|
|
$
|
(893
|
)
|
|
$
|
12,672
|
|
|
$
|
959
|
|
|
$
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) related to derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
(22
|
)
|
|
$
|
(8
|
)
|
|
$
|
—
|
|
|
$
|
19
|
|
|
Foreign exchange contracts (excluded component)
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
2
|
|
|
Interest rate contracts
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cross-currency contracts (excluded component)
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign exchange contracts (excluded component)
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cross-currency contracts (excluded component)
|
—
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
Gains/(losses) related to derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
13
|
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
—
|
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Total gains/(losses) recognized in statements of income
|
$
|
34
|
|
|
$
|
18
|
|
|
$
|
31
|
|
|
$
|
(41
|
)
|
|
$
|
3
|
|
|
$
|
(34
|
)
|
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 $128 million for the three months and $147 million for the nine months ended September 28, 2019 and $26 million for the three months and $118 million for the nine months ended September 29, 2018. These amounts were recognized in other comprehensive income/(loss).
Note 14. 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 29, 2018
|
$
|
(2,476
|
)
|
|
$
|
492
|
|
|
$
|
41
|
|
|
$
|
(1,943
|
)
|
|
Foreign currency translation adjustments
|
(272
|
)
|
|
—
|
|
|
—
|
|
|
(272
|
)
|
|
Net deferred gains/(losses) on net investment hedges
|
147
|
|
|
—
|
|
|
—
|
|
|
147
|
|
|
Amounts excluded from the effectiveness assessment of net investment hedges
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
Net deferred gains/(losses) on cash flow hedges
|
—
|
|
|
—
|
|
|
24
|
|
|
24
|
|
|
Amounts excluded from the effectiveness assessment of cash flow hedges
|
—
|
|
|
—
|
|
|
21
|
|
|
21
|
|
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
(55
|
)
|
|
Net postemployment benefit gains/(losses) arising during the period
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|
Net postemployment benefit losses/(gains) reclassified to net income/(loss)
|
—
|
|
|
(176
|
)
|
|
—
|
|
|
(176
|
)
|
|
Cumulative effect of accounting standards adopted in the period(a)
|
—
|
|
|
114
|
|
|
22
|
|
|
136
|
|
|
Total other comprehensive income/(loss)
|
(119
|
)
|
|
(76
|
)
|
|
12
|
|
|
(183
|
)
|
|
Balance as of September 28, 2019
|
$
|
(2,595
|
)
|
|
$
|
416
|
|
|
$
|
53
|
|
|
$
|
(2,126
|
)
|
|
|
|
|
(a)
|
In the first quarter of 2019, we adopted ASU 2018-02 related to reclassifying tax effects stranded in accumulated other comprehensive income/(losses). See Note 4, New Accounting Standards, for additional information.
|
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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
|
Foreign currency translation adjustments
|
$
|
(410
|
)
|
|
$
|
—
|
|
|
$
|
(410
|
)
|
|
$
|
(142
|
)
|
|
$
|
—
|
|
|
$
|
(142
|
)
|
|
Net deferred gains/(losses) on net investment hedges
|
199
|
|
|
(48
|
)
|
|
151
|
|
|
16
|
|
|
(3
|
)
|
|
13
|
|
|
Amounts excluded from the effectiveness assessment of net investment hedges
|
8
|
|
|
(2
|
)
|
|
6
|
|
|
7
|
|
|
(4
|
)
|
|
3
|
|
|
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)
|
(8
|
)
|
|
2
|
|
|
(6
|
)
|
|
(6
|
)
|
|
4
|
|
|
(2
|
)
|
|
Net deferred gains/(losses) on cash flow hedges
|
51
|
|
|
(1
|
)
|
|
50
|
|
|
(17
|
)
|
|
1
|
|
|
(16
|
)
|
|
Amounts excluded from the effectiveness assessment of cash flow hedges
|
8
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)
|
(50
|
)
|
|
—
|
|
|
(50
|
)
|
|
11
|
|
|
1
|
|
|
12
|
|
|
Net actuarial gains/(losses) arising during the period
|
(13
|
)
|
|
4
|
|
|
(9
|
)
|
|
22
|
|
|
(5
|
)
|
|
17
|
|
|
Net postemployment benefit losses/(gains) reclassified to net income/(loss)
|
(79
|
)
|
|
20
|
|
|
(59
|
)
|
|
(77
|
)
|
|
19
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
|
Foreign currency translation adjustments
|
$
|
(272
|
)
|
|
$
|
—
|
|
|
$
|
(272
|
)
|
|
$
|
(796
|
)
|
|
$
|
—
|
|
|
$
|
(796
|
)
|
|
Net deferred gains/(losses) on net investment hedges
|
193
|
|
|
(46
|
)
|
|
147
|
|
|
206
|
|
|
(48
|
)
|
|
158
|
|
|
Amounts excluded from the effectiveness assessment of net investment hedges
|
21
|
|
|
(5
|
)
|
|
16
|
|
|
7
|
|
|
(4
|
)
|
|
3
|
|
|
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)
|
(15
|
)
|
|
5
|
|
|
(10
|
)
|
|
(6
|
)
|
|
4
|
|
|
(2
|
)
|
|
Net deferred gains/(losses) on cash flow hedges
|
20
|
|
|
4
|
|
|
24
|
|
|
46
|
|
|
(6
|
)
|
|
40
|
|
|
Amounts excluded from the effectiveness assessment of cash flow hedges
|
22
|
|
|
(1
|
)
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)
|
(61
|
)
|
|
6
|
|
|
(55
|
)
|
|
(9
|
)
|
|
(1
|
)
|
|
(10
|
)
|
|
Net actuarial gains/(losses) arising during the period
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|
93
|
|
|
(23
|
)
|
|
70
|
|
|
Net postemployment benefit losses/(gains) reclassified to net income/(loss)
|
(235
|
)
|
|
59
|
|
|
(176
|
)
|
|
(177
|
)
|
|
44
|
|
|
(133
|
)
|
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 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
Losses/(gains) on net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
Other expense/(income)
|
|
Foreign exchange contracts(b)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Interest expense
|
|
Cross-currency contracts(b)
|
|
(8
|
)
|
|
(6
|
)
|
|
(22
|
)
|
|
(6
|
)
|
|
Interest expense
|
|
Losses/(gains) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(c)
|
|
(6
|
)
|
|
—
|
|
|
(21
|
)
|
|
9
|
|
|
Cost of products sold
|
|
Foreign exchange contracts(c)
|
|
—
|
|
|
10
|
|
|
22
|
|
|
(21
|
)
|
|
Other expense/(income)
|
|
Cross-currency contracts(c)
|
|
(45
|
)
|
|
—
|
|
|
(65
|
)
|
|
—
|
|
|
Other expense/(income)
|
|
Interest rate contracts(d)
|
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
|
Interest expense
|
|
Losses/(gains) on hedges before income taxes
|
|
(58
|
)
|
|
5
|
|
|
(76
|
)
|
|
(15
|
)
|
|
|
|
Losses/(gains) on hedges, income taxes
|
|
2
|
|
|
5
|
|
|
11
|
|
|
3
|
|
|
|
|
Losses/(gains) on hedges
|
|
$
|
(56
|
)
|
|
$
|
10
|
|
|
$
|
(65
|
)
|
|
$
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses/(gains) on postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized losses/(gains)
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
2
|
|
|
(e)
|
|
Amortization of prior service costs/(credits)
|
|
(76
|
)
|
|
(77
|
)
|
|
(229
|
)
|
|
(233
|
)
|
|
(e)
|
|
Settlement and curtailment losses/(gains)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
54
|
|
|
(e)
|
|
Other losses/(gains) on postemployment benefits
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
|
|
Losses/(gains) on postemployment benefits before income taxes
|
|
(79
|
)
|
|
(77
|
)
|
|
(235
|
)
|
|
(177
|
)
|
|
|
|
Losses/(gains) on postemployment benefits, income taxes
|
|
20
|
|
|
19
|
|
|
59
|
|
|
44
|
|
|
|
|
Losses/(gains) on postemployment benefits
|
|
$
|
(59
|
)
|
|
$
|
(58
|
)
|
|
$
|
(176
|
)
|
|
$
|
(133
|
)
|
|
|
|
|
|
|
(a)
|
Represents the reclassification of hedge losses/(gains) resulting from the complete or substantially complete liquidation of our investment in the underlying foreign operations.
|
|
|
|
|
(b)
|
Represents recognition of the excluded component in net income/(loss).
|
|
|
|
|
(c)
|
Includes amortization of the excluded component and the effective portion of the related hedges.
|
|
|
|
|
(d)
|
Represents amortization of realized hedge losses that were deferred into accumulated other comprehensive income/(losses) through the maturity of the related long-term debt instruments.
|
|
|
|
|
(e)
|
These components are included in the computation of net periodic postemployment benefit costs. See Note 12, 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 15. 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 condensed 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.
As of September 28, 2019, companies and individuals are allowed to use an auction-based system at private and public banks to obtain foreign currency. This is the only foreign currency exchange mechanism legally available to us for converting Venezuelan bolivars to U.S. dollars. Published daily by the Banco Central de Venezuela, the exchange rate (“BCV Rate”) is calculated as the weighted average rate of participating banking institutions with active exchange operations. We believe the BCV Rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary. Therefore, we revalue the income statement using the weighted average BCV Rates, and we revalue the bolivar-denominated monetary assets and liabilities at the period-end BCV Rate. The resulting revaluation gains and losses are recorded in current net income/(loss), rather than accumulated other comprehensive income/(losses). These gains and losses are classified within other expense/(income) as nonmonetary currency devaluation on our condensed consolidated statements of income.
The BCV Rate at September 28, 2019 was BsS21,028.08 per U.S. dollar compared to BsS638.18 at December 29, 2018. The weighted average rate was BsS14,919.84 for the three months and BsS7,460.73 for the nine months ended September 28, 2019 and BsS6.10 for the three months and BsS2.46 for the nine months ended September 29, 2018. Remeasurements of the bolivar-denominated monetary assets and liabilities and operating results of our Venezuelan subsidiary at BCV Rates resulted in nonmonetary currency devaluation losses of $4 million for the three months and $10 million for the nine months ended September 28, 2019 and $64 million for the three months and $131 million for the nine months ended September 29, 2018. These losses were recorded in other expense/(income) in the consolidated statements of income.
Our Venezuelan subsidiary obtains U.S. dollars through private and public bank auctions, royalty payments, and exports. 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 28, 2019, our Venezuelan subsidiary had 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.
In addition to the bank auctions described above, 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 BCV Rate. We have not transacted at any unofficial market rates and have no plans to transact at unofficial market rates in the foreseeable future.
Our results of operations in Venezuela reflect a controlled subsidiary. 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 along with 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.
Note 16. Financing Arrangements
We have 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 place in various countries across the globe. 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. As of December 29, 2018, we had unwound all of our Programs.
We operated the Programs such that we generally utilized the majority of the available aggregate cash consideration limits. We accounted for transfers of receivables pursuant to the Programs as a sale and removed them from our consolidated balance sheets. Under the Programs, we generally received cash consideration up to a certain limit and recorded a non-cash exchange for sold receivables for the remainder of the purchase price. We maintained 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 consolidated statements of cash flows.
As all of the Programs were unwound as of December 29, 2018, there were no related amounts on our condensed consolidated balance sheets at September 28, 2019 or December 29, 2018.
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 consolidated financial statements, it was a separate legal entity with separate creditors who were entitled, upon its liquidation in the second quarter of 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.
We enter into various structured payable and product financing arrangements to facilitate supply from our vendors. Balance sheet classification is based on the nature of the agreements. For certain arrangements, we classify amounts outstanding within other current liabilities on our consolidated balance sheets. We had approximately $146 million on our consolidated balance sheets at September 28, 2019 and approximately $267 million at December 29, 2018 related to these arrangements.
Note 17. Commitments, Contingencies and Debt
Legal Proceedings
We are involved in legal proceedings, claims, and governmental inquiries, inspections, or investigations (“Legal Matters”) arising in the ordinary course of our business. While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve the Legal Matters that are currently pending will have a material adverse effect on our financial condition, results of operations, or cash flows.
Class Actions and Stockholder Derivative Actions:
We and certain of our current and former officers and directors are currently defendants in three securities class action lawsuits filed in February, March, and April 2019. The first filed action, Hedick v. The Kraft Heinz Company, was filed on February 24, 2019 against the Company and three of its officers (the “Hedick Action”). The second filed action, Iron Workers District Council (Philadelphia and Vicinity) Retirement and Pension Plan v. The Kraft Heinz Company, was filed on March 15, 2019 against, among others, the Company and six of its current and former officers (the “Iron Workers Action”). The third filed action, Timber Hill LLC v. The Kraft Heinz Company, was filed on April 25, 2019 against, among others, the Company and seven of its current and former officers and directors (the “Timber Hill Action”). All of these securities class action lawsuits were filed in the United States District Court for the Northern District of Illinois. Another securities class action lawsuit, Walling v. Kraft Heinz Company, was filed on February 26, 2019 in the United States District Court for the Western District of Pennsylvania against, among others, the Company and six of its current and former officers (the “Walling Action”). Plaintiff in the Walling Action filed a notice of voluntary dismissal of his complaint, without prejudice, on April 26, 2019.
Plaintiffs in these lawsuits purport to represent a class of all individuals and entities who purchased, sold, or otherwise acquired or disposed of publicly traded securities of the Company (including in the Timber Hill Action, the purchase of call options on Company common stock, the sale of put options on Company common stock, and the purchase of futures on the Company’s common stock) from May 4, 2017 through February 21, 2019, in the case of the Hedick Action and the Walling Action, and from July 6, 2015 through February 21, 2019, in the case of the Iron Workers Action and the Timber Hill Action. The complaints assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, based on allegedly materially false or misleading statements and omissions in public statements, press releases, investor presentations, earnings calls, and SEC filings regarding the Company’s business, financial results, and internal controls. The plaintiffs seek damages in an unspecified amount, attorneys’ fees and other relief. On October 8, 2019, the court entered an order consolidating these lawsuits into one proceeding and appointing lead plaintiffs and lead plaintiffs’ counsel.
In addition, our Employee Benefits Administration Board and certain of our current and former officers and employees are currently defendants in one class action lawsuit, Osborne v. Employee Benefits Administration Board of Kraft Heinz, which was filed on March 19, 2019 in the United States District Court for the Western District of Pennsylvania. Plaintiffs in the lawsuit purport to represent a class of current and former employees who were participants in and beneficiaries of various retirement plans which were co-invested in a commingled investment fund known as the Kraft Foods Savings Plan Master Trust (the “Master Trust”) during the period of May 4, 2017 through February 21, 2019. An amended complaint was filed on June 28, 2019. The amended complaint alleges violations of Section 502 of the Employee Retirement Income Security Act (“ERISA”) based on alleged breaches of obligations as fiduciaries subject to ERISA by allowing the Master Trust to continue investing in our common stock, and alleges additional breaches of fiduciary duties by current and former officers for their purported failure to monitor Master Trust fiduciaries. The plaintiffs seek damages in an unspecified amount, attorneys’ fees, and other relief.
Certain of our current and former officers and directors, among others, were also named as defendants in three stockholder derivative actions pending in the United States District Court for the Western District of Pennsylvania: Vladimir Gusinsky Revocable Trust v. Hees filed on May 8, 2019, Silverman v. Behring filed on May 15, 2019, and Green v. Behring filed on May 23, 2019, with the Company named as a nominal defendant. On June 14, 2019, plaintiffs in two other stockholder derivative actions, DeFabiis v. Hees and Kailas v. Hees, which were filed on April 16, 2019 and May 13, 2019, respectively, in the United States District Court for the Western District of Pennsylvania, filed notices of voluntary dismissal of their complaints, without prejudice. The three remaining lawsuits were consolidated, styled as In re Kraft Heinz Shareholder Derivative Litigation, and a consolidated amended complaint was filed on July 31, 2019. The consolidated amended complaint asserts claims under the common law and statutory law of Delaware for alleged breaches of fiduciary duties, unjust enrichment, and contribution for alleged violations of Sections 10(b) and 21D of the Exchange Act and Rule 10b-5 promulgated thereunder, based on allegedly materially false or misleading statements and omissions in public statements and SEC filings, and for implementing cost cutting measures that allegedly damaged the company. The plaintiffs seek damages in an unspecific amount, attorneys’ fees, and other relief.
The two plaintiffs who voluntarily dismissed their derivative lawsuits against certain of the Company’s current and former directors have filed new derivative actions in the Delaware Court of Chancery against 3G Capital, Inc. and several of its subsidiaries and affiliates (the “3G Entities”), with the Company named as a nominal defendant. The first action, DeFabiis v 3G Capital, Inc., was filed on June 14, 2019, and the second action, Kailas v. 3G Capital, Inc., was filed on October 9, 2019. The complaints allege that the defendant 3G Entities were controlling shareholders who owed fiduciary duties to the Company, and that they breached those duties by allegedly engaging in insider trading and misappropriating the Company’s material, non-public information. The complaints seek relief against the 3G Entities in the form of disgorgement of all profits obtained from alleged insider trading plus an award of attorneys’ fees and costs.
A third derivative lawsuit, Mary Nell Legg Family Trust v. 3G Capital Inc., was filed on October 29, 2019 in the Delaware Court of Chancery against certain of the Company’s current and former officers and directors, in addition to the 3G Entities, with the Company named as a nominal defendant. The complaint alleges that the defendant 3G Entities were controlling shareholders who owed fiduciary duties to the Company, and that they breached those duties by allegedly engaging in insider trading and misappropriating the Company’s material, non-public information. The complaint alleges the remaining defendants breached their fiduciary duties to the Company by purportedly making materially misleading statements and omissions regarding the Company’s financial performance and the impairment of its goodwill and intangible assets. The complaint seeks relief against the defendants in the form of damages, disgorgement of all profits the 3G Entities obtained from alleged insider trading, and an award of attorneys’ fees and costs.
We intend to vigorously defend against these lawsuits; however, we cannot reasonably estimate the potential range of loss, if any, due to the early stage of these proceedings.
Securities and Exchange Commission Investigation:
As previously disclosed on February 21, 2019, we received a subpoena in October 2018 from the SEC related to our procurement area, specifically the accounting policies, procedures, and internal controls related to our procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to agreements with our suppliers. Following the receipt of this subpoena, we, together with external counsel and forensic accountants, and subsequently, under the oversight of the Audit Committee, conducted an internal investigation into our procurement area and related matters. The SEC has also issued additional subpoenas seeking information related to our financial reporting, internal controls, and disclosures, our assessment of goodwill and intangible asset impairments, our communications with certain shareholders, and other procurement-related information and materials in connection with its investigation. It is our understanding that the United States Attorney’s Office for the Northern District of Illinois also is reviewing this matter, working with the SEC and receiving materials from it. We cannot predict the eventual scope, duration or outcome of any potential SEC legal action or other action or whether it could have a material impact on our financial condition, results of operations, or cash flows. We have been responsive to the ongoing subpoenas and other document requests and will continue to cooperate fully with any governmental or regulatory inquiries or investigations.
Other Commitments and Contingencies
Redeemable Noncontrolling Interest:
We have a joint venture with a minority partner to manufacture, package, market, and distribute food products. 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 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 28, 2019, we estimate the redemption value to be approximately $38 million.
Debt
Borrowing Arrangements:
We obtain funding through our U.S. and European commercial paper programs. We had no commercial paper outstanding at September 28, 2019 or at December 29, 2018. The maximum amount of commercial paper outstanding during the nine months ended September 28, 2019 was $200 million.
See Note 19, Debt, to our consolidated financial statements for the year ended December 29, 2018 in our Annual Report on Form 10-K for additional information on our borrowing arrangements.
Tender Offers:
On September 3, 2019, Kraft Heinz Foods Company (“KHFC”), our 100% owned subsidiary, commenced an offer to purchase for cash any and all of its outstanding 5.375% senior notes due February 2020 (the “First Tender Offer”). The First Tender Offer expired on September 9, 2019 with a settlement date of September 10, 2019. Additionally, on September 11, 2019, KHFC commenced an offer to purchase for cash up to the maximum combined aggregate purchase price of $2.5 billion, excluding accrued and unpaid interest, of its outstanding 3.500% senior notes due June 2022, 3.500% senior notes due July 2022, 4.000% senior notes due June 2023, and 4.875% second lien senior secured notes due February 2025 (the “Second Tender Offer”) (collectively with the First Tender Offer, the “Tender Offers”). The Second Tender Offer settled on September 26, 2019.
The aggregate principal amounts of senior notes and second lien senior secured notes before and after the Tender Offers and the amounts validly tendered pursuant to the Tender Offers were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Principal Amount Outstanding Before Tender Offers
|
|
Amount Validly Tendered
|
|
Aggregate Principal Amount Outstanding After Tender Offers
|
|
5.375% senior notes due February 2020
|
$
|
900
|
|
|
$
|
495
|
|
|
$
|
405
|
|
|
3.500% senior notes due June 2022
|
2,000
|
|
|
881
|
|
|
1,119
|
|
|
3.500% senior notes due July 2022
|
1,000
|
|
|
554
|
|
|
446
|
|
|
4.000% senior notes due June 2023
|
1,600
|
|
|
762
|
|
|
838
|
|
|
4.875% second lien senior secured notes due February 2025
|
1,200
|
|
|
224
|
|
|
976
|
|
In connection with the Tender Offers, we recognized a loss on extinguishment of debt of $88 million. This loss primarily reflects the payment of early tender premiums and fees associated with the Tender Offers as well as the write-off of unamortized debt issuance costs, premiums, and discounts. We recognized this loss on extinguishment of debt within interest expense on the condensed consolidated statement of income. The cash payments related to the debt extinguishment are classified as cash outflows from financing activities on the condensed consolidated statement of cash flows. For the nine months ended September 28, 2019, debt prepayment and extinguishment costs per the condensed consolidated statement of cash flows were $91 million, which reflect the $88 million loss on extinguishment of debt adjusted for the non-cash write-off of unamortized premiums of $10 million, unamortized debt issuance costs of $5 million, and unamortized discounts of $2 million.
Debt Redemptions:
Concurrently with the commencement of the First Tender Offer, we issued a notice of redemption by Kraft Heinz Canada ULC, our 100% owned subsidiary, of all of Kraft Heinz Canada ULC’s outstanding 2.700% Canadian dollar senior notes due July 2020, of which 300 million Canadian dollar aggregate principal amount was outstanding, and a notice of partial redemption by KHFC of $800 million of KHFC’s 2.800% senior notes due July 2020, of which $1.5 billion aggregate principal amount was outstanding. The effective date of these redemptions was October 3, 2019.
Concurrently with the commencement of the Second Tender Offer, we issued a second notice of partial redemption providing for the redemption of $500 million aggregate principal amount of KHFC’s remaining 2.800% senior notes due July 2020. The effective date of this redemption was October 11, 2019.
The aggregate principal amounts of senior notes before and after the debt redemptions in October 2019 were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Principal Amount Outstanding Before Redemptions
|
|
Amount Redeemed
|
|
Aggregate Principal Amount Outstanding After Redemption
|
|
2.700% Canadian dollar senior notes due July 2020
|
C$
|
300
|
|
|
C$
|
300
|
|
|
C$
|
—
|
|
|
2.800% senior notes due July 2020
|
$
|
1,500
|
|
|
$
|
1,300
|
|
|
$
|
200
|
|
Our condensed consolidated financial statements as of September 28, 2019 do not reflect the extinguishment of these notes as they occurred in the fourth quarter of 2019.
Debt Issuances:
In September 2019, KHFC issued $1.0 billion aggregate principal amount of 3.750% senior notes due April 2030, $500 million aggregate principal amount of 4.625% senior notes due October 2039, and $1.5 billion aggregate principal amount of 4.875% senior notes due October 2049 (collectively, the “2019 Notes”). The 2019 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 proceeds from the 2019 Notes to fund the Second Tender Offer and to pay fees and expenses in connection therewith and to fund the partial redemption of $500 million aggregate principal amount of our 2.800% senior notes due July 2020, described above. A tabular summary of the 2019 Notes is included below.
|
|
|
|
|
|
|
|
|
|
|
Aggregate Principal Amount
|
|
|
|
(in millions)
|
|
3.750% senior notes due April 2030
|
|
$
|
1,000
|
|
|
4.625% senior notes due October 2039
|
|
500
|
|
|
4.875% senior notes due October 2049
|
|
1,500
|
|
|
Total senior notes issued
|
|
$
|
3,000
|
|
In June 2018, KHFC issued $300 million aggregate principal amount of 3.375% senior notes due June 2021, $1.6 billion aggregate principal amount of 4.000% senior notes due June 2023, and $1.1 billion aggregate principal amount of 4.625% senior notes due January 2029 (collectively, the “2018 Notes”). The 2018 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 2018 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 2018 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.
Debt Issuance Costs:
Debt issuance costs related to the 2019 Notes were $25 million with $23 million paid as of September 28, 2019.
Debt issuance costs related to the 2018 Notes were $15 million.
Debt Repayments:
In August 2019, we repaid $350 million aggregate principal amount of senior notes that matured in the period.
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 2018 Notes issued in June 2018.
Fair Value of Debt:
At September 28, 2019, the aggregate fair value of our total debt was $31.8 billion as compared with a carrying value of $30.7 billion. At December 29, 2018, the aggregate fair value of our total debt was $30.1 billion as compared with a carrying value of $31.2 billion. Our short-term debt had carrying value that approximated its fair value at September 28, 2019 and December 29, 2018. 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 18. Leases
We have operating and finance leases, primarily for warehouse, production, and office facilities and equipment. Our lease contracts have remaining contractual lease terms of up to 14 years, some of which include options to extend the term by up to 10 years. We include renewal options that are reasonably certain to be exercised as part of the lease term. Additionally, some lease contracts include termination options. We do not expect to exercise the majority of our termination options and generally exclude such options when determining the term of our leases. See Note 3, Significant Accounting Policies, for our lease accounting policy.
The components of our lease costs were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
Operating lease costs
|
$
|
49
|
|
|
$
|
145
|
|
|
Finance lease costs:
|
|
|
|
|
Amortization of right-of-use assets
|
6
|
|
|
19
|
|
|
Interest on lease liabilities
|
2
|
|
|
5
|
|
|
Short-term lease costs
|
3
|
|
|
9
|
|
|
Variable lease costs
|
325
|
|
|
976
|
|
|
Sublease income
|
(4
|
)
|
|
(11
|
)
|
|
Total lease costs
|
$
|
381
|
|
|
$
|
1,143
|
|
Our variable lease costs primarily consist of inventory related costs, such as materials, labor, and overhead components in our manufacturing and distribution arrangements that also contain a fixed component related to an embedded lease. These variable lease costs are determined based on usage or output or may vary for other reasons such as changes in materials prices, taxes, or insurance. Certain of our variable lease costs are based on fluctuating indices or rates. These leases are included in our ROU assets and lease liabilities based on the index or rate at the lease commencement date. The future variability in these indices and rates is unknown; therefore, it is excluded from our future minimum lease payments and is not a component of our ROU assets or lease liabilities.
Losses/(gains) on sale and leaseback transactions, net, were insignificant for the three months and nine months ended September 28, 2019.
Supplemental balance sheet information related to our leases was (in millions, except lease term and discount rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Right-of-use assets
|
$
|
557
|
|
|
$
|
183
|
|
|
Lease liabilities (current)
|
153
|
|
|
28
|
|
|
Lease liabilities (non-current)
|
467
|
|
|
157
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
6 years
|
|
|
9 years
|
|
|
Weighted average discount rate
|
4.1
|
%
|
|
3.4
|
%
|
Operating lease ROU assets are included in other non-current assets and finance lease ROU assets are included in property, plant and equipment, net, on our condensed consolidated balance sheets. The current portion of operating lease liabilities is included in other current liabilities, and the current portion of finance lease liabilities is included in the current portion of long-term debt on our condensed consolidated balance sheets. The non-current portion of operating lease liabilities is included in other non-current liabilities, and the non-current portion of finance lease liabilities is included in long-term debt on our condensed consolidated balance sheets.
Cash flows arising from lease transactions were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash inflows/(outflows) from operating leases
|
$
|
(48
|
)
|
|
$
|
(146
|
)
|
|
Operating cash inflows/(outflows) from finance leases
|
(2
|
)
|
|
(5
|
)
|
|
Financing cash inflows/(outflows) from finance leases
|
(7
|
)
|
|
(20
|
)
|
|
Right-of-use assets obtained in exchange for lease liabilities:
|
|
|
|
|
Operating leases
|
4
|
|
|
31
|
|
|
Finance leases
|
8
|
|
|
8
|
|
Future minimum lease payments for leases in effect at September 28, 2019 were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Finance
Leases
|
|
2019 (excluding the nine months ended September 28, 2019)
|
$
|
49
|
|
|
$
|
9
|
|
|
2020
|
165
|
|
|
32
|
|
|
2021
|
128
|
|
|
70
|
|
|
2022
|
93
|
|
|
21
|
|
|
2023
|
66
|
|
|
9
|
|
|
Thereafter
|
206
|
|
|
85
|
|
|
Total future undiscounted lease payments
|
707
|
|
|
226
|
|
|
Less imputed interest
|
(87
|
)
|
|
(41
|
)
|
|
Total lease liability
|
$
|
620
|
|
|
$
|
185
|
|
Minimum rental commitments under non-cancelable operating leases in effect at December 29, 2018 under the previous lease standard, ASC 840, were (in millions):
|
|
|
|
|
|
|
|
2019
|
$
|
185
|
|
|
2020
|
137
|
|
|
2021
|
105
|
|
|
2022
|
70
|
|
|
2023
|
49
|
|
|
Thereafter
|
148
|
|
|
Total
|
$
|
694
|
|
At September 28, 2019, our operating and finance leases that had not yet commenced were insignificant.
Note 19. Earnings Per Share
Our earnings per common share (“EPS”) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
|
(As Restated)
|
|
|
(in millions, except per share data)
|
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
$
|
899
|
|
|
$
|
619
|
|
|
$
|
1,753
|
|
|
$
|
2,376
|
|
|
Weighted average shares of common stock outstanding
|
1,221
|
|
|
1,219
|
|
|
1,220
|
|
|
1,219
|
|
|
Net earnings/(loss)
|
$
|
0.74
|
|
|
$
|
0.51
|
|
|
$
|
1.44
|
|
|
$
|
1.95
|
|
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
$
|
899
|
|
|
$
|
619
|
|
|
$
|
1,753
|
|
|
$
|
2,376
|
|
|
Weighted average shares of common stock outstanding
|
1,221
|
|
|
1,219
|
|
|
1,220
|
|
|
1,219
|
|
|
Effect of dilutive equity awards
|
2
|
|
|
7
|
|
|
3
|
|
|
8
|
|
|
Weighted average shares of common stock outstanding, including dilutive effect
|
1,223
|
|
|
1,226
|
|
|
1,223
|
|
|
1,227
|
|
|
Net earnings/(loss)
|
$
|
0.74
|
|
|
$
|
0.50
|
|
|
$
|
1.43
|
|
|
$
|
1.94
|
|
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 13 million for the three months and 11 million for the nine months ended September 28, 2019 and 6 million for the three months and 5 million for the nine months ended September 29, 2018.
Note 20. Segment Reporting
Management evaluates segment performance based on several factors, including net sales and Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding 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, 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 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
|
(As Restated)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
United States
|
$
|
4,361
|
|
|
$
|
4,431
|
|
|
$
|
13,074
|
|
|
$
|
13,312
|
|
|
Canada
|
415
|
|
|
525
|
|
|
1,425
|
|
|
1,573
|
|
|
EMEA
|
612
|
|
|
634
|
|
|
1,862
|
|
|
2,026
|
|
|
Rest of World
|
688
|
|
|
793
|
|
|
2,080
|
|
|
2,466
|
|
|
Total net sales
|
$
|
6,076
|
|
|
$
|
6,383
|
|
|
$
|
18,441
|
|
|
$
|
19,377
|
|
Segment Adjusted EBITDA was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
|
(As Restated)
|
|
Segment Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
United States
|
$
|
1,155
|
|
|
$
|
1,176
|
|
|
$
|
3,539
|
|
|
$
|
3,969
|
|
|
Canada
|
107
|
|
|
144
|
|
|
371
|
|
|
451
|
|
|
EMEA
|
165
|
|
|
165
|
|
|
479
|
|
|
553
|
|
|
Rest of World
|
100
|
|
|
148
|
|
|
303
|
|
|
505
|
|
|
General corporate expenses
|
(58
|
)
|
|
(39
|
)
|
|
(192
|
)
|
|
(128
|
)
|
|
Depreciation and amortization (excluding integration and restructuring expenses)
|
(243
|
)
|
|
(245
|
)
|
|
(730
|
)
|
|
(679
|
)
|
|
Integration and restructuring expenses
|
(15
|
)
|
|
(32
|
)
|
|
(56
|
)
|
|
(215
|
)
|
|
Deal costs
|
(6
|
)
|
|
(3
|
)
|
|
(19
|
)
|
|
(19
|
)
|
|
Unrealized gains/(losses) on commodity hedges
|
(9
|
)
|
|
(6
|
)
|
|
30
|
|
|
(11
|
)
|
|
Impairment losses
|
(5
|
)
|
|
(217
|
)
|
|
(1,223
|
)
|
|
(451
|
)
|
|
Equity award compensation expense (excluding integration and restructuring expenses)
|
(11
|
)
|
|
(17
|
)
|
|
(26
|
)
|
|
(44
|
)
|
|
Operating income/(loss)
|
1,180
|
|
|
1,074
|
|
|
2,476
|
|
|
3,931
|
|
|
Interest expense
|
398
|
|
|
326
|
|
|
1,035
|
|
|
959
|
|
|
Other expense/(income)
|
(380
|
)
|
|
(71
|
)
|
|
(893
|
)
|
|
(181
|
)
|
|
Income/(loss) before income taxes
|
$
|
1,162
|
|
|
$
|
819
|
|
|
$
|
2,334
|
|
|
$
|
3,153
|
|
In the fourth quarter of 2018, 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 28, 2019
|
|
September 29, 2018
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
(As Restated)
|
|
|
|
(As Restated)
|
|
Condiments and sauces
|
$
|
1,611
|
|
|
$
|
1,629
|
|
|
$
|
4,850
|
|
|
$
|
5,113
|
|
|
Cheese and dairy
|
1,104
|
|
|
1,236
|
|
|
3,552
|
|
|
3,727
|
|
|
Ambient foods
|
623
|
|
|
612
|
|
|
1,782
|
|
|
1,866
|
|
|
Frozen and chilled foods
|
643
|
|
|
685
|
|
|
1,847
|
|
|
1,900
|
|
|
Meats and seafood
|
612
|
|
|
645
|
|
|
1,852
|
|
|
1,893
|
|
|
Refreshment beverages
|
397
|
|
|
387
|
|
|
1,190
|
|
|
1,197
|
|
|
Coffee
|
296
|
|
|
342
|
|
|
932
|
|
|
1,041
|
|
|
Infant and nutrition
|
120
|
|
|
172
|
|
|
387
|
|
|
596
|
|
|
Desserts, toppings and baking
|
246
|
|
|
244
|
|
|
693
|
|
|
714
|
|
|
Nuts and salted snacks
|
233
|
|
|
229
|
|
|
687
|
|
|
650
|
|
|
Other
|
191
|
|
|
202
|
|
|
669
|
|
|
680
|
|
|
Total net sales
|
$
|
6,076
|
|
|
$
|
6,383
|
|
|
$
|
18,441
|
|
|
$
|
19,377
|
|
Note 21. Supplemental Guarantor Information
Kraft Heinz fully and unconditionally guarantees the notes issued by our 100% owned operating subsidiary, Kraft Heinz Foods Company. See Note 19, Debt, to our consolidated financial statements for the year ended December 29, 2018 in our Annual Report on Form 10-K for additional descriptions of these guarantees. None of our other subsidiaries guarantee such 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 28, 2019
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
4,118
|
|
|
$
|
2,070
|
|
|
$
|
(112
|
)
|
|
$
|
6,076
|
|
|
Cost of products sold
|
—
|
|
|
2,742
|
|
|
1,499
|
|
|
(112
|
)
|
|
4,129
|
|
|
Gross profit
|
—
|
|
|
1,376
|
|
|
571
|
|
|
—
|
|
|
1,947
|
|
|
Selling, general and administrative expenses, excluding impairment losses
|
—
|
|
|
195
|
|
|
567
|
|
|
—
|
|
|
762
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Intangible asset impairment losses
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
195
|
|
|
572
|
|
|
—
|
|
|
767
|
|
|
Intercompany service fees and other recharges
|
—
|
|
|
719
|
|
|
(719
|
)
|
|
—
|
|
|
—
|
|
|
Operating income/(loss)
|
—
|
|
|
462
|
|
|
718
|
|
|
—
|
|
|
1,180
|
|
|
Interest expense
|
—
|
|
|
384
|
|
|
14
|
|
|
—
|
|
|
398
|
|
|
Other expense/(income)
|
—
|
|
|
12
|
|
|
(392
|
)
|
|
—
|
|
|
(380
|
)
|
|
Income/(loss) before income taxes
|
—
|
|
|
66
|
|
|
1,096
|
|
|
—
|
|
|
1,162
|
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
31
|
|
|
233
|
|
|
—
|
|
|
264
|
|
|
Equity in earnings/(losses) of subsidiaries
|
899
|
|
|
864
|
|
|
—
|
|
|
(1,763
|
)
|
|
—
|
|
|
Net income/(loss)
|
899
|
|
|
899
|
|
|
863
|
|
|
(1,763
|
)
|
|
898
|
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
Net income/(loss) excluding noncontrolling interest
|
$
|
899
|
|
|
$
|
899
|
|
|
$
|
864
|
|
|
$
|
(1,763
|
)
|
|
$
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
580
|
|
|
$
|
580
|
|
|
$
|
(258
|
)
|
|
$
|
(322
|
)
|
|
$
|
580
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended September 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
4,226
|
|
|
$
|
2,295
|
|
|
$
|
(138
|
)
|
|
$
|
6,383
|
|
|
Cost of products sold
|
—
|
|
|
2,819
|
|
|
1,608
|
|
|
(138
|
)
|
|
4,289
|
|
|
Gross profit
|
—
|
|
|
1,407
|
|
|
687
|
|
|
—
|
|
|
2,094
|
|
|
Selling, general and administrative expenses, excluding impairment losses
|
—
|
|
|
205
|
|
|
598
|
|
|
—
|
|
|
803
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Intangible asset impairment losses
|
—
|
|
|
—
|
|
|
217
|
|
|
—
|
|
|
217
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
205
|
|
|
815
|
|
|
—
|
|
|
1,020
|
|
|
Intercompany service fees and other recharges
|
—
|
|
|
975
|
|
|
(975
|
)
|
|
—
|
|
|
—
|
|
|
Operating income/(loss)
|
—
|
|
|
227
|
|
|
847
|
|
|
—
|
|
|
1,074
|
|
|
Interest expense
|
—
|
|
|
310
|
|
|
16
|
|
|
—
|
|
|
326
|
|
|
Other expense/(income)
|
—
|
|
|
(60
|
)
|
|
(11
|
)
|
|
—
|
|
|
(71
|
)
|
|
Income/(loss) before income taxes
|
—
|
|
|
(23
|
)
|
|
842
|
|
|
—
|
|
|
819
|
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
(41
|
)
|
|
242
|
|
|
—
|
|
|
201
|
|
|
Equity in earnings/(losses) of subsidiaries
|
619
|
|
|
600
|
|
|
—
|
|
|
(1,219
|
)
|
|
—
|
|
|
Net income/(loss)
|
619
|
|
|
618
|
|
|
600
|
|
|
(1,219
|
)
|
|
618
|
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
Net income/(loss) excluding noncontrolling interest
|
$
|
619
|
|
|
$
|
618
|
|
|
$
|
601
|
|
|
$
|
(1,219
|
)
|
|
$
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
446
|
|
|
$
|
446
|
|
|
$
|
441
|
|
|
$
|
(887
|
)
|
|
$
|
446
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Three Months Ended September 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously Reported
|
|
|
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, excluding impairment losses
|
—
|
|
|
205
|
|
|
598
|
|
|
—
|
|
|
803
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Intangible asset impairment losses
|
—
|
|
|
—
|
|
|
234
|
|
|
—
|
|
|
234
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
205
|
|
|
832
|
|
|
—
|
|
|
1,037
|
|
|
Intercompany service fees and other recharges
|
—
|
|
|
975
|
|
|
(975
|
)
|
|
—
|
|
|
—
|
|
|
Operating income/(loss)
|
—
|
|
|
246
|
|
|
824
|
|
|
—
|
|
|
1,070
|
|
|
Interest expense
|
—
|
|
|
311
|
|
|
16
|
|
|
—
|
|
|
327
|
|
|
Other expense/(income)
|
—
|
|
|
(59
|
)
|
|
(12
|
)
|
|
—
|
|
|
(71
|
)
|
|
Income/(loss) before income taxes
|
—
|
|
|
(6
|
)
|
|
820
|
|
|
—
|
|
|
814
|
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
(52
|
)
|
|
238
|
|
|
—
|
|
|
186
|
|
|
Equity in earnings/(losses) of subsidiaries
|
630
|
|
|
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 Nine Months Ended September 28, 2019
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
12,398
|
|
|
$
|
6,384
|
|
|
$
|
(341
|
)
|
|
$
|
18,441
|
|
|
Cost of products sold
|
—
|
|
|
8,130
|
|
|
4,612
|
|
|
(341
|
)
|
|
12,401
|
|
|
Gross profit
|
—
|
|
|
4,268
|
|
|
1,772
|
|
|
—
|
|
|
6,040
|
|
|
Selling, general and administrative expenses, excluding impairment losses
|
—
|
|
|
609
|
|
|
1,732
|
|
|
—
|
|
|
2,341
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
744
|
|
|
—
|
|
|
744
|
|
|
Intangible asset impairment losses
|
—
|
|
|
—
|
|
|
479
|
|
|
—
|
|
|
479
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
609
|
|
|
2,955
|
|
|
—
|
|
|
3,564
|
|
|
Intercompany service fees and other recharges
|
—
|
|
|
2,459
|
|
|
(2,459
|
)
|
|
—
|
|
|
—
|
|
|
Operating income/(loss)
|
—
|
|
|
1,200
|
|
|
1,276
|
|
|
—
|
|
|
2,476
|
|
|
Interest expense
|
—
|
|
|
982
|
|
|
53
|
|
|
—
|
|
|
1,035
|
|
|
Other expense/(income)
|
—
|
|
|
(53
|
)
|
|
(840
|
)
|
|
—
|
|
|
(893
|
)
|
|
Income/(loss) before income taxes
|
—
|
|
|
271
|
|
|
2,063
|
|
|
—
|
|
|
2,334
|
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
102
|
|
|
482
|
|
|
—
|
|
|
584
|
|
|
Equity in earnings/(losses) of subsidiaries
|
1,753
|
|
|
1,584
|
|
|
—
|
|
|
(3,337
|
)
|
|
—
|
|
|
Net income/(loss)
|
1,753
|
|
|
1,753
|
|
|
1,581
|
|
|
(3,337
|
)
|
|
1,750
|
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
Net income/(loss) excluding noncontrolling interest
|
$
|
1,753
|
|
|
$
|
1,753
|
|
|
$
|
1,584
|
|
|
$
|
(3,337
|
)
|
|
$
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
1,434
|
|
|
$
|
1,434
|
|
|
$
|
1,210
|
|
|
$
|
(2,644
|
)
|
|
$
|
1,434
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Nine Months Ended September 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
12,693
|
|
|
$
|
7,091
|
|
|
$
|
(407
|
)
|
|
$
|
19,377
|
|
|
Cost of products sold
|
—
|
|
|
8,157
|
|
|
4,922
|
|
|
(407
|
)
|
|
12,672
|
|
|
Gross profit
|
—
|
|
|
4,536
|
|
|
2,169
|
|
|
—
|
|
|
6,705
|
|
|
Selling, general and administrative expenses, excluding impairment losses
|
—
|
|
|
589
|
|
|
1,734
|
|
|
—
|
|
|
2,323
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
133
|
|
|
—
|
|
|
133
|
|
|
Intangible asset impairment losses
|
—
|
|
|
—
|
|
|
318
|
|
|
—
|
|
|
318
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
589
|
|
|
2,185
|
|
|
—
|
|
|
2,774
|
|
|
Intercompany service fees and other recharges
|
—
|
|
|
3,253
|
|
|
(3,253
|
)
|
|
—
|
|
|
—
|
|
|
Operating income/(loss)
|
—
|
|
|
694
|
|
|
3,237
|
|
|
—
|
|
|
3,931
|
|
|
Interest expense
|
—
|
|
|
908
|
|
|
51
|
|
|
—
|
|
|
959
|
|
|
Other expense/(income)
|
—
|
|
|
(236
|
)
|
|
55
|
|
|
—
|
|
|
(181
|
)
|
|
Income/(loss) before income taxes
|
—
|
|
|
22
|
|
|
3,131
|
|
|
—
|
|
|
3,153
|
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
(23
|
)
|
|
802
|
|
|
—
|
|
|
779
|
|
|
Equity in earnings/(losses) of subsidiaries
|
2,376
|
|
|
2,331
|
|
|
—
|
|
|
(4,707
|
)
|
|
—
|
|
|
Net income/(loss)
|
2,376
|
|
|
2,376
|
|
|
2,329
|
|
|
(4,707
|
)
|
|
2,374
|
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
Net income/(loss) excluding noncontrolling interest
|
$
|
2,376
|
|
|
$
|
2,376
|
|
|
$
|
2,331
|
|
|
$
|
(4,707
|
)
|
|
$
|
2,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
1,706
|
|
|
$
|
1,706
|
|
|
$
|
1,630
|
|
|
$
|
(3,336
|
)
|
|
$
|
1,706
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the Nine Months Ended September 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously Reported
|
|
|
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, excluding impairment losses
|
—
|
|
|
589
|
|
|
1,749
|
|
|
—
|
|
|
2,338
|
|
|
Goodwill impairment losses
|
—
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|
164
|
|
|
Intangible asset impairment losses
|
—
|
|
|
—
|
|
|
335
|
|
|
—
|
|
|
335
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
589
|
|
|
2,248
|
|
|
—
|
|
|
2,837
|
|
|
Intercompany service fees and other recharges
|
—
|
|
|
3,253
|
|
|
(3,253
|
)
|
|
—
|
|
|
—
|
|
|
Operating income/(loss)
|
—
|
|
|
721
|
|
|
3,159
|
|
|
—
|
|
|
3,880
|
|
|
Interest expense
|
—
|
|
|
911
|
|
|
51
|
|
|
—
|
|
|
962
|
|
|
Other expense/(income)
|
—
|
|
|
(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/(losses) of subsidiaries
|
2,379
|
|
|
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 Balance Sheets
As of September 28, 2019
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
834
|
|
|
$
|
1,481
|
|
|
$
|
—
|
|
|
$
|
2,315
|
|
|
Trade receivables, net
|
—
|
|
|
867
|
|
|
1,092
|
|
|
—
|
|
|
1,959
|
|
|
Receivables due from affiliates
|
—
|
|
|
1,437
|
|
|
854
|
|
|
(2,291
|
)
|
|
—
|
|
|
Dividends due from affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income taxes receivable
|
—
|
|
|
38
|
|
|
81
|
|
|
—
|
|
|
119
|
|
|
Inventories
|
—
|
|
|
2,179
|
|
|
979
|
|
|
—
|
|
|
3,158
|
|
|
Short-term lending due from affiliates
|
—
|
|
|
1,357
|
|
|
4,242
|
|
|
(5,599
|
)
|
|
—
|
|
|
Prepaid expenses
|
—
|
|
|
216
|
|
|
199
|
|
|
—
|
|
|
415
|
|
|
Other current assets
|
—
|
|
|
669
|
|
|
455
|
|
|
—
|
|
|
1,124
|
|
|
Assets held for sale
|
—
|
|
|
23
|
|
|
12
|
|
|
—
|
|
|
35
|
|
|
Total current assets
|
—
|
|
|
7,620
|
|
|
9,395
|
|
|
(7,890
|
)
|
|
9,125
|
|
|
Property, plant and equipment, net
|
—
|
|
|
4,392
|
|
|
2,534
|
|
|
—
|
|
|
6,926
|
|
|
Goodwill
|
—
|
|
|
11,066
|
|
|
24,760
|
|
|
—
|
|
|
35,826
|
|
|
Investments in subsidiaries
|
50,788
|
|
|
66,986
|
|
|
—
|
|
|
(117,774
|
)
|
|
—
|
|
|
Intangible assets, net
|
—
|
|
|
2,895
|
|
|
45,819
|
|
|
—
|
|
|
48,714
|
|
|
Long-term lending due from affiliates
|
—
|
|
|
207
|
|
|
2,000
|
|
|
(2,207
|
)
|
|
—
|
|
|
Other non-current assets
|
—
|
|
|
825
|
|
|
1,406
|
|
|
—
|
|
|
2,231
|
|
|
TOTAL ASSETS
|
$
|
50,788
|
|
|
$
|
93,991
|
|
|
$
|
85,914
|
|
|
$
|
(127,871
|
)
|
|
$
|
102,822
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
Current portion of long-term debt
|
—
|
|
|
1,928
|
|
|
617
|
|
|
—
|
|
|
2,545
|
|
|
Short-term lending due to affiliates
|
—
|
|
|
4,242
|
|
|
1,357
|
|
|
(5,599
|
)
|
|
—
|
|
|
Trade payables
|
—
|
|
|
2,602
|
|
|
1,554
|
|
|
—
|
|
|
4,156
|
|
|
Payables due to affiliates
|
—
|
|
|
854
|
|
|
1,437
|
|
|
(2,291
|
)
|
|
—
|
|
|
Accrued marketing
|
—
|
|
|
121
|
|
|
337
|
|
|
—
|
|
|
458
|
|
|
Interest payable
|
—
|
|
|
267
|
|
|
11
|
|
|
—
|
|
|
278
|
|
|
Dividends due to affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other current liabilities
|
—
|
|
|
1,019
|
|
|
639
|
|
|
—
|
|
|
1,658
|
|
|
Liabilities held for sale
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Total current liabilities
|
—
|
|
|
11,047
|
|
|
5,955
|
|
|
(7,890
|
)
|
|
9,112
|
|
|
Long-term debt
|
—
|
|
|
27,822
|
|
|
290
|
|
|
—
|
|
|
28,112
|
|
|
Long-term borrowings due to affiliates
|
—
|
|
|
2,000
|
|
|
207
|
|
|
(2,207
|
)
|
|
—
|
|
|
Deferred income taxes
|
—
|
|
|
1,415
|
|
|
10,595
|
|
|
—
|
|
|
12,010
|
|
|
Accrued postemployment costs
|
—
|
|
|
82
|
|
|
233
|
|
|
—
|
|
|
315
|
|
|
Other non-current liabilities
|
—
|
|
|
837
|
|
|
630
|
|
|
—
|
|
|
1,467
|
|
|
TOTAL LIABILITIES
|
—
|
|
|
43,203
|
|
|
17,910
|
|
|
(10,097
|
)
|
|
51,016
|
|
|
Redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Total shareholders’ equity
|
50,788
|
|
|
50,788
|
|
|
67,871
|
|
|
(117,774
|
)
|
|
51,673
|
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
131
|
|
|
—
|
|
|
131
|
|
|
TOTAL EQUITY
|
50,788
|
|
|
50,788
|
|
|
68,002
|
|
|
(117,774
|
)
|
|
51,804
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
50,788
|
|
|
$
|
93,991
|
|
|
$
|
85,914
|
|
|
$
|
(127,871
|
)
|
|
$
|
102,822
|
|
The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of December 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
202
|
|
|
$
|
928
|
|
|
$
|
—
|
|
|
$
|
1,130
|
|
|
Trade receivables, net
|
—
|
|
|
933
|
|
|
1,196
|
|
|
—
|
|
|
2,129
|
|
|
Receivables due from affiliates
|
—
|
|
|
870
|
|
|
341
|
|
|
(1,211
|
)
|
|
—
|
|
|
Income taxes receivable
|
—
|
|
|
701
|
|
|
9
|
|
|
(558
|
)
|
|
152
|
|
|
Inventories
|
—
|
|
|
1,783
|
|
|
884
|
|
|
—
|
|
|
2,667
|
|
|
Short-term lending due from affiliates
|
—
|
|
|
1,787
|
|
|
3,753
|
|
|
(5,540
|
)
|
|
—
|
|
|
Prepaid expenses
|
—
|
|
|
198
|
|
|
202
|
|
|
—
|
|
|
400
|
|
|
Other current assets
|
—
|
|
|
776
|
|
|
445
|
|
|
—
|
|
|
1,221
|
|
|
Assets held for sale
|
—
|
|
|
75
|
|
|
1,301
|
|
|
—
|
|
|
1,376
|
|
|
Total current assets
|
—
|
|
|
7,325
|
|
|
9,059
|
|
|
(7,309
|
)
|
|
9,075
|
|
|
Property, plant and equipment, net
|
—
|
|
|
4,524
|
|
|
2,554
|
|
|
—
|
|
|
7,078
|
|
|
Goodwill
|
—
|
|
|
11,067
|
|
|
25,436
|
|
|
—
|
|
|
36,503
|
|
|
Investments in subsidiaries
|
51,657
|
|
|
67,867
|
|
|
—
|
|
|
(119,524
|
)
|
|
—
|
|
|
Intangible assets, net
|
—
|
|
|
3,010
|
|
|
46,458
|
|
|
—
|
|
|
49,468
|
|
|
Long-term lending due from affiliates
|
—
|
|
|
—
|
|
|
2,000
|
|
|
(2,000
|
)
|
|
—
|
|
|
Other non-current assets
|
—
|
|
|
316
|
|
|
1,021
|
|
|
—
|
|
|
1,337
|
|
|
TOTAL ASSETS
|
$
|
51,657
|
|
|
$
|
94,109
|
|
|
$
|
86,528
|
|
|
$
|
(128,833
|
)
|
|
$
|
103,461
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
Current portion of long-term debt
|
—
|
|
|
363
|
|
|
14
|
|
|
—
|
|
|
377
|
|
|
Short-term lending due to affiliates
|
—
|
|
|
3,753
|
|
|
1,787
|
|
|
(5,540
|
)
|
|
—
|
|
|
Trade payables
|
—
|
|
|
2,563
|
|
|
1,590
|
|
|
—
|
|
|
4,153
|
|
|
Payables due to affiliates
|
—
|
|
|
341
|
|
|
870
|
|
|
(1,211
|
)
|
|
—
|
|
|
Accrued marketing
|
—
|
|
|
282
|
|
|
440
|
|
|
—
|
|
|
722
|
|
|
Interest payable
|
—
|
|
|
394
|
|
|
14
|
|
|
—
|
|
|
408
|
|
|
Other current liabilities
|
—
|
|
|
888
|
|
|
1,437
|
|
|
(558
|
)
|
|
1,767
|
|
|
Liabilities held for sale
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
|
Total current liabilities
|
—
|
|
|
8,584
|
|
|
6,228
|
|
|
(7,309
|
)
|
|
7,503
|
|
|
Long-term debt
|
—
|
|
|
29,872
|
|
|
898
|
|
|
—
|
|
|
30,770
|
|
|
Long-term borrowings due to affiliates
|
—
|
|
|
2,000
|
|
|
12
|
|
|
(2,012
|
)
|
|
—
|
|
|
Deferred income taxes
|
—
|
|
|
1,314
|
|
|
10,888
|
|
|
—
|
|
|
12,202
|
|
|
Accrued postemployment costs
|
—
|
|
|
89
|
|
|
217
|
|
|
—
|
|
|
306
|
|
|
Other non-current liabilities
|
—
|
|
|
593
|
|
|
309
|
|
|
—
|
|
|
902
|
|
|
TOTAL LIABILITIES
|
—
|
|
|
42,452
|
|
|
18,552
|
|
|
(9,321
|
)
|
|
51,683
|
|
|
Redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Total shareholders’ equity
|
51,657
|
|
|
51,657
|
|
|
67,855
|
|
|
(119,512
|
)
|
|
51,657
|
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
118
|
|
|
—
|
|
|
118
|
|
|
TOTAL EQUITY
|
51,657
|
|
|
51,657
|
|
|
67,973
|
|
|
(119,512
|
)
|
|
51,775
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
51,657
|
|
|
$
|
94,109
|
|
|
$
|
86,528
|
|
|
$
|
(128,833
|
)
|
|
$
|
103,461
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 28, 2019
(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
|
$
|
1,464
|
|
|
$
|
1,715
|
|
|
$
|
275
|
|
|
$
|
(1,464
|
)
|
|
$
|
1,990
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(293
|
)
|
|
(288
|
)
|
|
—
|
|
|
(581
|
)
|
|
Payments to acquire business, net of cash acquired
|
—
|
|
|
(201
|
)
|
|
2
|
|
|
—
|
|
|
(199
|
)
|
|
Net proceeds from/(payments on) intercompany lending activities
|
—
|
|
|
1,620
|
|
|
373
|
|
|
(1,993
|
)
|
|
—
|
|
|
Additional investments in subsidiaries
|
(19
|
)
|
|
(36
|
)
|
|
—
|
|
|
55
|
|
|
—
|
|
|
Return of capital
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Proceeds from sale of business, net of cash disposed
|
—
|
|
|
—
|
|
|
1,875
|
|
|
—
|
|
|
1,875
|
|
|
Other investing activities, net
|
—
|
|
|
60
|
|
|
(44
|
)
|
|
—
|
|
|
16
|
|
|
Net cash provided by/(used for) investing activities
|
(19
|
)
|
|
1,150
|
|
|
1,918
|
|
|
(1,938
|
)
|
|
1,111
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
—
|
|
|
(3,267
|
)
|
|
(5
|
)
|
|
—
|
|
|
(3,272
|
)
|
|
Proceeds from issuance of long-term debt
|
—
|
|
|
2,968
|
|
|
(1
|
)
|
|
—
|
|
|
2,967
|
|
|
Debt prepayment and extinguishment costs
|
—
|
|
|
(91
|
)
|
|
—
|
|
|
—
|
|
|
(91
|
)
|
|
Proceeds from issuance of commercial paper
|
—
|
|
|
377
|
|
|
—
|
|
|
—
|
|
|
377
|
|
|
Repayments of commercial paper
|
—
|
|
|
(377
|
)
|
|
—
|
|
|
—
|
|
|
(377
|
)
|
|
Net proceeds from/(payments on) intercompany borrowing activities
|
—
|
|
|
(373
|
)
|
|
(1,620
|
)
|
|
1,993
|
|
|
—
|
|
|
Dividends paid
|
(1,464
|
)
|
|
(1,464
|
)
|
|
—
|
|
|
1,464
|
|
|
(1,464
|
)
|
|
Other intercompany capital stock transactions
|
—
|
|
|
19
|
|
|
36
|
|
|
(55
|
)
|
|
—
|
|
|
Other financing activities, net
|
19
|
|
|
(23
|
)
|
|
(17
|
)
|
|
—
|
|
|
(21
|
)
|
|
Net cash provided by/(used for) financing activities
|
(1,445
|
)
|
|
(2,231
|
)
|
|
(1,607
|
)
|
|
3,402
|
|
|
(1,881
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
—
|
|
|
(2
|
)
|
|
(38
|
)
|
|
—
|
|
|
(40
|
)
|
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
|
—
|
|
|
632
|
|
|
548
|
|
|
—
|
|
|
1,180
|
|
|
Balance at beginning of period
|
—
|
|
|
202
|
|
|
934
|
|
|
—
|
|
|
1,136
|
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
834
|
|
|
$
|
1,482
|
|
|
$
|
—
|
|
|
$
|
2,316
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used for) operating activities
|
$
|
2,421
|
|
|
$
|
825
|
|
|
$
|
63
|
|
|
$
|
(2,431
|
)
|
|
$
|
878
|
|
|
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
|
—
|
|
|
(245
|
)
|
|
(3
|
)
|
|
—
|
|
|
(248
|
)
|
|
Net proceeds from/(payments on) intercompany lending activities
|
—
|
|
|
1,074
|
|
|
185
|
|
|
(1,259
|
)
|
|
—
|
|
|
Additional investments in subsidiaries
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
41
|
|
|
—
|
|
|
Return of capital
|
7
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
Proceeds from sale of business, net of cash disposed
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
Other investing activities, net
|
—
|
|
|
14
|
|
|
(1
|
)
|
|
—
|
|
|
13
|
|
|
Net cash provided by/(used for) investing activities
|
7
|
|
|
551
|
|
|
1,152
|
|
|
(1,225
|
)
|
|
485
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
—
|
|
|
(2,546
|
)
|
|
(160
|
)
|
|
—
|
|
|
(2,706
|
)
|
|
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
|
(2,421
|
)
|
|
(2,421
|
)
|
|
(10
|
)
|
|
2,431
|
|
|
(2,421
|
)
|
|
Other intercompany capital stock transactions
|
—
|
|
|
(7
|
)
|
|
41
|
|
|
(34
|
)
|
|
—
|
|
|
Other financing activities, net
|
(7
|
)
|
|
(17
|
)
|
|
(11
|
)
|
|
—
|
|
|
(35
|
)
|
|
Net cash provided by/(used for) financing activities
|
(2,428
|
)
|
|
(1,651
|
)
|
|
(1,214
|
)
|
|
3,656
|
|
|
(1,637
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
—
|
|
|
—
|
|
|
(128
|
)
|
|
—
|
|
|
(128
|
)
|
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
|
—
|
|
|
(275
|
)
|
|
(127
|
)
|
|
—
|
|
|
(402
|
)
|
|
Balance at beginning of period
|
—
|
|
|
644
|
|
|
1,125
|
|
|
—
|
|
|
1,769
|
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
369
|
|
|
$
|
998
|
|
|
$
|
—
|
|
|
$
|
1,367
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 29, 2018
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously Reported
|
|
|
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 capital
|
7
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
Proceeds from sale of business, net of cash disposed
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
Other investing activities, net
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
Net cash provided by/(used for) investing activities
|
7
|
|
|
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
|
(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 following tables provide a reconciliation of cash and cash equivalents, as reported on our condensed consolidating balance sheets, to cash, cash equivalents, and restricted cash, as reported on our condensed consolidating statements of cash flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
834
|
|
|
$
|
1,481
|
|
|
$
|
—
|
|
|
$
|
2,315
|
|
|
Restricted cash included in other current assets
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Restricted cash included in other non-current assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash, cash equivalents, and restricted cash
|
$
|
—
|
|
|
$
|
834
|
|
|
$
|
1,482
|
|
|
$
|
—
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2018
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
202
|
|
|
$
|
928
|
|
|
$
|
—
|
|
|
$
|
1,130
|
|
|
Restricted cash included in other current assets
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Restricted cash included in other non-current assets
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
Cash, cash equivalents, and restricted cash
|
$
|
—
|
|
|
$
|
202
|
|
|
$
|
934
|
|
|
$
|
—
|
|
|
$
|
1,136
|
|