Kraft Heinz Investment Memo - Hamidi

Investment Memorandum for the Kraft Heinz Company
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Investment Memorandum for of The Kraft Heinz
Company
By: Achraf “Ash” Hamidi
Section: MW 5:00 - 6:15 PM

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Table of Contents
Investment Thesis
Part I: Industry Analysis of The Kraft Heinz Company
1) Introduction
2) External Environment of the Food & Beverage Industry:
• Industry Overview and Analysis:
• Industry Life Cycle and Market Share Concentration:
• Industry Demand Determinants and Profitability Drivers:
• Porters Five Forces Analysis of the Food and Beverage Industry:
3) Internal Analysis of the Kraft Heinz Company:
• Kraft Heinz SWOT Analysis:
4) Conclusion:
Part II: Common Size Financial Statements Analysis
1) Introduction:
2) Income Statement:
3) Balance Sheet:
4) Statement of Cash Flow
5) Conclusion
Part III: Key Financial Statements Metrics Analysis
1) Introduction
2) Operating Margins
3) Profitability
4) Liquidity
5) Solvency
6) Activity and Cash Flow
7) Conclusion
Part IV: Capital Structure, Lease and Pension Analysis
1) Introduction
2) Long-term debt
3) Short-term debt
4) Equity
5) Overall capital structure
6) Pension and Capital leases
Final Conclusion
References and Appendix

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Investment Thesis
• Recommendation: Sell.
The Kraft Heinz Company fell by -3.13% in the last day (Friday, 1st May 2020) from $30.33 to
$29.38 and has now been falling for 3 days in a row. During the day the stock fluctuated 3.74% from a
day low at $29.15 to a day high of $30.24. The price has been going up and down for this period, and
there has been a 0.17% gain for the last 2 weeks. This is a trend that has been a common effect of the
Coronavirus pandemic for all food and beverage companies with strong supply chains. In the last day the
trading volume fell by -3.81 million shares and in total 6 million shares bought and sold for
approximately USD 180.99 million.
Going into 2019, few investors would have guessed that Kraft Heinz (NASDAQ: KHC) would
see such a drastic decline. Shares of the packaged-foods giant fell by 27% on February 22 when it
announced a USD 15.4 billion impairment charge that wiped out an otherwise profitable year. In 2019,
goodwill impairment totaled over USD 16.7 billion. This represented the second major wave or write-
downs, restructuring and impairment since the merger of Kraft Foods and the Heinz company. The first
wave occurred the year before and totaled about USD 15.94 billion. While these write-downs have been
affecting the company’s net income, they have however kept the firm’s cashflow from operations (CFO)
in the green. Generally, big write-downs and restructuring costs represent a red flag for failed
management or, in the case of Kraft Heinz, questionable accounting practices. In 2019, the company
announced that Securities Exchange Commission (SEC) had begun an investigation of its accounting
methods before the SEC filed an additional subpoena to specifically investigate the company’s goodwill
assessments and asset impairments. Due to these impairments, Kraft Heinz has been operating at negative
net margins for two years in a row. This could also be a red flag. Businesses that sustains net losses over
time may have unsustainable business models. The negative net incomes, USD 10.2 billion in 2018, and
significant negative net margins can cause shareholders and investors to pull remaining finances from the
business in the hopes of mitigating losses.
In addition to financial complications, the company is facing other types of significant internal
challenges. While still profitable, Kraft Heinz as well as many legacy food and beverage brands such as
General Mills, Kellogg’s and Campbell’s are struggling as changing consumer habits favoring organic
brands and fresh foods have made it difficult to grow organic sales. Furthermore, the firm relies heavily
on equity. Even though this is usually a good sign for a company, the significant amount of debt that
Kraft Heinz is undertaking as well as the gradually and consistently diminishing investor confidence tell
otherwise. The Kraft Heinz company must therefore address these issues to meet the consumer’s
expectations and tastes, to rebuild a crumbling investor confidence, and keep its position as a leader in the
industry in the long run.
Therefore, although there is some potential upside with Kraft Heinz, but it's not enough to justify
a buy right now. Whether you're looking for a growth stock or a dividend/value investment, there are
better companies out there to consider. The Kraft Heinz stock is a sell and the following memorandum is
to show why that is the case.

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Part I: Industry Analysis of The Kraft Heinz Company
1) Introduction:
The Kraft Heinz Company (KHC), commonly known as Kraft Heinz, is an American food company
formed by the merger of Kraft Foods and Heinz with co-headquarters in Chicago, Illinois and Pittsburgh,
Pennsylvania. Kraft Heinz is the third-largest food and beverage company in North America and the fifth-
largest in the world with $26.2 billion in annual sales as of 2018 and sales in approximately 190 countries
and territories. The company manufactures and markets food and beverage products, including
condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery
products, throughout the world, under a host of iconic brands including Heinz, Kraft, Oscar Mayer,
Philadelphia, Velveeta, Lunchables, and so on.
Their products are sold in highly competitive marketplaces, which have experienced increased
concentration and the growing presence of e-commerce retailers, large-format retailers, and discounters.
Competitors include large national and international food and beverage companies and numerous local
and regional companies. Their products compete against both branded and generic products, in addition to
retailer brands, wholesalers, and cooperatives. Kraft Heinz competes primarily on the basis of product
quality and innovation, brand recognition and loyalty, service, the introduction of new products, the
effectiveness of advertising campaigns and marketing programs, distribution, shelf space, and price.
Figure 1: Kraft Heinz (KHC) 5-Year Stock Performance
Source: Yahoo Finance
2) External Environment of the Food & Beverage Industry:
a. Industry Overview and Analysis:
The Kraft Heinz Company operates and competes in the food and beverage consumer product
industry. The food and beverage industry is divided into two major segments. Those two segments are

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production and distribution of edible goods. Production includes the processing of meats and cheeses and
the creating of soft drinks, alcoholic beverages, packaged foods, and other modified foods. The
production segment of this industry excludes foods that were directly produced via farming and other
forms of agriculture. Distribution involves transporting the finished food product into the hands of
consumers. While Kraft Heinz is more of a production company, it is also, as mentioned earlier, involved
in the distribution, merchandising and marketing of its products.
The global food and agricultural industry for 2018 totaled about $8.7 trillion, according to Plunkett
Research estimates, or about 10% of the world's GDP. Global food exports totaled $1.47 trillion in 2017,
according to the World Trade Organization. On a very broad basis, $1.90 trillion to $2.10 trillion was a
reasonable estimate for total U.S. retail food and beverage industry revenues for 2018. In the United
States, the average household spent $7,729 on food during 2017, up from $7,023 the previous year. That
included $4,363 spent on food for at-home dining, and $3,365 for dining out. In essence, the food and
beverage industry is currently going through rapid transformations; and with the latest trends and
innovations in place, it is not inappropriate to say that there is no looking back for food and beverage
companies. The industry is experiencing various trends such as shifting consumer preferences and a
significant digital transformation, but facing numerous challenges such as social and environmental
responsibility and the lack of traceability.
b. Industry Life Cycle and Market Share Concentration:
The global food and beverage industry is growing at around 5% a year and global expenditure on food
products by consumers is expected to reach US$20 trillion by 2030. Furthermore, the Food and Beverage
industry is Fragmented. The production in this industry is divided among a few different companies,
however, no single firm has large enough share of the market to be able to influence the industry's
direction or price levels.
Figure 2: Food and Beverage Industry Fragmentation Level
Source: Hoovers.com
c. Industry Demand Determinants and Profitability Drivers:
While demand determinants and profitability drivers differ from one market to another, this analysis
will focus on the United States market as it constitutes over 70 percent of the revenue made by the Kraft
Heinz Company in 2016 (see Figure 2).

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Figure 3: Kraft Heinz Revenue by Geographical Region (compared to Unilever)
Source: Seeking Alpha
The food and beverage industry’s demand is mainly driven by a number of factors which include food
consumption, population growth, household income, changes in household structures, attitudes towards
health and consumer preferences. For instance, grocers are devoting more space to prepared foods to
capture shifting consumer demand. Other factors such as the rise of single-person households and dual-
income households, as well as the shift in demand for prepared and pre-prepared healthy foods are
reshaping the industry. Finally, age and income are also important factors to consider. For instance,
millennials’ wealth constraints have made them particularly price-conscious spenders, driving up demand
for lower-priced food options. However, their price consciousness will likely decline as their spending
power increases.
While food and beverage profit margins are traditionally small, they are not expected to shrink further
in the coming years. There is a considerable amount of price competition in the industry, which
contributes to the narrow profit margins as companies compete to offer the most appealing deals in order
to gain market share. Because of the competitive nature of the market, there have been many mergers and
acquisitions in recent years. This is because the main profitability drivers are adaptation to consumer
preferences and efficient operations. Food and beverage products are essentially commodities that are
subject to intense price competition. There has been a shift towards healthy eating and diet among the
consumers since 2014, and this could be a potential threat to the industry as people become more aware of
issues related to weight and obesity and processed food. There has been a proactive shift within the
industry participants to tailor their menus towards more organic and healthy products.

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d. Porters Five Forces Analysis of the Food and Beverage Industry:
Threat of New Entrants: Low
Theoretically, the increasing world population and the consequent increase in demand of various
commodities has led to more and more food and beverage companies joining the fray. However, the
current situation of the industry can be put as being saturated where there is no place for any new
companies. Companies that have already been in the market for the past couple of years and have
established customer bases have a stronghold of the market and it is very difficult for the new entrants to
make a mark. However, the United States government provides a lot of subsidies for food processing and
hence establishing shop is quite easy.
Threat of Substitutes: Low to Medium
As mentioned earlier, the United States government provides many subsidies to the different actors in
the industry and raw materials required are easily accessible. Furthermore, there are no such government
policies that restrict entry in the industry. Therefore, many players can enter the food industry, but need
strong distribution networks and a strong brand equity to survive in the long run. Essentially, entry
barriers are not very high. However, exit barriers are very low, meaning that weaker firms are more likely
to leave the market quickly, increasing market share for the remaining firms.
Bargaining Power of Buyers: Low to Medium
Generally speaking, the buyers are inclined to buy good quality products at cheaper prices. As such,
they don’t mind changing the suppliers and buying from the one that offers good quality at better prices.
In other words, buyers want the best value for their dollar. There is a noteworthy chance for the buyers to
concentrate on the industry and its firm benefits. However, companies such as Kraft Heinz have large
Porter's
Five Forces
-
Kraft Heinz
Threat of New
Entrants:
Low
Threat of
Substitutes:
Low to Medium
Bargaining
Power of
Buyers:
Low to Medium
Bargaining
Power of
Suppliers:
Low
Intensity of
Competition:
Low

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customer bases. The company’s products have a good geographic reach with an even distribution between
large players and small distributors.
Bargaining Power of Suppliers: Low
In general, the food and beverage industry is truly towering and aggressive when it comes to the
pricing part. Manufacturers of such products usually keep the prices of their products very competitive.
The suppliers of these kinds of products don’t have much of a say in the pricing matters. In fact, the
majority of the big companies have no dependency on any particular supplier, and many of the suppliers
depend on buyers such as Kraft Heinz due to the volume of their purchases. Raw materials are easily
obtained in this industry and there are a number of substitute inputs available.
Intensity of Competitive Rivalry: Medium to High
There is severe competition in the food and beverage industry. It has become very difficult for
companies to survive and maintain their respective market share. The food industry size is very large, as
the revenue in the Food & Beverages segment is estimated to reach US$ 76,570 M in 2020 according to
Statista. The Kraft Heinz Company (KHC) faces competition from a huge number of players in the food
market.
Looking at the Porters five forces analysis, we can get an aggregate industry analysis that the strength
of forces and the profitability in the food and beverage industry are moderate. As such, a company such as
Kraft Heinz (with massive brand equity) operates in a fragmented, profitable and competitive industry,
and faces little threatening competition. The main threats facing the company are internal and mostly of
financial nature.
3) Internal Analysis of the Kraft Heinz Company:
The core competence of Kraft Heinz has been its ability to effectively leverage their differentiation
strategies by offering a premium product mix of high-quality products. Kraft Heinz’s brand equity is built
on historically selling the finest quality food, condiments and related products, thereby building a high
degree of customer loyalty with a cult following. In essence, Kraft Heinz’s USP (Unique Selling Position)
lies in it being one of the leading food and beverage companies in the United States and across the world,
offering unparalleled range of products from iconic brand. As stated in the company’s mission statement,
“we are not for everyone, but we are exceptional for the few.”
a. Kraft Heinz SWOT Analysis:
Strengths Weaknesses
• Strong market position with a wide
portfolio of products
• Global footprint
• Strong distribution channels
• Frequent product recalls
• Increasing debt
• Advertising controversies and issues
Opportunities Threats
• Increasing demand for healthier food
products
• Growing foodservice industry
• Increased regulation
• Suppliers and new entrants
• Intense competition

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Strengths:
o Strong Market Position with a wide portfolio of products: Kraft Heinz is one of the
largest food and beverage companies in the world. The company has leading market position in various
categories which gives it a competitive advantage and also enhances its bargaining power. Moreover, the
company has a strong portfolio with 26 popular brands under its umbrella with eight popular $1 billion
brands, namely, Kraft, Heinz, Oscar Meyer, Philadelphia, Planters, Lunchables, Maxwell House and
Velveeta. Most of these brands are amongst the most valuable brands in the world.
o Global footprint: Kraft Heinz has a wide global footprint with high presence in developed
markets and increasing presence in emerging markets. Kraft Heinz is present in North America, Asia-
Pacific, Europe, Latin America, etc. With a wide and diversified global footprint, the company has been
able to dilute business risks of overdependence on a handful of markets.
o Strong distribution channels: Kraft Heinz has presence in more than 190 countries. Just
like other agents in the food and beverage industry, Kraft Heinz is required efficient distribution
processes. The merger between Kraft and Heinz helped bring together the distribution channels of both
companies in order to build stronger channels and processes. The company is also known for using the
most recent technologies to make the distribution processes more efficient and innovative.
Weaknesses:
o Frequent product recalls: Kraft Heinz has also had to face some controversies regarding
product recalls in the recent past. In July 2015, the company had to recall wrapped slices and in August
2015, the company had to recall many products of turkey bacon doe to the possibility of adulteration.
Such product recalls especially in the food and beverage industry affects the brand image and sales of the
company.
o Increasing debt: Kraft Heinz is sitting on $30.9 billion of long-term debt, up from $28.3
billion a year ago. That amounts to a sizable leverage multiple of 4.4 times the company's 2018 adjusted
earnings. Furthermore, the current ratio that shows the company’s ability to meet its short-term financial
obligations, is lower than the industry average. This could mean that the company could have liquidity
problems in the future.
o Advertising controversies and issues: Besides the numerous issues regarding the many
advertising controversies that Kraft Heinz has been involved in, the austerity measures and cuts in
spending included cuts in the advertising budget. This can be detrimental since advertising is the main
ingredient alongside innovation in creating a differentiated brand. Thus, diminished advertising presence
would deplete brand value and therefore enterprise net worth.
Opportunities:
o Increasing demand for healthier food products: Increasing health awareness across the
globe results in increasing demand for nutritious and trans-fat free products. Kraft Heinz is taking care of
the increasing awareness towards health and is using the range of nutritious foods for adults as well as
babies. The company should further look forward to expanding its product portfolio to include more
nutritious products.
o Growing foodservice industry: The foodservice industry is expected to grow rapidly in
the near future due to improving lifestyle and rapid urbanization. There has been an increase in average
household income along with an increase in consumer spending following the recession. This will result
in growth in The Kraft Heinz Company’s target market with new customers that can be attracted towards
the business. Essentially, any potential demand created could be tapped easily by Kraft Heinz.
Threats:
o Increased regulations: The food safety regulations around the world have become stringent
over the years and thus a food company has to pass through various norms by the food regulation
authorities in various countries. This increase compliance costs for the company. Furthermore, regulations

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on international trade keep changing, and this requires compliance by companies if they are to operate
globally.
o Suppliers and new entrants: On one hand, the bargaining power of suppliers has increased
over the years with the decrease in the number of suppliers. This means that the costs of inputs could
increase for The Kraft Heinz Company. On the other hand, there have been numerous players that have
entered the market and are gaining market share by gaining existing companies’ market share.
o Intense competition: Kraft Heinz is subjected to competition from various companies
across product categories and geographies. Higher competition forces a company to spend more on
promotions and also induces price wars which affect revenues and profitability. Furthermore, this increase
in competition within the industry has been putting downward pressure on prices as well.
4) Conclusion:
The food and beverage industry is going through rapid transformations and is becoming more
important every year. In fact, nearly a quarter of every retail dollar spent in the U.S in 2018 was on food
and beverage. With several trends constantly moving through this industry, the Kraft Heinz company
seems to possess significant strengths and to employ adequate strategies that would allow it to maintain
its position as one of the largest food and beverage companies in the world. Nevertheless, the industry as
a whole is facing several critical challenges that are even bigger than the growing market competition.
Not to mention weaknesses and threats which are specific to Kraft Heinz such as the high debt levels,
employee misconduct, and the rising investor concerns. Today, while still profitable, many legacy food
and beverage brands such as General Mills, Kellogg’s and Campbell’s are struggling as changing
consumer habits favoring organic brands and fresh foods have made it difficult to grow sales. The Kraft
Heinz company must therefore address these internal issues to meet the consumer’s expectations and
tastes, to rebuild a crumbling investor confidence, and keep its position as a leader in the industry in the
long run. However, does the firm’s financial health provide an adequate environment for solutions to be
implemented? How does the packaged-foods giant compare to its competition?

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Part II: Common Size Financial Statements Analysis
1) Introduction:
In this section of the Kraft Heinz investment memorandum, we use the common size financial
statements of the Kraft Heinz company (NASDAQ: KHC) in comparison to three competitors in the
industry: Campbell Soup Co (NYSE: CPB), General Mills (NYSE: GIS) and PepsiCo (NASDAQ: PEP).
This analysis looks into the commonalities and differences between Kraft Heinz and the aforementioned
food and beverage consumer products companies. More specifically, in this section of the memorandum,
we analyze the cost structure, solvency, liquidity, and profitability and perform a margin analysis for
Kraft Heinz in comparison to its competitors. For the sake of these analyses, we will be using common
size statements from the Fiscal Year-End of 2018. However, due to differences between periods and
months of the Fiscal Year-End, since Campbell Soup Co’s fiscal year ends in July and General Mills’ in
May, we will be using data from Fiscal Year-End of July 28th
2019 for Campbell Soup Co and from
Fiscal Year-End of May 26th
2019 for General Mills. This analysis is an interpretation of the data
provided by S&P Capital IQ’s reporting of the companies’ income statements, balance sheets, and cash
flow statements.
2) Income Statement:
The first observation to be made after looking at the revenues of the four companies is that they
are all different in sizes. Campbell Soup Co experiences the smallest annual revenue. That is possibly due
to the relatively smaller size of operations of the company. The company has a smaller and shrinking
international presence. Kraft Heinz has one of the higher revenues (USD 26.3 billion) and seems to have a
moderate gross margin of 34.7%. Furthermore, Kraft Heinz has the highest operating margin (23.1%).
This high operating margin means that the company operates under less financial risk. This means that
Kraft Heinz is better able to pay for its fixed costs, such as interest on debt.
Nonetheless, Kraft Heinz experienced abnormally negative earnings from continued operations of
over $10 billion. These negative earnings are mostly due to a significant impairment of goodwill (~ $7
billion) and asset write-down (~ $8 billion). The impairment of goodwill is due to the overvalued carrying
value of goodwill that resulted from the merger between Heinz, which was bought by Warren Buffett's
Berkshire Hathaway (BRKB) and private equity firm 3G Capital, and Kraft. Kraft Heinz’s charge reduced
the company’s overall goodwill balance by nearly 17% to $36.2 billion. Moreover, Kraft Heinz had to
write down the carrying value of various assets. The write-down indicates declining fortunes of the iconic
brands and other losses in asset value, meaning the company views those assets as less valuable than
before the merger.

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Kraft Heinz is in a worse position than many other consumer packaged goods companies because
it has got a very weak portfolio of brands. These brands are not delivering the level of growth that’s
needed in this sort of market. The company also disclosed it had been subpoenaed by the U.S. Securities
and Exchange Commission in October, related to an investigation into its accounting policies, procedures
and internal controls related to procurement. Finally, the negative net income (USD 10.2 billion) and
significant negative net margin can cause shareholders and investors to pull remaining finances from the
business in the hopes of mitigating losses. This can cause the company's public stock price to plummet,
which happened repeatedly since 2016 and which shrinks the total value of the business.
Company Gross Margin
Operating
Margin
Net
Margin
Campbell
Soup 33.4% 13.8% 2.6%
General Mills 34.5% 17.8% 10.6%
Kraft Heinz 34.7% 23.1% -38.8%
PepsiCo 54.6% 16.4% 19.4%
3) Balance Sheet:
Campbell Soup, General Mills, Kraft Heinz, and PepsiCo are all different sizes. While that is
apparent from the companies’ revenues, the value of these firms’ assets. Kraft Heinz ranks first with over
$103 billion in total assets. However, Kraft Heinz’s assets composition is atypical for a food and beverage
company. Over 35% of Kraft Heinz’s assets are in goodwill and close to 48% comes from other
intangibles. Normally, companies with high intangibles are in the technology industry, and food and
beverage companies own large amounts of property, plant and equipment. The issue with Kraft Heinz’s
asset composition is the frailty of its goodwill and intangible assets that have already undergone
impairment and write downs.

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Kraft Heinz’s total equity constitutes 50% of its liabilities and equity, with over $51 billion in
equity. A high equity ratio is typically favorable. It indicates higher levels by shareholders shows
potential shareholders that the company is worth investing in since so many investors are willing
to finance the company. However, Kraft Heinz’s high equity ratio is due to Berkshire Hathaway
and 3G Capital owning large shares of the company. Its stock has been plummeting and that’s a
sign of investors’ lack of confidence.
Company Current ratio Quick ratio Cash ratio
Working
Capital
Campbell Soup 0.58x 0.16x 0.01x
$
(1,418.0)
General Mills 0.59x 0.30x 0.06x
$
(2,900.6)
Kraft Heinz 1.21x 0.43x 0.15x $ 1,572.0
PepsiCo 0.99x 0.68x 0.41x
$
(245.0)
Of all four companies, Kraft Heinz is the only one with a current ratio higher than 1 (1.21x).
Creditors usually interpret the high current ratio as a company’s favorable position to meet its short-term
liabilities. While short-term liabilities only constitute about 7.3% of Kraft Heinz’s total capitalization,
these liabilities are still pretty significant when considering the absolute dollar values. Kraft Heinz has
over USD 7.5 billion of short-term liabilities. The quick ratio analysis of Kraft Heinz however is close to
the industry’s average. The reason for this discrepancy between current and quick ratio is that the major
proportion of Kraft Heinz’s current assets come from inventory. Relatively large inventories (USD 2.7
billion) can be a sign of short-term trouble as Kraft Heinz may have overestimated their sales.

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4) Statement of Cash Flow:
While the positive cash from operations (CFO) could be interpreted as a positive sign regarding
Kraft Heinz’s performance, often indicating that the core business activities of the company are thriving.
However, for the case of Kraft Heinz, most of the aforementioned cash originated from asset write down
and restructuring costs (~ USD 16 billion). This is an alarming aspect of the company’s finances. Many
firms that take restructuring charges, especially in cases of mergers or acquisitions, can reverse a portion
of these cost accruals in order to meet earnings targets, or even exceed analysts’ forecasts.
While it is not unheard of for food and beverage companies to experience a negative net change
in cash, Kraft Heinz’s negative change in cash (USD 633 million) is more significant, especially when
disregarding the asset write down and restructuring cost reversals that the company used. Furthermore,
Kraft Heinz seems to be the only company with a negative net change in working capital that is as
important as $2 billion. Overall, Kraft Heinz is definitely in a much weaker position than its competitors.
Company Total Debt/Capitalization Debt-to-Equity
Campbell
Soup 84.0% 525.1%
General Mills 4.1% 4.3%
Kraft Heinz 10.0% 11.2%
PepsiCo 0.0% 0.0%
The company’s financial structure, however, is more favorable as it indicates that Kraft Heinz
constitutes a less risky investment. Kraft Heinz’s relatively low debt-to-equity ratio (11.2%) also indicates
that the company is likely to be able to generate enough cash to satisfy its debt obligations. However, this
could also indicate that the firm is not taking advantage of the increased profits that financial leverage
may bring. Nonetheless, companies such as Campbell Soup do however present themselves as too risky,
especially when considering the significantly low current ratio (0.58x) and cash ratio (0.01x).

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5) Conclusion:
Kraft Heinz is certainly an interesting case. The analysis of its financial statements and the
interpretation of its financial performance in comparison to other competitors in the industry indicates that
the firm is facing some major challenges. Kraft Heinz shares have plunged 62% cumulatively since the
merger, and two major credit ratings agencies downgraded its corporate debt to "junk" status on February
14th 2018. Since the merger of the venerable Kraft and Heinz brands in July 2015, the combined
company has lagged its peers in revenue and margin growth, and it's failed to keep up with rapidly
changing consumer tastes and purchasing habits. The poor credit rating combined with the poor financial
performance of the company is generating significant amounts of uncertainty amongst investors. Kraft
Heinz is facing important challenges that arise due internal and external factors. As a result, the firm has
been performing comparably less efficiently than its competitors. So, what has caused this? Is this a new
pattern or has the company been consistently performing as such? What can a historical analysis of the
company’s liquidity, solvency, margins of operation, profitability and activity tell us about the firm’s past
performance, present management and future disruptions?

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Part III: Key Financial Statements Metrics Analysis
1) Introduction:
In this section of the Kraft Heinz investment memorandum, we use the financial statements of
the Kraft Heinz company (NASDAQ: KHC) from the past 5 fiscal year ends starting in FYE14 and
ending in FYE18. This analysis investigates the various trends and patterns in Kraft Heinz’s financial
statements in order to interpret the company’s financial position, wellbeing, and growth. More
specifically, in this section of the memorandum, we analyze the operating and net margins, the
profitability, the liquidity, the solvency, the activity and the cashflow of the Kraft Heinz company.
Companies in the food and beverage sector typically operate in highly-competitive markets and Kraft
Heinz is no exception. This makes its profit and operating margins and financial efficiency key points to
evaluate. Furthermore, the debt position of the company is also an important indicator for determining
financial soundness and the ability to weather market downturns or losses incurred through competition.
This analysis is an interpretation of the data provided by S&P Capital IQ’s reporting of the companies’
income statements, balance sheets, and cash flow statements.
2) Operating and Net Margins:
As previously observed in Part II of the memorandum, Kraft Heinz has experienced a staggering
net margin of -38.8% in 2018. This was mostly due to a significant loss due to an impairment of goodwill
and asset write-down that followed the merger of the two firms in 2015; the same merger that allowed the
company to more than double its revenue. If it were not for the impairment and write-down the company
would have experienced a steadier growth in its net and operating margins. For instance, since the merger
up to FYE17, Kraft Heinz’s net margin went from 3.5% to 42%. That represents an unbelievable growth
of over 1100%.
While the company’s net margins took a hard hit in FYE18, its operating margins seem to have
remained more stable. In FYE14, Kraft Heinz’s operating margin was about 23.8%. While the firm had

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managed to increase its operating margin by about 3% after the merger, the impairment and write-down
losses brought the company’s operating margin to its pre-merger levels: 23.1% in FYE18.
Ratio/Metrics 2014 2015 2016 2017 2018
Gross Margin % 34.9% 35.8% 37.6% 36.4% 34.7%
Operating Margin % 23.8% 23.5% 26.0% 26.3% 23.1%
Growth - -1.3% 10.8% 1.2% -12.4%
Net Margin % 6.0% 3.5% 13.7% 42.0% -38.8%
Growth - -42.5% 295.5% 206.9% -192.5%
3) Profitability:
Net income is very important in the measurement and assessment of a company’s profitability.
Thus, the negative net income in FYE18 has significantly affected the Kraft Heinz’s profitability. In
FYE18, the company experienced a -19.8% return on equity and a -10.1% return on assets. The trend of
these two metrics however, have been similar to the net margin. Both Kraft Heinz’s ROE and ROA have
increased exponentially after the merger. In fact, both metrics have increased by 467.2% from 1.2% to 7%
for ROE and from 0.6% to 3.6% for ROA.
Ratio/Metrics 2014 2015 2016 2017 2018
ROE % 1.3% 1.2% 7.0% 21.3% -19.8%
Growth - -3.5% 467.2% 204.3% -193.2%
ROA % 0.7% 0.6% 3.6% 10.9% -10.1%
Growth - -3.5% 467.2% 204.3% -193.2%
While the impairment of goodwill and write-down of assets might have impacted the profitability
of the company in FYE18, one can still say that the company has benefited from the merger since the
average growth of ROA and ROE during the 5-year period between FYE14 and FYE18 is about 118.7%.
If Kraft Heinz overcomes and survives the blows that came with the write-down and impairment, they
could easily retrieve their potential profitability.

17
4) Liquidity:
Liquidity ratios are an important class of financial metrics used to determine a company's ability
to pay debt obligations without raising external capital and its margin of safety. While Part II of the
memorandum provided an external analysis of the company’s liquidity in comparison with competitors,
this part provides an internal analysis of Kraft Heinz’s liquidity. This internal analysis allows for the
tracking of changes in business.
Ratio/Metrics 2014 2015 2016 2017 2018
Current ratio x 1.59x 1.41x 0.92x 0.71x 1.21x
Growth - -11.2% -34.7% -23.0% 70.6%
Quick ratio x 1.02x 0.91x 0.56x 0.34x 0.45x
Cash ratio x 0.74x 0.70x 0.44x 0.16x 0.15x
Working capital $ 1,823.0 $ 2,848.0 $ (748.0) $ (2,953.0) $ 1,572.0
Growth - 56.2% -126.3% 294.8% -153.2%
Kraft Heinz seems to have high liquidity which can be interpreted as the company’s high liquidity
and its potentially better coverage of outstanding liabilities. However, when we look at the industry
averages, we find that the company underperforms pre- and post-merger.
While Kraft Heinz has certainly been underperforming since before the merger, the gap becomes
wider and wider every year in the period post-merger. This can be explained by the debt undertaken in
order to make the merger happen. For instance, the current portion of long-term debt went from 11
million USD in FYE14 (pre-merger) to over 2 billion USD in FYE16 (post-merger). Short-term
borrowing has known a similar trend as well: from 0 USD in FYE14 to 645 million USD in FYE16.
While Kraft Heinz can be generally described as a highly liquid company, the merger resulted in the
ramping up of debt and liabilities that affected the company’s liquidity. Nevertheless, the company seem
to be recovering as its liquidity has trended upwards for the first time since the merger. Unfortunately,
this probably doesn’t mean much since the company’s long-term debt increased significantly to upwards

18
of 30 billion USD for the first time in the company’s history. In other words, the company’s liquidity is
most likely to decrease further in the future.
5) Solvency:
While the liquidity refers to the company’s ability to meet its current liabilities, the solvency
metrics measure the enterprise’s ability to meet its longer-term debt obligations. The solvency ratio
indicates whether a company’s cash flow is sufficient to meet its short-and long-term liabilities. In
simpler words, the lower a company's solvency ratio, the greater the probability that it will default on its
debt obligations.
Ratio/Metrics 2014 2015 2016 2017 2018
Total debt/capitalization % 46.5% 29.4% 37.0% 32.3% 37.9%
EBITDA/interest expense x 3.79x 3.26x 6.04x 5.57x 4.72x
Total debt/total equity % 87.1% 41.7% 58.7% 47.6% 60.7%
Growth - -52.1% 40.7% -18.9% 27.6%
Total debt/EBITDA x 5.25x 6.41x 4.94x 4.58x 5.19x
The first observation that can be made is that Kraft Heinz relies more on equity than debt. In fact,
the company has decreased its debt-to-capitalization substantially from 46.5% in FYE14 to 37.9% in
FYE18. This is a surprising yet understandable trend since the companies’ merger had attracted more
investors of all sizes while at the same time, almost doubling their long-term debt. Furthermore, the
company’s debt-to-equity ratio is not far from the industry average. To some extent, the merger helped
stabilize the company’s solvency, not to mention that its interest coverage ratio (4.72x) represents over
double that of the industry (1.87x). It is therefore very unlikely that the company defaults on its debt
(unless it does so strategically) as Kraft Heinz seems to be in relatively good financial health.

19
6) Activity and Cashflow:
Ratio/Metrics 2014 2015 2016 2017 2018
Activity Ratios
Fixed asset turnover x 4.62x 2.81x 3.93x 3.69x 3.71x
Total asset turnover x 0.11x 0.18x 0.26x 0.26x 0.26x
Working capital turnover x 21.48x 36.07x 51.73x 51.29x 51.67x
Inventory turnover x 2.98x 4.94x 6.88x 6.96x 7.20x
A/R turnover x 8.27x 13.88x 19.91x 19.74x 19.88x
Cashflow Ratios
Free operating cash flow to debt x 0.19x 0.07x 0.12x 0.05x 0.11x
DCF to total debt x 0.24x 0.15x 0.23x 0.15x 0.21x
FCFF $ 1,964.9 $ 1,076.3 $ 3,067.1 $ 461.0 $ 2,116.0
FCFE $ (8,532.0) $ (18,473.0) $ (23,660.0) $ (27,717.0) $ (26,617.0)
In terms of activity, the merger seems to have had a sharp and quick impact on the firm. For
instance, the company’s fixed asset turnover decreased to a new stable level post-merger. This can be an
indicator of a possible inefficiency in terms of the company’s use of its fixed assets. Nevertheless, the
company more than doubled its total asset turnover, its working capital turnover and its inventory and
account receivables turnover. These are all good signs regarding the company’s efficient operations. The
company is making twice as much per dollar of assets or working capital. The higher inventory turnover
also means is selling goods very quickly and that demand for their product exists and the high A/R
turnover indicates that the company’s collection of accounts receivable is efficient and that the company
has a high proportion of quality customers that pay their debts quickly.

20
In terms of cashflow, the story is a little different and the numbers are not as stable. For instance,
free Cash Flow to Debt is a ratio that shows the fraction of all debt that would be repaid in one year if all
of the free cash flow went to repaying debt. In other words, Kraft Heinz was more financially stable
before the merger. This is due to the ramping up of debt that followed the merger as well as the lower net
income in FYE15 and FYE18. Furthermore, the company’s ratio in FYE18 can be misleading since it
seems to have increased. However, that is due to the compensating effect that the sale of assets had on the
firm’s operating cash flow. To put it in simpler words, the company had to sell some of its assets to avoid
a negative cash flow from operations which would have discouraged investors. The ratios on their own
can be misleading since they can be interpreted as the firm regaining financial stability which it is not.
7) Conclusion:
Kraft Heinz is certainly an interesting company to analyze as it is currently facing huge
challenges from the same merger its management once revered. The analysis of its financial statements
and the interpretation of its financial performance in comparison from the past 5 fiscal year ends indicates
that the firm is facing some major obstacles. Kraft Heinz shares have plunged 62% cumulatively since the
merger, and two major credit ratings agencies downgraded its corporate debt to "junk" status on February
14th 2018. Since the merger of the venerable Kraft and Heinz brands in July 2015, the company seems to
have gained in every aspect bat first before it suffered from the staggering ~ 7 billion USD impairment of
goodwill and the ~ 9 billion USD of asset write-down in FYE18. While the merger itself affected the
company’s liquidity, solvency and activity, these write-downs and impairments have rather negatively
impacted its profitability, margins and cashflows. So, in what other ways has the merger affected the
company? More specifically, has it had any impact, positive or negative, on Kraft Heinz’s capital
structure? What about the firm’s pension programs and capital leases? How do these off balance sheet
liabilities impact the capitalization of the company?

21
Part IV: Capital Structure, Lease and Pension Analysis
1) Introduction:
In this section of the Kraft Heinz investment memorandum, we use the financial statements of
the Kraft Heinz company (NASDAQ: KHC) and the capital structure summary and details provided by
S&P Capital IQ from the past 5 fiscal year ends starting in FYE14 and ending in FYE18. This analysis
investigates the various trends and patterns in Kraft Heinz’s capital structure in order to interpret the
company’s financial wellbeing as well as the composition and the risk of the sources of funding the
company uses to finance its overall activities and growth. More specifically, in this section of the
memorandum, we analyze the long-term and short-term debt components of the firm’s capitalization, the
nature and significance of its equity component, the trends and patterns regarding changes in its overall
capital structure over the past 5 fiscal year ends, and the impact that pensions, leases, acquisitions, and
other investments and divestitures have on its finances. The debt position of the company is an important
indicator for determining its financial soundness and its ability to weather potential market downturns or
losses incurred through competition.
2) Long-term debt:
As previously observed in Part III of the memorandum, Kraft Heinz relies more on equity than
debt. The company has decreased its debt-to-capitalization substantially from 46.5% in FYE14 to 37.9%
in FYE18. The 2015 merger had attracted more investors of all sizes while at the same time, almost
doubling the company’s long-term debt. Assuming there is a durable and strong trust from shareholders –
especially big institutional investors like Berkshire Hathaway, it is very unlikely that the company
defaults on its debt unless it does so strategically. The reason being that the company’s debt-to-equity
ratio is not far from the industry average, its interest coverage ratio (4.72x) being more than double that of
the industry (1.87x), and that while the merger hasn’t been as beneficial as expected, it has however,
helped stabilize the company’s solvency. Nevertheless, a more detailed look into the firm’s capital
structure.
The first major observation one can make by looking into Kraft Heinz’s long-term debt is that the
totality of its post-merger debt is created through the capital markets. For the period between FY16 and
FY19, the company’s bank debt constitutes 0% of its financial obligations. While this could be interpreted
as a good sign, the firm’s long-term credit rating is at the lowest investment-grade rating BBB- by the
S&P and Fitch and at “stable” by Moody’s. This, of course, has changed by the fourth quarter of 2020
due to the disappointing earnings. As of now, Kraft Heinz’s rating remains at BBB- according to Standard
& Poor, while Fitch and Moody’s rating of the company has been downgraded to BB+ (junk) and
“negative,” respectively. As of June 7th
2019, the firm has over USD 30.9 billions of long-term debt, the

22
majority of which (99.8%) is in the form of bonds and notes. While about 87% of this debt has been
issued in US dollars, the company – being well-established internationally – also issued debt in other
currencies (i.e. GBP, EUR, CAD). Furthermore, it is important to note that none of debt issuances are
callable nor any other form of hybrid, and the interest rates on these notes and bonds can be as low as
0.8% for debt maturing in less than 18 months and as high as 4.375% for debt paid in US dollars in 2046
or 6.25% for debt issued in foreign currencies like the British pound.
3) Short-term debt:
In terms of short-term debt, the company’s total short-term debt and short-term issued has been
synchronous and significantly more important after the merger of the two companies in 2015. This hike
can also be due to the fact that the company only started its commercial paper programs in the United
States and Europe in the second quarter of the fiscal year 2016. As of December 31, 2016, Kraft Heinz
had $642 million of commercial paper outstanding, with a weighted average interest rate of 1.074%. By
December 30, 2017, the firm had $448 million of commercial paper outstanding, with a weighted average
interest rate of 1.541% with the maximum amount of commercial paper outstanding during the year ended
December 30, 2017 being $1.2 billion. In similar fashion to Kraft Heinz’s long-term credit rating, the
firm’s commercial paper ratings were downgraded recently by S&P from A-3 to B.
4) Equity:

23
In the past 5 to 6 years of operation, Kraft Heinz has only been involved in one common stock
issuance in 2015 after the merger of the two companies with a value of USD 10 billion. In a similar
fashion, the firm only operated a stock buyback program in 2016 that amounted to over USD 8.3 billion.
Hence, the company repurchased the entirety of its outstanding preferred shares. While the stock issuance
was more of a natural outcome of the merger, the 2016 stock repurchases are rather due to the “Sponsors
[that] own approximately 51% of our common stock and that may have significant authority to effect
decisions affecting our capital structure, including the issuance of additional capital stock, incurrence of
additional indebtedness, the implementation of stock repurchase programs…” as mentioned in the
company’s 10-K form for the fiscal year ending in December 31st
, 2016. In terms of retained earnings, the
company has mostly experienced positive retained earnings until 2018 where it experienced negative
retained earnings. This seems to be in accordance with the firm’s trends in net income which was greatly
impacted by impairment of goodwill and asset write-downs from the same year.
Since the company has been issuing both common and preferred stock, it has also been paying
common and preferred dividends. However, since it has repurchased all of the previously issued preferred
stocks, the company only paid preferred dividends until 2016. As a result, the preferred dividends
decreased between FY14 and FY16, while common dividends increased drastically after the merger and
were kept at a relatively steady level over the years.
5) Overall Capital Structure:
Given that the company halted its
preferred dividend program in
2016, the focus of this
memorandum would be more on
common equity. The company’s
common equity constituted only a
little over 40% of its capital
structure in 2014 (pre-merger).
Common equity trended upwards
over the years, especially after the
merger. This, however, should not
be interpreted as a decrease in the
amount of debt. Kraft Heinz’s debt
has been increasing as well, only at
a slower rate than its equity.

24
6) Pensions and Capital Leases:
While Kraft Heinz does have pension programs and capital leases, these liabilities are scant
compared to the company’s total debt. In the same five fiscal year period that the firm’s total long-term
debt rose from USD 13.65 billion to USD over 30.8 billion, its capital leases increased from zero to USD
199 million, and its pension programs liabilities decreased to USD 306 millions after they peaked at over
USD 2.4 billions after the two enterprises in 2015.
In other words, the company’s capital leases constituted only about 1% of total long-term debt at
best, while the pension benefits and other pension related liabilities also constituted 1% of the total long-
term debt in 2018. Even in 2015 with USD 2,405 million in pension liabilities, these only constituted
about 9% of the company’s debt. The reason why these funded pension plans have been so significant is
that Kraft Heinz operates in different countries and has to abide by the laws of different jurisdictions
where offering pension benefits is a requirement.
Final Conclusion:
Kraft Heinz’s capital lease and even pension liabilities are not very significant or out of the
ordinary for a company of that size in the food and beverage industry. What is most interesting is the
company’s capital structure and how it changed because of the merger. First of all, the firm that once
relied on debt capital in 2014, is now mostly relying on equity. A firm's judicious use of debt and equity
is a key indicator of a strong balance sheet. A healthy capital structure that reflects a low level of debt and
a high amount of equity is a positive sign of investment quality. However, this is not necessarily the case
for Kraft Heinz. As mentioned earlier (in Part II), while the firm is a public, it still embodies many aspects
of a private company. In the company’s 10-K forms for the fiscal year of 2016, 2017, and 2018, we find
that amongst the risk factors listed is “the Sponsors have substantial control over us (the company) and
may have conflicts of interest with us in the future. The Sponsors own approximately 51% of our
common stock and [designate] the directors that may have significant authority to effect decisions
affecting our capital structure, including the issuance of additional capital stock, incurrence of additional
indebtedness, the implementation of stock repurchase programs and the decision of whether or not to
declare dividends.” To put it in simpler words, Kraft Heinz might project a healthy capital structure with
Year 2014 2015 2016 2017 2018
Long-Term Leases $ - $ - $ - $ 84.0 $ 199.0
Long-Term Leasesas% of Long-Term Debt 0.0% 0.0% 0.0% 0.3% 0.6%
Pension & Other Post-Retire.Benefits $ 287.0 $ 2,405.0 $ 2,038.0 $ 427.0 $ 306.0
Pension & Other Post-Retire.Benefitsas% of Long-Term Debt 2.1% 8.7% 6.4% 1.5% 1.0%

25
high amount of equity. However, the company still owes significant amounts of debt and faces important
challenges such as declining organic sale, net losses and downgrading debt rating which can deter
investors in the long-run.
In addition to the numerous internal and external threats (see part 1), the competitive
disadvantages (see part 2), and the unforeseen disadvantages and the weaker-than-predicted financial
results of the 2015 merger (see part 3), the firm’s relatively high amounts of debt and fragile capital
structure make it near impossible to justify a buy of the Kraft Heinz stock. As previously mentioned, my
opinion is that while Kraft Heinz is a public company, many aspects regarding its operations and
executive decision-making and management are similar to those of a privately-owned company. Unless
the company starts recovering from the significant impact that the merger resulted in (over USD 30
billion within a two fiscal-year frame), meeting customer expectations and tastes by adapting their current
brands or creating new lines of products, and allocating its resources more efficiently, the reasons to
encourage further investment in the company are scant.

26
References and appendix
- Bhasin, Hitesh. “SWOT Analysis of Kraft Heinz - Kraft Heinz SWOT Analysis.” Marketing91,
26 Apr. 2019, www.marketing91.com/swot-analysis-kraft-heinz/.
- “Food & Beverages.” Market Research Reports® Inc., www.marketresearchreports.com/food-
beverages.
- “Food and Beverage Industry Trends and Challenges: Overview of Top Food and Beverage
Companies.” Business Intelligence, 26 Mar. 2019, www.infinitiresearch.com/thoughts/food-
beverage-industry-overview#.
- “Food & Beverages - Worldwide: Statista Market Forecast.” Statista,
www.statista.com/outlook/253/100/food-beverages/worldwide.
- “Food in Demand Series: Consumers.” CBREUS, www.cbre.us/research-and-reports/US-Food-in-
Demand-Series-Consumers-April-2019.
- Kraft Heinz 2019 10-K Form for FY ended on December 30th
, 2019
- Kraft Heinz 2018 10-K Form for FY ended on December 30th
, 2018
- Williamson, David. “The Kraft Heinz Company SWOT Analysis / SWOT Matrix.” Essay48,
2018, www.essay48.com/term-paper/2920-The-Kraft-Heinz-Company-Swot-Analysis.

27
Fig. 1: Common size Income Statement

28
Fig. 2: Common Size Balance Sheet

29
Fig. 3: Common Size Cash Flow Statement

30
Fig. 4: Income Statement FY14 to FY18
Source: Capital IQ
Income Statement
For the Fiscal Period Ending
Reclassified
12 months
Dec-28-2014
Reclassified
12 months
Jan-03-2016
Restated
12 months
Dec-31-2016
Restated
12 months
Dec-30-2017
12 months
Dec-29-2018
Currency USD USD USD USD USD
Revenue 10,922.0 18,338.0 26,300.0 26,076.0 26,268.0
Other Revenue - - - - -
Total Revenue 10,922.0 18,338.0 26,300.0 26,076.0 26,268.0
Cost Of Goods Sold 7,110.0 11,771.0 16,399.0 16,579.0 17,153.0
Gross Profit 3,812.0 6,567.0 9,901.0 9,497.0 9,115.0
Selling General & Admin Exp. 1,212.0 2,152.0 2,933.0 2,535.0 2,943.0
R & D Exp. - 105.0 120.0 93.0 109.0
Depreciation & Amort. - - - - -
Other Operating Expense/(Income) - - - - -
Other Operating Exp., Total 1,212.0 2,257.0 3,053.0 2,628.0 3,052.0
Operating Income 2,600.0 4,310.0 6,848.0 6,869.0 6,063.0
Interest Expense (686.0) (1,321.0) (1,134.0) (1,234.0) (1,284.0)
Interest and Invest. Income - - - - -
Net Interest Exp. (686.0) (1,321.0) (1,134.0) (1,234.0) (1,284.0)
Currency Exchange Gains (Loss) - 146.0 (28.0) (29.0) (27.0)
Other Non-Operating Inc. (Exp.) (79.0) 32.0 390.0 186.0 663.0
EBT Excl. Unusual Items 1,835.0 3,167.0 6,076.0 5,792.0 5,415.0
Restructuring Charges (743.0) (1,023.0) (1,012.0) (434.0) (460.0)
Merger & Related Restruct. Charges (68.0) (685.0) (30.0) - -
Impairment of Goodwill - - - - (7,008.0)
Gain (Loss) On Sale Of Assets - - - - (15.0)
Asset Writedown (221.0) (107.0) (71.0) (49.0) (8,928.0)
Other Unusual Items - (339.0) (24.0) 141.0 (325.0)
EBT Incl. Unusual Items 803.0 1,013.0 4,939.0 5,450.0 (11,321.0)
Income Tax Expense 131.0 366.0 1,333.0 (5,482.0) (1,067.0)
Earnings from Cont. Ops. 672.0 647.0 3,606.0 10,932.0 (10,254.0)
Earnings of Discontinued Ops. - - - - -
Extraord. Item & Account. Change - - - - -
Net Income to Company 672.0 647.0 3,606.0 10,932.0 (10,254.0)
Minority Int. in Earnings (15.0) (13.0) (10.0) 9.0 62.0
Net Income 657.0 634.0 3,596.0 10,941.0 (10,192.0)

31
Fig. 5: Balance Sheet FY14 to FY18
Source: Capital IQ
Balance Sheet
Balance Sheet as of: Restated
Dec-28-2014 Jan-03-2016 Dec-31-2016
Restated
Dec-30-2017 Dec-29-2018
ASSETS
Cash And Equivalents 2,298.0 4,837.0 4,204.0 1,629.0 1,130.0
Total Cash & ST Investments 2,298.0 4,837.0 4,204.0 1,629.0 1,130.0
Accounts Receivable 851.0 1,454.0 898.0 1,274.0 2,129.0
Other Receivables - - 260.0 538.0 152.0
Total Receivables 851.0 1,454.0 1,158.0 1,812.0 2,281.0
Inventory 1,185.0 2,618.0 2,684.0 2,760.0 2,667.0
Prepaid Exp. - - - 345.0 400.0
Restricted Cash - - 42.0 140.0 1.0
Other Current Assets 581.0 871.0 665.0 515.0 2,596.0
Total Current Assets 4,915.0 9,780.0 8,753.0 7,201.0 9,075.0
Gross Property, Plant & Equipment 2,796.0 7,430.0 8,518.0 9,150.0 9,662.0
Accumulated Depreciation (431.0) (906.0) (1,830.0) (2,089.0) (2,584.0)
Net Property, Plant & Equipment 2,365.0 6,524.0 6,688.0 7,061.0 7,078.0
Goodwill 14,959.0 43,051.0 44,125.0 44,825.0 36,503.0
Other Intangibles 13,188.0 62,120.0 59,297.0 59,432.0 49,468.0
Other Long-Term Assets 1,144.0 1,498.0 1,617.0 1,573.0 1,337.0
Total Assets 36,571.0 122,973.0 120,480.0 120,092.0 103,461.0
LIABILITIES
Accounts Payable 1,651.0 2,844.0 3,996.0 4,362.0 4,153.0
Accrued Exp. 479.0 1,585.0 1,321.0 1,159.0 1,148.0
Short-term Borrowings - 4.0 645.0 462.0 21.0
Curr. Port. of LT Debt 11.0 79.0 2,046.0 2,733.0 377.0
Curr. Port. of Leases - - - - -
Curr. Income Taxes Payable 232.0 417.0 255.0 - -
Other Current Liabilities 719.0 2,003.0 1,238.0 1,438.0 1,804.0
Total Current Liabilities 3,092.0 6,932.0 9,501.0 10,154.0 7,503.0
Long-Term Debt 13,358.0 25,151.0 29,713.0 28,224.0 30,571.0
Long-Term Leases - - - 84.0 199.0
Pension & Other Post-Retire. Benefits 287.0 2,405.0 2,038.0 427.0 306.0
Def. Tax Liability, Non-Curr. 3,867.0 21,497.0 20,848.0 14,039.0 12,202.0
Other Non-Current Liabilities 282.0 752.0 806.0 1,088.0 902.0
Total Liabilities 20,886.0 56,737.0 62,906.0 54,016.0 51,683.0
Pref. Stock, Redeemable 8,320.0 8,320.0 - - -
Total Pref. Equity 8,320.0 8,320.0 - - -
Common Stock 4.0 12.0 12.0 12.0 12.0
Additional Paid In Capital 7,320.0 58,375.0 58,593.0 58,634.0 58,723.0
Retained Earnings - - 588.0 8,495.0 (4,853.0)
Treasury Stock - (31.0) (207.0) (224.0) (282.0)
Comprehensive Inc. and Other (207.0) (671.0) (1,628.0) (1,054.0) (1,943.0)
Total Common Equity 7,117.0 57,685.0 57,358.0 65,863.0 51,657.0
Minority Interest 248.0 231.0 216.0 213.0 121.0
Total Equity 15,685.0 66,236.0 57,574.0 66,076.0 51,778.0
Total Liabilities And Equity 36,571.0 122,973.0 120,480.0 120,092.0 103,461.0

32
Fig. 6: Statement of Cash Flow FY14 to FY18
Source: Capital IQ
Cash Flow
For the Fiscal Period Ending 12 months
Dec-28-2014
Restated
12 months
Jan-03-2016
Restated
12 months
Dec-31-2016
Restated
12 months
Dec-30-2017
12 months
Dec-29-2018
Net Income 657.0 634.0 3,596.0 10,941.0 (10,192.0)
Depreciation & Amort. 437.0 562.0 1,070.0 753.0 693.0
Amort. of Goodwill and Intangibles 93.0 178.0 267.0 278.0 290.0
Depreciation & Amort., Total 530.0 740.0 1,337.0 1,031.0 983.0
Other Amortization - 236.0 - - -
(Gain) Loss From Sale Of Assets - - - - -
Asset Writedown & Restructuring Costs 221.0 58.0 18.0 49.0 15,936.0
Stock-Based Compensation 8.0 133.0 46.0 46.0 33.0
Other Operating Activities (73.0) 104.0 (854.0) (8,202.0) (2,123.0)
Change in Acc. Receivable 15.0 (915.0) (2,055.0) (2,629.0) (2,280.0)
Change In Inventories 153.0 25.0 (130.0) (236.0) (251.0)
Change in Acc. Payable 562.0 (119.0) 879.0 441.0 (23.0)
Change in Other Net Operating Assets 67.0 376.0 (189.0) (940.0) 491.0
Cash from Ops. 2,140.0 1,272.0 2,648.0 501.0 2,574.0
Capital Expenditure (399.0) (648.0) (1,247.0) (1,194.0) (826.0)
Cash Acquisitions - (9,468.0) - - (248.0)
Divestitures - - - - -
Invest. in Marketable & Equity Securt. - - - - -
Net (Inc.) Dec. in Loans Originated/Sold - - - - -
Other Investing Activities 50.0 1,807.0 2,699.0 2,371.0 1,362.0
Cash from Investing (349.0) (8,309.0) 1,452.0 1,177.0 288.0
Short Term Debt Issued - - 6,680.0 6,043.0 2,784.0
Long-Term Debt Issued - 14,834.0 6,981.0 1,496.0 2,990.0
Total Debt Issued - 14,834.0 13,661.0 7,539.0 5,774.0
Short Term Debt Repaid - - (6,043.0) (6,249.0) (3,213.0)
Long-Term Debt Repaid (1,103.0) (12,314.0) (85.0) (2,641.0) (2,713.0)
Total Debt Repaid (1,103.0) (12,314.0) (6,128.0) (8,890.0) (5,926.0)
Issuance of Common Stock - 10,000.0 - - -
Repurchase of Preferred Stock - - (8,320.0) - -
Common Dividends Paid - (1,302.0) (3,584.0) (2,888.0) (3,183.0)
Pref. Dividends Paid (720.0) (900.0) (180.0) - -
Total Dividends Paid (720.0) (2,202.0) (3,764.0) (2,888.0) (3,183.0)
Special Dividend Paid - - - - -
Other Financing Activities 3.0 (271.0) (69.0) 18.0 (28.0)
Cash from Financing (1,820.0) 10,047.0 (4,620.0) (4,221.0) (3,363.0)
Foreign Exchange Rate Adj. (132.0) (408.0) (137.0) 57.0 (132.0)
Net Change in Cash (161.0) 2,602.0 (657.0) (2,486.0) (633.0)

Kraft Heinz Investment Memo - Hamidi

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