H.J. Heinz Company 10-Q
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
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For the quarterly period ended
August 1, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
to
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Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as
specified in its charter)
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PENNSYLVANIA
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25-0542520
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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600 Grant Street, Pittsburgh,
Pennsylvania
(Address of Principal
Executive Offices)
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15219
(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 is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated
filer X Accelerated
Filer Non-Accelerated
Filer
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 $0.25 per share, outstanding as of August 1, 2007 was
319,145,320 shares.
TABLE OF CONTENTS
PART IFINANCIAL
INFORMATION
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Item 1.
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Financial
Statements
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H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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First Quarter Ended
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August 1, 2007
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August 2, 2006
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FY 2008
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FY 2007
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(Unaudited)
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(In thousands, Except
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per Share Amounts)
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Sales
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$
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2,248,285
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$
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2,059,920
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Cost of products sold
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1,409,885
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1,287,503
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Gross profit
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838,400
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772,417
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Selling, general and
administrative expenses
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471,746
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452,775
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Operating income
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366,654
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319,642
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Interest income
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12,881
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7,292
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Interest expense
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91,230
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75,626
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Other expense, net
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8,590
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7,711
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Income before income taxes
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279,715
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243,597
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Provision for income taxes
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74,421
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49,496
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Net income
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$
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205,294
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$
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194,101
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Net income per sharediluted
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$
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0.63
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$
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0.58
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Average common shares
outstandingdiluted
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325,477
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334,711
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Net income per sharebasic
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$
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0.64
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$
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0.59
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Average common shares
outstandingbasic
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320,818
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331,584
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Cash dividends per share
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$
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0.38
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$
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0.35
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See Notes to Condensed Consolidated Financial Statements.
2
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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August 1, 2007
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May 2, 2007*
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FY 2008
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FY 2007
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(Unaudited)
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(Thousands of Dollars)
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Assets
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Current Assets:
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Cash and cash equivalents
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$
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352,013
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$
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652,896
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Receivables, net
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1,044,509
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996,852
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Inventories:
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Finished goods and
work-in-process
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1,034,080
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943,449
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Packaging material and ingredients
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239,649
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254,508
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Total inventories
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1,273,729
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1,197,957
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Prepaid expenses
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168,735
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132,561
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Other current assets
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35,607
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38,736
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Total current assets
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2,874,593
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3,019,002
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Property, plant and equipment
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4,107,329
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4,054,863
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Less accumulated depreciation
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2,096,460
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2,056,710
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Total property, plant and
equipment, net
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2,010,869
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1,998,153
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Goodwill
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2,890,895
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2,834,639
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Trademarks, net
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905,239
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892,749
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Other intangibles, net
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435,296
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412,484
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Other non-current assets
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807,879
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875,999
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Total other non-current assets
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5,039,309
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5,015,871
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Total assets
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$
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9,924,771
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$
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10,033,026
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* |
The year-end condensed consolidated balance sheet data was
derived from audited financial statements, but does not include
all disclosures required by accounting principles generally
accepted in the United States of America.
|
See Notes to Condensed Consolidated Financial Statements.
3
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
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|
|
August 1, 2007
|
|
|
May 2, 2007*
|
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FY 2008
|
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|
FY 2007
|
|
|
|
(Unaudited)
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(Thousands of Dollars)
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Liabilities
and Shareholders Equity
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Current Liabilities:
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Short-term debt
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$
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118,644
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$
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165,054
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Portion of long-term debt due
within one year
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628,975
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303,189
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Accounts payable
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1,196,492
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1,181,078
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Salaries and wages
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61,225
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85,818
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Accrued marketing
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228,362
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262,217
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Other accrued liabilities
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355,264
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414,130
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Income taxes
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79,297
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93,620
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Total current liabilities
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2,668,259
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2,505,106
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Long-term debt
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4,136,065
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4,413,641
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Deferred income taxes
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432,608
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463,666
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Non-pension post-retirement
benefits
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255,891
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253,117
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Other liabilities and minority
interest
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569,654
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555,813
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Total long-term liabilities
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5,394,218
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5,686,237
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Shareholders Equity:
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Capital stock
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107,847
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107,851
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Additional capital
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586,887
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580,606
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Retained earnings
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5,851,419
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5,778,617
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6,546,153
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6,467,074
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Less:
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Treasury stock at cost
(111,951,166 shares at August 1, 2007 and
109,317,154 shares at May 2, 2007)
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4,534,721
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4,406,126
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Accumulated other comprehensive
loss
|
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149,138
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219,265
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Total shareholders equity
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1,862,294
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1,841,683
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Total liabilities and
shareholders equity
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$
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9,924,771
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$
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10,033,026
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* |
The year-end condensed consolidated balance sheet data was
derived from audited financial statements, but does not include
all disclosures required by accounting principles generally
accepted in the United States of America.
|
See Notes to Condensed Consolidated Financial Statements.
4
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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First Quarter Ended
|
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August 1, 2007
|
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August 2, 2006
|
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|
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FY 2008
|
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FY 2007
|
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(Unaudited)
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(Thousands of Dollars)
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Cash Flows from Operating
Activities:
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Net income
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$
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205,294
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$
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194,101
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Adjustments to reconcile net income
to cash provided by operating activities:
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|
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Depreciation
|
|
|
60,676
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|
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|
55,632
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Amortization
|
|
|
8,949
|
|
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|
9,764
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Deferred tax benefit
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(5,485
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)
|
|
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(39,521
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)
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Other items, net
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1,696
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|
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|
(2,012
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)
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Changes in current assets and
liabilities, excluding effects of acquisitions and divestitures:
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|
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Receivables
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(23,332
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)
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6,855
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Inventories
|
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|
(73,282
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)
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(2,602
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)
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Prepaid expenses and other current
assets
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(31,052
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)
|
|
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(31,475
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)
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Accounts payable
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|
5,616
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|
|
|
(53,113
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)
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Accrued liabilities
|
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|
(147,330
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)
|
|
|
(138,408
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)
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Income taxes
|
|
|
7,366
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48,295
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|
|
|
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Cash provided by operating
activities
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9,116
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47,516
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Cash Flows from Investing
Activities:
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|
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|
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Capital expenditures
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(58,212
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)
|
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|
(38,927
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)
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Proceeds from disposals of
property, plant and equipment
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|
224
|
|
|
|
24,402
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Acquisitions, net of cash acquired
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|
(64,044
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)
|
|
|
(1,496
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)
|
Proceeds from divestitures
|
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|
39,661
|
|
|
|
11,925
|
|
Other items, net
|
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|
(18,845
|
)
|
|
|
(9,526
|
)
|
|
|
|
|
|
|
|
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Cash used for investing activities
|
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(101,216
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)
|
|
|
(13,622
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)
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|
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|
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Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(1,110
|
)
|
|
|
(22,538
|
)
|
Net proceeds from/(payments on)
commercial paper and short-term debt
|
|
|
16,090
|
|
|
|
(10,505
|
)
|
Dividends
|
|
|
(123,204
|
)
|
|
|
(116,374
|
)
|
Purchases of treasury stock
|
|
|
(143,366
|
)
|
|
|
(86,901
|
)
|
Exercise of stock options
|
|
|
16,034
|
|
|
|
85,650
|
|
Other items, net
|
|
|
11,209
|
|
|
|
8,325
|
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(224,347
|
)
|
|
|
(142,343
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities of discontinued operations spun-off to Del Monte
|
|
|
|
|
|
|
30,630
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
15,564
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(300,883
|
)
|
|
|
(77,360
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
652,896
|
|
|
|
445,427
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
352,013
|
|
|
$
|
368,067
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5
H. J.
HEINZ COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(1)
|
Basis of
Presentation
|
The interim condensed consolidated financial statements of H. J.
Heinz Company, together with its subsidiaries (collectively
referred to as the Company), are unaudited. In the
opinion of management, all adjustments, which are of a normal
and recurring nature, except those which have been disclosed
elsewhere in this Quarterly Report on
Form 10-Q,
necessary for a fair statement of the results of operations of
these interim periods have been included. The results for
interim periods are not necessarily indicative of the results to
be expected for the full fiscal year due to the seasonal nature
of the Companys business. 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 May 2, 2007.
|
|
(2)
|
Recently
Issued Accounting Standards
|
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in financial
statements. This Interpretation includes a recognition threshold
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on de-recognition, classification, interest and penalties,
accounting in interim periods, and disclosures. See Note 4
for additional information.
|
|
(3)
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the first quarter
ended August 1, 2007, by reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Europe
|
|
|
Asia/Pacific
|
|
|
Foodservice
|
|
|
World
|
|
|
Total
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Balance at
May 2, 2007
|
|
$
|
1,081,673
|
|
|
$
|
1,259,514
|
|
|
$
|
214,964
|
|
|
$
|
262,823
|
|
|
$
|
15,665
|
|
|
$
|
2,834,639
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
29,701
|
|
|
|
|
|
|
|
|
|
|
|
29,701
|
|
|
|
|
|
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
Translation adjustments
|
|
|
5,991
|
|
|
|
18,080
|
|
|
|
5,845
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
29,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 1, 2007
|
|
$
|
1,087,664
|
|
|
$
|
1,274,355
|
|
|
$
|
250,510
|
|
|
$
|
262,823
|
|
|
$
|
15,543
|
|
|
$
|
2,890,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of Fiscal 2008, the Company acquired
the license to the
Cottees®
and
Roses®
premium branded jams, jellies and toppings business in Australia
and New Zealand for approximately $61 million. The Company
recorded a preliminary purchase price allocation related to this
acquisition and expects to finalize this allocation upon
completion of valuation procedures. Operating results of the
acquired business have been included in the consolidated
6
statement of income from the acquisition date forward. Pro-forma
results of the Company, assuming the acquisition had occurred at
the beginning of each period presented, would not be materially
different from the results reported.
Trademarks and other intangible assets at August 1, 2007
and May 2, 2007, subject to amortization expense, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2007
|
|
|
May 2, 2007
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Trademarks
|
|
$
|
197,887
|
|
|
$
|
(64,645
|
)
|
|
$
|
133,242
|
|
|
$
|
196,703
|
|
|
$
|
(63,110
|
)
|
|
$
|
133,593
|
|
|
|
Licenses
|
|
|
208,186
|
|
|
|
(136,778
|
)
|
|
|
71,408
|
|
|
|
208,186
|
|
|
|
(135,349
|
)
|
|
|
72,837
|
|
|
|
Recipes/processes
|
|
|
65,033
|
|
|
|
(16,352
|
)
|
|
|
48,681
|
|
|
|
64,315
|
|
|
|
(15,779
|
)
|
|
|
48,536
|
|
|
|
Customer related assets
|
|
|
154,831
|
|
|
|
(22,367
|
)
|
|
|
132,464
|
|
|
|
152,668
|
|
|
|
(19,183
|
)
|
|
|
133,485
|
|
|
|
Other
|
|
|
70,241
|
|
|
|
(56,026
|
)
|
|
|
14,215
|
|
|
|
70,386
|
|
|
|
(56,344
|
)
|
|
|
14,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
696,178
|
|
|
$
|
(296,168
|
)
|
|
$
|
400,010
|
|
|
$
|
692,258
|
|
|
$
|
(289,765
|
)
|
|
$
|
402,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for trademarks and other intangible assets
subject to amortization was $7.2 million and
$8.3 million for the quarters ended August 1, 2007 and
August 2, 2006, respectively. Based upon the amortizable
intangible assets recorded on the balance sheet as of
August 1, 2007, annual amortization expense for each of the
next five fiscal years is estimated to be approximately
$29 million.
Intangible assets not subject to amortization at August 1,
2007 totaled $940.5 million and consisted of
$772.0 million of trademarks, $128.7 million of
recipes/processes, and $39.8 million of licenses.
Intangible assets not subject to amortization at May 2,
2007, totaled $902.7 million and consisted of
$759.2 million of trademarks, $126.6 million of
recipes/processes, and $16.9 million of licenses.
The Company adopted FIN 48 as of the beginning of its 2008
fiscal year. Upon adoption, the Company continues to classify
interest and penalties on tax uncertainties as a component of
the provision for income taxes. As of the date of adoption, the
total amount of gross unrecognized tax benefits for uncertain
tax positions, including positions impacting only the timing of
tax benefits, was $183.7 million. The amount of
unrecognized tax benefits that, if recognized, would impact the
effective tax rate was $71.2 million. The total amount of
interest and penalties accrued as of the date of adoption was
$55.9 million and $2.2 million, respectively. The
corresponding amounts of gross unrecognized tax benefits and
accrued interest and penalties at August 1, 2007 were not
materially different from the amounts at the date of adoption.
As a result of adoption, the Company recognized a
$9.3 million decrease to retained earnings and a
$1.7 million decrease to additional capital from the
cumulative effect of adoption.
It is reasonably possible that the amount of unrecognized tax
benefits will change significantly in the next 12 months
primarily due to the progression of audits in process. Because
audit outcomes and the timing of audit payments are subject to
significant uncertainty, an estimate of the range of reasonably
possible change cannot be made.
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 Canada, Italy, the United
Kingdom and the United States. The Company has substantially
concluded all U.S. federal income tax matters for years
through
7
Fiscal 2003, with the exception of Research &
Experimentation tax credit (R&E credit) claims
for fiscal years 2000 through 2003, and the appeal of a
U.S. Court of Federal Claims decision regarding a refund
claim resulting from a Fiscal 1995 transaction. Federal income
tax returns for Fiscal 2004 and 2005 along with the R&E
credit claims are currently under examination and are expected
to be settled within the next fifteen months. In the
Companys major
non-U.S. jurisdictions,
the Company has substantially concluded all income tax matters
for years through Fiscal 2002.
During the first quarter of Fiscal 2007, a foreign subsidiary of
the Company revalued certain of its assets, under local law,
increasing the local tax basis by approximately
$245 million. As a result of this revaluation, the Company
incurred a foreign income tax liability of approximately
$30 million related to this revaluation which was paid
during the third quarter of Fiscal 2007. This revaluation is
expected to benefit cash flow from operations by approximately
$100 million over the five to twenty year tax amortization
period.
|
|
(5)
|
Employees
Stock Incentive Plans and Management Incentive Plans
|
As of August 1, 2007, the Company had outstanding stock
option awards, restricted stock units and restricted stock
awards. These awards were issued pursuant to various
shareholder-approved plans and a shareholder authorized employee
stock purchase plan, as described on pages 54 to 59 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 2, 2007. The compensation
cost related to these plans recognized in general and
administrative expenses (G&A), and the related
tax benefit was $7.2 million and $2.3 million for the
first quarter ended August 1, 2007, and $6.1 million
and $2.2 million for the first quarter ended August 2,
2006, respectively. The Company also recognized
$5.1 million and $3.8 million in G&A under the
Fiscal
2007-2008
Long-term Performance Program during the first quarters ended
August 1, 2007 and August 2, 2006, respectively.
In Fiscal 2008, 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 (TSR) Ranking within the defined
Long-term Performance Program (LTPP) Peer Group and
the 2-year
average after-tax Return on Invested Capital (ROIC)
metrics. The Relative TSR metric is based on the two-year return
to shareholders due to change in stock price and dividends
between the starting and ending values. The starting value was
established based on the average of each LTPP Peer Group Company
stock price for the 60 trading days prior to and including
May 2, 2007. The ending value will be based on the average
stock price for the 60 days prior to and including the
close of the Fiscal 2009 year end, plus dividends paid over
the 2 year performance period. The Fiscal
2008-2009
LTPP will be fully funded if
2-year
cumulative EPS equals or exceeds the predetermined level. For
the first quarter ended August 1, 2007, $1.4 million
was recognized in G&A under this plan.
8
|
|
(6)
|
Pensions
and Other Post-Retirement Benefits
|
The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 1, 2007
|
|
|
August 2, 2006
|
|
|
August 1, 2007
|
|
|
August 2, 2006
|
|
|
|
|
|
Pension Benefits
|
|
|
Post Retirement Benefits
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Service cost
|
|
$
|
9,692
|
|
|
$
|
10,530
|
|
|
$
|
1,587
|
|
|
$
|
1,619
|
|
|
|
Interest cost
|
|
|
37,187
|
|
|
|
33,438
|
|
|
|
3,872
|
|
|
|
3,837
|
|
|
|
Expected return on plan assets
|
|
|
(55,706
|
)
|
|
|
(48,742
|
)
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(273
|
)
|
|
|
(845
|
)
|
|
|
(1,192
|
)
|
|
|
(1,525
|
)
|
|
|
Amortization of unrecognized loss
|
|
|
10,730
|
|
|
|
12,844
|
|
|
|
1,141
|
|
|
|
1,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,630
|
|
|
$
|
7,225
|
|
|
$
|
5,408
|
|
|
$
|
5,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 1, 2007, the Company has contributed
$14.1 million to fund its obligations under these plans.
The Company expects to make combined cash contributions of
approximately $52 million in Fiscal 2008.
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. During the first quarter of Fiscal
2008, the Company changed its segment reporting to reclassify
its business in India from the Rest of World segment to the
Asia/Pacific segment, reflecting organizational changes. Prior
periods have been conformed to the current presentation. Net
external sales for this business were $24.3 million,
$20.7 million, $27.6 million and $44.8 million
and operating income for this business was $3.1 million,
$1.4 million, $1.8 million and $8.0 million for
the first, second, third and fourth quarters of Fiscal 2007,
respectively.
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 New Zealand, Australia, India, Japan, China, South
Korea, Indonesia, and Singapore. This segments operations
include products in all of the Companys categories.
U.S. FoodserviceThis segment primarily manufactures,
markets and sells branded and customized products to commercial
and non-commercial food outlets and distributors in the United
States of America including ketchup, condiments, sauces, and
frozen soups, desserts, and appetizers.
Rest of WorldThis segment includes the Companys
operations in Africa, Latin America, the Middle East, and other
areas that sell products in all of the Companys categories.
9
The Companys management evaluates performance based on
several factors including net sales, operating income, and the
use of capital resources. Intersegment revenues and items below
the operating income line of the consolidated statements of
income are not presented by segment, since they are excluded
from the measure of segment profitability reviewed by the
Companys management.
The following table presents information about the
Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 1, 2007
|
|
|
August 2, 2006
|
|
|
|
|
|
FY 2008
|
|
|
FY 2007
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Net external sales:
|
|
|
|
|
|
|
|
|
|
|
North American
Consumer Products
|
|
$
|
664,672
|
|
|
$
|
615,577
|
|
|
|
Europe
|
|
|
766,017
|
|
|
|
685,862
|
|
|
|
Asia/Pacific
|
|
|
371,345
|
|
|
|
315,846
|
|
|
|
U.S. Foodservice
|
|
|
363,668
|
|
|
|
366,613
|
|
|
|
Rest of World
|
|
|
82,583
|
|
|
|
76,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
2,248,285
|
|
|
$
|
2,059,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
North American
Consumer Products
|
|
$
|
152,410
|
|
|
$
|
143,214
|
|
|
|
Europe
|
|
|
138,395
|
|
|
|
119,349
|
|
|
|
Asia/Pacific
|
|
|
51,251
|
|
|
|
34,168
|
|
|
|
U.S. Foodservice
|
|
|
43,549
|
|
|
|
55,056
|
|
|
|
Rest of World
|
|
|
10,151
|
|
|
|
8,718
|
|
|
|
Non-Operating(a)
|
|
|
(29,102
|
)
|
|
|
(40,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
366,654
|
|
|
$
|
319,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes corporate overhead, intercompany eliminations and
charges not directly attributable to operating segments.
|
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 1, 2007
|
|
|
August 2, 2006
|
|
|
|
|
|
FY 2008
|
|
|
FY 2007
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Ketchup and Sauces
|
|
$
|
971,842
|
|
|
$
|
900,975
|
|
|
|
Meals and Snacks
|
|
|
944,822
|
|
|
|
853,943
|
|
|
|
Infant Foods
|
|
|
238,950
|
|
|
|
213,697
|
|
|
|
Other
|
|
|
92,671
|
|
|
|
91,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,248,285
|
|
|
$
|
2,059,920
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
(8)
|
Net
Income Per Common Share
|
The following are reconciliations of income to income applicable
to common stock and the number of common shares outstanding used
to calculate basic EPS to those shares used to calculate diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 1, 2007
|
|
|
August 2, 2006
|
|
|
|
|
|
FY 2008
|
|
|
FY 2007
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Net income
|
|
$
|
205,294
|
|
|
$
|
194,101
|
|
|
|
Preferred dividends
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common
stock
|
|
$
|
205,291
|
|
|
$
|
194,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingbasic
|
|
|
320,818
|
|
|
|
331,584
|
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
112
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock and the global stock
purchase plan
|
|
|
4,547
|
|
|
|
3,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingdiluted
|
|
|
325,477
|
|
|
|
334,711
|
|
|
|
|
|
|
|
|
|
|
|
|
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 6.5 million and
10.1 million shares of common stock for the first quarters
ended August 1, 2007 and August 2, 2006, respectively,
were not included in the computation of diluted earnings per
share because inclusion of these options would be anti-dilutive.
These options expire at various points in time through 2013. The
Company elected to apply the long-form method for determining
the pool of windfall tax benefits in connection with the
adoption of Statement of Financial Accounting Standards
No. 123R, Share-Based Payment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 1, 2007
|
|
|
August 2, 2006
|
|
|
|
|
|
FY 2008
|
|
|
FY 2007
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Net income
|
|
$
|
205,294
|
|
|
$
|
194,101
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
|
70,679
|
|
|
|
29,407
|
|
|
|
Minimum pension
liability adjustment
|
|
|
3,784
|
|
|
|
2,705
|
|
|
|
Net deferred losses on
derivatives from periodic revaluations
|
|
|
(7,933
|
)
|
|
|
(8,990
|
)
|
|
|
Net deferred losses on
derivatives reclassified to earnings
|
|
|
3,597
|
|
|
|
6,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
275,421
|
|
|
$
|
223,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
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 and interest rate exposures. There have been no
material changes in the
11
Companys market risk during the first quarter ended
August 1, 2007. For additional information, refer to pages
25-26 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 2, 2007.
As of August 1, 2007, the Company is hedging forecasted
transactions for periods not exceeding two years. During the
next 12 months, the Company expects $1.2 million of
net deferred losses reported in accumulated other comprehensive
loss to be reclassified to earnings, assuming market rates
remain constant through contract maturities. Hedge
ineffectiveness related to cash flow hedges, which is reported
in current period earnings as other income and expense, was not
significant for the first quarters ended August 1, 2007 and
August 2, 2006. Amounts reclassified to earnings because
the hedged transaction was no longer expected to occur were not
significant for the first quarters ended August 1, 2007 and
August 2, 2006.
The Company had outstanding cross currency swaps with a total
notional amount of $2.0 billion and $1.9 billion as of
August 1, 2007 and August 2, 2006, respectively, which
were designated as net investment hedges of foreign operations.
These contracts are scheduled to mature within two years. The
Company assesses hedge effectiveness for these contracts based
on changes in fair value attributable to changes in spot prices.
Net losses of $5.5 million ($1.0 million after-tax)
and $11.4 million ($4.6 million after-tax) which
represented effective hedges of net investments, were reported
as a component of accumulated other comprehensive loss within
unrealized translation adjustment for the first quarters ended
August 1, 2007 and August 2, 2006, respectively. Gains
of $2.4 million and $5.1 million, which represented
the changes in fair value excluded from the assessment of hedge
effectiveness, were included in current period earnings as a
component of interest expense for the first quarters ended
August 1, 2007 and August 2, 2006, respectively.
The Company enters into certain derivative contracts in
accordance with its risk management strategy that do not meet
the criteria for hedge accounting. As of August 1, 2007,
the Company maintained foreign currency forward contracts with a
total notional amount of $181.2 million that do not qualify
as hedges, but which have the impact of largely mitigating
volatility associated with earnings from foreign subsidiaries.
These forward contracts are accounted for on a full mark to
market basis through current earnings and mature during the
second quarter of Fiscal 2008. Net unrealized losses related to
these contracts totaled $4.6 million at August 1, 2007.
|
|
(11)
|
Supplemental
Non-Cash Investing and Financing Activities
|
A capital lease obligation of $51.0 million was incurred
when the Company entered into a lease for equipment during the
first quarter ended August 2, 2006. This equipment was
previously under an operating lease. This non-cash transaction
has been excluded from the condensed consolidated statement of
cash flows for the quarter ended August 2, 2006.
12
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
THREE
MONTHS ENDED AUGUST 1, 2007 AND AUGUST 2, 2006
Results
of Operations
Sales for the three months ended August 1, 2007 increased
$188.4 million, or 9.1%, to $2.25 billion. Volume
increased 2.5%, as continued solid growth in the North American
Consumer Products segment, Australia, New Zealand and the
emerging markets of Russia, Indonesia, China, India and Poland
(RICIP) were combined with strong performance of
Heinz®
ketchup, beans and soup in Europe. Notably, the RICIP markets
produced an 11% volume increase and accounted for 17% of
Heinzs total sales growth in the first quarter of Fiscal
2008. These increases were partially offset by volume declines
in the U.S. Foodservice segment. Net pricing increased
sales by 2.8%, mainly in the North American Consumer Products
and U.S. Foodservice segments, as well as our businesses in
the U.K. and Latin America. Divestitures, net of acquisitions,
decreased sales by 0.7%. Foreign exchange translation rates
increased sales by 4.6%.
Sales of the Companys top 15 brands grew 11% from the
year-ago quarter, as sales of ketchup rose 13% and sales of
beans and soups increased 25%. Sales of Weight
Watchers®
Smart
Ones®,
a line of healthy entrees, rose 25%, buoyed by the successful
launch of Weight
Watchers®
Smart
Ones®
Anytime
Selectionstm
meals.
Gross profit increased $66.0 million, or 8.5%, to
$838.4 million, benefiting from favorable volume, pricing
and foreign exchange translation rates. The gross profit margin
decreased slightly to 37.3% from 37.5%, as pricing and
productivity improvements were more than offset by increased
commodity costs, reflecting higher costs for dairy, oils,
sweeteners and other key ingredients.
Selling, general and administrative expenses
(SG&A) increased $19.0 million, or 4.2%,
to $471.7 million; however, as a percentage of sales,
SG&A decreased to 21.0% from 22.0%. The 4.2% increase in
SG&A is due to a 25.4% increase in marketing expense, a
13.7% increase in research and development costs and higher
selling and distribution costs resulting from increased volume
as well as foreign exchange translation rates. These increases
were partially offset by reduced general and administrative
expenses (G&A), which benefited from effective
cost control and headcount reductions that took place last year.
Additionally, the prior year included costs related to the proxy
contest of approximately $11 million.
Total marketing support (recorded as a reduction of revenue or
as a component of SG&A) increased $7.2 million, or
1.4%, to $510.1 million on a gross sales increase of 7.1%.
Marketing support recorded as a reduction of revenue, typically
deals and allowances, decreased $10.8 million, or 2.5%, to
$421.5 million, and decreased as a percentage of gross
sales to 15.8% from 17.3%, in line with the Companys
strategy to reduce spending on less efficient promotions and
realignment of some list prices. Marketing support recorded as a
component of SG&A increased $18.0 million, or 25.4%,
to $88.6 million, as we increased consumer marketing across
the Companys businesses and top brands.
Operating income increased $47.0 million, or 14.7%, to
$366.7 million, reflecting the strong sales growth,
productivity improvements and solid operating performance.
Net interest expense increased $10.0 million, to
$78.3 million, largely due to higher net debt in Fiscal
2008 due to share repurchase activity, and to a lesser extent
rate increases. Other expenses, net, increased $0.9 million
to $8.6 million, chiefly due to increased currency losses,
partially offset by decreased minority interest expense
resulting primarily from several small divested businesses in
the prior year.
The effective tax rate for the current quarter was 26.6%
compared to 20.3% last year. During the first quarter of Fiscal
2007, a foreign subsidiary of the Company revalued certain of
its assets, under local law, increasing the local tax basis by
approximately $245 million. This revaluation reduced
13
Fiscal 2007 tax expense by approximately $35 million. Of
this $35 million tax benefit, approximately
$25 million was recognized in the first quarter of Fiscal
2007. The effective tax rate in the current quarter reflects a
discrete benefit of approximately $12 million resulting
from the tax effects of law changes in the U.K. which is the
primary reason why the current quarters rate is below the
on-going annual estimate of
31-32%.
Net income for the first quarter of Fiscal 2008 was
$205.3 million compared to $194.1 million in the year
earlier quarter, an increase of 5.8%, due to the increase in
operating income, which was partially offset by a higher
effective tax rate and increased net interest expense. Diluted
earnings per share was $0.63 in the current year compared to
$0.58 in the prior year, up 8.6%, which also benefited from a
2.8% reduction in fully diluted shares outstanding.
OPERATING
RESULTS BY BUSINESS SEGMENT
During the first quarter of Fiscal 2008, the Company changed its
segment reporting to reclassify its business in India from the
Rest of World segment to the Asia/Pacific segment, reflecting
organizational changes. Prior periods have been conformed to the
current presentation. (See Note 7 to the condensed
consolidated financial statements for further discussion of the
Companys reportable segments).
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$49.1 million, or 8.0%, to $664.7 million. Volume
increased 3.3%, due primarily to
Heinz®
ketchup and Smart
Ones®
frozen entrees, sides and desserts. The
Heinz®
ketchup volume increase is a result of the strategy implemented
in Fiscal 2007 to increase the consumption of more profitable
larger sizes along with packaging innovations, such as the
Fridge Fit bottle. The Smart
Ones®
volume improvement is largely a result of increased consumption,
new frozen dessert products and expansion to Canada in Fiscal
2007. These volume improvements were partially offset by a
decline in
Ore-Ida®
frozen potatoes reflecting the effects of a price increase at
the beginning of this fiscal year. The
Ore-Ida®
frozen potatoes price increase, along with reduced promotions on
Heinz®
ketchup and Smart
Ones®
frozen entrees, resulted in overall price gains of 1.9%. The
prior year acquisition of Renees Gourmet Foods increased
sales 1.9% and favorable Canadian exchange translation rates
increased sales 0.9%.
Gross profit increased $16.6 million, or 6.4%, to
$276.4 million, due primarily to the volume and pricing
increases. The gross profit margin decreased to 41.6% from
42.2%, due to increased commodity costs along with increased
manufacturing costs in the Canadian business. Operating income
increased $9.2 million, or 6.4%, to $152.4 million,
due to the increase in gross profit, partially offset by
increased marketing and research and development costs.
Europe
Heinz Europe posted very strong results in the quarter as sales
and operating income increased 11.7% and 16.0%, respectively.
Organic sales (volume and price) growth was almost 6%. Overall,
sales increased $80.2 million, or 11.7%, to
$766.0 million. Volume increased 2.4%, principally due to
strong performance on
Heinz®
ketchup, soup and beans,
Pudliszki®
branded products in Poland, and
Heinz®
sauces and infant feeding products in Russia. These increases
were partially offset by volume declines on
Heinz®
salad cream, due to reduced promotions, and frozen products due
to lost distribution. Net pricing increased sales 3.4%,
resulting chiefly from price increases taken on
Heinz®
ketchup, beans and soup and frozen potatoes as well as reduced
promotions on frozen entrees and desserts in the frozen business
in the U.K. Divestitures reduced sales 2.0% and favorable
exchange translation rates increased sales by 7.9%.
Gross profit increased $34.9 million, or 12.9%, to
$306.8 million, and the gross profit margin increased to
40.1% from 39.6%. These increases reflect improved pricing and
volume and the
14
favorable impact of exchange translation rates, partially offset
by increased commodity costs. Operating income increased
$19.0 million, or 16.0%, to $138.4 million, due to the
increase in gross profit and reduced G&A, partially offset
by increased marketing expense.
Asia/Pacific
Heinz Asia/Pacific posted very strong results in the quarter as
sales and operating income increased 17.6% and 50.0%,
respectively. Organic sales growth was 7.3%. Overall, sales
increased $55.5 million, or 17.6%, to $371.3 million.
Volume increased 6.1%, reflecting strong results in Australia,
New Zealand, India and China, related primarily to new product
introductions and increased marketing. Pricing increased 1.2% as
increases on soy sauce in Indonesia,
LongFong®
frozen products in China and nutritional products in India, were
partially offset by price declines in convenience meals in
Australia. Divestitures, net of acquisitions, reduced sales
0.8%, and favorable exchange translation rates increased sales
by 11.1%.
Gross profit increased $24.2 million, or 24.1%, to
$124.8 million, and the gross profit margin increased to
33.6% from 31.8%. These increases were due to increased volume,
favorable sales mix and favorable foreign exchange translation
rates, partially offset by increased commodity costs. Operating
income increased by a record $17.1 million, or 50.0%, to
$51.3 million, primarily due to the increase in gross
profit and the impact of headcount reductions that occurred over
the last year, partially offset by increased marketing expense.
U.S.
Foodservice
Sales of the U.S. Foodservice segment decreased
$2.9 million, or 0.8%, to $363.7 million. Organic
sales increased 0.5% driven by pricing which increased sales
3.2%, largely due to commodity-related price increases and
reduced promotional spending on
Heinz®
ketchup and frozen soup. The core ketchup and sauces business
performed well, with ketchup sales up 9%; overall volume
decreased 2.7%, reflecting declines in the PPI business unit and
tomato products which more than offset the increase in
Heinz®
ketchup. Divestitures reduced sales 1.3%.
Gross profit decreased $11.0 million, or 9.9%, to
$100.3 million, and the gross profit margin decreased to
27.6% from 30.4% as increased commodity and manufacturing costs
along with the volume decline were only partially offset by
increased pricing. Operating income decreased
$11.5 million, or 20.9%, to $43.5 million, due
primarily to the decrease in gross profit.
Rest of
World
Sales for Rest of World increased $6.6 million, or 8.6%, to
$82.6 million. Volume increased 6.3% due primarily to
Heinz®
ketchup sales in Latin America. Higher pricing increased sales
by 9.4%, largely due to price increases and reduced promotions
in Latin America as well as commodity-related price increases in
South Africa. This growth was somewhat offset by a reduction of
6.9% due to divestitures and another 0.2% due to unfavorable
foreign exchange translation rates.
Gross profit increased $2.9 million, or 11.2%, to
$28.8 million, due mainly to increased pricing, higher
volume and improved business mix. Operating income increased
$1.4 million, or 16.4% to $10.2 million.
Liquidity
and Financial Position
Cash provided by operating activities was $9.1 million, a
decrease of $38.4 million from the prior year. The decrease
in the first quarter of Fiscal 2008 versus Fiscal 2007 is
primarily due to higher inventories and unfavorable movement in
income taxes, partially offset by favorable movement in accounts
payable and approximately $35 million of cash paid in the
prior year for reorganization costs related to workforce
reductions in Fiscal 2006. The higher inventory levels reflect
stock-building required to support customer service demands
created by the Companys strong growth. The
15
Company expects this increase in inventory to persist through
the first half of the year and return to more normal levels in
the back half of the fiscal year as it invests in additional
capacity. The Company continues to make progress in reducing its
cash conversion cycle, with a reduction of 3 days, to
44 days in the first quarter of Fiscal 2008, reflecting
improvements in receivables and accounts payable.
During the first quarter of Fiscal 2007, a foreign subsidiary of
the Company revalued certain of its assets, under local law,
increasing the local tax basis by approximately
$245 million. As a result of this revaluation, the Company
incurred a foreign income tax liability of approximately
$30 million related to this revaluation which was paid
during the third quarter of Fiscal 2007. Additionally, cash flow
from operations is expected to be improved by approximately
$100 million over the five to twenty year tax amortization
period.
Cash used for investing activities totaled $101.2 million
compared to $13.6 million last year. In Fiscal 2008, cash
paid for acquisitions, net of divestitures, required
$24.4 million, primarily related to the acquisition of the
license to the
Cottees®
and
Roses®
premium branded jams, jellies and toppings business in Australia
and New Zealand, partially offset by the divestiture of a tomato
paste business in Portugal. Proceeds from divestitures, net of
acquisitions, provided $10.4 million in Fiscal 2007
primarily related to the Companys sale in the first
quarter of a non-core U.S. Foodservice product line, a
frozen and chilled product line in the U.K., and a pet food
business in Argentina. Capital expenditures totaled
$58.2 million (2.6% of sales) compared to
$38.9 million (1.9% of sales) in the prior year, which
reflect capacity-related spending in support of future growth
and an ongoing investment in better systems. Proceeds from
disposals of property, plant and equipment were
$0.2 million compared to $24.4 million in the prior
year.
Cash used by financing activities totaled $224.3 million
compared to $142.3 million last year. Proceeds from
short-term debt and commercial paper were $16.1 million
this year compared to payments of $10.5 million in the
prior year. Payments on long-term debt were $1.1 million in
the current year compared to $22.5 million in the prior
year. Cash used for the purchases of treasury stock, net of
proceeds from option exercises, was $127.3 million this
year compared to $1.3 million in the prior year, in line
with the Companys plans for repurchasing $500 million
in net shares in Fiscal 2008. Dividend payments totaled
$123.2 million, compared to $116.4 million for the
same period last year, reflecting an 8.6% increase in the annual
dividend on common stock.
At August 1, 2007, the Company had total debt of
$4.88 billion (including $29.4 million relating to the
fair value of interest rate swaps) and cash and cash equivalents
of $352.0 million. Total debt balances since prior year end
increased slightly primarily due to share repurchases.
The Company and H.J. Heinz Finance Company maintain a
$2 billion credit agreement that expires in 2009. The
credit agreement supports the Companys commercial paper
borrowings. As a result, these borrowings are classified as
long-term debt based upon the Companys intent and ability
to refinance these borrowings on a long-term basis. The Company
maintains in excess of $1 billion of other credit
facilities used primarily by the Companys foreign
subsidiaries. These resources, the Companys existing cash
balance, strong operating cash flow, and access to the capital
markets, if required, should enable the Company to meet its cash
requirements for operations, including capital expansion
programs, debt maturities, share repurchases and dividends to
shareholders.
As of August 1, 2007, the Companys long-term debt
ratings at Moodys and Standard & Poors
were Baa2 and BBB, respectively.
The impact of inflation on both the Companys financial
position and the results of operations is not expected to
adversely affect Fiscal 2008 results.
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
16
the ordinary conduct of business. A few of these obligations are
long-term and are based on minimum purchase requirements. In the
aggregate, such commitments are not at prices in excess of
current markets. Due to the proprietary nature of some of the
Companys materials and processes, certain supply contracts
contain penalty provisions for early terminations. The Company
does not believe that a material amount of penalties is
reasonably likely to be incurred under these contracts based
upon historical experience and current expectations. There have
been no material changes to contractual obligations during the
three months ended August 1, 2007. For additional
information, refer to pages 24 and 25 of the Companys
Annual Report on
Form 10-K
for the fiscal year ended May 2, 2007.
The Company adopted Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48) as of the beginning
of fiscal year 2008. As of the date of adoption, 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 $241.8 million. However, the net obligation
to taxing authorities under FIN 48 was $142.6 million.
The difference relates primarily to outstanding refund claims.
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 liability at August 1, 2007 was not
materially different from the liability at the date of adoption.
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 July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in financial
statements. This Interpretation includes a recognition threshold
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on de-recognition, classification, interest and penalties,
accounting in interim periods, and disclosures. For additional
information, see Note 4, Income Taxes in
Item 1Financial Statements.
CAUTIONARY
STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
Statements about future growth, profitability, costs,
expectations, plans, or objectives included in this report,
including the 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 Heinzs 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,
|
|
|
|
|
sales, earnings, and volume growth,
|
|
|
|
general economic, political, and industry conditions,
|
|
|
|
competitive conditions, which affect, among other things,
customer preferences and the pricing of products, production,
energy, and raw material costs,
|
|
|
|
the availability of raw materials and packaging,
|
|
|
|
the ability to identify and anticipate and respond through
innovation to consumer trends,
|
|
|
|
the need for product recalls,
|
|
|
|
the ability to maintain favorable supplier relationships,
|
|
|
|
currency valuations and interest rate fluctuations,
|
|
|
|
changes in credit ratings,
|
17
|
|
|
|
|
the ability to identify and complete and the timing, pricing and
success of acquisitions, joint ventures, divestitures, and other
strategic initiatives,
|
|
|
|
approval of acquisitions and divestitures by competition
authorities, and satisfaction of other legal requirements,
|
|
|
|
the ability to successfully complete cost reduction programs,
|
|
|
|
the ability to effectively integrate acquired businesses, new
product and packaging innovations,
|
|
|
|
product mix,
|
|
|
|
the effectiveness of advertising, marketing, and promotional
programs,
|
|
|
|
supply chain efficiency,
|
|
|
|
cash flow initiatives,
|
|
|
|
risks inherent in litigation, including tax litigation, and
international operations, particularly the performance of
business in hyperinflationary environments,
|
|
|
|
changes in estimates in critical accounting judgments and
changes in laws and regulations, including tax laws,
|
|
|
|
the success of tax planning strategies,
|
|
|
|
the possibility of increased pension expense and contributions
and other people-related costs,
|
|
|
|
the potential adverse impact of natural disasters, such as
flooding and crop failures,
|
|
|
|
the ability to implement new information systems, and
|
|
|
|
other factors described in Risk Factors and
Cautionary Statement Relevant to Forward-Looking
Information in the Companys
Form 10-K
for the fiscal year ended May 2, 2007.
|
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.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
There have been no material changes in the Companys market
risk during the first quarter ended August 1, 2007. For
additional information, refer to pages
25-26 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 2, 2007.
|
|
Item 4.
|
Controls
and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures, as of the end
of the period covered by this report, were effective and
provided reasonable assurance that the information required to
be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is (i) recorded, processed,
summarized, and reported within the time periods specified in
the SECs rules and forms, and (ii) accumulated and
communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
No change in the Companys internal control over financial
reporting occurred during the Companys most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
18
PART IIOTHER
INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
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 May 2, 2007. The risk factors
disclosed in Part I, Item 1A to our Annual Report on
Form 10-K
for the fiscal year ended May 2, 2007, 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 deems to be immaterial
also may materially adversely affect our business, financial
condition, or results of operations.
|
|
Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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In the first quarter of Fiscal 2008, the Company repurchased the
following number of shares of its common stock:
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Maximum
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Total Number of
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Number of
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Shares Purchased
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Shares that
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Total
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Average
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as Part of
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May Yet Be
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Number
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Price
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Publicly
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Purchased
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of Shares
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Paid per
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Announced Plans
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Under the Plans
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Period
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Purchased
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Share
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or Programs
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or Programs
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May 3, 2007 - May 30,
2007
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$
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May 31, 2007 - June 27,
2007
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550,000
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46.39
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June 28, 2007 -
August 1, 2007
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2,585,000
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45.59
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Total
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3,135,000
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$
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45.73
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The shares repurchased were acquired under the share repurchase
program authorized by the Board of Directors on May 31,
2006 for a maximum of 25 million shares. All repurchases
were made in open market transactions. As of August 1,
2007, the maximum number of shares that may yet be purchased
under the 2006 program is 20,284,792.
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Item 3.
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Defaults
upon Senior Securities
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Nothing to report under this item.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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Nothing to report under this item.
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Item 5.
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Other
Information
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Nothing to report under this item.
Exhibits required to be furnished by Item 601 of
Regulation S-K
are listed below. The Company may have omitted certain exhibits
in accordance with Item 601(b)(4)(iii)(A) of
Regulation S-K
and any exhibits filed pursuant to Item 601(b)(2) of
Regulation S-K
may omit certain schedules. The Company agrees to furnish such
documents to the Commission upon request. Documents not
19
designated as being incorporated herein by reference are set
forth herewith. The paragraph numbers correspond to the exhibit
numbers designated in Item 601 of
Regulation S-K.
3(i). The Companys Second Amended
and Restated Articles of Incorporation.
3(ii). The Companys By-Laws, as
amended and effective August 15, 2007.
10(a). Management contracts and
compensatory plans:
(i). Form of Fiscal Year 2008 Stock
Option Award and Agreement (U.S. Employees).
(ii). Form of Stock Option Award and
Agreement.
(iii). Form of Restricted Stock Unit
Award and Agreement.
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(iv).
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Form of Revised Fiscal Year 2008 Restricted Stock Unit Award and
Agreement (U.S. Employees).
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(v). Form of Restricted Stock Unit Award
and Agreement (U.S. Employees Retention).
(vi). Second Amended and Restated Global
Stock Purchase Plan.
(vii). Second Amended and Restated Fiscal
Year 2003 Stock Incentive Plan.
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.
20
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
H. J. HEINZ COMPANY
(Registrant)
Date: August 24, 2007
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By:
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/s/ Arthur
B. Winkleblack
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Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 24, 2007
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By:
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/s/ Edward
J. McMenamin
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Edward J. McMenamin
Senior Vice PresidentFinance
and Corporate Controller
(Principal Accounting Officer)
21
EXHIBIT INDEX
DESCRIPTION OF EXHIBIT
Exhibits required to be furnished by Item 601 of
Regulation S-K
are listed below. Documents not designated as being incorporated
herein by reference are furnished herewith. The Company may have
omitted certain exhibits in accordance with
Item 601(b)(4)(iii)(A) of
Regulation S-K
and any exhibits filed pursuant to Item 601(b)(2) of
Regulation S-K
may omit certain schedules. The Company agrees to furnish such
documents to the Commission upon request. The paragraph numbers
correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
3(i). The Companys Second Amended and Restated
Articles of Incorporation.
3(ii). The Companys By-Laws, as amended and
effective August 15, 2007.
10(a). Management contracts and compensatory plans:
(i). Form of Fiscal Year 2008 Stock Option Award and
Agreement (U.S. Employees).
(ii). Form of Stock Option Award and Agreement.
(iii). Form of Restricted Stock Unit Award and
Agreement.
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(iv).
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Form of Revised Fiscal Year 2008 Restricted Stock Unit Award and
Agreement (U.S. Employees).
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(v). Form of Restricted Stock Unit Award and
Agreement (U.S. Employees Retention).
(vi). Second Amended and Restated Global Stock
Purchase Plan.
(vii). Second Amended and Restated Fiscal Year 2003
Stock Incentive Plan.
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.