Kraft Heinz will restate nearly three years of financial results after determining employee misconduct in procurement caused a net $208 million misstatement in product costs.
Kraft Heinz will restate nearly three years of financial results after determining employee misconduct in procurement caused a net $208 million misstatement in product costs.
In the company’s 8-K filing, Kraft Heinz says it will restate results for 2016, 2017, and the first three quarters of 2018 to correct misstatements that it says are not quantitatively material in any single period but significant when corrected all at once. The company determined it would restate prior results because of the number of periods affected, the number of transactions involved, and the number of suppliers and procurement employees involved.
The restatement notice says the misstatements stem primarily from improper recognition of certain cost and rebate elements contained in complex supplier contracts and arrangements. When announcing its fourth-quarter results in February, Kraft Heinz disclosed the Securities and Exchange Commission was investigating its procurement practices, focusing on accounting policies, procedures, and internal controls, including changes to agreement with vendors and possible side agreements.
The internal investigation determined adjustments of approximately $208 million are warranted, but $27 million were recorded in fourth-quarter cost of products sold, leaving a $181 million correction to be made. The restatement will increase the cost of products sold by approximately $25 million in 2015, $26 million in 2016, $100 million in 2017, and $30 million in 2018.
“The findings from the (internal) investigation did not identify any misconduct by any member of the senior management team,” the company reported in its latest filing. The 8-K says the company has implemented and continues to implement remedial actions, “including employee personnel actions and certain improvements to its internal controls.” The company says it also continues to cooperate with the SEC investigation.
As a result of the misconduct discovery, company officials performed a “comprehensive review” of significant supplier contracts and discovered additional misstatements that will also be corrected. The company says it found issues, “which may or may not” be associated with the core misconduct that prompted restatement, tied to certain supplier contracts and arrangements where recognition of rebates and upfront payment values was recognized earlier than appropriate.
Kraft Heinz also disclosed in its most recent 8-K it was correcting errors in the calculation of a previously disclosed $15.4 billion impairment charge, raising the total impairment figure by a net $13 million. The company will also make additional impairment adjustments in prior periods when it finalizes its restatements.
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