UU Accounting The Kraft Heinz American Food Company Project

1. Regarding the Excel workbook:
1. The worksheet named Kraft Heinz FN Data contains the following:
1. Columns A through C and rows one through three
contain a schedule that describes the consideration
transferred from H. J. Heinz to the shareholders of Kraft
Foods Group. This consideration was transferred in order
to effect the acquisition of Kraft Foods Group.
2. Columns A through C and rows five through 14 contain a
schedule of the fair value of the net identifiable assets
recognized by H. J. Heinz after it acquired Kraft Foods
Group.
2. The worksheet named Kraft Heinz FS Data contains the following:
1. Columns A through G and rows one through 18 contain
income statements for Kraft Heinz and Unilever. These
income statements are for the fiscal years 2014, 2015,
and 2016. Note that Unilever’s fiscal year ends on
December 31 every year whereas Kraft Heinz’s 2014,
2015, and 2016 fiscal years end on December 28, 2014,
January 3, 2016, and December 31, 2016, respectively.
2. Columns A through G and rows 20 through 53 contain
income statements for Kraft Heinz and Unilever.
2. When answering questions one through 76, you are to use the data in the
Excel workbook.
1. You must clearly show the supporting calculations underlying your
answers. If you do not clearly show your supporting calculations in
the workbook, you will not receive credit for your answers.
2. You should show your supporting calculations per the instructions
for the relevant question.
3. Questions 77 through 88 are essay questions and subjective in nature. Hence,
if your answer is thoughtful and brief, I will give you full credit. However, if
your answer is either superficial or too wordy, I will reduce your grade
accordingly.
Fair value of shares issued
Cash consideration
Total consideration
$ 42.855
9.782
$ 52.637
Cash
Other current assets
Property, plant and equipment
Identifiable intangible assets
Other non-current assets
Trade and other payables
Long-term debt
Net postemployment benefits
Deferred income tax liabilities
Net assets acquired
$
314
3.423
4.193
49.749
214
-3.026
-9.286
-4.734
-17.239
$ 23.608
SHOW YOUR SUPPORTING CALCULATIONS IN THE SPACE BELOW
Revenues
Cost of sales
Gross profit
Branding and marketing costs
Research and development costs
Non-core operating gains (losses)
Other operating expenses
Operating profit
Net interest expense
Income from JV’s & associates (after tax)
Profit before tax
Income tax expense
Net profit
Non-controlling interest
Net income for parent shareholders
Kraft Heinz
Unilever
million US dollar
million euro
Dec. 31
Jan. 3
Dec. 28 Dec. 31 Dec. 31 Dec. 31
2016
2016
2014
2016
2015
2014
26.487
27.447 10.922 52.713 53.272 48.436
-16.901
-18.299
-7.132 -26.983 -27.450 -25.308
9.586
9.148
3.790 25.730 25.822 23.128
-708
-670
-241 -10.977 -11.361 -10.245
-120
-135
-58
-978
-1.005
-955
-1.012
-1.325
-637
-245
-350
960
-1.604
-2.483
-1.286
-5.729
-5.591
-4.908
6.142
4.535
1.568
7.801
7.515
7.980
-1.119
-1.817
-765
-459
-402
-432
0
0
0
127
107
98
5.023
2.718
803
7.469
7.220
7.646
-1.381
-944
-131
-1.922
-1.961
-2.131
3.642
1.774
672
5.547
5.259
5.515
-190
-913
-735
-363
-350
-344
3.452
861
-63
5.184
4.909
5.171
Goodwill and intangibles
Property, plant & equipment
Non-current financial assets
Other non-current assets
Total non-current assets
Kraft Heinz
Unilever
million US dollar
million euro
Dec. 31
Jan. 3
Dec. 28 Dec. 31 Dec. 31 Dec. 31
2016
2016
2014
2016
2015
2014
103.422
105.171 28.147 27.433 25.059 22.174
6.688
6.524
2.365 11.673 11.058 10.472
0
0
0
673
605
715
1.617
1.498
1.144
2.766
2.890
2.319
111.727
113.193 31.656 42.545 39.612 35.680
Inventories
Trade receivables
Other receivables
Cash and short-term financial assets
Other current assets
Total current assets
2.684
769
129
4.204
967
8.753
2.618
871
583
4.837
871
9.780
1.185
690
161
2.298
581
4.915
4.278
3.329
1.773
3.981
523
13.884
4.335
2.917
1.887
3.138
409
12.686
4.168
2.827
2.202
2.822
328
12.347
120.480
122.973
36.571
56.429
52.298
48.027
Financial debt
Trade payables
Other payables and other current liabilities
Current income taxes payable
Total current liabilities
2.691
3.996
2.559
255
9.501
0
2.844
3.671
417
6.932
0
1.651
1.209
232
3.092
5.450
8.591
5.671
844
20.556
4.789
8.296
5.807
1.127
20.019
5.536
7.636
5.389
1.081
19.642
Financial debt
Pensions and post-retirement obligations
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
29.713
2.038
20.848
806
53.405
62.906
25.151
2.405
21.497
752
49.805
56.737
13.358
287
3.867
282
17.794
20.886
11.145
3.867
2.181
1.700
18.893
39.449
9.854
3.254
1.865
1.224
16.197
36.216
7.186
3.947
1.695
1.294
14.122
33.764
Shareholders’ equity
57.574
66.236
15.685
16.980
16.082
14.263
Liabilities and shareholders’ equity
120.480
122.973
36.571
56.429
52.298
48.027
Total assets
SHOW YOUR SUPPORTING CALCULATIONS IN THE SPACE BELOW
Overview of Kraft Heinz
The Kraft Heinz Company (Kraft Heinz hereafter) is an American food company that was
formed by the merger of Kraft Foods and H. J. Heinz. Prior to the merger H. J. Heinz was
jointly owned by Berkshire Hathaway and 3G Capital; and, after the merger, the
combined ownership of Berkshire Hathaway and 3G Capital amounted to over 50
percent of the outstanding shares of Kraft Heinz. Kraft Heinz is co-headquartered in
Chicago, Illinois, and Pittsburgh, Pennsylvania. It is the third-largest food and beverage
company in North America and the fifth-largest in the world. Kraft Heinz has a large
portfolio of well-known brands including Boca Burger, Gevalia, Grey Poupon, Oscar
Mayer, Philadelphia Cream Cheese, Planters, Primal Kitchen, and Wattie’s. Eight of these
brands generate individual annual sales of over $1 billion.
The following is an excerpt from Kraft Heinz’s 10-K for the fiscal year ending January 3,
2016.
2015 Merger
Transaction Overview: H. J. Heinz merged with Kraft on July 2, 2015. Kraft
manufactures and markets food and beverage products, including cheese, meats,
refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts,
dressings, and other grocery products, primarily in the United States and Canada. Total
net sales for Kraft during its most recent pre-acquisition year ended December 27, 2014
were $18.2 billion. Following the 2015 Merger Date, the operating results of the Kraft
businesses have been included in our consolidated financial statements. For the period
from the 2015 Merger Date through January 3, 2016, Kraft’s net sales were $8.5 billion
and net income was $478 million.
The 2015 Merger was accounted for under the acquisition method of accounting for
business combinations and H. J. Heinz was considered to be the acquiring company.
Immediately after the merger, H. J. Heinz changed its name to the Kraft Heinz Company.
Under the acquisition method of accounting, total consideration was (in millions):
Fair value of shares issued
Cash consideration
Total consideration
42,855
9,782
52,637
The preliminary purchase price allocation to assets acquired and liabilities assumed in the
transaction was (in millions):
Cash
Other current assets
Property, plant and equipment
314
3,423
4,193
Identifiable intangible assets
Other non-current assets
Trade and other payables
Long-term debt
Net postemployment benefits
Deferred income tax liabilities
Net assets acquired
Note the two schedules shown above are contained in the Excel worksheet named Kraft
Heinz FN Data.
Regarding questions one through four, show your supporting calculations in the space
below row 16 of the worksheet named Kraft Heinz FN Data.
Question 1
On the day it acquired Kraft, how much goodwill did H. J. Heinz recognize? Your answer
should be in millions of U.S. dollars.
Question 2
On the day it acquired Kraft, how much did H. J. Heinz’s assets increase as a result of the
consolidation of Kraft? Your answer should be in millions of U.S. dollars.
Question 3
On the day it acquired Kraft, how much did H. J. Heinz’s liabilities increase as a result of
the consolidation of Kraft? Your answer should be in millions of U.S. dollars.
Question 4
On the day it acquired Kraft, how much did H. J. Heinz’s equity increase as a result of
the consolidation of Kraft? Your answer should be in millions of U.S. dollars.
Key Performance Indicators (i.e., KPIs)
49,749
214
(3,026)
(9,286)
(4,734)
(17,239)
23,608
Balance sheet and income statement data for Kraft Heinz and Unilever are provided in
the Excel worksheet named Kraft Heinz FS Data. Use these data to answer questions
five through 76. Show your supporting calculations in the space below row 55 of the
Excel worksheet named Kraft Heinz FS Data.
Description of Unilever
Unilever is a Dutch-British transnational consumer goods company co-headquartered in
Rotterdam, Netherlands and London, United Kingdom. It is one of the world’s largest
consumer goods companies and it is the world’s largest producer of food spreads, such
as margarine. Unilever is one of the oldest multinational companies, its products are
available in around 190 countries. It owns over 400 brands, but focuses on thirteen
brands with sales of over one billion euros: Axe/Lynx, Dove, Omo, Becel/Flora,
Heartbrand ice creams, Hellmann’s, Knorr, Lipton, Lux, Magnum, Rama, Rexona, Sunsilk
and Surf.
Comments on Kraft Heinz’s Balance Sheets and Income Statements
•
•
•
For the fiscal year ending December 28, 2014, the amounts reported in
the income statement and balance sheet reflect only the results of Heinz,
i.e. the results of Kraft Foods are not included.
For the 2015 fiscal year, which ended on January 3, 2016.
o The amounts shown in the income statement are pro forma
estimates that reflect the amounts Kraft Heinz would have
reported if the merger had occurred on the first day of the
fiscal year. These numbers were provided by Kraft Heinz in the
footnotes to its financial statements. Note that some items are
marked “NA” (e.g., branding and marketing costs, etc.). This is
because Kraft Heinz did not provide separate pro-forma
amounts for these items. Rather, Kraft Heinz included in them
in line item “Other operating expenses.”
o The amounts shown in the balance sheet are the combined
results of Heinz and Kraft Foods.
For the fiscal year ending on December 31, 2016:
o The amounts shown on the income statement are the
combined results of Heinz and Kraft Foods for the entire year.
o The amounts shown on the balance sheet are the combined
results of Heinz and Kraft Foods.
Regarding questions five through 76, show your supporting calculations in the space
below row 55 of the worksheet named Kraft Heinz FS Data.
Question 5
For the 2014 fiscal year, what was Kraft Heinz’s gross profit percentage? Enter your
answer as a percentage.
Question 6
For the 2014 fiscal year, what was Kraft Heinz’s branding and marketing costs as a
percentage of revenues? Enter your answer as a percentage.
Question 7
For the 2014 fiscal year, what was Kraft Heinz’s research and development costs as a
percentage of revenues? Enter your answer as a percentage.
Question 8
For the 2014 fiscal year, what was Kraft Heinz’s other operating expenses as a
percentage of revenues? Enter your answer as a percentage.
Question 9
For the 2014 fiscal year, what was Kraft Heinz’s net income margin? Enter your answer
as a percentage.
Question 10
For the 2014 fiscal year, what was Kraft Heinz’s inventory holding period? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 11
For the 2014 fiscal year, what was Kraft Heinz’s average days to collect (i.e., the average
number of days between the day a sale was made and the day cash was collected)?
When calculating this ratio, use the ending balances of the relevant balance sheet
accounts do not use average balances.
Question 12
For the 2014 fiscal year, what was Kraft Heinz’s average days to pay (i.e., the average
number of days between the day inventory was purchased and the day the supplier was
paid)? When calculating this ratio, use cost of sales instead of purchases and use the
ending balances of the relevant balance sheet accounts (i.e., do not use average
balances).
Question 13
During the 2014 fiscal year, what was Kraft Heinz’s cash conversion cycle? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 14
During the 2014 fiscal year, what was Kraft Heinz’s fixed asset turnover? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 15
During the 2014 fiscal year, what was Kraft Heinz’s total asset turnover? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 16
During the 2014 fiscal year, what was Kraft Heinz’s return on assets? Enter your answer
as a percentage.
Question 17
For the 2015 fiscal year, what was Kraft Heinz’s gross profit percentage? Enter your
answer as a percentage.
Question 18
For the 2015 fiscal year, what was Kraft Heinz’s branding and marketing costs as a
percentage of revenues? Enter your answer as a percentage.
Question 19
For the 2015 fiscal year, what was Kraft Heinz’s research and development costs as a
percentage of revenues? Enter your answer as a percentage.
Question 20
For the 2015 fiscal year, what was Kraft Heinz’s other operating expenses as a
percentage of revenues? Enter your answer as a percentage.
Question 21
For the 2015 fiscal year, what was Kraft Heinz’s net income margin? Enter your answer
as a percentage.
Question 22
For the 2015 fiscal year, what was Kraft Heinz’s inventory holding period? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 23
For the 2015 fiscal year, what was Kraft Heinz’s average days to collect (i.e., the average
number of days between the day a sale was made and the day cash was collected)?
When calculating this ratio, use the ending balances of the relevant balance sheet
accounts do not use average balances.
Question 24
For the 2015 fiscal year, what was Kraft Heinz’s average days to pay (i.e., the average
number of days between the day inventory was purchased and the day the supplier was
paid)? When calculating this ratio, use cost of sales instead of purchases and use the
ending balances of the relevant balance sheet accounts (i.e., do not use average
balances).
Question 25
During the 2015 fiscal year, what was Kraft Heinz’s cash conversion cycle? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 26
During the 2015 fiscal year, what was Kraft Heinz’s fixed asset turnover? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 27
During the 2015 fiscal year, what was Kraft Heinz’s total asset turnover? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 28
During the 2015 fiscal year, what was Kraft Heinz’s return on assets? Enter your answer
as a percentage.
Question 29
For the 2016 fiscal year, what was Kraft Heinz’s gross profit percentage? Enter your
answer as a percentage.
Question 30
For the 2016 fiscal year, what was Kraft Heinz’s branding and marketing costs as a
percentage of revenues? Enter your answer as a percentage.
Question 31
For the 2016 fiscal year, what was Kraft Heinz’s research and development costs as a
percentage of revenues? Enter your answer as a percentage.
Question 32
For the 2016 fiscal year, what was Kraft Heinz’s other operating expenses as a
percentage of revenues? Enter your answer as a percentage.
Question 33
For the 2016 fiscal year, what was Kraft Heinz’s net income margin? Enter your answer
as a percentage.
Question 34
For the 2016 fiscal year, what was Kraft Heinz’s inventory holding period? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 35
For the 2016 fiscal year, what was Kraft Heinz’s average days to collect (i.e., the average
number of days between the day a sale was made and the day cash was collected)?
When calculating this ratio, use the ending balances of the relevant balance sheet
accounts do not use average balances.
Question 36
For the 2016 fiscal year, what was Kraft Heinz’s average days to pay (i.e., the average
number of days between the day inventory was purchased and the day the supplier was
paid)? When calculating this ratio, use cost of sales instead of purchases and use the
ending balances of the relevant balance sheet accounts (i.e., do not use average
balances).
Question 37
During the 2016 fiscal year, what was Kraft Heinz’s cash conversion cycle? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 38
During the 2016 fiscal year, what was Kraft Heinz’s fixed asset turnover? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 39
During the 2016 fiscal year, what was Kraft Heinz’s total asset turnover? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 40
During the 2016 fiscal year, what was Kraft Heinz’s return on assets? Enter your answer
as a percentage.
Question 41
For the 2014 fiscal year, what was Unilever’s gross profit percentage? Enter your answer
as a percentage.
Question 42
For the 2014 fiscal year, what was Unilever’s branding and marketing costs as a
percentage of revenues? Enter your answer as a percentage.
Question 43
For the 2014 fiscal year, what was Unilever’s research and development costs as a
percentage of revenues? Enter your answer as a percentage.
Question 44
For the 2014 fiscal year, what was Unilever’s other operating expenses as a percentage
of revenues? Enter your answer as a percentage.
Question 45
For the 2014 fiscal year, what was Unilever’s net income margin? Enter your answer as a
percentage.
Question 46
For the 2014 fiscal year, what was Unilever’s inventory holding period? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 47
For the 2014 fiscal year, what was Unilever’s average days to collect (i.e., the average
number of days between the day a sale was made and the day cash was collected)?
When calculating this ratio, use the ending balances of the relevant balance sheet
accounts do not use average balances.
Question 48
For the 2014 fiscal year, what was Unilever’s average days to pay (i.e., the average
number of days between the day inventory was purchased and the day the supplier was
paid)? When calculating this ratio, use cost of sales instead of purchases and use the
ending balances of the relevant balance sheet accounts (i.e., do not use average
balances).
Question 49
During the 2014 fiscal year, what was Unilever’s cash conversion cycle? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 50
During the 2014 fiscal year, what was Unilever’s fixed asset turnover? When calculating
this ratio, use the ending balances of the relevant balance sheet accounts do not use
average balances.
Question 51
During the 2014 fiscal year, what was Unilever’s total asset turnover? When calculating
this ratio, use the ending balances of the relevant balance sheet accounts do not use
average balances.
Question 52
During the 2014 fiscal year, what was Unilever’s return on assets? Enter your answer as
a percentage.
Question 53
For the 2015 fiscal year, what was Unilever’s gross profit percentage? Enter your answer
as a percentage.
Flag question: Question 54
Question 541 pts
For the 2015 fiscal year, what was Unilever’s branding and marketing costs as a
percentage of revenues? Enter your answer as a percentage.
Question 55
For the 2015 fiscal year, what was Unilever’s research and development costs as a
percentage of revenues? Enter your answer as a percentage.
Question 56
For the 2015 fiscal year, what was Unilever’s other operating expenses as a percentage
of revenues? Enter your answer as a percentage.
Question 57
For the 2015 fiscal year, what was Unilever’s net income margin? Enter your answer as a
percentage.
Question 58
For the 2015 fiscal year, what was Unilever’s inventory holding period? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 59
For the 2015 fiscal year, what was Unilever’s average days to collect (i.e., the average
number of days between the day a sale was made and the day cash was collected)?
When calculating this ratio, use the ending balances of the relevant balance sheet
accounts do not use average balances.
Question 60
For the 2015 fiscal year, what was Unilever’s average days to pay (i.e., the average
number of days between the day inventory was purchased and the day the supplier was
paid)? When calculating this ratio, use cost of sales instead of purchases and use the
ending balances of the relevant balance sheet accounts (i.e., do not use average
balances).
Question 61
During the 2015 fiscal year, what was Unilever’s cash conversion cycle? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 62
During the 2015 fiscal year, what was Unilever’s fixed asset turnover? When calculating
this ratio, use the ending balances of the relevant balance sheet accounts do not use
average balances.
Question 63
During the 2015 fiscal year, what was Unilever’s total asset turnover? When calculating
this ratio, use the ending balances of the relevant balance sheet accounts do not use
average balances.
Question 64
During the 2015 fiscal year, what was Unilever’s return on assets? Enter your answer as
a percentage.
Question 65
For the 2016 fiscal year, what was Unilever’s gross profit percentage? Enter your answer
as a percentage.
Question 66
For the 2016 fiscal year, what was Unilever’s branding and marketing costs as a
percentage of revenues? Enter your answer as a percentage.
Question 67
For the 2016 fiscal year, what was Unilever’s research and development costs as a
percentage of revenues? Enter your answer as a percentage.
Question 68
For the 2016 fiscal year, what was Unilever’s other operating expenses as a percentage
of revenues? Enter your answer as a percentage.
Question 69
For the 2016 fiscal year, what was Unilever’s net income margin? Enter your answer as a
percentage.
Question 70
For the 2016 fiscal year, what was Unilever’s inventory holding period? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 71
For the 2016 fiscal year, what was Unilever’s average days to collect (i.e., the average
number of days between the day a sale was made and the day cash was collected)?
When calculating this ratio, use the ending balances of the relevant balance sheet
accounts do not use average balances.
Question 72
For the 2016 fiscal year, what was Unilever’s average days to pay (i.e., the average
number of days between the day inventory was purchased and the day the supplier was
paid)? When calculating this ratio, use cost of sales instead of purchases and use the
ending balances of the relevant balance sheet accounts (i.e., do not use average
balances).
Question 73
During the 2016 fiscal year, what was Unilever’s cash conversion cycle? When
calculating this ratio, use the ending balances of the relevant balance sheet accounts do
not use average balances.
Question 74
During the 2016 fiscal year, what was Unilever’s fixed asset turnover? When calculating
this ratio, use the ending balances of the relevant balance sheet accounts do not use
average balances.
Question 75
During the 2016 fiscal year, what was Unilever’s total asset turnover? When calculating
this ratio, use the ending balances of the relevant balance sheet accounts do not use
average balances.
Question 76
During the 2016 fiscal year, what was Unilever’s return on assets? Enter your answer as
a percentage.
Strategic Comparison and Evaluation of Post-merger Performance
Using your answers to question five through 76 as a guide, answer questions 77 through
85.
Question 77
Which company has a higher gross margin percentage? Is the difference large or small?
Question 78
Which company spends more on branding and research and development? Is the
difference large or small?
Question 79
Given your answers to (77) and (78), do you think the two companies have the same
strategy? Can we characterize one company as being a low-cost provider and the other
company as following a premiumization strategy? If so, which company is the low-cost
provider and which company follows a premiumization strategy?
Question 80
Which company has the higher total asset turnover? What are some reasons for the
difference?
Question 81
Since the merger, has KH been successful in terms of cutting costs? Do you think they
will be able to cut costs further?
Question 82
Since the merger, has KH been successful in terms of improving its cash conversion
cycle?