KRAFT HEINZ Overview
Description of the Company: We manufacture and market food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products throughout the world. We manage and report our operating results through three reportable segments defined by geographic region:United States , International, andCanada . See Note 17, Segment Reporting, in Item 1, Financial Statements, for our financial information by segment. Items Affecting Comparability of Financial Results Impairment Losses: Our results of operations reflect goodwill impairment losses of$265 million and intangible asset impairment losses of$78 million for the nine months endedSeptember 25, 2021 compared to goodwill impairment losses of$2.3 billion and intangible asset impairment losses of$1.1 billion for the nine months endedSeptember 26, 2020 . See Note 8,Goodwill and Intangible Assets, in Item 1, Financial Statements, for additional information on these impairment losses. COVID-19 Impacts: We have been actively monitoring the impact of COVID-19 on our business. During the nine months endedSeptember 26, 2020 , particularly in March andApril 2020 , we experienced consolidated net sales growth as higher demand for our retail products more than offset declines in our foodservice business. During the nine months endedSeptember 25, 2021 , we continued to experience strong retail demand compared to pre-pandemic periods. However, retail consumption declined when compared to the comparable 2020 period based on the strong consumer demand early on in the COVID-19 pandemic, particularly in March andApril 2020 . In the second and third quarters of 2021, our foodservice business experienced increased consumer demand compared to the comparable prior year periods, which were negatively impacted by the COVID-19 pandemic. We continue to see decreased foodservice demand in certain parts of our global business, includingthe United States andCanada , compared to pre-pandemic periods. COVID-19 and its impacts are unprecedented and continuously evolving, and the long-term impacts to our financial condition and results of operations are still uncertain. See Liquidity and Capital Resources for additional information related to the impact of COVID-19 on our overall results. For information related to the impact of COVID-19 on our segment results see Results of Operations by Segment. Inflation and Supply Chain Impacts: During the nine months endedSeptember 25, 2021 , we experienced higher than expected commodity costs and supply chain costs, including logistics, procurement, and manufacturing costs, largely due to inflationary pressures. We expect this cost inflation to remain elevated through the remainder of 2021 and to continue into at least the first half of 2022. While these costs have a negative impact on our results of operations, we are currently managing and expect to continue to manage the impact of this inflation through pricing actions and efficiency gains. However, we expect that there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. Currently, we expect to experience high-single-digit gross cost inflation as a percentage of cost of products sold in the second half of 2021, though this is an estimate and could change as circumstances evolve. Additionally, given the increased demand for our products, we have experienced capacity constraints for certain products when demand has exceeded our current manufacturing capacity. As discussed in Liquidity and Capital Resources, we are working to expand capacity through increased capital investments. However, until these capacity constraints are alleviated, these constraints have the potential to impact our service levels, market share, financial condition, results of operations, or cash flows. While we have not experienced any material labor shortage to date, we have observed an increasingly competitive labor market. Increased employee turnover, changes in the availability of our workers, or labor shortages in our supply chain could result in increased costs and impact our ability to meet consumer demand, which could negatively affect our financial condition, results of operations, or cash flows. Results of Operations We disclose in this report certain non-GAAP financial measures. These non-GAAP financial measures assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our underlying operations. For additional information and reconciliations from our condensed consolidated financial statements see Non-GAAP Financial Measures. 39 -------------------------------------------------------------------------------- Consolidated Results of Operations Summary of Results: For the Three Months Ended For the Nine Months Ended September 25, September 26, September 25, September 26, 2021 2020 % Change 2021 2020 % Change (in millions, except per share data) (in millions, except per share data) Net sales$ 6,324 $ 6,441 (1.8) %$ 19,333 $ 19,246 0.5 % Operating income/(loss) 1,156 1,147 0.8 % 3,480 578 502.3 % Net income/(loss) 736 598 23.2 % 1,279 (673) 289.9 % Net income/(loss) attributable to common shareholders 733 597 23.0 % 1,269 (676) 287.6 % Diluted EPS 0.59 0.49 20.4 % 1.03 (0.55) 287.3 % Net Sales: For the Three Months Ended For the Nine Months Ended September 25, September 26, September 25, September 26, 2021 2020 % Change 2021 2020 % Change (in millions) (in millions) Net sales$ 6,324 $ 6,441 (1.8) %$ 19,333 $ 19,246 0.5 % Organic Net Sales(a) 6,260 6,182 1.3 % 18,566 18,466 0.5 % (a) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item. Three Months EndedSeptember 25, 2021 Compared to the Three Months EndedSeptember 26, 2020 : Net sales decreased 1.8% to$6.3 billion for the three months endedSeptember 25, 2021 compared to$6.4 billion for the three months endedSeptember 26, 2020 , including the unfavorable impact of divestitures (4.0 pp) and the favorable impact of foreign currency (0.9 pp). OrganicNet Sales increased 1.3% to$6.3 billion for the three months endedSeptember 25, 2021 compared to$6.2 billion for the three months endedSeptember 26, 2020 , primarily driven by higher pricing (1.5 pp), which more than offset unfavorable volume/mix (0.2 pp). Pricing was higher across all segments, while volume/mix was unfavorable in ourCanada andUnited States segments and flat in our International segment. Nine Months EndedSeptember 25, 2021 Compared to the Nine Months EndedSeptember 26, 2020 : Net sales increased 0.5% to$19.3 billion for the nine months endedSeptember 25, 2021 compared to$19.2 billion for the nine months endedSeptember 26, 2020 , including the favorable impact of foreign currency (1.6 pp) and the unfavorable impact of divestitures (1.6 pp). OrganicNet Sales increased 0.5% to$18.6 billion for the nine months endedSeptember 25, 2021 compared to$18.5 billion for the nine months endedSeptember 26, 2020 , driven by higher pricing (1.5 pp), which more than offset unfavorable volume/mix (1.0 pp). Pricing was higher across all segments, while volume/mix was unfavorable across all segments. Net Income/(Loss): For the Three Months Ended For the Nine Months Ended September 25, September 26, 2021 2020 % Change September 25, 2021 September 26, 2020 % Change (in millions) (in millions) Operating income/(loss)$ 1,156 $ 1,147 0.8 % 3,480 578 502.3 % Net income/(loss) 736 598 23.2 % 1,279 (673) 289.9 % Net income/(loss) attributable to common shareholders 733 597 23.0 % 1,269 (676) 287.6 % Adjusted EBITDA(a) 1,479 1,667 (11.3) % 4,765 4,881 (2.4) %
(a) Adjusted EBITDA is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
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Three Months Ended September 25, 2021 Compared to the Three Months Ended
September 26, 2020 :
Operating income/(loss) increased to $1.2 billion for the three months ended
September 25, 2021 compared to $1.1 billion for the three months ended
September 26, 2020 , primarily driven by a $300 million non-cash goodwill
impairment loss in the prior year period related to the Cheese Transaction, and
efficiency gains, higher Organic Net Sales , and lower general corporate
expenses. These increases to operating income/(loss) more than offset higher
supply chain costs, reflecting inflationary pressure in logistics, procurement,
and manufacturing costs; higher commodity costs, including key commodity (which
we define as dairy, meat, and coffee) and packaging costs; unrealized losses on
commodity hedges in the current year period compared to unrealized gains on
commodity hedges in the prior year period; and the unfavorable impact of
divestitures.
Net income/(loss) increased 23.2% to $736 million for the three months ended
September 25, 2021 compared to $598 million for the three months ended
September 26, 2020 . This increase was driven by lower tax expense, favorable
changes in other expense/(income), and the operating income/(loss) factors
discussed above, which more than offset higher interest expense.
•Our effective tax rate for the three months ended September 25, 2021 was an
expense of 16.2% on pre-tax income. Our effective tax rate was impacted by a
favorable geographic mix of pre-tax income in various non-U.S. jurisdictions and
certain favorable net discrete items, primarily the tax impact related to a
business in our International segment that no longer met the held for sale
criteria and the revaluation of our deferred tax balances due to changes in
state tax rates. Our effective tax rate for the three months ended September 26,
2020 was an expense of 34.1% on pre-tax income. Our effective tax rate was
unfavorably impacted by certain net discrete items, primarily the revaluation of
our deferred tax balances due to changes in international tax laws (7.8%) and
non-deductible goodwill impairment (7.1%) related to the Cheese Transaction.
These impacts were partially offset by the reversal of uncertain tax position
reserves in the U.S. and certain state jurisdictions and favorable changes in
estimates of certain 2019 U.S. income and deductions.
•Other expense/(income) was $138 million of income for the three months ended
September 25, 2021 compared to $73 million of income for the three months ended
September 26, 2020 . This change was primarily driven by a $26 million net
foreign exchange gain in the third quarter of 2021 compared to a $57 million net
foreign exchange loss in the third quarter of 2020, a $76 million net gain on
sales of businesses in the third quarter of 2021, primarily related to a
business in our International segment that no longer met the held for sale
criteria, and a $10 million increase in net pension and postretirement
non-service benefits as compared to the prior year period. These impacts were
partially offset by a $23 million net loss on derivative activities in the third
quarter of 2021 compared to a $50 million net gain on derivative activities in
the third quarter of 2020 and a $29 million decrease in amortization of prior
service credits as compared to the prior year period.
•Interest expense was $415 million for the three months ended September 25, 2021
compared to $314 million for the three months ended September 26, 2020 . This
increase was primarily driven by a $147 million loss on extinguishment of debt
recognized in the current year period in connection with the Q3 2021 Debt
Redemption and the Q3 2021 Repurchases. The remaining change in interest expense
was a decrease compared to the prior year period as our long-term debt balance
was reduced through tender offers, redemptions, repurchases, and repayments.
Adjusted EBITDA decreased 11.3% to $1.5 billion for the three months ended
September 25, 2021 compared to $1.7 billion for the three months ended
September 26, 2020 , as lower Adjusted EBITDA in the United States ,
International, and Canada segments more than offset lower general corporate
expenses and the favorable impact of foreign currency (0.6 pp).
Nine Months Ended September 25, 2021 Compared to the Nine Months Ended
September 26, 2020 :
Operating income/(loss) increased to $3.5 billion for the nine months ended
September 25, 2021 compared to $578 million for the nine months ended
September 26, 2020 , primarily driven by lower non-cash impairment losses in the
current year period. Non-cash impairment losses were $343 million for the nine
months ended September 25, 2021 compared to $3.4 billion for the nine months
ended September 26, 2020 . The remaining change in operating income/(loss) was a
decrease of $154 million , primarily due to higher supply chain costs, reflecting
inflationary pressure in logistics, procurement, and manufacturing costs; higher
commodity costs, including key commodity and packaging costs; costs relating to
the settlement of the previously disclosed SEC investigation; and the
unfavorable impact of divestitures. These decreases to operating income/(loss)
more than offset efficiency gains, higher Organic Net Sales , unrealized gains on
commodity hedges in the current year period compared to unrealized losses on
commodity hedges in the prior year period, lower depreciation and amortization
expense, lower general corporate expenses, and the favorable impact of foreign
currency.
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Net income/(loss) increased 289.9% to income of $1.3 billion for the nine months
ended September 25, 2021 compared to a loss of $673 million for the nine months
ended September 26, 2020 . This increase was driven by the operating
income/(loss) factors discussed above (primarily lower non-cash impairment
losses in the current year period), which more than offset higher tax expense,
higher interest expense, and unfavorable changes in other expense/(income).
•Our effective tax rate for the nine months ended September 25, 2021 was an
expense of 42.6% on pre-tax income. Our effective tax rate was unfavorably
impacted by certain net discrete items, primarily the tax impact related to the
Nuts Transaction (13.0%), the revaluation of our deferred tax balances due to
changes in international and state tax rates (9.0%), mainly an increase in U.K.
tax rates, and non-deductible goodwill impairments (3.2%). These impacts were
partially offset by a favorable geographic mix of pre-tax income in various
non-U.S. jurisdictions and the impact of certain net discrete items, including
the reversal of uncertain tax position reserves in certain U.S. state and
foreign jurisdictions. Our effective tax rate for the nine months ended
September 26, 2020 was an expense of 163.1% on pre-tax losses. Our effective tax
rate was unfavorably impacted by certain net discrete items, primarily related
to non-deductible goodwill impairments (202.8%) and the revaluation of our
deferred tax balances due to changes in international tax laws. These impacts
were partially offset by the impact of certain net discrete items, including the
favorable impact of establishing certain deferred tax assets for state tax
deductions.
•Interest expense was $1.4 billion for the nine months ended September 25, 2021
compared to $1.1 billion for the nine months ended September 26, 2020 . This
increase was primarily driven by a $571 million loss on extinguishment of debt
recognized in the current year period in connection with the 2021 Tender Offers,
the 2021 Debt Redemptions, and the 2021 Repurchases compared to a $109 million
loss on extinguishment of debt recognized in the prior year in connection with
the 2020 Tender Offer and 2020 Debt Redemptions, as well as $22 million of
interest expense related to the $4.0 billion drawn on our Senior Credit Facility
in the first quarter of 2020 and repaid in the second quarter of 2020. The
remaining change in interest expense was a decrease compared to the prior year
period as our long-term debt balance was reduced through tender offers,
redemptions, repurchases, and repayments.
•Other expense/(income) was $191 million of income for the nine months ended
September 25, 2021 compared to $232 million of income for the nine months ended
September 26, 2020 . This change was primarily driven by a $54 million net loss
on derivative activities in 2021 compared to a $77 million net gain on
derivative activities in 2020, and an $87 million decrease in amortization of
prior service credits as compared to the prior year period. These impacts were
partially offset by a $56 million net foreign exchange gain in 2021 compared to
an $81 million net foreign exchange loss in 2020, a $31 million increase in net
pension and postretirement non-service benefits as compared to the prior year
period, and an $11 million net gain on sales of businesses in 2021 compared to a
$2 million net loss on sales of businesses in 2020.
Adjusted EBITDA decreased 2.4% to $4.8 billion for the nine months ended
September 25, 2021 compared to $4.9 billion for the nine months ended
September 26, 2020 , including the favorable impact of foreign currency (1.2 pp).
Lower Adjusted EBITDA in the United States more than offset lower general
corporate expenses and Adjusted EBITDA growth in our Canada and International
segments.
Diluted EPS:
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 % Change 2021 2020 % Change
(in millions, except per share data)
Diluted EPS $ 0.59 $ 0.49 20.4 % $ 1.03 $ (0.55) 287.3 %
Adjusted EPS(a) 0.65 0.70 (7.1) % 2.15 2.09 2.9 %
(a) Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
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Three Months Ended September 25, 2021 Compared to the Three Months Ended
September 26, 2020 :
Diluted EPS increased 20.4% to $0.59 for the three months ended September 25,
2021 compared to $0.49 for the three months ended September 26, 2020 , primarily
driven by the net income/(loss) factors discussed above.
For the Three Months Ended
September 26,
September 25, 2021 2020 $ Change % Change
Diluted EPS $ 0.59 $ 0.49 $ 0.10 20.4 %
Restructuring activities 0.01 0.01 -
Unrealized losses/(gains) on commodity hedges 0.02 (0.04) 0.06
Impairment losses - 0.24 (0.24)
Losses/(gains) on sale of business(a) (0.06) - (0.06)
Debt prepayment and extinguishment costs 0.09 - 0.09
Adjusted EPS(a) $ 0.65 $ 0.70 $ (0.05) (7.1) %
Key drivers of change in Adjusted EPS(b):
Results of operations $ (0.09)
Results of divested operations (0.03)
Interest expense 0.02
Other expense/(income) (0.01)
Effective tax rate 0.06
$ (0.05)
(a) Includes a gain on the remeasurement of a disposal group that was
reclassified as held and used in the third quarter of 2021. See Note 4,
Acquisitions and Divestitures, in Item 1, Financial Statements, for additional
information.
(b) Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial
Measures section at the end of this item.
Adjusted EPS decreased 7.1% to $0.65 for the three months ended September 25,
2021 compared to $0.70 for the three months ended September 26, 2020 primarily
due to lower Adjusted EBITDA, higher equity award compensation expense, and
unfavorable changes in other expense/(income), which more than offset lower
taxes on adjusted earnings and lower interest expense.
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Nine Months Ended September 25, 2021 Compared to the Nine Months Ended
September 26, 2020 :
Diluted EPS increased 287.3% to earnings of $1.03 for the nine months ended
September 25, 2021 compared to a loss of $0.55 for the nine months ended
September 26, 2020 primarily driven by the net income/(loss) factors discussed
above.
For the Nine Months Ended
September 26,
September 25, 2021 2020 $ Change % Change
Diluted EPS $ 1.03 $ (0.55) $ 1.58 287.3 %
Restructuring activities 0.03 0.01 0.02
Unrealized losses/(gains) on commodity hedges (0.01) 0.03 (0.04)
Impairment losses 0.26 2.60 (2.34)
Certain non-ordinary course legal and regulatory
matters 0.05 - 0.05
Losses/(gains) on sale of business(a) 0.23 - 0.23
Debt prepayment and extinguishment costs 0.37 0.07 0.30
Discrete income tax items 0.19 (0.07) 0.26
Adjusted EPS(a) $ 2.15 $ 2.09 $ 0.06 2.9 %
Key drivers of change in Adjusted EPS(b):
Results of operations $ (0.03)
Results of divested operations (0.04)
Interest expense 0.05
Other expense/(income) (0.04)
Effective tax rate 0.14
Effect of dilutive equity awards(c) (0.02)
$ 0.06
(a) Includes a gain on the remeasurement of a disposal group that was
reclassified as held and used in the third quarter of 2021. See Note 4,
Acquisitions and Divestitures, in Item 1, Financial Statements, for additional
information.
(b) Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial
Measures section at the end of this item.
(c) Represents the impact of excluding the dilutive effects of equity awards
for the nine months ended September 26, 2020 as their inclusion would have had
an anti-dilutive effect on EPS due to net losses attributable to common
shareholders for the same period.
Adjusted EPS increased 2.9% to $2.15 for the nine months ended September 25,
2021 compared to $2.09 for the nine months ended September 26, 2020 primarily
driven by lower taxes on adjusted earnings, lower interest expense, and lower
depreciation and amortization costs, which more than offset lower Adjusted
EBITDA, unfavorable changes in other expense/(income), and higher equity award
compensation expense.
Results of Operations by Segment
Management evaluates segment performance based on several factors, including net
sales, Organic Net Sales , and Segment Adjusted EBITDA. Segment Adjusted EBITDA
is defined as net income/(loss) from continuing operations before interest
expense, other expense/(income), provision for/(benefit from) income taxes, and
depreciation and amortization (excluding restructuring activities); in addition
to these adjustments, we exclude, when they occur, the impacts of restructuring
activities, deal costs, unrealized gains/(losses) on commodity hedges (the
unrealized gains and losses are recorded in general corporate expenses until
realized; once realized, the gains and losses are recorded in the applicable
segment's operating results), impairment losses, certain non-ordinary course
legal and regulatory matters, and equity award compensation expense (excluding
restructuring activities). Segment Adjusted EBITDA is a tool that can assist
management and investors in comparing our performance on a consistent basis by
removing the impact of certain items that management believes do not directly
reflect our underlying operations.
Under highly inflationary accounting, the financial statements of a subsidiary
are remeasured into our reporting currency (U.S. dollars) based on the legally
available exchange rate at which we expect to settle the underlying
transactions. Exchange gains and losses from the remeasurement of monetary
assets and liabilities are reflected in net income/(loss), rather than
accumulated other comprehensive income/(losses) on the condensed consolidated
balance sheet, until such time as the economy is no longer considered highly
inflationary. The exchange gains and losses from remeasurement are recorded in
current net income and are classified within other expense/(income), as
nonmonetary currency devaluation. See Note 2, Significant Accounting Policies,
to the consolidated financial statements in our Annual Report on Form 10-K for
the year ended December 26, 2020 , for additional information.
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Net Sales :
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 2021 2020
(in millions)
Net sales:
United States $ 4,521 $ 4,710 $ 13,867 $ 14,122
International 1,383 1,325 4,190 3,931
Canada 420 406 1,276 1,193
Total net sales $ 6,324 $ 6,441 $ 19,333 $ 19,246
Organic Net Sales:
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 2021 2020
(in millions)
Organic Net Sales (a):
United States $ 4,521 $ 4,464 $ 13,421 $ 13,377
International 1,344 1,314 3,970 3,900
Canada 395 404 1,175 1,189
Total Organic Net Sales $ 6,260 $ 6,182 $ 18,566 $ 18,466 (a) Organic
Acquisitions and Organic Net
Net Sales Currency Divestitures Sales Price Volume/Mix
For the Three Months Ended
United States (4.0) % 0.0 pp (5.3) pp 1.3 % 1.4 pp (0.1) pp
International 4.4 % 2.6 pp (0.4) pp 2.2 % 2.2 pp 0.0 pp
Canada 3.4 % 5.7 pp (0.4) pp (1.9) % 0.2 pp (2.1) pp
Kraft Heinz (1.8) % 0.9 pp (4.0) pp 1.3 % 1.5 pp (0.2) pp
Acquisitions and Organic Net
Net Sales Currency Divestitures Sales Price Volume/Mix
For the Nine Months Ended
United States (1.8) % 0.0 pp (2.1) pp 0.3 % 1.3 pp (1.0) pp
International 6.6 % 5.0 pp (0.2) pp 1.8 % 2.1 pp (0.3) pp
Canada 7.0 % 8.3 pp (0.1) pp (1.2) % 2.2 pp (3.4) pp
Kraft Heinz 0.5 % 1.6 pp (1.6) pp 0.5 % 1.5 pp (1.0) pp
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Adjusted EBITDA:
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 2021 2020
(in millions)
Segment Adjusted EBITDA:
United States $ 1,173 $ 1,363 $ 3,827 $ 4,050
International 252 277 821 797
Canada 100 103 304 268
General corporate expenses (46) (76) (187) (234)
Depreciation and amortization (excluding
restructuring activities) (228) (232) (677) (722)
Restructuring activities (15) (8) (52) (12)
Deal costs (2) (9) (8) (9)
Unrealized gains/(losses) on commodity hedges (27) 70 12 (47)
Impairment losses - (300) (343) (3,399)
Certain non-ordinary course legal and regulatory
matters - - (62) -
Equity award compensation expense (excluding
restructuring activities) (51) (41) (155) (114)
Operating income/(loss) 1,156 1,147 3,480 578
Interest expense 415 314 1,443 1,066
Other expense/(income) (138) (73) (191) (232)
Income/(loss) before income taxes $ 879 $ 906 $ 2,228 $ (256)
United States:
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 % Change 2021 2020 % Change
(in millions) (in millions)
Net sales $ 4,521 $ 4,710 (4.0) % $ 13,867 $ 14,122 (1.8) %
Organic Net Sales(a) 4,521 4,464 1.3 % 13,421 13,377 0.3 %
Segment Adjusted EBITDA 1,173 1,363 (14.0) % 3,827 4,050 (5.5) %
(a) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP
Financial Measures section at the end of this item.
Three Months Ended September 25, 2021 Compared to the Three Months Ended
September 26, 2020 :
Net sales decreased 4.0% to $4.5 billion for the three months ended
September 25, 2021 compared to $4.7 billion for the three months ended
September 26, 2020 , including the unfavorable impact of divestitures (5.3 pp).
Organic Net Sales increased 1.3% to $4.5 billion for the three months ended
September 25, 2021 compared to $4.5 billion for the three months ended
September 26, 2020 , driven by higher pricing (1.4 pp), which more than offset
unfavorable volume/mix (0.1 pp). Higher pricing was primarily driven by
increases to reflect inflation-justified pricing. Unfavorable volume/mix was
primarily due to unfavorable changes in retail inventory levels and
extraordinary COVID-19-related retail takeaway in the prior year period, which
more than offset higher foodservice sales in the current year period.
Segment Adjusted EBITDA decreased 14.0% to $1.2 billion for the three months
ended September 25, 2021 compared to $1.4 billion for the three months ended
September 26, 2020 , as higher commodity costs, including key commodity and
packaging costs; higher supply chain costs, reflecting inflationary pressure in
logistics, procurement, and manufacturing costs; the impact of the Nuts
Transaction; and unfavorable mix more than offset higher pricing and efficiency
gains.
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Nine Months Ended September 25, 2021 Compared to the Nine Months Ended
September 26, 2020 :
Net sales decreased 1.8% to $13.9 billion for the nine months ended
September 25, 2021 compared to $14.1 billion for the nine months ended
September 26, 2020 , including the unfavorable impact of divestitures (2.1 pp).
Organic Net Sales increased 0.3% to $13.4 billion for the nine months ended
September 25, 2021 compared to $13.4 billion for the nine months ended
September 26, 2020 , driven by higher pricing (1.3 pp), which more than offset
unfavorable volume/mix (1.0 pp). Higher pricing was primarily driven by
increases to reflect inflation-justified pricing. Unfavorable volume/mix was
primarily due to extraordinary COVID-19-related retail takeaway and the negative
impact from exiting the McCafé licensing agreement, both in the prior year
period, which more than offset higher foodservice sales and favorable changes in
retail inventory levels versus the prior year period.
Segment Adjusted EBITDA decreased 5.5% to $3.8 billion for the nine months ended
September 25, 2021 compared to $4.1 billion for the nine months ended
September 26, 2020 , as higher supply chain costs, reflecting inflationary
pressure in logistics, procurement, and manufacturing costs, higher commodity
costs, including key commodity and packaging costs, the impact of the Nuts
Transaction, and lower volume more than offset higher pricing and efficiency
gains.
International:
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 % Change 2021 2020 % Change
(in millions) (in millions)
Net sales $ 1,383 $ 1,325 4.4 % $ 4,190 $ 3,931 6.6 %
Organic Net Sales(a) 1,344 1,314 2.2 % 3,970 3,900 1.8 %
Segment Adjusted EBITDA 252 277 (9.1) % 821 797 3.0 %
(a) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP
Financial Measures section at the end of this item.
Three Months Ended September 25, 2021 Compared to the Three Months Ended
September 26, 2020 :
Net sales increased 4.4% to $1.4 billion for the three months ended
September 25, 2021 compared to $1.3 billion for the three months ended
September 26, 2020 , including the favorable impact of foreign currency (2.6 pp)
and the unfavorable impact of divestitures (0.4 pp). Organic Net Sales increased
2.2% to $1.3 billion for the three months ended September 25, 2021 compared to
$1.3 billion for the three months ended September 26, 2020 , driven by higher
pricing (2.2 pp), while volume/mix was flat. Higher pricing included increases
across markets. Flat volume/mix was primarily due to declines in China , which
offset higher foodservice sales in the current year period.
Segment Adjusted EBITDA decreased 9.1% to $252 million for the three months
ended September 25, 2021 compared to $277 million for the three months ended
September 26, 2020 , primarily due to higher supply chain costs, reflecting
inflationary pressure in manufacturing, procurement, and logistics; higher
commodity costs; and declines in China , which more than offset efficiency gains,
higher pricing, and the favorable impact of foreign currency (2.2 pp).
Nine Months Ended September 25, 2021 Compared to the Nine Months Ended
September 26, 2020 :
Net sales increased 6.6% to $4.2 billion for the nine months ended September 25,
2021 compared to $3.9 billion for the nine months ended September 26, 2020 ,
including the favorable impact of foreign currency (5.0 pp) and the unfavorable
impact of divestitures (0.2 pp). Organic Net Sales increased 1.8% to $4.0
billion for the nine months ended September 25, 2021 compared to $3.9 billion
for the nine months ended September 26, 2020 , driven by higher pricing (2.1 pp),
which more than offset unfavorable volume/mix (0.3 pp). Higher pricing included
increases across markets. Unfavorable volume/mix was primarily due to
extraordinary COVID-19-related retail takeaway in the prior year period and
declines in China , which more than offset higher foodservice sales in the
current year period.
Segment Adjusted EBITDA increased 3.0% to $821 million for the nine months ended
September 25, 2021 compared to $797 million for the nine months ended
September 26, 2020 , primarily driven by efficiency gains, higher pricing, and
the favorable impact of foreign currency (5.0 pp), which more than offset higher
supply chain costs, reflecting inflationary pressure in procurement,
manufacturing, and logistics; higher commodity costs; and lower volume.
47
--------------------------------------------------------------------------------Canada : For the Three Months Ended For the Nine Months Ended September 25, September 26, September 25, September 26, 2021 2020 % Change 2021 2020 % Change (in millions) (in millions) Net sales $ 420$ 406 3.4 %$ 1,276 $ 1,193 7.0 % Organic Net Sales(a) 395 404 (1.9) % 1,175 1,189 (1.2) % Segment Adjusted EBITDA 100 103 (2.1) % 304 268 13.4 % (a) OrganicNet Sales is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item. Three Months EndedSeptember 25, 2021 Compared to the Three Months EndedSeptember 26, 2020 : Net sales increased 3.4% to$420 million for the three months endedSeptember 25, 2021 compared to$406 million for the three months endedSeptember 26, 2020 including the favorable impact of foreign currency (5.7 pp) and the unfavorable impact of divestitures (0.4 pp). OrganicNet Sales decreased 1.9% to$395 million for the three months endedSeptember 25, 2021 compared to$404 million for the three months endedSeptember 26, 2020 , due to unfavorable volume/mix (2.1 pp), which more than offset higher pricing (0.2 pp). Unfavorable volume/mix was primarily due to extraordinary COVID-19-related retail takeaway in the prior year period, which more than offset higher foodservice sales in the current year period. Pricing was higher primarily driven by increases in foodservice and condiments and sauces due, in part, to inflation, which more than offset higher promotional costs versus the prior year. Segment Adjusted EBITDA decreased 2.1% to$100 million for the three months endedSeptember 25, 2021 compared to$103 million for the three months endedSeptember 26, 2020 , primarily due to higher supply chain costs, reflecting inflationary pressure in procurement and manufacturing, and lower volume, which more than offset efficiency gains and the favorable impact of foreign currency (5.3 pp). Nine Months EndedSeptember 25, 2021 Compared to the Nine Months EndedSeptember 26, 2020 : Net sales increased 7.0% to$1.3 billion for the nine months endedSeptember 25, 2021 compared to$1.2 billion for the nine months endedSeptember 26, 2020 including the favorable impact of foreign currency (8.3 pp) and the unfavorable impact of divestitures (0.1 pp). OrganicNet Sales decreased 1.2% to$1.2 billion for the nine months endedSeptember 25, 2021 compared to$1.2 billion for the nine months endedSeptember 26, 2020 , due to unfavorable volume/mix (3.4 pp), which more than offset higher pricing (2.2 pp). Unfavorable volume/mix was primarily due to extraordinary COVID-19-related retail takeaway in the prior year period, which more than offset higher foodservice sales in the current year period. Pricing was higher primarily driven by increases in foodservice and condiments and sauces due, in part, to inflation. Segment Adjusted EBITDA increased 13.4% to$304 million for the nine months endedSeptember 25, 2021 compared to$268 million for the nine months endedSeptember 26, 2020 , primarily driven by efficiency gains, higher pricing, and the favorable impact of foreign currency (9.0 pp), which more than offset lower volume and higher supply chain costs, reflecting inflationary pressure in manufacturing, procurement, and logistics. Liquidity and Capital Resources InFebruary 2020 , Fitch Ratings ("Fitch") andS&P Global Ratings ("S&P") downgraded our long-term credit rating from BBB- to BB+. These downgrades adversely affect our ability to access the commercial paper market. In addition, we could experience an increase in interest costs as a result of the downgrades. These downgrades do not constitute a default or event of default under any of our debt instruments. Limitations on or elimination of our ability to access the commercial paper program may require us to borrow under the Senior Credit Facility, if necessary to meet liquidity needs. Our ability to borrow under the Senior Credit Facility is not affected by the downgrades. As of the date of this filing, our long-term debt is rated BB+ by both Fitch and S&P and Baa3 byMoody's Investor Services, Inc. ("Moody's"), with a positive outlook from Fitch and a stable outlook from Moody's and S&P. We believe that cash generated from our operating activities and Senior Credit Facility will provide sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations, payment of our anticipated quarterly dividends, planned capital expenditures, restructuring expenditures, and contributions to our postemployment benefit plans for the next 12 months and to fund our announced acquisitions. An additional potential source of liquidity is access to capital markets. We intend to use our cash on hand for daily funding requirements. 48 -------------------------------------------------------------------------------- In the second quarter of 2021, we received approximately$3.4 billion of cash consideration following the closing of the Nuts Transaction. In connection with the Nuts Transaction, we paid approximately$525 million of cash taxes in the third quarter of 2021, and we expect to pay additional cash taxes of approximately$175 million in the fourth quarter of 2021, primarily toU.S. federal and state tax authorities. We primarily utilized the post-tax transaction proceeds, along with cash on hand, to fund opportunistic repayments of long-term debt, including the Q2 2021 Tender Offers, the Q3 2021 Debt Redemption, and the Q3 2021 Repurchases. See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information on these debt transactions. Cash Flow Activity for the Nine Months EndedSeptember 25, 2021 Compared to the Nine Months EndedSeptember 26, 2020 : Net Cash Provided by/Used for Operating Activities: Net cash provided by operating activities was$2.4 billion for the nine months endedSeptember 25, 2021 compared to$3.3 billion for the nine months endedSeptember 26, 2020 . This decrease was primarily driven by higher cash tax payments on divestitures in 2021 related to the Nuts Transaction, higher cash outflows for variable compensation in 2021 compared to 2020, higher cash outflows from increased promotional activity versus the prior year period, and lower Adjusted EBITDA. These impacts were partially offset by lower cash outflows for inventories and favorable changes in accounts payable compared to the prior year, largely due to the timing of purchases and favorable payment terms. Net Cash Provided by/Used for Investing Activities: Net cash provided by investing activities was$2.7 billion for the nine months endedSeptember 25, 2021 compared to net cash used for investing activities of$362 million for the nine months endedSeptember 26, 2020 . This change was primarily driven by proceeds from the Nuts Transaction in the current year, partially offset by higher capital expenditures in 2021 compared to 2020. We expect 2021 capital expenditures to be approximately$1.0 billion as compared to 2020 capital expenditures of$596 million . This increase is primarily due to increased capital investments, largely for capacity expansion, and the COVID-19 pandemic, which caused delays in our planned 2020 projects and spend. Given the continuing COVID-19 pandemic, our estimates of 2021 capital expenditures are subject to change. Net Cash Provided by/Used for Financing Activities: Net cash used for financing activities was$6.3 billion for the nine months endedSeptember 25, 2021 compared to$2.5 billion for the nine months endedSeptember 26, 2020 . This change was primarily due to prior year proceeds from issuance of the 2020 Notes and higher debt prepayment and extinguishment costs as well as higher cash outflows related to equity awards in 2021 compared to 2020. These impacts were partially offset by lower repayments of long-term debt in the current year. See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information on our debt repayments and 2020 Notes. Cash Held by International Subsidiaries: Of the$2.3 billion cash and cash equivalents on our condensed consolidated balance sheet atSeptember 25, 2021 ,$1.2 billion was held by international subsidiaries. Subsequent toJanuary 1, 2018 , we consider the unremitted earnings of certain international subsidiaries that impose local country taxes on dividends to be indefinitely reinvested. For those undistributed earnings considered to be indefinitely reinvested, our intent is to reinvest these funds in our international operations, and our current plans do not demonstrate a need to repatriate the accumulated earnings to fund ourU.S. cash requirements. The amount of unrecognized deferred tax liabilities for local country withholding taxes that would be owed related to our 2018 through 2021 accumulated earnings of certain international subsidiaries is approximately$55 million . Our undistributed historic earnings in foreign subsidiaries throughDecember 30, 2017 are currently not considered to be indefinitely reinvested. Related to these undistributed historic earnings, we had recorded a deferred tax liability of approximately$20 million on approximately$350 million of historic earnings atSeptember 25, 2021 and a deferred tax liability of approximately$20 million on approximately$300 million of historic earnings atDecember 26, 2020 . The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed. Trade Payables Programs: In order to manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. Our current payment terms with our suppliers, which we deem to be commercially reasonable, generally range from 0 to 200 days. We also maintain agreements with third party administrators that allow participating suppliers to track payment obligations from us, and, at the sole discretion of the supplier, sell one or more of those payment obligations to participating financial institutions. We have no economic interest in a supplier's decision to enter into these agreements and no direct financial relationship with the financial institutions. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Supplier participation in these agreements is voluntary. We estimate that the amounts outstanding under these programs were$785 million atSeptember 25, 2021 and$740 million atDecember 26, 2020 . 49 -------------------------------------------------------------------------------- Borrowing Arrangements: We maintain our Senior Credit Facility, which, following the execution of the Amendment inOctober 2020 and the 2021 Extension Agreement inApril 2021 , provides aggregate commitments of$4.1 billion throughJuly 6, 2023 and$4.0 billion throughJuly 6, 2025 . Subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to$900 million . In the first quarter of 2020, as a precautionary measure to preserve financial flexibility in light of the uncertainty in the global economy resulting from the COVID-19 pandemic, we borrowed$4.0 billion under our Senior Credit Facility. We repaid the full$4.0 billion during the second quarter of 2020. No amounts were drawn on our Senior Credit Facility atSeptember 25, 2021 , atDecember 26, 2020 , or during the nine months endedSeptember 25, 2021 . The Senior Credit Facility contains representations, warranties, and covenants that are typical for these types of facilities and could upon the occurrence of certain events of default restrict our ability to access our Senior Credit Facility. We were in compliance with all financial covenants during the nine months endedSeptember 25, 2021 . Long-Term Debt: Our long-term debt, including the current portion, was$24.0 billion atSeptember 25, 2021 and$28.3 billion atDecember 26, 2020 . This decrease was primarily related to the approximately$2.3 billion aggregate principal amount of senior notes that were validly tendered and accepted in connection with the 2021 Tender Offers, the$1.2 billion aggregate principal amount of senior notes redeemed in connection with the 2021 Debt Redemptions, the approximately$428 million aggregate principal amount of senior notes repurchased in connection with the 2021 Repurchases, the$111 million aggregate principal amount of senior notes that were repaid at maturity inFebruary 2021 , and the$34 million aggregate principal amount of senior notes that were repaid at maturity in September 2021. We used cash on hand to fund the Q1 2021 Tender Offer, the Q2 2021 Debt Redemption, and the Q2 2021 Repurchases and to pay fees and expenses in connection therewith. We used proceeds from the Nuts Transaction along with cash on hand to fund the Q2 2021 Tender Offers, the Q3 2021 Debt Redemption, and the Q3 2021 Repurchases and to pay fees and expenses in connection therewith. In the fourth quarter of 2021, we also used cash on hand to repurchase approximately$44 million of certain of our senior notes due inFebruary 2040 ,July 2045 , andJune 2046 under a Rule 10b5-1 plan. We have aggregate principal amounts of senior notes of approximately$6 million maturing inMarch 2022 , approximately$631 million maturing inJune 2022 , and approximately$315 million maturing inAugust 2022 . We may from time to time seek to retire or purchase our outstanding debt through redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately-negotiated transactions, Rule 10b5-1 plans, or otherwise. InSeptember 2020 , we entered into the Cheese Transaction, which includes approximately$3.2 billion of cash consideration. The Cheese Transaction is expected to close in the fourth quarter of 2021, subject to customary closing conditions, including regulatory approvals. We expect to use post-tax transaction proceeds from the Cheese Transaction, along with cash generated from our operating activities, to support our capital allocation priorities, including investments in the business and opportunistic repayments of long-term debt. See Note 4, Acquisitions and Divestitures, in Item 1, Financial Statements, for additional information on the Cheese Transaction. Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all financial covenants during the nine months endedSeptember 25, 2021 . See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information on our long-term debt activity in 2021 and Note 18, Debt, to the consolidated financial statements in our Annual Report on Form 10-K for the year endedDecember 26, 2020 for additional information on our borrowing arrangements and long-term debt. Supplemental Guarantor Information:The Kraft Heinz Company (as the "Parent Guarantor") fully and unconditionally guarantees all the senior unsecured registered notes (collectively, the "KHFC Senior Notes") issued by KHFC, our 100% owned operating subsidiary (the "Guarantee"). See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, and Note 18, Debt, to the consolidated financial statements in our Annual Report on Form 10-K for the year endedDecember 26, 2020 for additional descriptions of these guarantees. The payment of the principal, premium, and interest on the KHFC Senior Notes is fully and unconditionally guaranteed on a senior unsecured basis by the Parent Guarantor, pursuant to the terms and conditions of the applicable indenture. None of the Parent Guarantor's subsidiaries guarantee the KHFC Senior Notes. 50 -------------------------------------------------------------------------------- The Guarantee is the Parent Guarantor's senior unsecured obligation and is: (i) pari passu in right of payment with all of the Parent Guarantor's existing and future senior indebtedness; (ii) senior in right of payment to all of the Parent Guarantor's future subordinated indebtedness; (iii) effectively subordinated to all of the Parent Guarantor's existing and future secured indebtedness to the extent of the value of the assets secured by that indebtedness; and (iv) effectively subordinated to all existing and future indebtedness and other liabilities of the Parent Guarantor's subsidiaries. The KHFC Senior Notes are obligations exclusively of KHFC and the Parent Guarantor and not of any of the Parent Guarantor's other subsidiaries. Substantially all of the Parent Guarantor's operations are conducted through its subsidiaries. The Parent Guarantor's other subsidiaries are separate legal entities that have no obligation to pay any amounts due under the KHFC Senior Notes or to make any funds available therefor, whether by dividends, loans, or other payments. Except to the extent the Parent Guarantor is a creditor with recognized claims against its subsidiaries, all claims of creditors (including trade creditors) and holders of preferred stock, if any, of its subsidiaries will have priority with respect to the assets of such subsidiaries over its claims (and therefore the claims of its creditors, including holders of the KHFC Senior Notes). Consequently, the KHFC Senior Notes are structurally subordinated to all liabilities of the Parent Guarantor's subsidiaries and any subsidiaries that it may in the future acquire or establish. The obligations of the Parent Guarantor will terminate and be of no further force or effect in the following circumstances: (i) (a) KHFC's exercise of its legal defeasance option or, except in the case of a guarantee of any direct or indirect parent of KHFC, covenant defeasance option in accordance with the applicable indenture, or KHFC's obligations under the applicable indenture have been discharged in accordance with the terms of the applicable indenture or (b) as specified in a supplemental indenture to the applicable indenture; and (ii) the Parent Guarantor has delivered to the trustee an officer's certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable indenture have been complied with. The Guarantee is limited by its terms to an amount not to exceed the maximum amount that can be guaranteed by the Parent Guarantor without rendering the Guarantee voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. The following tables present summarized financial information for the Parent Guarantor and KHFC (as subsidiary issuer of the KHFC Senior Notes) (together, the "Obligor Group "), on a combined basis after the elimination of all intercompany balances and transactions between the Parent Guarantor and subsidiary issuer and investments in any subsidiary that is a non-guarantor. Summarized Statement of Income For the Nine Months Ended September 25, 2021 Net sales$ 12,943 Gross profit(a) 4,720 Goodwill impairment losses 230 Intercompany service fees and other recharges 2,875 Operating income/(loss) 849 Equity in earnings/(losses) of subsidiaries 1,674 Net income/(loss) 1,269 Net income/(loss) attributable to common shareholders 1,269 (a) For the nine months endedSeptember 25, 2021 , theObligor Group recorded$335 million of net sales to the non-guarantor subsidiaries and$23 million of purchases from the non-guarantor subsidiaries. 51 --------------------------------------------------------------------------------
Summarized Balance Sheets
September 25,
2021 December 26, 2020
ASSETS
Current assets $ 6,443 $ 6,978
Current assets due from affiliates(a) 2,765 3,233
Non-current assets 5,393 5,562
Goodwill 8,860 10,510
Intangible assets, net 2,252 2,475
Non-current assets due from affiliates(b) 207 207
LIABILITIES
Current liabilities$ 5,182 $ 4,611 Current liabilities due to affiliates(a) 5,610 5,160 Non-current liabilities 25,137 30,251 Non-current liabilities due to affiliates(b) 637 2,000 (a) Represents receivables and short-term lending due from and payables and short-term lending due to non-guarantor subsidiaries. (b) Represents long-term lending due from and long-term borrowings due to non-guarantor subsidiaries. Commodity Trends We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, tomatoes, potatoes, soybean and vegetable oils, sugar and other sweeteners, corn products, wheat products, and cocoa products, to manufacture our products. In addition, we purchase and use significant quantities of resins, metals, and cardboard to package our products, and we use natural gas, electricity, and diesel fuel in the manufacturing and distribution of our products. We continuously monitor worldwide supply and cost trends of these commodities. Following the closing of the Nuts Transaction in the second quarter of 2021, our purchase and use of nuts has significantly decreased. As such, we no longer consider nuts to be one of our key commodities inthe United States andCanada . We define our key commodities inthe United States andCanada as dairy, meat, and coffee. During the nine months endedSeptember 25, 2021 , we experienced cost increases for meat and coffee, while costs for dairy decreased. We also experienced cost increases for packaging materials due to market demand. We anticipate higher commodity costs for the remainder of 2021 and to continue into at least the first half of 2022 due to inflationary pressures. We manage commodity cost volatility primarily through pricing and risk management strategies. As a result of these risk management strategies, our commodity costs may not immediately correlate with market price trends. See our Annual Report on Form 10-K for the year endedDecember 26, 2020 for additional information on how we manage commodity costs. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations During the nine months endedSeptember 25, 2021 , we completed the 2021 Tender Offers, 2021 Repurchases, and the 2021 Debt Redemptions, which reduced our long-term debt maturing in 2023, 2025, 2026, and thereafter. See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for additional information. Additionally, in the third quarter of 2021, we entered into a financing lease with a future minimum lease commitment of approximately$375 million . This 15-year lease has not yet commenced. We expect to take control of the leased asset in the third quarter of 2022. There were no other material changes to our off-balance sheet arrangements or aggregate contractual obligations from those disclosed in our Annual Report on Form 10-K for the year endedDecember 26, 2020 . Equity and Dividends We paid common stock dividends of$1.5 billion for the nine months endedSeptember 25, 2021 and$1.5 billion for the nine months endedSeptember 26, 2020 . Additionally, in the fourth quarter of 2021, our Board of Directors declared a cash dividend of$0.40 per share of common stock, which is payable onDecember 17, 2021 to shareholders of record onNovember 26, 2021 . The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects, and other factors that our Board of Directors deems relevant to its analysis and decision making. 52 -------------------------------------------------------------------------------- Critical Accounting Estimates Our significant accounting policies are described in Note 2, Significant Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year endedDecember 26, 2020 . We prepare our condensed consolidated financial statements in conformity withU.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments, and assumptions. Our critical accounting estimates and assumptions related to goodwill and intangible assets are described below. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year endedDecember 26, 2020 for a discussion of our other critical accounting estimates and assumptions.Goodwill and Intangible Assets: As ofSeptember 25, 2021 , we maintain 14 reporting units, nine of which comprise our goodwill balance. These nine reporting units had an aggregate goodwill carrying amount of$31.4 billion atSeptember 25, 2021 . Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of$40.7 billion as ofSeptember 25, 2021 . We test our reporting units and brands for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or brand is less than its carrying amount. Such events and circumstances could include a sustained decrease in our market capitalization, increased competition or unexpected loss of market share, increased input costs beyond projections (for example due to regulatory or industry changes), disposals of significant brands or components of our business, unexpected business disruptions (for example due to a natural disaster, pandemic, or loss of a customer, supplier, or other significant business relationship), unexpected significant declines in operating results, significant adverse changes in the markets in which we operate, or changes in management strategy. We test reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. We test brands for impairment by comparing the estimated fair value of each brand with its carrying amount. If the carrying amount of a reporting unit or brand exceeds its estimated fair value, we record an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed to the associated carrying amount of goodwill. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units and brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or any factors that could be affected by COVID-19, change, or if management's expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units or brands might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets could lead to the impairment of one or more of our reporting units or brands in the future. In 2020 and continuing into 2021, the COVID-19 pandemic produced and has continued to produce a short-term beneficial financial impact to our consolidated results. Retail sales have increased compared to pre-pandemic periods due to higher than anticipated consumer demand for our products. The foodservice channel, however, has experienced a negative impact from prolonged social distancing mandates limiting access to and capacity at away-from-home establishments for a longer period of time than was expected when they were originally put in place. Our Canada Foodservice reporting unit is the most exposed of our reporting units to the long-term impacts to away-from-home establishments as it is our only standalone foodservice reporting unit. While our other reporting units have varying levels of exposure to the foodservice channel, they also have exposure to the retail channel, which offsets some of the risk associated with the potential long-term impacts of shifts in net sales between retail and away-from-home establishments. Our Canada Foodservice reporting unit was impaired during our 2020 annual impairment test, reflecting our best estimate at that time of the future outlook and risks of this business. The Canada Foodservice reporting unit maintains an aggregate goodwill carrying amount of approximately$156 million as ofSeptember 25, 2021 . A number of factors could result in further future impairments of our foodservice businesses, including but not limited to: mandates around closures of dining rooms in restaurants, distancing of people within establishments resulting in fewer customers, the total number of restaurant closures, forthcoming changes in consumer preferences or regulatory requirements over product formats (e.g., table top packaging vs. single serve packaging), and consumer trends of dining-in versus dining-out. Given the evolving nature of and uncertainty driven by the COVID-19 pandemic, we will continue to evaluate the impact on our reporting units as adverse changes to these assumptions could result in future impairments. 53 -------------------------------------------------------------------------------- As we consider the ongoing impact of the COVID-19 pandemic with regard to our indefinite-lived intangible assets, a number of factors could have a future adverse impact on our brands, including changes in consumer and consumption trends in both the short and long term, the extent of government mandates to shelter in place, total number of restaurant closures, economic declines, and reductions in consumer discretionary income. We have seen an increase in our retail business, as compared to pre-pandemic levels, in the short term that has more than offset declines in our foodservice business over the same period. Our brands are generally common across both the retail and foodservice businesses and the fair value of our brands are subject to a similar mix of positive and negative factors. Given the evolving nature and uncertainty driven by the COVID-19 pandemic, we will continue to evaluate the impact on our brands. As detailed in Note 8,Goodwill and Intangible Assets, in Item 1, Financial Statements, we recorded impairment losses related to goodwill and indefinite-lived intangible assets. Our reporting units and brands that were impaired were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other reporting units and brands that have 20% or less excess fair value over carrying amount as of the 2021 annual impairment testing date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Reporting units with 20% or less fair value over carrying amount had an aggregate goodwill carrying amount of$28.3 billion as of the 2021 annual impairment test date and included:ESA , KSB, MFC, Canada Retail,Canada Foodservice, andPuerto Rico . Reporting units with between 20-50% fair value over carrying amount had an aggregate goodwill carrying amount of$2.2 billion as of the 2021 annual impairment test date and includedNorthern Europe andAsia . The Continental Europe reporting unit had a fair value over carrying amount in excess of 50% and a goodwill carrying amount of$961 million as of the 2021 annual impairment test date. Our reporting units that have less than 3% excess fair value over carrying amount as of the 2021 annual impairment test date are considered at a heightened risk of future impairments and include our Canada Retail andPuerto Rico reporting units, which had an aggregate goodwill carrying amount of$1.4 billion . Brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of$22.5 billion as of the 2021 annual impairment test date and included: Kraft,Oscar Mayer , Velveeta, Miracle Whip, Lunchables, Ore-Ida, Maxwell House, Classico, Cool Whip, Jet Puffed, Plasmon, and Wattie's. The aggregate carrying amount of brands with fair value over carrying amount between 20-50% was$6.5 billion as of the 2021 annual impairment test date. Although the remaining brands, with a carrying amount of$11.8 billion , have more than 50% excess fair value over carrying amount as of the 2021 annual impairment testing date, these amounts are also associated with the 2013 Heinz Acquisition and the 2015 Merger and are recorded on the condensed consolidated balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments. Our brands that have less than 3% excess fair value over carrying amount as of the 2021 annual impairment test date are considered at a heightened risk of future impairments and include our Kraft, Miracle Whip, Ore-Ida, Maxwell House, Classico, and Plasmon brands, which had an aggregate carrying amount of$15.4 billion . We generally utilize the discounted cash flow method under the income approach to estimate the fair value of our reporting units. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, cost of products sold, SG&A, depreciation and amortization, working capital, and capital expenditures), income tax rates, long-term growth rates, and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management's plans, and guideline companies. We utilize the excess earnings method under the income approach to estimate the fair value of certain of our largest brands. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each brand (including net sales, cost of products sold, and SG&A), contributory asset charges, income tax considerations, long-term growth rates, a discount rate that reflects the level of risk associated with the future earnings attributable to the brand, and management's intent to invest in the brand indefinitely. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management's plans, and guideline companies. We utilize the relief from royalty method under the income approach to estimate the fair value of our remaining brands. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net sales for each brand, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, a discount rate that reflects the level of risk associated with the future cost savings attributable to the brand, and management's intent to invest in the brand indefinitely. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management's plans, and guideline companies. 54 -------------------------------------------------------------------------------- As detailed in Note 4, Acquisitions and Divestitures, in Item 1, Financial Statements, in the third quarter of 2020, we entered into the Cheese Transaction for total consideration of approximately$3.34 billion . The total consideration includes approximately$1.59 billion attributed to the Kraft and Velveeta licenses that we will grant toLactalis and approximately$140 million attributed to theCracker Barrel license thatLactalis will grant to us, the amounts of which were based on the estimated fair values of the licensed portion of each brand. We utilized the excess earnings method under the income approach to estimate the fair value of the licensed portion of the Kraft brand and the relief from royalty method under the income approach to estimate the fair value of the licensed portions of the Velveeta brand and the Cracker Barrel brand. Some of the more significant assumptions inherent in estimating these fair values include the estimated future annual net sales and net cash flows for each brand, contributory asset charges, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, and a discount rate that reflects the level of risk associated with the future earnings attributable to each brand. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, and guideline companies. In the second quarter of 2021, we assessed the fair value less costs to sell of the net assets of theCheese Disposal Group and recorded an estimated pre-tax loss on sale of business of approximately$27 million , which was recognized in other expense/(income). As ofSeptember 25, 2021 , we assessed the fair value less costs to sell of the net assets of theCheese Disposal Group , and no additional pre-tax loss on sale of business was recorded. At the time the licensed rights are granted, we will reassess the remaining fair value of the retained portions of the Kraft and Velveeta brands and may record a charge to reduce the intangible asset carrying amounts to reflect the lower future cash flows expected to be generated after monetization of the licensed portion of each brand. If the Cheese Transaction had closed in the third quarter of 2021, we would have recorded an indefinite-lived intangible asset non-cash impairment loss of approximately$1.25 billion . The actual impairment loss will depend upon the excess fair value, if any, over carrying amount for each brand at the time we grant the perpetual licenses, which will be on the closing date of the Cheese Transaction. Changes in the fair value of the retained and licensed portions of each brand will impact the amount of any potential charges and the amount of license income that will be recognized, which, at this time, we would not expect to exceed the fair value of the perpetual licenses. The discount rates, long-term growth rates, and royalty rates used to estimate the fair values of our reporting units and our brands with 20% or less excess fair value over carrying amount, as well as the goodwill or brand carrying amounts, as of the 2021 annual impairment test date for each reporting unit or brand, were as follows: Goodwill or Brand Discount Rate Long-Term Growth Rate Royalty Rate Carrying Amount (in billions) Minimum Maximum Minimum Maximum Minimum Maximum Reporting units $ 28.3 6.5 % 7.0 % 1.0 % 1.5 % Brands (excess earnings method) 16.3 7.0 % 7.2 % 0.8 % 1.5 % Brands (relief from royalty method) 6.2 7.0 % 7.5 % 0.5 % 2.0 % 5.0 % 20.0 % Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each annual and interim impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation. However, as it is reasonably possible that changes in assumptions could occur, as a sensitivity measure, we have presented the estimated effects of isolated changes in discount rates, long-term growth rates, and royalty rates on the fair values of our reporting units and brands with 20% or less excess fair value over carrying amount. These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline. 55 -------------------------------------------------------------------------------- If we had changed the assumptions used to estimate the fair value of our reporting units and brands with 20% or less excess fair value over carrying amount, as of the 2021 annual impairment test date for each of these reporting units and brands, these isolated changes, which are reasonably possible to occur, would have led to the following increase/(decrease) in the aggregate fair value of these reporting units and brands (in billions): Discount Rate Long-Term Growth Rate Royalty Rate 50-Basis-Point 25-Basis-Point 100-Basis-Point Increase Decrease Increase Decrease Increase Decrease Reporting units$ (5.6) $ 6.8 $ 3.2 $ (2.9) Brands (excess earnings method) (1.2) 1.4 0.5 (0.5) Brands (relief from royalty method) (0.5) 0.7 0.2 (0.2)$ 0.6 $ (0.6) Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited. We review definite-lived intangible assets for impairment when conditions exist that indicate the carrying amount of the assets may not be recoverable. Such conditions could include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of definite-lived intangible assets held for use, we group assets at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on definite-lived intangible assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. See Note 8,Goodwill and Intangible Assets, in Item 1, Financial Statements, for our impairment testing results. New Accounting Pronouncements See Note 3, New Accounting Standards, in Item 1, Financial Statements, for a discussion of new accounting pronouncements. Contingencies See Note 15, Commitments, Contingencies, and Debt, in Item 1, Financial Statements, for a discussion of our contingencies. Non-GAAP Financial Measures The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance withU.S. GAAP. To supplement the condensed consolidated financial statements prepared in accordance withU.S. GAAP, we have presented OrganicNet Sales , Adjusted EBITDA, and Adjusted EPS, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparableU.S. GAAP financial measures, such as net sales, net income/(loss), diluted EPS, or other measures prescribed byU.S. GAAP, and there are limitations to using non-GAAP financial measures. Management uses these non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our underlying operations. Management believes that presenting our non-GAAP financial measures (i.e., OrganicNet Sales , Adjusted EBITDA, and Adjusted EPS) is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results. We believe that the presentation of these non-GAAP financial measures, when considered together with the correspondingU.S. GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting our business than could be obtained absent these disclosures. OrganicNet Sales is defined as net sales excluding, when they occur, the impact of currency, acquisitions and divestitures, and a 53rd week of shipments. We calculate the impact of currency on net sales by holding exchange rates constant at the previous year's exchange rate, with the exception of highly inflationary subsidiaries, for which we calculate the previous year's results using the current year's exchange rate. OrganicNet Sales is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. 56 -------------------------------------------------------------------------------- Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, we exclude, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities). Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. In the second quarter of 2021, we revised the definition of Adjusted EBITDA to adjust for the impact of certain legal and regulatory matters arising outside the ordinary course of our business, as management believes such matters, when they occur, do not directly reflect our underlying operations. Adjusted EPS is defined as diluted earnings per share excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, losses/(gains) on the sale of a business, other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g., remeasurement gains and losses), debt prepayment and extinguishment costs, and certain significant discrete income tax items (e.g.,U.S. and non-U.S. tax reform), and including, when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. We believe Adjusted EPS provides important comparability of underlying operating results, allowing investors and management to assess operating performance on a consistent basis. In the second quarter of 2021, we revised the definition of Adjusted EPS to adjust for the impact of certain legal and regulatory matters arising outside the ordinary course of our business and certain significant discrete income tax items beyondU.S. tax reform, as management believes such matters, when they occur, do not directly reflect our underlying operations. 57 -------------------------------------------------------------------------------- The Kraft Heinz Company Reconciliation of Net Sales to Organic Net Sales (dollars in millions) (Unaudited) Acquisitions and Organic Net Net Sales Currency Divestitures Sales Price Volume/Mix Three Months EndedSeptember 25, 2021 United States$ 4,521 $ - $ -$ 4,521 International 1,383 39 - 1,344 Canada 420 25 - 395 Kraft Heinz$ 6,324 $ 64 $ -$ 6,260 Three Months EndedSeptember 26, 2020 United States$ 4,710 $ - $ 246$ 4,464 International 1,325 6 5 1,314 Canada 406 - 2 404 Kraft Heinz$ 6,441 $ 6 $ 253$ 6,182 Year-over-year growth rates United States (4.0) % 0.0 pp (5.3) pp 1.3 % 1.4 pp (0.1) pp International 4.4 % 2.6 pp (0.4) pp 2.2 % 2.2 pp 0.0 pp Canada 3.4 % 5.7 pp (0.4) pp (1.9) % 0.2 pp (2.1) pp Kraft Heinz (1.8) % 0.9 pp (4.0) pp 1.3 % 1.5 pp (0.2) pp 58
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The Kraft Heinz Company
Reconciliation of Net Sales to Organic Net Sales
(dollars in millions)
(Unaudited)
Acquisitions and Organic Net
Net Sales Currency Divestitures Sales Price Volume/Mix
Nine Months Ended September 25, 2021
United States $ 13,867 $ - $ 446 $ 13,421
International 4,190 211 9 3,970
Canada 1,276 100 1 1,175
Kraft Heinz $ 19,333 $ 311 $ 456 $ 18,566
Nine Months Ended September 26, 2020
United States $ 14,122 $ - $ 745 $ 13,377
International 3,931 17 14 3,900
Canada 1,193 - 4 1,189
Kraft Heinz $ 19,246 $ 17 $ 763 $ 18,466
Year-over-year growth rates
United States (1.8) % 0.0 pp (2.1) pp 0.3 % 1.3 pp (1.0) pp
International 6.6 % 5.0 pp (0.2) pp 1.8 % 2.1 pp (0.3) pp
Canada 7.0 % 8.3 pp (0.1) pp (1.2) % 2.2 pp (3.4) pp
Kraft Heinz 0.5 % 1.6 pp (1.6) pp 0.5 % 1.5 pp (1.0) pp
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The Kraft Heinz Company
Reconciliation of Net Income/(Loss) to Adjusted EBITDA
(in millions)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 2021 2020
Net income/(loss) $ 736 $ 598 $ 1,279 $ (673)
Interest expense 415 314 1,443 1,066
Other expense/(income) (138) (73) (191) (232)
Provision for/(benefit from) income taxes 143 308 949 417
Operating income/(loss) 1,156 1,147 3,480 578
Depreciation and amortization (excluding
restructuring activities) 228 232 677 722
Restructuring activities 15 8 52 12
Deal costs 2 9 8 9
Unrealized losses/(gains) on commodity hedges 27 (70) (12) 47
Impairment losses - 300 343 3,399
Certain non-ordinary course legal and regulatory
matters - - 62 -
Equity award compensation expense (excluding
restructuring activities) 51 41 155 114
Adjusted EBITDA $ 1,479 $ 1,667 $ 4,765 $ 4,881
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The Kraft Heinz Company
Reconciliation of Diluted EPS to Adjusted EPS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 25, September 26, September 25, September 26,
2021 2020 2021 2020
Diluted EPS $ 0.59 $
0.49
0.01 0.01 0.03 0.01
Unrealized losses/(gains) on commodity hedges(b) 0.02 (0.04) (0.01) 0.03
Impairment losses(c) - 0.24 0.26 2.60
Certain non-ordinary course legal and regulatory
matters(d) - - 0.05 -
Losses/(gains) on sale of business(e) (0.06) - 0.23 -
Debt prepayment and extinguishment costs(f) 0.09 - 0.37 0.07
Certain significant discrete income tax items(g) - - 0.19 (0.07)
Adjusted EPS $ 0.65 $ 0.70 $ 2.15 $ 2.09
(a) Gross expenses included in restructuring activities were $15 million
($12 million after-tax) for the three months and $52 million ($40 million
after-tax) for the nine months ended September 25, 2021 and $9 million
($7 million after tax) for the three months and $13 million ($10 million
after-tax) for the nine months ended September 26, 2020 and were recorded in the
following income statement line items:
•Cost of products sold included expenses of $4 million for the nine months ended
September 25, 2021 and income of $3 million for the three months and $4 million
for the nine months ended September 26, 2020 ; and
•SG&A included expenses of $15 million for the three months and $48 million for
the nine months ended September 25, 2021 and $11 million for the three months
and $16 million for the nine months ended September 26, 2020 .
•Other expense/(income) included expenses of $1 million for the three and nine
months ended September 26, 2020 .
(b) Gross expenses/(income) included in unrealized losses/(gains) on commodity
hedges were expenses of $27 million ($20 million after-tax) for the three months
and income of $12 million ($9 million after-tax) for the nine months ended
September 25, 2021 and income of $70 million ($54 million after-tax) for the
three months and expenses of $47 million ($35 million after-tax) for the nine
months ended September 26, 2020 and were recorded in cost of products sold.
(c) Gross impairment losses, which were recorded in SG&A, included the
following:
• Goodwill impairment losses of $265 million ($265 million after-tax) for the
nine months ended September 25, 2021 and $300 million ($300 million after-tax)
for the three months and $2.3 billion ($2.3 billion after-tax) for the nine
months ended September 26, 2020 ; and
• Intangible asset impairment losses of $78 million ($59 million after-tax) for
the nine months ended September 25, 2021 and $1.1 billion ($829 million
after-tax) for the nine months ended September 26, 2020 .
(d) Gross expenses included in certain non-ordinary course legal and regulatory
matters were $62 million ($62 million after-tax) for the nine months ended
September 25, 2021 and were recorded in SG&A. These expenses relate to the
settlement of the previously disclosed SEC investigation.
(e) Gross expenses/(income) included in losses/(gains) on sale of business were
income of $76 million ($72 million after-tax) for the three months and income of
$11 million (expenses of $280 million after-tax) for the nine months ended
September 25, 2021 and expenses of $2 million ($2 million after-tax) for the
nine months ended September 26, 2020 and were recorded in other
expense/(income). The impact in 2021 includes a gain on the remeasurement of a
disposal group, which was reclassified as held and used in the third quarter of
2021.
(f) Gross expenses included in debt prepayment and extinguishment costs were
$147 million ($115 million after-tax) for the three months and $571 million
($450 million after-tax) for the nine months ended September 25, 2021 and
$109 million ($82 million after-tax) for the nine months ended September 26,
2020 and were recorded in interest expense.
(g) Certain significant discrete income tax items were a benefit of $1 million
for the three months and an expense of $235 million for the nine months ended
September 25, 2021 and a benefit of $81 million for the nine months ended
September 26, 2020 . The impact in 2021 relates to the revaluation of our
deferred tax balances due to an increase in U.K. tax rates. The benefit in 2020
relates to the revaluation of our deferred tax balances due to changes in state
tax laws following U.S. tax reform and subsequent clarification or
interpretation of state tax laws.
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements. Words such as "anticipate," "reflect," "invest," "see," "make,"
"expect," "give," "deliver," "drive," "believe," "improve," "assess,"
"reassess," "remain," "evaluate," "grow," "will," "plan," "intend," and
variations of such words and similar future or conditional expressions are
intended to identify forward-looking statements. These forward-looking
statements include, but are not limited to, statements regarding our plans,
impacts of accounting standards and guidance, growth, legal matters, taxes,
costs and cost savings, impairments, and dividends. These forward-looking
statements reflect management's current expectations and are not guarantees of
future performance and are subject to a number of risks and uncertainties, many
of which are difficult to predict and beyond our control.
Important factors that may affect our business and operations and that may cause
actual results to differ materially from those in the forward-looking statements
include, but are not limited to, the impacts of COVID-19 and government and
consumer responses; operating in a highly competitive industry; our ability to
correctly predict, identify, and interpret changes in consumer preferences and
demand, to offer new products to meet those changes, and to respond to
competitive innovation; changes in the retail landscape or the loss of key
retail customers; changes in our relationships with significant customers or
suppliers, or in other business relationships; our ability to maintain, extend,
and expand our reputation and brand image; our ability to leverage our brand
value to compete against private label products; our ability to drive revenue
growth in our key product categories or platforms, increase our market share, or
add products that are in faster-growing and more profitable categories; product
recalls or other product liability claims; our ability to identify, complete, or
realize the benefits from strategic acquisitions, alliances, divestitures, joint
ventures, or other investments; our ability to successfully execute our
strategic initiatives; the impacts of our international operations; our ability
to protect intellectual property rights; our ownership structure; our ability to
realize the anticipated benefits from prior or future streamlining actions to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness; our level of indebtedness, as well as our ability to comply
with covenants under our debt instruments; additional impairments of the
carrying amounts of goodwill or other indefinite-lived intangible assets;
foreign exchange rate fluctuations; volatility in commodity, energy, and other
input costs; volatility in the market value of all or a portion of the commodity
derivatives we use; compliance with laws and regulations and related legal
claims or regulatory enforcement actions; failure to maintain an effective
system of internal controls; a downgrade in our credit rating; the impact of
future sales of our common stock in the public market; our ability to continue
to pay a regular dividend and the amounts of any such dividends; unanticipated
business disruptions and natural events in the locations in which we or our
customers, suppliers, distributors, or regulators operate; economic and
political conditions in the United States and in various other nations where we
do business; changes in our management team or other key personnel and our
ability to hire or retain key personnel or a highly skilled and diverse global
workforce; risks associated with information technology and systems, including
service interruptions, misappropriation of data, or breaches of security;
increased pension, labor, and people-related expenses; changes in tax laws and
interpretations; volatility of capital markets and other macroeconomic factors;
and other factors. For additional information on these and other factors that
could affect our forward-looking statements, see Item 1A, Risk Factors, in our
Annual Report on Form 10-K for the year ended December 26, 2020 and Item 1A,
Risk Factors, of this Quarterly Report on Form 10-Q. We disclaim and do not
undertake any obligation to update, revise, or withdraw any forward-looking
statement in this report, except as required by applicable law or regulation.
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