Company: KHC
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001637459-25-000011
Chunk: 5

Company: Kraft Heinz Co
Filing Date: 2025-02-13
Form: 10-K
Item: Item 8
Chunk 5
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 used for the excess earnings method and (b) net sales and royalty rates, as applicable to the brand, used for the relief from royalty method. Evaluating management’s assumptions related to net sales, cost of products sold, SG&A, and long-term growth rates for the excess earnings method and net sales and royalty rates for the relief from royalty method involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the brand; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s excess earnings and relief from royalty methods and (ii) the reasonableness of the long-term growth rate assumption for the excess earnings method and the reasonableness of the royalty rates assumption for the relief from royalty method.

Valuation of Non-US Deferred Tax Asset Related to the Change in Entity Structure

As described in Note 9 to the consolidated financial statements, the Company enacted changes to its corporate entity structure, which included a transfer of and will result in the movement of certain business operations to a wholly-owned subsidiary in the Netherlands, resulting in a tax benefit of $3 billion recorded as a non-U.S. deferred tax asset in December 2024. The deferred tax asset was recognized as a result of the book and tax basis difference on the business transferred, with the tax basis determined by reference to the fair value of the business. As disclosed by management, management used the discounted cash flow method to estimate the fair value of the business and made significant assumptions related to net sales, discount rate, long-term growth rate, income tax rates, and other market factors. The recognition of the future tax benefits associated with the transaction are dependent upon the acceptance of the business valuation and tax step-up by the associated taxing authorities.

The principal considerations for our determination that performing procedures relating to the valuation of the non-US deferred tax asset related to the change in entity structure is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the business and related value of the deferred tax asset; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the recognition of future tax benefits and management’s significant assumptions related to net sales, discount rate, long-term growth rate, and income tax rates; and (iii) the audit effort involved the use of professionals with specialized