10-Q
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
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|
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 29,
2009
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OR
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as
specified in its charter)
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|
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PENNSYLVANIA
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25-0542520
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One PPG Place, Pittsburgh,
Pennsylvania
(Address of Principal
Executive Offices)
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15222
(Zip Code)
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Registrants telephone number, including area code:
(412) 456-5700
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes X No
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such
files). Yes X No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer X
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes No X
The number of shares of the Registrants Common Stock, par
value $0.25 per share, outstanding as of July 29, 2009 was
315,188,053 shares.
PART IFINANCIAL
INFORMATION
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|
Item 1.
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Financial
Statements
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H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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First Quarter Ended
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July 29, 2009
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July 30, 2008
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FY 2010
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FY 2009
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(Unaudited)
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(In thousands, Except
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per Share Amounts)
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Sales
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$
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2,467,923
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$
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2,583,208
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Cost of products sold
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1,593,776
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1,649,072
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Gross profit
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874,147
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934,136
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Selling, general and administrative expenses
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508,178
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541,872
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Operating income
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365,969
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392,264
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Interest income
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28,659
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11,428
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Interest expense
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82,989
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74,605
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Other expense, net
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5,415
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2,704
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Income before income taxes
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306,224
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326,383
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Provision for income taxes
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87,132
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92,099
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Net income
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219,092
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234,284
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Less: Net income attributable to the noncontrolling interest
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6,528
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5,320
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Net income attributable to H. J. Heinz Company
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$
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212,564
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$
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228,964
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Net income per share attributable to H. J. Heinz Company common
shareholdersdiluted
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$
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0.67
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$
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0.72
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Average common shares outstandingdiluted
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317,229
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316,801
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Net income per share attributable to H. J. Heinz Company common
shareholdersbasic
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$
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0.67
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$
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0.73
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Average common shares outstandingbasic
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315,074
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312,022
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Cash dividends per share
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$
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0.42
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$
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0.415
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See Notes to Condensed Consolidated Financial Statements.
2
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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July 29, 2009
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April 29, 2009*
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FY 2010
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FY 2009
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(Unaudited)
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(In Thousands)
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Assets
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Current Assets:
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Cash and cash equivalents
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$
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550,700
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$
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373,145
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Trade receivables, net
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756,452
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881,164
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Other receivables, net
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295,985
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290,633
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Inventories:
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Finished goods and
work-in-process
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1,073,351
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973,983
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Packaging material and ingredients
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260,157
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263,630
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Total inventories
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1,333,508
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1,237,613
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Prepaid expenses
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172,925
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125,765
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Short-term restricted cash
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192,736
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Other current assets
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45,174
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36,701
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Total current assets
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3,347,480
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2,945,021
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Property, plant and equipment
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4,364,604
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4,109,562
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Less accumulated depreciation
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2,295,957
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2,131,260
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Total property, plant and equipment, net
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2,068,647
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1,978,302
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Goodwill
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2,817,273
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2,687,788
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Trademarks, net
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934,478
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889,815
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Other intangibles, net
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424,754
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405,351
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Long-term restricted cash
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|
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192,736
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Other non-current assets
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556,409
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565,171
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|
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Total other non-current assets
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4,732,914
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4,740,861
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|
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Total assets
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|
$
|
10,149,041
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$
|
9,664,184
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* |
|
The year-end condensed consolidated balance sheet data was
derived from audited financial statements, but does not include
all disclosures required by accounting principles generally
accepted in the United States of America. Noncontrolling
(minority) interest has been reclassified and presented as a
component of equity as a result of the adoption of
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial StatementsAn Amendment of ARB
No. 51. |
See Notes to Condensed Consolidated Financial Statements.
3
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
July 29, 2009
|
|
|
April 29, 2009*
|
|
|
|
FY 2010
|
|
|
FY 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In Thousands)
|
|
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Liabilities and Equity
|
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Current Liabilities:
|
|
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Short-term debt
|
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$
|
90,904
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|
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$
|
61,297
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Portion of long-term debt due within one year
|
|
|
4,599
|
|
|
|
4,341
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Trade payables
|
|
|
947,899
|
|
|
|
955,430
|
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Other payables
|
|
|
136,513
|
|
|
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157,877
|
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Salaries and wages
|
|
|
88,073
|
|
|
|
91,283
|
|
Accrued marketing
|
|
|
247,802
|
|
|
|
233,316
|
|
Other accrued liabilities
|
|
|
394,440
|
|
|
|
485,406
|
|
Income taxes
|
|
|
124,448
|
|
|
|
73,896
|
|
|
|
|
|
|
|
|
|
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Total current liabilities
|
|
|
2,034,678
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|
|
|
2,062,846
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|
|
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Long-term debt
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|
|
5,234,468
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|
|
|
5,076,186
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|
Deferred income taxes
|
|
|
350,483
|
|
|
|
345,749
|
|
Non-pension post-retirement benefits
|
|
|
219,399
|
|
|
|
214,786
|
|
Other liabilities
|
|
|
608,405
|
|
|
|
685,512
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|
|
|
|
|
|
|
|
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Total long-term liabilities
|
|
|
6,412,755
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|
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6,322,233
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|
|
|
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Equity:
|
|
|
|
|
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Capital stock
|
|
|
107,844
|
|
|
|
107,844
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|
Additional capital
|
|
|
725,183
|
|
|
|
737,917
|
|
Retained earnings
|
|
|
6,605,224
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|
|
|
6,525,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,438,251
|
|
|
|
7,371,480
|
|
Less:
|
|
|
|
|
|
|
|
|
Treasury stock at cost (115,908 shares at July 29,
2009 and 116,237 shares at April 29, 2009)
|
|
|
4,866,570
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|
|
|
4,881,842
|
|
Accumulated other comprehensive loss
|
|
|
938,772
|
|
|
|
1,269,700
|
|
|
|
|
|
|
|
|
|
|
Total H. J. Heinz Company shareholders equity
|
|
|
1,632,909
|
|
|
|
1,219,938
|
|
Noncontrolling interest
|
|
|
68,699
|
|
|
|
59,167
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,701,608
|
|
|
|
1,279,105
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
10,149,041
|
|
|
$
|
9,664,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The year-end condensed consolidated balance sheet data was
derived from audited financial statements, but does not include
all disclosures required by accounting principles generally
accepted in the United States of America. Noncontrolling
(minority) interest has been reclassified and presented as a
component of equity as a result of the adoption of
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial StatementsAn Amendment of ARB
No. 51. |
See Notes to Condensed Consolidated Financial Statements.
4
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
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First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
|
FY 2010
|
|
|
FY 2009
|
|
|
|
(Unaudited)
|
|
|
|
(Thousands of Dollars)
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
219,092
|
|
|
$
|
234,284
|
|
Adjustments to reconcile net income to cash provided by/(used
for) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
61,282
|
|
|
|
65,715
|
|
Amortization
|
|
|
11,619
|
|
|
|
10,018
|
|
Deferred tax provision
|
|
|
36,294
|
|
|
|
14,847
|
|
Pension contributions
|
|
|
(143,989
|
)
|
|
|
(27,840
|
)
|
Other items, net
|
|
|
(11,872
|
)
|
|
|
(5,469
|
)
|
Changes in current assets and liabilities, excluding effects of
acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
Receivables securitization facility
|
|
|
131,800
|
|
|
|
|
|
Receivables
|
|
|
57,303
|
|
|
|
(53,218
|
)
|
Inventories
|
|
|
(29,736
|
)
|
|
|
(114,121
|
)
|
Prepaid expenses and other current assets
|
|
|
(28,191
|
)
|
|
|
(26,574
|
)
|
Accounts payable
|
|
|
(73,738
|
)
|
|
|
(29,041
|
)
|
Accrued liabilities
|
|
|
(102,662
|
)
|
|
|
(123,860
|
)
|
Income taxes
|
|
|
41,666
|
|
|
|
41,324
|
|
|
|
|
|
|
|
|
|
|
Cash provided by/(used for) operating activities
|
|
|
168,868
|
|
|
|
(13,935
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(48,708
|
)
|
|
|
(41,634
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
645
|
|
|
|
689
|
|
Proceeds from divestitures
|
|
|
1,736
|
|
|
|
5,465
|
|
Other items, net
|
|
|
(174
|
)
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Cash used for investing activities
|
|
|
(46,501
|
)
|
|
|
(35,437
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(27,367
|
)
|
|
|
(336,902
|
)
|
Proceeds from long-term debt
|
|
|
249,559
|
|
|
|
849,827
|
|
Net payments on commercial paper and short-term debt
|
|
|
(67,217
|
)
|
|
|
(398,159
|
)
|
Dividends
|
|
|
(132,956
|
)
|
|
|
(131,333
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
(181,431
|
)
|
Exercise of stock options
|
|
|
2,021
|
|
|
|
182,641
|
|
Other items, net
|
|
|
8,872
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
Cash provided by/(used for) financing activities
|
|
|
32,912
|
|
|
|
(13,357
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
22,276
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
177,555
|
|
|
|
(63,339
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
373,145
|
|
|
|
617,687
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
550,700
|
|
|
$
|
554,348
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5
H. J.
HEINZ COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(1)
|
Basis of
Presentation
|
The interim condensed consolidated financial statements of H. J.
Heinz Company, together with its subsidiaries (collectively
referred to as the Company), are unaudited. In the
opinion of management, all adjustments, which are of a normal
and recurring nature, except those which have been disclosed
elsewhere in this Quarterly Report on
Form 10-Q,
necessary for a fair statement of the results of operations of
these interim periods, have been included. The results for
interim periods are not necessarily indicative of the results to
be expected for the full fiscal year due to the seasonal nature
of the Companys business. Certain prior year amounts have
been reclassified to conform with the Fiscal 2010 presentation.
These statements should be read in conjunction with the
Companys consolidated financial statements and related
notes, and managements discussion and analysis of
financial condition and results of operations which appear in
the Companys Annual Report on
Form 10-K
for the year ended April 29, 2009. Subsequent events
occurring after July 29, 2009 were evaluated through
August 20, 2009, the date these financial statements were
issued.
|
|
(2)
|
Recently
Issued Accounting Standards
|
On April 30, 2009, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements, for its non-financial
assets and liabilities that are recognized at fair value on a
non-recurring basis, including long-lived assets, goodwill,
other intangible assets, exit liabilities and purchase price
allocations. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally
accepted accounting principles, and expands disclosures about
fair value measurements. This statement applies whenever other
accounting pronouncements require or permit assets or
liabilities to be measured at fair value, but does not expand
the use of fair value to new accounting transactions. The
adoption of this standard did not have a material impact on the
Companys financial statements. See Note No. 12 for
additional information.
On April 30, 2009, the Company adopted
SFAS No. 141(R), Business Combinations and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial StatementsAn Amendment of ARB No.
51. SFAS No. 141(R) and its related standards
impact the accounting for any business combinations completed
after April 29, 2009. The nature and extent of the impact
will depend upon the terms and conditions of any such
transaction. SFAS No. 160 changes the accounting and
reporting for minority interests, which have been
recharacterized as noncontrolling interests and classified as a
component of equity. Prior period financial statements and
disclosures for existing minority interests have been restated
in accordance with SFAS No. 160. All other
requirements of SFAS No. 160 will be applied
prospectively. The adoption of SFAS No. 160 did not have a
material impact on the Companys financial statements.
On April 30, 2009, the Company adopted FASB Staff Position
(FSP)
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. FSP
EITF 03-6-1
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. As a result of adopting FSP
EITF 03-6-1,
the Company has retrospectively adjusted its earnings per share
data for prior periods. The adoption of FSP
EITF 03-6-1
had no impact on net income and less than a $0.01 impact on
basic and diluted earnings per share for the first quarters of
Fiscal 2010 and 2009. See Note No. 8 for additional
information.
6
In December 2008, the Financial Accounting Standards Board
(FASB) issued FSP FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit
Plan Assets. This new standard requires enhanced
disclosures about plan assets in an employers defined
benefit pension or other postretirement plan. Companies will be
required to disclose information about how investment allocation
decisions are made, the fair value of each major category of
plan assets, the basis used to determine the overall expected
long-term rate of return on assets assumption, a description of
the inputs and valuation techniques used to develop fair value
measurements of plan assets, and significant concentrations of
credit risk. This statement is effective for fiscal years ending
after December 15, 2009. The Company is currently
evaluating the impact of adopting FSP FAS 132(R)-1 in the
fourth quarter of Fiscal 2010.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, which establishes general
standards of accounting for and disclosure of events or
transactions that occur after the balance sheet date but before
the financial statements are issued or are available to be
issued. SFAS No. 165 describes the circumstances under
which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements and provides guidance on the disclosures that an
entity should make about events or transactions that occurred
after the balance sheet date. The Company adopted
SFAS No. 165 during the first quarter of Fiscal 2010,
and its application had no impact on the Companys
consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140.
SFAS No. 166 removes the concept of a qualifying
special-purpose entity and the exception from applying FASB
Intrepretation No. (FIN) 46(R) to variable interest
entities that are qualifying special-purpose entities.
SFAS No. 166 requires that a transferor recognize and
initially measure at fair value all assets obtained and
liabilities incurred as a result of a transfer of financial
assets accounted for as a sale. The standard also requires
additional disclosures about any transfers of financial assets
and a transferors continuing involvement with transferred
financial assets. SFAS No. 166 is effective for fiscal
years beginning after November 15, 2009, and interim
periods within those fiscal years. The Company is currently
evaluating the impact of adopting SFAS No. 166 on
April 29, 2010, the first day of Fiscal 2011.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R),
which changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to
consolidate another entity is based on, among other things, the
purpose and design of the other entity and the reporting
entitys ability to direct the activities of the other
entity that most significantly impact its economic performance.
SFAS No. 167 also requires additional disclosures about a
reporting entitys involvement with variable interest
entities and any significant changes in risk exposure due to
that involvement. A reporting entity will be required to
disclose how its involvement with a variable interest entity
affects the reporting entitys financial statements.
SFAS No. 167 is effective for fiscal years beginning
after November 15, 2009, and interim periods within those
fiscal years. The Company is currently evaluating the impact of
adopting SFAS No. 167 on April 29, 2010, the
first day of Fiscal 2011.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principlesa replacement of
FASB Statement No. 162. The FASB Accounting Standards
Codification (the Codification) will become the
source of authoritative generally accepted accounting principles
in the United States of America. The Codification changes the
referencing of financial standards but is not intended to change
or alter existing U.S. GAAP. The Codification is effective
for interim or annual financial periods ending after
September 15, 2009 and will be effective for the Company in
the second quarter of Fiscal 2010.
7
|
|
(3)
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the first quarter
ended July 29, 2009, by reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Rest of
|
|
|
|
|
|
|
Products
|
|
|
Europe
|
|
|
Asia/Pacific
|
|
|
Foodservice
|
|
|
World
|
|
|
Total
|
|
|
|
(Thousands of Dollars)
|
|
|
Balance at April 29, 2009
|
|
$
|
1,074,841
|
|
|
$
|
1,090,998
|
|
|
$
|
248,222
|
|
|
$
|
260,523
|
|
|
$
|
13,204
|
|
|
$
|
2,687,788
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
|
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
|
652
|
|
Translation adjustments
|
|
|
11,624
|
|
|
|
91,100
|
|
|
|
25,380
|
|
|
|
|
|
|
|
729
|
|
|
|
128,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 29, 2009
|
|
$
|
1,086,465
|
|
|
$
|
1,182,098
|
|
|
$
|
274,254
|
|
|
$
|
260,523
|
|
|
$
|
13,933
|
|
|
$
|
2,817,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other intangible assets at July 29, 2009 and
April 29, 2009, subject to amortization expense, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2009
|
|
|
April 29, 2009
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
|
(Thousands of Dollars)
|
|
|
Trademarks
|
|
$
|
283,040
|
|
|
$
|
(74,624
|
)
|
|
$
|
208,416
|
|
|
$
|
272,710
|
|
|
$
|
(71,138
|
)
|
|
$
|
201,572
|
|
Licenses
|
|
|
208,186
|
|
|
|
(148,219
|
)
|
|
|
59,967
|
|
|
|
208,186
|
|
|
|
(146,789
|
)
|
|
|
61,397
|
|
Recipes/processes
|
|
|
75,975
|
|
|
|
(23,562
|
)
|
|
|
52,413
|
|
|
|
72,988
|
|
|
|
(22,231
|
)
|
|
|
50,757
|
|
Customer related assets
|
|
|
191,386
|
|
|
|
(43,364
|
)
|
|
|
148,022
|
|
|
|
179,657
|
|
|
|
(38,702
|
)
|
|
|
140,955
|
|
Other
|
|
|
68,803
|
|
|
|
(55,894
|
)
|
|
|
12,909
|
|
|
|
68,128
|
|
|
|
(55,091
|
)
|
|
|
13,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
827,390
|
|
|
$
|
(345,663
|
)
|
|
$
|
481,727
|
|
|
$
|
801,669
|
|
|
$
|
(333,951
|
)
|
|
$
|
467,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for trademarks and other intangible assets
was $7.2 million and $8.0 million for the quarters
ended July 29, 2009 and July 30, 2008, respectively.
Based upon the amortizable intangible assets recorded on the
balance sheet as of July 29, 2009, annual amortization
expense for each of the next five fiscal years is estimated to
be approximately $29 million.
Intangible assets not subject to amortization at July 29,
2009 totaled $877.5 million and consisted of
$726.1 million of trademarks, $120.6 million of
recipes/processes, and $30.9 million of licenses.
Intangible assets not subject to amortization at April 29,
2009, totaled $827.4 million and consisted of
$688.2 million of trademarks, $111.6 million of
recipes/processes, and $27.6 million of licenses.
The total amount of gross unrecognized tax benefits for
uncertain tax positions, including positions impacting only the
timing of tax benefits, was $83.5 million and
$86.6 million, on July 29, 2009 and April 29,
2009, respectively. The amount of unrecognized tax benefits
that, if recognized, would impact the effective tax rate was
$53.0 million and $51.9 million, on July 29, 2009
and April 29, 2009, respectively. It is reasonably possible
that the amount of unrecognized tax benefits will decrease by as
much as $31.1 million in the next 12 months primarily
due to the progression of federal, state, and foreign audits in
process.
The Company classifies interest and penalties on tax
uncertainties as a component of the provision for income taxes.
The total amount of interest and penalties accrued as of
July 29, 2009
8
was $21.8 million and $1.9 million, respectively. The
corresponding amounts of accrued interest and penalties at
April 29, 2009 were $22.5 million and
$2.2 million, respectively.
The provision for income taxes consists of provisions for
federal, state and foreign income taxes. The Company operates in
an international environment with significant operations in
various locations outside the U.S. Accordingly, the
consolidated income tax rate is a composite rate reflecting the
earnings in various locations and the applicable tax rates. In
the normal course of business the Company is subject to
examination by taxing authorities throughout the world,
including such major jurisdictions as Australia, Canada, Italy,
the United Kingdom and the United States. The Company has
substantially concluded all income tax matters in the United
Kingdom for years through Fiscal 2006, all Italian and
U.S. federal income tax matters for years through Fiscal
2005, and all Australian and Canadian income tax matters for
years through Fiscal 2004.
The effective tax rate for the current quarter was 28.5%
compared to 28.2% last year. The current quarter effective tax
rate benefits from tax planning implemented during the third
quarter of Fiscal 2009. The prior year first quarter effective
tax rate reflected a discrete benefit resulting from the tax
effects of law changes in the U.K. of approximately
$11 million.
|
|
(5)
|
Employees
Stock Incentive Plans and Management Incentive Plans
|
As of July 29, 2009, the Company had outstanding stock
option awards, restricted stock units and restricted stock
awards issued pursuant to various shareholder-approved plans and
a shareholder-authorized employee stock purchase plan, as
described on pages 55 to 60 of the Companys Annual Report
on
Form 10-K
for the fiscal year ended April 29, 2009. The compensation
cost related to these plans recognized in general and
administrative expenses (G&A), and the related
tax benefit was $6.3 million and $1.9 million for the
first quarter ended July 29, 2009, and $6.8 million
and $2.4 million for the first quarter ended July 30,
2008, respectively.
In Fiscal 2010, the Company granted performance awards as
permitted in the Fiscal Year 2003 Stock Incentive Plan, subject
to the achievement of certain performance goals. These
performance awards are tied to the Companys relative Total
Shareholder Return (Relative TSR) Ranking within the
defined Long-term Performance Program (LTPP) peer
group and the
2-year
average after-tax Return on Invested Capital (ROIC)
metrics. The Relative TSR metric is based on the two-year
cumulative return to shareholders from the change in stock price
and dividends paid between the starting and ending dates. The
starting value was based on the average of each LTPP peer group
company stock price for the 60 trading days prior to and
including April 30, 2009. The ending value will be based on
the average stock price for the 60 trading days prior to and
including the close of the Fiscal 2011 year end, plus
dividends paid over the 2 year performance period. The
compensation cost related to current and prior period LTPP
awards recognized in G&A was $2.6 million, and the
related tax benefit was $0.8 million for the first quarter
ended July 29, 2009. The compensation cost related to LTPP
awards recognized in G&A was $6.1 million, and the
related tax benefit was $2.0 million for the first quarter
ended July 30, 2008.
9
|
|
(6)
|
Pensions
and Other Post-Retirement Benefits
|
The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
|
Pension Benefits
|
|
|
Post Retirement Benefits
|
|
|
|
(Thousands of Dollars)
|
|
|
Service cost
|
|
$
|
7,789
|
|
|
$
|
9,900
|
|
|
$
|
1,471
|
|
|
$
|
1,694
|
|
Interest cost
|
|
|
37,078
|
|
|
|
41,183
|
|
|
|
3,727
|
|
|
|
3,928
|
|
Expected return on plan assets
|
|
|
(52,320
|
)
|
|
|
(59,458
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
538
|
|
|
|
887
|
|
|
|
(952
|
)
|
|
|
(946
|
)
|
Amortization of unrecognized loss
|
|
|
13,320
|
|
|
|
9,051
|
|
|
|
135
|
|
|
|
923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
6,405
|
|
|
$
|
1,563
|
|
|
$
|
4,381
|
|
|
$
|
5,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of Fiscal 2010, the Company contributed
$144 million to these defined benefit plans, of which
$132 million was discretionary. The Company expects to make
combined cash contributions of approximately $260 million
in Fiscal 2010, of which $200 million would be
discretionary, however actual contributions may be affected by
pension asset and liability valuations during the year.
The Companys segments are primarily organized by
geographical area. The composition of segments and measure of
segment profitability are consistent with that used by the
Companys management.
Descriptions of the Companys reportable segments are as
follows:
North American Consumer ProductsThis segment primarily
manufactures, markets and sells ketchup, condiments, sauces,
pasta meals, and frozen potatoes, entrees, snacks, and
appetizers to the grocery channels in the United States of
America and includes our Canadian business.
EuropeThis segment includes the Companys operations
in Europe, including Eastern Europe and Russia, and sells
products in all of the Companys categories.
Asia/PacificThis segment includes the Companys
operations in New Zealand, Australia, India, Japan, China, South
Korea, Indonesia, and Singapore. This segments operations
include products in all of the Companys categories.
U.S. FoodserviceThis segment primarily manufactures,
markets and sells branded and customized products to commercial
and non-commercial food outlets and distributors in the United
States of America including ketchup, condiments, sauces, and
frozen soups, desserts and appetizers.
Rest of WorldThis segment includes the Companys
operations in Africa, Latin America, and the Middle East that
sell products in all of the Companys categories.
The Companys management evaluates performance based on
several factors including net sales, operating income, and the
use of capital resources. Intersegment revenues and items below
the operating income line of the consolidated statements of
income are not presented by segment, since they are excluded
from the measure of segment profitability reviewed by the
Companys management.
10
The following table presents information about the
Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
|
FY 2010
|
|
|
FY 2009
|
|
|
|
(Thousands of Dollars)
|
|
|
Net external sales:
|
|
|
|
|
|
|
|
|
North American Consumer Products
|
|
$
|
727,242
|
|
|
$
|
741,182
|
|
Europe
|
|
|
788,840
|
|
|
|
918,191
|
|
Asia/Pacific
|
|
|
469,234
|
|
|
|
457,813
|
|
U.S. Foodservice
|
|
|
346,501
|
|
|
|
353,413
|
|
Rest of World
|
|
|
136,106
|
|
|
|
112,609
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
2,467,923
|
|
|
$
|
2,583,208
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
North American Consumer Products
|
|
$
|
184,205
|
|
|
$
|
168,108
|
|
Europe
|
|
|
125,641
|
|
|
|
156,740
|
|
Asia/Pacific
|
|
|
53,264
|
|
|
|
66,519
|
|
U.S. Foodservice
|
|
|
31,170
|
|
|
|
24,940
|
|
Rest of World
|
|
|
18,103
|
|
|
|
12,650
|
|
Other:
|
|
|
|
|
|
|
|
|
Non-Operating(a)
|
|
|
(30,665
|
)
|
|
|
(36,693
|
)
|
Upfront productivity charges (b)
|
|
|
(15,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
365,969
|
|
|
$
|
392,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes corporate overhead, intercompany eliminations and
charges not directly attributable to operating segments.
|
|
|
(b)
|
Includes costs associated with targeted workforce reductions and
asset write-offs related to a factory closure that were part of
a corporation-wide initiative to improve productivity.
|
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
|
FY 2010
|
|
|
FY 2009
|
|
|
|
(Thousands of Dollars)
|
|
|
Ketchup and Sauces
|
|
$
|
1,068,813
|
|
|
$
|
1,098,585
|
|
Meals and Snacks
|
|
|
950,433
|
|
|
|
1,058,163
|
|
Infant/Nutrition
|
|
|
291,954
|
|
|
|
309,466
|
|
Other
|
|
|
156,723
|
|
|
|
116,994
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,467,923
|
|
|
$
|
2,583,208
|
|
|
|
|
|
|
|
|
|
|
11
|
|
(8)
|
Net
Income Per Common Share
|
The following are reconciliations of income to income applicable
to common stock and the number of common shares outstanding used
to calculate basic EPS to those shares used to calculate diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
|
FY 2010
|
|
|
FY 2009
|
|
|
|
(In thousands)
|
|
|
Net income attributable to H. J. Heinz Company
|
|
$
|
212,564
|
|
|
$
|
228,964
|
|
Allocation to participating securities (See Note No. 2)
|
|
|
522
|
|
|
|
1,308
|
|
Preferred dividends
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Income applicable to common stock
|
|
$
|
212,039
|
|
|
$
|
227,653
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingbasic
|
|
|
315,074
|
|
|
|
312,022
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
105
|
|
|
|
107
|
|
Stock options, restricted stock and the global stock purchase
plan
|
|
|
2,050
|
|
|
|
4,672
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingdiluted
|
|
|
317,229
|
|
|
|
316,801
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share is based upon the average shares of
common stock and dilutive common stock equivalents outstanding
during the periods presented. Common stock equivalents arising
from dilutive stock options, restricted common stock units, and
the global stock purchase plan are computed using the treasury
stock method.
Options to purchase an aggregate of 8.5 million and
0.9 million shares of common stock for the first quarters
ended July 29, 2009 and July 30, 2008, respectively,
were not included in the computation of diluted earnings per
share because inclusion of these options would be anti-dilutive.
These options expire at various points in time through 2016.
The following table provides a summary of comprehensive income
attributable to H. J. Heinz Company:
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
July 30, 2008
|
|
|
|
FY 2010
|
|
|
FY 2009
|
|
|
|
(Thousands of Dollars)
|
|
|
Net income
|
|
$
|
219,092
|
|
|
$
|
234,284
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
342,525
|
|
|
|
(7,945
|
)
|
Reclassification of net pension and post-retirement benefit
losses to net income
|
|
|
8,542
|
|
|
|
8,369
|
|
Adoption of measurement date provisions of SFAS No. 158
|
|
|
|
|
|
|
1,506
|
|
Net deferred losses on derivatives from periodic revaluations
|
|
|
(11,524
|
)
|
|
|
(9,841
|
)
|
Net deferred (gains)/losses on derivatives reclassified to
earnings
|
|
|
(5,184
|
)
|
|
|
4,319
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
553,451
|
|
|
|
230,692
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the noncontrolling interest
|
|
|
(9,959
|
)
|
|
|
(6,546
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to H. J. Heinz Company
|
|
$
|
543,492
|
|
|
$
|
224,146
|
|
|
|
|
|
|
|
|
|
|
12
The following table summarizes the allocation of total
comprehensive income between H. J. Heinz Company and
the noncontrolling interest for the first quarter ended
July 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. J. Heinz
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Company
|
|
|
Interest
|
|
|
Total
|
|
|
|
(Thousands of Dollars)
|
|
|
Net income
|
|
$
|
212,564
|
|
|
$
|
6,528
|
|
|
$
|
219,092
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
338,957
|
|
|
|
3,568
|
|
|
|
342,525
|
|
Reclassification of net pension and post-retirement benefit
losses/(gains) to net income
|
|
|
8,582
|
|
|
|
(40
|
)
|
|
|
8,542
|
|
Net deferred losses on derivatives from periodic revaluations
|
|
|
(11,305
|
)
|
|
|
(219
|
)
|
|
|
(11,524
|
)
|
Net deferred (gains)/losses on derivatives reclassified to
earnings
|
|
|
(5,306
|
)
|
|
|
122
|
|
|
|
(5,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
543,492
|
|
|
$
|
9,959
|
|
|
$
|
553,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a summary of the changes in the
carrying amounts of total equity, H. J. Heinz Company
shareholders equity and equity attributable to the
noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. J. Heinz Company
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Additional
|
|
|
Retained
|
|
|
Treasury
|
|
|
Accum
|
|
|
Noncontrolling
|
|
|
|
Total
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
OCI
|
|
|
Interest
|
|
|
|
(Thousands of Dollars)
|
|
|
Balance as of April 29, 2009
|
|
$
|
1,279,105
|
|
|
$
|
107,844
|
|
|
$
|
737,917
|
|
|
$
|
6,525,719
|
|
|
$
|
(4,881,842
|
)
|
|
$
|
(1,269,700
|
)
|
|
$
|
59,167
|
|
Comprehensive
income(1)
|
|
|
553,451
|
|
|
|
|
|
|
|
|
|
|
|
212,564
|
|
|
|
|
|
|
|
330,928
|
|
|
|
9,959
|
|
Dividends paid to shareholders of H. J. Heinz Company
|
|
|
(132,956
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling interest
|
|
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(427
|
)
|
Stock options exercised, net of shares tendered for payment
|
|
|
2,083
|
|
|
|
|
|
|
|
(749
|
)
|
|
|
|
|
|
|
2,832
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
909
|
|
|
|
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock unit activity
|
|
|
(1,792
|
)
|
|
|
|
|
|
|
(13,302
|
)
|
|
|
|
|
|
|
11,510
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,235
|
|
|
|
|
|
|
|
408
|
|
|
|
(103
|
)
|
|
|
930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 29, 2009
|
|
$
|
1,701,608
|
|
|
$
|
107,844
|
|
|
$
|
725,183
|
|
|
$
|
6,605,224
|
|
|
$
|
(4,866,570
|
)
|
|
$
|
(938,772
|
)
|
|
$
|
68,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The allocation of the individual components of comprehensive
income attributable to H. J. Heinz Company and the
noncontrolling interest is disclosed in Note 9. |
|
|
(11)
|
Debt and
Financing Arrangements
|
On June 12, 2009, the Company entered into a three-year
$175 million accounts receivable securitization program.
Under the terms of the agreement, the Company sells, on a
revolving basis, its receivables to a wholly-owned,
bankruptcy-remote-subsidiary. This subsidiary then sells all of
the rights, title and interest in a pool of these receivables to
an unaffiliated entity. After the sale, the Company, as servicer
of the assets, collects the receivables on behalf of the
unaffiliated entity. The amount of receivables sold through this
program as of July 29, 2009 was $131.8 million. The
proceeds from this securitization program are recognized on the
statements of cash flows as a component of operating activities.
13
On July 29, 2009, H. J. Heinz Finance Company
(HFC), a subsidiary of Heinz, issued
$250 million of 7.125% notes due 2039 through a
private placement. The notes are fully, unconditionally and
irrevocably guaranteed by the Company. The proceeds from the
notes were used for payment of the cash component of the
exchange transaction discussed below as well as various expenses
relating to the exchange, and for general corporate purposes.
On August 6, 2009, subsequent to the end of the first
quarter, HFC exchanged $681 million of 7.125% notes
due 2039 (of the same series as the notes issued in the private
placement), and $217.5 million of cash, for
$681 million of their outstanding 15.590% dealer
remarketable securities due December 1, 2020. In addition,
HFC terminated a portion of the remarketing option by paying the
remarketing agent a cash payment of $89.0 million. The exchange
transaction will be accounted for as a modification of debt.
The Company was in compliance with all of its debt covenants as
of July 29, 2009.
|
|
(12)
|
Fair
Value Measurements
|
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy consists of three levels to prioritize
the inputs used in valuations, as defined below:
Level 1: Observable inputs that reflect
unadjusted quoted prices for identical assets or liabilities in
active markets.
Level 2: Inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or
liability.
As of July 29, 2009, the fair values of the Companys
assets and liabilities measured on a recurring basis are
categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Thousands of Dollars)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a)
|
|
$
|
|
|
|
$
|
220,136
|
|
|
$
|
|
|
|
$
|
220,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
220,136
|
|
|
$
|
|
|
|
$
|
220,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a)
|
|
$
|
|
|
|
$
|
20,387
|
|
|
$
|
|
|
|
$
|
20,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
20,387
|
|
|
$
|
|
|
|
$
|
20,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Foreign currency derivative contracts are valued based on
observable market spot and forward rates, and are classified
within Level 2 of the fair value hierarchy. Interest rate
swaps are valued based on observable market swap rates, and are
classified within Level 2 of the fair value hierarchy. The
Companys total rate of return swap is valued based on
observable market swap rates and the Companys credit
spread, and is classified within Level 2 of the fair value
hierarchy.
|
14
The fair values of the Companys liabilities measured on a
non-recurring basis during the first quarter ended July 29,
2009 are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Thousands of Dollars)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targeted workforce reduction reserves(a)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,417
|
|
|
$
|
8,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,417
|
|
|
$
|
8,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Targeted workforce reduction reserves are recorded based on
employees date of hire, years of service, position level,
and current salary, and are classified within Level 3 of
the fair value hierarchy.
|
The Company also recognized $1.4 million of non-cash asset
write-offs during the first quarter of Fiscal 2010 related
to a factory closure. The charge reduced the Companys
carrying value in the assets to net realizable value. The fair
value of the assets was determined based on unobservable inputs.
As of July 29, 2009 and April 29, 2009, the aggregate
fair value of the Companys debt obligations, based on
market quotes, approximated the recorded value.
|
|
(13)
|
Derivative
Financial Instruments and Hedging Activities
|
The Company operates internationally, with manufacturing and
sales facilities in various locations around the world, and
utilizes certain derivative financial instruments to manage its
foreign currency, debt and interest rate exposures. At
July 29, 2009, the Company had outstanding currency
exchange, interest rate, and total rate of return derivative
contracts with notional amounts of $1.22 billion,
$1.52 billion and $175 million, respectively. At
April 29, 2009, the Company had outstanding currency
exchange, interest rate, and total rate of return derivative
contracts with notional amounts of $1.25 billion,
$1.52 billion and $175 million, respectively.
15
The following table presents the fair values and corresponding
balance sheet captions of the Companys derivative
instruments as of July 29, 2009 and April 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2009
|
|
|
April 29, 2009
|
|
|
|
Foreign
|
|
|
Interest
|
|
|
Foreign
|
|
|
Interest
|
|
|
|
Exchange
|
|
|
Rate
|
|
|
Exchange
|
|
|
Rate
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(Dollars in Thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables, net
|
|
$
|
8,802
|
|
|
$
|
68,513
|
|
|
$
|
28,406
|
|
|
$
|
64,502
|
|
Other non-current assets
|
|
|
12,844
|
|
|
|
60,432
|
|
|
|
8,659
|
|
|
|
86,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,646
|
|
|
|
128,945
|
|
|
|
37,065
|
|
|
|
150,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables, net
|
|
|
29,291
|
|
|
|
40,254
|
|
|
|
11,644
|
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,291
|
|
|
|
40,254
|
|
|
|
11,644
|
|
|
|
20,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
50,937
|
|
|
$
|
169,199
|
|
|
$
|
48,709
|
|
|
$
|
171,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
$
|
19,401
|
|
|
$
|
|
|
|
$
|
12,198
|
|
|
$
|
|
|
Other liabilities
|
|
|
261
|
|
|
|
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,662
|
|
|
|
|
|
|
|
12,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
|
725
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
20,387
|
|
|
$
|
|
|
|
$
|
12,847
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to
Note 12Fair
Value Measurements for further information on how fair value is
determined for the Companys derivatives.
16
The following table presents the effect of derivative
instruments on the statement of income for the first quarter
ended July 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
July 29, 2009
|
|
|
|
Foreign Exchange
|
|
|
Interest Rate
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(Dollars in Thousands)
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
Net losses recognized in other comprehensive loss (effective
portion)
|
|
$
|
(16,943
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) reclassified from other comprehensive loss
into earnings (effective portion):
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,337
|
|
|
$
|
|
|
Cost of products sold
|
|
|
6,099
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(137
|
)
|
|
|
|
|
Other expense, net
|
|
|
(915
|
)
|
|
|
|
|
Interest expense
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
Net losses recognized in other expense, net
|
|
|
|
|
|
|
(21,991
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Net gains recognized in other expense, net
|
|
|
9,961
|
|
|
|
|
|
Net gains recognized in interest income
|
|
|
|
|
|
|
20,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,961
|
|
|
|
20,054
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in statement of income
|
|
$
|
16,350
|
|
|
$
|
(1,937
|
)
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Hedging:
The Company uses forward contracts and to a lesser extent,
option contracts to mitigate its foreign currency exchange rate
exposure due to forecasted purchases of raw materials and sales
of finished goods, and future settlement of foreign currency
denominated assets and liabilities. The Companys principal
foreign currency exposures include the Australian dollar,
British pound sterling, Canadian dollar, Euro, and the New
Zealand dollar. Derivatives used to hedge forecasted
transactions and specific cash flows associated with foreign
currency denominated financial assets and liabilities that meet
the criteria for hedge accounting are designated as cash flow
hedges. Consequently, the effective portion of gains and losses
is deferred as a component of accumulated other comprehensive
loss and is recognized in earnings at the time the hedged item
affects earnings, in the same line item as the underlying hedged
item.
The Company uses certain foreign currency debt instruments as
net investment hedges of foreign operations. During the first
quarter of Fiscal 2010, losses of $15.6 million, net of
income taxes of $9.9 million, which represented effective
hedges of net investments, were reported as a component of
accumulated other comprehensive loss within unrealized
translation adjustment.
Deferred
Hedging Gains and Losses:
As of July 29, 2009, the Company is hedging forecasted
transactions for periods not exceeding 5 years. During the
next 12 months, the Company expects $4.3 million of
net deferred losses reported in accumulated other comprehensive
loss to be reclassified to earnings, assuming market rates
remain constant through contract maturities. Hedge
ineffectiveness related to cash flow hedges, which is reported
in current period earnings as other expense, net, was not
17
significant for the first quarters ended July 29, 2009 and
July 30, 2008. Amounts reclassified to earnings because the
hedged transaction was no longer expected to occur were not
significant for the first quarters ended July 29, 2009 and
July 30, 2008.
Interest
Rate Hedging:
The Company uses interest rate swaps to manage debt and interest
rate exposures. The Company is exposed to interest rate
volatility with regard to existing and future issuances of fixed
and floating rate debt. Primary exposures include
U.S. Treasury rates, London Interbank Offered Rates
(LIBOR), and commercial paper rates in the United States.
Derivatives used to hedge risk associated with changes in the
fair value of certain fixed-rate debt obligations are primarily
designated as fair value hedges. Consequently, changes in the
fair value of these derivatives, along with changes in the fair
value of the hedged debt obligations that are attributable to
the hedged risk, are recognized in current period earnings.
Other
Activities:
The Company enters into certain derivative contracts in
accordance with its risk management strategy that do not meet
the criteria for hedge accounting but which have the economic
impact of largely mitigating foreign currency or interest rate
exposures. The Company maintained foreign currency forward
contracts with a total notional amount of $363.6 million
and $349.1 million that did not meet the criteria for hedge
accounting as of July 29, 2009 and April 29, 2009,
respectively. These forward contracts are accounted for on a
full
mark-to-market
basis through current earnings, with gains and losses recorded
as a component of other expense, net. Net unrealized gains
related to outstanding contracts totaled $28.6 million and
$11.6 million as of July 29, 2009 and April 29,
2009, respectively. These contracts are scheduled to mature
during Fiscal 2010.
The Company had an outstanding total rate of return swap with a
notional amount of $175 million as of July 29, 2009.
This instrument was being used as an economic hedge to reduce a
portion of the interest cost related to the Companys
remarketable securities. The swap was being accounted for on a
full
mark-to-market
basis through current earnings, with gains and losses recorded
as a component of interest income. During the first quarter
ended July 29, 2009, the Company recorded a
$24.7 million benefit in interest income, representing
changes in the fair value of the swap and interest earned on the
arrangement. Net unrealized gains totaled $40.3 million and
$20.2 million as of July 29, 2009 and April 29,
2009, respectively. In connection with this swap, the Company
was required to maintain a restricted cash collateral balance of
$192.7 million with the counterparty for the term of the
swap. On August 6, 2009, subsequent to the end of the first
quarter, the Company terminated the total rate of return swap
and received net cash proceeds of $47.6 million, in
addition to the return of the collateral. The unwinding of the
total rate of return swap was completed in conjunction with the
exchange of $681 million of dealer remarketable securities
discussed in Note 11.
Concentration
of Credit Risk:
Counterparties to currency exchange and interest rate
derivatives consist of major international financial
institutions. The Company continually monitors its positions and
the credit ratings of the counterparties involved and, by
policy, limits the amount of credit exposure to any one party.
While the Company may be exposed to potential losses due to the
credit risk of non-performance by these counterparties, losses
are not anticipated. The Company closely monitors the credit
risk associated with its counterparties and customers and to
date has not experienced material losses.
18
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive
Overview
The global recession has dramatically affected consumer
confidence, behavior, spending and ultimately food consumption
patterns. The Company has adapted its strategies to address this
difficult environment, with a concentration on the following:
|
|
|
|
|
Investing behind core brands and proven ideas to drive growth;
|
|
|
|
Shifting investments in marketing and research and development
toward delivering value to consumers;
|
|
|
|
Continuing its focus on emerging markets where economic growth
remains well above the global average;
|
|
|
|
Increasing emphasis on margins through productivity initiatives,
reductions in discretionary spending and tight management of
fixed costs; and
|
|
|
|
Increasing cash flow with a focus on reducing inventory and
tight management of capital spending.
|
During the first quarter of Fiscal 2010, the Company reported
diluted earnings per share of $0.67, compared to $0.72 in the
prior year. The decrease in EPS resulted from the precipitous
decline in foreign currency translation rates versus the
U.S. dollar that occurred during Fiscal 2009. Given that
approximately 60% of the Companys sales and the majority
of its net income are generated outside of the U.S., foreign
currency movements can have a significant impact on the
Companys financial results. Excluding the impact of
foreign currency movements on translation and particular
transactions such as inventory sourcing, our key financial
performance measures of sales, operating income and EPS all
experienced growth versus prior year. While we expect Fiscal
2010 results to be impacted by unfavorable foreign currency
rates and commodity input costs, the Company remains confident
in its business fundamentals and plans to continue executing its
strategy.
THREE
MONTHS ENDED JULY 29, 2009 AND JULY 30, 2008
Results
of Operations
Sales for the three months ended July 29, 2009 decreased
$115 million, or 4.5%, to $2.47 billion. Foreign
exchange translation rates reduced sales by 9.0%, reflecting the
impact of a stronger U.S. dollar on sales generated in
international markets compared to the first quarter of the prior
year. Net pricing increased sales by 6.0%, largely due to the
carryover impact of price increases taken in Fiscal 2009 across
the Companys portfolio to help offset increased commodity
costs. Volume decreased 4.3%, as favorable volume in emerging
markets was more than offset by declines in the U.S. and
U.K. businesses, which have been impacted by the recessionary
economic environment. Emerging markets and our Top 15 brands
continued to be important growth drivers, with combined volume
and pricing gains of 13.6% and 2.2%, respectively. Acquisitions,
net of divestitures, increased sales by 2.9%.
Gross profit decreased $60 million, or 6.4%, to
$874 million, as higher net pricing and the favorable
impact from acquisitions was more than offset by a
$79 million unfavorable impact from foreign exchange
translation rates as well as higher commodity costs, including
transaction currency costs most notably in the U.K., and lower
volume. The gross profit margin decreased to 35.4% from 36.2%,
as pricing and productivity improvements were more than offset
by lower margins on recent acquisitions and increased commodity
costs, which includes the impact of cross currency sourcing of
inventory, most notably in the U.K. In addition, gross profit
was unfavorably impacted by $7 million from targeted
workforce reductions and non-cash asset write-offs related to a
factory closure.
19
Selling, general and administrative expenses
(SG&A) decreased $34 million, or 6.2%, to
$508 million, and improved as a percentage of sales to
20.6% from 21.0%. The $34 million decline reflects a
$45 million impact from foreign exchange translation rates
and the Companys focus on tight cost control, partially
offset by $9 million related to targeted workforce
reductions in the current year, increases from acquisitions,
inflation in Latin America, and a prior year gain on a small
portion control business in the U.S.
Operating income decreased $26 million, or 6.7%, to
$366 million, reflecting the items above, particularly a
$35 million (8.9%) unfavorable impact from foreign exchange
translation rates, higher commodity costs and $16 million
of charges for targeted workforce reductions and non-cash asset
write-offs related to a factory closure.
Net interest expense decreased $9 million, to
$54 million, reflecting an $8 million increase in
interest expense and a $17 million increase in interest
income. Interest expense increased largely due to the higher
coupon on the dealer remarketable securities which were
remarketed on December 1, 2008, partially offset by lower
average interest rates on the remaining debt portfolio. The
improvement in interest income is due to a $20 million
mark-to-market
gain in the current period on a total rate of return swap, which
was entered into in conjunction with the Companys
remarketable securities on December 1, 2008. This swap
contract was terminated in August 2009 subsequent to the end of
the first quarter (see Note 13, Derivative Financial
Instruments and Hedging Activities for additional
information). Other expenses, net, increased $3 million
primarily due to increased currency losses.
The effective tax rate for the current quarter was 28.5%
compared to 28.2% last year. The current quarter effective tax
rate benefits from tax planning implemented during the third
quarter of Fiscal 2009. The prior year first quarter effective
tax rate reflected a discrete benefit resulting from the tax
effects of law changes in the U.K. of approximately
$11 million.
Net income attributable to H. J. Heinz Company was
$213 million compared to $229 million in the prior
year, a decrease of 7.2%. The decrease is due to unfavorable
foreign exchange rates and $12 million in after-tax charges
($0.04 per share) for targeted workforce reductions and non-cash
asset write-offs, partially offset by reduced net interest
expense. Diluted earnings per share was $0.67 in the current
year compared to $0.72 in the prior year, down 6.9%.
The translation impact of fluctuating exchange rates in Fiscal
2010 has had a relatively consistent impact on all components of
operating income on the consolidated statement of income. The
impact of cross currency sourcing of inventory, most notably in
the U.K., reduced gross profit and operating income but did not
affect sales.
OPERATING
RESULTS BY BUSINESS SEGMENT
North
American Consumer Products
Sales of the North American Consumer Products segment decreased
$14 million, or 1.9%, to $727 million. Net prices grew
5.4% reflecting the carryover impact of price increases taken
across the majority of the product portfolio in Fiscal 2009 to
help offset higher commodity costs. Volume decreased 4.9% as
increases from the new TGI
Fridays®
Skillet Meals and snacks were more than offset by declines
in
Heinz®
ketchup and Smart
Ones®
and Boston
Market®
frozen products. The decline in
Heinz®
ketchup is a result of reduced promotions and increased
competitor promotional activity. The Smart
Ones®
decrease was due to softness in the category and the timing of
price increases, and Boston
Market®
products were affected by aggressive competitor promotions.
Unfavorable Canadian exchange translation rates decreased sales
2.4%.
Gross profit increased $9 million, or 3.1%, to
$310 million, and the gross profit margin increased to
42.6% from 40.6%, as increased pricing and productivity
improvements more than offset increased commodity costs, the
impact from unfavorable volume and unfavorable foreign exchange
translation rates. Our disciplined approach to promotional
programs on our key brands has underpinned our improved margin
and absolute dollar gross profit and operating income growth.
Operating income
20
increased $16 million, or 9.6%, to $184 million,
reflecting the improvement in gross profit, reduced selling and
distribution expenses (S&D) and decreased
general and administrative expenses (G&A),
partially offset by increased marketing investment. The
improvements in S&D and G&A were a result of tight
cost control and reduced fuel costs.
Europe
Heinz Europe sales decreased $129 million, or 14.1%, to
$789 million. Unfavorable foreign exchange translation
rates decreased sales by 17.1%. Net pricing increased 5.1%,
driven by the carryover impact of price increases taken in
Fiscal 2009 as well as reduced promotional activity on
Heinz®
ketchup, beans and soup and frozen products in the U.K. Volume
decreased 4.3%, principally due to
Heinz®
beans, soup and pasta meals as well as frozen products in the
U.K., all of which reflect reduced promotions along with
increased competitor promotional activity. Volume improvements
were posted on
Pudliszki®
branded products in Poland, soups in Germany, and ketchup and
infant feeding products in Russia. Acquisitions increased sales
2.2%, due to the acquisition of the
Bénédicta®
sauce business in France in the second quarter of Fiscal 2009.
Gross profit decreased $73 million, or 20.4%, to
$284 million, and the gross profit margin decreased to
36.0% from 38.8%. The decline in gross profit is largely due to
unfavorable foreign exchange translation rates, the cross
currency rate movements in the British Pound versus the Euro and
U.S. dollar, increased commodity costs, lower volume and
decreased capacity utilization to reduce inventory levels in the
U.K. and Netherlands. These declines were partially mitigated by
higher pricing, productivity improvements and the favorable
impact from acquisitions. Operating income decreased
$31 million, or 19.8%, to $126 million, reflecting
unfavorable foreign currency translation and transaction impacts.
Asia/Pacific
Heinz Asia/Pacific sales increased $11 million, or 2.5%, to
$469 million. Unfavorable exchange translation rates
decreased sales by 12.0%. Pricing increased 4.1%, reflecting
current and prior year increases on
ABC®
syrup and sardines in Indonesia as well as reduced promotions
and the carryover impact of prior year price increases in New
Zealand. Volume decreased 2.2%, as significant growth in
Complan®
and Glucon
D®
nutritional beverages in India and
ABC®
syrup in Indonesia were more than offset by declines on Long
Fong®
frozen products in China and general softness in both Australia
and New Zealand, which are being impacted by competitive
activity. Acquisitions increased sales 12.7% due to the prior
year acquisitions of Golden Circle Limited, a health-oriented
fruit and juice business in Australia, and La Bonne
Cuisine, a chilled dip business in New Zealand.
Gross profit decreased $10 million, or 6.3%, to
$147 million, and the gross profit margin declined to 31.4%
from 34.3%. The decline in gross profit is due to unfavorable
foreign exchange translation rates, increased commodity costs,
which include the impact of cross-currency rates on inventory
costs, and unfavorable volume, particularly in our Long
Fong®
business where we revised our distribution system and
streamlined our product offerings. These declines were partially
offset by higher pricing. Acquisitions had a favorable impact on
gross profit dollars but negatively impacted gross profit
margin. Operating income decreased by $13 million, or
19.9%, to $53 million, primarily reflecting the decrease in
gross profit and increased S&D, largely related to
acquisitions.
U.S.
Foodservice
Sales of the U.S. Foodservice segment decreased
$7 million, or 2.0%, to $347 million. Pricing
increased sales 5.6%, largely due to the carryover impact of
prior year price increases on
Heinz®
ketchup, portion control condiments, tomato products and frozen
soup as well as decreased promotional spending on portion
control condiments. Volume decreased by 6.0%, due to declines in
ketchup and frozen soup, desserts and appetizers. The volume
reflects softness in the U.S. restaurant business,
promotional timing and increased competition on our non-branded
products. Divestitures reduced sales 1.6%.
21
Gross profit increased $9 million, or 11.0%, to
$88 million, and the gross profit margin increased to 25.4%
from 22.5%, as pricing and productivity improvements more than
offset unfavorable volume and decreased capacity utilization to
reduce inventory levels. Operating income increased
$6 million, or 25.0%, to $31 million, which is
primarily due to gross profit improvements and reduced S&D
reflecting distribution network upgrades last year. In addition,
Fiscal 2009 operating income was affected by a gain on the
sale of a small, non-core portion control business which was
partially offset by costs to streamline the business.
Rest of
World
Sales for Rest of World increased $23 million, or 20.9%, to
$136 million. Foreign exchange translation rates decreased
sales 3.1%. Higher pricing increased sales by 26.2%, largely due
to current and prior year price increases in Latin America taken
to mitigate raw material and labor inflation. Volume decreased
3.3% as declines in meat and seafood products in the Middle East
and frozen products in South Africa were partially offset by
increases in ketchup and baby food in Latin America.
Acquisitions increased sales 1.0% due to the prior year
acquisition of Papillon, a small chilled products business in
South Africa.
Gross profit increased $12 million, or 31.2%, to
$50 million, due mainly to increased pricing, partially
offset by increased commodity costs. Operating income increased
$5 million, or 43.1%, to $18 million.
Liquidity
and Financial Position
Cash provided by/(used for) operating activities was
$169 million in the current year and $(14) million in
the prior year. The improvement in the first quarter of Fiscal
2010 versus Fiscal 2009 was primarily due to favorable movements
in receivables and inventories which were partially offset by
reduced payables and the impact of foreign exchange.
Additionally, $132 million of cash was received in the
current quarter in connection with an accounts receivable
securitization program (see additional explanation below), which
offset discretionary contributions made in Fiscal 2010 to fund
the Companys pension plans. The Companys cash
conversion cycle improved 2 days, to 49 days in the
first quarter of Fiscal 2010. Receivables accounted for
3 days of the improvement, all of which is a result of the
accounts receivable securitization program. There was a
6 day improvement in inventories as a result of the
Companys efforts to reduce inventory levels. Accounts
payable partially offset these improvements, with a 7 day
decrease, a portion of which reflects inventory reductions and
the resulting decrease in the amounts due to suppliers.
During the first quarter of Fiscal 2010, the Company made
$144 million of contributions to the pension plans compared
to $28 million in the prior year. Of this $144 million
of payments, $132 million were discretionary contributions
that were made as a result of adverse conditions in the global
equity and bond markets. The Company expects to make
approximately $260 million of pension contributions in
Fiscal 2010, of which $200 million would be discretionary,
however actual contributions may be affected by pension asset
and liability valuations during the year.
On June 12, 2009, the Company entered into a three-year
$175 million accounts receivable securitization program.
Under the terms of the agreement, the Company sells, on a
revolving basis, its receivables to a wholly-owned,
bankruptcy-remote-subsidiary. This subsidiary then sells all of
the rights, title and interest in a pool of these receivables to
an unaffiliated entity. After the sale, the Company, as servicer
of the assets, collects the receivables on behalf of the
unaffiliated entity. The amount of receivables sold through this
program as of July 29, 2009 was $132 million.
Cash used for investing activities totaled $47 million
compared to $35 million last year. Net proceeds from
divestitures provided cash of $2 million in the first
quarter of Fiscal 2010, compared to $5 million in the prior
year from the sale of a small domestic portion control
foodservice business. Capital expenditures totaled
$49 million (2.0% of sales) compared to $42 million
(1.6% of sales) in the prior year, which is in line with our
full year estimate of approximately 2.5% of sales. Proceeds from
disposals of property, plant and equipment were $1 million
in both the current and prior year.
22
Cash provided by/(used for) financing activities totaled
$33 million compared to ($13) million last year.
Proceeds from long-term debt were $250 million in the
current year due to the issuance of $250 million of
7.125% notes due 2039 by H. J. Heinz Finance Company
(HFC), a subsidiary of Heinz, through a private
placement in July 2009. These notes are fully, unconditionally
and irrevocably guaranteed by the Company. The proceeds from the
notes were used for payment of the cash component of the
exchange transaction discussed below as well as various expenses
relating to the exchange, and for general corporate purposes.
Proceeds from long-term debt were $850 million in the prior
year. The prior year proceeds represent the sale of
$500 million 5.35% Notes due 2013 as well as the sale
of $350 million or 3,500 shares of HFC Series B
Preferred Stock. The proceeds from both of these prior year
transactions were used for general corporate purposes, including
the repayment of commercial paper and other indebtedness
incurred to redeem HFCs Series A Preferred Stock.
Payments on long-term debt were $27 million in the current
year compared to $337 million in the prior year. Net
payments on commercial paper and short-term debt were
$67 million this year compared to $398 million in the
prior year. Cash proceeds from option exercises provided
$2 million of cash in the current year, and the Company had
no treasury stock purchases in the current quarter. Cash
proceeds from option exercises, net of treasury stock purchases,
were $1 million in the prior year. Dividend payments
totaled $133 million this year, compared to
$131 million for the same period last year, reflecting an
increase in the annualized dividend per common share to $1.68.
On August 6, 2009, subsequent to the end of the first
quarter, HFC exchanged $681 million of 7.125% notes
due 2039 (of the same series as the notes issued in the July
2009 private placement), and $218 million of cash, for
$681 million of their outstanding 15.590% dealer
remarketable securities due December 1, 2020. In
conjunction with this exchange transaction the Company also
terminated its $175 million notional total rate of return
swap and received net cash proceeds of $48 million as well
as the return of the collateral from the counterparty. In
addition, HFC terminated a portion of the remarketing option by
paying the remarketing agent a cash payment of $89 million.
See Note 13, Derivative Financial Instruments and
Hedging Activities for additional information. The
exchange transaction will be accounted for as a modification of
debt.
At July 29, 2009, the Company had total debt of
$5.33 billion (including $229 million relating to the
SFAS No. 133 hedge accounting adjustments), cash and
cash equivalents of $551 million and $193 million of
restricted cash. Total debt balances since prior year end
increased due to the July 2009 note issuance discussed above.
The Company and HFC maintain $1.8 billion of credit
agreements, consisting of a $1.2 billion Three-Year Credit
Agreement which expires in April 2012 and a $600 million
364-Day
Credit Agreement. These agreements support the Companys
commercial paper borrowings and $230 million of Australian
denominated borrowings. As a result, the commercial paper and
Australian denominated borrowings are classified as long-term
debt based upon the Companys intent and ability to
refinance these borrowings on a long-term basis. These credit
agreements include a leverage ratio covenant in addition to
customary covenants, and the Company was in compliance with all
of its covenants as of July 29, 2009. In addition, the
Company maintains in excess of $500 million of other credit
facilities used primarily by the Companys foreign
subsidiaries.
Global capital and credit markets, including the domestic
commercial paper markets, experienced increased volatility late
in calendar year 2008. Despite this situation, the Company has
continued to have access to the commercial paper market. The
Company will continue to monitor the credit markets to determine
the appropriate mix of long-term debt and short-term debt going
forward. The Company believes that its strong operating cash
flow, existing cash balances, together with the credit
facilities and other available capital market financing, will be
adequate to meet the Companys cash requirements for
operations, including capital spending, debt maturities,
acquisitions, share repurchases and dividends to shareholders.
While the Company is confident that its needs can be financed,
there can be no assurance that continued or increased volatility
and disruption in the global capital and credit markets will not
impair its ability to access these markets on commercially
acceptable terms.
23
As of July 29, 2009, the Companys long-term debt
ratings at Moodys, Standard & Poors and
Fitch Rating have remained consistent at Baa2, BBB and BBB,
respectively.
Contractual
Obligations
The Company is obligated to make future payments under various
contracts such as debt agreements, lease agreements and
unconditional purchase obligations. In addition, the Company has
purchase obligations for materials, supplies, services, and
property, plant and equipment as part of the ordinary conduct of
business. A few of these obligations are long-term and are based
on minimum purchase requirements. Certain purchase obligations
contain variable pricing components, and, as a result, actual
cash payments are expected to fluctuate based on changes in
these variable components. Due to the proprietary nature of some
of the Companys materials and processes, certain supply
contracts contain penalty provisions for early terminations. The
Company does not believe that a material amount of penalties is
reasonably likely to be incurred under these contracts based
upon historical experience and current expectations. There have
been no material changes to contractual obligations during the
three months ended July 29, 2009. For additional
information, refer to pages
24-25 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended April 29, 2009.
As of the end of the first quarter, the total amount of gross
unrecognized tax benefits for uncertain tax positions, including
an accrual of related interest and penalties along with
positions only impacting the timing of tax benefits, was
approximately $103 million. The timing of payments will
depend on the progress of examinations with tax authorities. The
Company does not expect a significant tax payment related to
these obligations within the next year. The Company is unable to
make a reasonably reliable estimate as to when cash settlements
with taxing authorities may occur.
Recently
Issued Accounting Standards
On April 30, 2009, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements, for its non-financial
assets and liabilities that are recognized at fair value on a
non-recurring basis, including long-lived assets, goodwill,
other intangible assets, exit liabilities and purchase price
allocations. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally
accepted accounting principles, and expands disclosures about
fair value measurements. This statement applies whenever other
accounting pronouncements require or permit assets or
liabilities to be measured at fair value, but does not expand
the use of fair value to new accounting transactions. The
adoption of this standard did not have a material impact on the
Companys financial statements. See Note No. 12 for
additional information.
On April 30, 2009, the Company adopted
SFAS No. 141(R), Business Combinations and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements An Amendment of
ARB No. 51. SFAS No. 141(R) and its related
standards impact the accounting for any business combinations
completed after April 29, 2009. The nature and extent of
the impact will depend upon the terms and conditions of any such
transaction. SFAS No. 160 changes the accounting and
reporting for minority interests, which have been
recharacterized as noncontrolling interests and classified as a
component of equity. Prior period financial statements and
disclosures for existing minority interests have been restated
in accordance with SFAS No. 160. All other
requirements of SFAS No. 160 will be applied
prospectively. The adoption of SFAS No. 160 did not
have a material impact on the Companys financial
statements.
On April 30, 2009, the Company adopted FASB Staff Position
(FSP)
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. FSP
EITF 03-6-1
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. As a result of adopting FSP
EITF 03-6-1,
the Company has retrospectively adjusted its earnings per share
data for prior periods. The adoption of FSP
EITF 03-6-1
had no impact on net income and less than a $0.01 impact on
basic and diluted earnings per share for the first quarters of
Fiscal 2010 and 2009.
24
The adoption had a $0.01 unfavorable impact on both basic and
diluted earnings per share for full year Fiscal 2009, and is
expected to have a $0.01 unfavorable impact on both basic and
diluted earnings per share for full year Fiscal 2010. No
material impact is expected for Fiscal 2011 forward. See Note
No. 8 for additional information.
In December 2008, the Financial Accounting Standards Board
(FASB) issued FSP FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit
Plan Assets. This new standard requires enhanced
disclosures about plan assets in an employers defined
benefit pension or other postretirement plan. Companies will be
required to disclose information about how investment allocation
decisions are made, the fair value of each major category of
plan assets, the basis used to determine the overall expected
long-term rate of return on assets assumption, a description of
the inputs and valuation techniques used to develop fair value
measurements of plan assets, and significant concentrations of
credit risk. This statement is effective for fiscal years ending
after December 15, 2009. The Company is currently
evaluating the impact of adopting FSP FAS 132(R)-1 in the
fourth quarter of Fiscal 2010.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, which establishes general
standards of accounting for and disclosure of events or
transactions that occur after the balance sheet date but before
the financial statements are issued or are available to be
issued. SFAS No. 165 describes the circumstances under
which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements and provides guidance on the disclosures that an
entity should make about events or transactions that occurred
after the balance sheet date. The Company adopted
SFAS No. 165 during the first quarter of Fiscal 2010,
and its application had no impact on the Companys
consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140.
SFAS No. 166 removes the concept of a qualifying
special-purpose
entity and the exception from applying FASB Intrepretation No.
(FIN) 46(R) to variable interest entities that are
qualifying special-purpose entities. SFAS No. 166
requires that a transferor recognize and initially measure at
fair value all assets obtained and liabilities incurred as a
result of a transfer of financial assets accounted for as a
sale. The standard also requires additional disclosures about
any transfers of financial assets and a transferors
continuing involvement with transferred financial assets.
SFAS No. 166 is effective for fiscal years beginning
after November 15, 2009, and interim periods within those
fiscal years. The Company is currently evaluating the impact of
adopting SFAS No. 166 on April 29, 2010, the
first day of Fiscal 2011.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R),
which changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to
consolidate another entity is based on, among other things, the
purpose and design of the other entity and the reporting
entitys ability to direct the activities of the other
entity that most significantly impact its economic performance.
SFAS No. 167 also requires additional disclosures
about a reporting entitys involvement with variable
interest entities and any significant changes in risk exposure
due to that involvement. A reporting entity will be required to
disclose how its involvement with a variable interest entity
affects the reporting entitys financial statements.
SFAS No. 167 is effective for fiscal years beginning
after November 15, 2009, and interim periods within those
fiscal years. The Company is currently evaluating the impact of
adopting SFAS No. 167 on April 29, 2010, the
first day of Fiscal 2011.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162. The FASB
Accounting Standards Codification (the Codification)
will become the source of authoritative generally accepted
accounting principles in the United States of America. The
Codification changes the referencing of financial standards but
is not intended to change or alter existing U.S. GAAP. The
Codification is effective for interim or annual financial
periods ending after September 15, 2009 and will be
effective for the Company in the second quarter of Fiscal 2010.
25
CAUTIONARY
STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
Statements about future growth, profitability, costs,
expectations, plans, or objectives included in this report,
including in managements discussion and analysis, and the
financial statements and footnotes, are forward-looking
statements based on managements estimates, assumptions,
and projections. These forward-looking statements are subject to
risks, uncertainties, assumptions and other important factors,
many of which may be beyond the Companys control and could
cause actual results to differ materially from those expressed
or implied in this report and the financial statements and
footnotes. Uncertainties contained in such statements include,
but are not limited to,
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sales, earnings, and volume growth,
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general economic, political, and industry conditions, including
those that could impact consumer spending,
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competitive conditions, which affect, among other things,
customer preferences and the pricing of products, production,
and energy costs,
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competition from lower-priced private label brands,
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increases in the cost and restrictions on the availability of
raw materials including agricultural commodities and packaging
materials, the ability to increase product prices in response,
and the impact on profitability,
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the ability to identify and anticipate and respond through
innovation to consumer trends,
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the need for product recalls,
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the ability to maintain favorable supplier and customer
relationships, and the financial viability of those suppliers
and customers,
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currency valuations and interest rate fluctuations,
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changes in credit ratings, leverage, and economic conditions,
and the impact of these factors on our cost of borrowing and
access to capital markets,
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our ability to effectuate our strategy, which includes our
continued evaluation of potential acquisition opportunities,
including strategic acquisitions, joint ventures, divestitures
and other initiatives, including our ability to identify,
finance and complete these initiatives, and our ability to
realize anticipated benefits from them,
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the ability to successfully complete cost reduction programs and
increase productivity,
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the ability to effectively integrate acquired businesses,
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new products, packaging innovations, and product mix,
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the effectiveness of advertising, marketing, and promotional
programs,
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supply chain efficiency,
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cash flow initiatives,
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risks inherent in litigation, including tax litigation,
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the ability to further penetrate and grow and the risk of doing
business in international markets, economic or political
instability in those markets, particularly in Venezuela, and the
performance of business in hyperinflationary environments,
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changes in estimates in critical accounting judgments and
changes in laws and regulations, including tax laws,
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the success of tax planning strategies,
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26
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the possibility of increased pension expense and contributions
and other people-related costs,
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the potential adverse impact of natural disasters, such as
flooding and crop failures,
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the ability to implement new information systems and potential
disruptions due to failures in technology systems,
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with regard to dividends, dividends must be declared by the
Board of Directors and will be subject to certain legal
requirements being met at the time of declaration, as well as
our Boards view of our anticipated cash needs, and
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other factors described in Risk Factors and
Cautionary Statement Relevant to Forward-Looking
Information in the Companys
Form 10-K
for the fiscal year ended April 29, 2009.
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The forward-looking statements are and will be based on
managements then current views and assumptions regarding
future events and speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
the securities laws.
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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There have been no material changes in the Companys market
risk during the first quarter ended July 29, 2009. For
additional information, refer to pages
25-27 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended April 29, 2009.
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Item 4.
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Controls
and Procedures
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(a) Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures, as of the end
of the period covered by this report, were effective and
provided reasonable assurance that the information required to
be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is (i) recorded, processed,
summarized, and reported within the time periods specified in
the SECs rules and forms, and (ii) accumulated and
communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
No change in the Companys internal control over financial
reporting occurred during the Companys most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
27
PART IIOTHER
INFORMATION
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Item 1.
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Legal
Proceedings
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Nothing to report under this item.
There have been no material changes in our risk factors from
those disclosed in Part I, Item 1A to our Annual
Report on
Form 10-K
for the fiscal year ended April 29, 2009. The risk factors
disclosed in Part I, Item 1A to our Annual Report on
Form 10-K
for the fiscal year ended April 29, 2009, in addition to
the other information set forth in this report, could materially
affect our business, financial condition, or results of
operations. Additional risks and uncertainties not currently
known to the Company or that the Company currently deems to be
immaterial also may materially adversely affect our business,
financial condition, or results of operations.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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The Board of Directors authorized a share repurchase program on
May 31, 2006 for a maximum of 25 million shares. The
Company did not repurchase any shares of its common stock during
the first quarter of Fiscal 2010. As of July 29, 2009, the
maximum number of shares that may yet be purchased under the
2006 program is 6,716,192.
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Item 3.
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Defaults
upon Senior Securities
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Nothing to report under this item.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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Nothing to report under this item.
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Item 5.
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Other
Information
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Nothing to report under this item.
Exhibits required to be furnished by Item 601 of
Regulation S-K
are listed below. The Company may have omitted certain exhibits
in accordance with Item 601(b)(4)(iii)(A) of
Regulation S-K
and any exhibits filed pursuant to Item 601(b)(2) of
Regulation S-K
may omit certain schedules. The Company agrees to furnish such
documents to the Commission upon request. Documents not
designated as being incorporated herein by reference are set
forth herewith. The paragraph numbers correspond to the exhibit
numbers designated in Item 601 of
Regulation S-K.
3(ii). The Companys By-Laws, as
amended and effective August 12, 2009.
10(a). Management contracts and
compensatory plans:
(i). Form of Fiscal Year 2010 Restricted
Stock Unit Award and Agreement (U.S. Employees).
(ii). Form of Fiscal Year 2010 Restricted
Stock Unit Award and Agreement
(Non-U.S. Employees).
12. Computation of Ratios of Earnings to
Fixed Charges.
31(a). Rule 13a-14(a)/15d-14(a)
Certification by the Chief Executive Officer.
31(b). Rule 13a-14(a)/15d-14(a)
Certification by the Chief Financial Officer.
32(a). 18 U.S.C. Section 1350
Certification by the Chief Executive Officer.
28
32(b). 18 U.S.C. Section 1350
Certification by the Chief Financial Officer.
101.INS XBRL Instance Document*
101.SCH XBRL Schema Document*
101.CAL XBRL Calculation Linkbase Document*
101.LAB XBRL Labels Linkbase Document*
101.PRE XBRL Presentation Linkbase Document*
101.DEF XBRL Definition Linkbase Document*
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* |
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In accordance with
Regulation S-T,
the XBRL-related information in Exhibit 101 to this
Quarterly Report on
Form 10-Q
shall be deemed to be furnished and not
filed. |
29
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
H. J. HEINZ COMPANY
(Registrant)
Date: August 20, 2009
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By:
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/s/ Arthur
B. Winkleblack
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Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 20, 2009
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By:
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/s/ Edward
J. McMenamin
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Edward J. McMenamin
Senior Vice PresidentFinance
and Corporate Controller
(Principal Accounting Officer)
30
EXHIBIT INDEX
DESCRIPTION OF EXHIBIT
Exhibits required to be furnished by Item 601 of
Regulation S-K
are listed below. Documents not designated as being incorporated
herein by reference are furnished herewith. The Company may have
omitted certain exhibits in accordance with
Item 601(b)(4)(iii)(A) of
Regulation S-K
and any exhibits filed pursuant to Item 601(b)(2) of
Regulation S-K
may omit certain schedules. The Company agrees to furnish such
documents to the Commission upon request. The paragraph numbers
correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
3(ii). The Companys By-Laws, as
amended and effective August 12, 2009.
10(a). Management contracts and
compensatory plans:
(i). Form of Fiscal Year 2010 Restricted
Stock Unit Award and Agreement (U.S. Employees).
(ii). Form of Fiscal Year 2010 Restricted
Stock Unit Award and Agreement
(Non-U.S. Employees).
12. Computation of Ratios of Earnings to
Fixed Charges.
31(a). Rule
13a-14(a)/15d-14(a)
Certification by the Chief Executive Officer.
31(b). Rule
13a-14(a)/15d-14(a)
Certification by the Chief Financial Officer.
32(a). 18 U.S.C. Section 1350
Certification by the Chief Executive Officer.
32(b). 18 U.S.C. Section 1350
Certification by the Chief Financial Officer.
101.INS XBRL Instance Document*
101.SCH XBRL Schema Document*
101.CAL XBRL Calculation Linkbase Document*
101.LAB XBRL Labels Linkbase Document*
101.PRE XBRL Presentation Linkbase Document*
101.DEF XBRL Definition Linkbase Document*
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* |
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In accordance with
Regulation S-T,
the XBRL-related information in Exhibit 101 to this
Quarterly Report on
Form 10-Q
shall be deemed to be furnished and not
filed. |