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Kraft Heinz Discloses SEC Subpoena, Cuts Dividend; Stock Plunges

Kraft Heinz Co. (KHC) said it received a subpoena in October 2018 from the U.S. Securities and Exchange Commission associated with an investigation into the Company's procurement area, more specifically the Company's accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors.

Following this initial SEC document request, the company together with external counsel launched an investigation into the procurement area. In the fourth quarter of 2018, as a result of findings from the investigation, the Company recorded a $25 million increase to costs of products sold as an out of period correction as the Company determined the amounts were immaterial to the fourth quarter of 2018 and its previously reported 2018 and 2017 interim and year to date periods.

Additionally, the company said it is in the process of implementing certain improvements to its internal controls to mitigate the likelihood of this occurring in the future and has taken other remedial measures. The Company continues to cooperate fully with the U.S. Securities and Exchange Commission.

The company concluded that, based on several factors that developed during the fourth quarter, the fair values of certain goodwill and intangible assets were below their carrying amounts. As a result, the Company recorded non-cash impairment charges of $15.4 billion to lower the carrying amount of goodwill in certain reporting units, primarily U.S. Refrigerated and Canada Retail, and certain intangible assets, primarily the Kraft and Oscar Mayer trademarks.

Kraft Heinz declared a regular quarterly dividend of $0.40 per share of common stock payable on March 22, 2019, to stockholders of record as of March 8, 2019. This represents a reduction of $0.225 from the Company's previous quarterly dividend of $0.625.

"We believe this action will help us accelerate our deleveraging plan, provide us strategic advantage through a stronger balance sheet, support commercial investments and set a payout level that can both grow over time and accommodate additional divestitures. By doing this we can improve our growth and returns over time," said Kraft Heinz CEO Bernardo Hees.

KHC closed Thursday's regular trading at $48.18, down $0.08 or 0.17%. In the after-hours trade, the stock further dropped $9.96 or 20.67 percent.

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