Berkshire Hathaway 2015 Annual Report Download - page 53

Notes to Consolidated Financial Statements (Continued)
(6) Investments in The Kraft Heinz Company (Continued)
In March 2015, Heinz Holding and Kraft Foods Group, Inc. (“Kraft”) entered into a merger agreement under which Kraft
shareholders were entitled to receive one share of newly issued Heinz Holding common stock for each share of Kraft common
stock and a special cash dividend of $16.50 per share. Kraft is one of North America’s largest consumer packaged food and
beverage companies, with annual revenues of more than $18 billion. The company’s iconic brands include Kraft,Capri Sun,
Jell-O,Kool-Aid,Lunchables,Maxwell House,Oscar Mayer,Philadelphia,Planters and Velveeta.
On July 1, 2015, Berkshire acquired 262.9 million shares of newly issued common stock of Heinz Holding for $5.26 billion
and 3G acquired 237.1 million shares of newly issued common stock for $4.74 billion. Immediately thereafter, Heinz Holding
executed a reverse stock split at a rate of 0.443332 of a share for each share. Upon completion of these transactions, Berkshire
owned approximately 325.4 million shares of Heinz Holding common stock, or 52.5% of the then outstanding shares. The
merger transaction closed on July 2, 2015, at which time Heinz Holding was renamed The Kraft Heinz Company (“Kraft
Heinz”) and Kraft Heinz issued approximately 593 million new shares of its common stock to the former Kraft shareholders.
Following the issuance of these additional shares, Berkshire and 3G together owned approximately 51% of the outstanding
Kraft Heinz common stock, with Berkshire owning approximately 26.8% and 3G owning 24.2%. Our investments in Kraft
Heinz are summarized as follows (in millions).
Carrying Value
December 31,
2015
December 31,
2014
Common stock .................................................................... $15,714 $ 3,950
Preferred Stock .................................................................... 7,710 7,710
$23,424 $11,660
We account for our investment in Kraft Heinz common stock on the equity method. Dividends earned on the Preferred
Stock and our equity method earnings or loss on the common stock were $730 million in 2015, $694 million in 2014 and $146
million in 2013 and are included in interest, dividend and other investment income in our Consolidated Statements of Earnings.
As previously discussed, the issuance of new common stock by Kraft Heinz for Kraft common stock reduced our
ownership of Kraft Heinz from approximately 52.5% to 26.8%. Under the equity method, the issuance of shares by an investee
is accounted for by the investor as if the investor had sold a proportionate share of its investment. As a result, we recorded a
non-cash pre-tax holding gain of approximately $6.8 billion in the third quarter of 2015, representing the excess of the fair value
of Kraft Heinz common stock at the date of the merger over our carrying value associated with the reduction in our ownership.
The Preferred Stock possesses no voting rights except as are required by law or for certain matters. The Preferred Stock is
entitled to dividends at 9% per annum whether or not declared, is senior in priority to the common stock and is callable after
June 7, 2016 at the liquidation value plus an applicable premium and any accrued and unpaid dividends. Kraft Heinz has
announced its intention to call the Preferred Stock after June 7, 2016 and prior to June 7, 2017, although it is not obligated to do
so. The redemption value of the Preferred Stock as of June 7, 2016 is approximately $8.3 billion. After June 7, 2021, Berkshire
can cause Kraft Heinz to attempt to sell shares of common stock through public offerings or other issuances, the proceeds of
which would be required to be used to redeem any outstanding shares of the Preferred Stock. We account for our investment in
the Preferred Stock as an equity investment and it is carried at cost.
Summarized consolidated financial information of Kraft Heinz follows (in millions).
January 3,
2016
December 28,
2014
Assets ............................................................................. $122,973 $36,571
Liabilities .......................................................................... 56,737 20,886
Year ending
January 3, 2016
Year ending
December 28, 2014
June 7, 2013 through
December 29, 2013
Sales ..................................................... $18,338 $10,922 $6,240
Net earnings (loss) ........................................... $ 634 $ 657 $ (77)
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