e10vq
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
|
|
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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
|
For the quarterly period ended
October 27, 2010
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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
|
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)
|
|
|
PENNSYLVANIA
(State or other jurisdiction
of
incorporation or organization)
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|
25-0542520
(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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|
|
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Large
accelerated filer X
|
Accelerated
filer
|
Non-accelerated
filer
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Smaller
reporting company
|
(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 October 27, 2010
was 320,747,443 shares.
TABLE OF CONTENTS
PART IFINANCIAL
INFORMATION
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|
Item 1.
|
Financial
Statements
|
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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|
|
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Second Quarter Ended
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October 27, 2010
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|
|
October 28, 2009
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|
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FY 2011
|
|
|
FY 2010
|
|
|
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(Unaudited)
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|
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(In thousands, Except per Share Amounts)
|
|
|
Sales
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|
$
|
2,614,623
|
|
|
$
|
2,646,786
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|
Cost of products sold
|
|
|
1,647,996
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|
|
|
1,693,531
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|
|
|
|
|
|
|
|
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Gross profit
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|
|
966,627
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|
|
|
953,255
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Selling, general and administrative expenses
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|
|
549,828
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|
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544,855
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|
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|
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|
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Operating income
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|
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416,799
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|
|
408,400
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Interest income
|
|
|
4,578
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|
|
|
7,516
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Interest expense
|
|
|
67,328
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|
|
|
71,625
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|
Other expense, net
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7,519
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|
|
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9,625
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|
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|
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|
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Income from continuing operations before income taxes
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|
346,530
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|
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334,666
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Provision for income taxes
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92,588
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|
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85,700
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|
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|
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Income from continuing operations
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|
253,942
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|
|
|
248,966
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|
Loss from discontinued operations, net of tax
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|
|
|
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|
|
(11,639
|
)
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|
|
|
|
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Net income
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|
|
253,942
|
|
|
|
237,327
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Less: Net income attributable to the noncontrolling interest
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2,507
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5,892
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|
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|
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Net income attributable to H. J. Heinz Company
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$
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251,435
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$
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231,435
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Income/(loss) per common share:
|
|
|
|
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|
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Diluted
|
|
|
|
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|
|
|
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Continuing operations attributable to H. J. Heinz Company common
shareholders
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$
|
0.78
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|
$
|
0.76
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Discontinued operations attributable to H. J. Heinz Company
common shareholders
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(0.04
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)
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|
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|
|
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Net income attributable to H. J. Heinz Company common
shareholders
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|
$
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0.78
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|
$
|
0.73
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|
|
|
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|
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|
Average common shares outstandingdiluted
|
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|
322,465
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|
|
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317,405
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|
|
|
|
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Basic
|
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|
|
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|
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Continuing operations attributable to H. J. Heinz Company common
shareholders
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|
$
|
0.78
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|
|
$
|
0.77
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|
Discontinued operations attributable to H. J. Heinz Company
common shareholders
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|
|
|
|
|
|
(0.04
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)
|
|
|
|
|
|
|
|
|
|
Net income attributable to H. J. Heinz Company common
shareholders
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|
$
|
0.78
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|
|
$
|
0.73
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|
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|
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|
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Average common shares outstandingbasic
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319,467
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315,477
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|
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|
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Cash dividends per share
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$
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0.45
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$
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0.42
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Amounts attributable to H. J. Heinz Company common shareholders:
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Income from continuing operations, net of tax
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|
$
|
251,435
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|
|
$
|
243,074
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|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
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(11,639
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)
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|
|
|
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|
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Net income
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$
|
251,435
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|
$
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231,435
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(Per share amounts may not add due to rounding)
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See Notes to Condensed Consolidated Financial Statements.
2
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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|
|
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Six Months Ended
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October 27, 2010
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|
|
October 28, 2009
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FY 2011
|
|
|
FY 2010
|
|
|
|
(Unaudited)
|
|
|
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(In thousands, Except per Share Amounts)
|
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Sales
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|
$
|
5,095,448
|
|
|
$
|
5,088,471
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|
Cost of products sold
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|
3,220,844
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|
|
3,262,913
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|
|
|
|
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Gross profit
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|
|
1,874,604
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|
|
|
1,825,558
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Selling, general and administrative expenses
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1,052,090
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|
|
|
1,048,081
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|
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|
|
|
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Operating income
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|
|
822,514
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|
|
|
777,477
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|
Interest income
|
|
|
8,695
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|
|
|
36,175
|
|
Interest expense
|
|
|
134,080
|
|
|
|
154,614
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|
Other expense, net
|
|
|
17,808
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|
|
|
15,040
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|
|
|
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|
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Income from continuing operations before income taxes
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|
|
679,321
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|
|
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643,998
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|
Provision for income taxes
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|
|
176,784
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|
|
|
173,778
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|
|
|
|
|
|
|
|
|
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Income from continuing operations
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|
|
502,537
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|
|
|
470,220
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|
Loss from discontinued operations, net of tax
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|
|
|
|
|
|
(13,801
|
)
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|
|
|
|
|
|
|
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|
Net income
|
|
|
502,537
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|
|
|
456,419
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|
Less: Net income attributable to the noncontrolling interest
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|
|
10,675
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|
|
|
12,420
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to H. J. Heinz Company
|
|
$
|
491,862
|
|
|
$
|
443,999
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) per common share:
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Continuing operations attributable to H. J. Heinz Company common
shareholders
|
|
$
|
1.53
|
|
|
$
|
1.44
|
|
Discontinued operations attributable to H. J. Heinz Company
common shareholders
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to H. J. Heinz Company common
shareholders
|
|
$
|
1.53
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingdiluted
|
|
|
321,788
|
|
|
|
317,395
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Continuing operations attributable to H. J. Heinz Company common
shareholders
|
|
$
|
1.54
|
|
|
$
|
1.45
|
|
Discontinued operations attributable to H. J. Heinz Company
common shareholders
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to H. J. Heinz Company common
shareholders
|
|
$
|
1.54
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingbasic
|
|
|
318,825
|
|
|
|
315,288
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.90
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to H. J. Heinz Company common shareholders:
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
491,862
|
|
|
$
|
457,800
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(13,801
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
491,862
|
|
|
$
|
443,999
|
|
|
|
|
|
|
|
|
|
|
(Per share amounts may not add due to rounding)
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
October 27, 2010
|
|
|
April 28, 2010*
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In Thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
665,871
|
|
|
$
|
483,253
|
|
Trade receivables, net
|
|
|
805,711
|
|
|
|
794,845
|
|
Other receivables, net
|
|
|
233,205
|
|
|
|
250,493
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods and
work-in-process
|
|
|
1,120,877
|
|
|
|
979,543
|
|
Packaging material and ingredients
|
|
|
238,375
|
|
|
|
269,584
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
1,359,252
|
|
|
|
1,249,127
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
148,864
|
|
|
|
130,819
|
|
Other current assets
|
|
|
109,147
|
|
|
|
142,588
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,322,050
|
|
|
|
3,051,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
4,645,947
|
|
|
|
4,465,640
|
|
Less accumulated depreciation
|
|
|
2,513,951
|
|
|
|
2,373,844
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
2,131,996
|
|
|
|
2,091,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,819,283
|
|
|
|
2,770,918
|
|
Trademarks, net
|
|
|
912,280
|
|
|
|
895,138
|
|
Other intangibles, net
|
|
|
401,085
|
|
|
|
402,576
|
|
Other non-current assets
|
|
|
854,811
|
|
|
|
864,158
|
|
|
|
|
|
|
|
|
|
|
Total other non-current assets
|
|
|
4,987,459
|
|
|
|
4,932,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,441,505
|
|
|
$
|
10,075,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
See Notes to Condensed Consolidated Financial Statements.
4
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
October 27, 2010
|
|
|
April 28, 2010*
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In Thousands)
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
61,370
|
|
|
$
|
43,853
|
|
Portion of long-term debt due within one year
|
|
|
836,652
|
|
|
|
15,167
|
|
Trade payables
|
|
|
1,038,891
|
|
|
|
1,007,517
|
|
Other payables
|
|
|
135,304
|
|
|
|
121,997
|
|
Accrued marketing
|
|
|
299,414
|
|
|
|
288,579
|
|
Other accrued liabilities
|
|
|
575,202
|
|
|
|
667,653
|
|
Income taxes
|
|
|
65,253
|
|
|
|
30,593
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,012,086
|
|
|
|
2,175,359
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,553,438
|
|
|
|
4,559,152
|
|
Deferred income taxes
|
|
|
722,742
|
|
|
|
665,089
|
|
Non-pension postretirement benefits
|
|
|
216,002
|
|
|
|
216,423
|
|
Other non-current liabilities
|
|
|
476,995
|
|
|
|
511,192
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
4,969,177
|
|
|
|
5,951,856
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
107,844
|
|
|
|
107,844
|
|
Additional capital
|
|
|
626,530
|
|
|
|
657,596
|
|
Retained earnings
|
|
|
7,058,783
|
|
|
|
6,856,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,793,157
|
|
|
|
7,621,473
|
|
Less:
|
|
|
|
|
|
|
|
|
Treasury stock at cost (110,349 shares at October 27,
2010 and 113,404 shares at April 28, 2010)
|
|
|
4,610,640
|
|
|
|
4,750,547
|
|
Accumulated other comprehensive loss
|
|
|
791,247
|
|
|
|
979,581
|
|
|
|
|
|
|
|
|
|
|
Total H. J. Heinz Company shareholders equity
|
|
|
2,391,270
|
|
|
|
1,891,345
|
|
Noncontrolling interest
|
|
|
68,972
|
|
|
|
57,151
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
2,460,242
|
|
|
|
1,948,496
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
10,441,505
|
|
|
$
|
10,075,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
See Notes to Condensed Consolidated Financial Statements.
5
H. J.
HEINZ COMPANY AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(Unaudited)
|
|
|
|
(Thousands of Dollars)
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
502,537
|
|
|
$
|
456,419
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
120,176
|
|
|
|
124,107
|
|
Amortization
|
|
|
20,855
|
|
|
|
23,994
|
|
Deferred tax provision
|
|
|
105,125
|
|
|
|
113,365
|
|
Pension contributions
|
|
|
(11,488
|
)
|
|
|
(227,904
|
)
|
Other items, net
|
|
|
29,612
|
|
|
|
107,274
|
|
Changes in current assets and liabilities, excluding effects of
acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
Receivables (includes proceeds from securitization)
|
|
|
36,164
|
|
|
|
155,582
|
|
Inventories
|
|
|
(87,831
|
)
|
|
|
(168,549
|
)
|
Prepaid expenses and other current assets
|
|
|
(7,621
|
)
|
|
|
4,013
|
|
Accounts payable
|
|
|
10,252
|
|
|
|
(10,297
|
)
|
Accrued liabilities
|
|
|
(107,278
|
)
|
|
|
(52,774
|
)
|
Income taxes
|
|
|
21,584
|
|
|
|
(16,354
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
632,087
|
|
|
|
508,876
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(122,102
|
)
|
|
|
(96,170
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
3,750
|
|
|
|
964
|
|
Change in restricted cash
|
|
|
|
|
|
|
192,736
|
|
Other items, net
|
|
|
506
|
|
|
|
5,516
|
|
|
|
|
|
|
|
|
|
|
Cash (used for)/provided by investing activities
|
|
|
(117,846
|
)
|
|
|
103,046
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(25,732
|
)
|
|
|
(359,340
|
)
|
Proceeds from long-term debt
|
|
|
20,018
|
|
|
|
433,356
|
|
Net payments on commercial paper and short-term debt
|
|
|
(186,939
|
)
|
|
|
(427,399
|
)
|
Dividends
|
|
|
(288,592
|
)
|
|
|
(266,240
|
)
|
Exercise of stock options
|
|
|
91,497
|
|
|
|
5,129
|
|
Other items, net
|
|
|
23,658
|
|
|
|
13,201
|
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(366,090
|
)
|
|
|
(601,293
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
34,467
|
|
|
|
76,810
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
182,618
|
|
|
|
87,439
|
|
Cash and cash equivalents at beginning of year
|
|
|
483,253
|
|
|
|
373,145
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
665,871
|
|
|
$
|
460,584
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
6
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 2011 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 28, 2010.
|
|
(2)
|
Recently
Issued Accounting Standards
|
In June 2009, the Financial Accounting Standards Board
(FASB) issued an amendment to the accounting and
disclosure requirements for transfers of financial assets. This
amendment removes the concept of a qualifying special-purpose
entity and 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. This amendment also requires additional
disclosures about any transfers of financial assets and a
transferors continuing involvement with transferred
financial assets. The Company adopted this amendment on
April 29, 2010, the first day of Fiscal 2011. This adoption
did not have a material impact on the Companys financial
statements. Refer to Note 13 for additional information.
In June 2009, the FASB issued an amendment to the accounting and
disclosure requirements for variable interest entities. This
amendment 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.
The amendment 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 is required to disclose how
its involvement with a variable interest entity affects the
reporting entitys financial statements. The Company
adopted this amendment on April 29, 2010, the first day of
Fiscal 2011. This adoption did not have a material impact on the
Companys financial statements.
|
|
(3)
|
Discontinued
Operations
|
During the second quarter of Fiscal 2010, the Company completed
the sale of its non-core Kabobs frozen hors doeuvres
business which was previously reported within the
U.S. Foodservice segment, resulting in a $15.0 million
pre-tax ($10.9 million after-tax) loss which has been
recorded in discontinued operations. Also during the third
quarter of Fiscal 2010, the Company completed the sale of its
Appetizers And, Inc. business which was previously reported
within the U.S. Foodservice segment and the sale of its
private label frozen desserts business in the U.K.
In accordance with accounting principles generally accepted in
the United States of America, the operating results related to
these businesses have been included in discontinued operations
in the Companys consolidated statements of income for all
periods presented. These
7
discontinued operations generated sales of $26.6 million
and a net loss of $0.7 million (net of a $0.4 million
tax benefit) for the second quarter ended October 28, 2009.
These discontinued operations generated sales of
$52.8 million and a net loss of $2.9 million (net of a
$1.3 million tax benefit) for the six months ended
October 28, 2009.
|
|
(4)
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the six months
ended October 27, 2010, 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
|
|
Acquisitions
|
|
|
6,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,378
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
(895
|
)
|
|
|
(3,030
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,925
|
)
|
Disposals
|
|
|
|
|
|
|
(483
|
)
|
|
|
|
|
|
|
(2,849
|
)
|
|
|
|
|
|
|
(3,332
|
)
|
Translation adjustments
|
|
|
21,672
|
|
|
|
17,124
|
|
|
|
44,233
|
|
|
|
|
|
|
|
980
|
|
|
|
84,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 28, 2010
|
|
|
1,102,891
|
|
|
|
1,106,744
|
|
|
|
289,425
|
|
|
|
257,674
|
|
|
|
14,184
|
|
|
|
2,770,918
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278
|
)
|
Translation adjustments
|
|
|
(2,506
|
)
|
|
|
41,092
|
|
|
|
9,698
|
|
|
|
|
|
|
|
359
|
|
|
|
48,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 27, 2010
|
|
$
|
1,100,385
|
|
|
$
|
1,147,558
|
|
|
$
|
299,123
|
|
|
$
|
257,674
|
|
|
$
|
14,543
|
|
|
$
|
2,819,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the purchase accounting adjustments reflected in the
above table relate to acquisitions completed prior to
April 30, 2009, the first day of Fiscal 2010. Total
goodwill accumulated impairment losses for the Company were
$84.7 million consisting of $54.5 million for Europe,
$2.7 million for Asia/Pacific and $27.4 million for
Rest of World as of April 29, 2009, April 28, 2010 and
October 27, 2010.
Trademarks and other intangible assets at October 27, 2010
and April 28, 2010, subject to amortization expense, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27, 2010
|
|
|
April 28, 2010
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
|
(Thousands of Dollars)
|
|
|
Trademarks
|
|
$
|
285,165
|
|
|
$
|
(77,480
|
)
|
|
$
|
207,685
|
|
|
$
|
267,435
|
|
|
$
|
(73,500
|
)
|
|
$
|
193,935
|
|
Licenses
|
|
|
208,186
|
|
|
|
(155,368
|
)
|
|
|
52,818
|
|
|
|
208,186
|
|
|
|
(152,509
|
)
|
|
|
55,677
|
|
Recipes/processes
|
|
|
78,835
|
|
|
|
(29,067
|
)
|
|
|
49,768
|
|
|
|
78,080
|
|
|
|
(26,714
|
)
|
|
|
51,366
|
|
Customer-related assets
|
|
|
183,568
|
|
|
|
(48,716
|
)
|
|
|
134,852
|
|
|
|
180,302
|
|
|
|
(43,316
|
)
|
|
|
136,986
|
|
Other
|
|
|
67,877
|
|
|
|
(54,947
|
)
|
|
|
12,930
|
|
|
|
66,807
|
|
|
|
(54,157
|
)
|
|
|
12,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
823,631
|
|
|
$
|
(365,578
|
)
|
|
$
|
458,053
|
|
|
$
|
800,810
|
|
|
$
|
(350,196
|
)
|
|
$
|
450,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for trademarks and other intangible assets
was $6.7 million and $7.3 million for the second
quarters ended October 27, 2010 and October 28, 2009,
respectively, and $13.8 million and $13.9 million for
the six months ended October 27, 2010 and October 28,
2009, respectively. Based upon the amortizable intangible assets
recorded on the balance sheet as of October 27, 2010,
annual amortization expense for each of the next five fiscal
years is estimated to be approximately $28 million.
Intangible assets not subject to amortization at
October 27, 2010 totaled $855.3 million and consisted
of $704.6 million of trademarks, $117.2 million of
recipes/processes, and $33.5 million
8
of licenses. Intangible assets not subject to amortization at
April 28, 2010 totaled $847.1 million and consisted of
$701.2 million of trademarks, $113.8 million of
recipes/processes, and $32.1 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 $60.4 million and
$57.1 million, on October 27, 2010 and April 28,
2010, respectively. The amount of unrecognized tax benefits
that, if recognized, would impact the effective tax rate was
$40.1 million and $38.2 million, on October 27,
2010 and April 28, 2010, respectively. It is reasonably
possible that the amount of unrecognized tax benefits will
decrease by as much as $31.3 million in the next
12 months primarily due to the progression of federal,
state and foreign audits in process along with the expiration of
statutes of limitations in various foreign and state tax
jurisdictions.
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 at
October 27, 2010 was $17.9 million and
$1.1 million, respectively. The corresponding amounts of
accrued interest and penalties at April 28, 2010 were
$17.3 million and $1.2 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 national income tax matters for
years through Fiscal 2008 for the United Kingdom, through Fiscal
2007 for the U.S., through Fiscal 2006 in Australia and Canada,
and through Fiscal 2005 for Italy.
The effective tax rate for the six months ended October 27,
2010 was 26.0% compared to 27.0% last year. The decrease in the
effective tax rate is primarily the result of the current year
release of valuation allowances related to state tax loss and
credit carryforwards resulting from a reorganization plan,
increased benefits from foreign tax planning, and increased
profits in lower tax rate jurisdictions. These were partially
offset by higher repatriation costs in the current year, a
current year accrual for a state tax uncertainty, and benefits
in the prior year resulting from resolutions and settlements of
federal, state, and foreign uncertain tax matters.
|
|
(6)
|
Employees
Stock Incentive Plans and Management Incentive Plans
|
At October 27, 2010, 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 61 to 66 of the Companys Annual Report
on
Form 10-K
for the fiscal year ended April 28, 2010. The compensation
cost related to these plans recognized in general and
administrative expenses (G&A), and the related
tax benefit was $10.7 million and $3.5 million for the
second quarter ended October 27, 2010 and
$15.9 million and $5.1 million for the six months
ended October 27, 2010, respectively. The compensation cost
related to these plans recognized in G&A, and the related
tax benefit was $11.0 million and $3.5 million for the
second quarter ended October 28, 2009 and
$17.3 million and $5.4 million for the six months
ended October 28, 2009, respectively.
The Company granted 1,730,515 and 1,737,557 option awards to
employees during the second quarters ended October 27, 2010
and October 28, 2009, respectively. The weighted average
fair value per share of the options granted during the six
months ended October 27, 2010 and October 28, 2009, as
computed using the Black-Scholes pricing model, was $5.36 and
$4.70, respectively. These awards were sourced from the 2000
Stock Option Plan and Fiscal Year 2003
9
Stock Incentive Plan. The weighted average assumptions used to
estimate the fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
October 27,
|
|
October 28,
|
|
|
2010
|
|
2009
|
|
Dividend yield
|
|
|
3.9
|
%
|
|
|
4.3
|
%
|
Expected volatility
|
|
|
20.5
|
%
|
|
|
20.2
|
%
|
Weighted-average expected life (in years)
|
|
|
5.5
|
|
|
|
5.5
|
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.7
|
%
|
The Company granted 448,323 and 485,986 restricted stock units
to employees during the six months ended October 27, 2010
and October 28, 2009 at weighted average grant prices of
$46.38 and $39.00, respectively.
In the first quarter of Fiscal 2011, 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 two-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 28, 2010. 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 2012 year end, plus
dividends paid over the two year performance period. The
compensation cost related to LTPP awards recognized in G&A,
and the related tax benefit was $9.8 million and
$3.5 million for the second quarter ended October 27,
2010 and $12.6 million and $4.4 million for the six
months ended October 27, 2010, respectively. The
compensation cost related to LTPP awards recognized in G&A,
and the related tax benefit was $5.4 million and
$1.9 million for the second quarter ended October 28,
2009 and $8.0 million and $2.7 million for the six
months ended October 28, 2009, respectively.
10
|
|
(7)
|
Pensions
and Other Post-Retirement Benefits
|
The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
Pension Benefits
|
|
|
Other Retiree Benefits
|
|
|
|
(Thousands of Dollars)
|
|
|
Service cost
|
|
$
|
8,096
|
|
|
$
|
7,997
|
|
|
$
|
1,567
|
|
|
$
|
1,498
|
|
Interest cost
|
|
|
35,512
|
|
|
|
37,922
|
|
|
|
3,162
|
|
|
|
3,770
|
|
Expected return on plan assets
|
|
|
(57,278
|
)
|
|
|
(53,455
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost/(credit)
|
|
|
617
|
|
|
|
539
|
|
|
|
(1,291
|
)
|
|
|
(949
|
)
|
Amortization of unrecognized loss
|
|
|
19,388
|
|
|
|
13,615
|
|
|
|
401
|
|
|
|
135
|
|
Settlement charge
|
|
|
|
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
6,335
|
|
|
|
8,707
|
|
|
|
3,839
|
|
|
|
4,454
|
|
Less periodic benefit cost associated with discontinued
operations
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic benefit cost associated with continuing operations
|
|
$
|
6,335
|
|
|
$
|
8,309
|
|
|
$
|
3,839
|
|
|
$
|
4,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
Pension Benefits
|
|
|
Other Retiree Benefits
|
|
|
|
(Thousands of Dollars)
|
|
|
Service cost
|
|
$
|
15,833
|
|
|
$
|
15,786
|
|
|
$
|
3,128
|
|
|
$
|
2,969
|
|
Interest cost
|
|
|
69,791
|
|
|
|
75,000
|
|
|
|
6,316
|
|
|
|
7,497
|
|
Expected return on plan assets
|
|
|
(112,570
|
)
|
|
|
(105,775
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost/(credit)
|
|
|
1,208
|
|
|
|
1,077
|
|
|
|
(2,581
|
)
|
|
|
(1,901
|
)
|
Amortization of unrecognized loss
|
|
|
38,356
|
|
|
|
26,935
|
|
|
|
802
|
|
|
|
270
|
|
Settlement charge
|
|
|
|
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
12,618
|
|
|
|
15,112
|
|
|
|
7,665
|
|
|
|
8,835
|
|
Less periodic benefit cost associated with discontinued
operations
|
|
|
|
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic benefit cost associated with continuing operations
|
|
$
|
12,618
|
|
|
$
|
14,323
|
|
|
$
|
7,665
|
|
|
$
|
8,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first six months of Fiscal 2011, the Company
contributed $11 million to these defined benefit plans. The
Company expects to make combined cash contributions of less than
$50 million in Fiscal 2011; however actual contributions
may be affected by pension asset and liability valuations during
the year.
11
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 and sells products in all of the Companys
categories.
Asia/PacificThis segment includes the Companys
operations in Australia, New Zealand, 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, frozen
soups and desserts.
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. Inter-segment revenues, items below
the operating income line of the consolidated statements of
income, and certain costs associated with the corporation-wide
productivity initiatives in the prior year are not presented by
segment, since they are not reflected in the measure of segment
profitability reviewed by the Companys management.
12
The following table presents information about the
Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(Thousands of Dollars)
|
|
|
Net external sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Consumer Products
|
|
$
|
802,925
|
|
|
$
|
791,511
|
|
|
$
|
1,564,737
|
|
|
$
|
1,518,753
|
|
Europe
|
|
|
798,119
|
|
|
|
841,871
|
|
|
|
1,511,442
|
|
|
|
1,614,791
|
|
Asia/Pacific
|
|
|
531,365
|
|
|
|
491,957
|
|
|
|
1,089,545
|
|
|
|
961,191
|
|
U.S. Foodservice
|
|
|
362,418
|
|
|
|
373,275
|
|
|
|
690,952
|
|
|
|
709,458
|
|
Rest of World
|
|
|
119,796
|
|
|
|
148,172
|
|
|
|
238,772
|
|
|
|
284,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
2,614,623
|
|
|
$
|
2,646,786
|
|
|
$
|
5,095,448
|
|
|
$
|
5,088,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Consumer Products
|
|
$
|
203,964
|
|
|
$
|
200,868
|
|
|
$
|
395,044
|
|
|
$
|
385,073
|
|
Europe
|
|
|
135,756
|
|
|
|
135,659
|
|
|
|
250,792
|
|
|
|
263,995
|
|
Asia/Pacific
|
|
|
58,174
|
|
|
|
53,044
|
|
|
|
129,876
|
|
|
|
106,308
|
|
U.S. Foodservice
|
|
|
51,126
|
|
|
|
42,506
|
|
|
|
90,615
|
|
|
|
74,316
|
|
Rest of World
|
|
|
12,748
|
|
|
|
20,866
|
|
|
|
28,668
|
|
|
|
38,969
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating(a)
|
|
|
(44,969
|
)
|
|
|
(44,543
|
)
|
|
|
(72,481
|
)
|
|
|
(75,435
|
)
|
Upfront productivity charges(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
416,799
|
|
|
$
|
408,400
|
|
|
$
|
822,514
|
|
|
$
|
777,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(Thousands of Dollars)
|
|
|
Ketchup and Sauces
|
|
$
|
1,113,728
|
|
|
$
|
1,110,133
|
|
|
$
|
2,205,924
|
|
|
$
|
2,178,946
|
|
Meals and Snacks
|
|
|
1,078,527
|
|
|
|
1,105,202
|
|
|
|
1,996,351
|
|
|
|
2,029,397
|
|
Infant/Nutrition
|
|
|
281,274
|
|
|
|
291,574
|
|
|
|
562,049
|
|
|
|
583,528
|
|
Other
|
|
|
141,094
|
|
|
|
139,877
|
|
|
|
331,124
|
|
|
|
296,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,614,623
|
|
|
$
|
2,646,786
|
|
|
$
|
5,095,448
|
|
|
$
|
5,088,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
(9)
|
Income
Per Common Share
|
The following are reconciliations of income from continuing
operations to income from continuing operations applicable to
common stock and the number of common shares outstanding used to
calculate basic EPS to those shares used to calculate diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(In Thousands)
|
|
|
Income from continuing operations attributable to H. J. Heinz
Company
|
|
$
|
251,435
|
|
|
$
|
243,074
|
|
|
$
|
491,862
|
|
|
$
|
457,800
|
|
Allocation to participating securities
|
|
|
767
|
|
|
|
761
|
|
|
|
953
|
|
|
|
1,283
|
|
Preferred dividends
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common stock
|
|
$
|
250,665
|
|
|
$
|
242,310
|
|
|
$
|
490,903
|
|
|
$
|
456,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingbasic
|
|
|
319,467
|
|
|
|
315,477
|
|
|
|
318,825
|
|
|
|
315,288
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
104
|
|
|
|
105
|
|
|
|
104
|
|
|
|
105
|
|
Stock options, restricted stock and the global stock purchase
plan
|
|
|
2,894
|
|
|
|
1,823
|
|
|
|
2,859
|
|
|
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingdiluted
|
|
|
322,465
|
|
|
|
317,405
|
|
|
|
321,788
|
|
|
|
317,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Fiscal 2010, the Company adopted accounting guidance for
determining whether instruments granted in share-based payment
transactions are participating securities. This guidance states
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.
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 2.2 million shares of
common stock for the second quarter and six months ended
October 27, 2010 and 6.9 million shares of common
stock for the second quarter and six months ended
October 28, 2009 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 2017.
14
|
|
(10)
|
Comprehensive
Income
|
The following table provides a summary of comprehensive income
attributable to H. J. Heinz Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
FY 2011
|
|
|
FY 2010
|
|
|
|
(Thousands of Dollars)
|
|
|
Net income
|
|
$
|
253,942
|
|
|
$
|
237,327
|
|
|
$
|
502,537
|
|
|
$
|
456,419
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
189,801
|
|
|
|
164,830
|
|
|
|
163,746
|
|
|
|
507,355
|
|
Reclassification of net pension and post-retirement benefit
losses to net income
|
|
|
12,966
|
|
|
|
10,929
|
|
|
|
26,173
|
|
|
|
19,471
|
|
Net deferred gains/(losses) on derivatives from periodic
revaluations
|
|
|
4,086
|
|
|
|
3,170
|
|
|
|
8,126
|
|
|
|
(8,354
|
)
|
Net deferred (gains)/losses on derivatives reclassified to
earnings
|
|
|
(5,271
|
)
|
|
|
5,335
|
|
|
|
(7,745
|
)
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
455,524
|
|
|
|
421,591
|
|
|
|
692,837
|
|
|
|
975,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the noncontrolling interest
|
|
|
(3,969
|
)
|
|
|
(6,952
|
)
|
|
|
(12,641
|
)
|
|
|
(16,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to H. J. Heinz Company
|
|
$
|
451,555
|
|
|
$
|
414,639
|
|
|
$
|
680,196
|
|
|
$
|
958,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the allocation of total
comprehensive income between H. J. Heinz Company and
the noncontrolling interest for the second quarter and six
months ended October 27, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
H. J. Heinz
|
|
|
Noncontrolling
|
|
|
|
|
|
H. J. Heinz
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Company
|
|
|
Interest
|
|
|
Total
|
|
|
Company
|
|
|
Interest
|
|
|
Total
|
|
|
|
(Thousands of Dollars)
|
|
|
Net income
|
|
$
|
251,435
|
|
|
$
|
2,507
|
|
|
$
|
253,942
|
|
|
$
|
491,862
|
|
|
$
|
10,675
|
|
|
$
|
502,537
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
188,470
|
|
|
|
1,331
|
|
|
|
189,801
|
|
|
|
162,125
|
|
|
|
1,621
|
|
|
|
163,746
|
|
Reclassification of net pension and postretirement benefit
losses/(gains) to net income
|
|
|
12,982
|
|
|
|
(16
|
)
|
|
|
12,966
|
|
|
|
26,189
|
|
|
|
(16
|
)
|
|
|
26,173
|
|
Net deferred gains/(losses) on derivatives from periodic
revaluations
|
|
|
4,158
|
|
|
|
(72
|
)
|
|
|
4,086
|
|
|
|
8,278
|
|
|
|
(152
|
)
|
|
|
8,126
|
|
Net deferred (gains)/losses on derivatives reclassified to
earnings
|
|
|
(5,490
|
)
|
|
|
219
|
|
|
|
(5,271
|
)
|
|
|
(8,258
|
)
|
|
|
513
|
|
|
|
(7,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
451,555
|
|
|
$
|
3,969
|
|
|
$
|
455,524
|
|
|
$
|
680,196
|
|
|
$
|
12,641
|
|
|
$
|
692,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
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 28, 2010
|
|
$
|
1,948,496
|
|
|
$
|
107,844
|
|
|
$
|
657,596
|
|
|
$
|
6,856,033
|
|
|
$
|
(4,750,547
|
)
|
|
$
|
(979,581
|
)
|
|
$
|
57,151
|
|
Comprehensive income(1)
|
|
|
692,837
|
|
|
|
|
|
|
|
|
|
|
|
491,862
|
|
|
|
|
|
|
|
188,334
|
|
|
|
12,641
|
|
Dividends paid to shareholders of H. J. Heinz Company
|
|
|
(288,592
|
)
|
|
|
|
|
|
|
|
|
|
|
(288,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling interest
|
|
|
(820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(820
|
)
|
Stock options exercised, net of shares tendered for payment
|
|
|
104,080
|
|
|
|
|
|
|
|
(18,224
|
)
|
|
|
|
|
|
|
122,304
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
6,110
|
|
|
|
|
|
|
|
6,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock unit activity
|
|
|
(6,592
|
)
|
|
|
|
|
|
|
(18,387
|
)
|
|
|
|
|
|
|
11,795
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
4,723
|
|
|
|
|
|
|
|
(565
|
)
|
|
|
(520
|
)
|
|
|
5,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 27, 2010
|
|
$
|
2,460,242
|
|
|
$
|
107,844
|
|
|
$
|
626,530
|
|
|
$
|
7,058,783
|
|
|
$
|
(4,610,640
|
)
|
|
$
|
(791,247
|
)
|
|
$
|
68,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The allocation of the individual components of comprehensive
income attributable to H. J. Heinz Company and the
noncontrolling interest is disclosed in Note 10. |
At October 27, 2010, the Company had $1.7 billion of
credit agreements, $1.2 billion of which expires in April
2012 and $500 million which expires in April 2013. These
credit agreements support the Companys commercial paper
borrowings. As a result, the commercial paper borrowings are
classified as long-term debt based upon the Companys
intent and ability to refinance these borrowings on a long-term
basis. The credit agreements have identical covenants which
include a leverage ratio covenant in addition to customary
covenants. The Company was in compliance with all of its debt
covenants as of October 27, 2010.
|
|
(13)
|
Financing
Arrangements
|
In the first quarter of Fiscal 2010, 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 U.S. trade receivables to a
wholly-owned, bankruptcy-remote-subsidiary. This subsidiary then
sells all of the rights, title and interest in these
receivables, all of which are short-term, to an unaffiliated
entity. On April 29, 2010, the Company adopted new
accounting guidance related to the transfer of financial assets.
The securitization agreement continues to qualify for sale
accounting treatment under the new guidance. After the sale, the
Company, as servicer of the assets, collects the receivables on
behalf of the unaffiliated entity. On the statements of cash
flows, all cash flows related to this securitization program are
included as a component of operating activities because the cash
received from the unaffiliated entity and the cash collected
from servicing the transferred assets are not subject to
significantly different risks due to the short-term nature of
the Companys trade receivables.
For the sale of receivables under the program, the Company
receives initial cash funding and a deferred purchase price. The
initial cash funding was $117.7 million and
$126.3 million during the six months ended October 27,
2010 and October 28, 2009, respectively, resulting in an
16
increase of cash for sales under this program for the six months
ended October 27, 2010 and October 28, 2009 of
$33.5 million and $126.3 million, respectively. The
fair value of the deferred purchase price was $73.5 million
and $89.2 million as of October 27, 2010 and
April 28, 2010, respectively. Cash proceeds for the
deferred purchase price were $15.7 million for the six
months ended October 27, 2010. This deferred purchase price
is included as a trade receivable on the consolidated balance
sheets and has a carrying value which approximates fair value as
of October 27, 2010 and April 28, 2010, due to the
nature of the short-term underlying financial assets.
In addition, the Company acted as servicer for approximately
$147 million and $126 million of trade receivables
which were sold to unrelated third parties without recourse as
of October 27, 2010 and April 28, 2010, respectively.
These trade receivables are short-term in nature. The proceeds
from these sales are also recognized on the statements of cash
flows as a component of operating activities.
The Company has not recorded any servicing assets or liabilities
as of October 27, 2010 or April 28, 2010 for the
arrangements discussed above because the fair value of these
servicing agreements as well as the fees earned were not
material to the financial statements.
|
|
(14)
|
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 October 27, 2010 and April 28, 2010, the fair
values of the Companys assets and liabilities measured on
a recurring basis are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27, 2010
|
|
|
April 28, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Thousands of Dollars)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a)
|
|
$
|
|
|
|
$
|
119,303
|
|
|
$
|
|
|
|
$
|
119,303
|
|
|
$
|
|
|
|
$
|
133,773
|
|
|
$
|
|
|
|
$
|
133,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
119,303
|
|
|
$
|
|
|
|
$
|
119,303
|
|
|
$
|
|
|
|
$
|
133,773
|
|
|
$
|
|
|
|
$
|
133,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a)
|
|
$
|
|
|
|
$
|
28,461
|
|
|
$
|
|
|
|
$
|
28,461
|
|
|
$
|
|
|
|
$
|
36,036
|
|
|
$
|
|
|
|
$
|
36,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
28,461
|
|
|
$
|
|
|
|
$
|
28,461
|
|
|
$
|
|
|
|
$
|
36,036
|
|
|
$
|
|
|
|
$
|
36,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
Cross-currency interest rate swaps are valued based on
observable market spot and swap rates, and are classified within
Level 2 of the fair value hierarchy. There have been no
transfers between Levels 1 and 2 in Fiscals 2011 and 2010.
|
As of October 27, 2010 and April 28, 2010, the
aggregate fair value of the Companys debt obligations,
based on market quotes, approximated the recorded value, with
the exception of the 7.125% notes issued as part of the
dealer remarketable securities exchange transaction. The
17
book value of these notes has been reduced as a result of the
cash payments made in connection with the exchange, which
occurred in Fiscal 2010.
|
|
(15)
|
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
October 27, 2010, the Company had outstanding currency
exchange, interest rate, and cross-currency interest rate
derivative contracts with notional amounts of
$1.88 billion, $1.51 billion and $183 million,
respectively. At April 28, 2010, the Company had
outstanding currency exchange, interest rate, and cross-currency
interest rate derivative contracts with notional amounts of
$1.64 billion, $1.52 billion and $160 million,
respectively.
The following table presents the fair values and corresponding
balance sheet captions of the Companys derivative
instruments as of October 27, 2010 and April 28, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27, 2010
|
|
|
April 28, 2010
|
|
|
|
|
|
|
|
|
|
Cross-
|
|
|
|
|
|
|
|
|
Cross-
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
Foreign
|
|
|
Interest
|
|
|
Interest Rate
|
|
|
Foreign
|
|
|
Interest
|
|
|
Interest Rate
|
|
|
|
Exchange
|
|
|
Rate
|
|
|
Swap
|
|
|
Exchange
|
|
|
Rate
|
|
|
Swap
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(Dollars in Thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables, net
|
|
$
|
3,852
|
|
|
$
|
62,515
|
|
|
$
|
|
|
|
$
|
7,408
|
|
|
$
|
70,746
|
|
|
$
|
|
|
Other non-current assets
|
|
|
3,421
|
|
|
|
33,709
|
|
|
|
13,526
|
|
|
|
16,604
|
|
|
|
38,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,273
|
|
|
|
96,224
|
|
|
|
13,526
|
|
|
|
24,012
|
|
|
|
109,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables, net
|
|
|
2,280
|
|
|
|
|
|
|
|
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,280
|
|
|
|
|
|
|
|
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,553
|
|
|
$
|
96,224
|
|
|
$
|
13,526
|
|
|
$
|
24,567
|
|
|
$
|
109,206
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
$
|
18,231
|
|
|
$
|
|
|
|
$
|
3,250
|
|
|
$
|
16,672
|
|
|
$
|
|
|
|
$
|
3,510
|
|
Other non-current liabilities
|
|
|
1,252
|
|
|
|
|
|
|
|
|
|
|
|
4,279
|
|
|
|
|
|
|
|
8,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,483
|
|
|
|
|
|
|
|
3,250
|
|
|
|
20,951
|
|
|
|
|
|
|
|
11,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
|
5,728
|
|
|
|
|
|
|
|
|
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,728
|
|
|
|
|
|
|
|
|
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
25,211
|
|
|
$
|
|
|
|
$
|
3,250
|
|
|
$
|
24,104
|
|
|
$
|
|
|
|
$
|
11,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 14 for further information on how fair value
is determined for the Companys derivatives.
18
The following table presents the pre-tax effect of derivative
instruments on the statement of income for the second quarters
ended October 27, 2010 and October 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
|
|
|
|
|
|
Cross-
|
|
|
|
|
|
|
|
|
Cross-
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
Foreign
|
|
|
Interest
|
|
|
Interest Rate
|
|
|
Foreign
|
|
|
Interest
|
|
|
Interest Rate
|
|
|
|
Exchange
|
|
|
Rate
|
|
|
Swap
|
|
|
Exchange
|
|
|
Rate
|
|
|
Swap
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(Dollars in Thousands)
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses)/gains recognized in other comprehensive loss
(effective portion)
|
|
$
|
(3,861
|
)
|
|
$
|
|
|
|
$
|
10,682
|
|
|
$
|
9,413
|
|
|
$
|
|
|
|
$
|
(4,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) reclassified from other comprehensive loss
into earnings (effective portion):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
296
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
|
|
Cost of products sold
|
|
|
(5,394
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,934
|
)
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
Other income/(expense), net
|
|
|
3,294
|
|
|
|
|
|
|
|
12,036
|
|
|
|
(1,721
|
)
|
|
|
|
|
|
|
(2,028
|
)
|
Interest income/(expense)
|
|
|
14
|
|
|
|
|
|
|
|
(829
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,829
|
)
|
|
|
|
|
|
|
11,207
|
|
|
|
(5,356
|
)
|
|
|
|
|
|
|
(2,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses)/gains recognized in other expense, net
|
|
|
|
|
|
|
(12,008
|
)
|
|
|
|
|
|
|
|
|
|
|
2,799
|
|
|
|
|
|
Net losses recognized in interest expense
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,359
|
)
|
|
|
|
|
|
|
|
|
|
|
2,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains recognized in other expense, net
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
3,205
|
|
|
|
|
|
|
|
|
|
Net gains recognized in interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
3,205
|
|
|
|
10,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in statement of income
|
|
$
|
(1,672
|
)
|
|
$
|
(12,359
|
)
|
|
$
|
11,207
|
|
|
$
|
(2,151
|
)
|
|
$
|
13,214
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The following table presents the pre-tax effect of derivative
instruments on the statement of income for the six months ended
October 27, 2010 and October 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
October 27, 2010
|
|
|
October 28, 2009
|
|
|
|
|
|
|
|
|
|
Cross-
|
|
|
|
|
|
|
|
|
Cross-
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
Foreign
|
|
|
Interest
|
|
|
Interest Rate
|
|
|
Foreign
|
|
|
Interest
|
|
|
Interest Rate
|
|
|
|
Exchange
|
|
|
Rate
|
|
|
Swap
|
|
|
Exchange
|
|
|
Rate
|
|
|
Swap
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(Dollars in Thousands)
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses)/gains recognized in other comprehensive loss
(effective portion)
|
|
$
|
(7,027
|
)
|
|
$
|
|
|
|
$
|
20,537
|
|
|
$
|
(7,530
|
)
|
|
$
|
|
|
|
$
|
(4,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) reclassified from other comprehensive loss
into earnings (effective portion):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
676
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,365
|
|
|
$
|
|
|
|
$
|
|
|
Cost of products sold
|
|
|
(9,188
|
)
|
|
|
|
|
|
|
|
|
|
|
2,165
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(348
|
)
|
|
|
|
|
|
|
24,036
|
|
|
|
(2,636
|
)
|
|
|
|
|
|
|
(2,028
|
)
|
Interest income/(expense)
|
|
|
12
|
|
|
|
|
|
|
|
(1,720
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,984
|
)
|
|
|
|
|
|
|
22,316
|
|
|
|
1,033
|
|
|
|
|
|
|
|
(2,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses recognized in other expense, net
|
|
|
|
|
|
|
(10,327
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,192
|
)
|
|
|
|
|
Net losses recognized in interest expense
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,678
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses)/gains recognized in other expense, net
|
|
|
(5,128
|
)
|
|
|
|
|
|
|
|
|
|
|
13,166
|
|
|
|
|
|
|
|
|
|
Net gains recognized in interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,128
|
)
|
|
|
|
|
|
|
|
|
|
|
13,166
|
|
|
|
30,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in statement of income
|
|
$
|
(14,112
|
)
|
|
$
|
(10,678
|
)
|
|
$
|
22,316
|
|
|
$
|
14,199
|
|
|
$
|
11,277
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
20
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 has used certain foreign currency debt instruments
as net investment hedges of foreign operations. For the six
months ended October 28, 2009, losses of
$29.3 million, net of income taxes of $18.5 million,
which represented effective hedges of net investments, were
reported as a component of accumulated other comprehensive loss
within unrealized translation adjustment.
During the first quarter of Fiscal 2011, the Company early
terminated certain foreign currency forward contracts, receiving
cash proceeds of $11.6 million, and will release the gain
in accumulated other comprehensive loss to earnings when the
underlying transactions occur. The underlying transactions are
scheduled to occur at various points in time through 2014.
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.
The Company had outstanding cross-currency interest rate swaps
with a total notional amount of $183.5 million and
$159.5 million as of October 27, 2010 and
April 28, 2010, respectively, which were designated as cash
flow hedges of the future payments of loan principal and
interest associated with certain foreign denominated variable
rate debt obligations. These contracts are scheduled to mature
in Fiscal 2013.
Deferred
Hedging Gains and Losses:
As of October 27, 2010, the Company is hedging forecasted
transactions for periods not exceeding 4 years. During the
next 12 months, the Company expects $2.1 million of
net deferred gains 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
significant for the second quarters and six months ended
October 27, 2010 and October 28, 2009. Amounts
reclassified to earnings because the hedged transaction was no
longer expected to occur were not significant for the second
quarters and six months ended October 27, 2010 and
October 28, 2009.
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 $519.0 million
and $284.5 million that did not meet the criteria for hedge
accounting as of October 27, 2010 and April 28, 2010,
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 losses
related to outstanding contracts totaled $3.4 million and
$2.6 million as of October 27, 2010 and April 28,
2010, respectively. These contracts are scheduled to mature
within one year.
Forward contracts that were put in place to help mitigate the
unfavorable impact of translation associated with key foreign
currencies resulted in losses of $6.6 million and
$12.9 million for the
21
second quarter and six months ended October 27, 2010,
respectively, and gains of $0.3 million and losses of
$4.3 million for the second quarter and six months ended
October 28, 2009, respectively.
During the second quarter of Fiscal 2010, the Company terminated
its $175 million notional total rate of return swap that
was being used as an economic hedge to reduce a portion of the
interest cost related to the Companys remarketable
securities. Upon termination of the swap, the Company received
net cash proceeds of $47.6 million, in addition to the
release of the $192.7 million of restricted cash collateral
that the Company was required to maintain with the counterparty
for the term of the swap. Prior to termination, the swap was
being accounted for on a full
mark-to-market
basis through earnings, as a component of interest income. The
Company recorded a benefit in interest income of
$3.6 million in the second quarter ended October 28,
2009, and $28.3 million in the six months ended
October 28, 2009, representing changes in the fair value of
the swap and interest earned on the arrangement, net of
transaction fees.
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.
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(16)
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Venezuela-
Foreign Currency and Inflation
|
Foreign
Currency
The local currency in Venezuela is the Venezuelan bolivar fuerte
(VEF). A currency control board exists in Venezuela
that is responsible for foreign exchange procedures, including
approval of requests for exchanges of VEF for U.S. dollars
at the official (government established) exchange rate. Our
business in Venezuela has historically been successful in
obtaining U.S. dollars at the official exchange rate for
imports of ingredients, packaging, manufacturing equipment, and
other necessary inputs, and for dividend remittances, albeit on
a delay. In May 2010, the government of Venezuela
effectively closed down the unregulated parallel market, which
existed for exchanging VEF for U.S. dollars through
securities transactions. Our Venezuelan subsidiary has no recent
history of entering into exchange transactions in this parallel
market.
The Company uses the official exchange rate to translate the
financial statements of its Venezuelan subsidiary, since we
expect to obtain U.S. dollars at the official rate for
future dividend remittances. The official exchange rate in
Venezuela had been fixed at 2.15 VEF to 1 U.S. dollar
for several years, despite significant inflation. On
January 8, 2010, the Venezuelan government announced the
devaluation of its currency relative to the U.S. dollar.
The official exchange rate for imported goods classified as
essential, such as food and medicine, changed from 2.15 to 2.60,
while payments for other non-essential goods moved to an
exchange rate of 4.30. The majority, if not all, of our imported
products in Venezuela are expected to fall into the essential
classification and qualify for the 2.60 rate. However, our
Venezuelan subsidiarys financial statements are remeasured
using the 4.30 rate, as this is the rate expected to be
applicable to dividend repatriations. As of October 27,
2010, the amount of VEF pending government approval to be used
for dividend repatriations is $8.5 million at the 4.30 rate
and requests for exchange have been pending government approval
since September 2008.
During the third quarter of Fiscal 2010, the Company recorded a
$61.7 million currency translation loss as a result of the
currency devaluation, which had been reflected as a component of
accumulated other comprehensive loss within unrealized
translation adjustment. The net
22
asset position of our Venezuelan subsidiary has also been
reduced as a result of the devaluation to approximately
$93 million at October 27, 2010.
Highly
Inflationary Economy
An economy is considered highly inflationary under
U.S. GAAP if the cumulative inflation rate for a three-year
period meets or exceeds 100 percent. Based on the blended
National Consumer Price Index, the Venezuelan economy exceeded
the three-year cumulative inflation rate of 100 percent
during the third quarter of Fiscal 2010. As a result, the
financial statements of our Venezuelan subsidiary have been
consolidated and reported under highly inflationary accounting
rules beginning on January 28, 2010, the first day of our
Fiscal 2010 fourth quarter. Under highly inflationary
accounting, the financial statements of our Venezuelan
subsidiary are remeasured into the Companys reporting
currency (U.S. dollars) and exchange gains and losses from
the remeasurement of monetary assets and liabilities are
reflected in current earnings, rather than accumulated other
comprehensive loss on the balance sheet, until such time as the
economy is no longer considered highly inflationary.
The impact of applying highly inflationary accounting for
Venezuela on our consolidated financial statements is dependent
upon movements in the applicable exchange rates (at this time,
the official rate) between the local currency and the
U.S. dollar and the amount of monetary assets and
liabilities included in our subsidiarys balance sheet. At
October 27, 2010, the U.S. dollar value of monetary
assets, net of monetary liabilities, which would be subject to
an earnings impact from exchange rate movements for our
Venezuelan subsidiary under highly inflationary accounting was
$52.3 million.
On November 2, 2010, subsequent to the end of the second
quarter, the Company completed the acquisition of Foodstar, a
manufacturer of soy sauces and fermented bean curd in China. The
purchase price consisted of a $165.4 million cash payment
and a potential earn-out payment in 2014 based on the
performance of the business.
23
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive
Overview
During the second quarter of Fiscal 2011, the Company reported
diluted earnings per share from continuing operations of $0.78,
compared to $0.76 in the prior year, an increase of 2.6%,
despite a 4.0% unfavorable impact from currency translation net
of translation hedges. The Companys growth in EPS for the
second quarter of Fiscal 2011 reflects a 100 basis point
improvement in the gross profit margin and a 2.1% increase in
operating income. Second quarter sales declined 1.2% reflecting
volume and net price increases of 0.3% and 0.6%, respectively,
that were more than offset by unfavorable foreign exchange which
reduced sales by 2.3%. The emerging markets, which represented
15% of total Company sales in the quarter, continued to be an
important growth driver with combined volume and pricing gains
of 10.2%. Our top 15 brands also performed well, with combined
volume and pricing gains of 2.7% driven by the
Heinz®,
Ore-Ida®,
Complan®
and
ABC®
brands. The gross profit margin increased as a result of
productivity improvements and higher net pricing, partially
offset by higher commodity input costs. Solid profit growth and
the continuing focus on cash generated $360 million of cash
flows from operations during the second quarter, a
$20 million increase from the prior year.
In the second quarter of Fiscal 2011, foreign currency continued
to unfavorably impact the Companys results, but to a much
lesser magnitude than what was experienced in Fiscal 2010.
Overall, currency movements had a $0.03 unfavorable impact on
the change in EPS from continuing operations for the second
quarter versus prior year. The impact reflects currency
translation net of translation hedges. While the Company
anticipates that our full-year results will be impacted by
foreign currency movements, we remain confident in our business
fundamentals and plan to continue executing the following
strategies:
|
|
|
|
|
Grow the core portfolio;
|
|
|
|
Accelerate growth in emerging markets;
|
|
|
|
Strengthen and leverage global scale; and
|
|
|
|
Make talent an advantage.
|
Discontinued
Operations
During the second quarter of Fiscal 2010, the Company completed
the sale of its non-core Kabobs frozen hors doeuvres
business which was previously reported within the
U.S. Foodservice segment, resulting in a $15.0 million
pre-tax ($10.9 million after-tax) loss which has been
recorded in discontinued operations. Also during the third
quarter of Fiscal 2010, the Company completed the sale of its
Appetizers And, Inc. business which was previously reported
within the U.S. Foodservice segment and the sale of its
private label frozen desserts business in the U.K.
In accordance with accounting principles generally accepted in
the United States of America, the operating results related to
these businesses have been included in discontinued operations
in the Companys consolidated statements of income for all
periods presented. These discontinued operations generated sales
of $26.6 million and a net loss of $0.7 million (net
of a $0.4 million tax benefit) for the second quarter ended
October 28, 2009. These discontinued operations generated
sales of $52.8 million and a net loss of $2.9 million
(net of a $1.3 million tax benefit) for the six months
ended October 28, 2009.
24
THREE
MONTHS ENDED OCTOBER 27, 2010 AND OCTOBER 28, 2009
Results
of Continuing Operations
Sales for the three months ended October 27, 2010 decreased
$32 million, or 1.2%, to $2.61 billion. Volume
increased 0.3%, as favorable volume in the emerging markets,
U.K. and Canadian businesses were offset by declines in
U.S. Foodservice, Germany and Australia. Emerging markets
and our Top 15 brands continued to be important growth drivers,
with combined volume and pricing gains of 10.2% in emerging
markets and 2.7% in our Top 15 brands. Net pricing increased
sales by 0.6%, as price increases in emerging markets,
particularly Latin America, and U.S. Foodservice were
partially offset by increased trade promotions in the North
American Consumer Products, U.K. and Australian businesses.
Acquisitions increased sales by 0.1%. Foreign exchange
translation rates reduced sales by 2.3%.
Gross profit increased $13 million, or 1.4%, to
$967 million, and the gross profit margin increased to
37.0% from 36.0%, as net pricing and productivity improvements
were only partially offset by a $24 million unfavorable
impact from foreign exchange translation rates as well as higher
commodity costs.
Selling, general and administrative expenses
(SG&A) increased $5 million, or 0.9% to
$550 million, and increased as a percentage of sales to
21.0% from 20.6%. These increases are a result of higher general
and administrative expenses (G&A) reflecting
investments in global process and system upgrades and increased
compensation expense, partially offset by a $14 million
impact from foreign exchange translation rates. Operating income
increased $8 million, or 2.1%, to $417 million,
reflecting the items above.
Net interest expense decreased $1 million, to
$63 million, reflecting a $3 million decrease in
interest income and a $4 million decrease in interest
expense. Interest expense decreased largely due to lower average
interest rates. Other expenses, net, decreased $2 million,
to $8 million, primarily due to $8 million of charges
in the prior year recognized in connection with the dealer
remarketable securities exchange transaction partially offset by
currency losses.
The effective tax rate for the current quarter was 26.7%
compared to 25.6% last year. The increase in the effective tax
rate was primarily due to a current year accrual for a state tax
uncertainty, benefits in the prior year resulting from
resolutions and settlements of federal, state, and foreign
uncertain tax matters, and higher repatriation costs in the
current year. These are partially offset by the current year
release of valuation allowances related to state tax loss and
credit carryforwards resulting from a reorganization plan,
increased benefits from foreign tax planning, and increased
profits in lower tax rate jurisdictions.
Income from continuing operations attributable to the H. J.
Heinz Company was $251 million compared to
$243 million in the prior year, an increase of 3.4%. The
increase was largely due to higher operating income. Diluted
earnings per share from continuing operations was $0.78 in the
current year compared to $0.76 in the prior year, up 2.6%. EPS
movements were unfavorably impacted by higher shares outstanding
and by $0.03 from currency fluctuations, after taking into
account the net effect of current and prior year currency
translation contracts and foreign currency movements on
translation.
The impact of fluctuating translation exchange rates in Fiscal
2011 has had a relatively consistent impact on all components of
operating income on the consolidated statement of income.
OPERATING
RESULTS BY BUSINESS SEGMENT
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$11 million, or 1.4%, to $803 million. Volume
increased 1.6% driven primarily by increases across most
product categories in Canada reflecting successful innovation
and increased trade promotions. In addition, improvements in
Ore-Ida®
frozen potatoes and frozen appetizers, resulting from new
products and increased trade
25
promotions, were offset by declines in Smart
Ones®
and Boston
Market®
frozen entrees and
Heinz®
ketchup due to promotional timing. Net prices decreased 1.4%
reflecting trade promotion increases from the Consumer Value
Program launched in the U.S. in the second half of the
prior year as well as in Canada. The acquisition of
Arthurs Fresh Company, a small chilled smoothies business
in Canada, in the third quarter of Fiscal 2010, increased sales
0.4%. Favorable Canadian exchange translation rates increased
sales 0.8%.
Gross profit was flat versus prior year at $338 million,
and the gross profit margin decreased to 42.1% from 42.6%. The
gross profit margin declined as productivity improvements were
more than offset by shifting marketing funds to trade promotion
investments and increased commodity costs. Operating income
increased $3 million, or 1.5%, to $204 million,
reflecting the items above.
Europe
Heinz Europe sales decreased $44 million, or 5.2%, to
$798 million. Unfavorable foreign exchange translation
rates decreased sales by 5.7%. Volume increased 0.7%, due to
increases in
Heinz®
soups and Weight
Watchers®
and Aunt
Bessies®
frozen products in the U.K., reflecting increased
promotional activity, including the It Has to Be
Heinz campaign, as well as in ketchup across most of
Europe, particularly in Russia. These increases were partially
offset by a decline in soups in Germany. Net pricing decreased
0.2% as a result of increased promotional activity across the
product portfolio in the U.K.
The gross profit margin increased to 38.1% from 36.3%, while
overall gross profit decreased by $2 million to
$304 million. The improvement in gross margin reflects
productivity improvements partially offset by higher commodity
costs while the reduction in gross profit was due to unfavorable
foreign exchange translation rates. Operating income was
consistent with prior year at $136 million, reflecting
savings in fixed selling and distribution costs offset by
G&A investments in global process and system upgrades as
well as the items above.
Asia/Pacific
Heinz Asia/Pacific sales increased $39 million, or 8.0%, to
$531 million. Volume increased 2.0%, due to significant
growth in
Complan®
nutritional beverages in India,
ABC®
sauces in Indonesia reflecting significant new product and
marketing activity, and infant feeding products in China
resulting from increased marketing supporting new product
launches. These increases were partially offset by continued
softness in Australia, which has been impacted by competitive
activity and generally weak category trends, and
ABC®
syrups which were down from prior year levels due to holiday
timing. Pricing decreased 0.3%, reflecting increases on
ABC®
syrup and drinks in Indonesia and
Complan®
and Glucon
D®
products in India offset by higher promotions on drinks in
Australia. Favorable exchange translation rates increased sales
by 6.3%.
Gross profit increased $18 million, or 11.6%, to
$169 million, and the gross profit margin increased to
31.8% from 30.8%. The increase in gross margin was driven by
productivity improvements which include the favorable
renegotiation of a long-term supply contract in Australia,
partially offset by increased commodity costs in Indonesia.
Gross profit was also favorably impacted by foreign exchange
translation rates. Operating income increased $5 million,
or 9.7%, to $58 million, primarily reflecting the increase
in gross profit, partially offset by higher SG&A, largely
related to foreign exchange translation rates and increased
marketing investments.
U.S.
Foodservice
Sales of the U.S. Foodservice segment decreased
$11 million, or 2.9%, to $362 million. Pricing
increased sales 1.7%, largely due to
Heinz®
ketchup, reduced trade promotions and prior year price
increases on tomato products to help offset commodity cost
increases. Volume decreased by 4.6%, primarily due to declines
in frozen desserts and soup as well as non-branded sauces. The
volume reflects ongoing weakness in restaurant foot traffic and
promotional timing.
Gross profit increased $8 million, or 8.0%, to
$112 million, and the gross profit margin increased to
31.0% from 27.9%, as pricing and productivity improvements more
than offset increased
26
commodity costs and unfavorable volume. Operating income
increased $9 million, or 20.3%, to $51 million, which
is primarily due to gross profit improvements.
Rest of
World
Sales for Rest of World decreased $28 million, or 19.1%, to
$120 million. Foreign exchange translation rates decreased
sales 33.4%, largely due to the devaluation of the Venezuelan
bolivar fuerte (VEF) late in the third quarter of
Fiscal 2010 (See the Venezuela- Foreign Currency and
Inflation section below for further explanation). Higher
pricing increased sales by 16.5%, largely due to price increases
in Latin America taken to mitigate inflation. Volume decreased
2.2% due to declines in baby food and condiments in Latin
America which were not fully offset by increases in the Middle
East resulting from new products, market expansion and increased
marketing and promotions.
Gross profit decreased $13 million, or 23.4%, to
$42 million, due mainly to the impact of VEF devaluation
and increased commodity costs, partially offset by increased
pricing. Operating income decreased $8 million, or 38.9%,
to $13 million.
SIX
MONTHS ENDED OCTOBER 27, 2010 AND OCTOBER 28, 2009
Results
of Continuing Operations
Sales for the six months ended October 27, 2010 increased
$7 million, or 0.1%, to $5.10 billion. Volume
increased 1.4%, as favorable volume in emerging markets as well
as improvements in the North American Consumer Products and U.K.
businesses were partially offset by declines in
U.S. Foodservice, Australia, Germany and the Netherlands.
Volume in the U.S. and U.K. retail businesses benefited
from new products, effective marketing and increased trade
promotions. Emerging markets and our Top 15 brands continued to
be important growth drivers, with combined volume and pricing
gains of 16.1% in emerging markets and 4.4% in our Top 15
brands. Net pricing increased sales by 0.8%, as price increases
in emerging markets, particularly Latin America, and
U.S. Foodservice were partially offset by increased trade
promotions in the U.S. and U.K. retail businesses.
Acquisitions increased sales by 0.1%. Foreign exchange
translation rates reduced sales by 2.2%.
Gross profit increased $49 million, or 2.7%, to
$1.87 billion, and the gross profit margin increased to
36.8% from 35.9%, as higher volume, net pricing and productivity
improvements were partially offset by a $47 million
unfavorable impact from foreign exchange translation rates as
well as higher commodity costs. In addition, last years
gross profit included $7 million in charges for targeted
workforce reductions and non-cash asset write-offs related to a
factory closure.
SG&A increased $4 million, or 0.4% to
$1.05 billion, and remained flat as a percentage of sales
at 20.6%, as a $27 million impact from foreign exchange
translation rates and $9 million impact related to prior
year targeted workforce reductions were offset by higher
marketing investments, particularly in the emerging markets and
Europe, and higher G&A, reflecting investments in global
process and system upgrades and increased compensation expense.
Operating income increased $45 million, or 5.8%, to
$823 million, reflecting the items above.
Net interest expense increased $7 million, to
$125 million, reflecting a $27 million decrease in
interest income and a $21 million decrease in interest
expense. The decrease in interest income is mainly due to a
$24 million
mark-to-market
gain in the prior year period on a total rate of return swap,
which was terminated in August 2009. Interest expense decreased
largely due to lower average interest rates. Other expenses,
net, increased $3 million, to $18 million, primarily
due to currency losses partially offset by $8 million of
charges in the prior year recognized in connection with the
dealer remarketable securities exchange transaction.
The effective tax rate for the six months ended October 27,
2010 was 26.0% compared to 27.0% last year. The decrease in the
effective tax rate is primarily the result of the current year
release of valuation allowances related to state tax loss and
credit carryforwards resulting from a reorganization plan,
increased benefits from foreign tax planning, and increased
profits in lower tax rate
27
jurisdictions. These were partially offset by higher
repatriation costs in the current year, a current year accrual
for a state tax uncertainty, and benefits in the prior year
resulting from resolutions and settlements of federal, state,
and foreign uncertain tax matters.
Income from continuing operations attributable to H. J. Heinz
Company was $492 million compared to $458 million in
the prior year, an increase of 7.4%. The increase was due to
higher operating income and $12 million in prior year
after-tax charges ($0.04 per share) for targeted workforce
reductions and non-cash asset write-offs, partially offset by a
$12 million after-tax gain in the prior year on a total
rate of return swap. Diluted earnings per share from continuing
operations was $1.53 in the current year compared to $1.44 in
the prior year, up 6.3%. EPS movements were unfavorably impacted
by higher shares outstanding and by $0.05 from currency
fluctuations, after taking into account the net effect of
current and prior year currency translation contracts and
foreign currency movements on translation.
The impact of fluctuating translation exchange rates in Fiscal
2011 has had a relatively consistent impact on all components of
operating income on the consolidated statement of income.
OPERATING
RESULTS BY BUSINESS SEGMENT
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$46 million, or 3.0%, to $1.56 billion. Volume
increased 3.4% as new products and increased trade promotions
drove improvements in
Heinz®
ketchup, Smart
Ones®
frozen entrees,
Classico®
pasta sauces,
Ore-Ida®
frozen potatoes and frozen appetizers. These increases were
partially offset by declines in Boston
Market®
frozen products. Net prices decreased 2.0% reflecting trade
promotion increases from the Consumer Value Program launched in
the U.S. in the second half of the prior year. The
acquisition of Arthurs Fresh Company, a small chilled
smoothies business in Canada, in the third quarter of Fiscal
2010, increased sales 0.4%. Favorable Canadian exchange
translation rates increased sales 1.3%.
Gross profit increased $9 million, or 1.4%, to
$657 million, while the gross profit margin decreased to
42.0% from 42.6%. The increase in gross profit dollars was aided
by favorable volume and favorable foreign exchange translation
rates. The gross profit margin declined as productivity
improvements were more than offset by shifting marketing funds
to trade promotion investments and increased commodity costs.
Operating income increased $10 million, or 2.6%, to
$395 million, reflecting the items above.
Europe
Heinz Europe sales decreased $103 million, or 6.4%, to
$1.51 billion. Unfavorable foreign exchange translation
rates decreased sales by 6.6%. Volume increased 0.5%, driven by
increases in Weight
Watchers®
and Aunt
Bessies®
frozen products and
Heinz®
salad cream and soups in the U.K. reflecting increased
promotional activity. Improvements also occurred in ketchup,
particularly in Russia and France. These increases were
partially offset by declines in soups in Germany and the
Netherlands. Net pricing decreased 0.3%, driven by increased
promotional activity across the product portfolio in the U.K.
partially offset by increased net pricing in the Italian infant
nutrition business.
Gross profit decreased $17 million, or 2.8%, to
$573 million, and the gross profit margin increased to
37.9% from 36.5%. The $17 million decline in gross profit
reflects unfavorable foreign exchange translation rates while
the improvement in gross margin benefited from productivity
improvements partially offset by higher commodity costs.
Operating income decreased $13 million, or 5.0%, to
$251 million, largely related to foreign exchange
translation rates and increased marketing and G&A,
reflecting investments in global process and system upgrades.
Asia/Pacific
Heinz Asia/Pacific sales increased $128 million, or 13.4%,
to $1.09 billion. Volume increased 4.4%, due to significant
growth in
Complan®
and Glucon
D®
nutritional beverages in India,
ABC®
28
products in Indonesia reflecting significant new product and
marketing activity, and infant feeding products in China, due to
increased marketing and promotions. Improvements were also noted
in Long
Fong®
products in China and convenience meals in New Zealand. These
increases were partially offset by continued general softness in
Australia, which has been impacted by competitive activity and
generally weak category trends. Pricing rose 1.0%, reflecting
increases on
ABC®
products in Indonesia and
Complan®
and Glucon
D®
products in India offset by declines in Australia. Favorable
exchange translation rates increased sales by 7.9%.
Gross profit increased $51 million, or 17.0%, to
$350 million, and the gross profit margin increased to
32.1% from 31.1%. These increases reflect higher volume and
pricing, favorable foreign exchange translation rates and
productivity improvements which include the favorable
renegotiation of a long-term supply contract in Australia. These
increases were partially offset by higher commodity costs,
particularly in Indonesia. Operating income increased
$24 million, or 22.2%, to $130 million, primarily
reflecting the increase in gross profit, partially offset by
higher SG&A largely related to foreign exchange translation
rates and increased marketing investments.
U.S.
Foodservice
Sales of the U.S. Foodservice segment decreased
$19 million, or 2.6%, to $691 million. Pricing
increased sales 2.2%, largely due to
Heinz®
ketchup, reduced trade promotions and prior year price increases
on tomato products to help offset commodity cost increases.
Volume decreased by 4.8%, due to declines in frozen desserts and
soup as well as non-branded sauces. The volume reflects ongoing
weakness in restaurant foot traffic, rationalization of
less-profitable products, and the timing of new product launches
and promotions in the prior year.
Gross profit increased $16 million, or 8.2%, to
$206 million, and the gross profit margin increased to
29.8% from 26.8%, as pricing and productivity improvements more
than offset increased commodity costs and lower volume.
Operating income increased $16 million, or 21.9%, to
$91 million, due to the gross profit improvements.
Rest of
World
Sales for Rest of World decreased $46 million, or 16.0%, to
$239 million. Foreign exchange translation rates decreased
sales 35.1%, largely due to the devaluation of the VEF late in
the third quarter of Fiscal 2010 (See the Venezuela-
Foreign Currency and Inflation section below for further
explanation). Higher pricing increased sales by 18.4%, largely
due to price increases in Latin America taken to mitigate
inflation. Volume increased 0.6% as increases in the Middle East
resulting from new products, market expansion and increased
marketing and promotions were partially offset by declines in
baby food and condiments in Latin America.
Gross profit decreased $19 million, or 18.4%, to
$86 million, due mainly to the impact of VEF devaluation
and increased commodity costs, partially offset by increased
pricing. Operating income decreased $10 million, or 26.4%,
to $29 million.
Liquidity
and Financial Position
For the first six months of Fiscal 2011, cash provided by
operating activities was $632 million compared to
$509 million in the prior year. The improvement in the
first six months of Fiscal 2011 versus Fiscal 2010 reflects
higher earnings and favorable movements in inventories, payables
and income taxes partially offset by higher payments in the
current year on incentive compensation accruals. In addition,
reduced pension contributions were offset by declines in cash
flows from receivables, largely due to the cash received in the
prior year in connection with commencement of an accounts
receivable securitization program (see additional explanation
below). The Company received $12 million of cash in the
first quarter of Fiscal 2011 for the termination of foreign
currency hedge contracts (see Note 15, Derivative
Financial Instruments and Hedging Activities for
additional information) and received $48 million in the
prior year from the termination of a total rate of return swap
and $32 million in the prior year from the maturity of
foreign currency contracts that were used as an economic hedge
of certain intercompany transactions. The Companys cash
29
conversion cycle improved 5 days, to 44 days in the
first six months of Fiscal 2011. Receivables accounted for
1 day of the improvement, which is largely a result of the
impact of the accounts receivable securitization program. There
was a 2 day improvement in inventories as a result of the
Companys continued efforts to reduce inventory levels and
our recent arrangement to purchase domestic tomato paste
throughout the year, rather than at the time of harvest.
Accounts payable also contributed 2 days to the improvement.
In the first quarter of Fiscal 2010, the Company entered into a
three-year $175 million accounts receivable securitization
program. For the sale of receivables under the program, the
Company receives initial cash funding and a deferred purchase
price. The initial cash funding was $118 million and
$126 million during the six months ended October 27,
2010 and October 28, 2009, respectively, resulting in an
increase of cash for sales under this program for the six months
ended October 27, 2010 and October 28, 2009 of
$34 million and $126 million, respectively. Cash
proceeds for the deferred purchase price were $16 million
for the six months ended October 27, 2010. See
Note 13, Financing Arrangements for additional
information.
Cash used for investing activities totaled $118 million
compared to providing $103 million of cash last year.
Capital expenditures totaled $122 million (2.4% of sales)
compared to $96 million (1.9% of sales) in the prior year.
The Company still expects capital spending of approximately 3.0%
of sales for the year. Proceeds from divestitures provided cash
of $2 million in the current year compared to
$9 million in the prior year which primarily related to the
sale of our non-core Kabobs frozen hors doeuvres
foodservice business in the U.S. Proceeds from disposals of
property, plant and equipment were $4 million in the
current year compared to $1 million in the prior year. The
prior year decrease in restricted cash represents collateral
that was returned to the Company in connection with the
termination of a total rate of return swap in August 2009.
Cash used for financing activities totaled $366 million
compared to $601 million last year.
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Proceeds from long-term debt were $20 million in the
current year and $433 million in the prior year. The prior
year proceeds relate to the issuance of $250 million of
7.125% notes due 2039 by H. J. Heinz Finance Company, a
subsidiary of Heinz, through a private placement in July 2009.
These notes were fully, unconditionally and irrevocably
guaranteed by the Company. The proceeds from the notes were used
for payment of the cash component of the dealer remarketable
securities exchange transaction that occurred in the second
quarter of Fiscal 2010 as well as various expenses relating to
this exchange, and for general corporate purposes. Also in the
prior year, the Company received cash proceeds of
$167 million related to a 15 billion Japanese yen
denominated credit agreement that was entered into during the
second quarter of Fiscal 2010.
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Payments on long-term debt were $26 million in the current
year compared to $359 million in the prior year. Prior year
payments reflect cash payments on the Fiscal 2010 dealer
remarketable securities exchange transaction.
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Net payments on commercial paper and short-term debt were
$187 million this year compared to $427 million in the
prior year.
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Cash proceeds from option exercises provided $91 million of
cash in the current year compared to $5 million in the
prior year.
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Dividend payments totaled $289 million this year, compared
to $266 million for the same period last year, reflecting
an increase in the annualized dividend per common share to $1.80.
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On November 2, 2010, subsequent to the end of the second
quarter, the Company completed the acquisition of Foodstar, a
manufacturer of soy sauces and fermented bean curd in China. The
purchase price consisted of a $165 million cash payment and
a potential earn-out payment in 2014 based on the performance of
the business.
At October 27, 2010, the Company had total debt of
$4.45 billion (including $193 million relating to the
hedge accounting adjustments) and cash and cash equivalents of
$666 million. Total debt balances have declined slightly
since prior year end due to payments on commercial paper. The
30
Company is currently evaluating alternatives concerning the
refinancing
and/or
retirement of the long-term debt maturing in Fiscal 2012.
The Company and HFC maintain $1.7 billion of credit
agreements, $1.2 billion of which expires in April 2012 and
$500 million which expires in April 2013. These credit
agreements support the Companys commercial paper
borrowings. As a result, the commercial paper borrowings are
classified as long-term debt based upon the Companys
intent and ability to refinance these borrowings on a long-term
basis. The credit agreements have identical covenants which
include a leverage ratio covenant in addition to other customary
covenants. The Company was in compliance with all of its
covenants as of October 27, 2010. In addition, the Company
has approximately $500 million of other credit facilities
available for use primarily by the Companys foreign
subsidiaries.
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 increased volatility and
disruption in the global capital and credit markets will not
impair its ability to access these markets on commercially
acceptable terms.
Venezuela-
Foreign Currency and Inflation
Foreign
Currency
The local currency in Venezuela is the VEF. A currency control
board exists in Venezuela that is responsible for foreign
exchange procedures, including approval of requests for
exchanges of VEF for U.S. dollars at the official
(government established) exchange rate. Our business in
Venezuela has historically been successful in obtaining
U.S. dollars at the official exchange rate for imports of
ingredients, packaging, manufacturing equipment, and other
necessary inputs, and for dividend remittances, albeit on a
delay. In May 2010, the government of Venezuela effectively
closed down the unregulated parallel market, which existed for
exchanging VEF for U.S. dollars through securities
transactions. Our Venezuelan subsidiary has no recent history of
entering into exchange transactions in this parallel market.
The Company uses the official exchange rate to translate the
financial statements of its Venezuelan subsidiary, since we
expect to obtain U.S. dollars at the official rate for
future dividend remittances. The official exchange rate in
Venezuela had been fixed at 2.15 VEF to 1 U.S. dollar for
several years, despite significant inflation. On January 8,
2010, the Venezuelan government announced the devaluation of its
currency relative to the U.S. dollar. The official exchange
rate for imported goods classified as essential, such as food
and medicine, changed from 2.15 to 2.60, while payments for
other non-essential goods moved to an exchange rate of 4.30. The
majority, if not all, of our imported products in Venezuela are
expected to fall into the essential classification and qualify
for the 2.60 rate. However, our Venezuelan subsidiarys
financial statements are remeasured using the 4.30 rate, as this
is the rate expected to be applicable to dividend repatriations.
As of October 27, 2010, the amount of VEF pending
government approval to be used for dividend repatriations is
$8 million at the 4.30 rate and requests for exchange have
been pending government approval since September 2008.
During the third quarter of Fiscal 2010, the Company recorded a
$62 million currency translation loss as a result of the
currency devaluation, which had been reflected as a component of
accumulated other comprehensive loss within unrealized
translation adjustment. The net asset position of our Venezuelan
subsidiary has also been reduced as a result of the devaluation
to approximately $93 million at October 27, 2010.
While our future operating results in Venezuela will be
negatively impacted by the currency devaluation, we plan to take
actions to help mitigate these effects. Accordingly, we do not
expect the devaluation to have a material impact on our
operating results going forward.
31
Highly
Inflationary Economy
An economy is considered highly inflationary under
U.S. GAAP if the cumulative inflation rate for a three-year
period meets or exceeds 100 percent. Based on the blended
National Consumer Price Index, the Venezuelan economy exceeded
the three-year cumulative inflation rate of 100 percent
during the third quarter of Fiscal 2010. As a result, the
financial statements of our Venezuelan subsidiary have been
consolidated and reported under highly inflationary accounting
rules beginning on January 28, 2010, the first day of our
Fiscal 2010 fourth quarter. Under highly inflationary
accounting, the financial statements of our Venezuelan
subsidiary are remeasured into the Companys reporting
currency (U.S. dollars) and exchange gains and losses from
the remeasurement of monetary assets and liabilities are
reflected in current earnings, rather than accumulated other
comprehensive loss on the balance sheet, until such time as the
economy is no longer considered highly inflationary.
The impact of applying highly inflationary accounting for
Venezuela on our consolidated financial statements is dependent
upon movements in the applicable exchange rates (at this time,
the official rate) between the local currency and the
U.S. dollar and the amount of monetary assets and
liabilities included in our subsidiarys balance sheet. At
October 27, 2010, the U.S. dollar value of monetary
assets, net of monetary liabilities, which would be subject to
an earnings impact from exchange rate movements for our
Venezuelan subsidiary under highly inflationary accounting was
$52 million.
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
six months ended October 27, 2010. For additional
information, refer to page 26 of the Companys Annual
Report on
Form 10-K
for the fiscal year ended April 28, 2010.
As of the end of the second 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 $77 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
In June 2009, the Financial Accounting Standards Board
(FASB) issued an amendment to the accounting and
disclosure requirements for transfers of financial assets. This
amendment removes the concept of a qualifying special-purpose
entity and 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. This amendment also requires additional
disclosures about any transfers of financial assets and a
transferors continuing involvement with transferred
financial assets. The Company adopted this amendment on
April 29, 2010, the first day of Fiscal 2011. This adoption
did not have a material impact on the Companys financial
statements. Refer to Note 13, Financing
Arrangements for additional information.
32
In June 2009, the FASB issued an amendment to the accounting and
disclosure requirements for variable interest entities. This
amendment 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.
The amendment 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 is required to disclose how
its involvement with a variable interest entity affects the
reporting entitys financial statements. The Company
adopted this amendment on April 29, 2010, the first day of
Fiscal 2011. This adoption did not have a material impact on the
Companys financial statements.
33
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 devaluations 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, including our emerging
markets; economic or political instability in those markets,
nationalization, and the performance of business in
hyperinflationary environments, in each case, such as Venezuela;
and the uncertain global macroeconomic environment and sovereign
debt issues, particularly in Europe,
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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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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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34
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the ability to implement new information systems and potential
disruptions due to failures in information 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 Annual Report on
Form 10-K
for the fiscal year ended April 28, 2010 and reports on
Forms 10-Q
thereafter.
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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 six months ended October 27, 2010. For
additional information, refer to pages
27-29 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended April 28, 2010.
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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
During the second quarter of Fiscal 2011, the Company continued
its implementation of SAP software across its Netherlands and
Nordic countries operations. As appropriate, the Company is
modifying the design and documentation of internal control
processes and procedures relating to the new systems to simplify
and harmonize existing internal control over financial
reporting. There were no additional changes in the
Companys internal control over financial reporting during
the Companys most recent fiscal quarter that has
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
35
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 28, 2010. The risk factors
disclosed in Part I, Item 1A to our Annual Report on
Form 10-K
for the fiscal year ended April 28, 2010, 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 second quarter of Fiscal 2011. As of October 27, 2010,
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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(Removed
and Reserved).
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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.
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. |
36
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: November 23, 2010
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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: November 23, 2010
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By:
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/s/ Edward
J. McMenamin
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Edward J. McMenamin
Senior Vice PresidentFinance
(Principal Accounting Officer)
37
EXHIBIT INDEX
DESCRIPTION
OF EXHIBIT
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
furnished herewith. The paragraph numbers correspond to the
exhibit numbers designated in Item 601 of
Regulation S-K.
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. |