Notes to Consolidated Financial Statements
Note 1. Background and Basis of Presentation
Description of the Company
We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products throughout the world.
Organization
On July 2, 2015 (the “2015 Merger Date”), through a series of transactions, we consummated the merger of Kraft Foods Group, Inc. (“Kraft”) with and into a wholly-owned subsidiary of H.J. Heinz Holding Corporation (“Heinz”) (the “2015 Merger”). At the closing of the 2015 Merger, Heinz was renamed The Kraft Heinz Company (“Kraft Heinz”). Before the consummation of the 2015 Merger, Heinz was controlled by Berkshire Hathaway Inc. ("Berkshire Hathaway") and 3G Global Food Holdings, L.P. (“3G Capital”) (together, the "Sponsors"), following their acquisition of H. J. Heinz Company (the “2013 Merger”) on June 7, 2013. See Note 2,
Merger and Acquisition
, for additional information on the 2015 Merger.
Immediately prior to the consummation of the 2015 Merger, each share of Heinz issued and outstanding common stock was reclassified and changed into
0.443332
of a share of Kraft Heinz common stock. All share and per share amounts in this Annual Report on Form 10-K, including the consolidated financial statements and related notes have been retroactively adjusted for all historical periods presented prior to the 2015 Merger Date to give effect to this conversion, including reclassifying an amount equal to the change in value of common stock to additional paid-in capital. In the 2015 Merger, all outstanding shares of Kraft common stock were converted into the right to receive, on a
one
-for-one basis, shares of Kraft Heinz common stock. Deferred shares and restricted shares of Kraft were converted to deferred shares and restricted shares of Kraft Heinz, as applicable. In addition, upon the completion of the 2015 Merger, the Kraft shareholders of record immediately prior to the closing of the 2015 Merger received a special cash dividend of
$16.50
per share.
The Sponsors initially owned
850 million
shares of common stock in Heinz. Berkshire Hathaway also held a warrant to purchase
46 million
additional shares of common stock, which it exercised in June 2015. Additionally, in connection with the 2013 Merger, we issued an
$8.0 billion
preferred stock investment in Heinz which entitled Berkshire Hathaway to a
9.00%
annual dividend. Prior to, but in connection with, the 2015 Merger, the Sponsors made equity investments whereby they purchased an additional
500 million
newly issued shares of Heinz common stock for an aggregate purchase price of
$10.0 billion
.
Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include The Kraft Heinz Company, as well as our wholly-owned and majority-owned subsidiaries. All intercompany transactions are eliminated.
Use of Estimates:
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make accounting policy elections, estimates, and assumptions that affect a number of amounts in our consolidated financial statements. We base our estimates on historical experience and other assumptions that we believe are reasonable. 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 consolidated financial statements.
Translation of Foreign Currencies:
For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of accumulated other comprehensive income/(losses) on the balance sheet. Gains and losses from foreign currency transactions are included in net income/(loss) for the period.
Highly Inflationary Accounting:
We apply highly inflationary accounting if the cumulative inflation rate in an economy for a three-year period meets or exceeds 100 percent. Under highly inflationary accounting, the financial statements of a subsidiary are remeasured into our reporting currency (U.S. dollars) based on the legally available exchange rate at which we expect to settle the underlying transactions. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in net income/(loss), rather than accumulated other comprehensive income/(losses) on the balance sheet, until such time as the economy is no longer considered highly inflationary. Certain non-monetary assets and liabilities are recorded at the applicable historical exchange rates. We apply highly inflationary accounting to the results of our Venezuelan subsidiary.
Cash and Cash Equivalents:
Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less.
Inventories:
Inventories are stated at the lower of cost or net realizable value. We value inventories primarily using the average cost method.
Property, Plant and Equipment:
Property, plant and equipment are stated at historical cost and depreciated on the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from
three
to
20
years and buildings and improvements over periods up to
40
years. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed
seven
years. We review long-lived assets for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. Such conditions include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.
Goodwill and Intangible Assets
:
We test goodwill and indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. The first step of the goodwill impairment test compares the reporting unit’s estimated fair value with its carrying value. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second step would be applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill would be considered impaired and would be reduced to its implied fair value. We test indefinite-lived intangible assets for impairment by comparing the fair value of each intangible asset with its carrying value. If the carrying value exceeds fair value, the intangible asset would be considered impaired and would be reduced to fair value.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors. If current expectations of future growth rates are not met or market factors outside of our control, such as discount rates, change significantly, then one or more of our reporting units or intangible assets might become impaired in the future. Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate.
We performed our annual impairment testing in the second quarter of 2017. See Note 7,
Goodwill and Intangible Assets
, for additional information.
Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited, and are reviewed when appropriate for possible impairment.
Revenue Recognition:
We recognize revenues when title and risk of loss pass to our customers. We record revenues net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. We also record provisions for estimated product returns and customer allowances as reductions to revenues within the same period that the revenue is recognized. We base these estimates principally on historical and current period experience factors.
Advertising, Consumer Incentives, and Trade Promotions:
We promote our products with advertising, consumer incentives, and trade promotions. Consumer incentives and trade promotions include, but are not limited to, discounts, coupons, rebates, performance based in-store display activities, and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization, redemption rates, or current period experience factors. We review and adjust these estimates each quarter based on actual experience and other information.
Advertising expenses are recorded in selling, general and administrative expenses (“SG&A”). For interim reporting purposes, we charge advertising to operations as a percentage of estimated full year sales activity and marketing costs. We review and adjust these estimates each quarter based on actual experience and other information. We recorded advertising expenses of
$629 million
in 2017,
$708 million
in 2016, and
$464 million
in 2015.
Research and Development Expense:
We expense costs as incurred for product research and development within SG&A.
Research and development expense was approximately
$93 million
in 2017,
$120 million
in 2016, and
$105 million
in 2015.
Postemployment Benefit Plans:
We maintain various retirement plans for the majority of our employees. These include pension benefits, postretirement health care benefits, and defined contribution benefits. The cost of these plans is charged to expense over the working life of the covered employees. We generally amortize net actuarial gains or losses in future periods within cost of products sold and SG&A.
Financial Instruments:
As we source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use a variety of risk management strategies and financial instruments to manage commodity price, foreign currency exchange rate, and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. One way we do this is through actively hedging our risks through the use of derivative instruments. As a matter of policy, we do not use highly leveraged derivative instruments, nor do we use financial instruments for speculative purposes.
Derivatives are recorded on our consolidated balance sheets at fair value, which fluctuates based on changing market conditions.
Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others are not designated as hedging instruments and are marked to market through earnings. The effective portion of gains and losses on cash flow hedges are deferred as a component of accumulated other comprehensive income/(losses) and are recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. We also designate certain derivatives and non-derivatives as net investment hedges to hedge the net assets of certain foreign subsidiaries which are exposed to volatility in foreign currency exchange rates. The fair value of these derivatives and remeasurements of our non-derivatives designated as net investment hedges are calculated each period with changes reported in foreign currency translation adjustment within accumulated other comprehensive income/(losses). Such amounts will remain in accumulated other comprehensive income/(losses) until the complete or substantially complete liquidation of our investment in the underlying foreign operations. The income statement classification of gains and losses related to derivative instruments not designated as hedging instruments is determined based on the underlying intent of the contracts. Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities. All other cash flows related to derivative instruments are generally classified within operating activities. For additional information on derivative activity within our operating results, see Note 11,
Financial Instruments
.
To qualify for hedge accounting, a specified level of hedging effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. Any hedging ineffectiveness is recognized in net earnings when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. We formally document our risk management objectives, strategies for undertaking the various hedge transactions, the nature of and relationships between the hedging instruments and hedged items, and method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. If it becomes probable that a forecasted transaction will not occur, the hedge will no longer be effective and all of the derivative gains or losses would be recognized in earnings in the current period.
Unrealized gains and losses on our commodity derivatives not designated as hedging instruments are recorded in general corporate expenses until realized. Once realized, the gains and losses are recorded within the applicable segment operating results.
When we use financial instruments, we are exposed to credit risk that a counterparty might fail to fulfill its performance obligations under the terms of our agreement. We minimize our credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure we have with each counterparty, and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of greater than one year be governed by an International Swaps and Derivatives Association master agreement. We are also exposed to market risk as the value of our financial instruments might be adversely affected by a change in foreign currency exchange rates, commodity prices, or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use and the degree of market risk that we hedge with derivative instruments.
Foreign currency cash flow hedges:
We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. Our principal foreign currency exposures that are hedged include the British pound sterling, euro, and Canadian dollar. These instruments include forward foreign exchange contracts. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment. We exclude forward points from the assessment and measurement of hedge ineffectiveness and report such amounts in current period net income as interest expense.
Net investment hedges:
We have numerous investments in our foreign subsidiaries, the net assets of which are exposed to volatility in foreign currency exchange rates. We manage this risk by utilizing derivative and non-derivative instruments, including cross-currency swap contracts and certain foreign denominated debt designated as net investment hedges.
Interest rate cash flow hedges:
From time to time, we have used derivative instruments, including interest rate swaps, as part of our interest rate risk management strategy. We have primarily used interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations. Substantially all of these derivative instruments have been highly effective and have qualified for hedge accounting treatment.
Commodity derivatives:
We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity purchase contracts primarily for coffee beans, meat products, sugar, wheat products, corn products, vegetable oils, cocoa products, and dairy products. These commodity purchase contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to economically hedge the price of certain commodity costs, including coffee beans, meat products, sugar, wheat products, corn products, vegetable oils, cocoa products, dairy products, diesel fuel, and packaging products. We do not designate these commodity contracts as hedging instruments. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to economically cross hedge a commodity exposure.
Income Taxes:
We recognize income taxes based on amounts refundable or payable for the current year and record deferred tax assets or liabilities for any difference between U.S. GAAP accounting and tax reporting. We also recognize deferred tax assets for temporary differences, operating loss carryforwards, and tax credit carryforwards. Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss and other carryforwards, is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods.
We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect income in the quarter of such change.
We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, we consider future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, we would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. The resolution of tax reserves and changes in valuation allowances could be material to our results of operations for any period, but is not expected to be material to our financial position.
Common Stock and Preferred Stock Dividends:
Dividends are recorded as a reduction to retained earnings. When we have an accumulated deficit, dividends are recorded as a reduction of additional paid-in capital.
New Accounting Pronouncements
Accounting Standards Adopted in the Current Year:
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“ASU”) 2016-09 related to equity-based award accounting and presentation. Under this guidance, excess tax benefits upon the exercise of share- based payment awards are recognized in our tax provision rather than within equity. Cash flows related to excess tax benefits are classified as operating activities rather than financing activities. Additionally, cash flows related to employee tax withholdings on restricted share vesting are classified as financing activities. This ASU became effective in the first quarter of 2017. We adopted the guidance related to excess tax benefits on a prospective basis. As a result, we
recognized a tax benefit of
$22 million
in our consolidated statement of income for 2017 related to our excess tax benefits upon the exercise of share-based payment awards. We retrospectively adopted the guidance related to cash flow classification of employee tax withholdings on restricted share vesting. This guidance did not have a material impact on our consolidated statement of cash flows for 2016. The impact on our consolidated statement of cash flows for 2015 was a
$31 million
decrease to cash flows provided by financing activities and a corresponding increase to cash flows provided by operating activities.
Our equity award compensation cost continues to reflect estimated forfeitures.
In August 2016, the FASB issued ASU 2016-15 related to the classification of certain cash payments and cash receipts on the statement of cash flows. This ASU provided guidance on eight specific cash flow classification matters, which must be adopted in the same period using a retrospective transition method. We early adopted this ASU in the first quarter of 2017. We now classify consideration received for beneficial interest obtained for transferring trade receivables in securitization transactions as investing activities instead of operating activities. Accordingly, we reclassified cash receipts from the payments on sold receivables (which are cash receipts on the underlying trade receivables that have already been securitized) to cash provided by investing activities (from cash provided by operating activities). The impact on our consolidated statement of cash flows was
$2.6 billion
for 2016, and
$1.3 billion
for 2015. In connection with the adoption of ASU 2016-15, we also corrected other immaterial cash flow misstatements within operating activities, which had misstated the amount of beneficial interest obtained in the non-cash exchange from the securitization of trade receivables. Additionally, we now classify cash payments for debt prepayment and debt extinguishment costs as cash outflows from financing activities rather than cash outflows from operating activities. The impact on our consolidated statement of cash flows for 2015 was a
$105 million
decrease to cash provided by financing activities and a corresponding increase to cash provided by operating activities. There was no impact on our consolidated statement of cash flows for 2016.
In November 2016, the FASB issued ASU 2016-18 requiring the statement of cash flows to explain the change in restricted cash and restricted cash equivalents, in addition to cash and cash equivalents. We early adopted this ASU in the first quarter of 2017. Accordingly, we
restated our cash and cash equivalents balances in the consolidated statements of cash flows to include restricted cash of
$51 million
at
December 31, 2016
,
$75 million
at
January 3, 2016
, and
$12 million
at
December 28, 2014.
Additionally, cash provided by investing activities in 2016
decreased by
$24 million
and cash used for investing activities in 2015 decreased by
$64 million
. As required by the ASU, we have provided a reconciliation from cash and cash equivalents as presented on our condensed consolidated balance sheets to cash, cash equivalents, and restricted cash as reported on our condensed consolidated statements of cash flows. See Note 4,
Restricted Cash
, for this reconciliation, as well as a discussion of the nature of our restricted cash balances.
Accounting Standards Not Yet Adopted:
In May 2014, the FASB issued ASU 2014-09, which superseded previously existing revenue recognition guidance. Under this ASU, companies will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the company expects to be entitled to in exchange for those goods or services.
This ASU will be effective beginning in the first quarter of our fiscal year 2018. The ASU may be applied using a full retrospective method or a modified retrospective transition method, with a cumulative-effect adjustment as of the date of adoption. The ASU also provides for certain practical expedients, including the option to expense as incurred the incremental costs of obtaining a contract, if the contract period is for one year or less. We plan to use this practical expedient upon adoption of this ASU; the impact is expected to be insignificant as this expedient aligns with our current practice. Additionally, we plan to make the following policy elections upon adoption of this ASU in the first quarter of 2018: (i) we will account for shipping and handling costs as contract fulfillment costs, and (ii) we will exclude taxes imposed on and collected from customers in revenue producing transactions (e.g, sales, use, and value added taxes) from the transaction price.
We expect that the impact of adopting this guidance will be immaterial to our financial statements and related disclosures.
There will be no impact to net income upon adoption of this ASU. We will adopt this ASU using the full retrospective method on the first day of our fiscal year 2018.
In February 2016, the FASB issued ASU 2016-02, which superseded previously existing leasing guidance. The ASU is intended to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The new guidance requires lessees to reflect most leases on their balance sheets as assets and obligations. This ASU will be effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. While we are still evaluating the impact this ASU will have on our financial statements and related disclosures, we have completed our scoping reviews and have made progress in our assessment phase. We have identified our significant leases by geography and by asset type as well as our leasing processes which will be impacted by the new standard. Furthermore, we have developed a data extraction strategy, made significant progress on lease data collection efforts, and identified an accounting system to support the future state leasing process. We have also made progress in developing the policy elections we will make upon adoption. We expect that our financial statement disclosures will be expanded to present additional details of our leasing arrangements. At this time, we are unable to reasonably estimate the expected increase in assets and liabilities on our condensed consolidated balance sheets upon adoption. We will adopt this ASU on the first day of our fiscal year 2019.
In October 2016, the FASB issued
ASU 2016-16 related to the income tax accounting impacts of intra-entity transfers of assets other than inventory
, such as intellectual property and property, plant and equipment.
Under the new accounting guidance, current and deferred income taxes should be recognized upon transfer of the assets. Previously, recognition of current and deferred income taxes was prohibited until the asset was sold to an external party.
This ASU will be effective beginning in the first quarter of our fiscal year 2018. The new guidance must be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. We will adopt this ASU on the first day of our fiscal year 2018.
While we are still evaluating the impact of this ASU, we currently anticipate a cumulative effect adjustment to retained earnings of approximately
$100 million
upon adoption.
In January 2017, the FASB issued ASU 2017-04 related to goodwill impairment testing. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entities that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test; however, additional disclosure will be required of those entities. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance must be adopted on a prospective basis. While we are still evaluating the timing of adoption, we currently do not expect this ASU to have a material impact on our financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01 clarifying the definition of a business used in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The ASU provides a screen for entities to determine if an integrated set of assets and activities (“set”) is not a business.
If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If this screen is not met, the entity then determines if the set meets the minimum requirement of a business. For a set to be a business, it must include an input and a substantive process which together significantly contribute to the ability to create outputs. The current guidance does not specify the minimum processes that are required for a set be a business.
The ASU also updates the definition of outputs to be the result of inputs and processes applied to those inputs that provide goods or services to customers, investment income (such as dividends or interest), or other revenues. This ASU will be effective beginning in the first quarter of our fiscal year 2018 and must be adopted on a prospective basis. We will adopt this ASU on the first day of our fiscal year 2018. We currently expect the adoption of this ASU to result in more transactions accounted for as asset acquisitions or disposals.
We currently cannot reasonably estimate the impact that adoption of this ASU will have on our financial statements and related disclosures as it will depend on the facts and circumstances of individual transactions.
In March 2017, the FASB issued
ASU 2017-07 related to the presentation of net periodic benefit cost (pension and postretirement cost)
. This ASU will be effective beginning in the first quarter of our fiscal year 2018.
Under the new guidance, the service cost component of net periodic benefit cost must be presented in the same statement of income line item as other employee compensation costs arising from services rendered by employees during the period. Other components of net periodic benefit cost must be disaggregated from the service cost component in the statements of income and must be presented outside the operating income subtotal.
Additionally, only the service cost component will be eligible for capitalization in assets. The new guidance must be applied retrospectively for the statement of income presentation of service cost components and other net periodic benefit cost components and prospectively for the capitalization of service cost components. There is a practical expedient that allows us to use historical amounts disclosed in our
Postemployment Benefits
footnote as an estimation basis for retrospectively applying the statement of income presentation requirements. We plan to use this practical expedient when we adopt this ASU on the first day of our fiscal year 2018.
The retrospective impact of adopting ASU 2017-07 in 2018 is expected to be (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Increase/(decrease) to cost of products sold
|
$
|
558
|
|
|
$
|
373
|
|
|
$
|
202
|
|
Increase/(decrease) to selling, general and administrative expenses
|
78
|
|
|
93
|
|
|
(30
|
)
|
Increase/(decrease) to operating income
(a)
|
(636
|
)
|
|
(466
|
)
|
|
(172
|
)
|
|
|
(a)
|
Includes amortization of prior service costs/(credits), curtailments, special/contractual termination benefits, and certain settlements. These components of net pension and postretirement cost/(benefit) are excluded from Segment Adjusted EBITDA and totaled approximately
$(480) million
in 2017,
$(340) million
in 2016, and
$(120) million
in 2015.
|
In August 2017, the FASB issued ASU 2017-12 related to accounting for hedging activities. This guidance will impact the accounting for our financial (i.e., foreign exchange and interest rate) and non-financial (i.e., commodity) hedging activities. Key components of this ASU that could impact us are as follows:
|
|
•
|
Grants the ability to hedge the risk associated with the change in a contractually specified component of the purchase or sale of a non-financial item instead of the total contractual price, which could allow more commodity contracts to qualify for hedge accounting;
|
|
|
•
|
Requires us to defer the entire change in value of the derivative, including the effective and ineffective portion, into other comprehensive income until the hedged item impacts net income. When released, the deferred hedge gains and losses, including the ineffective portion, will be recognized in the same statement of income line affected by the hedged item;
|
|
|
•
|
Allows us to recognize changes in the fair value of excluded components in other comprehensive income (which will be amortized into net income over the life of the derivative) or in net income in the related period;
|
|
|
•
|
Changes hedge effectiveness testing, including timing and allowable methods of testing; and,
|
|
|
•
|
Requires additional tabular disclosures in the footnotes to the financial statements.
|
The method for adopting the revised standard is modified retrospective. This ASU will be effective beginning in the first quarter of our fiscal year 2019. Early adoption is permitted, including in an interim period. We are currently evaluating the timing of adoption and the impact this ASU will have on our financial statements and related disclosures.
Note 2. Merger and Acquisition
Transaction Overview:
As discussed in Note 1,
Background and Basis of Presentation
, Heinz merged with Kraft on July 2, 2015. The Kraft businesses manufacture and market food and beverage products, including cheese, meats, refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts, dressings, and other grocery products, primarily in the United States and Canada. Following the 2015 Merger Date, the operating results of the Kraft businesses have been included in our consolidated financial statements. For the period from the 2015 Merger Date through January 3, 2016, Kraft's net sales were
$8.5 billion
and net income was
$478 million
.
The 2015 Merger was accounted for under the acquisition method of accounting for business combinations and Heinz was considered to be the acquiring company. Under the acquisition method of accounting, total consideration exchanged was (in millions):
|
|
|
|
|
Aggregate fair value of Kraft common stock
|
$
|
42,502
|
|
$16.50 per share special cash dividend
|
9,782
|
|
Fair value of replacement equity awards
|
353
|
|
Total consideration exchanged
|
$
|
52,637
|
|
Valuation Assumptions and Purchase Price Allocation:
We utilized estimated fair values at the 2015 Merger Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. This allocation was final as of July 3, 2016.
The final purchase price allocation to assets acquired and liabilities assumed in the transaction was (in millions):
|
|
|
|
|
Cash
|
$
|
314
|
|
Other current assets
|
3,423
|
|
Property, plant and equipment
|
4,179
|
|
Identifiable intangible assets
|
47,771
|
|
Other non-current assets
|
214
|
|
Trade and other payables
|
(3,026
|
)
|
Long-term debt
|
(9,286
|
)
|
Net postemployment benefits and other non-current liabilities
|
(4,739
|
)
|
Deferred income tax liabilities
|
(16,675
|
)
|
Net assets acquired
|
22,175
|
|
Goodwill on acquisition
|
30,462
|
|
Total consideration
|
52,637
|
|
Fair value of shares exchanged and equity awards
|
42,855
|
|
Total cash consideration paid to Kraft shareholders
|
9,782
|
|
Cash and cash equivalents of Kraft at the 2015 Merger Date
|
314
|
|
Acquisition of business, net of cash on hand
|
$
|
9,468
|
|
The 2015 Merger resulted in
$30.5 billion
of non tax deductible goodwill relating principally to synergies expected to be achieved from the combined operations and planned growth in new markets. Goodwill has been allocated to our segments as shown in Note 7,
Goodwill and Intangible Assets
.
The purchase price allocation to identifiable intangible assets acquired was:
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted Average Life
|
|
(in millions of dollars)
|
|
(in years)
|
Indefinite-lived trademarks
|
$
|
43,104
|
|
|
|
Definite-lived trademarks
|
1,690
|
|
|
24
|
Customer-related assets
|
2,977
|
|
|
29
|
Total
|
$
|
47,771
|
|
|
|
We valued trademarks using either the excess earnings method or relief from royalty method, which are both variations of the income approach. We used the excess earnings method for our most significant trademarks due to their impact on the cash flows of the business and used the relief from royalty method for the remaining trademarks and licenses. For customer relationships, we used the distributor method, a variation of the excess earnings method that uses distributor-based inputs for margins and contributory asset charges.
Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each indefinite-lived or 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 July 2, 2015 to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as we determined that they represented the fair value of those items at the 2015 Merger Date.
We valued finished goods and work-in-process inventory using a net realizable value approach, which resulted in a step-up of
$347 million
that was recognized in cost of products sold in the period from the 2015 Merger Date to September 27, 2015 as the related inventory was sold. Raw materials and packaging inventory was valued using the replacement cost approach.
We valued property, plant and equipment using a combination of the income approach, the market approach and the cost approach, which is based on current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors.
Deferred income tax assets and liabilities as of the 2015 Merger Date represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases.
Pro Forma Results:
Our unaudited pro forma results, prepared in accordance with ASC 805, as if Kraft had been acquired as of December 30, 2013 were (in millions, except per share data):
|
|
|
|
|
|
January 3,
2016
(53 weeks)
|
Net sales
|
$
|
27,447
|
|
Net income
|
1,761
|
|
Basic earnings per share
|
0.72
|
|
Diluted earnings per share
|
0.70
|
|
The unaudited pro forma results include certain purchase accounting adjustments. We have made pro forma adjustments to exclude deal costs of
$166 million
(
$102 million
net of tax) and
$347 million
(
$213 million
net of tax) of non-cash costs related to the fair value step-up of inventory (“Inventory Step-up Costs”) from 2015, because such costs are non-recurring and are directly attributable to the 2015 Merger.
The unaudited pro forma results do not include any anticipated cost savings or other effects of future restructuring efforts. Unaudited pro forma amounts are not necessarily indicative of results had the 2015 Merger occurred on December 30, 2013 or of future results.
Note 3. Integration and Restructuring Expenses
As part of our restructuring activities, we incur expenses that qualify as exit and disposal costs under U.S. GAAP. These include severance and employee benefit costs and other exit costs. Severance and employee benefit costs primarily relate to cash severance, non-cash severance, including accelerated equity award compensation expense, and pension and other termination benefits. Other exit costs primarily relate to lease and contract terminations. We also incur expenses that are an integral component of, and directly attributable to, our restructuring activities, which do not qualify as exit and disposal costs under U.S. GAAP. These include asset-related costs and other implementation costs. Asset-related costs primarily relate to accelerated depreciation and asset impairment charges. Other implementation costs primarily relate to start-up costs of new facilities, professional fees, asset relocation costs, and costs to exit facilities.
Employee severance and other termination benefit packages are primarily determined based on established benefit arrangements, local statutory requirements, or historical benefit practices. We recognize the contractual component of these benefits when payment is probable and estimable; additional elements of severance and termination benefits associated with non-recurring benefits are recognized ratably over each employee’s required future service period. Charges for accelerated depreciation are recognized on long-lived assets that will be taken out of service before the end of their normal service, in which case depreciation estimates are revised to reflect the use of the asset over its shortened useful life. Asset impairments establish a new fair value basis for assets held for disposal or sale and those assets are written down to expected net realizable value if carrying value exceeds fair value. All other costs are recognized as incurred.
Integration Program:
Following the 2015 Merger, we announced a multi-year program (the “Integration Program”) designed to reduce costs, streamline and simplify our operating structure as well as optimize our production and supply chain network across our businesses in the United States and Canada segments.
We expect to incur pre-tax costs of approximately
$2.1 billion
related to the Integration Program. These pre-tax costs are comprised of the following categories:
|
|
•
|
Organization costs (approximately
$400 million
) associated with streamlining and simplifying our operating structure, resulting in workforce reduction (primarily severance and employee benefit costs).
|
|
|
•
|
Footprint costs (approximately
$1.3 billion
) associated with optimizing our production and supply chain network, resulting in workforce reduction and facility closures and consolidations (primarily asset-related costs and severance and employee benefit costs).
|
|
|
•
|
Other costs (approximately
$400 million
) incurred as a direct result of integration activities, including other exit costs (primarily lease and contract terminations) and other implementation costs (primarily professional services and other third-party fees).
|
Approximately
60%
of the Integration Program costs will be reflected in cost of products sold and approximately
60%
will be cash expenditures.
In 2017, we substantially completed our Integration Program. Overall, as part of the Integration Program, we have closed net
six
factories and consolidated our distribution network. We expect to eliminate approximately
5,200
positions,
4,900
of whom have left the Company as of
December 30, 2017
. The Integration Program liability at
December 30, 2017
related primarily to the elimination of general salaried and factory positions across the United States and Canada.
As of
December 30, 2017
, we have incurred cumulative costs of
$2,055 million
, including
$339 million
in 2017,
$887 million
in 2016, and
$829 million
in 2015. The
$2,055 million
of cumulative costs included
$539 million
of severance and employee benefit costs,
$858 million
of non-cash asset-related costs,
$550 million
of other implementation costs, and
$108 million
of other exit costs. The related amounts incurred in 2017 were a
$142 million
credit related to severance and employee benefit costs,
$208 million
of non-cash asset-related costs,
$260 million
of other implementation costs, and
$13 million
of other exit costs.
We expect to incur further Integration Program costs in 2018.
Our liability balance for Integration Program costs that qualify as exit and disposal costs under U.S. GAAP (i.e., severance and employee benefit costs and other exit costs), was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Benefit Costs
|
|
Other Exit Costs
(a)
|
|
Total
|
Balance at December 31, 2016
|
$
|
99
|
|
|
$
|
10
|
|
|
$
|
109
|
|
Charges/(credits)
|
(142
|
)
|
|
13
|
|
|
(129
|
)
|
Cash payments
|
(70
|
)
|
|
(7
|
)
|
|
(77
|
)
|
Non-cash utilization
|
137
|
|
|
6
|
|
|
143
|
|
Balance at December 30, 2017
|
$
|
24
|
|
|
$
|
22
|
|
|
$
|
46
|
|
(a)
Other exit costs primarily consist of lease and contract terminations.
We expect that a substantial portion of the liability for severance and employee benefit costs as of
December 30, 2017
to be paid in 2018. 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.
Restructuring Activities:
In addition to our Integration Program in North America, we have a small number of other restructuring programs globally, which are focused primarily on workforce reduction and factory closure and consolidation. Related to these programs, approximately
600
employees left the Company in 2017. These programs resulted in expenses of
$118 million
in
2017
, including
$50 million
of severance and employee benefit costs,
$10 million
of non-cash asset-related costs,
$48 million
of other implementation costs, and
$10 million
of other exit costs. Other restructuring program expenses totaled
$125 million
in 2016 and
$194 million
in 2015.
Our liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP (i.e., severance and employee benefit costs and other exit costs), was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Benefit Costs
|
|
Other Exit Costs
(a)
|
|
Total
|
Balance at December 31, 2016
|
$
|
12
|
|
|
$
|
25
|
|
|
$
|
37
|
|
Charges/(credits)
|
50
|
|
|
10
|
|
|
60
|
|
Cash payments
|
(38
|
)
|
|
(9
|
)
|
|
(47
|
)
|
Non-cash utilization
|
(8
|
)
|
|
(1
|
)
|
|
(9
|
)
|
Balance at December 30, 2017
|
$
|
16
|
|
|
$
|
25
|
|
|
$
|
41
|
|
(a)
Other exit costs primarily consist of lease and contract terminations.
We expect that a substantial portion of the liability for severance and employee benefit costs as of
December 30, 2017
to be paid in 2018. 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 2018 and 2026.
Total Integration and Restructuring:
Total expenses related to the Integration Program and restructuring activities recorded in cost of products sold and SG&A were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Severance and employee benefit costs - COGS
|
$
|
(130
|
)
|
|
$
|
53
|
|
|
$
|
119
|
|
Severance and employee benefit costs - SG&A
|
38
|
|
|
104
|
|
|
519
|
|
Asset-related costs - COGS
|
190
|
|
|
496
|
|
|
186
|
|
Asset-related costs - SG&A
|
28
|
|
|
41
|
|
|
7
|
|
Other costs - COGS
|
264
|
|
|
162
|
|
|
99
|
|
Other costs - SG&A
|
67
|
|
|
156
|
|
|
93
|
|
|
$
|
457
|
|
|
$
|
1,012
|
|
|
$
|
1,023
|
|
We do not include Integration Program and restructuring expenses within Segment Adjusted EBITDA (as defined in Note 19,
Segment Reporting
). The pre-tax impact of allocating such expenses to our segments would have been (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
United States
|
$
|
292
|
|
|
$
|
759
|
|
|
$
|
790
|
|
Canada
|
34
|
|
|
45
|
|
|
47
|
|
Europe
|
54
|
|
|
85
|
|
|
142
|
|
Rest of World
|
14
|
|
|
6
|
|
|
12
|
|
General corporate expenses
|
63
|
|
|
117
|
|
|
32
|
|
|
$
|
457
|
|
|
$
|
1,012
|
|
|
$
|
1,023
|
|
Note 4. Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, as reported on our consolidated balance sheets, to cash, cash equivalents, and restricted cash, as reported on our consolidated statements of cash flows (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Cash and cash equivalents
|
$
|
1,629
|
|
|
$
|
4,204
|
|
Restricted cash included in other assets (current)
|
140
|
|
|
42
|
|
Restricted cash included in other assets (noncurrent)
|
—
|
|
|
9
|
|
Cash, cash equivalents, and restricted cash
|
$
|
1,769
|
|
|
$
|
4,255
|
|
Our restricted cash primarily relates to withholding taxes on our common stock dividends to our only significant international shareholder, 3G Capital.
Note 5. Inventories
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Packaging and ingredients
|
$
|
560
|
|
|
$
|
542
|
|
Work in process
|
439
|
|
|
388
|
|
Finished product
|
1,816
|
|
|
1,754
|
|
Inventories
|
$
|
2,815
|
|
|
$
|
2,684
|
|
Note 6. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Land
|
$
|
250
|
|
|
$
|
264
|
|
Buildings and improvements
|
2,232
|
|
|
1,884
|
|
Equipment and other
|
5,364
|
|
|
4,770
|
|
Construction in progress
|
1,368
|
|
|
1,600
|
|
|
9,214
|
|
|
8,518
|
|
Accumulated depreciation
|
(2,094
|
)
|
|
(1,830
|
)
|
Property, plant and equipment, net
|
$
|
7,120
|
|
|
$
|
6,688
|
|
Note 7. Goodwill and Intangible Assets
Goodwill:
Changes in the carrying amount of goodwill, by segment, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Europe
|
|
Rest of World
|
|
Total
|
Balance at December 31, 2016
|
$
|
33,696
|
|
|
$
|
4,913
|
|
|
$
|
2,778
|
|
|
$
|
2,738
|
|
|
$
|
44,125
|
|
Translation adjustments and other
|
4
|
|
|
333
|
|
|
281
|
|
|
81
|
|
|
699
|
|
Balance at December 30, 2017
|
$
|
33,700
|
|
|
$
|
5,246
|
|
|
$
|
3,059
|
|
|
$
|
2,819
|
|
|
$
|
44,824
|
|
We test goodwill for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 2017 annual impairment test as of April 2, 2017. As a result of our 2017 annual impairment test, there was
no
impairment of goodwill. Each of our goodwill reporting units had excess fair value over its carrying value of at least
10%
as of April 2, 2017.
Our goodwill balance consists of
18
reporting units and had an aggregate carrying value of
$44.8 billion
as of
December 30, 2017
. As a majority of our goodwill was recently recorded in connection with the 2013 Merger and the 2015 Merger, representing fair values as of those merger dates, there was not a significant excess of fair values over carrying values as of April 2, 2017. We have a risk of future impairment to the extent that individual reporting unit performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair value of our goodwill could be adversely affected, leading to a potential impairment in the future. No events occurred during the period ended
December 30, 2017
that indicated it was more likely than not that our goodwill was impaired. There were
no
accumulated impairment losses to goodwill as of
December 30, 2017
.
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 31, 2016
|
$
|
53,307
|
|
Translation adjustments
|
397
|
|
Impairment losses on indefinite-lived intangible assets
|
(49
|
)
|
Balance at December 30, 2017
|
$
|
53,655
|
|
We test indefinite-lived intangible assets for impairment at least annually in the second quarter or when a triggering event occurs. We performed our 2017 annual impairment test as of April 2, 2017. As a result of our 2017 annual impairment test, we recognized a non-cash impairment loss of
$49 million
in SG&A
in 2017.
This loss was due to continued declines in nutritional beverages in India. The loss was recorded in our Europe segment as the related trademark is owned by our Italian subsidiary. Each of our other brands had excess fair value over its carrying value of at least
10%
as of April 2, 2017.
Our indefinite-lived intangible assets primarily consist of a large number of individual brands and had an aggregate carrying value of
$53.7 billion
as of
December 30, 2017
. As a majority of our indefinite-lived intangible assets were recently recorded in connection with the 2013 Merger and the 2015 Merger, representing fair values as of those merger dates, there was not a significant excess of fair values over carrying values as of April 2, 2017. We have a risk of future impairment to the extent individual brand performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair values of our indefinite-lived intangible assets could be adversely affected, leading to potential impairments in the future. No events occurred during the period ended
December 30, 2017
that indicated it was more likely than not that our indefinite-lived intangible assets were impaired.
There was
no
impairment of indefinite-lived intangible assets as a result of our 2016 testing. In 2015, we recognized non-cash impairment losses of
$58 million
in SG&A, primarily related to declines within frozen soup in the United States, frozen meals and snacks primarily in the United Kingdom, and pasta sauce in the United States and Canada.
Definite-lived intangible assets:
Definite-lived intangible assets were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Trademarks
|
$
|
2,386
|
|
|
$
|
(288
|
)
|
|
$
|
2,098
|
|
|
$
|
2,337
|
|
|
$
|
(172
|
)
|
|
$
|
2,165
|
|
Customer-related assets
|
4,231
|
|
|
(544
|
)
|
|
3,687
|
|
|
4,184
|
|
|
(369
|
)
|
|
3,815
|
|
Other
|
14
|
|
|
(5
|
)
|
|
9
|
|
|
13
|
|
|
(3
|
)
|
|
10
|
|
|
$
|
6,631
|
|
|
$
|
(837
|
)
|
|
$
|
5,794
|
|
|
$
|
6,534
|
|
|
$
|
(544
|
)
|
|
$
|
5,990
|
|
Amortization expense for definite-lived intangible assets was
$279 million
in 2017,
$268 million
in 2016, and
$178 million
in 2015. Aside from amortization expense, the changes in definite-lived intangible assets from
December 31, 2016
to
December 30, 2017
primarily reflect the impact of foreign currency. We estimate that amortization expense related to definite-lived intangible assets will be approximately
$272 million
for the next twelve months and approximately
$270 million
for each of the four years thereafter.
Note 8. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“U.S. Tax Reform”) was enacted by the U.S. federal government. The legislation significantly changed U.S. tax law by, among other things, lowering the federal corporate tax rate from
35.0%
to
21.0%
, effective January 1, 2018, implementing a territorial tax system, and imposing a one-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 30, 2017.
In addition, there are many new provisions, including changes to bonus depreciation, the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax (“BEAT”), and a deduction for foreign-derived intangible income (“FDII”).
The two material items that impacted us in 2017 were the corporate tax rate reduction and the one-time toll charge. While the corporate tax rate reduction is effective January 1, 2018, we accounted for this anticipated rate change in 2017, the period of enactment.
The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides us with up to one year to finalize accounting for the impacts of U.S. Tax Reform. When the initial accounting for U.S Tax Reform impacts is incomplete, we may include provisional amounts when reasonable estimates can be made or continue to apply the prior tax law if a reasonable estimate cannot be made.
We have estimated the provisional tax impacts related to the toll charge, certain components of the revaluation of deferred tax assets and liabilities, including depreciation and executive compensation, and the change in our indefinite reinvestment assertion. As a result, we recognized a net tax benefit of approximately
$7.0 billion
, including a reasonable estimate of our deferred income tax benefit of approximately
$7.5 billion
related to the corporate rate change, which was partially offset by a reasonable estimate of
$312 million
for the toll charge and approximately
$125 million
for other tax expenses, including a change in our indefinite reinvestment assertion.
We have elected to account for the tax on GILTI as a period cost and thus have not adjusted any of the deferred tax assets and liabilities of our foreign subsidiaries for U.S. Tax Reform. The ultimate impact may differ from these provisional amounts due to gathering additional information to more precisely compute the amount of tax, changes in interpretations and assumptions, additional regulatory guidance that may be issued, and actions we may take. We expect to finalize accounting for the impacts of U.S. Tax Reform when the 2017 U.S. corporate income tax return is filed in 2018.
In connection with U.S. Tax Reform, we have also reassessed our international investment assertions and no longer consider the historic earnings of our foreign subsidiaries as of December 30, 2017 to be indefinitely reinvested. We have made a reasonable estimate of local country withholding taxes that would be owed when our historic earnings are distributed. As a result, we have recorded deferred income taxes of
$96 million
on approximately
$1.2 billion
of historic earnings.
Income/(loss) before income taxes and the provision for/(benefit from) income taxes, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Income/(loss) before income taxes:
|
|
|
|
|
|
United States
|
$
|
3,876
|
|
|
$
|
3,358
|
|
|
$
|
(13
|
)
|
International
|
1,654
|
|
|
1,665
|
|
|
1,026
|
|
Total
|
$
|
5,530
|
|
|
$
|
5,023
|
|
|
$
|
1,013
|
|
|
|
|
|
|
|
Provision for/(benefit from) income taxes:
|
|
|
|
|
|
Current:
|
|
|
|
|
|
U.S. federal
|
$
|
757
|
|
|
$
|
1,095
|
|
|
$
|
427
|
|
U.S. state and local
|
(46
|
)
|
|
76
|
|
|
22
|
|
International
|
296
|
|
|
239
|
|
|
234
|
|
|
1,007
|
|
|
1,410
|
|
|
683
|
|
Deferred:
|
|
|
|
|
|
U.S. federal
|
(6,570
|
)
|
|
31
|
|
|
(173
|
)
|
U.S. state and local
|
101
|
|
|
(60
|
)
|
|
(70
|
)
|
International
|
2
|
|
|
—
|
|
|
(74
|
)
|
|
(6,467
|
)
|
|
(29
|
)
|
|
(317
|
)
|
Total provision for/(benefit from) income taxes
|
$
|
(5,460
|
)
|
|
$
|
1,381
|
|
|
$
|
366
|
|
Tax benefits related to the exercise of stock options and other equity instruments recorded directly to additional paid-in capital totaled
$30 million
in 2016 and
$10 million
in 2015. In the first quarter of 2017, we prospectively adopted ASU 2016-09. We now record tax benefits related to the exercise of stock options and other equity instruments within our tax provision, rather than within equity. Accordingly, we recognized a tax benefit of
$22 million
within our 2017 statement of income related to tax benefits upon the exercise of stock options and other equity instruments.
The effective tax rate on income/(loss) before income taxes differed from the U.S. federal statutory tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
U.S. federal statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase/(decrease) resulting from:
|
|
|
|
|
|
Tax on income of foreign subsidiaries
|
(4.7
|
)%
|
|
(3.6
|
)%
|
|
(11.8
|
)%
|
Domestic manufacturing deduction
|
(1.5
|
)%
|
|
(1.9
|
)%
|
|
(2.9
|
)%
|
U.S. state and local income taxes, net of federal tax benefit
|
1.1
|
%
|
|
0.8
|
%
|
|
(0.6
|
)%
|
Earnings repatriation
|
0.4
|
%
|
|
0.4
|
%
|
|
21.9
|
%
|
Tax exempt income
|
(0.7
|
)%
|
|
(3.3
|
)%
|
|
(10.9
|
)%
|
Deferred tax effect of statutory tax rate changes
|
0.3
|
%
|
|
(2.0
|
)%
|
|
(10.4
|
)%
|
Audit settlements and changes in uncertain tax positions
|
(0.1
|
)%
|
|
1.8
|
%
|
|
6.2
|
%
|
Venezuela nondeductible devaluation loss
|
—
|
%
|
|
0.2
|
%
|
|
9.9
|
%
|
Impact of U.S. Tax Reform
|
(127.3
|
)%
|
|
—
|
%
|
|
—
|
%
|
Other
|
(1.2
|
)%
|
|
0.1
|
%
|
|
(0.2
|
)%
|
Effective tax rate
|
(98.7
|
)%
|
|
27.5
|
%
|
|
36.2
|
%
|
The provision for income taxes consists of provisions for federal, state and foreign income taxes. We operate in an international environment; accordingly, the consolidated effective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. Additionally, the calculation of the percentage point impact of U.S. Tax Reform, domestic manufacturing deductions, tax exempt income, uncertain tax positions and other items on the effective tax rate shown in the table above are affected by income/(loss) before income taxes. Fluctuations in the amount of income generated across locations around the world could impact comparability of reconciling items between periods.
The tax provision for the 2017 tax year benefited from U.S. Tax Reform enacted on December 22, 2017. The related income tax benefit of
127.3%
in 2017 primarily reflects adjustments to our deferred tax positions for the lower federal income tax rate, partially offset by our provision for the one-time toll charge.
Due to the 2015 Merger, the tax provision for 2016 reflected a much greater percentage of U.S. income, which unfavorably impacted the effective tax rate compared to 2015. The tax provision for the 2015 tax year benefited from a favorable jurisdictional income mix and from impairment losses recorded in the U.S.
The 2016 and 2015 tax years included a benefit related to the tax effect of statutory tax rate changes. 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. In addition:
|
|
•
|
The 2016 tax year included a benefit related to the impact on deferred taxes of a 10 basis point reduction in the state tax rate and a 100 basis point statutory rate reduction in the United Kingdom.
|
|
|
•
|
The 2015 tax year included a benefit related to the impact on deferred taxes of a 200 basis point statutory rate reduction in the United Kingdom.
|
The tax effects of temporary differences and carryforwards that gave rise to deferred income tax assets and liabilities consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Deferred income tax liabilities:
|
|
|
|
Intangible assets, net
|
$
|
13,637
|
|
|
$
|
20,946
|
|
Property, plant and equipment, net
|
641
|
|
|
1,035
|
|
Other
|
293
|
|
|
532
|
|
Deferred income tax liabilities
|
14,571
|
|
|
22,513
|
|
Deferred income tax assets:
|
|
|
|
Benefit plans
|
(212
|
)
|
|
(1,025
|
)
|
Other
|
(428
|
)
|
|
(782
|
)
|
Deferred income tax assets
|
(640
|
)
|
|
(1,807
|
)
|
Valuation allowance
|
80
|
|
|
89
|
|
Net deferred income tax liabilities
|
$
|
14,011
|
|
|
$
|
20,795
|
|
The
$9 million
decrease in our valuation allowance in 2017 reflects the impact of releasing valuation allowances for foreign net operating losses and foreign tax credits that we anticipate being able to utilize.
At
December 30, 2017
, foreign operating loss carryforwards totaled
$336 million
. Of that amount,
$41 million
expire between 2018 and 2037; the other
$295 million
do not expire. We have recorded
$84 million
of deferred tax assets related to these foreign operating loss carryforwards. Additionally, we have foreign operating loss carryforwards of
$1.0 billion
for which the realization of a tax benefit is considered remote and, as a result, we have recorded a full valuation allowance for the tax benefits. However, due to the remote likelihood of utilizing these losses, neither the deferred tax asset nor the offsetting valuation allowance has been presented in the table above. Deferred tax assets of
$39 million
have been recorded for U.S. state and local operating loss carryforwards. These losses expire between 2018 and 2037.
Deferred tax assets of
$7 million
have been recorded for U.S. foreign tax credit carryforwards. These credit carryforwards expire between 2020 and 2025.
At
December 30, 2017
, our unrecognized tax benefits for uncertain tax positions were
$408 million
. If we had recognized all of these benefits, the impact on our effective tax rate would have been
$316 million
. It is reasonably possible that our unrecognized tax benefits will decrease by as much as
$105 million
in the next 12 months primarily due to the progression of federal, state, and foreign audits in process. Our unrecognized tax benefits for uncertain tax positions are included in income taxes payable (current liabilities) and other liabilities (long-term) on our consolidated balance sheets.
The changes in our unrecognized tax benefits were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Balance at the beginning of the period
|
$
|
389
|
|
|
$
|
353
|
|
|
$
|
71
|
|
Increases for tax positions of prior years
|
2
|
|
|
59
|
|
|
25
|
|
Decreases for tax positions of prior years
|
(35
|
)
|
|
(18
|
)
|
|
(9
|
)
|
Increases based on tax positions related to the current year
|
135
|
|
|
62
|
|
|
33
|
|
Increases due to acquisitions of businesses
|
—
|
|
|
—
|
|
|
242
|
|
Decreases due to settlements with taxing authorities
|
(59
|
)
|
|
(62
|
)
|
|
—
|
|
Decreases due to lapse of statute of limitations
|
(24
|
)
|
|
(5
|
)
|
|
(9
|
)
|
Balance at the end of the period
|
$
|
408
|
|
|
$
|
389
|
|
|
$
|
353
|
|
Our unrecognized tax benefits increased during 2017 as a result of evaluating tax positions taken or expected to be taken on our federal, state, and foreign income tax returns. This increase was partially offset primarily as a result of audit settlements with federal, state and foreign taxing authorities and statute of limitations expirations.
In the third quarter of 2016, we reached an agreement with the IRS resolving all Kraft open matters related to the audits of taxable years 2012 through 2014. This settlement reduced our reserves for uncertain tax positions and resulted in a non-cash tax benefit of
$42 million
.
The gross unrecognized tax balance increased substantially for the year ended January 3, 2016 as a result of the 2015 Merger purchase accounting.
We include interest and penalties related to uncertain tax positions in our tax provision. Our provision for/(benefit from) income taxes included a
$24 million
benefit in 2017,
$8 million
expense in 2016, and
$18 million
expense in 2015 related to interest and penalties. Accrued interest and penalties were
$57 million
as of
December 30, 2017
and
$81 million
as of
December 31, 2016
.
In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, Italy, the Netherlands, the United Kingdom, and the United States. We have substantially concluded all national income tax matters through 2015 for the Netherlands, through 2014 for the United States, through 2012 for the United Kingdom, through 2011 for Australia, and through 2010 for Canada and Italy. We have substantially concluded all state income tax matters through 2007.
We have a tax sharing agreement with Mondelēz International, Inc. (“Mondelēz International”), which generally provides that (i) we are liable for U.S. state income taxes and Canadian federal and provincial income taxes for Kraft periods prior to October 1, 2012 and (ii) Mondelēz International is responsible for U.S. federal income taxes and substantially all non-U.S. income taxes, excluding Canadian income taxes, for Kraft periods prior to October 1, 2012.
Kraft's U.S. operations were included in Mondelēz International's U.S. federal consolidated income tax returns for tax periods through October 1, 2012. In December 2016, Mondelēz International reached a final resolution on a U.S. federal income tax audit of the 2010-2012 tax years. As noted above, we are indemnified for U.S. federal income taxes related to these periods.
Note 9. Employees’ Stock Incentive Plans
Stock Incentive Plans
We issued equity-based awards from the following plans in 2017, 2016, and 2015:
2016 Omnibus Incentive Plan:
In April 2016, our Board of Directors approved the 2016 Omnibus Incentive Plan (“2016 Omnibus Plan”), which authorized grants of options, stock appreciation rights, restricted stock units (“RSUs”), deferred stock, performance awards, investment rights, other stock-based awards, and cash-based awards. This plan authorizes the issuance of up to
18 million
shares of our common stock. We grant non-qualified stock options under the 2016 Omnibus Plan to select employees with a
five
-year cliff vesting. Such options have a maximum exercise term of
10
years.
2013 Omnibus Incentive Plan:
In October 2013, our Board of Directors adopted the 2013 Omnibus Incentive Plan (“2013 Omnibus Plan”), which authorized the issuance of shares of capital stock. Each Heinz stock option that was outstanding under the 2013 Omnibus Plan immediately prior to the completion of the 2015 Merger was converted into
0.443332
of a Kraft Heinz stock option. Following this conversion, the 2013 Omnibus Plan authorized the issuance of up to
17,555,947
shares of our common stock. All Heinz stock option amounts have been retrospectively adjusted for the Successor periods presented to give effect to this conversion. We grant non-qualified stock options under the 2013 Omnibus Plan to select employees with a
five
-year cliff vesting. Such options have a maximum exercise term of
10
years. If a participant is involuntarily terminated without cause,
20%
of their options will vest, on an accelerated basis, for each full year of service after the grant date.
Kraft 2012 Performance Incentive Plan:
Prior to the 2015 Merger, Kraft issued equity-based awards, including stock options and RSUs, under its 2012 Performance Incentive Plan. As a result of the 2015 Merger, each outstanding Kraft stock option was converted into an option to purchase a number of shares of our common stock based upon an option adjustment ratio, and each outstanding Kraft RSU was converted into
one
Kraft Heinz RSU. These Kraft Heinz stock awards will continue to vest and become exercisable in accordance with the terms and conditions that were applicable immediately prior to the completion of the 2015 Merger. These options generally become exercisable in
three
annual installments beginning on the first anniversary of the original grant date, and have a maximum exercise term of
10
years. RSUs generally cliff vest on the third anniversary of the original grant date. In accordance with the terms of the 2012 Performance Incentive Plan, vesting generally accelerates for holders of Kraft awards who are terminated without cause within
two
years of the 2015 Merger Date.
In addition, prior to the 2015 Merger, Kraft issued performance based long-term incentive awards (“Performance Shares”), which vested based on varying performance, market, and service conditions. In connection with the 2015 Merger, all outstanding Performance Shares were converted into cash awards, payable in
two
installments: (i) a 2015 pro-rata payment based upon the portion of the Performance Share cycle completed prior to the 2015 Merger and (ii) the remaining value of the award to be paid on the earlier of the first anniversary of the closing of the 2015 Merger and a participant's termination without cause.
Stock Options
We use the Black-Scholes model to estimate the fair value of stock option grants. We used the Hull-White II Lattice (“Lattice”) model to estimate the fair value of Kraft converted stock options. We believe the Lattice model provided an appropriate estimate of fair value of Kraft converted options as it took into account each option’s distinct in-the-money level and remaining terms. The grant date fair value of options is amortized to expense over the vesting period.
Our weighted average Black-Scholes fair value assumptions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Risk-free interest rate
|
2.25
|
%
|
|
1.63
|
%
|
|
1.70
|
%
|
Expected term
|
7.5 years
|
|
|
7.5 years
|
|
|
6.3 years
|
|
Expected volatility
|
19.6
|
%
|
|
22.0
|
%
|
|
22.9
|
%
|
Expected dividend yield
|
2.8
|
%
|
|
3.1
|
%
|
|
1.5
|
%
|
Weighted average grant date fair value per share
|
$
|
14.24
|
|
|
$
|
12.48
|
|
|
$
|
9.60
|
|
The risk-free interest rate represented the constant maturity U.S. Treasury rate in effect at the grant date, with a remaining term equal to the expected life of the options. The expected life is the period over which our employees are expected to hold their options. Due to the lack of historical data for 2017 and 2016, we calculated expected life using the Safe Harbor method, which uses the weighted average vesting period and the contractual term of the options. In 2015, the weighted average expected life of options was based on consideration of historical exercise patterns adjusted for changes in the contractual term and exercise periods of the awards. In 2017 and 2016, volatility was estimated using a blended approach of implied volatility and peer volatility. Peer volatility was calculated as the average of the term-matched, leverage-adjusted historical volatilities of Colgate-Palmolive Co., The Coca-Cola Company, Mondelēz International, Altria Group, Inc., PepsiCo, Inc., and Unilever plc. In 2015, volatility was estimated based on a review of the equity volatilities of publicly-traded peer companies for a period commensurate with the expected life of the options. In 2017 and 2016, the expected dividend yield was estimated using the quarterly dividend divided by the three-month average stock price, annualized and continuously compounded. In 2015, dividend yield was estimated over the expected life of the options based on our stated dividend policy.
Our Lattice model fair value assumptions for the Kraft converted options were:
|
|
|
|
|
|
January 3,
2016
(53 weeks)
|
Risk-free interest rate
|
1.72
|
%
|
Expected volatility
|
20.10
|
%
|
Expected dividend yield
|
3.00
|
%
|
Weighted average fair value on conversion date
|
$
|
35.65
|
|
The risk-free interest rate represented the constant maturity U.S. Treasury rate in effect at the conversion date, with a remaining term equal to the expected life of the options. The expected volatility was calculated as the average leverage-adjusted historical volatility of several peer companies, matched to the remaining term of each option. Dividend yield was estimated based on our stated dividend policy and conversion date stock price.
Our stock option activity and related information was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
|
Weighted Average Exercise Price
(per share)
|
|
Aggregate Intrinsic Value
(in millions)
|
|
Average Remaining Contractual Term
|
Outstanding at December 31, 2016
|
20,560,140
|
|
|
$
|
37.39
|
|
|
|
|
|
Granted
|
1,579,040
|
|
|
88.98
|
|
|
|
|
|
Forfeited
|
(661,762
|
)
|
|
52.50
|
|
|
|
|
|
Exercised
|
(2,187,854
|
)
|
|
32.73
|
|
|
|
|
|
Outstanding at December 30, 2017
|
19,289,564
|
|
|
41.63
|
|
|
716
|
|
|
6 years
|
Exercisable at December 30, 2017
|
7,462,422
|
|
|
38.78
|
|
|
291
|
|
|
5 years
|
The aggregate intrinsic value of stock options exercised during the period was
$124 million
in 2017,
$186 million
in 2016, and
$21 million
in 2015.
Cash received from options exercised was
$66 million
in 2017,
$140 million
in 2016, and
$29 million
in 2015. The tax benefit realized from stock options exercised was
$44 million
in 2017,
$68 million
in 2016, and
$12 million
in 2015.
Our unvested stock options and related information was:
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
|
Weighted Average Grant Date Fair Value
(per share)
|
Unvested options at December 31, 2016
|
11,899,949
|
|
|
$
|
8.26
|
|
Granted
|
1,579,040
|
|
|
14.24
|
|
Vested
|
(1,001,730
|
)
|
|
15.09
|
|
Forfeited
|
(650,117
|
)
|
|
9.89
|
|
Unvested options at December 30, 2017
|
11,827,142
|
|
|
8.36
|
|
Restricted Stock Units
Restricted stock units represent a right to receive
one
share or the value of one share upon the terms and conditions set forth in the plan and the applicable award agreement. Our RSUs include performance share units (“PSUs”) that are subject to achievement or satisfaction of performance conditions specified by the Compensation Committee of our Board of Directors.
We used the stock price on the grant date to estimate the fair value of our RSUs and PSUs. Additionally, the fair value of our PSUs is discounted based on the dividend yield as they are not dividend eligible during the vesting period. The grant date fair value of RSUs and PSUs is amortized to expense over the vesting period.
The weighted average grant date fair value per share of our RSUs and PSUs granted during the year was
$85.03
in 2017,
$77.53
in 2016, and
$26.24
in 2015. In 2017, our expected dividend yield was
2.7%
. Dividend yield was estimated using the quarterly dividend divided by the three-month average stock price, annualized and continuously compounded. There were no PSUs granted in 2016 or 2015; therefore there was no expected dividend yield for these periods.
Our RSU activity and related information was:
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
(per share)
|
Outstanding at December 31, 2016
|
806,744
|
|
|
$
|
71.95
|
|
Granted
|
1,686,254
|
|
|
85.03
|
|
Forfeited
|
(251,604
|
)
|
|
83.00
|
|
Vested
|
(141,749
|
)
|
|
73.01
|
|
Outstanding at December 30, 2017
|
2,099,645
|
|
|
81.05
|
|
The aggregate fair value of RSUs that vested during the period was
$12 million
in 2017,
$40 million
in 2016, and
$76 million
in 2015.
Total Equity Awards
The compensation cost related to equity awards was primarily recognized in general corporate expenses within SG&A. Equity award compensation cost and the related tax benefit was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Pre-tax compensation cost
|
$
|
46
|
|
|
$
|
46
|
|
|
$
|
133
|
|
Related tax benefit
|
(14
|
)
|
|
(15
|
)
|
|
(48
|
)
|
After-tax compensation cost
|
$
|
32
|
|
|
$
|
31
|
|
|
$
|
85
|
|
Unrecognized compensation cost related to unvested equity awards was
$151 million
at
December 30, 2017
and is expected to be recognized over a weighted average period of
four
years.
Note 10. Postemployment Benefits
We maintain various retirement plans for the majority of our employees. Current defined benefit pension plans are provided primarily for certain domestic union and foreign employees. Local statutory requirements govern many of these plans. The pension benefits of our unionized workers are in accordance with the applicable collective bargaining agreement covering their employment. Defined contribution plans are provided for certain domestic unionized, non-union hourly, and salaried employees as well as certain employees in foreign locations.
We provide health care and other postretirement benefits to certain of our eligible retired employees and their eligible dependents. Certain of our U.S. and Canadian employees may become eligible for such benefits. We may modify plan provisions or terminate plans at our discretion. The postretirement benefits of our unionized workers are in accordance with the applicable collective bargaining agreement covering their employment.
Prior to the 2015 Merger, Kraft provided a range of benefits to its employees and retirees, including pension benefits and postretirement health care benefits. As part of the 2015 Merger, we assumed the assets and liabilities associated with these plans.
We remeasure our postemployment benefit plans at least annually.
Pension Plans
Obligations and Funded Status:
The projected benefit obligations, fair value of plan assets, and funded status of our pension plans were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
Benefit obligation at beginning of year
|
$
|
5,157
|
|
|
$
|
5,990
|
|
|
$
|
3,099
|
|
|
$
|
2,892
|
|
Service cost
|
11
|
|
|
13
|
|
|
19
|
|
|
25
|
|
Interest cost
|
178
|
|
|
203
|
|
|
66
|
|
|
87
|
|
Participants' contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Benefits paid
|
(224
|
)
|
|
(268
|
)
|
|
(161
|
)
|
|
(158
|
)
|
Actuarial losses/(gains)
|
270
|
|
|
195
|
|
|
120
|
|
|
540
|
|
Plan amendments
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
Currency
|
—
|
|
|
—
|
|
|
264
|
|
|
(281
|
)
|
Settlements
|
(692
|
)
|
|
(966
|
)
|
|
(1
|
)
|
|
(12
|
)
|
Special/contractual termination benefits
|
19
|
|
|
—
|
|
|
9
|
|
|
3
|
|
Other
|
—
|
|
|
(10
|
)
|
|
51
|
|
|
—
|
|
Benefit obligation at end of year
|
4,719
|
|
|
5,157
|
|
|
3,464
|
|
|
3,099
|
|
Fair value of plan assets at beginning of year
|
4,788
|
|
|
5,282
|
|
|
3,628
|
|
|
3,428
|
|
Actual return on plan assets
|
613
|
|
|
435
|
|
|
289
|
|
|
712
|
|
Participants' contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Employer contributions
|
300
|
|
|
311
|
|
|
30
|
|
|
33
|
|
Benefits paid
|
(224
|
)
|
|
(268
|
)
|
|
(161
|
)
|
|
(158
|
)
|
Currency
|
—
|
|
|
—
|
|
|
322
|
|
|
(378
|
)
|
Settlements
|
(692
|
)
|
|
(966
|
)
|
|
(1
|
)
|
|
(12
|
)
|
Other
|
—
|
|
|
(6
|
)
|
|
49
|
|
|
—
|
|
Fair value of plan assets at end of year
|
4,785
|
|
|
4,788
|
|
|
4,156
|
|
|
3,628
|
|
Net pension liability/(asset) recognized at end of year
|
$
|
(66
|
)
|
|
$
|
369
|
|
|
$
|
(692
|
)
|
|
$
|
(529
|
)
|
The accumulated benefit obligation, which represents benefits earned to the measurement date, was
$4.7 billion
at
December 30, 2017
and
$5.2 billion
at
December 31, 2016
for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was
$3.3 billion
at
December 30, 2017
and
$3.0 billion
at
December 31, 2016
.
The combined U.S. and non-U.S. pension plans resulted in a net pension asset of
$758 million
at
December 30, 2017
and a net pension asset of
$160 million
at
December 31, 2016
. We recognized these amounts on our consolidated balance sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Other assets (long-term assets)
|
$
|
871
|
|
|
$
|
641
|
|
Accrued postemployment costs (current liabilities)
|
(41
|
)
|
|
(3
|
)
|
Accrued postemployment costs (long-term liabilities)
|
(72
|
)
|
|
(478
|
)
|
Net pension asset/(liability) recognized
|
$
|
758
|
|
|
$
|
160
|
|
For certain of our U.S. and non-U.S. plans that were underfunded based on accumulated benefit obligations in excess of plan assets, the projected benefit obligations, accumulated benefit obligations, and the fair value of plan assets were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
Projected benefit obligation
|
$
|
—
|
|
|
$
|
3,669
|
|
|
$
|
1,368
|
|
|
$
|
527
|
|
Accumulated benefit obligation
|
—
|
|
|
3,669
|
|
|
1,360
|
|
|
527
|
|
Fair value of plan assets
|
—
|
|
|
3,282
|
|
|
1,254
|
|
|
437
|
|
All of our U.S. plans were overfunded based on plan assets in excess of accumulated benefit obligations as of December 30, 2017.
For certain of our U.S. and non-U.S. plans that were underfunded based on projected benefit obligations in excess of plan assets, the projected benefit obligations, accumulated benefit obligations, and the fair value of plan assets were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
Projected benefit obligation
|
$
|
—
|
|
|
$
|
3,669
|
|
|
$
|
1,400
|
|
|
$
|
539
|
|
Accumulated benefit obligation
|
—
|
|
|
3,669
|
|
|
1,392
|
|
|
534
|
|
Fair value of plan assets
|
—
|
|
|
3,282
|
|
|
1,287
|
|
|
445
|
|
All of our U.S. plans were overfunded based on plan assets in excess of projected benefit obligations as of December 30, 2017.
We used the following weighted average assumptions to determine our projected benefit obligations under the pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
Discount rate
|
3.7
|
%
|
|
4.2
|
%
|
|
2.4
|
%
|
|
2.9
|
%
|
Rate of compensation increase
|
4.1
|
%
|
|
4.1
|
%
|
|
3.9
|
%
|
|
4.0
|
%
|
Components of Net Pension Cost/(Benefit):
Net pension cost/(benefit) consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Service cost
|
$
|
11
|
|
|
$
|
13
|
|
|
$
|
45
|
|
|
$
|
19
|
|
|
$
|
25
|
|
|
$
|
26
|
|
Interest cost
|
178
|
|
|
203
|
|
|
164
|
|
|
66
|
|
|
87
|
|
|
103
|
|
Expected return on plan assets
|
(262
|
)
|
|
(290
|
)
|
|
(179
|
)
|
|
(180
|
)
|
|
(182
|
)
|
|
(194
|
)
|
Amortization of unrecognized losses/(gains)
|
—
|
|
|
—
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Settlements
|
2
|
|
|
23
|
|
|
102
|
|
|
—
|
|
|
2
|
|
|
17
|
|
Curtailments
|
—
|
|
|
—
|
|
|
(96
|
)
|
|
—
|
|
|
—
|
|
|
(47
|
)
|
Special/contractual termination benefits
|
19
|
|
|
—
|
|
|
4
|
|
|
9
|
|
|
3
|
|
|
6
|
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
Net pension cost/(benefit)
|
$
|
(50
|
)
|
|
$
|
(51
|
)
|
|
$
|
43
|
|
|
$
|
(100
|
)
|
|
$
|
(65
|
)
|
|
$
|
(89
|
)
|
We capitalized a portion of net pension cost/(benefit) into inventory based on our production activities. The amounts capitalized into inventory as of
December 30, 2017
and
December 31, 2016
are included in the table above.
In 2016, we approved the wind up of our Canadian salaried and Canadian hourly defined benefit pension plans effective December 31, 2016. This action resulted in an increase to our projected benefit obligations of approximately
$85 million
at December 31, 2016. This action had no impact on the consolidated statements of income or consolidated statements of cash flows for the year ended December 31, 2016.
In 2015, we recorded net settlement losses for the U.S. and non-U.S. plans primarily related to certain plan terminations. We also recorded net curtailment gains for the U.S. and non-U.S. plans primarily related to certain plan freezes and work force reductions under our integration and restructuring activities.
We used the following weighted average assumptions to determine our net pension costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Discount rate - Service Cost
|
4.2
|
%
|
|
4.5
|
%
|
|
4.4
|
%
|
|
3.2
|
%
|
|
4.2
|
%
|
|
3.7
|
%
|
Discount rate - Interest Cost
|
3.6
|
%
|
|
3.5
|
%
|
|
4.4
|
%
|
|
2.1
|
%
|
|
3.3
|
%
|
|
3.7
|
%
|
Expected rate of return on plan assets
|
5.7
|
%
|
|
5.7
|
%
|
|
5.6
|
%
|
|
4.8
|
%
|
|
5.6
|
%
|
|
6.4
|
%
|
Rate of compensation increase
|
4.1
|
%
|
|
4.1
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
3.4
|
%
|
|
3.3
|
%
|
Discount rates for our U.S. and non-U.S. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the plans. We determine our expected rate of return on plan assets from the plan assets' historical long-term investment performance, target asset allocation, and estimates of future long-term returns by asset class.
Plan Assets:
The underlying basis of the investment strategy of our defined benefit plans is to ensure that pension funds are available to meet the plans’ benefit obligations when they are due. Our investment objectives include: investing plan assets in a high-quality, diversified manner in order to maintain the security of the funds; achieving an optimal return on plan assets within specified risk tolerances; and investing according to local regulations and requirements specific to each country in which a defined benefit plan operates. The investment strategy expects equity investments to yield a higher return over the long term than fixed-income securities, while fixed-income securities are expected to provide certain matching characteristics to the plans’ benefit payment cash flow requirements. Our investment policy specifies the type of investment vehicles appropriate for the applicable plan, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. It also provides guidelines enabling the applicable plan fiduciaries to fulfill their responsibilities.
Our weighted average asset allocations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
Fixed-income securities
|
62
|
%
|
|
67
|
%
|
|
39
|
%
|
|
49
|
%
|
Equity securities
|
27
|
%
|
|
30
|
%
|
|
27
|
%
|
|
31
|
%
|
Real estate
|
—
|
%
|
|
—
|
%
|
|
6
|
%
|
|
7
|
%
|
Cash and cash equivalents
|
11
|
%
|
|
3
|
%
|
|
4
|
%
|
|
8
|
%
|
Certain insurance contracts
|
—
|
%
|
|
—
|
%
|
|
24
|
%
|
|
5
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Our pension asset strategy for U.S. plans is designed to align our pension assets with our projected benefit obligation to reduce volatility by targeting an investment of approximately
70%
of our U.S. plan assets in fixed-income securities and approximately
30%
in return-seeking assets, primarily equity securities.
For pension plans outside the U.S., our investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country. In aggregate, the long-term asset allocation targets of our non-U.S. plans are broadly characterized as a mix of approximately
65%
fixed-income securities and annuity contracts, and approximately
35%
in return-seeking assets, primarily equity securities and real estate.
The fair value of pension plan assets at
December 30, 2017
was determined using the following fair value measurements (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Government bonds
|
$
|
467
|
|
|
$
|
467
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate bonds and other fixed-income securities
|
2,606
|
|
|
—
|
|
|
2,606
|
|
|
—
|
|
Total fixed-income securities
|
3,073
|
|
|
467
|
|
|
2,606
|
|
|
—
|
|
Equity securities
|
1,044
|
|
|
1,044
|
|
|
—
|
|
|
—
|
|
Real estate
|
262
|
|
|
—
|
|
|
—
|
|
|
262
|
|
Cash and cash equivalents
|
208
|
|
|
205
|
|
|
3
|
|
|
—
|
|
Certain insurance contracts
|
983
|
|
|
—
|
|
|
—
|
|
|
983
|
|
Fair value excluding investments measured at net asset value
|
5,570
|
|
|
1,716
|
|
|
2,609
|
|
|
1,245
|
|
Investments measured at net asset value
(a)
|
3,371
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
$
|
8,941
|
|
|
|
|
|
|
|
|
|
(a)
|
Amount includes cash collateral of
$278 million
associated with our securities lending program, which is reflected as an asset, and a corresponding securities lending payable of
$278 million
, which is reflected as a liability. The net impact on total plan assets at fair value is
zero
.
|
The fair value of pension plan assets at
December 31, 2016
was determined using the following fair value measurements (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Government bonds
|
$
|
484
|
|
|
$
|
410
|
|
|
$
|
74
|
|
|
$
|
—
|
|
Corporate bonds and other fixed-income securities
|
2,952
|
|
|
—
|
|
|
2,952
|
|
|
—
|
|
Total fixed-income securities
|
3,436
|
|
|
410
|
|
|
3,026
|
|
|
—
|
|
Equity securities
|
765
|
|
|
765
|
|
|
—
|
|
|
—
|
|
Real estate
|
234
|
|
|
—
|
|
|
—
|
|
|
234
|
|
Cash and cash equivalents
|
49
|
|
|
31
|
|
|
18
|
|
|
—
|
|
Certain insurance contracts
|
189
|
|
|
—
|
|
|
—
|
|
|
189
|
|
Fair value excluding investments measured at net asset value
|
4,673
|
|
|
1,206
|
|
|
3,044
|
|
|
423
|
|
Investments measured at net asset value
|
3,743
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
$
|
8,416
|
|
|
|
|
|
|
|
The following section describes the valuation methodologies used to measure the fair value of pension plan assets, including an indication of the level in the fair value hierarchy in which each type of asset is generally classified.
Government Bonds.
These securities consist of direct investments in publicly traded U.S. and non-U.S. fixed interest obligations (principally debentures). Such investments are valued using quoted prices in active markets. These securities are principally included in Level 1.
Corporate Bonds and Other Fixed-Income Securities.
These securities consist of publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate bonds). Such investments are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data. As such, these securities are included in Level 2.
Equity Securities.
These securities consist of direct investments in the stock of publicly traded companies. Such investments are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1.
Real Estate.
These holdings consist of real estate investments. Direct investments of real estate are valued by investment managers based on the most recent financial information available, which typically represents significant unobservable data. As such, these investments are generally classified as Level 3.
Cash and Cash Equivalents.
This consists of direct cash holdings and institutional short-term investment vehicles. Direct cash holdings are valued based on cost, which approximates fair value and are classified as Level 1. Certain institutional short-term investment vehicles are valued daily and are classified as Level 1. Other cash equivalents that are not traded on an active exchange, such as bank deposits, are classified as Level 2.
Certain Insurance Contracts.
This category consists of group annuity contracts that have been purchased to cover a portion of the plan members. The fair value of non-participating annuity buy-in contracts fluctuates based on fluctuations in the obligation associated with the covered plan members. The fair value of certain participating annuity contracts are reported at contract value. These values have been classified as Level 3.
Investments Measured at Net Asset Value
. This category consists of pooled funds, short-term investments and partnership/corporate feeder interests.
Pooled funds.
The fair values of participation units held in collective trusts are based on their net asset values, as reported by the managers of the collective trusts and as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. Investments in the collective trusts can be redeemed on each business day based upon the applicable net asset value per unit. Investments in the international large/mid cap equity collective trust can be redeemed on the last business date of each month and at least one business day during the month.
The mutual fund investments are not traded on an exchange and a majority of these funds are held in a separate account managed by a fixed income manager. The fair values of the mutual fund investments that are not traded on an exchange are based on their net asset values, as reported by the managers and as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. The objective of the account is to provide superior return with reasonable risk, where performance is expected to exceed Barclays Long U.S. Credit Index. Investments in this account can be redeemed with a written notice to the investment manager.
Short-term investments
: Short-term investments largely consisted of a money market fund, the fair value of which is based on the net asset value reported by the manager of the fund and supported by the unit prices of actual purchase and sale transactions. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. The money market fund is designed to provide safety of principal, daily liquidity, and a competitive yield by investing in high quality money market instruments. The investment objective of the money market fund is to provide the highest possible level of current income while still maintaining liquidity and preserving capital.
Partnership/corporate feeder interests
: Fair value estimates of the equity partnership are based on their net asset values, as reported by the manager of the partnership. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. Investments in the equity partnership may be redeemed once per month upon 10 days’ prior written notice to the General Partner, subject to the discretion of the General Partner. The investment objective of the equity partnership is to seek capital appreciation by investing primarily in equity securities.
The fair values of the corporate feeder are based upon the net asset values of the equity master fund in which it invests. The fair value of these investments measured at net asset value is excluded from the fair value hierarchy. Investments in the corporate feeder can be redeemed quarterly with at least 90 days’ notice. The investment objective of the corporate feeder is to generate long-term returns by investing in large, liquid equity securities with attractive fundamentals.
Changes in our Level 3 plan assets for the year ended
December 30, 2017
included (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
December 31,
2016
(52 weeks)
|
|
Additions
|
|
Net Realized Gain/(Loss)
|
|
Net Unrealized Gain/(Loss)
|
|
Net Purchases, Issuances and Settlements
|
|
Transfers Into/(Out of) Level 3
|
|
December 30,
2017
(52 weeks)
|
Real estate
|
$
|
234
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
262
|
|
Certain insurance contracts
|
189
|
|
|
797
|
|
|
—
|
|
|
36
|
|
|
(39
|
)
|
|
—
|
|
|
983
|
|
Total Level 3 investments
|
$
|
423
|
|
|
$
|
797
|
|
|
$
|
14
|
|
|
$
|
50
|
|
|
$
|
(39
|
)
|
|
$
|
—
|
|
|
$
|
1,245
|
|
Additions of
$797 million
were principally related to insurance contracts entered into in Canada in connection with the wind-up of our Canadian salaried and hourly defined benefit pension plans.
Changes in our Level 3 plan assets for the year ended
December 31, 2016
included (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
January 3,
2016
(53 weeks)
|
|
Net Realized Gain/(Loss)
|
|
Net Unrealized Gain/(Loss)
|
|
Net Purchases, Issuances and Settlements
|
|
Transfers Into/(Out of) Level 3
|
|
December 31,
2016
(52 weeks)
|
Equity securities
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Real estate
|
288
|
|
|
6
|
|
|
(37
|
)
|
|
(23
|
)
|
|
—
|
|
|
234
|
|
Certain insurance contracts
|
236
|
|
|
—
|
|
|
13
|
|
|
(49
|
)
|
|
(11
|
)
|
|
189
|
|
Total Level 3 investments
|
$
|
525
|
|
|
$
|
6
|
|
|
$
|
(24
|
)
|
|
$
|
(73
|
)
|
|
$
|
(11
|
)
|
|
$
|
423
|
|
Employer Contributions:
In 2017, we contributed
$300 million
to our U.S. pension plans and
$30 million
to our non-U.S. pension plans. We estimate that 2018 pension contributions will be approximately
$50 million
to our non-U.S. plans. We do
no
t plan to contribute to our U.S. pension plans in 2018. Our actual contributions and plans may change due to many factors, including the timing of regulatory approval for the windup of certain non-U.S. pension plans, 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.
Future Benefit Payments:
The estimated future benefit payments from our pension plans at
December 30, 2017
were (in millions):
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
2018
|
$
|
367
|
|
|
$
|
1,343
|
|
2019
|
331
|
|
|
72
|
|
2020
|
334
|
|
|
73
|
|
2021
|
337
|
|
|
76
|
|
2022
|
357
|
|
|
85
|
|
2023-2027
|
1,531
|
|
|
452
|
|
Postretirement Plans
Obligations and Funded Status:
The accumulated benefit obligation, fair value of plan assets, and funded status of our postretirement benefit plans were (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Benefit obligation at beginning of year
|
$
|
1,714
|
|
|
$
|
1,945
|
|
Service cost
|
10
|
|
|
11
|
|
Interest cost
|
49
|
|
|
51
|
|
Benefits paid
|
(142
|
)
|
|
(150
|
)
|
Actuarial losses/(gains)
|
(70
|
)
|
|
5
|
|
Plan amendments
|
(24
|
)
|
|
(158
|
)
|
Currency
|
13
|
|
|
6
|
|
Other
|
3
|
|
|
4
|
|
Benefit obligation at end of year
|
1,553
|
|
|
1,714
|
|
Fair value of plan assets at beginning of year
|
—
|
|
|
—
|
|
Employer contributions
|
1,329
|
|
|
—
|
|
Benefits paid
|
(142
|
)
|
|
—
|
|
Other
|
1
|
|
|
—
|
|
Fair value of plan assets at end of year
|
1,188
|
|
|
—
|
|
Net postretirement benefit liability/(asset) recognized at end of year
|
$
|
365
|
|
|
$
|
1,714
|
|
We recognized the net postretirement benefit asset/(liability) on our consolidated balance sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Accrued postemployment costs (current liabilities)
|
(10
|
)
|
|
(153
|
)
|
Accrued postemployment costs (long-term liabilities)
|
(355
|
)
|
|
(1,561
|
)
|
Net postretirement benefit asset/(liability) recognized
|
$
|
(365
|
)
|
|
$
|
(1,714
|
)
|
For certain of our postretirement benefit plans that were underfunded based on accumulated postretirement benefit obligations in excess of plan assets, the accumulated benefit obligations and the fair value of plan assets were (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Accumulated benefit obligation
|
$
|
1,553
|
|
|
$
|
1,714
|
|
Fair value of plan assets
|
1,188
|
|
|
—
|
|
We used the following weighted average assumptions to determine our postretirement benefit obligations:
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Discount rate
|
3.5
|
%
|
|
3.8
|
%
|
Health care cost trend rate assumed for next year
|
6.7
|
%
|
|
6.3
|
%
|
Ultimate trend rate
|
4.9
|
%
|
|
4.9
|
%
|
Discount rates for our plans were developed from a model portfolio of high-quality, fixed-income debt instruments with durations that match the expected future cash flows of the plans. Our expected health care cost trend rate is based on historical costs and our expectation for health care cost trend rates going forward.
The year that the health care cost trend rate reaches the ultimate trend rate varies by plan and ranges between
2018
and
2030
as of
December 30, 2017
.
Assumed health care costs trend rates have a significant impact on the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects, increase/(decrease) in cost and obligation, as of
December 30, 2017
(in millions):
|
|
|
|
|
|
|
|
|
|
One-Percentage-Point
|
|
Increase
|
|
(Decrease)
|
Effect on annual service and interest cost
|
$
|
4
|
|
|
$
|
(3
|
)
|
Effect on postretirement benefit obligation
|
55
|
|
|
(47
|
)
|
Plan Assets:
In December 2017, we made a cash contribution of approximately
$1.2 billion
to pre-fund a portion of our U.S. postretirement plan benefits following enactment of U.S. Tax Reform on December 22, 2017. The underlying basis of the investment strategy of our U.S. postretirement plans is to ensure that funds are available to meet the plans’ benefit obligations when they are due by investing plan assets in a high-quality, diversified manner in order to maintain the security of the funds. The investment strategy expects equity investments to yield a higher return over the long term than fixed-income securities, while fixed-income securities are expected to provide certain matching characteristics to the plans’ benefit payment cash flow requirements.
Our postretirement benefit plan asset allocation at
December 30, 2017
was
100%
short-term investments. Our postretirement benefit plan investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country. Our investment strategy is designed to align our postretirement benefit plan assets with our postretirement benefit obligation to reduce volatility. In aggregate, our long-term asset allocation targets are broadly characterized as a mix of approximately
70%
in fixed-income securities and approximately
30%
in return-seeking assets, primarily equity securities.
The fair value of our postretirement benefit plan assets, which were all classified as short-term investments, was
$1.2 billion
at
December 30, 2017
. There were
no
postretirement benefit plan assets and no associated fair value at
December 31, 2016
.
Short-term investments consist of a money market mutual fund, the fair value of which is based on the closing price reported in an active market on which the mutual fund is traded. As such, these investments are classified as Level 1 in the fair value hierarchy. The money market mutual fund is designed to provide safety of principal, daily liquidity, and a competitive yield by investing in high quality money market instruments. The investment objective of the money market mutual fund is to provide the highest possible level of current income while still maintaining liquidity and preserving capital.
Components of Net Postretirement Cost/(Benefit):
Net postretirement cost/(benefit) consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Service cost
|
$
|
10
|
|
|
$
|
11
|
|
|
$
|
13
|
|
Interest cost
|
49
|
|
|
51
|
|
|
56
|
|
Amortization of prior service costs/(credits)
|
(328
|
)
|
|
(362
|
)
|
|
(112
|
)
|
Amortization of unrecognized losses/(gains)
|
—
|
|
|
(1
|
)
|
|
—
|
|
Curtailments
|
(177
|
)
|
|
—
|
|
|
1
|
|
Net postretirement cost/(benefit)
|
$
|
(446
|
)
|
|
$
|
(301
|
)
|
|
$
|
(42
|
)
|
We capitalized a portion of net postretirement cost/(benefit) into inventory based on our production activities. The amounts capitalized into inventory as of
December 30, 2017
and
December 31, 2016
are included in the table above.
In 2017, we remeasured certain of our postretirement plans and recognized a curtailment gain of
$177 million
. The curtailment was triggered by the number of cumulative headcount reductions after the closure of certain U.S. factories during the year. The resulting gain is attributed to accelerating a portion of the previously deferred actuarial gains and prior service credits.
The headcount reductions and factory closures were part of our ongoing Integration Program.
See Note 3,
Integration and Restructuring Expenses
, for additional information.
The amortization of prior service credits was primarily driven by the 2015 plan amendments. Amortization of prior service credits in 2017 and 2016 included 12 months of amortization related to the 2015 plan amendments, and 2015 included four months of such amortization.
We used the following weighted average assumptions to determine our net postretirement benefit plans cost:
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Discount rate - Service Cost
|
4.0
|
%
|
|
4.3
|
%
|
|
4.2
|
%
|
Discount rate - Interest Cost
|
3.0
|
%
|
|
3.0
|
%
|
|
4.2
|
%
|
Health care cost trend rate
|
6.3
|
%
|
|
6.5
|
%
|
|
6.7
|
%
|
Employer Contributions:
In 2017, we contributed
$1.3 billion
to our postretirement benefit plans. This amount includes certain benefit payments of
$142 million
which are paid as incurred rather than pre-funded. We estimate that 2018 postretirement benefit plan contributions will be approximately
$15 million
. 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.
Future Benefit Payments:
Our estimated future benefit payments for our postretirement plans at
December 30, 2017
were (in millions):
|
|
|
|
|
2018
|
$
|
147
|
|
2019
|
140
|
|
2020
|
133
|
|
2021
|
126
|
|
2022
|
120
|
|
2023-2027
|
504
|
|
Other Costs
We sponsor and contribute to employee savings plans that cover eligible salaried, non-union, and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense for defined contribution plans totaled
$78 million
in 2017,
$74 million
in 2016, and
$52 million
in 2015.
Accumulated Other Comprehensive Income/(Losses):
Our accumulated other comprehensive income/(losses) pension and postretirement benefit plans balances, before tax, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
Total
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
|
December 30, 2017
|
|
December 31, 2016
|
Net actuarial gain/(loss)
|
$
|
13
|
|
|
$
|
(35
|
)
|
|
$
|
111
|
|
|
$
|
64
|
|
|
$
|
124
|
|
|
$
|
29
|
|
Prior service credit/(cost)
|
1
|
|
|
—
|
|
|
748
|
|
|
1,205
|
|
|
749
|
|
|
1,205
|
|
|
$
|
14
|
|
|
$
|
(35
|
)
|
|
$
|
859
|
|
|
$
|
1,269
|
|
|
$
|
873
|
|
|
$
|
1,234
|
|
The net postemployment benefits recognized in other comprehensive income/(loss), consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Net postemployment benefit gains/(losses) arising during the period:
|
|
|
|
|
|
Net actuarial gains/(losses) arising during the period - Pension Benefits
|
$
|
45
|
|
|
$
|
(73
|
)
|
|
$
|
3
|
|
Net actuarial gains/(losses) arising during the period - Postretirement Benefits
|
71
|
|
|
(5
|
)
|
|
62
|
|
Prior service credits/(costs) arising during the period - Pension Benefits
|
1
|
|
|
—
|
|
|
(7
|
)
|
Prior service credits/(costs) arising during the period - Postretirement Benefits
|
24
|
|
|
158
|
|
|
1,507
|
|
|
141
|
|
|
80
|
|
|
1,565
|
|
Tax benefit/(expense)
|
(55
|
)
|
|
(23
|
)
|
|
(619
|
)
|
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
946
|
|
|
|
|
|
|
|
Reclassification of net postemployment benefit losses/(gains) to net income/(loss):
|
|
|
|
|
|
Amortization of unrecognized losses/(gains) - Pension Benefits
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Amortization of unrecognized losses/(gains) - Postretirement Benefits
|
—
|
|
|
(1
|
)
|
|
—
|
|
Amortization of prior service costs/(credits) - Postretirement Benefits
|
(328
|
)
|
|
(362
|
)
|
|
(112
|
)
|
Net settlement and curtailment losses/(gains) - Pension Benefits
|
2
|
|
|
25
|
|
|
(24
|
)
|
Net settlement and curtailment losses/(gains) - Postretirement Benefits
|
(177
|
)
|
|
—
|
|
|
1
|
|
|
(502
|
)
|
|
(338
|
)
|
|
(132
|
)
|
Tax benefit/(expense)
|
193
|
|
|
131
|
|
|
47
|
|
|
$
|
(309
|
)
|
|
$
|
(207
|
)
|
|
$
|
(85
|
)
|
As of
December 30, 2017
, we expect to amortize
$311 million
of postretirement benefit plans prior service credits from accumulated other comprehensive income/(losses) into net postretirement benefit plans costs/(benefits) during 2018. We do not expect to amortize any other significant postemployment benefit losses/(gains) into net pension or net postretirement benefit plan costs/(benefits) during 2018.
Note 11. Financial Instruments
Derivative Volume:
The notional values of our outstanding derivative instruments were (in millions):
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
December 30, 2017
|
|
December 31, 2016
|
Commodity contracts
|
$
|
272
|
|
|
$
|
459
|
|
Foreign exchange contracts
|
2,876
|
|
|
2,997
|
|
Cross-currency contracts
|
3,161
|
|
|
3,173
|
|
Fair Value of Derivative Instruments:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values and the levels within the fair value hierarchy of derivative instruments recorded on the consolidated balance sheets were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total Fair Value
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
42
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
344
|
|
|
—
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
4
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
8
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
17
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
3
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
Total fair value
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
388
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
392
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total Fair Value
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
13
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
580
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
580
|
|
|
36
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
28
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
7
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
35
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
30
|
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
—
|
|
Total fair value
|
$
|
28
|
|
|
$
|
7
|
|
|
$
|
728
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
756
|
|
|
$
|
86
|
|
Our derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. We elect to record the gross assets and liabilities of our derivative financial instruments on the 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
$23 million
at
December 30, 2017
and
$67 million
at
December 31, 2016
. No material amounts of collateral were received or posted on our derivative assets and liabilities at
December 30, 2017
.
Level 1 financial assets and liabilities consist of commodity future and options contracts and are valued using quoted prices in active markets for identical assets and liabilities.
Level 2 financial assets and liabilities consist of commodity swaps, foreign exchange forwards 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. Cross-currency swaps are valued based on observable market spot and swap rates.
Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.
There have been no transfers between Levels 1, 2, and 3 in any period presented.
The fair values of our derivative assets are recorded within other current assets and other assets. The fair values of our liability derivatives are recorded within other current liabilities and other liabilities.
Net Investment Hedging:
At
December 30, 2017
, the principal amounts of foreign denominated debt designated as net investment hedges totaled
€2,550 million
and
£400 million
.
At
December 30, 2017
, our cross-currency swaps designated as net investment hedges consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
Instrument
|
|
Notional
(local)
(in billions)
|
|
Notional
(USD)
(in billions)
|
|
Maturity
|
Cross-currency swap
|
|
£
|
0.8
|
|
|
$
|
1.4
|
|
|
October 2019
|
Cross-currency swap
|
|
C$
|
1.8
|
|
|
$
|
1.6
|
|
|
December 2019
|
We also periodically enter into shorter-dated foreign exchange contracts that are designated as net investment hedges. At
December 30, 2017
, we had Chinese renminbi foreign exchange contracts with an aggregate USD notional amount of
$213 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 movements in the fair values of our cross-currency swap contracts and remeasurement of our foreign denominated debt.
Interest Rate Hedging:
In 2015, we de-designated all of our outstanding interest rate swaps (total notional amount of
$7.9 billion
) from hedging relationships in connection with the repayment of the Term B-1 and Term B-2 loans. We determined that the related forecasted future cash flows were probable of not occurring, and as a result, we reclassified
$227 million
of deferred losses initially reported in accumulated other comprehensive income/(losses) to net income/(loss) as interest expense.
Hedge Coverage:
At
December 30, 2017
, we had entered into contracts designated as hedging instruments, which hedge transactions for the following durations:
|
|
•
|
foreign exchange contracts for periods not exceeding the next
18
months; and
|
|
|
•
|
cross-currency contracts for periods not exceeding the next
24
months.
|
At
December 30, 2017
, we had entered into contracts not designated as hedging instruments, which hedge economic risks for the following durations:
|
|
•
|
commodity contracts for periods not exceeding the next
12
months; and
|
|
|
•
|
foreign exchange contracts for periods not exceeding the next
six
months.
|
|
|
•
|
cross-currency contracts for periods not exceeding the next
22
months.
|
Hedge Ineffectiveness:
We record pre-tax gains or losses reclassified from accumulated other comprehensive income/(losses) due to ineffectiveness for foreign exchange contracts related to forecasted transactions in other expense/(income), net.
Deferred Hedging Gains and Losses:
Based on our valuation at
December 30, 2017
and assuming market rates remain constant through contract maturities, we expect transfers to net income/(loss) of unrealized losses for foreign currency cash flow hedges during the next 12 months to be
$13 million
. Additionally, we expect transfers to net income/(loss) of unrealized losses for interest rate cash flow hedges during the next 12 months to be insignificant.
Concentration of Credit Risk:
Counterparties to our foreign exchange derivatives consist of major international financial institutions. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of our credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. We closely monitor the credit risk associated with our counterparties and customers and to date have not experienced material losses.
Economic Hedging:
We enter into certain derivative contracts not designated as hedging instruments in accordance with our risk management strategy which have an economic impact of largely mitigating commodity price risk and foreign currency exposures. Gains and losses are recorded in net income/(loss) as a component of cost of products sold for our commodity contracts and other expense/(income), net for our cross currency and foreign exchange contracts.
Derivative Impact on the Statements of Income and Statements of Comprehensive Income:
The following tables present the pre-tax effect of derivative instruments on the consolidated statements of income and statements of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
Commodity Contracts
|
|
Foreign Exchange
Contracts
|
|
Cross-Currency Contracts
|
|
Interest Rate Contracts
|
|
Commodity Contracts
|
|
Foreign Exchange
Contracts
|
|
Cross-Currency Contracts
|
|
Interest Rate
Contracts
|
|
(in millions)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
|
$
|
—
|
|
|
$
|
(123
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
|
—
|
|
|
(23
|
)
|
|
(184
|
)
|
|
—
|
|
|
—
|
|
|
45
|
|
|
147
|
|
|
—
|
|
Total gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
|
$
|
—
|
|
|
$
|
(146
|
)
|
|
$
|
(184
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
93
|
|
|
$
|
147
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges reclassified to net income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of products sold (effective portion)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
—
|
|
Other expense/(income), net
|
—
|
|
|
(81
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
—
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(81
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
85
|
|
|
—
|
|
|
(4
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on derivatives recognized in cost of products sold
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gains/(losses) on derivatives recognized in other expense/(income), net
|
—
|
|
|
54
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(63
|
)
|
|
(3
|
)
|
|
—
|
|
|
(37
|
)
|
|
54
|
|
|
(2
|
)
|
|
—
|
|
|
9
|
|
|
(63
|
)
|
|
(3
|
)
|
|
—
|
|
Total gains/(losses) recognized in statements of income
|
$
|
(37
|
)
|
|
$
|
(27
|
)
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
9
|
|
|
$
|
22
|
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3,
2016
(53 weeks)
|
|
Commodity Contracts
|
|
Foreign Exchange Contracts
|
|
Cross-Currency Contracts
|
|
Interest Rate Contracts
|
|
(in millions)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
|
$
|
—
|
|
|
$
|
73
|
|
|
$
|
—
|
|
|
$
|
(111
|
)
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
Gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
|
—
|
|
|
—
|
|
|
736
|
|
|
—
|
|
Total gains/(losses) recognized in other comprehensive income/(loss) (effective portion)
|
$
|
—
|
|
|
$
|
73
|
|
|
$
|
736
|
|
|
$
|
(111
|
)
|
|
|
|
|
|
|
|
|
Cash flow hedges reclassified to net income/(loss):
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of products sold (effective portion)
|
—
|
|
|
45
|
|
|
—
|
|
|
—
|
|
Other expense/(income), net
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(239
|
)
|
|
—
|
|
|
44
|
|
|
—
|
|
|
(239
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Gains/(losses) on derivatives recognized in cost of products sold
|
(57
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gains/(losses) on derivatives recognized in other expense/(income), net
|
—
|
|
|
92
|
|
|
53
|
|
|
8
|
|
|
(57
|
)
|
|
92
|
|
|
53
|
|
|
8
|
|
Total gains/(losses) recognized in statements of income
|
$
|
(57
|
)
|
|
$
|
136
|
|
|
$
|
53
|
|
|
$
|
(231
|
)
|
Related to our non-derivative, foreign denominated debt instruments designated as net investment hedges, we recognized a pre-tax loss of
$425 million
in 2017, and pre-tax gains of
$234 million
in 2016 and
$65 million
in 2015. These amounts were recognized in other comprehensive income/(loss) for the periods then ended.
Note 12. 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 28, 2014
|
$
|
(574
|
)
|
|
$
|
61
|
|
|
$
|
(61
|
)
|
|
$
|
(574
|
)
|
Foreign currency translation adjustments
|
(1,578
|
)
|
|
—
|
|
|
—
|
|
|
(1,578
|
)
|
Net deferred gains/(losses) on net investment hedges
|
506
|
|
|
—
|
|
|
—
|
|
|
506
|
|
Net postemployment benefit gains/(losses) arising during the period
|
—
|
|
|
946
|
|
|
—
|
|
|
946
|
|
Reclassification of net postemployment benefit losses/(gains)
|
—
|
|
|
(85
|
)
|
|
—
|
|
|
(85
|
)
|
Net deferred gains/(losses) on cash flow hedges
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income
|
—
|
|
|
—
|
|
|
120
|
|
|
120
|
|
Total other comprehensive income/(loss)
|
(1,072
|
)
|
|
861
|
|
|
114
|
|
|
(97
|
)
|
Balance as of January 3, 2016
|
$
|
(1,646
|
)
|
|
$
|
922
|
|
|
$
|
53
|
|
|
$
|
(671
|
)
|
Foreign currency translation adjustments
|
(992
|
)
|
|
—
|
|
|
—
|
|
|
(992
|
)
|
Net deferred gains/(losses) on net investment hedges
|
226
|
|
|
—
|
|
|
—
|
|
|
226
|
|
Net postemployment benefit gains/(losses) arising during the period
|
—
|
|
|
57
|
|
|
—
|
|
|
57
|
|
Reclassification of net postemployment benefit losses/(gains)
|
—
|
|
|
(207
|
)
|
|
—
|
|
|
(207
|
)
|
Net deferred gains/(losses) on cash flow hedges
|
—
|
|
|
—
|
|
|
46
|
|
|
46
|
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income
|
—
|
|
|
—
|
|
|
(87
|
)
|
|
(87
|
)
|
Total other comprehensive income/(loss)
|
(766
|
)
|
|
(150
|
)
|
|
(41
|
)
|
|
(957
|
)
|
Balance as of December 31, 2016
|
$
|
(2,412
|
)
|
|
$
|
772
|
|
|
$
|
12
|
|
|
$
|
(1,628
|
)
|
Foreign currency translation adjustments
|
1,178
|
|
|
—
|
|
|
—
|
|
|
1,178
|
|
Net deferred gains/(losses) on net investment hedges
|
(353
|
)
|
|
—
|
|
|
—
|
|
|
(353
|
)
|
Net postemployment benefit gains/(losses) arising during the period
|
—
|
|
|
86
|
|
|
—
|
|
|
86
|
|
Reclassification of net postemployment benefit losses/(gains)
|
—
|
|
|
(309
|
)
|
|
—
|
|
|
(309
|
)
|
Net deferred gains/(losses) on cash flow hedges
|
—
|
|
|
—
|
|
|
(113
|
)
|
|
(113
|
)
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income
|
—
|
|
|
—
|
|
|
85
|
|
|
85
|
|
Total other comprehensive income/(loss)
|
825
|
|
|
(223
|
)
|
|
(28
|
)
|
|
574
|
|
Balance as of December 30, 2017
|
$
|
(1,587
|
)
|
|
$
|
549
|
|
|
$
|
(16
|
)
|
|
$
|
(1,054
|
)
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
|
Before Tax Amount
|
|
Tax
|
|
Net of Tax Amount
|
Foreign currency translation adjustments
|
$
|
1,178
|
|
|
$
|
—
|
|
|
$
|
1,178
|
|
|
$
|
(992
|
)
|
|
$
|
—
|
|
|
$
|
(992
|
)
|
|
$
|
(1,578
|
)
|
|
$
|
—
|
|
|
$
|
(1,578
|
)
|
Net deferred gains/(losses) on net investment hedges
|
(632
|
)
|
|
279
|
|
|
(353
|
)
|
|
426
|
|
|
(200
|
)
|
|
226
|
|
|
801
|
|
|
(295
|
)
|
|
506
|
|
Net actuarial gains/(losses) arising during the period
|
116
|
|
|
(47
|
)
|
|
69
|
|
|
(78
|
)
|
|
38
|
|
|
(40
|
)
|
|
65
|
|
|
(42
|
)
|
|
23
|
|
Prior service credits/(costs) arising during the period
|
25
|
|
|
(8
|
)
|
|
17
|
|
|
158
|
|
|
(61
|
)
|
|
97
|
|
|
1,500
|
|
|
(577
|
)
|
|
923
|
|
Reclassification of net postemployment benefit losses/(gains)
|
(502
|
)
|
|
193
|
|
|
(309
|
)
|
|
(338
|
)
|
|
131
|
|
|
(207
|
)
|
|
(132
|
)
|
|
47
|
|
|
(85
|
)
|
Net deferred gains/(losses) on cash flow hedges
|
(123
|
)
|
|
10
|
|
|
(113
|
)
|
|
40
|
|
|
6
|
|
|
46
|
|
|
(38
|
)
|
|
32
|
|
|
(6
|
)
|
Net deferred losses/(gains) on cash flow hedges reclassified to net income
|
85
|
|
|
—
|
|
|
85
|
|
|
(81
|
)
|
|
(6
|
)
|
|
(87
|
)
|
|
195
|
|
|
(75
|
)
|
|
120
|
|
The amounts reclassified from accumulated other comprehensive income/(losses) were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income/(Losses) Component
|
|
Reclassified from Accumulated Other Comprehensive Income/(Losses)
|
|
Affected Line Item in the Statement Where Net Income/(Loss) is Presented
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
|
|
Losses/(gains) on cash flow hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
2
|
|
|
Net sales
|
Foreign exchange contracts
|
|
—
|
|
|
(41
|
)
|
|
(45
|
)
|
|
Cost of products sold
|
Foreign exchange contracts
|
|
81
|
|
|
(38
|
)
|
|
(1
|
)
|
|
Other expense/(income), net
|
Interest rate contracts
|
|
4
|
|
|
4
|
|
|
239
|
|
|
Interest expense
|
Losses/(gains) on cash flow hedges before income taxes
|
|
85
|
|
|
(81
|
)
|
|
195
|
|
|
|
Losses/(gains) on cash flow hedges, income taxes
|
|
—
|
|
|
(6
|
)
|
|
(75
|
)
|
|
|
Losses/(gains) on cash flow hedges
|
|
$
|
85
|
|
|
$
|
(87
|
)
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses/(gains) on postemployment benefits:
|
|
|
|
|
|
|
|
|
Amortization of unrecognized losses/(gains)
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
3
|
|
|
(a)
|
Amortization of prior service costs/(credits)
|
|
(328
|
)
|
|
(362
|
)
|
|
(112
|
)
|
|
(a)
|
Settlement and curtailment losses/(gains)
|
|
(175
|
)
|
|
25
|
|
|
(23
|
)
|
|
(a)
|
Losses/(gains) on postemployment benefits before income taxes
|
|
(502
|
)
|
|
(338
|
)
|
|
(132
|
)
|
|
|
Losses/(gains) on postemployment benefits, income taxes
|
|
193
|
|
|
131
|
|
|
47
|
|
|
|
Losses/(gains) on postemployment benefits
|
|
$
|
(309
|
)
|
|
$
|
(207
|
)
|
|
$
|
(85
|
)
|
|
|
|
|
(a)
|
These components are included in the computation of net periodic postemployment benefit costs. See Note 10,
Postemployment Benefits
, for additional information.
|
In this note we have excluded activity and balances related to noncontrolling interest (which was primarily comprised of foreign currency translation adjustments) due to its insignificance.
Note 13. Venezuela - Foreign Currency and Inflation
We have a subsidiary in Venezuela that manufactures and sells a variety of products, primarily in the condiments and sauces and infant and nutrition categories. We apply highly inflationary accounting to the results of our Venezuelan subsidiary and include these results in our consolidated financial statements. Our results of operations in Venezuela reflect a controlled subsidiary. We continue to have sufficient currency liquidity and pricing flexibility to control our operations. However, the continuing economic uncertainty, strict labor laws, and evolving government controls over imports, prices, currency exchange, and payments present a challenging operating environment. Increased restrictions imposed by the Venezuelan government or further deterioration of the economic environment could impact our ability to control our Venezuelan operations and could lead us to deconsolidate our Venezuelan subsidiary in the future. We currently do not expect to make any new investments or contributions into Venezuela.
At
December 30, 2017
, there were
two
exchange rates legally available to us for converting Venezuelan bolivars to U.S. dollars, including:
|
|
•
|
the official exchange rate of BsF
10
per U.S. dollar available through the Sistema de Divisa Protegida (“DIPRO”) for purchases and sales of essential items, including food products; and
|
|
|
•
|
an alternative exchange rate available through the Sistema de Divisa Complementaria (“DICOM”) for all transactions not covered by DIPRO. The published DICOM rate was BsF
3,345
per U.S. dollar at
December 30, 2017
.
|
We have had no settlements at the DIPRO rate in 2017. At
December 30, 2017
, we had outstanding requests of
$26 million
for payment of invoices for the purchase of ingredients and packaging materials for the years 2012 through 2015, all of which were requested for payment at BsF
6.30
per U.S. dollar (the official exchange rate until March 10, 2016).
We have had access to U.S. dollars at DICOM rates in 2017. However, since September 2017 the Venezuelan government has not held any auctions through which we obtain U.S. dollars at DICOM rates. Accordingly, we did not have access to U.S. dollars at DICOM rates in the fourth quarter of 2017.
In addition to DIPRO and DICOM, there is an unofficial market for obtaining U.S. dollars with Venezuelan bolivars. The exact exchange rate is widely debated but is generally accepted to be substantially higher than the latest published DICOM rate. We have not transacted at any unofficial market rates in 2017 and have no plans to transact at unofficial market rates in the foreseeable future.
Outside of accessing the DICOM market, our Venezuelan subsidiary obtains U.S. dollars through 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
December 30, 2017
,
our Venezuelan subsidiary has sufficient U.S. dollars to fund these operational needs in the foreseeable future. However, further deterioration of the economic environment or regulation changes could jeopardize our export business. Our Venezuelan subsidiary has increasingly sourced production inputs locally, including tomato paste and sugar, in order to reduce reliance on U.S. dollars, which we expect to continue in the foreseeable future.
As of
December 30, 2017
,
we believe the DICOM rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary. We continue to monitor the DICOM rate, and the nonmonetary assets supported by the underlying operations in Venezuela, for impairment.
We remeasure the monetary assets and liabilities, as well as the operating results, of our Venezuelan subsidiary at DICOM rates. These remeasurements resulted in a nonmonetary currency devaluation loss of
$36 million
in 2017,
$24 million
in 2016,
and
$234 million
in 2015.
These amounts were recorded in other expense/(income), net, in the consolidated statements of income.
In the second quarter of 2016, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, resulting in a
$53 million
loss to write down property, plant and equipment, net, and prepaid spare parts, which was recorded within cost of products sold in the consolidated statement of income.
In the second quarter of 2015, we reevaluated the rate used to remeasure the monetary assets and liabilities of our Venezuelan subsidiary and determined that the DICOM rate was the most appropriate legally available rate. Prior to DICOM, we used the official exchange rate of BsF
6.30
per U.S. dollar. This change resulted in a nonmonetary currency devaluation loss of
$234 million
. Additionally, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, which resulted in a
$49 million
loss to write down inventory to the lower of cost or net realizable value. This amount was recorded in cost of products sold in the consolidated statement of income.
Note 14. Financing Arrangements
We utilize accounts receivable securitization and factoring programs (the “Programs”) globally for our working capital needs and to provide efficient liquidity. We operate these Programs such that we generally utilize the majority of the available aggregate cash consideration limits. We account for transfers of receivables pursuant to the Programs as a sale and remove them from our condensed consolidated balance sheets. Under the Programs, we generally receive cash consideration up to a certain limit and record a non-cash exchange for sold receivables for the remainder of the purchase price. We maintain a “beneficial interest,” or a right to collect cash, in the sold receivables. Cash receipts from the payments on sold receivables (which are cash receipts on the underlying trade receivables that have already been securitized in these Programs) are classified as investing activities and presented as cash receipts on sold receivables on our condensed consolidated statements of cash flows.
At
December 30, 2017
, we had accounts receivable securitization and factoring programs in place in the U.S. and in various countries across the globe. Generally, each of these programs automatically renews annually until terminated by either party, except our U.S. securitization program, which expires in May 2018. Additionally, our U.S. securitization program utilizes a bankruptcy-remote special-purpose entity (“SPE”). The SPE is wholly-owned by a subsidiary of Kraft Heinz and its sole business consists of the purchase or acceptance, through capital contributions of receivables and related assets, from a Kraft Heinz subsidiary and subsequent transfer of such receivables and related assets to a bank. Although the SPE is included in our consolidated financial statements, it is a separate legal entity with separate creditors who will be entitled, upon its liquidation, 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.
The carrying value of trade receivables removed from our condensed consolidated balance sheets in connection with the Programs was
$1.0 billion
at
December 30, 2017
and
$1.0 billion
at
December 31, 2016
. In exchange for the sale of trade receivables, we received cash of
$673 million
at
December 30, 2017
and
$904 million
at
December 31, 2016
and recorded sold receivables of
$353 million
at
December 30, 2017
and
$129 million
at
December 31, 2016
. The carrying value of sold receivables approximated the fair value at
December 30, 2017
and
December 31, 2016
.
We act as servicer for certain of the Programs and did not record any related servicing assets or liabilities as of
December 30, 2017
or
December 31, 2016
because they were not material to the financial statements.
Additionally, we enter into various structured payable arrangements to facilitate supply from our vendors. Balance sheet classification is based on the nature of the agreements with our various vendors. For certain arrangements, we classify amounts outstanding within other current liabilities on our consolidated balance sheets. We had approximately
$188 million
on our consolidated balance sheets at
December 30, 2017
related to these arrangements. There were
no
amounts related to these arrangements on our consolidated balance sheets at
December 31, 2016
.
Note 15. Commitments and Contingencies
Legal Proceedings:
We are routinely involved in legal proceedings, claims, and governmental inquiries, inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.
While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.
Leases:
Rental expenses for leases of warehouse, production, and office facilities and equipment were
$183 million
in 2017,
$149 million
in 2016, and
$160 million
in 2015.
Minimum rental commitments under non-cancelable operating leases in effect at
December 30, 2017
were (in millions):
|
|
|
|
|
2018
|
$
|
103
|
|
2019
|
91
|
|
2020
|
73
|
|
2021
|
54
|
|
2022
|
45
|
|
Thereafter
|
165
|
|
Total
|
$
|
531
|
|
Purchase Obligations:
We have purchase obligations for materials, supplies, property, plant and equipment, and co-packing, storage and distribution services based on projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology, and professional services.
As of
December 30, 2017
, our take-or-pay purchase obligations were as follows (in millions):
|
|
|
|
|
2018
|
$
|
1,558
|
|
2019
|
724
|
|
2020
|
527
|
|
2021
|
235
|
|
2022
|
211
|
|
Thereafter
|
439
|
|
Total
|
$
|
3,694
|
|
Redeemable Noncontrolling Interest:
In 2017, we commenced operations of a joint venture with a minority partner to manufacture, package, market, and distribute refrigerated soups and meal sides. We control operations and include this business in our consolidated results. Our minority partner has put options that, if it chooses to exercise them, 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. As of
December 30, 2017
, we estimate the redemption value to be approximately
$100 million
.
Note 16. Debt
Borrowing Arrangements:
On July 6, 2015, together with Kraft Heinz Foods Company, our wholly owned operating subsidiary, we entered into a credit agreement (as amended, the “Credit Agreement”), which provides for a
$4.0 billion
senior unsecured revolving credit facility (the “Senior Credit Facility”), which matures on July 6, 2021.
No
amounts were drawn on our Senior Credit Facility at
December 30, 2017
, at
December 31, 2016
, or during the years ended
December 30, 2017
,
December 31, 2016
, and
January 3, 2016
.
The Senior Credit Facility includes a
$1.0 billion
sub-limit for borrowings in alternative currencies (i.e., euro, sterling, Canadian dollars, or other lawful currencies readily available and freely transferable and convertible into U.S. dollars), as well as a letter of credit sub-facility of up to
$300 million
. Subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to
$1.0 billion
.
Any committed borrowings under the Senior Credit Facility bear interest at a variable annual rate based on LIBOR/EURIBOR/CDOR loans or an alternate base rate/Canadian prime rate, in each case subject to an applicable margin based upon the long-term senior unsecured, non-credit enhanced debt rating assigned to us. The borrowings under the Senior Credit Facility have interest rates based on, at our election, base rate, LIBOR, EURIBOR, CDOR, or Canadian prime rate plus a spread ranging from
87.5
-
175
basis points for LIBOR, EURIBOR, and CDOR loans, and
0
-
75
basis points for base rate or Canadian prime rate loans.
The Senior Credit Facility contains representations, warranties, and covenants that are typical for these types of facilities. Our Senior Credit Facility requires us to maintain a minimum shareholders’ equity (excluding accumulated other comprehensive income/(losses)) of at least
$35 billion
. We were in compliance with this covenant as of
December 30, 2017
.
The obligations under the Credit Agreement are guaranteed by Kraft Heinz Foods Company in the case of indebtedness and other liabilities of any subsidiary borrower and by Kraft Heinz in the case of indebtedness and other liabilities of any subsidiary borrower and Kraft Heinz Foods Company.
In August 2017, we repaid
$600 million
aggregate principal amount of our previously outstanding senior unsecured loan facility (the “Term Loan Facility”). Accordingly, there were
no
amounts outstanding on the Term Loan Facility at
December 30, 2017
. At
December 31, 2016
,
$600 million
aggregate principal amount of our Term Loan Facility was outstanding.
In 2017, we obtained funding through our U.S. and European commercial paper programs.
At
December 30, 2017
we had
$448 million
of commercial paper outstanding, with a weighted average interest rate of
1.541%
. At
December 31, 2016
, we had
$642 million
of commercial paper outstanding, with a weighted average interest rate of
1.074%
.
Long-Term Debt:
Our long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority
1
|
|
Maturity Dates
|
|
Interest Rates
2
|
|
Carrying Values
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
(in millions)
|
U.S. dollar notes:
|
|
|
|
|
|
|
|
|
|
|
2025 Notes
(a)
|
|
Senior Secured Notes
|
|
February 15, 2025
|
|
4.875%
|
|
$
|
1,192
|
|
|
$
|
1,191
|
|
Other U.S. dollar notes
(b)(c)
|
|
Senior Notes
|
|
2018-2046
|
|
1.823% - 7.125%
|
|
25,165
|
|
|
25,761
|
|
Euro notes
(b)
|
|
Senior Notes
|
|
2023-2028
|
|
1.500% - 2.250%
|
|
3,037
|
|
|
2,656
|
|
Canadian dollar notes
(b)
|
|
Senior Notes
|
|
2018-2020
|
|
2.214% - 2.700%
|
|
794
|
|
|
743
|
|
British pound sterling notes
(b)(d)
|
|
Senior Notes
|
|
2027-2030
|
|
4.125% - 6.250%
|
|
712
|
|
|
650
|
|
Term Loan Facility
(e)
|
|
Senior Unsecured Loan
|
|
|
|
|
|
—
|
|
|
596
|
|
Other long-term debt
|
|
Various
|
|
2018-2035
|
|
0.500% - 5.800%
|
|
56
|
|
|
54
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
120
|
|
|
108
|
|
Total long-term debt
|
|
|
|
|
|
|
|
31,076
|
|
|
31,759
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
2,743
|
|
|
2,046
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
$
|
28,333
|
|
|
$
|
29,713
|
|
|
|
1
|
Priority of debt indicates the order which debt would be paid if all debt obligations were due on the same day. Senior secured debt takes priority over unsecured debt. Senior debt has greater seniority than subordinated debt.
|
|
|
2
|
Floating interest rates are stated as of December 30, 2017.
|
|
|
(a)
|
The
4.875%
Second Lien Senior Secured Notes due February 15, 2025 (the “2025 Notes”) are senior in right of payment of existing and future unsecured and subordinated indebtedness.
|
|
|
(b)
|
We fully and unconditionally guarantee these notes, which were issued by Kraft Heinz Foods Company.
|
(c)
Includes current year issuances (the “New Notes”) described below.
|
|
(d)
|
Includes
£125 million
aggregate principal amount of
6.250%
Pound Sterling Notes due February 18, 2030 (the “2030 Notes”) previously issued by H.J. Heinz Finance UK Plc and guaranteed by Kraft Heinz Foods Company, which we became guarantor of in connection with the 2015 Merger.
|
|
|
(e)
|
We repaid the Term Loan Facility in 2017; therefore, no amounts were outstanding, nor was there an applicable maturity date or interest rate, at December 30, 2017.
|
Our long-term debt contains customary representations, covenants, and events of default, and we were in compliance with all such covenants at
December 30, 2017
.
At
December 30, 2017
, aggregate principal maturities of our long-term debt excluding capital leases were (in millions):
|
|
|
|
|
2018
|
$
|
2,697
|
|
2019
|
355
|
|
2020
|
3,042
|
|
2021
|
691
|
|
2022
|
3,507
|
|
Thereafter
|
20,273
|
|
Debt Issuances:
In the third quarter of 2017, Kraft Heinz Foods Company, our wholly owned operating subsidiary, issued New Notes, including
$350 million
aggregate principal amount of floating rate senior notes due 2019,
$650 million
aggregate principal amount of floating rate senior notes due 2021, and
$500 million
aggregate principal amount of floating rate senior notes due 2022.
We used the net proceeds from the New Notes primarily to repay all amounts outstanding under our
$600 million
Term Loan Facility together with accrued interest thereon, to refinance a portion of our commercial paper program, and for other general corporate purposes.
Debt Issuance Costs:
Debt issuance costs are reflected as a direct deduction of our long-term debt balance on the consolidated balance sheets. We incurred debt issuance costs of
$53 million
in 2016 and
$99 million
in 2015. Debt issuance costs in 2017 were insignificant. Unamortized debt issuance costs were
$114 million
at December 30, 2017,
$124 million
at December 31, 2016, and
$85 million
at January 3, 2016. Amortization of debt issuance costs was
$16 million
in 2017,
$14 million
in 2016, and
$27 million
in 2015.
Debt Premium:
Unamortized debt premiums are presented on the consolidated balance sheets as a direct addition to the carrying amount of debt. Unamortized debt premium, net was
$505 million
at
December 30, 2017
and
$585 million
at
December 31, 2016
. Amortization of our debt premium, net was
$81 million
in 2017,
$88 million
in 2016, and
$45 million
in 2015.
Debt Repayments:
In June 2017, we repaid
$2.0 billion
aggregate principal amount of senior notes that matured in the period. We funded these long-term debt repayments primarily with cash on hand and our commercial paper programs. Additionally, we repaid our
$600 million
aggregate principal amount Term Loan Facility in August 2017.
In 2015, we recorded a
$341 million
loss on extinguishment of debt, which was comprised of a write-off of debt issuance costs and unamortized debt discounts of
$236 million
in interest expense as well as call premiums of
$105 million
in other expense/(income), net.
Fair Value of Debt:
At
December 30, 2017
, the aggregate fair value of our total debt was
$33.0 billion
as compared with a carrying value of
$31.5 billion
. At
December 31, 2016
, the aggregate fair value of our total debt was
$33.2 billion
as compared with a carrying value of
$32.4 billion
. 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 17. Capital Stock
Preferred Stock and Warrants
Our Amended and Restated Certificate of Incorporation authorizes the issuance of up to
920,000
shares of preferred stock.
On June 7, 2016, we redeemed all
80,000
outstanding shares of our
9.00%
cumulative compounding preferred stock, Series A (“Series A Preferred Stock”) for
$8.3 billion
. We funded this redemption primarily through the issuance of long-term debt in May 2016, as well as other sources of liquidity, including our commercial paper program, U.S. securitization program, and cash on hand. In connection with the redemption, all Series A Preferred Stock was canceled and automatically retired.
The
80,000
shares of Series A Preferred Stock were issued in connection with the 2013 Merger, along with warrants to purchase
46 million
Heinz common shares, at an exercise price of
$0.01
per common share (the “Warrants”), for an aggregate purchase price of
$8.0 billion
. We allocated the proceeds to the Series A Preferred Stock (
$7.6 billion
) and the Warrants (
$367 million
) on a relative fair value basis. In June 2015, Berkshire Hathaway exercised the Warrants to purchase the additional
46 million
Heinz common shares, which were subsequently reclassified and changed into approximately
20 million
shares of Kraft Heinz common stock.
Common Stock
Our Amended and Restated Certificate of Incorporation authorizes the issuance of up to
5.0 billion
shares of common stock.
Immediately prior to the consummation of the 2015 Merger, each share of Heinz issued and outstanding common stock was reclassified and changed into
0.443332
of a share of Kraft Heinz common stock. All share and per share amounts have been retroactively adjusted for all historical periods presented prior to the 2015 Merger Date to give effect to this conversion. In the 2015 Merger, all outstanding shares of Kraft common stock were converted into the right to receive, on
one
-for-one basis, shares of Kraft Heinz common stock.
Shares of common stock issued, in treasury, and outstanding were (in millions of shares):
|
|
|
|
|
|
|
|
|
|
|
Shares Issued
|
|
Treasury Shares
|
|
Shares Outstanding
|
Balance at December 28, 2014
|
377
|
|
|
—
|
|
|
377
|
|
Exercise of warrants
|
20
|
|
|
—
|
|
|
20
|
|
Issuance of common stock to Sponsors
|
222
|
|
|
—
|
|
|
222
|
|
Acquisition of Kraft Foods Group, Inc.
|
593
|
|
|
—
|
|
|
593
|
|
Exercise of stock options, issuance of other stock awards, and other
|
2
|
|
|
—
|
|
|
2
|
|
Balance at January 3, 2016
|
1,214
|
|
|
—
|
|
|
1,214
|
|
Exercise of stock options, issuance of other stock awards, and other
|
5
|
|
|
(2
|
)
|
|
3
|
|
Balance at December 31, 2016
|
1,219
|
|
|
(2
|
)
|
|
1,217
|
|
Exercise of stock options, issuance of other stock awards, and other
|
2
|
|
|
—
|
|
|
2
|
|
Balance at December 30, 2017
|
1,221
|
|
|
(2
|
)
|
|
1,219
|
|
Note 18. Earnings Per Share
As a result of the stock conversion prior to the 2015 Merger, all per share data, numbers of shares, and numbers of equity awards outstanding were retroactively adjusted for all historical periods presented prior to the 2015 Merger Date. See Note 1,
Background and Basis of Presentation
, for additional information.
Our earnings per common share (“EPS”) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
|
(in millions, except per share data)
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
$
|
10,999
|
|
|
$
|
3,452
|
|
|
$
|
(266
|
)
|
Weighted average shares of common stock outstanding
|
1,218
|
|
|
1,217
|
|
|
786
|
|
Net earnings/(loss)
|
$
|
9.03
|
|
|
$
|
2.84
|
|
|
$
|
(0.34
|
)
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
$
|
10,999
|
|
|
$
|
3,452
|
|
|
$
|
(266
|
)
|
Weighted average shares of common stock outstanding
|
1,218
|
|
|
1,217
|
|
|
786
|
|
Effect of dilutive equity awards
|
10
|
|
|
9
|
|
|
—
|
|
Weighted average shares of common stock outstanding, including dilutive effect
|
1,228
|
|
|
1,226
|
|
|
786
|
|
Net earnings/(loss)
|
$
|
8.95
|
|
|
$
|
2.81
|
|
|
$
|
(0.34
|
)
|
We use the treasury stock method to calculate the dilutive effect of outstanding equity awards in the denominator for diluted EPS. Due to the net loss attributable to common shareholders in 2015, the dilutive effects of equity awards and warrants were excluded because their inclusion would have had an anti-dilutive effect on earnings per share. Anti-dilutive shares were
2 million
in 2017,
3 million
in 2016, and
17 million
in 2015.
Note 19. Segment Reporting
We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products, throughout the world.
We manage and report our operating results through
four
segments. We have
three
reportable segments defined by geographic region: United States, Canada, and Europe. Our remaining businesses are combined and disclosed as “Rest of World”. Rest of World is comprised of
two
operating segments: Latin America; and Asia Pacific, Middle East, and Africa (“AMEA”).
In the third quarter of 2017, we announced our plans to reorganize certain of our international businesses to better align our global geographies. These plans include moving our Middle East and Africa businesses from the AMEA segment into the Europe segment, forming the Europe, Middle East, and Africa (“EMEA”) segment. The remaining AMEA businesses will become the Asia Pacific (“APAC”) segment, which will remain in Rest of World. We expect these changes to become effective in the first quarter of 2018. As a result, we expect to restate our Europe and Rest of World segments to reflect these changes for historical periods presented in the first quarter of 2018.
Management evaluates segment performance based on several factors, including net sales and segment adjusted earnings before interest, tax, depreciation, and amortization (“Segment Adjusted EBITDA”).
Management uses Segment Adjusted EBITDA to evaluate segment performance and allocate resources. Segment Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. These items include depreciation and amortization (excluding integration and restructuring expenses; including amortization of postretirement benefit plans prior service credits), equity award compensation expense, integration and restructuring expenses, merger costs, unrealized gains/(losses) on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment’s operating results), impairment losses, gains/(losses) on the sale of a business, and nonmonetary currency devaluation (e.g., remeasurement gains and losses). In addition, consistent with the manner in which management evaluates segment performance and allocates resources, Segment Adjusted EBITDA includes the operating results of Kraft on a pro forma basis, as if Kraft had been acquired as of December 30, 2013.
There are no pro forma adjustments to any of the numbers disclosed in this note to the consolidated financial statements except for the Segment Adjusted EBITDA reconciliation.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Net sales:
|
|
|
|
|
|
United States
|
$
|
18,353
|
|
|
$
|
18,641
|
|
|
$
|
10,943
|
|
Canada
|
2,190
|
|
|
2,309
|
|
|
1,437
|
|
Europe
|
2,393
|
|
|
2,366
|
|
|
2,656
|
|
Rest of World
|
3,296
|
|
|
3,171
|
|
|
3,302
|
|
Total net sales
|
$
|
26,232
|
|
|
$
|
26,487
|
|
|
$
|
18,338
|
|
Segment Adjusted EBITDA was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Segment Adjusted EBITDA:
|
|
|
|
|
|
United States
|
$
|
6,001
|
|
|
$
|
5,862
|
|
|
$
|
4,690
|
|
Canada
|
639
|
|
|
642
|
|
|
541
|
|
Europe
|
781
|
|
|
781
|
|
|
938
|
|
Rest of World
|
617
|
|
|
657
|
|
|
742
|
|
General corporate expenses
|
(108
|
)
|
|
(164
|
)
|
|
(172
|
)
|
Depreciation and amortization (excluding integration and restructuring expenses)
|
(583
|
)
|
|
(536
|
)
|
|
(779
|
)
|
Integration and restructuring expenses
|
(457
|
)
|
|
(1,012
|
)
|
|
(1,117
|
)
|
Merger costs
|
—
|
|
|
(30
|
)
|
|
(194
|
)
|
Amortization of inventory step-up
|
—
|
|
|
—
|
|
|
(347
|
)
|
Unrealized gains/(losses) on commodity hedges
|
(19
|
)
|
|
38
|
|
|
41
|
|
Impairment losses
|
(49
|
)
|
|
(53
|
)
|
|
(58
|
)
|
Gains/losses on sale of business
|
—
|
|
|
—
|
|
|
21
|
|
Nonmonetary currency devaluation
|
—
|
|
|
(4
|
)
|
|
(57
|
)
|
Equity award compensation expense (excluding integration and restructuring expenses)
|
(49
|
)
|
|
(39
|
)
|
|
(61
|
)
|
Other pro forma adjustments
|
—
|
|
|
—
|
|
|
(1,549
|
)
|
Operating income
|
6,773
|
|
|
6,142
|
|
|
2,639
|
|
Interest expense
|
1,234
|
|
|
1,134
|
|
|
1,321
|
|
Other expense/(income), net
|
9
|
|
|
(15
|
)
|
|
305
|
|
Income/(loss) before income taxes
|
$
|
5,530
|
|
|
$
|
5,023
|
|
|
$
|
1,013
|
|
Total depreciation and amortization expense by segment was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Depreciation and amortization expense:
|
|
|
|
|
|
United States
|
$
|
661
|
|
|
$
|
966
|
|
|
$
|
484
|
|
Canada
|
48
|
|
|
56
|
|
|
36
|
|
Europe
|
96
|
|
|
84
|
|
|
86
|
|
Rest of World
|
101
|
|
|
87
|
|
|
85
|
|
General corporate expenses
|
130
|
|
|
144
|
|
|
49
|
|
Total depreciation and amortization expense
|
$
|
1,036
|
|
|
$
|
1,337
|
|
|
$
|
740
|
|
The decrease in depreciation and amortization expense in 2017 compared to 2016 was primarily driven by accelerated depreciation recognized in 2016 resulting from factory closures as part of our Integration Program. See Note 3,
Integration and Restructuring Expenses
, for additional information.
Total capital expenditures by segment were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Capital expenditures:
|
|
|
|
|
|
United States
|
$
|
764
|
|
|
$
|
843
|
|
|
$
|
377
|
|
Canada
|
42
|
|
|
30
|
|
|
19
|
|
Europe
|
125
|
|
|
109
|
|
|
106
|
|
Rest of World
|
209
|
|
|
102
|
|
|
99
|
|
General corporate expenses
|
77
|
|
|
163
|
|
|
47
|
|
Total capital expenditures
|
$
|
1,217
|
|
|
$
|
1,247
|
|
|
$
|
648
|
|
Concentration of risk:
Our largest customer, Walmart Inc., represented approximately
21%
of our net sales in 2017,
22%
of our net sales in 2016, and approximately
20%
of our net sales in 2015. All of our segments have sales to Walmart Inc.
In the first quarter of 2017, we reorganized the products within our product categories to reflect how we manage our business. We have reflected this change for all historical periods presented.
Our net sales by product category were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Condiments and sauces
|
$
|
6,439
|
|
|
$
|
6,475
|
|
|
$
|
5,877
|
|
Cheese and dairy
|
5,482
|
|
|
5,619
|
|
|
2,795
|
|
Ambient meals
|
2,310
|
|
|
2,345
|
|
|
1,859
|
|
Frozen and chilled meals
|
2,578
|
|
|
2,548
|
|
|
2,179
|
|
Meats and seafood
|
2,609
|
|
|
2,703
|
|
|
1,480
|
|
Refreshment beverages
|
1,508
|
|
|
1,524
|
|
|
665
|
|
Coffee
|
1,423
|
|
|
1,494
|
|
|
710
|
|
Infant and nutrition
|
755
|
|
|
761
|
|
|
902
|
|
Desserts, toppings and baking
|
956
|
|
|
981
|
|
|
521
|
|
Nuts and salted snacks
|
937
|
|
|
1,050
|
|
|
562
|
|
Other
|
1,235
|
|
|
987
|
|
|
788
|
|
Total net sales
|
$
|
26,232
|
|
|
$
|
26,487
|
|
|
$
|
18,338
|
|
Geographic Financial Information:
We had significant sales in the United States, Canada, and the United Kingdom. Our net sales by geography were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
(52 weeks)
|
|
December 31,
2016
(52 weeks)
|
|
January 3,
2016
(53 weeks)
|
Net sales:
|
|
|
|
|
|
United States
|
$
|
18,353
|
|
|
$
|
18,641
|
|
|
$
|
10,943
|
|
Canada
|
2,190
|
|
|
2,309
|
|
|
1,437
|
|
United Kingdom
|
1,021
|
|
|
1,055
|
|
|
1,334
|
|
Other
|
4,668
|
|
|
4,482
|
|
|
4,624
|
|
Total net sales
|
$
|
26,232
|
|
|
$
|
26,487
|
|
|
$
|
18,338
|
|
Other net sales in the table above included net sales to Puerto Rico of
$94 million
in 2017,
$87 million
in 2016, and
$37 million
in 2015.
We had significant long-lived assets in the United States, Canada, and United Kingdom. Long-lived assets include property, plant and equipment, goodwill, trademarks, and other intangible assets, net of related depreciation and amortization. Our long-lived assets by geography were (in millions):
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
Long-lived assets:
|
|
|
|
United States
|
$
|
92,129
|
|
|
$
|
92,243
|
|
Canada
|
6,592
|
|
|
6,172
|
|
United Kingdom
|
6,219
|
|
|
5,669
|
|
Other
|
6,453
|
|
|
6,026
|
|
Total long-lived assets
|
$
|
111,393
|
|
|
$
|
110,110
|
|
Note 20. Quarterly Financial Data (Unaudited)
Our quarterly financial data for 2017 and 2016 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Quarters
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(in millions, except per share data)
|
Net sales
|
$
|
6,364
|
|
|
$
|
6,677
|
|
|
$
|
6,314
|
|
|
$
|
6,877
|
|
Gross profit
|
2,301
|
|
|
2,681
|
|
|
2,314
|
|
|
2,407
|
|
Net income/(loss)
|
891
|
|
|
1,160
|
|
|
943
|
|
|
7,996
|
|
Net income/(loss) attributable to Kraft Heinz
|
893
|
|
|
1,159
|
|
|
944
|
|
|
8,003
|
|
Net income/(loss) attributable to common shareholders
|
893
|
|
|
1,159
|
|
|
944
|
|
|
8,003
|
|
Per share data applicable to common shareholders:
|
|
|
|
|
|
|
|
Basic earnings/(loss)
|
0.73
|
|
|
0.95
|
|
|
0.78
|
|
|
6.57
|
|
Diluted earnings/(loss)
|
0.73
|
|
|
0.94
|
|
|
0.77
|
|
|
6.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Quarters
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(in millions, except per share data)
|
Net sales
|
$
|
6,570
|
|
|
$
|
6,793
|
|
|
$
|
6,267
|
|
|
$
|
6,857
|
|
Gross profit
|
2,378
|
|
|
2,531
|
|
|
2,218
|
|
|
2,459
|
|
Net income/(loss)
|
900
|
|
|
955
|
|
|
843
|
|
|
944
|
|
Net income/(loss) attributable to Kraft Heinz
|
896
|
|
|
950
|
|
|
842
|
|
|
944
|
|
Net income/(loss) attributable to common shareholders
|
896
|
|
|
770
|
|
|
842
|
|
|
944
|
|
Per share data applicable to common shareholders:
|
|
|
|
|
|
|
|
Basic earnings/(loss)
|
0.74
|
|
|
0.63
|
|
|
0.69
|
|
|
0.78
|
|
Diluted earnings/(loss)
|
0.73
|
|
|
0.63
|
|
|
0.69
|
|
|
0.77
|
|
Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the year.
Note 21. Supplemental Financial Information
We fully and unconditionally guarantee the notes issued by our 100% owned operating subsidiary, Kraft Heinz Foods Company. See Note 16,
Debt,
for additional descriptions of these guarantees. None of our other subsidiaries guarantee these notes.
Set forth below are the condensed consolidating financial statements presenting the results of operations, financial position and cash flows of Kraft Heinz (as parent guarantor), Kraft Heinz Foods Company (as subsidiary issuer of the notes), and the non-guarantor subsidiaries on a combined basis and eliminations necessary to arrive at the total reported information on a consolidated basis. This condensed consolidating financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” This information is not intended to present the financial position, results of operations, and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. Eliminations represent adjustments to 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
Year
Ended
December 30, 2017
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
17,507
|
|
|
$
|
9,293
|
|
|
$
|
(568
|
)
|
|
$
|
26,232
|
|
Cost of products sold
|
—
|
|
|
10,710
|
|
|
6,387
|
|
|
(568
|
)
|
|
16,529
|
|
Gross profit
|
—
|
|
|
6,797
|
|
|
2,906
|
|
|
—
|
|
|
9,703
|
|
Selling, general and administrative expenses
|
—
|
|
|
652
|
|
|
2,278
|
|
|
—
|
|
|
2,930
|
|
Intercompany service fees and other recharges
|
—
|
|
|
4,308
|
|
|
(4,308
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
—
|
|
|
1,837
|
|
|
4,936
|
|
|
—
|
|
|
6,773
|
|
Interest expense
|
—
|
|
|
1,190
|
|
|
44
|
|
|
—
|
|
|
1,234
|
|
Other expense/(income), net
|
—
|
|
|
(10
|
)
|
|
19
|
|
|
—
|
|
|
9
|
|
Income/(loss) before income taxes
|
—
|
|
|
657
|
|
|
4,873
|
|
|
—
|
|
|
5,530
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
(221
|
)
|
|
(5,239
|
)
|
|
—
|
|
|
(5,460
|
)
|
Equity in earnings of subsidiaries
|
10,999
|
|
|
10,121
|
|
|
—
|
|
|
(21,120
|
)
|
|
—
|
|
Net income/(loss)
|
10,999
|
|
|
10,999
|
|
|
10,112
|
|
|
(21,120
|
)
|
|
10,990
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
Net income/(loss) excluding noncontrolling interest
|
$
|
10,999
|
|
|
$
|
10,999
|
|
|
$
|
10,121
|
|
|
$
|
(21,120
|
)
|
|
$
|
10,999
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
11,573
|
|
|
$
|
11,573
|
|
|
$
|
7,726
|
|
|
$
|
(19,299
|
)
|
|
$
|
11,573
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the
Year
Ended
December 31, 2016
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
17,809
|
|
|
$
|
9,310
|
|
|
$
|
(632
|
)
|
|
$
|
26,487
|
|
Cost of products sold
|
—
|
|
|
11,156
|
|
|
6,377
|
|
|
(632
|
)
|
|
16,901
|
|
Gross profit
|
—
|
|
|
6,653
|
|
|
2,933
|
|
|
—
|
|
|
9,586
|
|
Selling, general and administrative expenses
|
—
|
|
|
970
|
|
|
2,474
|
|
|
—
|
|
|
3,444
|
|
Intercompany service fees and other recharges
|
—
|
|
|
4,624
|
|
|
(4,624
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
—
|
|
|
1,059
|
|
|
5,083
|
|
|
—
|
|
|
6,142
|
|
Interest expense
|
—
|
|
|
1,076
|
|
|
58
|
|
|
—
|
|
|
1,134
|
|
Other expense/(income), net
|
—
|
|
|
144
|
|
|
(159
|
)
|
|
—
|
|
|
(15
|
)
|
Income/(loss) before income taxes
|
—
|
|
|
(161
|
)
|
|
5,184
|
|
|
—
|
|
|
5,023
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
(372
|
)
|
|
1,753
|
|
|
—
|
|
|
1,381
|
|
Equity in earnings of subsidiaries
|
3,632
|
|
|
3,421
|
|
|
—
|
|
|
(7,053
|
)
|
|
—
|
|
Net income/(loss)
|
3,632
|
|
|
3,632
|
|
|
3,431
|
|
|
(7,053
|
)
|
|
3,642
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Net income/(loss) excluding noncontrolling interest
|
$
|
3,632
|
|
|
$
|
3,632
|
|
|
$
|
3,421
|
|
|
$
|
(7,053
|
)
|
|
$
|
3,632
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
2,675
|
|
|
$
|
2,675
|
|
|
$
|
5,717
|
|
|
$
|
(8,392
|
)
|
|
$
|
2,675
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Income
For the
Year
Ended
January 3, 2016
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
10,580
|
|
|
$
|
8,145
|
|
|
$
|
(387
|
)
|
|
$
|
18,338
|
|
Cost of products sold
|
—
|
|
|
7,298
|
|
|
5,666
|
|
|
(387
|
)
|
|
12,577
|
|
Gross profit
|
—
|
|
|
3,282
|
|
|
2,479
|
|
|
—
|
|
|
5,761
|
|
Selling, general and administrative expenses
|
—
|
|
|
1,449
|
|
|
1,673
|
|
|
—
|
|
|
3,122
|
|
Intercompany service fees and other recharges
|
—
|
|
|
929
|
|
|
(929
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
—
|
|
|
904
|
|
|
1,735
|
|
|
—
|
|
|
2,639
|
|
Interest expense
|
—
|
|
|
1,221
|
|
|
100
|
|
|
—
|
|
|
1,321
|
|
Other expense/(income), net
|
—
|
|
|
140
|
|
|
165
|
|
|
—
|
|
|
305
|
|
Income/(loss) before income taxes
|
—
|
|
|
(457
|
)
|
|
1,470
|
|
|
—
|
|
|
1,013
|
|
Provision for/(benefit from) income taxes
|
—
|
|
|
(192
|
)
|
|
558
|
|
|
—
|
|
|
366
|
|
Equity in earnings of subsidiaries
|
634
|
|
|
899
|
|
|
—
|
|
|
(1,533
|
)
|
|
—
|
|
Net income/(loss)
|
634
|
|
|
634
|
|
|
912
|
|
|
(1,533
|
)
|
|
647
|
|
Net income/(loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Net income/(loss) excluding noncontrolling interest
|
$
|
634
|
|
|
$
|
634
|
|
|
$
|
899
|
|
|
$
|
(1,533
|
)
|
|
$
|
634
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) excluding noncontrolling interest
|
$
|
537
|
|
|
$
|
537
|
|
|
$
|
(734
|
)
|
|
$
|
197
|
|
|
$
|
537
|
|
The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of
December 30, 2017
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
509
|
|
|
$
|
1,120
|
|
|
$
|
—
|
|
|
$
|
1,629
|
|
Trade receivables
|
—
|
|
|
91
|
|
|
830
|
|
|
—
|
|
|
921
|
|
Receivables due from affiliates
|
—
|
|
|
716
|
|
|
207
|
|
|
(923
|
)
|
|
—
|
|
Dividends due from affiliates
|
135
|
|
|
—
|
|
|
—
|
|
|
(135
|
)
|
|
—
|
|
Sold receivables
|
—
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
353
|
|
Income taxes receivable
|
—
|
|
|
1,904
|
|
|
97
|
|
|
(1,419
|
)
|
|
582
|
|
Inventories
|
—
|
|
|
1,846
|
|
|
969
|
|
|
—
|
|
|
2,815
|
|
Short-term lending due from affiliates
|
—
|
|
|
1,598
|
|
|
3,816
|
|
|
(5,414
|
)
|
|
—
|
|
Other current assets
|
—
|
|
|
493
|
|
|
473
|
|
|
—
|
|
|
966
|
|
Total current assets
|
135
|
|
|
7,157
|
|
|
7,865
|
|
|
(7,891
|
)
|
|
7,266
|
|
Property, plant and equipment, net
|
—
|
|
|
4,577
|
|
|
2,543
|
|
|
—
|
|
|
7,120
|
|
Goodwill
|
—
|
|
|
11,067
|
|
|
33,757
|
|
|
—
|
|
|
44,824
|
|
Investments in subsidiaries
|
66,034
|
|
|
80,426
|
|
|
—
|
|
|
(146,460
|
)
|
|
—
|
|
Intangible assets, net
|
—
|
|
|
3,222
|
|
|
56,227
|
|
|
—
|
|
|
59,449
|
|
Long-term lending due from affiliates
|
—
|
|
|
1,700
|
|
|
2,029
|
|
|
(3,729
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
515
|
|
|
1,058
|
|
|
—
|
|
|
1,573
|
|
TOTAL ASSETS
|
$
|
66,169
|
|
|
$
|
108,664
|
|
|
$
|
103,479
|
|
|
$
|
(158,080
|
)
|
|
$
|
120,232
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
$
|
—
|
|
|
$
|
448
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
460
|
|
Current portion of long-term debt
|
—
|
|
|
2,577
|
|
|
166
|
|
|
—
|
|
|
2,743
|
|
Short-term lending due to affiliates
|
—
|
|
|
3,816
|
|
|
1,598
|
|
|
(5,414
|
)
|
|
—
|
|
Trade payables
|
—
|
|
|
2,718
|
|
|
1,731
|
|
|
—
|
|
|
4,449
|
|
Payables due to affiliates
|
—
|
|
|
207
|
|
|
716
|
|
|
(923
|
)
|
|
—
|
|
Accrued marketing
|
—
|
|
|
236
|
|
|
444
|
|
|
—
|
|
|
680
|
|
Accrued postemployment costs
|
—
|
|
|
—
|
|
|
51
|
|
|
—
|
|
|
51
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
1,571
|
|
|
(1,419
|
)
|
|
152
|
|
Interest payable
|
—
|
|
|
404
|
|
|
15
|
|
|
—
|
|
|
419
|
|
Dividends due to affiliates
|
—
|
|
|
135
|
|
|
—
|
|
|
(135
|
)
|
|
—
|
|
Other current liabilities
|
135
|
|
|
473
|
|
|
570
|
|
|
—
|
|
|
1,178
|
|
Total current liabilities
|
135
|
|
|
11,014
|
|
|
6,874
|
|
|
(7,891
|
)
|
|
10,132
|
|
Long-term debt
|
—
|
|
|
27,442
|
|
|
891
|
|
|
—
|
|
|
28,333
|
|
Long-term borrowings due to affiliates
|
—
|
|
|
2,029
|
|
|
1,919
|
|
|
(3,948
|
)
|
|
—
|
|
Deferred income taxes
|
—
|
|
|
1,245
|
|
|
12,831
|
|
|
—
|
|
|
14,076
|
|
Accrued postemployment costs
|
—
|
|
|
184
|
|
|
243
|
|
|
—
|
|
|
427
|
|
Other liabilities
|
—
|
|
|
716
|
|
|
301
|
|
|
—
|
|
|
1,017
|
|
TOTAL LIABILITIES
|
135
|
|
|
42,630
|
|
|
23,059
|
|
|
(11,839
|
)
|
|
53,985
|
|
Redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Total shareholders’ equity
|
66,034
|
|
|
66,034
|
|
|
80,207
|
|
|
(146,241
|
)
|
|
66,034
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
207
|
|
|
—
|
|
|
207
|
|
TOTAL EQUITY
|
66,034
|
|
|
66,034
|
|
|
80,414
|
|
|
(146,241
|
)
|
|
66,241
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
66,169
|
|
|
$
|
108,664
|
|
|
$
|
103,479
|
|
|
$
|
(158,080
|
)
|
|
$
|
120,232
|
|
The Kraft Heinz Company
Condensed Consolidating Balance Sheets
As of
December 31, 2016
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
2,830
|
|
|
$
|
1,374
|
|
|
$
|
—
|
|
|
$
|
4,204
|
|
Trade receivables
|
—
|
|
|
12
|
|
|
757
|
|
|
—
|
|
|
769
|
|
Receivables due from affiliates
|
—
|
|
|
712
|
|
|
111
|
|
|
(823
|
)
|
|
—
|
|
Dividends due from affiliates
|
39
|
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
Sold receivables
|
—
|
|
|
—
|
|
|
129
|
|
|
—
|
|
|
129
|
|
Income taxes receivable
|
—
|
|
|
1,959
|
|
|
10
|
|
|
(1,709
|
)
|
|
260
|
|
Inventories
|
—
|
|
|
1,759
|
|
|
925
|
|
|
—
|
|
|
2,684
|
|
Short-term lending due from affiliates
|
—
|
|
|
1,722
|
|
|
2,956
|
|
|
(4,678
|
)
|
|
—
|
|
Other current assets
|
—
|
|
|
270
|
|
|
437
|
|
|
—
|
|
|
707
|
|
Total current assets
|
39
|
|
|
9,264
|
|
|
6,699
|
|
|
(7,249
|
)
|
|
8,753
|
|
Property, plant and equipment, net
|
—
|
|
|
4,447
|
|
|
2,241
|
|
|
—
|
|
|
6,688
|
|
Goodwill
|
—
|
|
|
11,067
|
|
|
33,058
|
|
|
—
|
|
|
44,125
|
|
Investments in subsidiaries
|
57,358
|
|
|
70,877
|
|
|
—
|
|
|
(128,235
|
)
|
|
—
|
|
Intangible assets, net
|
—
|
|
|
3,364
|
|
|
55,933
|
|
|
—
|
|
|
59,297
|
|
Long-term lending due from affiliates
|
—
|
|
|
1,700
|
|
|
2,000
|
|
|
(3,700
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
501
|
|
|
1,116
|
|
|
—
|
|
|
1,617
|
|
TOTAL ASSETS
|
$
|
57,397
|
|
|
$
|
101,220
|
|
|
$
|
101,047
|
|
|
$
|
(139,184
|
)
|
|
$
|
120,480
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
$
|
—
|
|
|
$
|
642
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
645
|
|
Current portion of long-term debt
|
—
|
|
|
2,032
|
|
|
14
|
|
|
—
|
|
|
2,046
|
|
Short-term lending due to affiliates
|
—
|
|
|
2,956
|
|
|
1,722
|
|
|
(4,678
|
)
|
|
—
|
|
Trade payables
|
—
|
|
|
2,376
|
|
|
1,620
|
|
|
—
|
|
|
3,996
|
|
Payables due to affiliates
|
—
|
|
|
111
|
|
|
712
|
|
|
(823
|
)
|
|
—
|
|
Accrued marketing
|
—
|
|
|
277
|
|
|
472
|
|
|
—
|
|
|
749
|
|
Accrued postemployment costs
|
—
|
|
|
144
|
|
|
13
|
|
|
—
|
|
|
157
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
1,964
|
|
|
(1,709
|
)
|
|
255
|
|
Interest payable
|
—
|
|
|
401
|
|
|
14
|
|
|
—
|
|
|
415
|
|
Dividends due to affiliates
|
—
|
|
|
39
|
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
Other current liabilities
|
39
|
|
|
588
|
|
|
611
|
|
|
—
|
|
|
1,238
|
|
Total current liabilities
|
39
|
|
|
9,566
|
|
|
7,145
|
|
|
(7,249
|
)
|
|
9,501
|
|
Long-term debt
|
—
|
|
|
28,736
|
|
|
977
|
|
|
—
|
|
|
29,713
|
|
Long-term borrowings due to affiliates
|
—
|
|
|
2,000
|
|
|
1,902
|
|
|
(3,902
|
)
|
|
—
|
|
Deferred income taxes
|
—
|
|
|
1,382
|
|
|
19,466
|
|
|
—
|
|
|
20,848
|
|
Accrued postemployment costs
|
—
|
|
|
1,754
|
|
|
284
|
|
|
—
|
|
|
2,038
|
|
Other liabilities
|
—
|
|
|
424
|
|
|
382
|
|
|
—
|
|
|
806
|
|
TOTAL LIABILITIES
|
39
|
|
|
43,862
|
|
|
30,156
|
|
|
(11,151
|
)
|
|
62,906
|
|
Redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total shareholders’ equity
|
57,358
|
|
|
57,358
|
|
|
70,675
|
|
|
(128,033
|
)
|
|
57,358
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
216
|
|
|
—
|
|
|
216
|
|
TOTAL EQUITY
|
57,358
|
|
|
57,358
|
|
|
70,891
|
|
|
(128,033
|
)
|
|
57,574
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
57,397
|
|
|
$
|
101,220
|
|
|
$
|
101,047
|
|
|
$
|
(139,184
|
)
|
|
$
|
120,480
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the
Year
Ended
December 30, 2017
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used for) operating activities
|
$
|
2,888
|
|
|
$
|
1,499
|
|
|
$
|
(972
|
)
|
|
$
|
(2,888
|
)
|
|
$
|
527
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash receipts on sold receivables
|
—
|
|
|
—
|
|
|
2,286
|
|
|
—
|
|
|
2,286
|
|
Capital expenditures
|
—
|
|
|
(757
|
)
|
|
(460
|
)
|
|
—
|
|
|
(1,217
|
)
|
Proceeds from net investment hedges
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Net proceeds from/(payments on) intercompany lending activities
|
—
|
|
|
641
|
|
|
(542
|
)
|
|
(99
|
)
|
|
—
|
|
Additional investments in subsidiaries
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
58
|
|
|
23
|
|
|
—
|
|
|
81
|
|
Net cash provided by/(used for) investing activities
|
(22
|
)
|
|
(52
|
)
|
|
1,307
|
|
|
(77
|
)
|
|
1,156
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
—
|
|
|
(2,632
|
)
|
|
(12
|
)
|
|
—
|
|
|
(2,644
|
)
|
Proceeds from issuance of long-term debt
|
—
|
|
|
1,496
|
|
|
—
|
|
|
—
|
|
|
1,496
|
|
Debt issuance costs
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Net proceeds from/(payments on) intercompany borrowing activities
|
—
|
|
|
542
|
|
|
(641
|
)
|
|
99
|
|
|
—
|
|
Proceeds from issuance of commercial paper
|
—
|
|
|
6,043
|
|
|
—
|
|
|
—
|
|
|
6,043
|
|
Repayments of commercial paper
|
—
|
|
|
(6,249
|
)
|
|
—
|
|
|
—
|
|
|
(6,249
|
)
|
Dividends paid-Series A Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends paid-common stock
|
(2,888
|
)
|
|
(2,888
|
)
|
|
—
|
|
|
2,888
|
|
|
(2,888
|
)
|
Redemption of Series A Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other intercompany capital stock transactions
|
—
|
|
|
22
|
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
Other financing activities, net
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Net cash provided by/(used for) financing activities
|
(2,866
|
)
|
|
(3,672
|
)
|
|
(653
|
)
|
|
2,965
|
|
|
(4,226
|
)
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
—
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
57
|
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
|
—
|
|
|
(2,225
|
)
|
|
(261
|
)
|
|
—
|
|
|
(2,486
|
)
|
Balance at beginning of period
|
—
|
|
|
2,869
|
|
|
1,386
|
|
|
—
|
|
|
4,255
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
644
|
|
|
$
|
1,125
|
|
|
$
|
—
|
|
|
$
|
1,769
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the
Year
Ended
December 31, 2016
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used for) operating activities
|
$
|
3,097
|
|
|
$
|
4,369
|
|
|
$
|
(1,705
|
)
|
|
$
|
(3,112
|
)
|
|
$
|
2,649
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash receipts on sold receivables
|
—
|
|
|
—
|
|
|
2,589
|
|
|
—
|
|
|
2,589
|
|
Capital expenditures
|
—
|
|
|
(923
|
)
|
|
(324
|
)
|
|
—
|
|
|
(1,247
|
)
|
Proceeds from net investment hedges
|
—
|
|
|
104
|
|
|
(13
|
)
|
|
—
|
|
|
91
|
|
Net proceeds from/(payments on) intercompany lending activities
|
—
|
|
|
690
|
|
|
37
|
|
|
(727
|
)
|
|
—
|
|
Additional investments in subsidiaries
|
55
|
|
|
(10
|
)
|
|
—
|
|
|
(45
|
)
|
|
—
|
|
Return of capital
|
8,987
|
|
|
—
|
|
|
—
|
|
|
(8,987
|
)
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
25
|
|
|
(6
|
)
|
|
—
|
|
|
19
|
|
Net cash provided by/(used for) investing activities
|
9,042
|
|
|
(114
|
)
|
|
2,283
|
|
|
(9,759
|
)
|
|
1,452
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
—
|
|
|
(72
|
)
|
|
(14
|
)
|
|
—
|
|
|
(86
|
)
|
Proceeds from issuance of long-term debt
|
—
|
|
|
6,978
|
|
|
3
|
|
|
—
|
|
|
6,981
|
|
Debt issuance costs
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
(53
|
)
|
Net proceeds from/(payments on) intercompany borrowing activities
|
—
|
|
|
(37
|
)
|
|
(690
|
)
|
|
727
|
|
|
—
|
|
Proceeds from issuance of commercial paper
|
—
|
|
|
6,680
|
|
|
—
|
|
|
—
|
|
|
6,680
|
|
Repayments of commercial paper
|
—
|
|
|
(6,043
|
)
|
|
—
|
|
|
—
|
|
|
(6,043
|
)
|
Dividends paid-Series A Preferred Stock
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(180
|
)
|
Dividends paid-common stock
|
(3,584
|
)
|
|
(3,764
|
)
|
|
(16
|
)
|
|
3,780
|
|
|
(3,584
|
)
|
Redemption of Series A Preferred Stock
|
(8,320
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,320
|
)
|
Other intercompany capital stock transactions
|
—
|
|
|
(8,374
|
)
|
|
10
|
|
|
8,364
|
|
|
—
|
|
Other financing activities, net
|
(55
|
)
|
|
47
|
|
|
(8
|
)
|
|
—
|
|
|
(16
|
)
|
Net cash provided by/(used for) financing activities
|
(12,139
|
)
|
|
(4,638
|
)
|
|
(715
|
)
|
|
12,871
|
|
|
(4,621
|
)
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
—
|
|
|
—
|
|
|
(137
|
)
|
|
—
|
|
|
(137
|
)
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
|
—
|
|
|
(383
|
)
|
|
(274
|
)
|
|
—
|
|
|
(657
|
)
|
Balance at beginning of period
|
—
|
|
|
3,252
|
|
|
1,660
|
|
|
—
|
|
|
4,912
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
2,869
|
|
|
$
|
1,386
|
|
|
$
|
—
|
|
|
$
|
4,255
|
|
The Kraft Heinz Company
Condensed Consolidating Statements of Cash Flows
For the
Year
Ended
January 3, 2016
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used for) operating activities
|
$
|
632
|
|
|
$
|
1,363
|
|
|
$
|
64
|
|
|
$
|
(787
|
)
|
|
$
|
1,272
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash receipts on sold receivables
|
—
|
|
|
—
|
|
|
1,331
|
|
|
—
|
|
|
1,331
|
|
Capital expenditures
|
—
|
|
|
(400
|
)
|
|
(248
|
)
|
|
—
|
|
|
(648
|
)
|
Proceeds from net investment hedges
|
—
|
|
|
488
|
|
|
—
|
|
|
—
|
|
|
488
|
|
Net proceeds from/(payments on) intercompany lending activities
|
—
|
|
|
737
|
|
|
(721
|
)
|
|
(16
|
)
|
|
—
|
|
Payments to acquire Kraft Foods Group, Inc., net of cash acquired
|
—
|
|
|
(9,535
|
)
|
|
67
|
|
|
—
|
|
|
(9,468
|
)
|
Additional investments in subsidiaries
|
(10,000
|
)
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
Return of capital
|
1,570
|
|
|
5
|
|
|
—
|
|
|
(1,575
|
)
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
(2
|
)
|
|
(10
|
)
|
|
—
|
|
|
(12
|
)
|
Net cash provided by/(used for) investing activities
|
(8,430
|
)
|
|
(8,707
|
)
|
|
419
|
|
|
8,409
|
|
|
(8,309
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
—
|
|
|
(12,284
|
)
|
|
(30
|
)
|
|
—
|
|
|
(12,314
|
)
|
Proceeds from issuance of long-term debt
|
—
|
|
|
14,032
|
|
|
802
|
|
|
—
|
|
|
14,834
|
|
Debt prepayment and extinguishment costs
|
—
|
|
|
(105
|
)
|
|
—
|
|
|
—
|
|
|
(105
|
)
|
Debt issuance costs
|
—
|
|
|
(94
|
)
|
|
(4
|
)
|
|
—
|
|
|
(98
|
)
|
Net proceeds from/(payments on) intercompany borrowing activities
|
—
|
|
|
721
|
|
|
(737
|
)
|
|
16
|
|
|
—
|
|
Proceeds from issuance of common stock to Sponsors
|
10,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
Dividends paid-Series A Preferred Stock
|
(900
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(900
|
)
|
Dividends paid-common stock
|
(1,302
|
)
|
|
(2,202
|
)
|
|
(155
|
)
|
|
2,357
|
|
|
(1,302
|
)
|
Other intercompany capital stock transactions
|
—
|
|
|
10,000
|
|
|
(5
|
)
|
|
(9,995
|
)
|
|
—
|
|
Other financing activities, net
|
—
|
|
|
(12
|
)
|
|
(56
|
)
|
|
—
|
|
|
(68
|
)
|
Net cash provided by/(used for) financing activities
|
7,798
|
|
|
10,056
|
|
|
(185
|
)
|
|
(7,622
|
)
|
|
10,047
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
—
|
|
|
—
|
|
|
(408
|
)
|
|
—
|
|
|
(408
|
)
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
|
—
|
|
|
2,712
|
|
|
(110
|
)
|
|
—
|
|
|
2,602
|
|
Balance at beginning of period
|
—
|
|
|
540
|
|
|
1,770
|
|
|
—
|
|
|
2,310
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
3,252
|
|
|
$
|
1,660
|
|
|
$
|
—
|
|
|
$
|
4,912
|
|
The following tables provide a reconciliation of cash and cash equivalents, as reported on our unaudited condensed consolidating balance sheets, to cash, cash equivalents, and restricted cash, as reported on our unaudited condensed consolidating statements of cash flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
509
|
|
|
$
|
1,120
|
|
|
$
|
—
|
|
|
$
|
1,629
|
|
Restricted cash included in other assets (current)
|
—
|
|
|
135
|
|
|
5
|
|
|
—
|
|
|
140
|
|
Cash, cash equivalents, and restricted cash
|
$
|
—
|
|
|
$
|
644
|
|
|
$
|
1,125
|
|
|
$
|
—
|
|
|
$
|
1,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Parent Guarantor
|
|
Subsidiary Issuer
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
2,830
|
|
|
$
|
1,374
|
|
|
$
|
—
|
|
|
$
|
4,204
|
|
Restricted cash included in other assets (current)
|
—
|
|
|
39
|
|
|
3
|
|
|
—
|
|
|
42
|
|
Restricted cash included in other assets (noncurrent)
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Cash, cash equivalents, and restricted cash
|
$
|
—
|
|
|
$
|
2,869
|
|
|
$
|
1,386
|
|
|
$
|
—
|
|
|
$
|
4,255
|
|