Kraft Heinz(US:KHC)2026-02-12 12:36Financial Performance and Risks - As of the 2025 annual impairment test, reporting units and brands with 20% or less excess fair value over carrying amount had an aggregate carrying value of $37.2 billion, indicating a heightened risk of future impairments [114]. - The company derives a substantial portion of its net sales from international markets, exposing net sales and net income to foreign exchange rate fluctuations, particularly with currencies like the Canadian dollar, euro, and British pound [115]. - In 2025, the company experienced increased inflationary pressures in supply chain costs compared to the prior year, influenced by tariff and trade policy actions, with expectations for moderation through 2026 [119]. - Commodity prices, including dairy products and energy, are volatile and could materially affect the company's operating results and financial condition [117]. - Labor costs are expected to increase due to inflationary pressures and labor market shortages, which could adversely affect consolidated operating results [142]. - Economic and political conditions in the U.S. and other nations have historically impacted the company's performance, with uncertainties in international markets and changes in trade arrangements posing risks [134]. Debt and Financial Management - The company's long-term debt is rated BBB with a stable outlook from S&P Global Ratings, and BBB with a negative outlook from Fitch Ratings, indicating potential impacts on borrowing costs [125]. - The company has a share repurchase program authorized for up to $3.0 billion through December 26, 2026, with approximately $1.5 billion remaining as of December 27, 2025, which may affect stock price volatility [129]. - The ability to pay dividends is subject to the discretion of the Board and may be limited by financial conditions and legal requirements, affecting stockholder returns [130]. Regulatory and Compliance Risks - The company faces regulatory risks that could lead to significant liabilities and impact its reputation, including compliance with evolving laws related to food production and consumer protection [121]. - The company is currently under examination by the IRS for income taxes from 2018 to 2022, with proposed adjustments that could result in additional tax liabilities of approximately $200 million for 2018 and $210 million for 2019, excluding interest [147]. - Similar proposed adjustments for 2020 to 2022 could also result in additional tax liabilities of approximately $200 million for each year, with penalties of approximately $85 million for each year [147]. - Changes in privacy and data protection laws, such as GDPR and CCPA, may increase compliance costs and risks of non-compliance, potentially resulting in substantial penalties [141]. Market and Operational Risks - The military conflict between Russia and Ukraine has negatively impacted the global economy, with approximately 1% of consolidated net sales generated from Russia as of December 27, 2025 [131]. - The cash and cash equivalents balance from the Russian business was approximately $140 million as of December 27, 2025, with less than 1% of consolidated total assets located in Russia [131]. - The company faces potential regulatory penalties and operational challenges due to export controls and economic sanctions imposed on Russia by various governments [131]. - The company relies on a complex network of suppliers and manufacturing locations, making it vulnerable to disruptions from natural disasters, geopolitical conflicts, and other unforeseen events [133]. - The company has experienced security incidents in the past, which have not materially impacted operations, but future incidents could have significant adverse effects on financial results [138]. Risk Management Strategies - The company is exposed to market risks from adverse changes in commodity prices, foreign exchange rates, and interest rates, and manages these risks through a comprehensive risk management program [298]. - The company utilizes derivative financial instruments to mitigate significant fluctuations in earnings and cash flows due to market volatility [298]. - A hypothetical 10% fluctuation in commodity prices could result in a potential gain or loss of $86 million for commodity contracts in 2025 and $81 million in 2024 [300]. - For foreign currency contracts, a 10% fluctuation could lead to a potential gain or loss of $240 million in 2025 and $165 million in 2024 [300]. - Cross-currency swap contracts could see a potential gain or loss of $176 million in 2025 and $71 million in 2024 due to a 10% fluctuation [300]. - The company minimizes credit risk by engaging with counterparties that have investment grade credit ratings and monitoring their financial conditions [299]. - The company does not engage in speculative or leveraged transactions and does not hold or issue financial instruments for trading purposes [299]. - Changes in the portfolio of financial instruments are influenced by operational results, debt activities, and market effects [300]. - The risk management strategy includes parameters that limit the types of derivative instruments and the degree of market risk hedged [298]. - The company maintains a policy requiring significant non-exchange traded derivative contracts to be governed by an International Swaps and Derivatives Association master agreement [299].