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. In the first quarter of our fiscal year 2020, our internal reporting and reportable segments changed. We moved ourPuerto Rico business from theLatin America zone tothe United States zone to consolidate and streamline the management of our product categories and supply chain. We also combined our EMEA,Latin America , and APAC zones to form the International zone as a result of certain previously announced organizational changes. Therefore, effective in the first quarter of 2020, we manage and report our operating results through three reportable segments defined by geographic region:United States , International, andCanada . We have reflected these changes in all historical periods presented. See Note 18, 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$226 million for the three months endedMarch 28, 2020 compared to goodwill impairment losses of$620 million for the three months endedMarch 30, 2019 . See Note 8,Goodwill and Intangible Assets, in Item 1, Financial Statements, for additional information on these impairment losses. COVID-19 Impacts: During the first quarter of 2020, the COVID-19 pandemic produced a beneficial impact on our consolidated results of operations. Increased demand for our retail products more than offset declines in our foodservice business, which resulted in consolidated net sales growth compared to the prior period. This increased demand for our retail products could reverse in the future if consumer purchasing behavior changes. We expect a continued decrease in demand in 2020 for away from home establishments which will negatively impact our foodservice business beyond the first quarter. However, the COVID-19 situation is unprecedented and continuously evolving, and the long-term impacts to our financial condition and results of operations are still uncertain. See Consolidated Results of Operations and 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. The disclosed impacts attributable to COVID-19 were calculated based upon sales in excess of management's expectations prior to the increase in demand inMarch 2020 resulting from the pandemic. The impacts also include, where appropriate, costs specifically attributable to meeting the additional demand related to the COVID-19 pandemic. The range of impacts disclosed are approximate and reflect management's best estimates of the COVID-19 outbreaks in the first quarter of 2020. 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. 37 -------------------------------------------------------------------------------- Consolidated Results of Operations Summary of Results:
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions, except per share data)
Net sales $ 6,157 $ 5,959 3.3 %
Operating income/(loss) 770 562 37.1 %
Net income/(loss) attributable to common shareholders 378 405 (6.7) %
Diluted EPS 0.31 0.33 (6.1) %
Net Sales:
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions)
Net sales $ 6,157 $ 5,959 3.3 %
Organic Net Sales(a) 6,213 5,848 6.2 %
(a) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP
Financial Measures section at the end of this item.
Three Months Ended March 28, 2020 Compared to the Three Months Ended March 30,
2019 :
Net sales increased 3.3% to $6.2 billion for the three months ended March 28,
2020 compared to $6.0 billion for the three months ended March 30, 2019 despite
the unfavorable impacts of acquisitions and divestitures (1.8 pp) and foreign
currency (1.1 pp). Organic Net Sales increased 6.2% to $6.2 billion for the
three months ended March 28, 2020 compared to $5.8 billion for the three months
ended March 30, 2019 , due to growth from increased consumer demand related to
the COVID-19 pandemic (approximately 6 to 7 pp). Organic Net Sales growth was
driven by favorable volume/mix (4.6 pp) and higher pricing (1.6 pp). Volume/mix
was favorable in all segments, while higher pricing in the United States and
International more than offset lower pricing in Canada .
Net Income/(Loss):
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions)
Operating income/(loss) $ 770 $ 562 37.1 %
Net income/(loss) attributable to common shareholders 378 405 (6.7) %
Adjusted EBITDA(a) 1,415 1,431 (1.1) %
(a) Adjusted EBITDA is a non-GAAP financial measure. See the Non-GAAP Financial
Measures section at the end of this item.
Three Months Ended March 28, 2020 Compared to the Three Months Ended March 30,
2019 :
Operating income/(loss) increased 37.1% to $770 million for the three months
ended March 28, 2020 compared to $562 million for the three months ended
March 30, 2019 . This increase was primarily driven by lower impairment losses in
the current period and higher Organic Net Sales , partially offset by unrealized
losses on commodity hedges, higher supply chain costs, unfavorable changes in
key commodity costs (which we define as dairy, meat, coffee, and nuts), higher
general corporate expenses, the unfavorable impact of divestitures, higher
equity award compensation expense, and the unfavorable impact of foreign
currency (1.9 pp). Impairment losses were $226 million for the three months
ended March 28, 2020 compared to $620 million for the three months ended
March 30, 2019 . See Note 8, Goodwill and Intangible Assets, in Item 1, Financial
Statements, for additional information on our impairment losses.
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Net income/(loss) attributable to common shareholders decreased 6.7% to $378
million for the three months ended March 28, 2020 compared to $405 million for
the three months ended March 30, 2019 . This decrease was primarily driven by
unfavorable changes in other expense/(income), partially offset by the operating
income/(loss) factors described above and a lower effective tax rate.
•Other expense/(income) was $81 million of income for the three months ended
March 28, 2020 compared to $380 million of income for the three months ended
March 30, 2019 . This decrease was primarily driven by a $2 million net loss on
sales of businesses in the current period compared to a $246 million gain on our
Heinz India Transaction in the prior period and a $46 million decrease in
amortization of prior service credits as compared to the prior period.
•The effective tax rate was 29.6% for the three months ended March 28, 2020
compared to 34.9% for the three months ended March 30, 2019 . The decrease in our
effective tax rate was primarily driven by a decrease in unfavorable net
discrete items. Current year unfavorable impacts from net discrete items were
primarily related to non-deductible goodwill impairments. Prior year unfavorable
impacts from net discrete items were primarily related to non-deductible
goodwill impairments, partially offset by the favorable impact of changes in
estimates of certain 2018 U.S. income and deductions.
Adjusted EBITDA decreased 1.1% to $1.4 billion for the three months ended
March 28, 2020 compared to $1.4 billion for the three months ended March 30,
2019 , including the unfavorable impacts from acquisitions and divestitures (1.8
pp) and foreign currency (0.8 pp). Excluding these factors, Adjusted EBITDA
growth was primarily driven by a contribution from additional demand related to
the COVID-19 pandemic (approximately 9 to 10 pp) as increases in the United
States and International more than offset declines in Canada and higher general
corporate expenses.
Diluted EPS:
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions, except per share data)
Diluted EPS $ 0.31 $ 0.33 (6.1) %
Adjusted EPS(a) 0.58 0.66 (12.1) %
(a) Adjusted EPS is a non-GAAP financial measure. See the Non-GAAP Financial
Measures section at the end of this item.
Three Months Ended March 28, 2020 Compared to the Three Months Ended March 30,
2019 :
Diluted EPS decreased 6.1% to $0.31 for the three months ended March 28, 2020
compared to $0.33 for the three months ended March 30, 2019 primarily due to the
net income/(loss) attributable to common shareholders factors discussed above.
For the Three Months Ended
March 28, 2020 March 30, 2019 $ Change % Change
Diluted EPS $ 0.31 $ 0.33 $ (0.02) (6.1) %
Integration and restructuring expenses - 0.02 (0.02)
Unrealized losses/(gains) on commodity hedges 0.09 (0.02) 0.11
Impairment losses 0.18 0.49 (0.31)
Losses/(gains) on sale of business - (0.16) 0.16
Adjusted EPS(a) $ 0.58 $ 0.66 $ (0.08) (12.1) %
Key drivers of change in Adjusted EPS(a):
Results of operations $ (0.02)
Results of divested operations (0.02)
Interest expense 0.01
Other expense/(income) (0.03)
Effective tax rate (0.02)
$ (0.08) (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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Adjusted EPS decreased 12.1% to $0.58 for the three months ended March 28, 2020
compared to $0.66 for the three months ended March 30, 2019 primarily due to
unfavorable changes in other expense/(income), higher equity award compensation
expense, and higher taxes on adjusted earnings in the current period.
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 integration and restructuring
expenses); in addition to these adjustments, we exclude, when they occur, the
impacts of integration and restructuring expenses, deal costs, unrealized
gains/(losses) on commodity hedges (the unrealized gains and losses are recorded
in general corporate expenses until realized; once realized, the gains and
losses are recorded in the applicable segment's operating results), impairment
losses, and equity award compensation expense (excluding integration and
restructuring expenses). Segment Adjusted EBITDA is a tool that can assist
management and investors in comparing our performance on a consistent basis by
removing the impact of certain items that management believes do not directly
reflect our underlying operations.
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. 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 14, Venezuela - Foreign Currency and Inflation, in Item 1, Financial
Statements, and Note 2, Significant Accounting Policies, in our Annual Report on
Form 10-K for the year ended December 28, 2019 , for additional information.
Net Sales :
For the Three Months Ended
March 28, 2020 March 30, 2019
(in millions)
Net sales:
United States $ 4,495 $ 4,224
International 1,301 1,285
Canada 361 450
Total net sales $ 6,157 $ 5,959
Organic Net Sales:
For the Three Months Ended
March 28, 2020 March 30, 2019
(in millions)
Organic Net Sales (a):
United States $ 4,495 $ 4,224
International 1,351 1,265
Canada 367 359
Total Organic Net Sales $ 6,213 $ 5,848 (a) Organic
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Drivers of the changes in net sales and Organic Net Sales for the three months
ended March 28, 2020 compared to the three months ended March 30, 2019 were:
Acquisitions and Organic Net
Net Sales Currency Divestitures Sales Price Volume/Mix
United States 6.4 % 0.0 pp 0.0 pp 6.4 % 2.4 pp 4.0 pp
International 1.3 % (4.5) pp (1.1) pp 6.9 % 1.7 pp 5.2 pp
Canada (19.8) % (1.3) pp (20.7) pp 2.2 % (6.4) pp 8.6 pp
Kraft Heinz 3.3 % (1.1) pp (1.8) pp 6.2 % 1.6 pp 4.6 pp
Adjusted EBITDA:
For the Three Months Ended
March 28, 2020 March 30, 2019
(in millions)
Segment Adjusted EBITDA:
United States $ 1,209 $ 1,139
International 245 238
Canada 55 121
General corporate expenses (94) (67)Depreciation and amortization (excluding integration and restructuring expenses)
(243) (234)
Integration and restructuring expenses - (27)
Deal costs - (8)
Unrealized gains/(losses) on commodity hedges (143) 29
Impairment losses (226) (620)
Equity award compensation expense (excluding integration and restructuring
expenses) (33) (9)
Operating income/(loss) 770 562
Interest expense 310 321
Other expense/(income) (81) (380)
Income/(loss) before income taxes $ 541 $ 621
United States:
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions)
Net sales $ 4,495 $ 4,224 6.4 %
Organic Net Sales(a) 4,495 4,224 6.4 %
Segment Adjusted EBITDA 1,209 1,139 6.2 %
(a) Organic Net Sales is a non-GAAP financial measure. See the Non-GAAP
Financial Measures section at the end of this item.
Three Months Ended March 28, 2020 Compared to the Three Months Ended March 30,
2019 :
Net sales and Organic Net Sales both increased 6.4% to $4.5 billion for the
three months ended March 28, 2020 compared to $4.2 billion for the three months
ended March 30, 2019 , including a contribution from increased consumer demand
related to the COVID-19 pandemic (approximately 6 to 7 pp) as retail consumption
accelerated across all categories in March. Organic Net Sales growth was driven
by favorable volume/mix (4.0 pp) and higher pricing (2.4 pp). Favorable
volume/mix was primarily driven by growth across several categories, most
significantly in boxed dinners, condiments and sauces, ready to drink beverages,
and nuts. Higher pricing was driven by higher list prices, increases to offset
unfavorable key commodity costs, primarily in dairy, and reduced promotional
activity.
Segment Adjusted EBITDA increased 6.2% to $1.2 billion for the three months
ended March 28, 2020 compared to $1.1 billion for the three months ended
March 30, 2019 . This increase was driven by a contribution from greater demand
related to the COVID-19 pandemic (approximately 8 to 9 pp), as pricing growth
and increased volume more than offset unfavorable changes in key commodity
costs, unfavorable mix compared to the prior period, and higher supply chain
costs.
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International:
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions)
Net sales $ 1,301 $ 1,285 1.3 %
Organic Net Sales(a) 1,351 1,265 6.9 %
Segment Adjusted EBITDA 245 238 2.5 %
(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 March 28, 2020 Compared to the Three Months Ended March 30,
2019 :
Net sales increased 1.3% to $1.3 billion for the three months ended March 28,
2020 compared to $1.3 billion for the three months ended March 30, 2019 , despite
the unfavorable impacts of foreign currency (4.5 pp, including 0.5 pp from the
devaluation of the Venezuelan bolivar) and acquisitions and divestitures (1.1
pp). Organic Net Sales increased 6.9% to $1.4 billion for the three months ended
March 28, 2020 compared to $1.3 billion for the three months ended March 30,
2019 , including a contribution from increased consumer demand related to the
COVID-19 pandemic (approximately 5 to 6 pp), primarily in developed markets.
Organic Net Sales growth was driven by favorable volume/mix (5.2 pp) and higher
pricing (1.7 pp). Favorable volume/mix was primarily driven by retail
consumption growth in both developed and emerging markets, most significantly in
Australia , the United Kingdom , New Zealand , and Russia . This growth more than
offset declines in China and foodservice. Higher pricing was driven by increases
in Latin America , Australia , and the United Kingdom .
Segment Adjusted EBITDA increased 2.5% to $245 million for the three months
ended March 28, 2020 compared to $238 million for the three months ended
March 30, 2019 . This increase was driven by a contribution from additional
demand related to the COVID-19 pandemic (approximately 8 to 9 pp), as Organic
Net Sales growth more than offset higher supply chain costs and the unfavorable
impact of foreign currency (4.8 pp, including 1.6 pp from the devaluation of the
Venezuelan bolivar).
Canada:
For the Three Months Ended
March 28, 2020 March 30, 2019 % Change
(in millions)
Net sales $ 361 $ 450 (19.8) %
Organic Net Sales(a) 367 359 2.2 %
Segment Adjusted EBITDA 55 121 (54.0) %
(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 March 28, 2020 Compared to the Three Months Ended March 30,
2019 :
Net sales decreased 19.8% to $361 million for the three months ended March 28,
2020 compared to $450 million for the three months ended March 30, 2019
primarily due to the unfavorable impacts of acquisitions and divestitures (20.7
pp) and foreign currency (1.3 pp). Organic Net Sales increased 2.2% to $367
million for the three months ended March 28, 2020 compared to $359 million for
the three months ended March 30, 2019 , including a contribution from increased
consumer demand related to the COVID-19 pandemic (approximately 10 to 11 pp).
Organic Net Sales growth was driven by favorable volume/mix (8.6 pp), partially
offset by lower pricing (6.4 pp). Favorable volume/mix was primarily driven by
retail consumption growth in condiments and sauces, boxed dinners, and spreads,
partially offset by declines in coffee and foodservice. Pricing was lower
primarily due to unfavorable trade expense compared to the prior period and
lower pricing in condiments and sauces and foodservice.
Segment Adjusted EBITDA decreased 54.0% to $55 million for the three months
ended March 28, 2020 compared to $121 million for the three months ended
March 30, 2019 , including the unfavorable impacts of acquisitions and
divestitures (10.5 pp) and foreign currency (1.1 pp). Excluding the impact of
these factors, the decrease was primarily due to lower pricing and higher supply
chain costs, which more than offset a favorable contribution from greater demand
related to the COVID-19 pandemic (approximately 12 to 13 pp).
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Liquidity and Capital Resources
On February 14, 2020 , Fitch and S&P downgraded our long-term credit rating from
BBB- to BB+ with a stable outlook from Fitch and a negative outlook from S&P.
These downgrades may 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. Additionally, these downgrades do
not affect the covenants in our 4.875% Second Lien Senior Secured Notes due
February 15, 2025 , where certain covenants continue to be suspended as these
notes are rated investment grade. Our ability to borrow under the Senior Credit
Facility is not affected by the downgrades.
On March 12, 2020 , we provided notice to our lenders to borrow the full
available amount under our Senior Credit Facility so that a total of $4.0
billion is currently outstanding as of March 28, 2020 . This action was a
precautionary measure to preserve financial flexibility in light of the current
uncertainty in the global economy resulting from the COVID-19 pandemic. We
currently plan to hold these funds for less than 12 months. While the Senior
Credit Facility is fully drawn, we are restricted from issuing commercial paper.
We believe that cash generated from our operating activities and Senior Credit
Facility will provide sufficient liquidity to meet our working capital needs,
future contractual obligations (including repayments of long-term debt), payment
of our anticipated quarterly dividends, planned capital expenditures,
restructuring expenditures, and contributions to our postemployment benefit
plans for the next 12 months. An additional potential source of liquidity is
access to capital markets. We intend to use our cash on hand for daily funding
requirements. Overall, while we are not currently eligible to use a registration
statement on Form S-3 for any public offerings of registered debt or equity
securities to raise capital, we do not expect our ineligibility to use a
registration statement on Form S-3 to have any negative effects on our funding
sources that would have a material effect on our short-term or long-term
liquidity.
Cash Flow Activity For the Three Months Ended March 28, 2020 Compared to the
Three Months Ended March 30, 2019 :
Net Cash Provided by/Used for Operating Activities:
Net cash provided by operating activities was $212 million for the three months
ended March 28, 2020 compared to $304 million for the three months ended
March 30, 2019 . This decrease was primarily driven by higher trade receivables
balances at the end of the current period related to increased demand as a
result of COVID-19 and higher cash outflows in the current period for collateral
postings related to our commodity derivative margin requirements which were
driven by market volatility. These impacts were partially offset by favorable
changes in inventory, primarily due to unusually low inventory levels as a
result of COVID-19, and lower cash payments for employee bonuses in 2020.
Net Cash Provided by/Used for Investing Activities:
Net cash used for investing activities was $122 million for the three months
ended March 28, 2020 compared to net cash provided by investing activities of
$177 million for the three months ended March 30, 2019 . This change was
primarily driven by proceeds from our Heinz India Transaction received in 2019,
partially offset by cash paid for the Primal Acquisition in 2019 and lower
capital expenditures in 2020 compared to 2019. We expect 2020 capital
expenditures to be approximately $750 million as compared to 2019 capital
expenditures of $768 million . However, given the COVID-19 outbreak, our
estimates of capital expenditures may be subject to change. See Note 4,
Acquisitions and Divestitures, in Item 1, Financial Statements, for additional
information on the Heinz India Transaction and the Primal Acquisition.
Net Cash Provided by/Used for Financing Activities:
Net cash provided by financing activities was $3.1 billion for the three months
ended March 28, 2020 compared to net cash used for financing activities of $504
million for the three months ended March 30, 2019 . This change was primarily
driven by the $4.0 billion draw on our Senior Credit Facility in the current
period, partially offset by higher repayments of long-term debt. See Note 16,
Commitments, Contingencies and Debt, in Item 1, Financial Statements, for
additional information additional information on our borrowing arrangements and
debt repayments.
Cash Held by International Subsidiaries:
Of the $5.4 billion cash and cash equivalents on our condensed consolidated
balance sheet at March 28, 2020 , $763 million was held by international
subsidiaries.
Subsequent to January 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 our U.S. cash requirements. The
amount of unrecognized deferred tax liabilities for local country withholding
taxes that would be owed related to our 2018, 2019, and 2020 accumulated
earnings of certain international subsidiaries is approximately $50 million .
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Our undistributed historic earnings in foreign subsidiaries through December 30,
2017 are currently not considered to be indefinitely reinvested. As of March 28,
2020 and December 28, 2019 , we had recorded a deferred tax liability of $20
million on approximately $300 million of historic earnings related 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 $345 million at March 28, 2020 and $370 million at December 28,
2019 .
Borrowing Arrangements:
We have historically obtained funding through our U.S. and European commercial
paper programs. We had no commercial paper outstanding at March 28, 2020 , at
December 28, 2019 , or during the three months ended March 28, 2020 . The maximum
amount of commercial paper outstanding during the three months ended March 30,
2019 was $200 million . While the Senior Credit Facility is fully drawn, we are
restricted from issuing commercial paper.
We maintain our $4.0 billion Senior Credit Facility, and 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 . $4.0 billion was drawn on our Senior Credit Facility during the three
months ended March 28, 2020 . The amount drawn on our Senior Credit Facility is
included in long-term debt on our condensed consolidated balance sheet. At
March 28, 2020 , $4.0 billion was still outstanding as there were no repayments
during the first quarter of 2020. No amounts were drawn on our Senior Credit
Facility at December 28, 2019 or during the three months ended March 30, 2019 .
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 three
months ended March 28, 2020 .
Long-Term Debt:
Our long-term debt, including the current portion, was $32.8 billion at
March 28, 2020 and $29.2 billion at December 28, 2019 . This increase was
primarily related to the $4.0 billion drawn on our Senior Credit Facility during
the first quarter of 2020, partially offset by the repayment of the $405 million
aggregate principal amount of senior notes on February 10, 2020 . We have
aggregate principal amount of senior notes of approximately 500 million Canadian
dollars and $200 million maturing in July 2020 and approximately $650 million
maturing in February 2021 . We expect to fund these long-term debt repayments
primarily with cash on hand and cash generated from our operating activities.
Additionally, we currently plan to hold the funds drawn on our Senior Credit
Facility for less than 12 months.
Our long-term debt contains customary representations, covenants, and events of
default. We were in compliance with all financial covenants during the three
months ended March 28, 2020 .
See Note 16, Commitments, Contingencies and Debt, in Item 1, Financial
Statements, for additional information on our long-term debt activity in 2020
and 2019 and Note 18, Debt, to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 28, 2019 for additional
information on our borrowing arrangements and long-term debt.
Commodity Trends
We purchase and use large quantities of commodities, including dairy products,
meat products, coffee beans, nuts, tomatoes, potatoes, soybean and vegetable
oils, sugar and other sweeteners, corn products, 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 natural gas to operate our facilities. We continuously monitor worldwide
supply and cost trends of these commodities.
We define our key commodities in the United States and Canada as dairy, meat,
coffee, and nuts. During the three months ended March 28, 2020 , we experienced
cost increases for dairy and meat, while costs for nuts and coffee decreased. 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.
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See our Annual Report on Form 10-K for the year ended December 28, 2019 for
additional information on how we manage commodity costs.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Besides the $4.0 billion that was drawn on our Senior Credit Facility at
March 28, 2020 , and the related interest payments thereon, there were no
material changes to our off-balance sheet arrangements or aggregate contractual
obligations from those disclosed in our Annual Report on Form 10-K for the year
ended December 28, 2019 . See Note 16, Commitments, Contingencies and Debt, in
Item 1, Financial Statements, for additional information related to our Senior
Credit Facility.
Equity and Dividends
We paid common stock dividends of $488 million for the three months ended
March 28, 2020 and for the three months ended March 30, 2019 . Additionally, on
April 30, 2020 , our Board of Directors declared a cash dividend of $0.40 per
share of common stock, which is payable on June 26, 2020 to shareholders of
record on May 29, 2020 .
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.
Critical Accounting Estimates
Our significant accounting policies are described in Note 2, Significant
Accounting Policies, in Item 8, Financial Statements and Supplementary Data, of
our consolidated financial statements for the year ended December 28, 2019 in
our Annual Report on Form 10-K. See Note 2, Significant Accounting Policies, in
Item 1, Financial Statements, for updates to our significant accounting policies
during the three months ended March 28, 2020 .
We prepare our condensed consolidated financial statements in conformity with
U.S. GAAP. The preparation of these financial statements requires the use of
estimates, judgments, and assumptions. Our 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 ended December 28,
2019 for a discussion of our other critical accounting estimates and
assumptions.
Goodwill and Intangible Assets:
As of March 28, 2020 , we maintain 15 reporting units, 10 of which comprise our
goodwill balance. These 10 reporting units had an aggregate carrying amount of
$35.1 billion as of March 28, 2020 . Our indefinite-lived intangible asset
balance primarily consists of a number of individual brands, which had an
aggregate carrying amount of $43.1 billion as of March 28, 2020 .
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 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.
45
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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 or any factors
that could be affected by COVID-19, change, or if management's expectations or
plans otherwise change, including as a result of updates to our global five-year
operating plan, then one or more of our reporting units or brands might become
impaired in the future. We are currently actively reviewing the enterprise
strategy for the Company. As part of this strategic review, we expect to develop
updates to the five-year operating plan in 2020, which could impact the
allocation of investments among reporting units and brands and impact growth
expectations and fair value estimates. Additionally, as a result of this
strategic review process, we could decide to divest certain non-strategic
assets. As a result, the ongoing development of the enterprise strategy and
underlying detailed business plans could lead to the impairment of one or more
of our reporting units or brands in the future.
During the first quarter of 2020, primarily in March, the COVID-19 pandemic has
produced a short-term beneficial financial impact for our consolidated results.
Retail sales have increased due to higher than anticipated consumer demand for
our products. The foodservice channel however, has experienced a negative impact
from shelter in place mandates limiting access to away from home establishments.
A number of factors could result in future impairment of our foodservice
reporting units, including but not limited to: continued mandates around
closures of dining rooms in restaurants, distancing of people within an
establishment 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. Our U.S. Foodservice and Canada
Foodservice reporting units are the most exposed of our reporting units to the
long-term impacts to away from home establishments. These two reporting units
were identified during our most recent annual impairment test as both having
excess fair value over carrying amount of less than 10%, with an aggregate
goodwill carrying amount of approximately $4.3 billion . Additionally, in
assessing whether the impacts of COVID-19 resulted in a triggering event for one
or both of these reporting units, we assessed potential scenarios for the future
recovery and growth of away from home establishments as well as the impacts of
declining interest rates and other valuation assumptions. We concluded that, due
to the temporary nature of the shelter in place orders, the most probable
expectation as of March 28, 2020 , was a return to a normal level of operations
within approximately two years. Based on these assumptions and analysis, we
determined there was no interim triggering event as it was not more likely than
not that the fair value of these reporting units is less than their carrying
amounts. Given the evolving nature and uncertainty driven by the COVID-19
pandemic, we will continue to evaluate the impact on our reporting units as
changes to these assumptions could result in future impairments.
As we consider the impact of the COVID-19 pandemic with regard to our
indefinite-lived intangible assets, a number of factors could have a future
impact on our brands, including changes in consumer and consumption trends in
both the short- and long-term, the extent of continued 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 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 these brands are subject
to a similar mix of positive and negative factors. Given the evolving nature and
uncertainty driven by COVID-19 pandemic, we will continue to evaluate the impact
on our brands.
46
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As detailed in Note 8, Goodwill and Intangible Assets, in Item 1, Financial
Statements, we recorded impairment losses related to goodwill in the current
year and goodwill and indefinite-lived intangible assets in the prior year.
Our reporting units and brands that were impaired in 2019 and 2020 were written
down to their respective fair values resulting in zero excess fair value over
carrying amount as of the applicable impairment test dates. Accordingly, these
and other individual reporting units and brands that have 20% or less excess
fair value over carrying amount as of their latest impairment test date have a
heightened risk of future impairments if any assumptions, estimates, or market
factors change in the future. Reporting units with 10% or less fair value over
carrying amount had an aggregate goodwill carrying amount of $32.3 billion as of
their latest impairment testing date and included: U.S. Grocery , U.S.
Refrigerated, U.S. Foodservice , Canada Retail, Canada Foodservice, EMEA East,
and Puerto Rico . There were no reporting units with 10-20% fair value over
carrying amount as of their latest impairment testing date. We had one reporting
unit with fair value over carrying amount between 20-50% as of its latest
impairment testing date. This reporting unit was Northern Europe with a goodwill
carrying amount of $1.7 billion . The aggregate goodwill carrying amount of
reporting units with fair value over carrying amount in excess of 50% was $1.2
billion as of their latest impairment testing date and included Continental
Europe and Asia. Brands with 10% or less fair value over carrying amount had an
aggregate carrying amount after impairment of $26.4 billion as of their latest
impairment test date and included: Kraft, Philadelphia , Velveeta, Lunchables,
Miracle Whip, Planters, Maxwell House, Cool Whip, and ABC . Brands with 10-20%
fair value over carrying amount had an aggregate carrying amount of $3.6 billion
as of their latest impairment test date and included Oscar Mayer , Jet Puffed,
and Quero. The aggregate carrying amount of brands with fair value over carrying
amount between 20-50% was $4.2 billion as of their latest impairment test date.
Although the remaining brands, with a carrying value of $9.3 billion , have more
than 50% excess fair value over carrying amount as of their latest impairment
test date, these amounts are also associated with the 2013 Heinz acquisition and
the 2015 Merger and are recorded on the balance sheet at their estimated
acquisition date fair values. Therefore, if any assumptions, estimates, or
market factors change in the future, these amounts are also susceptible to
impairments.
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 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.
The discount rates, long-term growth rates, and royalty rates used to estimate
the fair values of our reporting units and brands with 10% or less excess fair
value over carrying amount, as well as the goodwill or brand carrying amounts,
as of the latest impairment testing 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 $ 32.3 6.5 % 10.3 % 0.5 % 4.0 %
Brands
(excess earnings method) 19.4 7.7 % 7.8 % 0.8 % 2.0 %
Brands
(relief from royalty method) 7.0 7.7 % 10.7 % 0.5 % 3.5 % 7.0 % 20.0 %
47
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The discount rates, long-term growth rates, and royalty rates used to estimate
the fair values of our brands with 10-20% excess fair value over carry amount,
as well as the brand carrying amounts, as of the latest impairment testing date
for each 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
Brands
(excess earnings method) 3.3 7.8 % 7.8 % 1.0 % 1.0 %
Brands
(relief from royalty method) 0.3 7.8 % 10.3 % 1.5 % 4.0 % 1.0 % 17.0 %
There were no reporting units with 10-20% excess fair value over carrying amount
as of their latest impairment testing date.
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 10% or less excess
fair value over carrying amount and 10-20% excess fair value over carrying
amount. Note that these estimated changes in fair value are not necessarily
representative of the actual impairment that would be recorded in the event of a
fair value decline.
If we had changed the assumptions used to estimate the fair value of our
reporting units and brands with 10% or less excess fair value over carrying
amount, as of the latest impairment testing date for each of these reporting
units and brands, these isolated changes, which are reasonably possible to
occur, would have led to the following increase/(decrease) in the aggregate fair
value of these reporting units and brands (in billions):
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$ (5.3) $ 6.4 $ 2.6 $ (2.4) Brands (excess earnings method) (1.4) 1.7 0.6 (0.6) Brands (relief from royalty method) (0.5) 0.6 0.2 (0.2)$ 0.6 $ (0.6) If we had changed the assumptions used to estimate the fair value of our brands with 10-20% excess fair value over carrying amount, as of the latest impairment testing date for each of these 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 brands (in billions): Discount Rate Long-Term Growth Rate Royalty Rate 50-Basis-Point 100-Basis-Point Increase Decrease Increase Decrease Increase Decrease Brands (excess earnings method) (0.3) 0.3 0.1 (0.1) Brands (relief from royalty method) - - - - $ - $ - There were no reporting units with 10-20% excess fair value over carrying amount as of their latest impairment testing date. 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. 48 --------------------------------------------------------------------------------
Contingencies
See Note 16, 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. Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding integration and restructuring expenses); in addition to these adjustments, we exclude, when they occur, the impacts of integration and restructuring expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, and equity award compensation expense (excluding integration and restructuring expenses). Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. Adjusted EPS is defined as diluted earnings per share excluding, when they occur, the impacts of integration and restructuring expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, 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, andU.S. Tax Reform discrete income tax expense/(benefit), and including, when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. We believe Adjusted EPS provides important comparability of underlying operating results, allowing investors and management to assess operating performance on a consistent basis. 49 -------------------------------------------------------------------------------- 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 EndedMarch 28, 2020 United States$ 4,495 $ - $ -$ 4,495 International 1,301 (50) - 1,351 Canada 361 (6) - 367 Kraft Heinz$ 6,157 $ (56) $ -$ 6,213 Three Months EndedMarch 30, 2019 United States$ 4,224 $ - $ -$ 4,224 International 1,285 7 13 1,265 Canada 450 - 91 359 Kraft Heinz$ 5,959 $ 7 $ 104$ 5,848 Year-over-year growth rates United States 6.4 % 0.0 pp 0.0 pp 6.4 % 2.4 pp 4.0 pp International 1.3 % (4.5) pp (1.1) pp 6.9 % 1.7 pp 5.2 pp Canada (19.8) % (1.3) pp (20.7) pp 2.2 % (6.4) pp 8.6 pp Kraft Heinz 3.3 % (1.1) pp (1.8) pp 6.2 % 1.6 pp 4.6 pp 50
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The Kraft Heinz Company
Reconciliation of Net Income/(Loss) to Adjusted EBITDA
(in millions)
(Unaudited)
For the Three Months Ended
March 28, 2020 March 30, 2019
Net income/(loss) $ 381 $ 404
Interest expense 310 321
Other expense/(income) (81) (380)
Provision for/(benefit from) income taxes 160 217
Operating income/(loss) 770 562
Depreciation and amortization (excluding integration and restructuring expenses)
243 234
Integration and restructuring expenses - 27
Deal costs - 8
Unrealized losses/(gains) on commodity hedges 143 (29)
Impairment losses 226 620
Equity award compensation expense (excluding integration and
restructuring expenses) 33 9
Adjusted EBITDA $ 1,415 $ 1,431
51
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The Kraft Heinz Company
Reconciliation of Diluted EPS to Adjusted EPS
(Unaudited)For the Three Months Ended
March 28, 2020 March 30, 2019
Diluted EPS $ 0.31 $ 0.33
Integration and restructuring expenses(a) - 0.02
Unrealized losses/(gains) on commodity hedges(b) 0.09 (0.02)
Impairment losses(c) 0.18 0.49
Losses/(gains) on sale of business(d) - (0.16)
Adjusted EPS $ 0.58 $ 0.66
(a) Gross expenses included in integration and restructuring expenses were $27
million ($20 million after-tax) for the three months ended March 30, 2019 and
were recorded in the following income statement line items:
•Cost of products sold included $9 million for the three months ended March 30,
2019 ; and
•SG&A included $18 million for the three months ended March 30, 2019
(b) Gross expenses/(income) included in unrealized losses/(gains) on commodity
hedges were expenses of $143 million ($108 million after-tax) for the three
months ended March 28, 2020 and income of $29 million ($21 million after-tax)
for the three months ended March 30, 2019 and were recorded in cost of products
sold.
(c) Gross impairment losses, all of which related to goodwill, were $226 million
($226 million after-tax) for the three months ended March 28, 2020 and $620
million ($594 million after-tax) for the three months ended March 30, 2019 and
were recorded in SG&A.
(d) Gross expenses/(income) included in losses/(gains) on sale of business were
losses of $2 million ($2 million after-tax) for the three months ended March 28,
2020 and were income of $246 million ($191 million after-tax) for the three
months ended March 30, 2019 and were recorded in other expense/(income).
52
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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 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 impact of the COVID-19 outbreak; 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, suppliers, and 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, increase our market share, or add products that are in
faster-growing and more profitable categories; product recalls or product
liability claims; unanticipated business disruptions; our ability to identify,
complete, or realize the benefits from strategic acquisitions, alliances,
divestitures, joint ventures, or other investments; 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
ability to successfully execute our strategic initiatives; the impacts of our
international operations; 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; impacts of natural events in the locations in
which we or our customers, suppliers, distributors, or regulators operate; our
ownership structure; our indebtedness and ability to pay such indebtedness, as
well as our ability to comply with covenants under our debt instruments; our
liquidity, capital resources, and capital expenditures, as well as our ability
to raise capital; 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; increased
pension, labor and people-related expenses; compliance with laws, regulations,
and related interpretations and related legal claims or other regulatory
enforcement actions, including additional risks and uncertainties related to any
potential actions resulting from the Securities and Exchange Commission's
ongoing investigation, as well as potential additional subpoenas, litigation,
and regulatory proceedings; an inability to remediate the material weaknesses in
our internal control over financial reporting or additional material weaknesses
or other deficiencies in the future or the failure to maintain an effective
system of internal controls; our failure to prepare and timely file our periodic
reports; our ability to protect intellectual property rights; tax law changes or
interpretations; the impact of future sales of our common stock in the public
markets; our ability to continue to pay a regular dividend and the amounts of
any such dividends; volatility of capital markets and other macroeconomic
factors; a downgrade in our credit rating; 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 28, 2019 and Part II, Item 1A, Risk Factors, of this
Quarterly Report on Form 10-Q. We disclaim and do not undertake any obligation
to update or revise any forward-looking statement in this report, except as
required by applicable law or regulation.
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