H.J. HEINZ COMPANY 10-K
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended April 30, 2008
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or
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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 of Incorporation)
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(I.R.S. Employer Identification No.)
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One PPG Place
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15222
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Pittsburgh, Pennsylvania
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(Zip Code)
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(Address of principal executive
offices)
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412-456-5700
(Registrants telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.25 per share
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The New York Stock Exchange
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Third Cumulative Preferred Stock,
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$1.70 First Series, par value $10 per share
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The New York Stock Exchange
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SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated filer
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell Company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of October 31, 2007 the aggregate market value of the
Registrants voting stock held by non-affiliates of the
Registrant was approximately $14.2 billion.
The number of shares of the Registrants Common Stock, par
value $.25 per share, outstanding as of May 31, 2008, was
312,559,006 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on August 13, 2008,
which will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrants
fiscal year ended April 30, 2008, are incorporated into
Part III, Items 10, 11, 12, 13, and 14.
PART I
H. J. Heinz Company was incorporated in Pennsylvania on
July 27, 1900. In 1905, it succeeded to the business of a
partnership operating under the same name which had developed
from a food business founded in 1869 in Sharpsburg, Pennsylvania
by Henry J. Heinz. H. J. Heinz Company and its subsidiaries
(collectively, the Company) manufacture and market
an extensive line of food products throughout the world. The
Companys principal products include ketchup, condiments
and sauces, frozen food, soups, beans and pasta meals, infant
nutrition and other processed food products.
The Companys products are manufactured and packaged to
provide safe, wholesome foods for consumers, as well as
foodservice and institutional customers. Many products are
prepared from recipes developed in the Companys research
laboratories and experimental kitchens. Ingredients are
carefully selected, inspected and passed on to modern factory
kitchens where they are processed, after which the intermediate
product is filled automatically into containers of glass, metal,
plastic, paper or fiberboard, which are then sealed. Products
are processed by sterilization, blending, fermentation,
pasteurization, homogenization, chilling, freezing, pickling,
drying, freeze drying, baking or extruding, then labeled and
cased for market. Quality assurance procedures are designed for
each product and process and applied to ensure quality and
compliance with applicable laws.
The Company manufactures and contracts for the manufacture of
its products from a wide variety of raw foods. Pre-season
contracts are made with farmers for a portion of raw materials
such as tomatoes, cucumbers, potatoes, onions and some other
fruits and vegetables. Dairy products, meat, sugar and other
sweeteners including high fructose corn syrup, spices, flour and
certain other fruits and vegetables are purchased from approved
suppliers.
The following table lists the number of the Companys
principal food processing factories and major trademarks by
region:
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Factories
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Owned
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Leased
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Major Owned and Licensed Trademarks
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North America
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22
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4
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Heinz, Classico, Quality Chef Foods, Jack Daniels*,
Catelli, Wylers, Heinz Bell Orto, Bella Rossa, Chef
Francisco, Diannes, Ore-Ida, Tater Tots, Bagel Bites,
Weight Watchers* Smart Ones, Boston Market*, Poppers, T.G.I.
Fridays*, Delimex, Truesoups, Alden Merrell, Escalon, PPI,
Todds, Appetizers And, Inc., Nancys, Lea &
Perrins, Renees Gourmet, HP, Diana, Bravo
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Europe
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21
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Heinz, Orlando, Karvan Cevitam, Brinta, Roosvicee, Venz,
Weight Watchers*, Farleys, Farex, Sonnen Bassermann,
Plasmon, Nipiol, Dieterba, Bi-Aglut, Aproten, Pudliszki, Ross,
Honig, De Ruijter, Aunt Bessie*, Mums Own, Moya Semya,
Picador, Derevenskoye, Mechta Hoziajki, Lea & Perrins,
HP, Amoy*, Daddies, Squeezme!, Wyko
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Asia/Pacific
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17
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2
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Heinz, Tom Piper, Watties, ABC, Chef, Craigs,
Bruno, Winna, Hellaby, Hamper, Farleys, Greenseas,
Gourmet, Nurture, LongFong, Ore-Ida, SinSin, Lea &
Perrins, HP, Star-Kist, Classico, Weight Watchers*, Pataks*,
Cottees*, Roses*, Complan, Glucon D, Nycil
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Rest of World
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5
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3
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Heinz, Wellingtons, Today, Mamas, John West,
Farleys, Dieterba, HP, Lea & Perrins, Classico,
Banquete
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65
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9
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* Used under license
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The Company also owns or leases office space, warehouses,
distribution centers and research and other facilities
throughout the world. The Companys food processing
factories and principal properties are in good condition and are
satisfactory for the purposes for which they are being utilized.
2
The Company has developed or participated in the development of
certain of its equipment, manufacturing processes and packaging,
and maintains patents and has applied for patents for some of
those developments. The Company regards these patents and patent
applications as important but does not consider any one or group
of them to be materially important to its business as a whole.
Although crops constituting some of the Companys raw food
ingredients are harvested on a seasonal basis, most of the
Companys products are produced throughout the year.
Seasonal factors inherent in the business have always influenced
the quarterly sales, operating income and cash flows of the
Company. Consequently, comparisons between quarters have always
been more meaningful when made between the same quarters of
prior years.
The products of the Company are sold under highly competitive
conditions, with many large and small competitors. The Company
regards its principal competition to be other manufacturers of
processed foods, including branded retail products, foodservice
products and private label products, that compete with the
Company for consumer preference, distribution, shelf space and
merchandising support. Product quality and consumer value are
important areas of competition.
The Companys products are sold through its own sales
organizations and through independent brokers, agents and
distributors to chain, wholesale, cooperative and independent
grocery accounts, convenience stores, bakeries, pharmacies, mass
merchants, club stores, foodservice distributors and
institutions, including hotels, restaurants, hospitals,
health-care facilities, and certain government agencies. For
Fiscal 2008, one customer, Wal-Mart Stores Inc., represented
10.4% of the Companys sales. We closely monitor the credit
risk associated with our customers and to date have not
experienced material losses.
Compliance with the provisions of national, state and local
environmental laws and regulations has not had a material effect
upon the capital expenditures, earnings or competitive position
of the Company. The Companys estimated capital
expenditures for environmental control facilities for the
remainder of Fiscal Year 2009 and the succeeding fiscal year are
not material and are not expected to materially affect either
the earnings, cash flows or competitive position of the Company.
The Companys factories are subject to inspections by
various governmental agencies, including the United States
Department of Agriculture, and the Occupational Health and
Safety Administration, and its products must comply with the
applicable laws, including food and drug laws, such as the
Federal Food and Cosmetic Act of 1938, as amended, and the
Federal Fair Packaging or Labeling Act of 1966, as amended, of
the jurisdictions in which they are manufactured and marketed.
The Company employed, on a full-time basis as of April 30,
2008, approximately 32,500 people around the world.
Segment information is set forth in this report on pages 69
through 72 in Note 15, Segment Information in
Item 8Financial Statements and Supplementary
Data.
Income from international operations is subject to fluctuation
in currency values, export and import restrictions, foreign
ownership restrictions, economic controls and other factors.
From time to time, exchange restrictions imposed by various
countries have restricted the transfer of funds between
countries and between the Company and its subsidiaries. To date,
such exchange restrictions have not had a material adverse
effect on the Companys operations.
The Companys annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
section 13(a) or 15(d) of the Exchange Act are available
free of charge on the Companys website at
www.heinz.com, as soon as reasonably practicable after
filed or furnished to the Securities and Exchange Commission
(SEC). Our reports filed with the SEC are also made
available to read and copy at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information about the Public Reference
Room by contacting the SEC at
1-800-SEC-0330.
Reports filed with the SEC are also made available on its
website at www.sec.gov.
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Executive
Officers of the Registrant
The following is a list of the names and ages of all of the
executive officers of H. J. Heinz Company indicating all
positions and offices held by each such person and each such
persons principal occupations or employment during the
past five years. All the executive officers have been elected to
serve until the next annual election of officers, until their
successors are elected, or until their earlier resignation or
removal. The annual election of officers is scheduled to occur
on August 13, 2008.
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Positions and Offices Held with the Company and
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Age (as of
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Principal Occupations or
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Name
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August 13, 2008)
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Employment During Past Five Years
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William R. Johnson
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59
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Chairman, President, and Chief Executive Officer since September
2000.
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Theodore N. Bobby
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57
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Executive Vice President and General Counsel since January 2007;
Senior Vice President and General Counsel from April 2005 to
January 2007; Acting General Counsel from January 2005 to April
2005; Vice PresidentLegal Affairs from September 1999 to
January 2005.
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Edward J. McMenamin
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51
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Senior Vice PresidentFinance and Corporate Controller
since August 2004; Vice President Finance from June 2001 to
August 2004.
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Michael D. Milone
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51
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Senior Vice President-Heinz Pacific, Rest of World and
Enterprise Risk Management since May 2006; Senior Vice
PresidentPresident Rest of World and Asia from May 2005 to
May 2006; Senior Vice PresidentPresident Rest of World
from December 2003 to May 2005; Chief Executive Officer
Star-Kist Foods, Inc. from June 2002 to December 2003.
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David C. Moran
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Executive Vice President & Chief Executive Officer and
President of Heinz North America since May 2007; Executive Vice
President & Chief Executive Officer and President of Heinz
North America Consumer Products from November 2005 to May 2007;
Senior Vice PresidentPresident Heinz North America
Consumer Products from May 2005 to November 2005; President
North America Consumer Products from January 2003 to May 2005.
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C. Scott OHara
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47
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Executive Vice PresidentPresident and Chief Executive
Officer Heinz Europe since May 2006; Executive Vice
PresidentAsia Pacific/Rest of World from January 2006 to
May 2006; Senior Vice President EuropeThe Gillette Company
from October 2004 to January 2006; General Manager U.K. and
NLThe Gillette Company from June 2001 to October 2004.
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D. Edward I. Smyth
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58
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Senior Vice PresidentChief Administrative Officer and
Corporate and Government Affairs since December 2002
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Positions and Offices Held with the Company and
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Age (as of
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Principal Occupations or
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Name
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August 13, 2008)
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Employment During Past Five Years
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Christopher J. Warmoth
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49
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Senior Vice PresidentHeinz Asia since May 2006; Deputy
President Heinz Europe from December 2003 to April 2006;
Director Business Development and Marketing, Central and Eastern
Europe, Eurasia and Middle East Group, The Coca-Cola Company
from December 2001 to April 2003.
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Arthur B. Winkleblack
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51
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Executive Vice President and Chief Financial Officer since
January 2002.
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In addition to the factors discussed elsewhere in this Report,
the following risks and uncertainties could materially and
adversely affect the Companys business, financial
condition, and results of operations. Additional risks and
uncertainties that are not presently known to the Company or are
currently deemed by the Company to be immaterial also may impair
the Companys business operations and financial condition.
Competitive
product and pricing pressures in the food industry could
adversely affect the Companys ability to gain or maintain
market share.
The Company operates in the highly competitive food industry
across its product lines competing with other companies that
have varying abilities to withstand changing market conditions.
Any significant change in the Companys relationship with a
major customer, including changes in product prices, sales
volume, or contractual terms may impact financial results. Such
changes may result because the Companys competitors may
have substantial financial, marketing, and other resources that
may change the competitive environment. Such competition could
cause the Company to reduce prices
and/or
increase capital, marketing, and other expenditures, or could
result in the loss of category share. Such changes could have a
material adverse impact on the Companys net income. As the
retail grocery trade continues to consolidate, the larger retail
customers of the Company could seek to use their positions to
improve their profitability through lower pricing and increased
promotional programs. If the Company is unable to use its scale,
marketing expertise, product innovation, and category leadership
positions to respond to these changes, its profitability and
volume growth could be impacted in a materially adverse way.
The
Companys performance may be adversely affected by economic
and political conditions in the U.S. and in various other
nations where it does business.
The Companys performance has been in the past and may
continue in the future to be impacted by economic and political
conditions in the United States and in other nations. Such
conditions and factors include changes in applicable laws and
regulations, including changes in food and drug laws, accounting
standards, taxation requirements and environmental laws. Other
factors impacting our operations include export and import
restrictions, currency exchange rates, recessionary conditions,
foreign ownership restrictions, nationalization, the performance
of businesses in hyperinflationary environments, and terrorist
acts and political unrest in the U.S., Venezuela and other
international locations where the Company does business. Such
changes in either domestic or foreign jurisdictions could
materially and adversely affect our financial results.
Increases
in the cost and restrictions on the availability of raw
materials could adversely affect our financial
results.
The Company sources raw materials including agricultural
commodities such as tomatoes, cucumbers, potatoes, onions, other
fruits and vegetables, dairy products, meat, sugar and other
sweeteners, including high fructose corn syrup, spices, and
flour, as well as packaging materials such
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as glass, plastic, metal, paper, fiberboard, and other materials
in order to manufacture products. The availability or cost of
such commodities may fluctuate widely due to government policy
and regulation, crop failures or shortages due to plant disease
or insect and other pest infestation, weather conditions,
increased demand for biofuels, or other unforeseen
circumstances. To the extent that any of the foregoing factors
increase the prices of such commodities and the Company is
unable to increase its prices or adequately hedge against such
changes in a manner that offsets such changes, the results of
its operations could be materially and adversely affected.
Similarly, if supplier arrangements and relationships result in
increased and unforeseen expenses, the Companys financial
results could be materially and adversely impacted.
Disruption
of our supply chain could adversely affect our
business.
Damage or disruption to our manufacturing or distribution
capabilities due to weather, natural disaster, fire, terrorism,
pandemic, strikes, the financial
and/or
operational instability of key suppliers, distributors,
warehousing and transportation providers, or brokers, or other
reasons could impair our ability to manufacture or sell our
products. To the extent the Company is unable to, or cannot
financially mitigate the likelihood or potential impact of such
events, or to effectively manage such events if they occur,
particularly when a product is sourced from a single location,
there could be a materially adverse affect on our business and
results of operations, and additional resources could be
required to restore our supply chain.
Higher
energy costs and other factors affecting the cost of producing,
transporting, and distributing the Companys products could
adversely affect our financial results.
Rising fuel and energy costs may have a significant impact on
the cost of operations, including the manufacture,
transportation, and distribution of products. Fuel costs may
fluctuate due to a number of factors outside the control of the
Company, including government policy and regulation and weather
conditions. Additionally, the Company may be unable to maintain
favorable arrangements with respect to the costs of procuring
raw materials, packaging, services, and transporting products,
which could result in increased expenses and negatively affect
operations. If the Company is unable to hedge against such
increases or raise the prices of its products to offset the
changes, its results of operations could be materially and
adversely affected.
The
results of the Company could be adversely impacted as a result
of increased pension, labor, and people-related
expenses.
Inflationary pressures and any shortages in the labor market
could increase labor costs, which could have a material adverse
effect on the Companys consolidated operating results or
financial condition. The Companys labor costs include the
cost of providing employee benefits in the U.S. and foreign
jurisdictions, including pension, health and welfare, and
severance benefits. Any declines in market returns could
adversely impact the funding of pension plans, the assets of
which are invested in a diversified portfolio of equity and
fixed income securities and other investments. Additionally, the
annual costs of benefits vary with increased costs of health
care and the outcome of collectively-bargained wage and benefit
agreements.
The
impact of various food safety issues, environmental, legal, tax,
and other regulations and related developments could adversely
affect the Companys sales and profitability.
The Company is subject to numerous food safety and other laws
and regulations regarding the manufacturing, marketing, and
distribution of food products. These regulations govern matters
such as ingredients, advertising, taxation, relations with
distributors and retailers, health and safety matters, and
environmental concerns. The ineffectiveness of the
Companys planning and policies with respect to these
matters, and the need to comply with new or revised laws or
regulations with regard to licensing requirements, trade and
pricing practices, environmental permitting, or other food or
safety matters, or new interpretations or enforcement of
existing laws and regulations, may have a material adverse
effect on the Companys sales and profitability. Avian flu
or other pandemics could disrupt production of the
Companys products, reduce demand for certain of the
Companys
6
products, or disrupt the marketplace in the foodservice or
retail environment with consequent material adverse effect on
the Companys results of operations.
The
need for and effect of product recalls could have an adverse
impact on the Companys business.
If any of the Companys products become misbranded or
adulterated, the Company may need to conduct a product recall.
The scope of such a recall could result in significant costs
incurred as a result of the recall, potential destruction of
inventory, and lost sales. Should consumption of any product
cause injury, the Company may be liable for monetary damages as
a result of a judgment against it. A significant product recall
or product liability case could cause a loss of consumer
confidence in the Companys food products and could have a
material adverse effect on the value of its brands and results
of operations.
The
failure of new product or packaging introductions to gain trade
and consumer acceptance and changes in consumer preferences
could adversely affect our sales.
The success of the Company is dependent upon anticipating and
reacting to changes in consumer preferences, including health
and wellness. There are inherent marketplace risks associated
with new product or packaging introductions, including
uncertainties about trade and consumer acceptance. Moreover,
success is dependent upon the Companys ability to identify
and respond to consumer trends through innovation. The Company
may be required to increase expenditures for new product
development. The Company may not be successful in developing new
products or improving existing products, or its new products may
not achieve consumer acceptance, each of which could materially
and negatively impact sales.
The
failure to successfully integrate acquisitions and joint
ventures into our existing operations or the failure to gain
applicable regulatory approval for such transactions could
adversely affect our financial results.
The Companys ability to efficiently integrate acquisitions
and joint ventures into its existing operations also affects the
financial success of such transactions. The Company may seek to
expand its business through acquisitions and joint ventures, and
may divest underperforming or non-core businesses. The
Companys success depends, in part, upon its ability to
identify such acquisition, joint venture, and divestiture
opportunities and to negotiate favorable contractual terms.
Activities in such areas are regulated by numerous antitrust and
competition laws in the U. S., the European Union, and other
jurisdictions, and the Company may be required to obtain the
approval of acquisition and joint venture transactions by
competition authorities, as well as satisfy other legal
requirements. The failure to obtain such approvals could
materially and adversely affect our results.
The
Companys operations face significant foreign currency
exchange rate exposure, which could negatively impact its
operating results.
The Company holds assets and incurs liabilities, earns revenue,
and pays expenses in a variety of currencies other than the
U.S. dollar, primarily the British Pound, Euro, Australian
dollar, Canadian dollar, and New Zealand dollar. The
Companys consolidated financial statements are presented
in U.S. dollars, and therefore the Company must translate
its assets, liabilities, revenue, and expenses into
U.S. dollars for external reporting purposes. Increases or
decreases in the value of the U.S. dollar may materially
and negatively affect the value of these items in the
Companys consolidated financial statements, even if their
value has not changed in their original currency.
The
Company could incur more debt, which could have an adverse
impact on our business.
The Company may incur additional indebtedness in the future to
fund acquisitions, repurchase shares, or fund other activities
for general business purposes, which could result in a downward
change in credit rating. The Companys ability to make
payments on and refinance its indebtedness and fund planned
capital expenditures depends upon its ability to generate cash
in the future. The
7
cost of incurring additional debt could increase in the event of
possible downgrades in the Companys credit rating.
Additionally, the Companys ability to pay cash dividends
will depend upon its ability to generate cash and profits,
which, to a certain extent, is subject to economic, financial,
competitive, and other factors beyond the Companys control.
The
failure to implement our growth plans could adversely affect the
Companys ability to increase net income.
The success of the Company could be impacted by its inability to
continue to execute on its publicly-announced growth plans
regarding product innovation, implementing cost-cutting
measures, improving supply chain efficiency, enhancing processes
and systems, including information technology systems, on a
global basis, and growing market share and volume. The failure
to fully implement the plans could materially and adversely
affect the Companys ability to increase net income.
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, 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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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 relationships,
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currency valuations and interest rate fluctuations,
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changes in credit ratings, leverage, and economic conditions,
and the impact of these factors on our cost of borrowing and
access to capital markets,
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the ability to execute 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, new
product and packaging innovations,
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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 in international
markets, economic or political instability in those markets,
particularly in Venezuela, and 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 potential
disruptions due to failures in technology systems,
|
|
|
|
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
anticipated cash needs, and
|
|
|
|
other factors as described in Risk Factors above.
|
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 1B.
|
Unresolved
Staff Comments
|
None.
See table in Item 1.
|
|
Item 3.
|
Legal
Proceedings.
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
9
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Information relating to the Companys common stock is set
forth in this report on page 33 under the caption
Stock Market Information in
Item 7Managements Discussion and Analysis
of Financial Condition and Results of Operations, and on
pages 72 through 73 in Note 16, Quarterly
Results in Item 8Financial Statements and
Supplementary Data.
In the fourth quarter of Fiscal 2008, the Company repurchased
the following number of shares of its common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
Total
|
|
|
|
|
|
Total Number of
|
|
|
Number of Shares
|
|
|
|
Number of
|
|
|
Average
|
|
|
Shares Purchased as
|
|
|
that May Yet Be
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Part of Publicly
|
|
|
Purchased Under
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Announced Programs
|
|
|
the Programs
|
|
|
January 31, 2008
February 27, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
February 28, 2008
March 26, 2008
|
|
|
4,150,000
|
|
|
|
44.48
|
|
|
|
|
|
|
|
|
|
March 27, 2008
April 30, 2008
|
|
|
580,000
|
|
|
|
47.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,730,000
|
|
|
$
|
44.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 April 30,
2008, the maximum number of shares that may yet be purchased
under the 2006 program is 10,366,192.
10
|
|
Item 6.
|
Selected
Financial Data.
|
The following table presents selected consolidated financial
data for the Company and its subsidiaries for each of the five
fiscal years 2004 through 2008. All amounts are in thousands
except per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
April 28,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Sales(1)
|
|
$
|
10,070,778
|
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
|
$
|
7,625,831
|
|
Interest expense(1)
|
|
|
364,856
|
|
|
|
333,270
|
|
|
|
316,296
|
|
|
|
232,088
|
|
|
|
211,382
|
|
Income from continuing operations(1)
|
|
|
844,925
|
|
|
|
791,602
|
|
|
|
442,761
|
|
|
|
688,004
|
|
|
|
715,451
|
|
Income from continuing operations per sharediluted(1)
|
|
|
2.63
|
|
|
|
2.38
|
|
|
|
1.29
|
|
|
|
1.95
|
|
|
|
2.02
|
|
Income from continuing operations per sharebasic(1)
|
|
|
2.67
|
|
|
|
2.41
|
|
|
|
1.31
|
|
|
|
1.97
|
|
|
|
2.03
|
|
Short-term debt and current portion of long-term debt(2)
|
|
|
452,708
|
|
|
|
468,243
|
|
|
|
54,969
|
|
|
|
573,269
|
|
|
|
436,450
|
|
Long-term debt, exclusive of current portion(2)
|
|
|
4,730,946
|
|
|
|
4,413,641
|
|
|
|
4,357,013
|
|
|
|
4,121,984
|
|
|
|
4,537,980
|
|
Total assets(3)
|
|
|
10,565,043
|
|
|
|
10,033,026
|
|
|
|
9,737,767
|
|
|
|
10,577,718
|
|
|
|
9,877,189
|
|
Cash dividends per common share
|
|
|
1.52
|
|
|
|
1.40
|
|
|
|
1.20
|
|
|
|
1.14
|
|
|
|
1.08
|
|
|
|
|
(1) |
|
Amounts exclude the operating results related to the
Companys European seafood business and
Tegel®
poultry businesses in New Zealand which were divested in Fiscal
2006 and have been presented as discontinued operations. |
|
(2) |
|
Long-term debt, exclusive of current portion, includes
$198.3 million, $71.0 million, ($1.4) million,
$186.1 million, and $125.3 million of hedge accounting
adjustments associated with interest rate swaps at
April 30, 2008, May 2, 2007, May 3, 2006,
April 27, 2005, and April 28, 2004, respectively.
Heinz Finance Companys $325 million of mandatorily
redeemable preferred shares are classified as long-term debt as
a result of the adoption of Statement of Financial Accounting
Standards (SFAS) No. 150. |
|
(3) |
|
Fiscals 2008 and 2007 reflect the adoption of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans- an
amendment of FASB Statements No. 87, 88, 106 and
132(R). See Note 2, Recently Issued Accounting
Standards in
Item 8-
Financial Statements and Supplementary Data. |
As a result of the Companys strategic transformation, the
Fiscal 2006 results from continuing operations include expenses
of $124.7 million pretax ($80.3 million after tax) for
targeted workforce reductions consistent with the Companys
goals to streamline its businesses and expenses of
$22.0 million pretax ($16.3 million after tax) for
strategic review costs related to the potential divestiture of
several businesses. Also, $206.5 million pretax
($153.9 million after tax) was recorded for net losses on
non-core businesses and product lines which were sold and asset
impairment charges on non-core businesses and product lines
which were sold in Fiscal 2007. Also during 2006, the Company
reversed valuation allowances of $27.3 million primarily
related to The Hain Celestial Group, Inc. (Hain). In
addition, results include $24.4 million of tax expense
relating to the impact of the American Jobs Creation Act. For
more details regarding these items, see pages 47 to 48 in
Note 4, Fiscal 2006 Transformation Costs in
Item 8Financial Statements and Supplementary
Data.
11
Fiscal 2005 results from continuing operations include a
$64.5 million non-cash impairment charge for the
Companys equity investment in Hain and a $9.3 million
non-cash charge to recognize the impairment of a cost-basis
investment in a grocery industry sponsored
e-commerce
business venture. There was no tax benefit recorded with these
impairment charges in Fiscal 2005. Fiscal 2005 also includes a
$27.0 million pre-tax ($18.0 million after-tax)
non-cash asset impairment charge related to the anticipated
disposition of the HAK vegetable product line in Northern Europe
which occurred in Fiscal 2006.
Fiscal 2004 results from continuing operations include a gain of
$26.3 million ($13.3 million after-tax) related to the
disposal of a bakery business in Northern Europe, costs of
$16.6 million pretax ($10.6 million after-tax),
primarily due to employee termination and severance costs
related to on-going efforts to reduce overhead costs, and
$4.0 million pretax ($2.8 million after-tax) due to
the write down of pizza crust assets in the United Kingdom.
12
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Executive
Overview- Fiscal 2008
The H.J. Heinz Company has been a pioneer in the food industry
for 139 years and possesses one of the worlds best
and most recognizable
brandsHeinz®.
In the first half of this decade, the Company was reshaped
around three core categories, Ketchup, Condiments and Sauces,
Meals and Snacks and Infant/Nutrition. Beginning with the
spin-off of non-core U.S. businesses in December 2002 and
ending in Fiscal 2006 with the sales of our non-core European
Seafood and New Zealand Poultry businesses, we divested over
$3 billion of non-core sales from businesses where we
lacked scale and competitive advantage. During this same time
period, we acquired almost $1.5 billion of new revenue in
core categories and faster-growing emerging markets.
Consequently, our core categories now generate almost 96% of our
sales and each is showing strong growth. Additionally, our top
15 brands, each of which exceeds $100 million in annual
sales, drive approximately 70% of our sales. The
Heinz®
brand generates almost $4 billion of annual sales and has
extraordinary reach across all of our categories and most of our
markets. Our focus on three core categories, our top
15 brands and emerging markets has enhanced our growth
trajectory and enabled us to achieve improved productivity.
Performance
under the Fiscal
2007-2008
Superior Value and Growth Plan
Unless specifically noted, all amounts in this section
represent figures over the two-year time frame of the Plan
(Fiscal
2007-2008).
Also, all growth rates represent compounded annual growth rates
(CAGR) over this same two-year period, using Fiscal
2006 continuing operations, excluding special items as the base
(see table in Fiscal 2006 Transformation Costs which
reconciles Fiscal 2006 reported amounts to amounts excluding
special items).
On June 1, 2006, the Company presented its Superior Value
and Growth Plan for fiscal years 2007 and 2008. Under this Plan,
the Company set forth three key operational imperatives: grow
the core portfolio, reduce costs to drive margins and generate
cash to deliver superior value. Under each of these imperatives,
the Company established financial and operational targets aimed
at increasing shareholder value. The Company has met or exceeded
virtually all of the targets established in the two year Plan
and believes that it is well positioned for continued growth in
Fiscals 2009 and 2010. For the two years ending with Fiscal 2008:
|
|
|
|
|
Net sales grew at a CAGR of 8%, to over $10 billion for the
first time in the Companys history, driven primarily by
strong volume and net pricing as well as favorable foreign
exchange.
|
|
|
|
Operating income grew at a CAGR of 8%, as strong top-line growth
and productivity more than offset higher commodity costs and
incremental marketing investments, which grew at a CAGR of 19%.
|
|
|
|
Operating free cash flow in Fiscal 2008 (cash flow from
operations of $1,188 million less capital expenditures of
$302 million plus proceeds from disposals of PP&E of
$9 million) grew to $895 million and was nearly
$1.8 billion over the two-year Plan period.
|
|
|
|
EPS grew to $2.63, an average annual increase of 12%.
|
The following is a detailed analysis of the Companys
overall performance against the three imperatives under our
Superior Value and Growth Plan.
Grow
the Core Portfolio
This imperative focused on a strategy to grow our largest brands
in our three core categories. This strategy established targets
for average annual increased marketing spending of 17% and
double digit increases in research and development investment
(R&D). This strategy also focused on expansion
in various emerging markets, where growth potential was viewed
as high. During
13
Fiscal 2008 and over the entire two-year Plan period, we
delivered excellent results relative to this imperative as
evidenced by the following:
|
|
|
|
|
Our top 15 brands, which generate nearly 70% of total sales,
grew at a CAGR of 12%, driven by strong volume and net price
increases as well as favorable impacts from foreign exchange.
|
|
|
|
Over the two-year Plan period, we launched a number of new
products, which accounted for approximately 11% of sales and was
supported by a 19% average annual increase in marketing.
|
|
|
|
R&D increased at a CAGR of 18% as we increased capabilities
in the areas of innovation and consumer insight.
|
|
|
|
Innovation in our emerging markets (Russia, Poland, the Czech
Republic, Indonesia, China, India, South Africa, the Middle East
and Latin America) drove strong growth, with an average annual
sales increase of 19%, which accounted for 26% of the
Companys total sales growth over the two-year period.
These markets accounted for approximately 13% of total Company
sales in Fiscal 2008.
|
Reduce
Costs to Drive Margins
The Companys investment in growth behind the core
portfolio has been fueled by the second pillar of our two-year
Plan, Reducing Costs to Drive Margins. Key targets set under
this imperative included productivity improvements on deals and
allowances (D&A), cost of goods sold and
selling, general and administrative expenses
(SG&A). The following summarizes our results
relative to this imperative:
|
|
|
|
|
D&A as a percentage of gross sales was reduced by
170 basis points, 30 basis point ahead of our original
target.
|
|
|
|
Total gross profit dollars exceeded target expectations by
$200 million, or almost 6%, although gross margin was
200 basis points below target due to higher than expected
commodity inflation. As a result of new product introductions,
volume growth, pricing, productivity and foreign exchange, the
Company has successfully offset commodity costs and achieved
strong gross profit growth.
|
|
|
|
The Company divested or closed 20 plants around the globe, 4 of
which were during Fiscal 2008.
|
|
|
|
SG&A, excluding marketing, was 17.2% as a percentage of
sales in Fiscal 2008, 30 basis points better than target.
As a result of productivity gains in SG&A and despite a 19%
average annual increase in consumer marketing, we delivered
consistent operating income growth at a CAGR of 8%.
|
Generate
Cash to Deliver Superior Value
The Companys growth, cost savings and working capital
productivity drove operating free cash flow of almost
$1.8 billion, which averaged 9% of revenue and 109% of net
income over the two years. This was $123 million, or 7%
ahead of the target. A key driver in achieving our strong cash
flow results was the significant reduction in our Cash
Conversion Cycle (CCC) of 7 days, which is a
12% reduction when comparing Fiscal 2006 to 2008.
Much of this increased cash flow has been returned directly to
shareholders, as evidenced by the following:
|
|
|
|
|
Increase in the Companys dividend by 32 cents, or a CAGR
of 12.5%, to $1.52. This increase was to maintain our target
payout ratio of approximately 60%.
|
14
|
|
|
|
|
Decrease in average shares outstanding by 6% when comparing
Fiscal 2006 to 2008, resulting from net share repurchases of
$1 billion.
|
|
|
|
Combining dividends and share repurchases over the last two
years, the Company has returned more than $2 billion to
shareholders.
|
High-Performance
Growth Plan for Fiscal
2009-2010
The following are the major targets the Company has set under
its new High-Performance Growth Plan for Fiscals
2009-2010:
|
|
|
|
|
For Fiscal 2009 and Fiscal 2010, the Company expects combined
sales volume and net price growth of 6%+ annually and EPS growth
of 8% to 11% per year.
|
|
|
|
Emerging market revenues are targeted to grow in the high teens
over the next two years.
|
|
|
|
The Plan calls for 6% to 7% annual growth in operating income,
while increasing the investment in marketing by $60 million
to $100 million over the two-year period. Pricing and
productivity gains are expected to help offset the 8 to 9%
inflation expected in commodities to maintain the current gross
profit and operating income margins realized in Fiscal 2008.
|
|
|
|
Annualized dividend raised to $1.66 per share, an increase of
9.2%, for Fiscal 2009 and the Company anticipates a dividend
payout ratio of around 60% for Fiscal 2010.
|
|
|
|
The Company expects operating free cash flow of approximately
$1.7 billion over the two-year period, driven by a 2 to
3 day reduction per year in CCC.
|
Results
of Continuing Operations
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
Ketchup and sauces
|
|
$
|
4,081,864
|
|
|
$
|
3,682,102
|
|
|
$
|
3,530,346
|
|
Meals and snacks
|
|
|
4,521,697
|
|
|
|
4,026,168
|
|
|
|
3,876,743
|
|
Infant/Nutrition
|
|
|
1,089,544
|
|
|
|
929,075
|
|
|
|
863,943
|
|
Other
|
|
|
377,673
|
|
|
|
364,285
|
|
|
|
372,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,070,778
|
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended April 30, 2008 compared to Fiscal Year Ended
May 2, 2007
Sales for Fiscal 2008 increased $1.07 billion, or 11.9%, to
$10.07 billion, reflecting growth in all five business
segments. Volume increased 3.6%, as continued solid growth in
the North American Consumer Products segment, Australia, New
Zealand and the emerging markets were combined with strong
performance of beans, soup and pasta meals in the U.K. and
Heinz®
ketchup across Europe. The emerging markets produced a 9.1%
volume increase and accounted for over 24% of the Companys
total sales growth for the year. These volume increases were
partially offset by declines in U.S. Foodservice. Net
pricing increased sales by 3.3%, mainly in the North American
Consumer Products, European and U.S. Foodservice segments
and our businesses in Latin America and Indonesia. Divestitures,
net of acquisitions, decreased sales by 0.2%. Foreign exchange
translation rates increased sales by 5.1%.
Sales of the Companys top 15 brands grew 13.4% from prior
year, led by strong increases in
Heinz®,
Smart
Ones®,
Classico®,
Boston
Market®,
Pudliszki®,
Weight
Watchers®
and
ABC®.
These
15
increases are a result of the Companys strategy of focused
innovation and marketing support behind these top brands.
Gross profit increased $288 million, or 8.5%, to
$3.68 billion, benefiting from favorable volume, pricing
and foreign exchange translation rates. The gross profit margin
decreased to 36.5% from 37.7%, as pricing and productivity
improvements were more than offset by increased commodity costs.
The most significant commodity cost increases were for dairy,
oils and grains.
SG&A increased $166 million, or 8.5%, to
$2.11 billion. As a percentage of sales, SG&A
decreased to 21.0% from 21.6%. The increase in SG&A is due
to a 14.9% increase in marketing expense, a 16.9% increase in
R&D and higher selling and distribution costs
(S&D) resulting from increased volume, higher
fuel costs and foreign exchange translation rates. Additional
investments were also made in the current year for global task
force initiatives, streamlining and system capability
improvements. These increases were partially offset by the
benefits of effective cost control and prior year workforce
reductions and costs related to the proxy contest.
Total marketing support (recorded as a reduction of revenue or
as a component of SG&A) increased $177 million, or
8.1%, to $2.36 billion on a gross sales increase of 11.0%.
Marketing support recorded as a reduction of revenue, typically
D&A, increased $127 million, or 6.9%, to
$1.98 billion, but decreased as a percentage of gross sales
to 16.4% from 17.1%, 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 $50 million, or 14.9%, to
$383 million, as we increased consumer marketing across the
Companys businesses supporting innovation and our top
brands.
Operating income increased $122 million, or 8.5%, to
$1.57 billion, reflecting the strong sales growth,
productivity improvements and favorable impacts from foreign
exchange, partially offset by increased commodity costs.
Net interest expense increased $32 million, to
$323 million, largely as a result of higher debt in Fiscal
2008 related to share repurchase activity. Other expenses, net,
decreased $3 million to $28 million, primarily due to
an insignificant gain recognized on the sale of our business in
Zimbabwe.
The current year effective tax rate was 30.6% compared to 29.6%
for the prior year. The current years tax rate was higher
than the prior years primarily due to benefits recognized
in Fiscal 2007 for reversal of a foreign tax reserve, tax
planning completed in a foreign jurisdiction, and R&D tax
credits. Those prior year benefits were partially offset by
lower repatriation costs and increased benefits from tax audit
settlements occurring during Fiscal 2008, along with changes in
valuation allowances for foreign losses.
Income from continuing operations was $845 million compared
to $792 million in the prior year, an increase of 6.7%, due
to the increase in operating income, which was partially offset
by higher net interest expense and a higher effective tax rate.
Diluted earnings per share from continuing operations were $2.63
in the current year compared to $2.38 in the prior year, up
10.5%, which also benefited from a 3.2% reduction in fully
diluted shares outstanding.
FISCAL
YEAR 2008 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 15, Segments in
Item 8Financial Statements and Supplementary
Data for further discussion of the Companys
reportable segments).
16
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$272 million, or 9.9%, to $3.01 billion. Volume
increased 3.5%, due primarily to Smart
Ones®
frozen entrees and desserts, Boston
Market®
frozen entrees and
Classico®
pasta sauces. The Smart
Ones®
volume improvement was driven by successful new product
introductions like Anytime
SelectionsTM,
Fruit
InspirationsTM
and various dessert items, as well as the impact of the launch
of Smart
Ones®
products into Canada. The Boston
Market®
improvements were mainly driven by new products and increased
consumption, and the success of
Classico®
was primarily due to new products as well as increased
promotions in Canada. These volume improvements were partially
offset by a decline in
Ore-Ida®
frozen potatoes reflecting the timing of price increases taken
during both the fourth quarter of last year and the third
quarter of this year. The
Ore-Ida®
frozen potatoes price increases, along with other commodity cost
related price increases, resulted in overall price gains of
3.5%. The prior year acquisition of Renees Gourmet Foods
in Canada increased sales 0.7% and favorable Canadian exchange
translation rates increased sales 2.2%.
Gross profit increased $85 million, or 7.5%, to
$1.22 billion, due primarily to the sales increase along
with favorable foreign exchange translation rates. The gross
profit margin decreased to 40.5% from 41.4%, as increased
pricing, favorable mix and productivity improvements only
partially offset increased commodity costs. Operating income
increased $53 million, or 8.4%, to $678 million, due
to the strong increase in sales, partially offset by higher
commodity costs and increased S&D due to higher volume and
fuel costs.
Europe
Heinz Europe sales increased $456 million, or 14.8%, to
$3.53 billion, driven by new product innovation and more
focus on the key brands in the portfolio. Volume increased 4.5%,
principally due to strong performance of
Heinz®
ketchup across Europe, soup, beans and pasta meals in the U.K.,
Pudliszki®
branded products in Poland, and
Heinz®
sauces and condiments in Russia. Volume also benefited from new
product introductions across continental Europe, such as
Weight
Watchers®
Big Soups in Germany, Austria and Switzerland. Net pricing
increased sales 3.3%, resulting chiefly from commodity-related
price increases on
Heinz®
ketchup and soup, the majority of the products in our Russian
market and Italian infant nutrition products. Pricing was also
favorable due to promotional timing on
Heinz®
beans. Divestitures, net of acquisitions, reduced sales 1.4% and
favorable foreign exchange translation rates increased sales by
8.5%.
Gross profit increased $135 million, or 10.9%, to
$1.37 billion, and the gross profit margin decreased to
38.8% from 40.2%. The 10.9% increase reflects improved pricing
and volume and the favorable impact of foreign exchange
translation rates, while the decline in gross profit margin is
largely due to increased commodity costs and higher
manufacturing costs in our U.K., European frozen and Netherlands
businesses. Operating income increased $71 million, or
12.4%, to $637 million, due to higher sales and reductions
in general and administrative expenses (G&A),
partially offset by higher commodity costs and increased
marketing spending in support of our strong brands across Europe.
Asia/Pacific
Heinz Asia/Pacific sales increased $281 million, or 21.3%,
to $1.60 billion. Volume increased 6.5%, reflecting
significant improvements across the majority of the businesses
within this segment, particularly Australia, India and China,
related primarily to new product introductions supported by a
34.7% increase in marketing. Pricing increased 2.8%, due to
increases on soy sauce and beverages in Indonesia,
LongFong®
frozen products in China and nutritional products in India.
Acquisitions, net of divestitures, increased sales 1.6%, and
favorable foreign exchange translation rates increased sales by
10.4%.
Gross profit increased $101 million, or 23.9%, to
$526 million, and the gross profit margin increased to
32.9% from 32.2%. These increases were due to increased volume,
pricing, favorable mix
17
and foreign exchange translation rates, which more than offset
increased commodity costs. Operating income increased by
$45 million, or 29.8%, to $195 million, primarily
reflecting the increase in sales and gross margin, partially
offset by increased marketing spending and increased S&D
due to higher volume.
U.S.
Foodservice
Sales of the U.S. Foodservice segment increased
$3 million, or 0.2%, to $1.56 billion. Pricing
increased sales 1.7%, largely due to commodity-related price
increases and reduced promotional spending on
Heinz®
ketchup, frozen soup and tomato products, partially offset by
declines in frozen desserts. Volume decreased by 1.1%, as higher
volume from frozen desserts sold to casual dining customers was
more than offset by declines in the portion control business,
tomato products and frozen appetizers. The volume reflected
softness in the U.S. restaurant business as well as
increased competition on our non-branded products. Divestitures
reduced sales 0.4%.
Gross profit decreased $47 million, or 10.0%, to
$419 million, and the gross profit margin decreased to
26.8% from 29.9%, as commodity costs continue to
disproportionately impact the foodservice business, despite
gains on commodity derivative contracts. The declines also
reflect costs incurred in the current year in anticipation of a
plant closure in the first quarter of Fiscal 2009, partially
offset by increased pricing and productivity. Operating income
decreased $47 million, or 21.5%, to $170 million, all
of which is due to the decline in gross profit. The Company is
simplifying its U.S. Foodservice business, while increasing
the level of innovation in its foodservice brands, and expects
more profitable growth in this segment as macroeconomic
conditions improve.
Rest of
World
Sales for Rest of World increased $58 million, or 18.7%, to
$368 million. Volume increased 6.3% due primarily to
increased demand for the Companys products in Latin
America as well as strong performance across our Middle East
business. Higher pricing increased sales by 13.6%, largely due
to price increases and reduced promotions in Latin America as
well as commodity-related price increases in South Africa.
Divestitures reduced growth 1.7% and favorable foreign exchange
translation rates increased sales 0.6%.
Gross profit increased $22 million, or 19.9%, to
$133 million, due mainly to increased pricing, higher
volume and improved business mix, partially offset by increased
commodity costs. Operating income increased $6 million, or
15.1%, to $45 million.
Fiscal
Year Ended May 2, 2007 compared to Fiscal Year Ended
May 3, 2006
Sales for Fiscal 2007 increased $358 million, or 4.1%, to
$9.00 billion. Sales were favorably impacted by a volume
increase of 0.7%, despite one less selling week in Fiscal 2007
compared with Fiscal 2006. Volume growth was led by North
American Consumer Products, Australia, New Zealand and Germany,
and the emerging markets of India, China and Poland. These
increases were partially offset by declines in the U.K. and
Russian businesses. Pricing increased sales by 2.1%, mainly due
to our businesses in North America, the U.K, Indonesia and Latin
America. Divestitures, net of acquisitions, decreased sales by
1.6%. Foreign exchange translation rates increased sales by 2.9%.
Gross profit increased $300 million, or 9.7%, to
$3.39 billion, and the gross profit margin increased to
37.7% from 35.8%. These improvements reflect higher volume,
increased pricing, productivity improvements and favorable
foreign exchange translation rates, partially offset by
commodity cost increases. Also contributing to the favorable
comparison are the $92 million of Fiscal 2006 strategic
transformation costs discussed below.
SG&A decreased $33 million, or 1.7%, to
$1.95 billion and decreased as a percentage of sales to
21.6% from 22.9%. These decreases are primarily due to the
favorable impact of the Fiscal 2006 targeted workforce
reductions, particularly in Europe and Asia, and the
$145 million of Fiscal 2006
18
strategic transformation costs discussed below. These declines
were partially offset by increased marketing and R&D
expenses, costs related to the proxy contest affecting the
Companys 2006 election of directors, and higher incentive
compensation costs, including the expensing of stock options
(SFAS No. 123R). S&D was higher as a result of
the volume increase; however, as a percentage of sales, S&D
declined.
Total marketing support (recorded as a reduction of revenue or
as a component of SG&A) increased $4 million, or 0.2%,
to $2.18 billion on a gross sales increase of 2.8%.
Marketing support recorded as a reduction of revenue, typically
D&A, decreased $60 million, or 3.1%, to
$1.85 billion. This decrease is largely due to spending
reductions on less efficient promotions and a realignment of
list prices, partially offset by the impact of foreign exchange
translation rates. Marketing support recorded as a component of
SG&A increased $64 million, or 23.8%, to
$334 million, consistent with the Companys continued
strategy to invest behind its key brands.
Operating income increased $333 million, or 29.9%, to
$1.45 billion, which was favorably impacted by increased
volume, the higher gross profit margin and the $236 million
of Fiscal 2006 strategic transformation costs discussed below.
Net interest expense increased $8 million, to
$291 million, due primarily to higher average interest
rates and higher average debt in Fiscal 2007. Fiscal 2006 income
from continuing operations was unfavorably impacted by the
$111 million write down of the Companys net
investment in Zimbabwe. Other expenses, net, increased
$5 million, to $31 million, largely due to increased
currency losses and minority interest expense, the later of
which is a result of improved business performance in our joint
ventures, partially offset by the $7 million loss on the
sale of the Companys equity investment in The Hain
Celestial Group, Inc. (Hain) in Fiscal 2006.
The Fiscal 2007 effective tax rate was 29.6% compared to 36.2%
in Fiscal 2006. 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 Fiscal
2007 tax expense by approximately $35 million. During the
third quarter of Fiscal 2007, final conditions necessary to
reverse a foreign tax reserve related to a prior year
transaction were achieved. As a result, the Company realized a
non-cash tax benefit of $64 million. At the same time, the
Company modified its plans for repatriation of foreign earnings,
ultimately incurring an additional charge of $90 million.
Full year Fiscal 2007 repatriation costs were $108 million,
exceeding Fiscal 2006s repatriation costs by approximately
$78 million. In addition, Fiscal 2007 tax expense benefited
from the reductions in foreign statutory tax rates and
initiatives associated with R&D tax credits. The Fiscal
2006 tax expense benefited from the reversal of a tax provision
of $23 million related to a foreign affiliate along with an
additional benefit of $16 million resulting from tax
planning initiatives related to foreign tax credits, which was
partially offset by the non-deductibility of certain asset
write-offs.
Income from continuing operations was $792 million compared
to $443 million in Fiscal 2006, an increase of 78.8%,
primarily due to the increase in operating income and a lower
effective tax rate, partially offset by higher net interest
expense. Diluted earnings per share from continuing operations
was $2.38 in Fiscal 2007 compared to $1.29 in Fiscal 2006, an
increase of 84.5%, which also benefited from a 2.8% reduction in
fully diluted shares outstanding.
FISCAL
YEAR 2007 OPERATING RESULTS BY BUSINESS SEGMENT
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$185 million, or 7.3%, to $2.74 billion. Volume
increased 2.6%, largely resulting from strong growth in Smart
Ones®
and Boston
Market®
frozen entrees and desserts,
Classico®
pasta sauces and
Ore-Ida®
frozen potatoes. The increases reflect new distribution,
increased consumption driven by new product launches and
19
increased marketing support. These increases were partially
offset by the expected volume decline in
Heinz®
ketchup, reflecting a reduction in promotion expense as part of
the strategy to increase consumption of more profitable larger
sizes. Pricing increased 2.1% largely due to
Heinz®
ketchup,
Ore-Ida®
frozen potatoes, Smart
Ones®
frozen entrees and Bagel
Bites®
and TGI
Fridays®
frozen snacks, all resulting primarily from reduced inefficient
promotions. Acquisitions increased sales 1.9%, primarily from
the Fiscal 2006 acquisitions of Nancys Specialty Foods and
HP Foods as well as the Fiscal 2007 acquisition of
Renées Gourmet Foods. Favorable Canadian exchange
translation rates increased sales 0.7%.
Gross profit increased $86 million, or 8.2%, to
$1.14 billion, and the gross profit margin increased to
41.4% from 41.1%. These improvements were due primarily to
increased volume, higher pricing and the favorable impact of
acquisitions, partially offset by increased commodity costs.
Operating income increased $42 million, or 7.3%, to
$626 million, mainly due to the improvement in gross profit
and $7 million of Fiscal 2006 transformation costs
discussed below. This increase was partially offset by a
$32 million or 40.4% increase in consumer marketing,
primarily for
Heinz®
ketchup, Smart
Ones®
frozen entrees,
Ore-Ida®
frozen potatoes and frozen snacks, and increased R&D costs.
In addition, operating income benefited from reduced S&D as
a percentage of sales due to reduced transportation costs
resulting from distribution efficiencies.
Europe
Heinz Europes sales increased $89 million, or 3.0%,
to $3.08 billion. Pricing increased 1.7%, driven primarily
by value-added innovation and reduced promotions on
Heinz®
soup and pasta meals in the U.K and in the Italian infant
nutrition business. Volume declined 2.4% as improvements in
Heinz®
ketchup,
Heinz®
beans, Weight
Watchers®
branded products and
Pudliszki®
ketchup and ready meals in Poland were more than offset by
market softness in
non-Heinz®
branded products in Russia and the non-branded European frozen
business and declines in U.K. ready-to-serve soups and pasta
convenience meals. Volume was also unfavorably impacted by one
less week in the 2007 fiscal year compared to the 2006 fiscal
year. The acquisition of HP Foods and Petrosoyuz in Fiscal 2006
increased sales 1.9%, while divestitures reduced sales 5.6%.
Favorable foreign exchange translation rates increased sales by
7.3%.
Gross profit increased $112 million, or 10.0%, to
$1.24 billion, and the gross profit margin increased to
40.2% from 37.6%. These improvements are due to higher pricing,
favorable impact of foreign exchange translation rates and
$36 million of Fiscal 2006 transformation costs discussed
below. These improvements were partially offset by reduced
volume and increased commodity and manufacturing costs.
Operating income increased $152 million, or 36.7%, to
$566 million, due to the increase in gross profit, the
$112 million of Fiscal 2006 transformation costs discussed
below, and reduced G&A, partially offset by increased
marketing expense. The decrease in G&A is driven by the
workforce reductions, including the elimination of European
headquarters.
Asia/Pacific
Sales in Asia/Pacific increased $98 million, or 8.0%, to
$1.32 billion. Volume increased sales 4.6%, reflecting
strong volume in Australia, New Zealand and China, largely due
to increased marketing and new product introductions, as well as
market and share growth in nutritional drinks in India. Higher
pricing increased sales 2.3%, mainly due to commodity-related
price increases taken on Indonesian sauces and drinks.
Divestitures reduced sales 0.3%, and foreign exchange
translation rates increased sales by 1.5%.
Gross profit increased $50 million, or 13.4%, to
$425 million, and the gross profit margin increased to
32.2% from 30.7%. These improvements were due to volume
increases and higher pricing, partially offset by increased
commodity costs, most notably in Indonesia. Fiscal 2006 also
included a $19 million asset impairment charge on an
Indonesian noodle business. Operating income increased
$49 million, to $150 million, largely reflecting the
increase in gross profit and reduced
20
G&A, partially offset by increased marketing. The reduction
in G&A is a result of effective cost control in our Chinese
businesses, targeted workforce reductions, including the
elimination of Asian headquarters in Fiscal 2006, and
$10 million of reorganization costs in Fiscal 2006 related
to the workforce reductions discussed below.
U.S.
Foodservice
Sales of the U.S. Foodservice segment decreased
$14 million, or 0.9%, to $1.56 billion, primarily due
to the impact of divestitures. Divestitures, net of
acquisitions, reduced sales 2.1%. Pricing increased 1.7%,
largely due to
Heinz®
ketchup and tomato products, single serve condiments and frozen
desserts. Volume decreased 0.4%, as higher volume in
Heinz®
ketchup was offset by declines resulting primarily from one less
week in Fiscal 2007 and a decision to exit certain low margin
accounts.
Gross profit increased $29 million, or 6.6%, to
$465 million, and the gross profit margin increased to
29.9% from 27.8%, due to $8 million of Fiscal 2006
reorganization costs discussed below and a $22 million
impairment charge in Fiscal 2006 related to the sale of the
Portion Pac Bulk product line. In addition, increased pricing
was offset by higher commodity costs. Operating income increased
$39 million, or 21.9%, to $216 million, largely due to
the increase in gross profit and reduced S&D expense as a
percentage of sales resulting from productivity initiatives.
Rest of
World
Sales for Rest of World decreased $0.9 million, or 0.3%, to
$310 million. Volume increased 5.0% due primarily to
ketchup and baby food in Latin America and our business in South
Africa. Higher pricing increased sales by 8.9%, largely due to
reduced promotions on ketchup and price increases taken on baby
food in Latin America. Divestitures reduced sales 11.8% and
foreign exchange translation rates reduced sales 2.3%.
Gross profit increased $17 million, or 18.4%, to
$111 million, as increased volume and higher pricing were
partially offset by higher commodity costs and the impact of
divestitures. Fiscal 2006 also included $8 million of asset
impairment charges discussed below. Operating income increased
$38 million, to $39 million, due primarily to the
increase in gross profit and the $30 million of Fiscal 2006
transformation costs primarily related to divestitures.
As a result of general economic uncertainty, coupled with
restrictions on the repatriation of earnings, as of the end of
November 2002 the Company deconsolidated its Zimbabwean
operations and classified its remaining net investment of
approximately $111 million as a cost investment. In the
fourth quarter of Fiscal 2006, the Company wrote off its net
investment in Zimbabwe. The decision to write off the Zimbabwe
investment related to managements determination that this
investment was not a core business. Managements
determination was based on an evaluation of political and
economic conditions existing in Zimbabwe and the ability for the
Company to recover its cost in this investment. This evaluation
considered the continued economic turmoil, further instability
in the local currency and the uncertainty regarding the ability
to source raw material in the future.
Discontinued
Operations
During fiscal years 2003 through 2006, the Company focused on
exiting non-strategic business operations. Certain of these
businesses which were sold were accounted for as discontinued
operations.
In the fourth quarter of Fiscal 2006, the Company completed the
sale of the European Seafood business, which included the brands
of John
West®,
Petit
Navire®,
Marie
Elisabeth®
and
Mareblu®.
The Company received net proceeds of $469 million for this
disposal and recognized a $200 million pretax
($123 million after tax) gain which has been recorded in
discontinued operations. Also in the
21
fourth quarter of Fiscal 2006, the Company completed the sale of
the
Tegel®
Poultry business in New Zealand and received net proceeds of
$150 million, and recognized a $10 million non-taxable
gain, which is also recorded in discontinued operations.
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. The
Company recorded a loss of $3 million ($6 million
after-tax) from these businesses for the year ended May 2,
2007, primarily resulting from purchase price adjustments
pursuant to the transaction agreements. These discontinued
operations generated sales of $688 million (partial year)
and net income of $169 million (net of $90 million in
tax expense) for the year ended May 3, 2006.
In addition, net income from discontinued operations includes
amounts related to the favorable settlement of tax liabilities
associated with the businesses spun-off to Del Monte in Fiscal
2003. Such amounts totaled $34 million for the year ended
May 3, 2006.
Fiscal
2006 Transformation Costs
In executing its strategic transformation during Fiscal 2006,
the Company incurred the following associated costs. These costs
were directly linked to the Companys transformation
strategy.
Reorganization
Costs
In Fiscal 2006, the Company recorded pretax integration and
reorganization charges for targeted workforce reductions
consistent with the Companys goals to streamline its
businesses totaling $125 million ($80 million after
tax). Approximately 1,000 positions were eliminated as a result
of this program, primarily in the G&A area. Additionally,
pretax costs of $22 million ($16 million after tax)
were incurred in Fiscal 2006, primarily as a result of the
strategic reviews related to the portfolio realignment.
The total impact of these initiatives on continuing operations
in Fiscal 2006 was $147 million pre-tax ($97 million
after-tax), of which $17 million was recorded as costs of
products sold and $129 million in SG&A. In addition,
$11 million was recorded in discontinued operations, net of
tax. The amount included in accrued expenses related to these
initiatives totaled $52 million at May 3, 2006, all of
which was paid during Fiscal 2007.
Other
Divestitures/Impairment Charges
The following (losses)/gains or non-cash asset impairment
charges were recorded in continuing operations during Fiscal
2006:
|
|
|
|
|
|
|
|
|
|
|
Business or Product Line
|
|
Segment
|
|
Pre-Tax
|
|
|
After-Tax
|
|
|
|
|
|
(In millions)
|
|
|
Loss on sale of Seafood business in Israel
|
|
Rest of World
|
|
$
|
(16
|
)
|
|
$
|
(16
|
)
|
Impairment charge on Portion Pac Bulk product line
|
|
U.S. Foodservice
|
|
|
(22
|
)
|
|
|
(13
|
)
|
Impairment charge on U.K. Frozen and Chilled product lines
|
|
Europe
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Impairment charge on European production assets
|
|
Europe
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Impairment charge on Noodle product line in Indonesia
|
|
Asia/Pacific
|
|
|
(16
|
)
|
|
|
(9
|
)
|
Impairment charge on investment in Zimbabwe business
|
|
Rest of World
|
|
|
(111
|
)
|
|
|
(106
|
)
|
Other
|
|
Various
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(200
|
)
|
|
$
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
22
Of the above pre-tax amounts, $74 million was recorded in
cost of products sold, $16 million in SG&A,
$111 million in asset impairment charges for cost and
equity investments, and $(1) million in other expense.
Also during the third quarter of Fiscal 2006, the Company sold
its equity investment in Hain and recognized a $7 million
($5 million after-tax) loss which is recorded within other
expense, net. Net proceeds from the sale of this investment were
$116 million. During the third quarter of Fiscal 2005, the
Company recognized a $65 million impairment charge on its
equity investment in Hain. The charge reduced Heinzs
carrying value in Hain to fair market value as of
January 26, 2005, with no resulting impact on cash flows.
Due to the uncertainty of realizability and executing possible
tax planning strategies, the Company recorded a valuation
allowance of $27 million against the potential tax benefits
primarily related to the Hain impairment. This valuation
allowance was subsequently released in Fiscal 2006 based upon
tax planning strategies that are expected to generate sufficient
capital gains that will occur during the capital loss
carryforward period. See further discussion in Note 7,
Income Taxes in Item 8Financial
Statements and Supplementary Data.
There were no material gains/(losses) on divested businesses or
asset impairment charges in Fiscals 2008 or 2007.
Other
Non-recurringAmerican Jobs Creation Act
The American Jobs Creation Act (AJCA) provided a
deduction of 85% of qualified foreign dividends in excess of a
Base Period dividend amount. During Fiscal 2006, the
Company finalized plans to repatriate dividends that qualified
under the AJCA. The total impact of the AJCA on tax expense for
Fiscal 2006 was $17 million, of which $24 million of
expense was recorded in continuing operations and
$7 million was a benefit in discontinued operations.
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States of
America (GAAP). However, management believes that
certain non-GAAP performance measures and ratios, used in
managing the business, may provide users of this financial
information with additional meaningful comparisons between
current results and results in prior periods. Non-GAAP financial
measures should be viewed in addition to, and not as an
alternative for, the Companys reported results prepared in
accordance with GAAP. The following table provides a
reconciliation of the Companys reported results from
continuing operations to the results excluding special items for
the fiscal year ended May 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 3, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
|
|
|
Earnings
|
|
|
|
Net
|
|
|
Gross
|
|
|
Operating
|
|
|
Continuing
|
|
|
Per Share
|
|
|
|
Sales
|
|
|
Profit
|
|
|
Income
|
|
|
Operations
|
|
|
Diluted
|
|
|
|
(Amounts in millions, except per share amounts)
|
|
|
Reported results from continuing operations
|
|
$
|
8,643
|
|
|
$
|
3,093
|
|
|
$
|
1,114
|
|
|
$
|
443
|
|
|
$
|
1.29
|
|
Separation, downsizing and integration
|
|
|
|
|
|
|
17
|
|
|
|
147
|
|
|
|
97
|
|
|
|
0.28
|
|
Net loss on disposals & impairments
|
|
|
|
|
|
|
74
|
|
|
|
90
|
|
|
|
48
|
|
|
|
0.14
|
|
Asset impairment charges for cost and equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
|
0.31
|
|
American Jobs Creation Act
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from continuing operations excluding special items
|
|
$
|
8,643
|
|
|
$
|
3,185
|
|
|
$
|
1,350
|
|
|
$
|
718
|
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note: Totals may not add due to rounding.)
23
Liquidity
and Financial Position
For Fiscal 2008, cash provided by operating activities was
$1.19 billion, an increase of $126 million from the
prior year. The increase in Fiscal 2008 versus Fiscal 2007 is
primarily due to favorable movements in accounts payable and
income taxes, and cash paid in the prior year for reorganization
costs related to workforce reductions in Fiscal 2006. These
improvements were partially offset by higher inventories and
receivables. The higher inventory levels were required to
support customer service demands created by the Companys
strong growth. The Companys cash conversion cycle of
49 days in Fiscal 2008 was consistent with that of Fiscal
2007, as a two day improvement in payables was offset by a two
day increase in inventories. Days in inventory increased this
year due to the volume growth and related capacity constraints
in a number of areas.
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
$90 million over the five to twenty year tax amortization
period.
Cash used for investing activities totaled $554 million
compared to $326 million last year. Capital expenditures
totaled $302 million (3.0% of sales) compared to
$245 million (2.7% of sales) last year, which reflect
capacity-related spending in support of future growth and an
ongoing investment in improved systems. Proceeds from disposals
of property, plant and equipment were $9 million compared
to $61 million in the prior year, representing the disposal
of four plants in the current year versus 16 plants during
Fiscal 2007. In Fiscal 2008, cash paid for acquisitions, net of
divestitures, required $88 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, the
Wyko®
sauce business in the Netherlands and the buy-out of the
minority ownership on the Companys Long Fong business in
China, partially offset by the divestiture of a tomato paste
business in Portugal. In Fiscal 2007, acquisitions, net of
divestitures, used $93 million primarily related to the
Companys purchase of Renées Gourmet Foods and
the purchase of the minority ownership in our Heinz Petrosoyuz
business in Russia. Divestitures in the prior year included the
sale 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. In addition, transaction costs related to the
European Seafood and
Tegel®
Poultry divestitures were also paid during Fiscal 2007. During
Fiscal 2008, the Company terminated the cross currency swaps
that were previously designated as net investment hedges of
foreign operations. The notional amount of these contracts
totaled $1.6 billion, and the Company paid $93 million
of cash to the counterparties, which is presented in investing
activities in the consolidated statements of cash flows. In
addition, the Company paid $74 million in the current year
and $41 million in the prior year to the counterparties as a
result of cross currency swap contract maturities and such
payments are presented within other investing items, net.
The early termination of the net investment hedges described
above and interest rate swaps described below were completed in
conjunction with the reorganizations of the Companys
foreign operations and interest rate swap portfolio.
Cash used by financing activities totaled $758 million
compared to $621 million last year. Proceeds from
commercial paper and short-term debt were $484 million this
year compared to $384 million in the prior year. Payments
on long-term debt were $368 million in the current year
compared to $52 million in the prior year, representing the
maturity and payment of the $300 million 6%
U.S. Dollar Notes in the current year as well as the
repurchase in Fiscal 2008 of a portion of the 6%
U.S. Dollar Notes due March 15, 2012. Cash used for
the purchases of treasury stock, net of proceeds from option
exercises, was $502 million this year compared to
$501 million in the prior year, in line with the
Companys plans for repurchasing $1 billion in net
shares cumulatively in Fiscals 2007 and 2008. Dividend payments
totaled $485 million, compared to $461 million in the
prior year, reflecting
24
an 8.6% increase in the annualized dividend on common stock.
During Fiscal 2008, the Company terminated certain interest rate
swaps that were previously designated as fair value hedges of
fixed rate debt obligations. The notional amount of these
interest rate contracts totaled $612 million, and the
Company received a total of $104 million of cash from the
termination of these contracts, which has been presented in the
consolidated statements of cash flows within financing
activities. The $104 million gain is being amortized to
reduce interest expense over the remaining term of the
corresponding debt obligations (average of 22 years).
In Fiscal 2006, the Company divested its European Seafood
business and
Tegel®
Poultry business in New Zealand, and such divestitures were
accounted for as discontinued operations. The cash flows from
these discontinued operations have been combined with the
operating, investing and financing cash flows from continuing
operations (i.e., no separate classification of cash flows from
discontinued operations) for all periods presented. The absence
of the cash flows from these discontinued operations will not
have a material impact on the Companys future liquidity
and capital resources.
In Fiscal 2003, the Company spun-off businesses to Del Monte and
treated the operating results related to these businesses as
discontinued operations. In Fiscals 2007 and 2006, the Company
generated cash flows from the favorable settlement of tax
liabilities related to these spun-off businesses. These cash
flows, which represent solely cash flows from operations, have
been classified separately on the Companys Consolidated
Statements of Cash Flows for Fiscals 2007 and 2006 as Cash
provided by operating activities of discontinued operations
spun-off to Del Monte. There was no impact on cash flows
from investing or financing activities from these spun-off
businesses in these fiscal years.
On May 29, 2008, the Company announced that its Board of
Directors approved a 9.2% increase in the dividend on common
stock from 38 cents to 41.5 cents quarterly to an annual
indicative rate of $1.66 per share for Fiscal 2009, effective
with the July 2008 dividend payment. Fiscal 2009 dividends are
expected to be approximately $525 million.
At April 30, 2008, the Company had total debt of
$5.18 billion (including $199 million relating to the
SFAS No. 133 hedge accounting adjustments) and cash
and cash equivalents of $618 million. Total debt balances
since prior year end increased primarily due to share
repurchases.
Return on average shareholders equity (ROE) is
calculated by taking net income divided by average
shareholders equity. Average shareholders equity is
a five-point quarterly average. ROE was 44.0% in Fiscal 2008,
37.4% in Fiscal 2007 and 29.1% in Fiscal 2006. Fiscal 2008 and
2007 ROE was favorably impacted by higher net income and
decreased average equity reflecting the adoption of
SFAS No. 158 and share repurchases. Fiscal 2006 ROE
was unfavorably impacted by 6.5% due to the previously discussed
strategic transformation costs.
Return on invested capital (ROIC) is calculated by
taking net income, plus net interest expense net of tax, divided
by average invested capital. Average invested capital is a
five-point quarterly average of debt plus total equity less cash
and cash equivalents, short-term investments and the
SFAS No. 133 hedge accounting adjustments. ROIC was
16.8% in Fiscal 2008, 15.8% in Fiscal 2007 and 13.1% in Fiscal
2006. Fiscal 2008 and 2007 ROIC was favorably impacted by higher
net income and lower average equity reflecting effective
management of the asset base and the adoption of
SFAS No. 158. Fiscal 2006 ROIC was unfavorably
impacted by higher average debt and by 5.5 percentage
points related to the previously discussed strategic
transformation costs.
The Company and H.J. Heinz Finance Company maintain a
$2 billion credit agreement that expires in August 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
25
markets, if required, should enable the Company to meet its cash
requirements for operations, including capital expansion
programs, debt maturities, acquisitions, share repurchases and
dividends to shareholders.
As of April 30, 2008, the Companys long-term debt
ratings at Moodys, Standard & Poors and
Fitch Rating were Baa2, BBB and BBB, respectively.
Contractual
Obligations and Other Commitments
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. 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.
The following table represents the contractual obligations of
the Company as of April 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Long Term Debt(1)
|
|
$
|
530,731
|
|
|
$
|
1,778,224
|
|
|
$
|
1,641,220
|
|
|
$
|
3,233,352
|
|
|
$
|
7,183,527
|
|
Capital Lease Obligations
|
|
|
10,161
|
|
|
|
19,475
|
|
|
|
48,179
|
|
|
|
32,574
|
|
|
|
110,389
|
|
Operating Leases
|
|
|
68,752
|
|
|
|
106,689
|
|
|
|
87,514
|
|
|
|
190,984
|
|
|
|
453,939
|
|
Purchase Obligations
|
|
|
1,254,104
|
|
|
|
745,641
|
|
|
|
184,074
|
|
|
|
25,907
|
|
|
|
2,209,726
|
|
Other Long Term Liabilities Recorded on the Balance Sheet
|
|
|
101,928
|
|
|
|
236,512
|
|
|
|
231,383
|
|
|
|
167,033
|
|
|
|
736,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,965,676
|
|
|
$
|
2,886,541
|
|
|
$
|
2,192,370
|
|
|
$
|
3,649,850
|
|
|
$
|
10,694,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include expected cash payments for interest on fixed
rate long-term debt. Due to the uncertainty of forecasting
expected variable rate interest payments, those amounts are not
included in the table. |
Other long-term liabilities primarily consist of certain
specific incentive compensation arrangements and pension and
postretirement benefit commitments. The following long-term
liabilities included on the consolidated balance sheet are
excluded from the table above: income taxes, minority interest
and insurance accruals. The Company is unable to estimate the
timing of the payments for these items.
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. At April 30, 2008, 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 $189 million. However, the net obligation to
taxing authorities under FIN 48 was approximately
$103 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 net
obligations within the next year. The Company is unable to make
a reasonably reliable estimate of when cash settlements with
taxing authorities may occur.
26
Off-Balance
Sheet Arrangements and Other Commitments
The Company does not have guarantees or other off-balance sheet
financing arrangements that we believe are reasonably likely to
have a current or future effect on our financial condition,
changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital
resources. In addition, the Company does not have any related
party transactions that materially affect the results of
operations, cash flow or financial condition.
As of April 30, 2008, the Company was party to an operating
lease for buildings and equipment in which the Company has
guaranteed a supplemental payment obligation of approximately
$64 million at the termination of the lease. The Company
believes, based on current facts and circumstances, that any
payment pursuant to this guarantee is remote. In May 2008, the
construction of a new frozen food factory in South Carolina
commenced. It is expected that the factory will be operational
in approximately 18 to 24 months and that it will be
financed by an operating lease.
Market
Risk Factors
The Company is exposed to market risks from adverse changes in
foreign exchange rates, interest rates, commodity prices and
production costs. As a policy, the Company does not engage in
speculative or leveraged transactions, nor does the Company hold
or issue financial instruments for trading purposes.
Foreign Exchange Rate Sensitivity: The
Companys cash flow and earnings are subject to
fluctuations due to exchange rate variation. Foreign currency
risk exists by nature of the Companys global operations.
The Company manufactures and sells its products in a number of
locations around the world, and hence foreign currency risk is
diversified.
The Company may attempt to limit its exposure to changing
foreign exchange rates through both operational and financial
market actions. These actions may include entering into forward
contracts, option contracts, or cross currency swaps to hedge
existing exposures, firm commitments and forecasted transactions.
The instruments are used to reduce risk by essentially creating
offsetting currency exposures. The following table presents
information related to foreign currency contracts held by the
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Notional Amount
|
|
|
Net Unrealized Gains/(Losses)
|
|
|
|
April 30, 2008
|
|
|
May 2, 2007
|
|
|
April 30, 2008
|
|
|
May 2, 2007
|
|
|
|
(Dollars in millions)
|
|
|
Purpose of Hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany cash flows
|
|
$
|
1,110
|
|
|
$
|
1,010
|
|
|
$
|
25
|
|
|
$
|
(4
|
)
|
Forecasted purchases of raw materials and finished goods and
foreign currency denominated obligations
|
|
|
541
|
|
|
|
360
|
|
|
|
6
|
|
|
|
(3
|
)
|
Forecasted sales and foreign currency denominated assets
|
|
|
57
|
|
|
|
136
|
|
|
|
|
|
|
|
8
|
|
Net investments in foreign operations
|
|
|
|
|
|
|
1,964
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,708
|
|
|
$
|
3,470
|
|
|
$
|
31
|
|
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2008, the Companys foreign currency
contracts mature within two years. Contracts that meet
qualifying criteria are accounted for as either foreign currency
cash flow hedges or net investment hedges of foreign operations.
Any gains and losses related to contracts that do not qualify
for hedge accounting are recorded in current period earnings in
other income and expense.
27
Substantially all of the Companys foreign business
units financial instruments are denominated in their
respective functional currencies. Accordingly, exposure to
exchange risk on foreign currency financial instruments is not
material. (See Note 13, Derivative Financial
Instruments and Hedging Activities in
Item 8Financial Statements and Supplementary
Data.)
Interest Rate Sensitivity: The Company
is exposed to changes in interest rates primarily as a result of
its borrowing and investing activities used to maintain
liquidity and fund business operations. The nature and amount of
the Companys long-term and short-term debt can be expected
to vary as a result of future business requirements, market
conditions and other factors. The Companys debt
obligations totaled $5.18 billion (including
$199 million relating to the SFAS No. 133 hedge
accounting adjustments) and $4.88 billion (including
$71 million relating to the SFAS No. 133 hedge
accounting adjustments) at April 30, 2008 and May 2,
2007, respectively. The Companys debt obligations are
summarized in Note 8, Debt in
Item 8Financial Statements and Supplementary
Data.
In order to manage interest rate exposure, the Company utilizes
interest rate swaps to convert fixed-rate debt to floating.
These derivatives are primarily accounted for as fair value
hedges. Accordingly, 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. Based on the amount of
fixed-rate debt converted to floating as of April 30, 2008,
a variance of
1/8%
in the related interest rate would cause annual interest expense
related to this debt to change by approximately $2 million.
The following table presents additional information related to
interest rate contracts designated as fair value hedges by the
Company:
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008
|
|
|
May 2, 2007
|
|
|
|
(Dollars in millions)
|
|
|
Pay floating swapsnotional amount
|
|
$
|
1,642
|
|
|
$
|
2,588
|
|
Net unrealized gains
|
|
$
|
95
|
|
|
$
|
71
|
|
Weighted average maturity (years)
|
|
|
4
|
|
|
|
9
|
|
Weighted average receive rate
|
|
|
6.36
|
%
|
|
|
6.37
|
%
|
Weighted average pay rate
|
|
|
6.15
|
%
|
|
|
6.35
|
%
|
The Company had interest rate contracts with a total notional
amount of $177 million and $108 million at
April 30, 2008 and May 2, 2007, respectively, that did
not meet the criteria for hedge accounting but effectively
mitigated interest rate exposures. These derivatives are
accounted for on a full mark-to-market basis through current
earnings and they mature within one year from the current fiscal
year-end. Net unrealized gains related to these interest rate
contracts were insignificant as of April 30, 2008, and net
unrealized losses totaled $2 million at May 2, 2007.
Effect of Hypothetical 10% Fluctuation in Market
Prices: As of April 30, 2008, the
potential gain or loss in the fair value of the Companys
outstanding foreign currency contracts and interest rate
contracts assuming a hypothetical 10% fluctuation in currency
and swap rates would be approximately:
|
|
|
|
|
|
|
Fair Value Effect
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Foreign currency contracts
|
|
$
|
177
|
|
Interest rate swap contracts
|
|
$
|
21
|
|
However, it should be noted that any change in the fair value of
the contracts, real or hypothetical, would be significantly
offset by an inverse change in the value of the underlying
hedged items. In relation to currency contracts, this
hypothetical calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar.
28
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 7,
Income Taxes in Item 8Financial
Statements and Supplementary Data for additional
information.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, which defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement
applies whenever other accounting pronouncements require or
permit assets or liabilities to be measured at fair value, but
does not expand the use of fair value to new accounting
transactions. SFAS No. 157 is effective for financial
assets and liabilities in fiscal years beginning after
November 15, 2007, and for non-financial assets and
liabilities in fiscal years beginning after November 15,
2008. The Company will adopt SFAS No. 157 for its
financial assets and liabilities on May 1, 2008, the first
day of Fiscal 2009. The Companys financial instruments
consist primarily of cash and cash equivalents, receivables,
accounts payable, short-term and long-term debt, swaps, forward
contracts, and option contracts. The recorded values of the
Companys financial instruments approximate fair value. The
Company is currently evaluating the impact of adopting
SFAS No. 157 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statement Nos.
87, 88, 106 and 132(R). SFAS No. 158 required
that the Company recognize the funded status of each of its
defined pension and postretirement benefit plans as a net asset
or liability in the consolidated balance sheet and to recognize
changes in that funded status in the year in which changes occur
through comprehensive income. Effective May 2, 2007, the
Company adopted these provisions of SFAS No. 158.
SFAS No. 158 also requires that employers measure plan
assets and obligations as of the date of their year-end
financial statements beginning with the Companys fiscal
year ending April 29, 2009. The Company does not expect the
impact of the change in measurement date to have a material
impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51. These new
standards will significantly change the accounting for and
reporting of business combination transactions and
noncontrolling (minority) interests in consolidated financial
statements. SFAS Nos. 141(R) and 160 are required to be
adopted simultaneously and are effective for fiscal years
beginning after December 15, 2008, with early adoption
prohibited. Thus, the Company will be required to adopt these
standards on April 30, 2009, the first day of Fiscal 2010.
The Company is currently evaluating the impact of adopting
SFAS Nos. 141(R) and 160 on its consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement
No. 133. This new standard requires enhanced
disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The
Company is currently evaluating the impact of adopting
SFAS No. 161 in the fourth quarter of Fiscal 2009.
29
Discussion
of Significant Accounting Estimates
In the ordinary course of business, the Company has made a
number of estimates and assumptions relating to the reporting of
results of operations and financial condition in the preparation
of its financial statements in conformity with accounting
principles generally accepted in the United States of
America. Actual results could differ significantly from those
estimates under different assumptions and conditions. The
Company believes that the following discussion addresses its
most critical accounting policies, which are those that are most
important to the portrayal of the Companys financial
condition and results and require managements most
difficult, subjective and complex judgments, often as a result
of the need to make estimates about the effect of matters that
are inherently uncertain.
Marketing CostsTrade promotions are an important
component of the sales and marketing of the Companys
products and are critical to the support of the business. Trade
promotion costs include amounts paid to retailers to offer
temporary price reductions for the sale of the Companys
products to consumers, amounts paid to obtain favorable display
positions in retailers stores, and amounts paid to
customers for shelf space in retail stores. Accruals for trade
promotions are initially recorded at the time of sale of product
to the customer based on an estimate of the expected levels of
performance of the trade promotion, which is dependent upon
factors such as historical trends with similar promotions,
expectations regarding customer participation, and sales and
payment trends with similar previously offered programs. Our
original estimated costs of trade promotions may change in the
future as a result of changes in customer participation,
particularly for new programs and for programs related to the
introduction of new products. We perform monthly and quarterly
evaluations of our outstanding trade promotions, making
adjustments where appropriate to reflect changes in estimates.
Settlement of these liabilities typically occurs in subsequent
periods primarily through an authorization process for
deductions taken by a customer from amounts otherwise due to the
Company. As a result, the ultimate cost of a trade promotion
program is dependent on the relative success of the events and
the actions and level of deductions taken by the Companys
customers for amounts they consider due to them. Final
determination of the permissible deductions may take extended
periods of time and could have a significant impact on the
Companys results of operations depending on how actual
results of the programs compare to original estimates.
We offer coupons to consumers in the normal course of our
business. Expenses associated with this activity, which we refer
to as coupon redemption costs, are accrued in the period in
which the coupons are offered. The initial estimates made for
each coupon offering are based upon historical redemption
experience rates for similar products or coupon amounts. We
perform monthly and quarterly evaluations of outstanding coupon
accruals that compare actual redemption rates to the original
estimates. We review the assumptions used in the valuation of
the estimates and determine an appropriate accrual amount.
Adjustments to our initial accrual may be required if actual
redemption rates vary from estimated redemption rates.
Investments and Long-lived Assets, including Property, Plant
and EquipmentInvestments and long-lived assets are
recorded at their respective cost basis on the date of
acquisition. Buildings, equipment and leasehold improvements are
depreciated on a straight-line basis over the estimated useful
life of such assets. The Company reviews investments and
long-lived assets, including intangibles with finite useful
lives, and property, plant and equipment, whenever circumstances
change such that the indicated recorded value of an asset may
not be recoverable or has suffered an other-than-temporary
impairment. Factors that may affect recoverability include
changes in planned use of equipment or software, the closing of
facilities and changes in the underlying financial strength of
investments. The estimate of current value requires significant
management judgment and requires assumptions that can include:
future volume trends, revenue and expense growth rates and
foreign exchange rates developed in connection with the
Companys internal projections and annual operating plans,
and in addition, external factors such as changes in
macroeconomic trends which are developed in connection with the
Companys long-term strategic planning. As each is
30
managements best estimate on then available information,
resulting estimates may differ from actual cash flows.
Goodwill and Indefinite-Lived IntangiblesCarrying
values of goodwill and intangible assets with indefinite lives
are reviewed for impairment at least annually, or when
circumstances indicate that a possible impairment may exist.
Indicators such as unexpected adverse economic factors,
unanticipated technological change or competitive activities,
loss of key personnel, and acts by governments and courts, may
signal that an asset has become impaired. All goodwill is
assigned to reporting units, which are one level below our
operating segments. Goodwill is assigned to the reporting unit
that benefits from the synergies arising from each business
combination. We perform our impairment tests of goodwill at the
reporting unit level. The Companys measure of impairment
for both goodwill and intangible assets with indefinite lives is
based on a discounted cash flow model that requires significant
judgment and requires assumptions about future volume trends,
revenue and expense growth rates and foreign exchange rates
developed in connection with the Companys internal
projections and annual operating plans, and in addition,
external factors such as changes in macroeconomic trends and
cost of capital developed in connection with the Companys
long-term strategic planning. Inherent in estimating future
performance, in particular assumptions regarding external
factors such as capital markets, are uncertainties beyond the
Companys control.
Retirement BenefitsThe Company sponsors pension and
other retirement plans in various forms covering substantially
all employees who meet eligibility requirements. Several
actuarial and other factors that attempt to anticipate future
events are used in calculating the expense and obligations
related to the plans. These factors include assumptions about
the discount rate, expected return on plan assets, turnover
rates and rate of future compensation increases as determined by
the Company, within certain guidelines. In addition, the Company
uses best estimate assumptions, provided by actuarial
consultants, for withdrawal and mortality rates to estimate
benefit expense. The financial and actuarial assumptions used by
the Company may differ materially from actual results due to
changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant
impact to the amount of pension expense recorded by the Company.
The Company recognized pension expense related to defined
benefit programs of $7 million, $32 million and
$77 million for fiscal years 2008, 2007 and 2006,
respectively, which reflected expected return on plan assets of
$227 million, $199 million and $169 million,
respectively. The Company contributed $60 million to its
pension plans in Fiscal 2008 compared to $63 million in
Fiscal 2007 and $65 million in Fiscal 2006. The Company
expects to contribute approximately $80 million to its
pension plans in Fiscal 2009.
One of the significant assumptions for pension plan accounting
is the expected rate of return on pension plan assets. Over
time, the expected rate of return on assets should approximate
actual long-term returns. In developing the expected rate of
return, the Company considers average real historic returns on
asset classes, the investment mix of plan assets, investment
manager performance and projected future returns of asset
classes developed by respected consultants. When calculating the
expected return on plan assets, the Company primarily uses a
market-related-value of assets that spreads asset gains and
losses (difference between actual return and expected return)
uniformly over 3 years. The weighted average expected rate
of return on plan assets used to calculate annual expense was
8.2% for the years ended April 30, 2008, May 2, 2007
and May 3, 2006. For purposes of calculating Fiscal 2009
expense, the weighted average rate of return will remain at
approximately 8.2%.
Another significant assumption used to value benefit plans is
the discount rate. The discount rate assumptions used to value
pension and postretirement benefit obligations reflect the rates
available on high quality fixed income investments available (in
each country where the Company operates a benefit plan) as of
the measurement date. The Company uses bond yields of
appropriate duration for each country by matching to the
duration of plan liabilities. The weighted average
31
discount rate used to measure the projected benefit obligation
for the year ending April 30, 2008 increased to 6.1% from
5.5% as of May 2, 2007.
Deferred gains and losses result from actual experience
different from expected financial and actuarial assumptions. The
pension plans currently have a deferred loss amount of
$803 million at April 30, 2008. During 2008, the
deferred loss amount was negatively impacted by actual asset
returns being less than expected. Deferred gains and losses are
amortized through the actuarial calculation into annual expense
over the estimated average remaining service period of plan
participants, which is currently 11 years.
The Company also provides certain postretirement health care
benefits. The postretirement health care benefit expense and
obligation are determined using the Companys assumptions
regarding health care cost trend rates. The health care trend
rates are developed based on historical cost data, the near-term
outlook on health care trends and the likely long-term trends.
The domestic postretirement health care benefit obligation at
April 30, 2008 was determined using an average initial
health care trend rate of 9.3% which gradually decreases to an
average ultimate rate of 5% in 5 years. The foreign
postretirement health care benefit obligation at April 30,
2008 was determined using an average initial health care trend
rate of 6.7% which gradually decreases to an average ultimate
rate of 4% in 7 years. A one percentage point increase in
the assumed health care cost trend rate would increase the
service and interest cost components of annual expense by
$2 million and increase the benefit obligation by
$18 million. A one percentage point decrease in the assumed
health care cost trend rates would decrease the service and
interest cost by $1 million and decrease the benefit
obligation by $16 million.
Sensitivity
of Assumptions
If we assumed a 100 basis point change in the following
assumptions, our Fiscal 2008 projected benefit obligation and
expense would increase (decrease) by the following amounts (in
millions):
|
|
|
|
|
|
|
|
|
|
|
100 Basis Point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
Pension benefits
|
|
|
|
|
|
|
|
|
Discount rate used in determining projected benefit obligation
|
|
$
|
(341
|
)
|
|
$
|
392
|
|
Discount rate used in determining net pension expense
|
|
$
|
(26
|
)
|
|
$
|
29
|
|
Long-term rate of return on assets used in determining net
pension expense
|
|
$
|
(29
|
)
|
|
$
|
29
|
|
Other benefits
|
|
|
|
|
|
|
|
|
Discount rate used in determining projected benefit obligation
|
|
$
|
(22
|
)
|
|
$
|
22
|
|
Discount rate used in determining net benefit expense
|
|
$
|
(3
|
)
|
|
$
|
3
|
|
Income TaxesThe Company computes its annual tax
rate based on the statutory tax rates and tax planning
opportunities available to it in the various jurisdictions in
which it earns income. Significant judgment is required in
determining the Companys annual tax rate and in evaluating
uncertainty in its tax positions. The Company recognizes a
benefit for tax positions that it believes will more likely than
not be sustained upon examination. The amount of benefit
recognized is the largest amount of benefit that the Company
believes has more than a 50% probability of being realized upon
settlement. The Company regularly monitors its tax positions and
adjusts the amount of recognized tax benefit based on its
evaluation of information that has become available since the
end of its last financial reporting period. The annual tax rate
includes the impact of these changes in recognized tax benefits.
When adjusting the amount of recognized tax benefits the Company
does not consider information that has become available after
the balance sheet date, but does disclose the effects of new
information whenever those effects would be material to the
Companys financial statements. The difference between the
amount of benefit taken or expected to be taken in a tax return
and the amount of benefit recognized for financial reporting
represents unrecognized tax
32
benefits. These unrecognized tax benefits are presented in the
balance sheet principally within accrued income taxes.
The Company records valuation allowances to reduce deferred tax
assets to the amount that is more likely than not to be
realized. When assessing the need for valuation allowances, the
Company considers future taxable income and ongoing prudent and
feasible tax planning strategies. Should a change in
circumstances lead to a change in judgment about the
realizability of deferred tax assets in future years, the
Company would adjust related valuation allowances in the period
that the change in circumstances occurs, along with a
corresponding increase or charge to income.
Changes in recognized tax benefits and changes in valuation
allowances could be material to the Companys results of
operations for any period, but is not expected to be material to
the Companys financial position.
Inflation
and Input Costs
In general, the effects of inflation on costs may be experienced
by the Company in future periods. During Fiscal 2008, the
Company has experienced inflationary increases in commodity
input costs and expects this trend to continue through Fiscal
2009. The most significant commodity cost increases in Fiscal
2008 were for dairy, edible oils and processed grains. Strong
sales growth, price increases, continued productivity
improvements and the Companys geographic diversity are
helping to offset these cost increases.
The Company operates in certain countries around the world, such
as Venezuela, that have experienced hyperinflation. In
hyperinflationary foreign countries, the Company attempts to
mitigate the effects of inflation by increasing prices in line
with inflation, where possible, and efficiently managing its
working capital levels.
Stock
Market Information
H. J. Heinz Company common stock is traded principally on
The New York Stock Exchange under the symbol HNZ. The number of
shareholders of record of the Companys common stock as of
May 31, 2008 approximated 37,000. The closing price of the
common stock on The New York Stock Exchange composite listing on
April 30, 2008 was $47.03.
Stock price information for common stock by quarter follows:
|
|
|
|
|
|
|
|
|
|
|
Stock Price Range
|
|
|
|
High
|
|
|
Low
|
|
|
2008
|
|
|
|
|
|
|
|
|
First
|
|
$
|
48.50
|
|
|
$
|
42.84
|
|
Second
|
|
|
47.18
|
|
|
|
41.82
|
|
Third
|
|
|
48.75
|
|
|
|
41.37
|
|
Fourth
|
|
|
48.25
|
|
|
|
41.60
|
|
2007
|
|
|
|
|
|
|
|
|
First
|
|
$
|
44.15
|
|
|
$
|
39.62
|
|
Second
|
|
|
42.65
|
|
|
|
40.33
|
|
Third
|
|
|
47.16
|
|
|
|
41.78
|
|
Fourth
|
|
|
48.73
|
|
|
|
44.28
|
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
This information is set forth in this report in
Item 7Managements Discussion and Analysis
of Financial Condition and Results of Operations on pages
27 through 28.
33
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
TABLE OF
CONTENTS
34
Report of
Management on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. Internal control over financial reporting refers to the
process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer, and effected by
our Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles, and includes those policies and
procedures that:
(1) Pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(2) Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and
(3) Provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Companys assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management has used the framework set forth in the report
entitled Internal ControlIntegrated Framework
published by the Committee of Sponsoring Organizations of the
Treadway Commission to evaluate the effectiveness of the
Companys internal control over financial reporting.
Management has concluded that the Companys internal
control over financial reporting was effective as of the end of
the most recent fiscal year. PricewaterhouseCoopers LLP, an
independent registered public accounting firm, audited the
effectiveness of the Companys internal control over
financial reporting as of April 30, 2008, as stated in
their report which appears herein.
/s/ William R. Johnson
Chairman, President and
Chief Executive Officer
/s/ Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer
June 19, 2008
35
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
H. J. Heinz Company:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of H. J. Heinz
Company and its subsidiaries at April 30, 2008 and
May 2, 2007, and the results of their operations and their
cash flows for each of the three years in the period ended
April 30, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of April 30, 2008, based on criteria
established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Companys management is
responsible for these financial statements and financial
statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the Report of Management on Internal Control over
Financial Reporting appearing under Item 8. Our
responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation effective May 4, 2006 and as
discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for defined benefit pension and other postretirement plans
effective May 2, 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Pittsburgh, Pennsylvania
June 19, 2008
36
H. J.
Heinz Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30, 2008
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
10,070,778
|
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
Cost of products sold
|
|
|
6,390,086
|
|
|
|
5,608,730
|
|
|
|
5,550,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,680,692
|
|
|
|
3,392,900
|
|
|
|
3,093,074
|
|
Selling, general and administrative expenses
|
|
|
2,111,725
|
|
|
|
1,946,185
|
|
|
|
1,979,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,568,967
|
|
|
|
1,446,715
|
|
|
|
1,113,612
|
|
Interest income
|
|
|
41,519
|
|
|
|
41,869
|
|
|
|
33,190
|
|
Interest expense
|
|
|
364,856
|
|
|
|
333,270
|
|
|
|
316,296
|
|
Asset impairment charges for cost and equity investments
|
|
|
|
|
|
|
|
|
|
|
110,994
|
|
Other expense, net
|
|
|
27,836
|
|
|
|
30,915
|
|
|
|
26,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
1,217,794
|
|
|
|
1,124,399
|
|
|
|
693,461
|
|
Provision for income taxes
|
|
|
372,869
|
|
|
|
332,797
|
|
|
|
250,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
844,925
|
|
|
|
791,602
|
|
|
|
442,761
|
|
(Loss)/income from discontinued operations, net of tax
|
|
|
|
|
|
|
(5,856
|
)
|
|
|
202,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
844,925
|
|
|
$
|
785,746
|
|
|
$
|
645,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.63
|
|
|
$
|
2.38
|
|
|
$
|
1.29
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2.63
|
|
|
$
|
2.36
|
|
|
$
|
1.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingDiluted
|
|
|
321,717
|
|
|
|
332,468
|
|
|
|
342,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.67
|
|
|
$
|
2.41
|
|
|
$
|
1.31
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2.67
|
|
|
$
|
2.39
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingBasic
|
|
|
317,019
|
|
|
|
328,625
|
|
|
|
339,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
1.52
|
|
|
$
|
1.40
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
37
H. J.
Heinz Company and Subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
617,687
|
|
|
$
|
652,896
|
|
Receivables (net of allowances: 2008$15,687 and
2007$14,706)
|
|
|
1,161,481
|
|
|
|
996,852
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods and
work-in-process
|
|
|
1,100,735
|
|
|
|
943,449
|
|
Packaging material and ingredients
|
|
|
277,481
|
|
|
|
254,508
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
1,378,216
|
|
|
|
1,197,957
|
|
Prepaid expenses
|
|
|
139,492
|
|
|
|
132,561
|
|
Other current assets
|
|
|
28,690
|
|
|
|
38,736
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,325,566
|
|
|
|
3,019,002
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
56,007
|
|
|
|
51,950
|
|
Buildings and leasehold improvements
|
|
|
842,198
|
|
|
|
788,053
|
|
Equipment, furniture and other
|
|
|
3,502,071
|
|
|
|
3,214,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400,276
|
|
|
|
4,054,863
|
|
Less accumulated depreciation
|
|
|
2,295,563
|
|
|
|
2,056,710
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
2,104,713
|
|
|
|
1,998,153
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,997,462
|
|
|
|
2,834,639
|
|
Trademarks, net
|
|
|
957,111
|
|
|
|
892,749
|
|
Other intangibles, net
|
|
|
456,948
|
|
|
|
412,484
|
|
Other non-current assets
|
|
|
723,243
|
|
|
|
875,999
|
|
|
|
|
|
|
|
|
|
|
Total other non-current assets
|
|
|
5,134,764
|
|
|
|
5,015,871
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,565,043
|
|
|
$
|
10,033,026
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
38
H. J. Heinz
Company and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
124,290
|
|
|
$
|
165,054
|
|
Portion of long-term debt due within one year
|
|
|
328,418
|
|
|
|
303,189
|
|
Accounts payable
|
|
|
1,247,479
|
|
|
|
1,181,078
|
|
Salaries and wages
|
|
|
92,553
|
|
|
|
85,818
|
|
Accrued marketing
|
|
|
298,342
|
|
|
|
262,217
|
|
Other accrued liabilities
|
|
|
487,656
|
|
|
|
414,130
|
|
Income taxes
|
|
|
91,322
|
|
|
|
93,620
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,670,060
|
|
|
|
2,505,106
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and other liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
4,730,946
|
|
|
|
4,413,641
|
|
Deferred income taxes
|
|
|
409,186
|
|
|
|
463,666
|
|
Non-pension post-retirement benefits
|
|
|
257,051
|
|
|
|
253,117
|
|
Minority interest
|
|
|
65,727
|
|
|
|
98,309
|
|
Other liabilities
|
|
|
544,253
|
|
|
|
457,504
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and other liabilities
|
|
|
6,007,163
|
|
|
|
5,686,237
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Capital stock:
|
|
|
|
|
|
|
|
|
Third cumulative preferred, $1.70 first series, $10 par
value*
|
|
|
72
|
|
|
|
77
|
|
Common stock, 431,096,486 shares issued, $0.25 par
value
|
|
|
107,774
|
|
|
|
107,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,846
|
|
|
|
107,851
|
|
Additional capital
|
|
|
617,811
|
|
|
|
580,606
|
|
Retained earnings
|
|
|
6,129,008
|
|
|
|
5,778,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,854,665
|
|
|
|
6,467,074
|
|
Less:
|
|
|
|
|
|
|
|
|
Treasury shares, at cost (119,628,499 shares at
April 30, 2008 and 109,317,154 shares at May 2,
2007)
|
|
|
4,905,755
|
|
|
|
4,406,126
|
|
Accumulated other comprehensive loss
|
|
|
61,090
|
|
|
|
219,265
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,887,820
|
|
|
|
1,841,683
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
10,565,043
|
|
|
$
|
10,033,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
The preferred stock outstanding is
convertible at a rate of one share of preferred stock into
15 shares of common stock. The Company can redeem the stock
at $28.50 per share. As of April 30, 2008, there were
authorized, but unissued, 2,200,000 shares of third
cumulative preferred stock for which the series had not been
designated.
|
See Notes to Consolidated Financial Statements
39
H. J.
Heinz Company and Subsidiaries
Consolidated
Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
|
(Amounts in thousands, expect per share amounts)
|
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
8
|
|
|
$
|
77
|
|
|
|
8
|
|
|
$
|
82
|
|
|
|
9
|
|
|
$
|
83
|
|
Conversion of preferred into common stock
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
7
|
|
|
|
72
|
|
|
|
8
|
|
|
|
77
|
|
|
|
8
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized shares- April 30, 2008
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
431,096
|
|
|
|
107,774
|
|
|
|
431,096
|
|
|
|
107,774
|
|
|
|
431,096
|
|
|
|
107,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
431,096
|
|
|
|
107,774
|
|
|
|
431,096
|
|
|
|
107,774
|
|
|
|
431,096
|
|
|
|
107,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized shares- April 30, 2008
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
580,606
|
|
|
|
|
|
|
|
502,235
|
|
|
|
|
|
|
|
430,073
|
|
Conversion of preferred into common stock
|
|
|
|
|
|
|
(219
|
)
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
(32
|
)
|
Stock options exercised, net of shares tendered for payment
|
|
|
|
|
|
|
20,920
|
|
|
|
|
|
|
|
79,735
|
|
|
|
|
|
|
|
46,861
|
|
Stock option expense
|
|
|
|
|
|
|
8,919
|
|
|
|
|
|
|
|
11,987
|
|
|
|
|
|
|
|
|
|
Restricted stock unit activity
|
|
|
|
|
|
|
4,961
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
21,958
|
|
Transfer of unearned compensation balance per
SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,773
|
)
|
|
|
|
|
|
|
|
|
Initial adoption of FIN 48
|
|
|
|
|
|
|
(1,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net*
|
|
|
|
|
|
|
4,343
|
|
|
|
|
|
|
|
3,613
|
|
|
|
|
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
617,811
|
|
|
|
|
|
|
|
580,606
|
|
|
|
|
|
|
|
502,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
5,778,617
|
|
|
|
|
|
|
|
5,454,108
|
|
|
|
|
|
|
|
5,210,748
|
|
Net income
|
|
|
|
|
|
|
844,925
|
|
|
|
|
|
|
|
785,746
|
|
|
|
|
|
|
|
645,603
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred (per share $1.70 per share in 2008, 2007, and 2006)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(14
|
)
|
Common (per share $1.52, $1.40, and $1.20 in 2008, 2007, and
2006, respectively)
|
|
|
|
|
|
|
(485,234
|
)
|
|
|
|
|
|
|
(461,224
|
)
|
|
|
|
|
|
|
(408,137
|
)
|
Initial adoption of FIN 48
|
|
|
|
|
|
|
(9,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
6,129,008
|
|
|
|
|
|
|
|
5,778,617
|
|
|
|
|
|
|
|
5,454,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(109,317
|
)
|
|
|
(4,406,126
|
)
|
|
|
(100,339
|
)
|
|
|
(3,852,220
|
)
|
|
|
(83,419
|
)
|
|
|
(3,140,586
|
)
|
Shares reacquired
|
|
|
(13,054
|
)
|
|
|
(580,707
|
)
|
|
|
(16,651
|
)
|
|
|
(760,686
|
)
|
|
|
(21,925
|
)
|
|
|
(823,370
|
)
|
Conversion of preferred into common stock
|
|
|
8
|
|
|
|
224
|
|
|
|
7
|
|
|
|
195
|
|
|
|
1
|
|
|
|
33
|
|
Stock options exercised, net of shares tendered for payment
|
|
|
2,116
|
|
|
|
62,486
|
|
|
|
7,265
|
|
|
|
195,117
|
|
|
|
4,575
|
|
|
|
101,945
|
|
Restricted stock unit activity
|
|
|
289
|
|
|
|
8,591
|
|
|
|
96
|
|
|
|
2,438
|
|
|
|
58
|
|
|
|
1,303
|
|
Other, net*
|
|
|
330
|
|
|
|
9,777
|
|
|
|
305
|
|
|
|
9,030
|
|
|
|
371
|
|
|
|
8,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(119,628
|
)
|
|
|
(4,905,755
|
)
|
|
|
(109,317
|
)
|
|
|
(4,406,126
|
)
|
|
|
(100,339
|
)
|
|
|
(3,852,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNEARNED COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,773
|
)
|
|
|
|
|
|
|
(31,141
|
)
|
Restricted stock unit activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,195
|
)
|
Transfer of balance to additional capital per
SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,773
|
|
|
|
|
|
|
|
|
|
Other, net*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS)/INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
(219,265
|
)
|
|
|
|
|
|
|
(130,383
|
)
|
|
|
|
|
|
|
25,622
|
|
Net pension and post-retirement benefit losses (net of $75,407
tax benefit in 2008)
|
|
|
|
|
|
|
(155,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of net pension and post-retirement benefit
losses to net income (net of $14,159 tax benefit in 2008)
|
|
|
|
|
|
|
27,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability (net of $4,167 tax expense and $3,306
tax benefit in 2007 and 2006, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,041
|
|
|
|
|
|
|
|
(8,583
|
)
|
Unrealized translation adjustments (net of $25,823 tax expense,
$29,635 tax benefit, and $11,912 tax benefit in 2008, 2007 and
2006, respectively)
|
|
|
|
|
|
|
281,090
|
|
|
|
|
|
|
|
293,673
|
|
|
|
|
|
|
|
(147,746
|
)
|
Net change in fair value of cash flow hedges (net of $7,527 tax
expense and $4,423 tax benefit in 2008 and 2007, respectively)
|
|
|
|
|
|
|
16,273
|
|
|
|
|
|
|
|
(3,401
|
)
|
|
|
|
|
|
|
8,236
|
|
Net hedging (gains)/losses reclassified into earnings (net of
$7,287 tax expense, $6,163 tax benefit, and $5,915 tax expense
in 2008, 2007, and 2006, respectively)
|
|
|
|
|
|
|
(10,986
|
)
|
|
|
|
|
|
|
11,239
|
|
|
|
|
|
|
|
(7,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income/(loss) adjustments
|
|
|
|
|
|
|
158,175
|
|
|
|
|
|
|
|
309,552
|
|
|
|
|
|
|
|
(156,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial adoption of SFAS No. 158, net of $182,530 tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(398,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
(61,090
|
)
|
|
|
|
|
|
|
(219,265
|
)
|
|
|
|
|
|
|
(130,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
|
|
|
$
|
1,887,820
|
|
|
|
|
|
|
$
|
1,841,683
|
|
|
|
|
|
|
$
|
2,048,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
844,925
|
|
|
|
|
|
|
$
|
785,746
|
|
|
|
|
|
|
$
|
645,603
|
|
Net other comprehensive income/(loss) adjustments
|
|
|
|
|
|
|
158,175
|
|
|
|
|
|
|
|
309,552
|
|
|
|
|
|
|
|
(156,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME
|
|
|
|
|
|
$
|
1,003,100
|
|
|
|
|
|
|
$
|
1,095,298
|
|
|
|
|
|
|
$
|
489,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes activity of the Global
Stock Purchase Plan. Retained Earnings in Fiscal 2006 reflects
the final settlement associated with businesses spun-off to Del
Monte in Fiscal 2003.
|
|
|
|
Includes income tax benefit
resulting from exercised stock options.
|
|
|
|
Comprised of unrealized translation
adjustment of $529,228, pension and post-retirement benefits net
prior service cost of $(11,833) and net losses of $(586,986),
and deferred net gains on derivative financial instruments of
$8,501.
|
See Notes to Consolidated Financial Statements
40
H. J.
Heinz Company and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
844,925
|
|
|
$
|
785,746
|
|
|
$
|
645,603
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
250,826
|
|
|
|
233,374
|
|
|
|
227,454
|
|
Amortization
|
|
|
38,071
|
|
|
|
32,823
|
|
|
|
36,384
|
|
Deferred tax provision/(benefit)
|
|
|
18,543
|
|
|
|
52,244
|
|
|
|
(57,693
|
)
|
(Gains)/losses on disposals and impairment charges
|
|
|
(15,706
|
)
|
|
|
(1,391
|
)
|
|
|
48,023
|
|
Other items, net
|
|
|
22,343
|
|
|
|
11,066
|
|
|
|
39,066
|
|
Changes in current assets and liabilities, excluding effects of
acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(55,832
|
)
|
|
|
10,987
|
|
|
|
115,583
|
|
Inventories
|
|
|
(133,600
|
)
|
|
|
(82,534
|
)
|
|
|
(47,401
|
)
|
Prepaid expenses and other current assets
|
|
|
5,748
|
|
|
|
14,208
|
|
|
|
13,555
|
|
Accounts payable
|
|
|
89,160
|
|
|
|
56,524
|
|
|
|
56,545
|
|
Accrued liabilities
|
|
|
28,259
|
|
|
|
(4,489
|
)
|
|
|
57,353
|
|
Income taxes
|
|
|
95,566
|
|
|
|
(46,270
|
)
|
|
|
(59,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
1,188,303
|
|
|
|
1,062,288
|
|
|
|
1,074,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(301,588
|
)
|
|
|
(244,562
|
)
|
|
|
(230,577
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
8,531
|
|
|
|
60,661
|
|
|
|
19,373
|
|
Acquisitions, net of cash acquired
|
|
|
(151,604
|
)
|
|
|
(88,996
|
)
|
|
|
(1,100,436
|
)
|
Net proceeds/(payments) related to divestitures
|
|
|
63,481
|
|
|
|
(4,144
|
)
|
|
|
856,729
|
|
Termination of net investment hedges
|
|
|
(93,153
|
)
|
|
|
|
|
|
|
|
|
Other items, net
|
|
|
(79,894
|
)
|
|
|
(49,203
|
)
|
|
|
3,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for investing activities
|
|
|
(554,227
|
)
|
|
|
(326,244
|
)
|
|
|
(451,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(368,214
|
)
|
|
|
(52,069
|
)
|
|
|
(727,772
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
230,790
|
|
Net proceeds from commercial paper and short-term debt
|
|
|
483,730
|
|
|
|
384,055
|
|
|
|
298,525
|
|
Dividends
|
|
|
(485,246
|
)
|
|
|
(461,237
|
)
|
|
|
(408,151
|
)
|
Purchases of treasury stock
|
|
|
(580,707
|
)
|
|
|
(760,686
|
)
|
|
|
(823,370
|
)
|
Exercise of stock options
|
|
|
78,596
|
|
|
|
259,816
|
|
|
|
142,046
|
|
Termination of interest rate swaps
|
|
|
103,522
|
|
|
|
|
|
|
|
|
|
Other items, net
|
|
|
10,224
|
|
|
|
9,212
|
|
|
|
18,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(758,095
|
)
|
|
|
(620,909
|
)
|
|
|
(1,269,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities of discontinued operations
spun-off to Del Monte
|
|
|
|
|
|
|
33,511
|
|
|
|
13,312
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
88,810
|
|
|
|
58,823
|
|
|
|
(5,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(35,209
|
)
|
|
|
207,469
|
|
|
|
(638,322
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
652,896
|
|
|
|
445,427
|
|
|
|
1,083,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
617,687
|
|
|
$
|
652,896
|
|
|
$
|
445,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
41
H. J.
Heinz Company and Subsidiaries
|
|
1.
|
Significant
Accounting Policies
|
Fiscal
Year:
H. J. Heinz Company (the Company) operates on a
52-week or 53-week fiscal year ending the Wednesday nearest
April 30. However, certain foreign subsidiaries have
earlier closing dates to facilitate timely reporting. Fiscal
years for the financial statements included herein ended
April 30, 2008, May 2, 2007, and May 3, 2006.
Principles
of Consolidation:
The consolidated financial statements include the accounts of
the Company and entities in which the Company maintains a
controlling financial interest. Control is generally determined
based on the majority ownership of an entitys voting
interests. In certain situations, control is based on
participation in the majority of an entitys economic risks
and rewards. Investments in certain companies over which the
Company exerts significant influence, but does not control the
financial and operating decisions, are accounted for as equity
method investments. All intercompany accounts and transactions
are eliminated.
As a result of general economic uncertainty, coupled with
restrictions on the repatriation of earnings, as of the end of
November 2002 the Company deconsolidated its Zimbabwean
operations and classified its remaining net investment of
approximately $111 million as a cost investment. In the
fourth quarter of Fiscal 2006, the Company wrote off its net
investment in Zimbabwe. The decision to write off the Zimbabwe
investment related to managements determination that this
investment was not a core business. Managements
determination was based on an evaluation of political and
economic conditions existing in Zimbabwe and the ability for the
Company to recover its cost in this investment. This evaluation
considered the continued economic turmoil, further instability
in the local currency and the uncertainty regarding the ability
to source raw material in the future. In Fiscal 2008, the
Company sold this business resulting in an insignificant gain.
Use of
Estimates:
The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from these estimates.
Translation
of Foreign Currencies:
For all significant foreign operations, the functional currency
is the local currency. Assets and liabilities of these
operations are translated at the exchange rate in effect at each
year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation
adjustments arising from the use of differing exchange rates
from period to period are included as a component of other
comprehensive income/(loss) within shareholders equity.
Gains and losses from foreign currency transactions are included
in net income for the period.
Cash
Equivalents:
Cash equivalents are defined as highly liquid investments with
original maturities of 90 days or less.
42
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined principally under the average cost method.
Property,
Plant and Equipment:
Land, buildings and equipment are recorded at cost. For
financial reporting purposes, depreciation is provided on the
straight-line method over the estimated useful lives of the
assets, which generally have the following ranges:
buildings40 years or less, machinery and
equipment15 years or less, computer software3
to 7 years, and leasehold improvementsover the life
of the lease, not to exceed 15 years. Accelerated
depreciation methods are generally used for income tax purposes.
Expenditures for new facilities and improvements that
substantially extend the capacity or useful life of an asset are
capitalized. Ordinary repairs and maintenance are expensed as
incurred. When property is retired or otherwise disposed, the
cost and related depreciation are removed from the accounts and
any related gains or losses are included in income. Property,
plant and equipment are reviewed for possible impairment when
appropriate. The Companys impairment review is based on an
undiscounted cash flow analysis at the lowest level for which
identifiable cash flows exist. Impairment occurs when the
carrying value of the asset exceeds the future undiscounted cash
flows. When an impairment is indicated, the asset is written
down to its fair value.
Intangibles:
Intangible assets with finite useful lives are amortized on a
straight-line basis over the estimated periods benefited, and
are reviewed when appropriate for possible impairment, similar
to property, plant and equipment. Goodwill and intangible assets
with indefinite useful lives are not amortized. The carrying
values of goodwill and other intangible assets with indefinite
useful lives are tested at least annually for impairment.
Revenue
Recognition:
The Company recognizes revenue when title, ownership and risk of
loss pass to the customer. This occurs upon delivery of the
product to the customer. Customers generally do not have the
right to return products unless damaged or defective. Revenue is
recorded, net of sales incentives, and includes shipping and
handling charges billed to customers. Shipping and handling
costs are primarily classified as part of selling, general and
administrative expenses.
Marketing
Costs:
The Company promotes its products with advertising, consumer
incentives and trade promotions. Such programs include, but are
not limited to, discounts, coupons, rebates, in-store display
incentives and volume-based incentives. Advertising costs are
expensed as incurred. Consumer incentive and trade promotion
activities are recorded as a reduction of revenue or as a
component of cost of products sold based on amounts estimated as
being due to customers and consumers at the end of a period,
based principally on historical utilization and redemption
rates. For interim reporting purposes, advertising, consumer
incentive and product placement expenses are charged to
operations as a percentage of volume, based on estimated volume
and related expense for the full year.
Income
Taxes:
Deferred income taxes result primarily from temporary
differences between financial and tax reporting. If it is more
likely than not that some portion or all of a deferred tax asset
will not be
43
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
realized, a valuation allowance is recognized. When assessing
the need for valuation allowances, the Company considers future
taxable income and ongoing prudent and feasible tax planning
strategies. Should a change in circumstances lead to a change in
judgment about the realizability of deferred tax assets in
future years, the Company would adjust related valuation
allowances in the period that the change in circumstances
occurs, along with a corresponding increase or charge to income.
The Company has not provided for possible U.S. taxes on the
undistributed earnings of foreign subsidiaries that are
considered to be reinvested indefinitely. Calculation of the
unrecognized deferred tax liability for temporary differences
related to these earnings is not practicable.
Stock-Based
Employee Compensation Plans:
Prior to May 4, 2006, the Company accounted for its
stock-based compensation plans under the measurement and
recognition provisions of Accounting Principles Board Opinion
No. (APB) 25, Accounting for Stock Issued to
Employees, and related Interpretations, as permitted by
Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation
(SFAS 123). Under the intrinsic-value
method prescribed by APB 25, compensation cost for stock options
was measured at the grant date as the excess, if any, of the
quoted market price of the Companys stock over the
exercise price of the options. Generally employee stock options
were granted at or above the grant date market price, therefore,
no compensation cost was recognized for stock option grants in
prior periods; however, stock-based compensation was included as
a pro-forma disclosure in the Notes to Consolidated Financial
Statements. Compensation cost for restricted stock units was
determined as the fair value of the Companys stock at the
grant date and was amortized over the vesting period and
recognized as a component of general and administrative expenses.
Effective May 4, 2006, the Company adopted
SFAS No. 123R, Share-Based Payment
(SFAS 123R), which requires all stock-based
payments to employees, including grants of employee stock
options, to be recognized in the Consolidated Statements of
Income based on their fair values. Determining the fair value of
share-based awards at the grant date requires judgment in
estimating the expected term that the stock options will be
outstanding prior to exercise as well as the volatility and
dividends over the expected term. Judgment is also required in
estimating the amount of stock-based awards expected to be
forfeited prior to vesting. If actual forfeitures differ
significantly from these estimates, stock-based compensation
expense could be materially impacted.
44
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Had compensation cost for the Companys stock option plans
been determined in Fiscal 2006 based on the fair-value based
method for all awards, the pro forma income and earnings per
share from continuing operations would have been as follows:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 3,
|
|
|
|
2006
|
|
|
|
(53 Weeks)
|
|
|
|
(In thousands,
|
|
|
|
except per share amounts)
|
|
|
Income from continuing operations:
|
|
|
|
|
As reported
|
|
$
|
442,761
|
|
Fair value-based expense, net of tax
|
|
|
12,333
|
|
|
|
|
|
|
Pro forma
|
|
$
|
430,428
|
|
|
|
|
|
|
Income per common share from continuing operations:
|
|
|
|
|
Diluted
|
|
|
|
|
As reported
|
|
$
|
1.29
|
|
Pro forma
|
|
$
|
1.26
|
|
Basic
|
|
|
|
|
As reported
|
|
$
|
1.31
|
|
Pro forma
|
|
$
|
1.27
|
|
Financial
Instruments:
The Companys financial instruments consist primarily of
cash and cash equivalents, receivables, accounts payable,
short-term and long-term debt, swaps, forward contracts, and
option contracts. The carrying values for the Companys
financial instruments approximate fair value. As a policy, the
Company does not engage in speculative or leveraged
transactions, nor does the Company hold or issue financial
instruments for trading purposes.
The Company uses derivative financial instruments for the
purpose of hedging currency, debt and interest rate exposures,
which exist as part of ongoing business operations. The Company
carries derivative instruments on the balance sheet at fair
value, determined by reference to quoted market data.
Derivatives with scheduled maturities of less than one year are
included in receivables or accounts payable, based on the
instruments fair value. Derivatives with scheduled
maturities beyond one year are classified between current and
long-term based on the timing of anticipated future cash flows.
The current portion of these instruments is included in
receivables or accounts payable and the long-term portion is
presented as a component of other non-current assets or other
liabilities, based on the instruments fair value. The
accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and, if so, the
reason for holding it. Cash flows related to derivative
instruments designated as cash flow hedges are generally
classified in the consolidated statements of cash flows within
operating activities as a component of other items, net. Cash
flows related to the settlement of derivative instruments
designated as net investment hedges of foreign operations are
classified in the consolidated statements of cash flows within
investing activities. Cash flows related to the termination of
derivative instruments designated as fair value hedges of fixed
rate debt obligations are classified in the consolidated
statements of cash flows within financing activities.
45
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
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 7
for additional information.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, which defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement
applies whenever other accounting pronouncements require or
permit assets or liabilities to be measured at fair value, but
does not expand the use of fair value to new accounting
transactions. SFAS No. 157 is effective for financial
assets and liabilities in fiscal years beginning after
November 15, 2007, and for non-financial assets and
liabilities in fiscal years beginning after November 15,
2008. The Company will adopt SFAS No. 157 for its
financial assets and liabilities on May 1, 2008, the first
day of Fiscal 2009. The Companys financial instruments
consist primarily of cash and cash equivalents, receivables,
accounts payable, short-term and long-term debt, swaps, forward
contracts, and option contracts. The recorded values of the
Companys financial instruments approximate fair value. The
Company is currently evaluating the impact of adopting
SFAS No. 157 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statement Nos.
87, 88, 106 and 132(R). SFAS No. 158 required
that the Company recognize the funded status of each of its
defined pension and postretirement benefit plans as a net asset
or liability in the consolidated balance sheet and to recognize
changes in that funded status in the year in which changes occur
through comprehensive income. Effective May 2, 2007, the
Company adopted these provisions of SFAS No. 158.
SFAS No. 158 also requires that employers measure plan
assets and obligations as of the date of their year-end
financial statements beginning with the Companys fiscal
year ending April 29, 2009. The Company does not expect the
impact of the change in measurement date to have a material
impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51. These new
standards will significantly change the accounting for and
reporting of business combination transactions and
noncontrolling (minority) interests in consolidated financial
statements. SFAS Nos. 141(R) and 160 are required to be
adopted simultaneously and are effective for fiscal years
beginning after December 15, 2008, with early adoption
prohibited. Thus, the Company will be required to adopt these
standards on April 30, 2009, the first day of Fiscal 2010.
The Company is currently evaluating the impact of adopting
SFAS Nos. 141(R) and 160 on its consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement
No. 133. This new standard requires enhanced
disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance, and cash flows. This statement is
effective for financial statements
46
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the
impact of adopting SFAS No. 161 in the fourth quarter
of Fiscal 2009.
|
|
3.
|
Discontinued
Operations
|
During fiscal years 2003 through 2006, the Company focused on
exiting non-strategic business operations. Certain of these
businesses which were sold were accounted for as discontinued
operations.
In the fourth quarter of Fiscal 2006, the Company completed the
sale of the European seafood business, which included the brands
of John
West®,
Petit
Navire®,
Marie
Elisabeth®
and
Mareblu®.
The Company received net proceeds of $469.3 million for
this disposal and recognized a $199.8 million pretax
($122.9 million after tax) gain which has been recorded in
discontinued operations. Also in the fourth quarter of Fiscal
2006, the Company completed the sale of the
Tegel®
poultry business in New Zealand and received net proceeds of
$150.4 million, and recognized a $10.4 million
non-taxable gain, which is also recorded in discontinued
operations.
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. The
Company recorded a loss of $3.3 million ($5.9 million
after-tax) from these businesses for the year ended May 2,
2007, primarily resulting from purchase price adjustments
pursuant to the transaction agreements. These discontinued
operations generated sales of $688.0 million (partial year)
and net income of $169.1 million (net of $90.2 million
in tax expense) for the year ended May 3, 2006.
In addition, net income from discontinued operations includes
amounts related to the favorable settlement of tax liabilities
associated with the businesses spun-off to Del Monte in Fiscal
2003. Such amounts totaled $33.7 million for the year ended
May 3, 2006.
|
|
4.
|
Fiscal
2006 Transformation Costs
|
In executing its strategic transformation during Fiscal 2006,
the Company incurred the following associated costs. These costs
were directly linked to the Companys transformation
strategy.
Reorganization
Costs:
In Fiscal 2006, the Company recorded pretax integration and
reorganization charges for targeted workforce reductions
consistent with the Companys goals to streamline its
businesses totaling $124.7 million ($80.3 million
after tax). Additionally, pretax costs of $22.0 million
($16.3 million after tax) were incurred in Fiscal 2006,
primarily as a result of the strategic reviews related to the
portfolio realignment.
The total impact of these initiatives on continuing operations
in Fiscal 2006 was $146.7 million pre-tax
($96.6 million after-tax), of which $17.4 million was
recorded as costs of products sold and $129.3 million in
selling, general and administrative expenses
(SG&A). In addition, $10.5 million was
recorded in discontinued operations, net of tax. The amount
included in accrued expenses related to these initiatives
totaled $51.6 million at May 3, 2006, all of which was
paid during Fiscal 2007.
47
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Other
Divestitures/Impairment Charges:
The following (losses)/gains or non-cash asset impairment
charges were recorded in continuing operations during Fiscal
2006:
|
|
|
|
|
|
|
|
|
|
|
Business or Product Line
|
|
Segment
|
|
Pre-Tax
|
|
|
After-Tax
|
|
|
|
|
|
(In millions)
|
|
|
Loss on sale of Seafood business in Israel
|
|
Rest of World
|
|
$
|
(15.9
|
)
|
|
$
|
(15.9
|
)
|
Impairment charge on Portion Pac Bulk product line
|
|
U.S. Foodservice
|
|
|
(21.5
|
)
|
|
|
(13.3
|
)
|
Impairment charge on U.K. Frozen and Chilled product lines
|
|
Europe
|
|
|
(15.2
|
)
|
|
|
(15.2
|
)
|
Impairment charge on European production assets
|
|
Europe
|
|
|
(18.7
|
)
|
|
|
(18.7
|
)
|
Impairment charge on Noodle product line in Indonesia
|
|
Asia/Pacific
|
|
|
(15.8
|
)
|
|
|
(8.5
|
)
|
Impairment charge on investment in Zimbabwe business
|
|
Rest of World
|
|
|
(111.0
|
)
|
|
|
(105.6
|
)
|
Other
|
|
Various
|
|
|
(1.5
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(199.6
|
)
|
|
$
|
(176.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Of the above pre-tax amounts, $74.1 million was recorded in
cost of products sold, $15.5 million in SG&A,
$111.0 million in asset impairment charges for cost and
equity investments, and $(1.0) million in other expense.
Also during the third quarter of Fiscal 2006, the Company sold
its equity investment in The Hain Celestial Group, Inc.
(Hain) and recognized a $6.9 million
($4.5 million after-tax) loss which is recorded within
other expense, net. Net proceeds from the sale of this
investment were $116.1 million. During the third quarter of
Fiscal 2005, the Company recognized a $64.5 million
impairment charge on its equity investment in Hain. The charge
reduced Heinzs carrying value in Hain to fair market value
as of January 26, 2005, with no resulting impact on cash
flows. Due to the uncertainty of realizability and executing
possible tax planning strategies, the Company recorded a
valuation allowance of $27.3 million against the potential
tax benefits primarily related to the Hain impairment. This
valuation allowance was subsequently released in Fiscal 2006
based upon tax planning strategies that are expected to generate
sufficient capital gains that will occur during the capital loss
carryforward period. See further discussion in Note 7.
There were no material gains/(losses) on divested businesses or
asset impairment charges in Fiscal 2007 or 2008.
Other
Non-recurringAmerican Jobs Creation Act:
The American Jobs Creation Act (AJCA) provided a
deduction of 85% of qualified foreign dividends in excess of a
Base Period dividend amount. During Fiscal 2006, the
Company finalized plans to repatriate dividends that qualified
under the AJCA. The total impact of the AJCA on tax expense for
Fiscal 2006 was $17.3 million, of which $24.4 million
of expense was recorded in continuing operations and
$7.1 million was a benefit in discontinued operations.
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 $58 million. During the
second quarter of Fiscal 2008, the Company acquired the
remaining interest in its Shanghai LongFong Foods business for
approximately $18 million in cash
48
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
and $15 million of deferred consideration. During the
fourth quarter of Fiscal 2008, the Company acquired the
Wyko®
sauce business in the Netherlands for approximately
$66 million. The Company also made payments during Fiscal
2008 related to acquisitions completed in prior fiscal years,
none of which were significant.
During Fiscal 2007, the Company acquired Renées
Gourmet Foods, a Canadian manufacturer of premium chilled salad
dressings, sauces, dips, marinades and mayonnaise, for
approximately $68 million. In addition, during Fiscal 2007,
the Company acquired the remaining interest in its Petrosoyuz
joint venture for approximately $15 million. The Company
also made payments during Fiscal 2007 related to acquisitions
completed in prior fiscal years, none of which were significant.
The Company acquired the following businesses during Fiscal 2006
for a total purchase price of $1.1 billion:
|
|
|
|
|
In August 2005, the Company acquired HP Foods Limited, HP Foods
Holdings Limited, and HP Foods International Limited
(collectively referred to as HPF) for a purchase
price of approximately $877 million. HPF is a manufacturer
and marketer of sauces which are primarily sold in the United
Kingdom, the United States, and Canada. The Company acquired
HPFs brands including
HP®
and Lea &
Perrins®
and a perpetual license to market
Amoy®
brand Asian sauces and products in Europe. During the fourth
quarter of Fiscal 2006, the Company divested the Ethnic Foods
division of HPF for net proceeds totaling approximately
$43 million. In March 2006, the British Competition
Commission formally cleared this acquisition, concluding that
the acquisition may not be expected to result in a substantial
lessening of competition within the markets for tomato ketchup,
brown sauce, barbeque sauce, canned baked beans and canned pasta
in the United Kingdom.
|
|
|
|
On April 28, 2005, the Company acquired a controlling
interest in Petrosoyuz, a leading Russian maker of ketchup,
condiments and sauces. Petrosoyuzs business includes
brands such as
Pikador®,
Derevenskoye®,
Mechta
Hoziajki®
and Moya
Semya®.
|
|
|
|
In July 2005, the Company acquired Nancys Specialty Foods,
Inc., which produces premium appetizers, quiche entrees and
desserts in the United States and Canada.
|
|
|
|
In March 2006, the Company acquired Kabobs, Inc., which produces
premium hors doeuvres in the United States.
|
In addition, the Company made payments during Fiscal 2006
related to acquisitions completed in prior fiscal years, none of
which were significant.
All of the above-mentioned acquisitions have been accounted for
as purchases and, accordingly, the respective purchase prices
have been allocated to the respective assets and liabilities
based upon their estimated fair values as of the acquisition
date. Operating results of the businesses acquired have been
included in the consolidated statements of income from the
respective acquisition dates forward. Pro forma results of the
Company, assuming all of the acquisitions had occurred at the
beginning of each period presented, would not be materially
different from the results reported. There are no significant
contingent payments, options or commitments associated with any
of the acquisitions, except as disclosed above.
49
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
6.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the fiscal year
ended April 30, 2008, by reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
Rest
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
Asia/
|
|
|
U.S.
|
|
|
of
|
|
|
|
|
|
|
Products
|
|
|
Europe
|
|
|
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
|
|
|
|
|
|
|
15,259
|
|
|
|
47,603
|
|
|
|
|
|
|
|
|
|
|
|
62,862
|
|
Purchase accounting adjustments
|
|
|
2,820
|
|
|
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
665
|
|
Disposals
|
|
|
|
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,239
|
)
|
Translation adjustments
|
|
|
11,795
|
|
|
|
69,549
|
|
|
|
19,852
|
|
|
|
|
|
|
|
(661
|
)
|
|
|
100,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2008
|
|
$
|
1,096,288
|
|
|
$
|
1,340,928
|
|
|
$
|
282,419
|
|
|
$
|
262,823
|
|
|
$
|
15,004
|
|
|
$
|
2,997,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The annual impairment tests are performed as of the last day of
the third quarter of each fiscal year unless events suggest an
impairment may have occurred in the interim.
The Company finalized the purchase price allocation for the
Cottees®
and
Roses®
acquisition during the fourth quarter of Fiscal 2008. The
Company also recorded a preliminary purchase price allocation
related to the
Wyko®
acquisition, which is expected to be finalized upon completion
of valuation procedures.
Trademarks and other intangible assets at April 30, 2008
and May 2, 2007, subject to amortization expense, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008
|
|
|
May 2, 2007
|
|
|
|
Gross
|
|
|
Accum Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Accum Amort
|
|
|
Net
|
|
|
|
(Thousands of dollars)
|
|
|
Trademarks
|
|
$
|
200,966
|
|
|
$
|
(69,104
|
)
|
|
$
|
131,862
|
|
|
$
|
196,703
|
|
|
$
|
(63,110
|
)
|
|
$
|
133,593
|
|
Licenses
|
|
|
208,186
|
|
|
|
(141,070
|
)
|
|
|
67,116
|
|
|
|
208,186
|
|
|
|
(135,349
|
)
|
|
|
72,837
|
|
Recipes/processes
|
|
|
71,495
|
|
|
|
(19,306
|
)
|
|
|
52,189
|
|
|
|
64,315
|
|
|
|
(15,779
|
)
|
|
|
48,536
|
|
Customer related assets
|
|
|
183,204
|
|
|
|
(31,418
|
)
|
|
|
151,786
|
|
|
|
152,668
|
|
|
|
(19,183
|
)
|
|
|
133,485
|
|
Other
|
|
|
73,848
|
|
|
|
(59,639
|
)
|
|
|
14,209
|
|
|
|
70,386
|
|
|
|
(56,344
|
)
|
|
|
14,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
737,699
|
|
|
$
|
(320,537
|
)
|
|
$
|
417,162
|
|
|
$
|
692,258
|
|
|
$
|
(289,765
|
)
|
|
$
|
402,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for trademarks and other intangible assets
subject to amortization was $27.7 million,
$25.7 million and $27.6 million for the fiscal years
ended April 30, 2008, May 2, 2007 and May 3,
2006, respectively. The finalization of the purchase price
allocation for the HP Foods acquisition resulted in a
$5.3 million adjustment to amortization expense during the
second quarter of Fiscal 2007. Based upon the amortizable
intangible assets recorded on the balance sheet as of
April 30, 2008, amortization expense for each of the next
five fiscal years is estimated to be approximately
$28 million.
Intangible assets not subject to amortization at April 30,
2008 totaled $996.9 million and consisted of
$825.2 million of trademarks, $135.3 million of
recipes/processes, and $36.4 million of licenses.
Intangibles assets not subject to amortization at May 2,
2007 totaled $902.7 million and
50
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
consisted of $759.2 million of trademarks,
$126.6 million of recipes/processes, and $16.9 million
of licenses.
The following table summarizes the provision/(benefit) for
U.S. federal, state and foreign taxes on income from
continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
80,638
|
|
|
$
|
89,020
|
|
|
$
|
71,533
|
|
State
|
|
|
15,323
|
|
|
|
9,878
|
|
|
|
14,944
|
|
Foreign
|
|
|
258,365
|
|
|
|
181,655
|
|
|
|
225,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354,326
|
|
|
|
280,553
|
|
|
|
311,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
14,975
|
|
|
|
104,113
|
|
|
|
(54,957
|
)
|
State
|
|
|
2,381
|
|
|
|
5,444
|
|
|
|
3,015
|
|
Foreign
|
|
|
1,187
|
|
|
|
(57,313
|
)
|
|
|
(9,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,543
|
|
|
|
52,244
|
|
|
|
(61,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
372,869
|
|
|
$
|
332,797
|
|
|
$
|
250,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits related to stock options and other equity
instruments recorded directly to additional capital totaled
$6.2 million in Fiscal 2008, $15.5 million in Fiscal
2007 and $6.7 million in Fiscal 2006.
The components of income from continuing operations before
income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Domestic
|
|
$
|
268,450
|
|
|
$
|
293,580
|
|
|
$
|
87,409
|
|
Foreign
|
|
|
949,344
|
|
|
|
830,819
|
|
|
|
606,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
1,217,794
|
|
|
$
|
1,124,399
|
|
|
$
|
693,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the U.S. federal statutory tax rate
and the Companys consolidated effective tax rate on
continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Tax on income of foreign subsidiaries
|
|
|
(4.5
|
)
|
|
|
(5.4
|
)
|
|
|
(3.6
|
)
|
State income taxes (net of federal benefit)
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
1.8
|
|
Earnings repatriation
|
|
|
3.3
|
|
|
|
9.6
|
|
|
|
4.3
|
|
Reduction of tax reserves for statute of limitations expiration
|
|
|
(0.1
|
)
|
|
|
(5.9
|
)
|
|
|
|
|
Effects of revaluation of tax basis of foreign assets
|
|
|
(2.4
|
)
|
|
|
(4.6
|
)
|
|
|
(2.3
|
)
|
Other
|
|
|
(1.4
|
)
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
30.6
|
%
|
|
|
29.6
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The increase in the effective tax rate in Fiscal 2008 is
primarily the result of benefits recognized in Fiscal 2007 for
reversal of a foreign tax reserve, tax planning completed in a
foreign jurisdiction, and R&D tax credits. Those prior year
benefits were partially offset by lower repatriation costs and
increased benefits from tax audit settlements occurring during
Fiscal 2008, along with changes in valuation allowances for
foreign losses. The decrease in the effective tax rate in Fiscal
2007 was primarily the result of an increase in benefits
associated with tax planning, a reduction in foreign tax
reserves, a prior year write-off of investment in affiliates for
which no tax benefit could be recognized, a decrease in costs
associated with tax audit settlements and decreases to foreign
statutory tax rates, partially offset by increased costs of
repatriation and changes in valuation allowances. The Fiscal
2006 effective tax rate was unfavorably impacted by increased
costs of repatriation including the effects of the AJCA, a
reduction in tax benefits associated with tax planning,
increased costs associated with audit settlements and the
write-off of investment in affiliates for which no tax benefit
could be recognized, partially offset by the reversal of
valuation allowances, the benefit of increased profits in lower
tax rate jurisdictions and a reduction in tax reserves.
The following table and note summarize deferred tax (assets) and
deferred tax liabilities as of April 30, 2008 and
May 2, 2007.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Depreciation/amortization
|
|
$
|
689,112
|
|
|
$
|
634,192
|
|
Benefit plans
|
|
|
33,719
|
|
|
|
43,632
|
|
Deferred income
|
|
|
30,145
|
|
|
|
|
|
Other
|
|
|
56,160
|
|
|
|
39,377
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
809,136
|
|
|
|
717,201
|
|
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
|
(40,852
|
)
|
|
|
(41,210
|
)
|
Benefit plans
|
|
|
(248,808
|
)
|
|
|
(198,011
|
)
|
Depreciation/amortization
|
|
|
(69,909
|
)
|
|
|
(53,722
|
)
|
Tax credit carryforwards
|
|
|
(12,998
|
)
|
|
|
(851
|
)
|
Deferred income
|
|
|
(39,942
|
)
|
|
|
|
|
Other
|
|
|
(96,618
|
)
|
|
|
(72,593
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
(509,127
|
)
|
|
|
(366,387
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
52,008
|
|
|
|
44,935
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
352,017
|
|
|
$
|
395,749
|
|
|
|
|
|
|
|
|
|
|
The Company also has foreign deferred tax assets and valuation
allowances of $143.0 million, each related to statutory
increases in the capital tax bases of certain internally
generated intangible assets for which the probability of
realization is remote.
The Company records valuation allowances to reduce deferred tax
assets to the amount that is more likely than not to be
realized. When assessing the need for valuation allowances, the
Company considers future taxable income and ongoing prudent and
feasible tax planning strategies. Should a change in
circumstances lead to a change in judgment about the
realizability of deferred tax assets in future years, the
Company would adjust related valuation allowances in the period
that the change in circumstances occurs, along with a
corresponding increase or charge to income.
52
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The resolution of tax reserves and changes in valuation
allowances could be material to the Companys results of
operations for any period, but is not expected to be material to
the Companys financial position.
The net change in the Fiscal 2008 valuation allowance shown
above is an increase of $7.0 million. The increase was
primarily due to the recording of additional valuation allowance
for state deferred tax assets that are not expected to be
utilized prior to their expiration date. The net change in the
Fiscal 2007 valuation allowance was an increase of
$14.0 million. The increase was primarily due to the
recording of additional valuation allowance for state and
foreign loss carryforwards that were not expected to be utilized
prior to their expiration date. The net change in the Fiscal
2006 valuation allowance was a decrease of $39.3 million.
The decrease was primarily due to the reversal of valuation
allowances of $27.3 million in continuing operations
related to the non-cash asset impairment charges recorded in
Fiscal 2005 on cost and equity investments.
At the end of Fiscal 2008, foreign operating loss carryforwards
totaled $125.2 million. Of that amount, $70.9 million
expire between 2009 and 2018; the other $54.3 million do
not expire. Deferred tax assets of $10.3 million have been
recorded for state operating loss carryforwards. These losses
expire between 2009 and 2028.
The Company adopted FIN 48 on May 3, 2007. 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.
Changes in the total amount of gross unrecognized tax benefits
are as follows:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Balance at May 3, 2007
|
|
$
|
183.7
|
|
Increases for tax positions of prior years
|
|
|
10.6
|
|
Decreases for tax positions of prior years
|
|
|
(31.0
|
)
|
Increases based on tax positions related to the current year
|
|
|
9.9
|
|
Decreases due to settlements with taxing authorities
|
|
|
(41.0
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(3.1
|
)
|
|
|
|
|
|
Balance at April 30, 2008
|
|
$
|
129.1
|
|
|
|
|
|
|
The amount of unrecognized tax benefits that, if recognized,
would impact the effective tax rate was $55.7 million and
$71.2 million, on April 30, 2008 and May 3, 2007,
respectively.
The Company classifies interest and penalties on tax
uncertainties as a component of the provision for income taxes.
For Fiscal 2008, the approximate amount of interest and
penalties included in the provision for income taxes was
$10.7 million and $0.6 million, respectively. The
total amount of interest and penalties accrued as of May 3,
2007 was $55.9 million and $2.2 million, respectively.
The corresponding amounts of accrued interest and penalties at
April 30, 2008 were $57.2 million and
$2.8 million, respectively.
It is reasonably possible that the amount of unrecognized tax
benefits will decrease by as much as $24 million in the
next 12 months primarily due to the progression of federal,
state, and foreign audits in process. In addition, it is also
reasonably possible that during the next 12 months the
Company may reach a conclusion regarding its appeal, filed
October 15, 2007, of a U.S. Court of Federal Claims
decision regarding a refund claim resulting from a Fiscal 1995
transaction. Upon conclusion of the appeal, the amount of
unrecognized tax benefits will decrease by approximately
$43 million the benefit of which, if any, would be
reflected through additional capital.
53
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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 Fiscal 2005, with the exception of the Companys
appeal of a U.S. Court of Federal Claims decision regarding
a refund claim. In the Companys major
non-U.S. jurisdictions,
the Company has substantially concluded all income tax matters
for years through Fiscal 2002.
Undistributed earnings of foreign subsidiaries considered to be
indefinitely reinvested amounted to $3.3 billion at
April 30, 2008.
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 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
$90 million over the five to twenty year tax amortization
period.
Short-term debt consisted of bank debt and other borrowings of
$124.3 million and $165.1 million as of April 30,
2008 and May 2, 2007, respectively. The weighted average
interest rate was 6.9% and 5.4% for Fiscal 2008 and Fiscal 2007,
respectively.
The Company maintains a $2 billion credit agreement that
expires in August 2009. The credit agreement supports 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. In addition, the Company
has $1.1 billion of foreign lines of credit available at
April 30, 2008.
54
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt was comprised of the following as of
April 30, 2008 and May 2, 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial Paper (variable rate)
|
|
$
|
1,223,367
|
|
|
$
|
673,604
|
|
6.00% U.S. Dollar Notes due March 2008
|
|
|
|
|
|
|
299,824
|
|
6.226% Heinz Finance Preferred Stock due July 2008
|
|
|
325,000
|
|
|
|
325,000
|
|
6.625% U.S. Dollar Notes due July 2011
|
|
|
749,668
|
|
|
|
749,563
|
|
6.00% U.S. Dollar Notes due March 2012
|
|
|
598,301
|
|
|
|
632,201
|
|
U.S. Dollar Remarketable Securities due December 2020
|
|
|
800,000
|
|
|
|
800,000
|
|
6.375% U.S. Dollar Debentures due July 2028
|
|
|
230,101
|
|
|
|
229,842
|
|
6.25% British Pound Notes due February 2030
|
|
|
246,386
|
|
|
|
247,089
|
|
6.75% U.S. Dollar Notes due March 2032
|
|
|
449,855
|
|
|
|
449,779
|
|
Canadian Dollar Credit Agreement due October 2010
|
|
|
144,669
|
|
|
|
157,842
|
|
Other U.S. Dollar due May 2008November 2034
(3.007.97)%
|
|
|
56,136
|
|
|
|
59,216
|
|
Other
Non-U.S.
Dollar due May 2008March 2022 (7.0011.00)%
|
|
|
37,360
|
|
|
|
21,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,860,843
|
|
|
|
4,645,635
|
|
SFAS No. 133 Hedge Accounting Adjustments (See
Note 13)
|
|
|
198,521
|
|
|
|
71,195
|
|
Less portion due within one year
|
|
|
(328,418
|
)
|
|
|
(303,189
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
4,730,946
|
|
|
$
|
4,413,641
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate on long-term debt, including the
impact of applicable interest rate swaps
|
|
|
5.90
|
%
|
|
|
6.14
|
%
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of Fiscal 2008, the Company paid off
$300 million of notes which matured on March 15, 2008.
During Fiscal 2008 the Company also repurchased
$34.5 million of its 6.0% notes due 2012 and
effectively terminated the corresponding interest rate swaps.
During Fiscal 2007, the Company repurchased $3.2 million of
its 6.375% notes due 2028 and $23.3 million of its
6.75% notes due 2032 and terminated the corresponding
interest rate swaps.
The fair value of the debt obligations approximated the recorded
value as of April 30, 2008 and May 2, 2007. Annual
maturities of long-term debt during the next five fiscal years
are $328.4 million in 2009, $1,226.5 million in 2010,
$160.8 million in 2011, $1,389.7 million in 2012 and
$1.3 million in 2013.
As of April 30, 2008, the Company had $800 million of
remarketable securities due December 2020. On December 1,
2005, the Company remarketed the $800 million remarketable
securities at a coupon of 6.428% and amended the terms of the
securities so that the securities will be remarketed every third
year rather than annually. The next remarketing is scheduled for
December 1, 2008. If the securities are not remarketed,
then the Company is required to repurchase all of the securities
at 100% of the principal amount plus accrued interest. The
Company intends to remarket the securities in 2008; therefore,
the debt is classified as long-term at April 30, 2008.
H.J. Heinz Finance Companys 3,250 mandatorily redeemable
preferred shares are classified as long-term debt as a result of
the adoption of SFAS No. 150. Each share of preferred
stock is entitled to annual cash dividends at a rate of 6.226%
or $6,226 per share. On July 15, 2008, each share will be
redeemed for $100,000 in cash for a total redemption price of
$325 million.
55
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
9.
|
Supplemental
Cash Flows Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Paid During the Year For:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
360,698
|
|
|
$
|
268,781
|
|
|
$
|
292,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
261,283
|
|
|
$
|
283,431
|
|
|
$
|
326,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets
|
|
$
|
165,093
|
|
|
$
|
108,438
|
|
|
$
|
1,296,379
|
|
Liabilities*
|
|
|
13,489
|
|
|
|
19,442
|
|
|
|
192,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
151,604
|
|
|
|
88,996
|
|
|
|
1,103,893
|
|
Less cash acquired
|
|
|
|
|
|
|
|
|
|
|
3,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisitions
|
|
$
|
151,604
|
|
|
$
|
88,996
|
|
|
$
|
1,100,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes obligations to sellers of $11.5 million,
$2.0 million and $5.7 million in 2008, 2007 and 2006,
respectively. |
A capital lease obligation of $51.0 million was incurred
when the Company entered into a lease for equipment during the
first quarter of Fiscal 2007. This equipment was previously
under an operating lease. This non-cash transaction has been
excluded from the consolidated statement of cash flows for the
year ended May 2, 2007.
|
|
10.
|
Employees
Stock Incentive Plans and Management Incentive Plans
|
As of April 30, 2008, 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. The compensation cost related to
these plans recognized in general and administrative expenses,
and the related tax benefit was $31.7 million and
$11.1 million for the fiscal year ended April 30,
2008, respectively and $32.0 million and $11.1 million
for the fiscal year ended May 2, 2007, respectively.
The Company has two plans from which it can issue equity based
awards, the Fiscal Year 2003 Stock Incentive Plan (the
2003 Plan), which was approved by shareholders on
September 12, 2002, and the 2000 Stock Option Plan (the
2000 Plan), which was approved by shareholders on
September 12, 2000. The Companys primary means for
issuing equity-based awards is the 2003 Plan. Pursuant to the
2003 Plan, the Management Development & Compensation
Committee is authorized to grant a maximum of 9.4 million
shares for issuance as restricted stock units or restricted
stock. Any available shares may be issued as stock options. The
maximum number of shares that may be granted under this plan is
18.9 million shares. Shares issued under these plans are
sourced from available treasury shares.
On May 4, 2006, the Company adopted SFAS 123R and
began recognizing the cost of all employee stock options on a
straight-line basis over their respective requisite service
periods (generally equal to an awards vesting period), net
of estimated forfeitures, using the modified-prospective
transition method. Under this transition method, Fiscal 2008 and
2007 results include stock-based compensation expense related to
stock options granted on or prior to, but not vested as of,
May 3, 2006, based on the grant date fair value originally
estimated and disclosed in a pro-forma manner in prior period
financial statements in accordance with the original provisions
of SFAS 123. All stock-based payments granted subsequent to
May 3, 2006, will be expensed based on the grant date fair
value
56
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
estimated in accordance with the provisions of SFAS 123R.
All stock-based compensation expense is recognized as a
component of general and administrative expenses. Results for
prior periods have not been restated.
SFAS 123R also requires the attribution of compensation
expense based on the concept of requisite service
period. For awards with vesting provisions tied to
retirement status (i.e., non-substantive vesting provisions,)
compensation cost is recognized from the date of grant to the
earlier of the vesting date or the date of
retirement-eligibility. The use of the non-substantive vesting
approach does not affect the overall amount of compensation
expense recognized, but could accelerate the recognition of
expense. The Company will continue to follow its previous
vesting approach for the remaining portion of those outstanding
awards that were unvested and granted prior to May 4, 2006,
and accordingly, will recognize expense from the grant date to
the earlier of the actual date of retirement or the vesting
date. Had the Company previously applied the accelerated method
of expense recognition, the impact would have been immaterial to
the fiscal year ended May 3, 2006.
Stock
Options:
Stock options generally vest over a period of one to four years
after the date of grant. Awards granted prior to Fiscal 2004
generally had a vesting period of three years. Prior to Fiscal
2006, awards generally had a maximum term of ten years.
Beginning in Fiscal 2006, awards have a maximum term of seven
years.
In accordance with their respective plans, stock option awards
are forfeited if a holder voluntarily terminates employment
prior to the vesting date. The Company estimates forfeitures
based on an analysis of historical trends updated as discrete
new information becomes available and will be re-evaluated on an
annual basis. Compensation cost in any period is at least equal
to the grant-date fair value of the vested portion of an award
on that date.
The Company previously presented all benefits of tax deductions
resulting from the exercise of stock-based compensation as
operating cash flows in the consolidated statements of cash
flows. Upon adoption of SFAS 123R, the benefit of tax
deductions in excess of the compensation cost recognized for
those options (excess tax benefits) are classified as financing
cash flows. For the fiscal year ended, April 30, 2008,
$2.7 million of cash tax benefits was reported as an
operating cash inflow and $1.7 million of excess tax
benefits as a financing cash inflow. For the fiscal year ended,
May 2, 2007, $10.4 million of cash tax benefits was
reported as an operating cash inflow and $4.6 million of
excess tax benefits as a financing cash inflow.
As of April 30, 2008, 29,994 shares remained available
for issuance under the 2000 Plan. During the fiscal year ended
April 30, 2008, 29,866 shares were forfeited and
returned to the plan. During the fiscal year ended
April 30, 2008, 12,839 shares were issued from the
2000 Plan.
A summary of the Companys 2003 Plan at April 30, 2008
is as follows:
|
|
|
|
|
|
|
2003 Plan
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
Number of shares authorized
|
|
|
18,869
|
|
Number of stock option shares granted
|
|
|
(3,347
|
)
|
Number of stock option shares forfeited and returned to the plan
|
|
|
178
|
|
Number of restricted stock units and restricted stock issued
|
|
|
(3,421
|
)
|
|
|
|
|
|
Shares available for grant as stock options
|
|
|
12,279
|
|
|
|
|
|
|
57
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
During Fiscal 2008, the Company granted 1,352,155 option awards
to employees sourced from the 2000 and 2003 Plans. The weighted
average fair value per share of the options granted during the
fiscal years ended April 30, 2008, May 2, 2007 and
May 3, 2006 as computed using the Black-Scholes pricing
model was $6.25, $6.69, and $6.66, respectively. The weighted
average assumptions used to estimate these fair values are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Dividend yield
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
|
|
3.2
|
%
|
Expected volatility
|
|
|
15.8
|
%
|
|
|
17.9
|
%
|
|
|
22.0
|
%
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
4.3
|
%
|
|
|
4.7
|
%
|
|
|
4.0
|
%
|
The dividend yield assumption is based on the current fiscal
year dividend payouts. The Company estimates expected volatility
and expected option life assumption consistent with
SFAS 123R. The expected volatility of the Companys
common stock at the date of grant is estimated based on a
historic daily volatility rate over a period equal to the
average life of an option. The weighted average expected life of
options is based on consideration of historical exercise
patterns adjusted for changes in the contractual term and
exercise periods of current awards. The risk-free interest rate
is based on the U.S. Treasury (constant maturity) rate in
effect at the date of grant for periods corresponding with the
expected term of the options.
A summary of the Companys stock option activity and
related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
(per share)
|
|
|
Intrinsic Value
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Options outstanding at April 27, 2005
|
|
|
35,464
|
|
|
$
|
38.27
|
|
|
$
|
1,357,071
|
|
Options granted
|
|
|
1,165
|
|
|
|
37.01
|
|
|
|
43,126
|
|
Options exercised
|
|
|
(4,575
|
)
|
|
|
30.66
|
|
|
|
(140,266
|
)
|
Options forfeited and returned to the plan
|
|
|
(539
|
)
|
|
|
38.06
|
|
|
|
(20,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 3, 2006
|
|
|
31,515
|
|
|
|
39.33
|
|
|
|
1,239,426
|
|
Options granted
|
|
|
895
|
|
|
|
41.92
|
|
|
|
37,515
|
|
Options exercised
|
|
|
(7,266
|
)
|
|
|
35.77
|
|
|
|
(259,860
|
)
|
Options forfeited and returned to the plan
|
|
|
(347
|
)
|
|
|
44.60
|
|
|
|
(15,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 2, 2007
|
|
|
24,797
|
|
|
|
40.39
|
|
|
|
1,001,600
|
|
Options granted
|
|
|
1,352
|
|
|
|
45.54
|
|
|
|
61,579
|
|
Options exercised
|
|
|
(2,116
|
)
|
|
|
37.31
|
|
|
|
(78,960
|
)
|
Options forfeited and returned to the plan
|
|
|
(1,899
|
)
|
|
|
51.32
|
|
|
|
(97,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 30, 2008
|
|
|
22,134
|
|
|
$
|
40.06
|
|
|
$
|
886,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at May 3, 2006
|
|
|
25,545
|
|
|
$
|
39.29
|
|
|
$
|
1,003,646
|
|
Options vested and exercisable at May 2, 2007
|
|
|
21,309
|
|
|
$
|
40.88
|
|
|
$
|
871,095
|
|
Options vested and exercisable at April 30, 2008
|
|
|
19,249
|
|
|
$
|
39.77
|
|
|
$
|
765,552
|
|
58
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following summarizes information about shares under option
in the respective exercise price ranges at April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Remaining
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
Range of Exercise
|
|
Number
|
|
|
Life
|
|
|
Exercise Price
|
|
|
Number
|
|
|
Life
|
|
|
Average
|
|
Price Per Share
|
|
Outstanding
|
|
|
(Years)
|
|
|
Per Share
|
|
|
Exercisable
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
|
(Options in thousands)
|
|
|
$29.18-$35.38
|
|
|
7,357
|
|
|
|
3.8
|
|
|
$
|
33.32
|
|
|
|
7,326
|
|
|
|
3.8
|
|
|
$
|
33.31
|
|
$35.39-$44.77
|
|
|
9,506
|
|
|
|
3.1
|
|
|
|
40.46
|
|
|
|
7,965
|
|
|
|
2.8
|
|
|
|
40.71
|
|
$44.78-$54.00
|
|
|
5,271
|
|
|
|
1.7
|
|
|
|
48.76
|
|
|
|
3,958
|
|
|
|
0.2
|
|
|
|
49.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,134
|
|
|
|
3.0
|
|
|
$
|
40.06
|
|
|
|
19,249
|
|
|
|
2.6
|
|
|
$
|
39.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company received proceeds of $78.6 million,
$259.8 million, and $142.0 million from the exercise
of stock options during the fiscal years ended April 30,
2008, May 2, 2007 and May 3, 2006, respectively. The
tax benefit recognized as a result of stock option exercises was
$4.4 million, $15.2 million and $6.7 million for
the fiscal years ended April 30, 2008, May 2, 2007 and
May 3, 2006, respectively.
A summary of the status of the Companys unvested stock
options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
Options
|
|
|
(per share)
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Unvested options at May 2, 2007
|
|
|
3,488
|
|
|
$
|
6.98
|
|
Options granted
|
|
|
1,352
|
|
|
|
6.25
|
|
Options vested
|
|
|
(1,886
|
)
|
|
|
6.88
|
|
Options forfeited and returned to the plan
|
|
|
(69
|
)
|
|
|
6.98
|
|
|
|
|
|
|
|
|
|
|
Unvested options at April 30, 2008
|
|
|
2,885
|
|
|
$
|
7.07
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation cost related to unvested option awards
under the 2000 and 2003 Plans totaled $8.5 million and
$8.8 million as of April 30, 2008 and May 2,
2007, respectively. This cost is expected to be recognized over
a weighted average period of 2.3 years.
Restricted
Stock Units and Restricted Shares:
The 2003 Plan authorizes up to 9.4 million shares for
issuance as restricted stock units (RSUs) or
restricted stock with vesting periods from the first to the
fifth anniversary of the grant date as set forth in the award
agreements. Upon vesting, the RSUs are converted into shares of
the Companys stock on a one-for-one basis and issued to
employees, subject to any deferral elections made by a recipient
or required by the plan. Restricted stock is reserved in the
recipients name at the grant date and issued upon vesting.
The Company is entitled to an income tax deduction in an amount
equal to the taxable income reported by the holder upon vesting
of the award. RSUs generally vest over a period of one to four
years after the date of grant.
Total compensation expense relating to RSUs and restricted stock
was $21.1 million, $18.7 million and
$21.5 million for the fiscal years ended April 30,
2008, May 2, 2007 and May 3, 2006, respectively.
Unrecognized compensation cost in connection with these grants
totaled $35.7 million,
59
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
$28.4 million and $32.8 million at April 30,
2008, May 2, 2007 and May 3, 2006, respectively. The
cost is expected to be recognized over a weighted-average period
of 2.3 years. The unearned compensation balance of
$32.8 million as of May 4, 2006 related to RSUs and
restricted stock awards were reclassified into additional
capital upon adoption of SFAS 123R.
A summary of the Companys RSU and restricted stock awards
at April 30, 2008 is as follows:
|
|
|
|
|
|
|
2003 Plan
|
|
|
|
(Amounts in thousands)
|
|
|
Number of shares authorized
|
|
|
9,440
|
|
Number of shares reserved for issuance
|
|
|
(4,072
|
)
|
Number of shares forfeited and returned to the plan
|
|
|
651
|
|
|
|
|
|
|
Shares available for grant
|
|
|
6,019
|
|
|
|
|
|
|
A summary of the activity of unvested RSU and restricted stock
awards and related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Number of Units
|
|
|
(Per Share)
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share data)
|
|
|
Unvested units and stock at May 2, 2007
|
|
|
2,025
|
|
|
$
|
36.57
|
|
Units and stock granted
|
|
|
715
|
|
|
|
46.00
|
|
Units and stock vested
|
|
|
(579
|
)
|
|
|
35.94
|
|
Units and stock forfeited and returned to the plan
|
|
|
(74
|
)
|
|
|
38.92
|
|
|
|
|
|
|
|
|
|
|
Unvested units and stock at April 30, 2008
|
|
|
2,087
|
|
|
$
|
39.88
|
|
|
|
|
|
|
|
|
|
|
Grants of restricted stock and RSUs were 364,112 and 708,180 for
the fiscal years ended May 2, 2007 and May 3, 2006,
respectively. Restricted stock and RSUs that vested during the
fiscal years ended May 2, 2007 and May 3, 2006 were
130,803 and 70,775, respectively. Restricted stock and RSUs that
were forfeited and returned to the plan were 21,476 and 60,054
for the fiscal years ended May 2, 2007 and May 3,
2006, respectively.
Upon share option exercise or vesting of restricted stock and
RSUs, the Company uses available treasury shares and maintains a
repurchase program that anticipates exercises and vesting of
awards so that shares are available for issuance. The Company
records forfeitures of restricted stock as treasury share
repurchases. The Company repurchased approximately
13.1 million shares during Fiscal 2008.
Global
Stock Purchase Plan:
The Company has a shareholder-approved employee global stock
purchase plan (the GSPP) that permits substantially
all employees to purchase shares of the Companys common
stock at a discounted price through payroll deductions at the
end of two six-month offering periods. Currently, the offering
periods are February 16 to August 15 and August 16 to
February 15. Commencing with the February 2006 offering
period, the purchase price of the option is equal to 85% of the
fair market value of the Companys common stock on the last
day of the offering period. The number of shares available for
issuance under the GSPP is a total of five million shares.
During the two offering periods from February 16, 2007 to
February 15, 2008, employees purchased 302,284 shares
under the plan.
60
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
During the two offering periods from February 16, 2006 to
February 15, 2007, employees purchased 268,224 shares
under the plan.
Annual
Incentive Bonus:
The Companys management incentive plans cover officers and
other key employees. Participants may elect to be paid on a
current or deferred basis. The aggregate amount of all awards
may not exceed certain limits in any year. Compensation under
the management incentive plans was approximately
$45 million, $41 million and $37 million in
Fiscal years 2008, 2007 and 2006 respectively.
Long-Term
Performance Program:
In Fiscal 2008, the Company granted performance awards as
permitted in the 2003 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
cumulative return to shareholders from the change in stock price
and dividends 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 May 2, 2007. 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 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. The
Company also granted performance awards in Fiscal 2007 under the
2007-2008
LTPP. The compensation cost related to LTPP awards recognized in
general and administrative expenses (G&A) was
$23.8 million, and the related tax benefit was
$8.1 million for the fiscal year ended April 30, 2008.
The compensation cost related to these plans, recognized in
G&A was $14.2 million, and the related tax benefit was
$5.5 million for the fiscal year ended May 2, 2007.
The Company maintains retirement plans for the majority of its
employees. Current defined benefit plans are provided primarily
for domestic union and foreign employees. Defined contribution
plans are provided for the majority of its domestic non-union
hourly and salaried employees as well as certain employees in
foreign locations. The Company uses an April 30 measurement date
for its domestic plans and a March 31 measurement date for
foreign plans.
61
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth the funded status of the
Companys principal defined benefit plans at April 30,
2008 and May 2, 2007.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
$
|
2,794,722
|
|
|
$
|
2,601,229
|
|
Service cost
|
|
|
39,832
|
|
|
|
42,886
|
|
Interest cost
|
|
|
152,073
|
|
|
|
135,984
|
|
Participants contributions
|
|
|
13,090
|
|
|
|
10,347
|
|
Amendments
|
|
|
14,907
|
|
|
|
4,046
|
|
Actuarial (gain)/loss
|
|
|
(89,838
|
)
|
|
|
21,301
|
|
Divestitures
|
|
|
|
|
|
|
(459
|
)
|
Settlement
|
|
|
|
|
|
|
(10,664
|
)
|
Special termination benefits
|
|
|
|
|
|
|
3,188
|
|
Benefits paid
|
|
|
(149,048
|
)
|
|
|
(143,298
|
)
|
Exchange/other
|
|
|
67,437
|
|
|
|
130,162
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of the year
|
|
$
|
2,843,175
|
|
|
$
|
2,794,722
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
2,888,780
|
|
|
$
|
2,621,220
|
|
Actual (loss)/return on plan assets
|
|
|
(79,759
|
)
|
|
|
207,470
|
|
Divestitures
|
|
|
|
|
|
|
(172
|
)
|
Settlement
|
|
|
|
|
|
|
(10,664
|
)
|
Employer contribution
|
|
|
59,799
|
|
|
|
62,505
|
|
Participants contributions
|
|
|
13,090
|
|
|
|
10,347
|
|
Benefits paid
|
|
|
(149,048
|
)
|
|
|
(143,298
|
)
|
Exchange
|
|
|
60,261
|
|
|
|
141,372
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
|
2,793,123
|
|
|
|
2,888,780
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(50,052
|
)
|
|
$
|
94,058
|
|
|
|
|
|
|
|
|
|
|
Amount recognized in the consolidated balance sheet consists of:
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
191,079
|
|
|
$
|
284,619
|
|
Current liabilities
|
|
|
(19,826
|
)
|
|
|
(8,545
|
)
|
Noncurrent liabilities
|
|
|
(221,305
|
)
|
|
|
(182,016
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(50,052
|
)
|
|
$
|
94,058
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
802,738
|
|
|
$
|
633,461
|
|
Prior service cost
|
|
|
25,572
|
|
|
|
11,746
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
828,310
|
|
|
$
|
645,207
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive loss expected to be
recognized as components of net periodic pension costs in the
following fiscal year are as follows:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
36,512
|
|
|
$
|
42,921
|
|
Prior service cost
|
|
|
3,567
|
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
40,079
|
|
|
$
|
41,828
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit
pension plans was $2,600.2 million at April 30, 2008
and $2,561.1 million at May 2, 2007. The projected
benefit obligation, accumulated benefit obligation and fair
value of plan assets for plans with accumulated benefit
obligations in excess of plan assets were $656.7 million,
$173.0 million and $430.5 million respectively, as of
April 30, 2008 and $607.4 million, $551.2 million
and $437.8 million, respectively, as of May 2, 2007.
The change in other comprehensive loss related to pension
benefit losses arising during the period is $236.0 million
at April 30, 2008. The change in other comprehensive loss
related to the
62
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
reclassification of pension benefit losses to net income is
$42.1 million at April 30, 2008. The change in minimum
liability included in other comprehensive loss was a decrease of
$12.2 million at May 2, 2007.
The weighted-average rates used for the years ended
April 30, 2008 and May 2, 2007 in determining the
projected benefit obligations for defined benefit plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.1
|
%
|
|
|
5.5
|
%
|
Compensation increase rate
|
|
|
5.2
|
%
|
|
|
5.0
|
%
|
Total pension cost of the Companys principal pension plans
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Components of defined benefit net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
39,832
|
|
|
$
|
42,886
|
|
|
$
|
42,081
|
|
Interest cost
|
|
|
152,073
|
|
|
|
135,984
|
|
|
|
124,064
|
|
Expected return on assets
|
|
|
(227,373
|
)
|
|
|
(198,470
|
)
|
|
|
(168,990
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net initial asset
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Prior service cost
|
|
|
(1,403
|
)
|
|
|
(3,465
|
)
|
|
|
2,207
|
|
Net actuarial loss
|
|
|
44,121
|
|
|
|
52,302
|
|
|
|
58,869
|
|
Loss due to curtailment, settlement and special termination
benefits
|
|
|
|
|
|
|
2,335
|
|
|
|
18,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
7,250
|
|
|
|
31,572
|
|
|
|
77,056
|
|
Defined contribution plans
|
|
|
34,027
|
|
|
|
34,940
|
|
|
|
28,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost
|
|
|
41,277
|
|
|
|
66,512
|
|
|
|
105,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less pension cost associated with discontinued operations
|
|
|
|
|
|
|
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension cost associated with continuing operations
|
|
$
|
41,277
|
|
|
$
|
66,512
|
|
|
$
|
104,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average rates used for the fiscal years ended
April 30, 2008, May 2, 2007 and May 3, 2006 in
determining the defined benefit plans net pension costs
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected rate of return
|
|
|
8.2
|
%
|
|
|
8.2
|
%
|
|
|
8.2
|
%
|
Discount rate
|
|
|
5.5
|
%
|
|
|
5.3
|
%
|
|
|
5.5
|
%
|
Compensation increase rate
|
|
|
5.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
The Companys expected rate of return is determined based
on a methodology that considers investment real returns for
certain asset classes over historic periods of various
durations, in conjunction with the long-term outlook for
inflation (i.e. building block approach). This
methodology is applied to the actual asset allocation, which is
in line with the investment policy guidelines for each plan. The
Company also considers long-term rates of return for each asset
class based on projections from consultants and investment
advisers regarding the expectations of future investment
performance of capital markets.
63
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Plan
Assets:
The Companys defined benefit pension plans weighted
average asset allocation at April 30, 2008 and May 2,
2007 and weighted average target allocation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at
|
|
|
Target
|
|
Asset Category
|
|
2008
|
|
|
2007
|
|
|
Allocation
|
|
|
Equity securities
|
|
|
65
|
%
|
|
|
68
|
%
|
|
|
65
|
%
|
Debt securities
|
|
|
32
|
%
|
|
|
29
|
%
|
|
|
33
|
%
|
Real estate
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Other
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The underlying basis of the investment strategy of the
Companys defined benefit plans is to ensure that pension
funds are available to meet the plans benefit obligations
when they are due. The Companys investment objectives
include: prudently investing plan assets in a high-quality,
diversified manner in order to maintain the security of the
funds; achieving an optimal return on plan assets within
specified risk tolerances; and investing according to local
regulations and requirements specific to each country in which a
defined benefit plan operates. The investment strategy expects
equity investments to yield a higher return over the long term
than fixed income securities, while fixed income securities are
expected to provide certain matching characteristics to the
plans benefit payment cash flow requirements. Company
common stock held as part of the equity securities amounted to
less than one percent of plan assets at April 30, 2008 and
May 2, 2007.
Cash
Flows:
The Company contributed approximately $60 million to the
defined benefit plans in Fiscal 2008. The Company funds its
U.S. defined benefit plans in accordance with IRS
regulations, while foreign defined benefit plans are funded in
accordance with local laws and regulations in each respective
country. Discretionary contributions to the pension funds may
also be made by the Company from time to time. Defined benefit
plan contributions for the next fiscal year are expected to be
approximately $80 million, however actual contributions may
be affected by pension asset and liability valuations during the
year.
Benefit payments expected in future years are as follows
(dollars in thousands):
|
|
|
|
|
2009
|
|
$
|
168,750
|
|
2010
|
|
$
|
166,008
|
|
2011
|
|
$
|
168,318
|
|
2012
|
|
$
|
172,486
|
|
2013
|
|
$
|
171,284
|
|
Years
2014-2018
|
|
$
|
879,329
|
|
|
|
12.
|
Postretirement
Benefits Other Than Pensions and Other Post Employment
Benefits
|
The Company and certain of its subsidiaries provide health care
and life insurance benefits for retired employees and their
eligible dependents. Certain of the Companys U.S. and
Canadian employees may become eligible for such benefits. The
Company currently does not fund these benefit arrangements until
claims occur and may modify plan provisions or terminate plans
at its discretion.
64
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The Company uses an April 30 measurement date for its domestic
plans and a March 31 measurement date for the Canadian plan.
The following table sets forth the combined status of the
Companys postretirement benefit plans at April 30,
2008 and May 2, 2007.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
$
|
273,161
|
|
|
$
|
273,434
|
|
Service cost
|
|
|
6,451
|
|
|
|
6,253
|
|
Interest cost
|
|
|
15,626
|
|
|
|
15,893
|
|
Participants contributions
|
|
|
973
|
|
|
|
913
|
|
Amendments
|
|
|
1,001
|
|
|
|
|
|
Actuarial gain
|
|
|
(5,523
|
)
|
|
|
(2,262
|
)
|
Benefits paid
|
|
|
(20,386
|
)
|
|
|
(21,180
|
)
|
Exchange/other
|
|
|
5,295
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of the year
|
|
|
276,598
|
|
|
|
273,161
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(276,598
|
)
|
|
$
|
(273,161
|
)
|
|
|
|
|
|
|
|
|
|
Amount recognized in the consolidated balance sheet consists of:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(19,547
|
)
|
|
$
|
(20,090
|
)
|
Noncurrent liabilities
|
|
|
(257,051
|
)
|
|
|
(253,071
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(276,598
|
)
|
|
$
|
(273,161
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
50,329
|
|
|
$
|
59,702
|
|
Prior service cost
|
|
|
(8,242
|
)
|
|
|
(14,019
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
42,087
|
|
|
$
|
45,683
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive loss expected to be
recognized as components of net periodic pension costs in the
following fiscal year are as follows:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
3,693
|
|
|
$
|
4,549
|
|
Negative prior service cost
|
|
|
(3,783
|
)
|
|
|
(4,766
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(90
|
)
|
|
$
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
The change in other comprehensive loss related to postretirement
benefit gains arising during the period is $4.6 million at
April 30, 2008. The change in other comprehensive loss
related to the reclassification of post-retirement benefit gains
to net income is $0.2 million at April 30, 2008.
The weighted-average discount rate used in the calculation of
the accumulated post-retirement benefit obligation at
April 30, 2008 and May 2, 2007 was 5.9%.
65
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Net postretirement costs consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Components of defined benefit net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
6,451
|
|
|
$
|
6,253
|
|
|
$
|
6,242
|
|
Interest cost
|
|
|
15,626
|
|
|
|
15,893
|
|
|
|
15,631
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(4,770
|
)
|
|
|
(6,098
|
)
|
|
|
(2,830
|
)
|
Net actuarial loss
|
|
|
4,579
|
|
|
|
5,465
|
|
|
|
6,925
|
|
Loss due to curtailment and special termination benefits
|
|
|
|
|
|
|
|
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
21,886
|
|
|
$
|
21,513
|
|
|
$
|
27,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average discount rate used in the calculation of
the net postretirement benefit cost was 5.9% in 2008, 6.1% in
2007 and 5.5% in 2006.
The domestic weighted-average assumed annual composite rate of
increase in the per capita cost of company-provided health care
benefits begins at 9.3% for 2009, gradually decreases to 5% by
2014 and remains at that level thereafter. The foreign
weighted-average assumed annual composite rate of increase in
the per capita cost of company-provided health care benefits
begins at 6.7% for 2009, gradually decreases to 4% by 2016 and
remains at that level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for
postretirement medical benefits. A one-percentage-point change
in assumed health care cost trend rates would have the following
effects:
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
(Dollars in thousands)
|
|
|
Effect on total service and interest cost components
|
|
$
|
1,581
|
|
|
$
|
1,406
|
|
Effect on postretirement benefit obligation
|
|
$
|
18,016
|
|
|
$
|
16,284
|
|
Cash
Flows:
The Company paid $20.4 million for benefits in the
postretirement medical plans in Fiscal 2008. The Company funds
its postretirement medical plans in order to make payment on
claims as they occur during the fiscal year. Payments for the
next fiscal year are expected to be approximately
$21.3 million.
Benefit payments expected in future years are as follows
(dollars in thousands):
|
|
|
|
|
2009
|
|
$
|
21,296
|
|
2010
|
|
$
|
22,624
|
|
2011
|
|
$
|
23,766
|
|
2012
|
|
$
|
24,733
|
|
2013
|
|
$
|
25,038
|
|
Years
2014-2018
|
|
$
|
132,239
|
|
Estimated future medical subsidy receipts are approximately
$1.4 million annually from 2009 through 2013 and
$8.4 million for the period from 2014 through 2018.
66
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
13.
|
Derivative
Financial Instruments and Hedging Activities
|
The Company operates internationally, with manufacturing and
sales facilities in various locations around the world, and
utilizes certain derivative financial instruments to manage its
foreign currency, debt and interest rate exposures.
At April 30, 2008, the Company had outstanding currency
exchange and interest rate derivative contracts with notional
amounts of $1.71 billion and $1.82 billion,
respectively. At May 2, 2007, the Company had outstanding
currency exchange and interest rate derivative contracts with
notional amounts of $3.47 billion and $2.70 billion,
respectively. The fair value of derivative financial instruments
was a net asset of $126.0 million at April 30, 2008,
and a net liability of $2.0 million at May 2, 2007.
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. Derivatives used to hedge
forecasted transactions and specific cash flows associated with
foreign currency denominated financial assets and liabilities
that meet the criteria for hedge accounting are designated as
cash flow hedges. Consequently, the effective portion of gains
and losses is deferred as a component of accumulated other
comprehensive loss and is recognized in earnings at the time the
hedged item affects earnings, in the same line item as the
underlying hedged item.
The Company had outstanding cross currency swaps with a total
notional amount of $1.96 billion as of May 2, 2007,
which were designated as net investment hedges of foreign
operations. During Fiscal 2008, the Company made cash payments
to the counterparties totaling $74.5 million as a result of
contract maturities and $93.2 million as a result of early
termination of contracts. As of April 30, 2008 there are no
outstanding cross currency swaps. The Company assessed hedge
effectiveness for these contracts based on changes in fair value
attributable to changes in spot prices. Net losses of
$95.8 million ($72.0 million after-tax) and
$72.9 million ($43.9 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 Fiscal 2008 and Fiscal
2007, respectively. Gains of $3.6 million and
$15.9 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 Fiscal 2008 and Fiscal 2007, respectively.
The early termination of the net investment hedges described
above and interest rate swaps described below were completed in
conjunction with the reorganizations of the Companys
foreign operations and interest rate swap portfolio.
Interest
Rate Hedging:
The Company uses interest rate swaps to manage debt and interest
rate exposures. 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. During Fiscal 2008, the Company terminated
certain interest rate swaps that were previously designated as
fair value hedges of fixed rate debt obligations. The notional
amount of these interest rate contracts totaled
$612.0 million and the Company received a total of
$103.5 million of cash from the termination of these
contracts. The $103.5 million gain is being amortized to
reduce interest expense over the remaining term of the
67
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
corresponding debt obligations (average of 22 years).
SFAS No. 133 hedge accounting adjustments related to
hedged debt obligations totaled $198.5 million and
$71.2 million as of April 30, 2008 and May 2,
2007, respectively.
Hedge
Ineffectiveness:
Hedge ineffectiveness related to cash flow hedges, which is
reported in current period earnings as other income and expense,
was not significant for the years ended April 30, 2008,
May 2, 2007 and May 3, 2006. The Company excludes the
time value component of option contracts from the assessment of
hedge effectiveness.
Deferred
Hedging Gains and Losses:
As of April 30, 2008, the Company is hedging forecasted
transactions for periods not exceeding two years. During the
next 12 months, the Company expects $8.7 million of
net deferred gains reported in accumulated other comprehensive
loss to be reclassified to earnings, assuming market rates
remain constant through contract maturities. Amounts
reclassified to earnings because the hedge transaction was no
longer expected to occur were not significant for the years
ended April 30, 2008, May 2, 2007 and May 3, 2006.
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. Although these derivatives do
not qualify as hedges, they have the economic impact of largely
mitigating foreign currency or interest rate exposures. These
derivative financial instruments are accounted for on a full
mark-to-market basis through current earnings even though they
were not acquired for trading purposes.
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. During Fiscal 2008, one customer
represented 10.4% of the Companys sales. The Company
closely monitors the credit risk associated with its customers
and to date has not experienced material losses.
68
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
14.
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(Amounts in thousands)
|
|
|
Income from continuing operations
|
|
$
|
844,925
|
|
|
$
|
791,602
|
|
|
$
|
442,761
|
|
Preferred dividends
|
|
|
12
|
|
|
|
13
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common stock
|
|
$
|
844,913
|
|
|
$
|
791,589
|
|
|
$
|
442,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingbasic
|
|
|
317,019
|
|
|
|
328,625
|
|
|
|
339,102
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
109
|
|
|
|
123
|
|
|
|
125
|
|
Stock options, restricted stock and the global stock purchase
plan
|
|
|
4,589
|
|
|
|
3,720
|
|
|
|
2,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstandingdiluted
|
|
|
321,717
|
|
|
|
332,468
|
|
|
|
342,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 6.1 million,
9.1 million and 18.2 million shares of common stock as
of April 30, 2008, May 2, 2007 and May 3, 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 2014. The Company elected to apply the long-form method
for determining the pool of windfall tax benefits in connection
with the adoption of SFAS 123R.
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 $117.3 million and
$104.2 million for Fiscal 2007 and 2006, respectively.
Operating income for this business was $14.4 million and
$16.2 million for Fiscal 2007 and 2006, respectively.
Operating income excluding special items for this business was
$14.4 million and $14.1 million for Fiscal 2007 and
2006, respectively. Depreciation and amortization expense for
this business was $1.7 million for Fiscal 2007 and 2006.
Capital expenditures for this business were $1.5 million
and $2.3 million for Fiscal 2007 and 2006, respectively.
Identifiable assets for this business were $84.1 million
and $69.9 million for Fiscal 2007 and 2006, respectively.
69
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Descriptions of the Companys reportable segments are as
follows:
|
|
|
|
|
North American Consumer ProductsThis segment
primarily manufactures, markets and sells ketchup, condiments,
sauces, pasta meals, and frozen potatoes, entrees, snacks, and
appetizers to the grocery channels in the United States of
America and includes our Canadian business.
|
|
|
|
EuropeThis segment includes the
Companys operations in Europe, including Eastern Europe
and Russia, and sells products in all of the Companys
categories.
|
|
|
|
Asia/PacificThis segment includes the
Companys operations in New Zealand, Australia, India,
Japan, China, South Korea, Indonesia, and Singapore. This
segments operations include products in all of the
Companys categories.
|
|
|
|
U.S. FoodserviceThis segment primarily
manufactures, markets and sells branded and customized products
to commercial and non-commercial food outlets and distributors
in the United States of America including ketchup, condiments,
sauces, and frozen soups, desserts and appetizers.
|
|
|
|
Rest of WorldThis segment includes the
Companys operations in Africa, Latin America, and the
Middle East that sell products in all of the Companys
categories.
|
The Companys management evaluates performance based on
several factors including net sales, operating income, operating
income excluding special items, 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.
70
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table presents information about the
Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
|
Net External Sales
|
|
|
Operating Income (Loss)
|
|
|
North American Consumer Products
|
|
$
|
3,011,513
|
|
|
$
|
2,739,527
|
|
|
$
|
2,554,118
|
|
|
$
|
678,388
|
|
|
$
|
625,675
|
|
|
$
|
583,367
|
|
Europe
|
|
|
3,532,326
|
|
|
|
3,076,770
|
|
|
|
2,987,737
|
|
|
|
636,866
|
|
|
|
566,362
|
|
|
|
414,178
|
|
Asia/Pacific
|
|
|
1,599,860
|
|
|
|
1,319,231
|
|
|
|
1,221,054
|
|
|
|
194,900
|
|
|
|
150,177
|
|
|
|
101,447
|
|
U.S. Foodservice
|
|
|
1,559,370
|
|
|
|
1,556,339
|
|
|
|
1,569,833
|
|
|
|
169,581
|
|
|
|
216,115
|
|
|
|
177,292
|
|
Rest of World
|
|
|
367,709
|
|
|
|
309,763
|
|
|
|
310,696
|
|
|
|
45,437
|
|
|
|
39,484
|
|
|
|
1,618
|
|
Non-Operating(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(156,205
|
)
|
|
|
(151,098
|
)
|
|
|
(164,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
10,070,778
|
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
1,568,967
|
|
|
$
|
1,446,715
|
|
|
$
|
1,113,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) Excluding(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Items
|
|
|
|
|
|
|
|
|
|
|
|
North American Consumer Products
|
|
$
|
678,388
|
|
|
$
|
625,675
|
|
|
$
|
589,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
636,866
|
|
|
|
566,362
|
|
|
|
526,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia/Pacific
|
|
|
194,900
|
|
|
|
150,177
|
|
|
|
126,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Foodservice
|
|
|
169,581
|
|
|
|
216,115
|
|
|
|
212,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World
|
|
|
45,437
|
|
|
|
39,484
|
|
|
|
31,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating(a)
|
|
|
(156,205
|
)
|
|
|
(151,098
|
)
|
|
|
(136,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
1,568,967
|
|
|
$
|
1,446,715
|
|
|
$
|
1,349,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expenses
|
|
|
Capital Expenditures(c)
|
|
|
Total North America
|
|
$
|
122,200
|
|
|
$
|
112,031
|
|
|
$
|
103,492
|
|
|
$
|
121,937
|
|
|
$
|
97,954
|
|
|
$
|
82,726
|
|
Europe
|
|
|
115,578
|
|
|
|
108,479
|
|
|
|
98,106
|
|
|
|
119,425
|
|
|
|
99,939
|
|
|
|
102,275
|
|
Asia/Pacific
|
|
|
35,410
|
|
|
|
29,390
|
|
|
|
28,708
|
|
|
|
36,404
|
|
|
|
36,903
|
|
|
|
36,479
|
|
Rest of World
|
|
|
5,690
|
|
|
|
5,010
|
|
|
|
5,349
|
|
|
|
10,064
|
|
|
|
7,586
|
|
|
|
6,139
|
|
Non-Operating(a)
|
|
|
10,019
|
|
|
|
11,287
|
|
|
|
11,778
|
|
|
|
13,758
|
|
|
|
2,180
|
|
|
|
2,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
288,897
|
|
|
$
|
266,197
|
|
|
$
|
247,433
|
|
|
$
|
301,588
|
|
|
$
|
244,562
|
|
|
$
|
230,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
$
|
3,795,272
|
|
|
$
|
3,752,033
|
|
|
$
|
3,530,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
4,731,760
|
|
|
|
4,166,174
|
|
|
|
4,285,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia/Pacific
|
|
|
1,433,467
|
|
|
|
1,213,867
|
|
|
|
1,208,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World
|
|
|
235,625
|
|
|
|
189,543
|
|
|
|
208,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating(d)
|
|
|
368,919
|
|
|
|
711,409
|
|
|
|
505,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
10,565,043
|
|
|
$
|
10,033,026
|
|
|
$
|
9,737,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
(a) |
|
Includes corporate overhead, intercompany eliminations and
charges not directly attributable to operating segments. |
|
(b) |
|
Fiscal year ended May 3, 2006: Excludes costs
associated with targeted workforce reductions, costs incurred in
connection with strategic reviews of several non-core businesses
and net losses/impairment charge on divestures as follows: North
American Consumer Products, $6.6 million; Europe,
$112.2 million; Asia/Pacific, $25.1 million; U.S.
Foodservice, $34.8 million; Rest of World,
$30.0 million; and Non-Operating $27.7 million. |
|
(c) |
|
Excludes property, plant and equipment obtained through
acquisitions. |
|
(d) |
|
Includes identifiable assets not directly attributable to
operating segments. |
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
Ketchup and sauces
|
|
$
|
4,081,864
|
|
|
$
|
3,682,102
|
|
|
$
|
3,530,346
|
|
Meals and snacks
|
|
|
4,521,697
|
|
|
|
4,026,168
|
|
|
|
3,876,743
|
|
Infant/Nutrition
|
|
|
1,089,544
|
|
|
|
929,075
|
|
|
|
863,943
|
|
Other
|
|
|
377,673
|
|
|
|
364,285
|
|
|
|
372,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,070,778
|
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has significant sales and long-lived assets in the
following geographic areas. Sales are based on the location in
which the sale originated. Long-lived assets include property,
plant and equipment, goodwill, trademarks and other intangibles,
net of related depreciation and amortization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
Net External Sales
|
|
|
Long-Lived Assets
|
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
April 30,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
United States
|
|
$
|
3,971,296
|
|
|
$
|
3,809,786
|
|
|
$
|
3,693,262
|
|
|
$
|
2,393,732
|
|
|
$
|
2,377,900
|
|
|
$
|
2,359,630
|
|
United Kingdom
|
|
|
1,844,014
|
|
|
|
1,643,268
|
|
|
|
1,636,089
|
|
|
|
1,582,088
|
|
|
|
1,588,218
|
|
|
|
1,442,562
|
|
Other
|
|
|
4,255,468
|
|
|
|
3,548,576
|
|
|
|
3,314,087
|
|
|
|
2,540,414
|
|
|
|
2,171,907
|
|
|
|
1,967,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,070,778
|
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
6,516,234
|
|
|
$
|
6,138,025
|
|
|
$
|
5,769,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
2,248,285
|
|
|
$
|
2,523,379
|
|
|
$
|
2,610,863
|
|
|
$
|
2,688,251
|
|
|
$
|
10,070,778
|
|
Gross profit
|
|
|
838,400
|
|
|
|
931,802
|
|
|
|
935,416
|
|
|
|
975,074
|
|
|
|
3,680,692
|
|
Net income
|
|
|
205,294
|
|
|
|
227,037
|
|
|
|
218,532
|
|
|
|
194,062
|
|
|
|
844,925
|
|
Per Share Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net incomediluted
|
|
$
|
0.63
|
|
|
$
|
0.71
|
|
|
$
|
0.68
|
|
|
$
|
0.61
|
|
|
$
|
2.63
|
|
Net incomebasic
|
|
|
0.64
|
|
|
|
0.72
|
|
|
|
0.69
|
|
|
|
0.62
|
|
|
|
2.67
|
|
Cash dividends
|
|
|
0.38
|
|
|
|
0.38
|
|
|
|
0.38
|
|
|
|
0.38
|
|
|
|
1.52
|
|
72
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
2,059,920
|
|
|
$
|
2,232,225
|
|
|
$
|
2,295,192
|
|
|
$
|
2,414,293
|
|
|
$
|
9,001,630
|
|
Gross profit
|
|
|
772,417
|
|
|
|
846,598
|
|
|
|
852,116
|
|
|
|
921,769
|
|
|
|
3,392,900
|
|
Income from continuing operations
|
|
|
194,101
|
|
|
|
197,431
|
|
|
|
219,038
|
|
|
|
181,032
|
|
|
|
791,602
|
|
Net income
|
|
|
194,101
|
|
|
|
191,575
|
|
|
|
219,038
|
|
|
|
181,032
|
|
|
|
785,746
|
|
Per Share Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operationsdiluted
|
|
$
|
0.58
|
|
|
$
|
0.59
|
|
|
$
|
0.66
|
|
|
$
|
0.55
|
|
|
$
|
2.38
|
|
Income from continuing operationsbasic
|
|
|
0.59
|
|
|
|
0.60
|
|
|
|
0.67
|
|
|
|
0.56
|
|
|
|
2.41
|
|
Cash dividends
|
|
|
0.35
|
|
|
|
0.35
|
|
|
|
0.35
|
|
|
|
0.35
|
|
|
|
1.40
|
|
|
|
17.
|
Commitments
and Contingencies
|
Legal
Matters:
Certain suits and claims have been filed against the Company and
have not been finally adjudicated. In the opinion of management,
based upon the information that it presently possesses, the
final conclusion and determination of these suits and claims
will not have a material adverse effect on the Companys
consolidated financial position, results of operations or
liquidity.
Lease
Commitments:
Operating lease rentals for warehouse, production and office
facilities and equipment amounted to approximately
$107.2 million, in 2008, $104.3 million in 2007 and
$97.6 million in 2006. Future lease payments for
non-cancellable operating leases as of April 30, 2008
totaled $454.0 million
(2009-$68.8 million,
2010-$58.3 million, 2011-$48.4 million,
2012-$44.7 million, 2013-$42.8 million and
thereafter-$191.0 million).
As of April 30, 2008, the Company was party to an operating
lease for buildings and equipment in which the Company has
guaranteed a supplemental payment obligation of approximately
$64 million at the termination of the lease. The Company
believes, based on current facts and circumstances, that any
payment pursuant to this guarantee is remote. No significant
credit guarantees existed between the Company and third parties
as of April 30, 2008.
In May 2008, the construction of a new frozen food factory in
South Carolina commenced. It is expected that the factory will
be operational in approximately 18 to 24 months and that it
will be financed by an operating lease.
Advertising expenses (including production and communication
costs) for fiscal years 2008, 2007 and 2006 were
$339.3 million, $315.2 million and
$296.9 million, respectively. For fiscal years 2008, 2007
and 2006, $118.9 million, $123.6 million and
$148.9 million, respectively, were recorded as a reduction
of revenue and $220.4 million, $191.5 million and
$148.0 million, respectively, were recorded as a component
of SG&A.
73
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
There is nothing to be reported under this item.
|
|
Item 9A.
|
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. See also
Report of Management on Internal Control over Financial
Reporting.
(b) Managements Report on Internal Control Over
Financial Reporting.
Our managements report on Internal Control Over Financial
Reporting is set forth in Item 8 and incorporated herein by
reference.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, audited the effectiveness of the Companys
internal control over financial reporting as of April 30,
2008, as stated in their report as set forth in Item 8.
(c) Changes in Internal Control over Financial Reporting
During the fourth quarter of Fiscal 2008, the Company continued
its implementation of SAP software across its U.K., Ireland, and
Poland operations. As appropriate, the Company is modifying the
design and documentation of internal control processes and
procedures relating to the new systems to supplement and
complement existing internal controls over financial reporting.
There were no additional changes in the Companys internal
control over financial reporting during the Companys most
recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
There is nothing to be reported under this item.
74
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Information relating to the Directors of the Company is set
forth under the captions Election of Directors and
Additional InformationSection 16 Beneficial
Ownership Reporting Compliance in the Companys
definitive Proxy Statement in connection with its Annual Meeting
of Shareholders to be held August 13, 2008. Information
regarding the audit committee members and the audit committee
financial expert is set forth under the captions Report of
the Audit Committee and Relationship with
Independent Registered Public Accounting Firm in the
Companys definitive Proxy Statement in connection with its
Annual Meeting of Shareholders to be held on August 13,
2008. Information relating to the executive officers of the
Company is set forth under the caption Executive Officers
of the Registrant in Part I of this report, and such
information is incorporated herein by reference. The
Companys Global Code of Conduct, which is applicable to
all employees, including the principal executive officer, the
principal financial officer, and the principal accounting
officer, as well as the charters for the Companys Audit,
Management Development & Compensation, Corporate
Governance, and Corporate Social Responsibility Committees, as
well as periodic and current reports filed with the SEC are
available on the Companys website, www.heinz.com, and are
available in print to any shareholder upon request. Such
specified information is incorporated herein by reference.
|
|
Item 11.
|
Executive
Compensation.
|
Information relating to executive compensation is set forth
under the captions Compensation Discussion and
Analysis, Director Compensation Table, and
Report of the Management Development and Compensation
Committee on Executive Compensation in the Companys
definitive Proxy Statement in connection with its Annual Meeting
of Shareholders to be held on August 13, 2008. Such
information is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Information relating to the ownership of equity securities of
the Company by certain beneficial owners and management is set
forth under the captions Security Ownership of Certain
Principal Shareholders and Security Ownership of
Management in the Companys definitive Proxy
Statement in connection with its Annual Meeting of Shareholders
to be held August 13, 2008. Such information is
incorporated herein by reference.
The number of shares to be issued upon exercise and the number
of shares remaining available for future issuance under the
Companys equity compensation plans at April 30, 2008
were as follows:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available
|
|
|
|
|
|
|
|
|
|
for future issuance
|
|
|
|
Number of securities to
|
|
|
Weighted-average
|
|
|
under equity
|
|
|
|
be issued upon exercise
|
|
|
exercise price of
|
|
|
compensation Plans
|
|
|
|
of outstanding options,
|
|
|
outstanding options,
|
|
|
(excluding securities
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
reflected in column (a))
|
|
|
Equity Compensation plans approved by stockholders
|
|
|
24,610,332
|
|
|
$
|
39.96
|
|
|
|
12,307,925
|
|
Equity Compensation plans not approved by stockholders(1)(2)
|
|
|
60,093
|
|
|
|
N/A
|
(3)
|
|
|
N/A
|
(1)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,670,425
|
|
|
$
|
39.96
|
|
|
|
12,307,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
(1) |
|
The H. J. Heinz Company Restricted Stock Recognition Plan for
Salaried Employees (the Restricted Stock Plan) was
designed to provide recognition and reward in the form of awards
of restricted stock to employees who have a history of
outstanding accomplishment and who, because of their experience
and skills, are expected to continue to contribute significantly
to the success of the Company. Eligible employees were those
full-time salaried employees not participating in the
shareholder-approved H. J. Heinz Company Incentive Compensation
Plan in effect as of May 1, 2002, and who have not been
awarded an option to purchase Company Common Stock. The Company
has ceased issuing shares from this Restricted Stock Plan, and
it is the Companys intention to terminate the Restricted
Stock Plan once all restrictions on previously issued shares are
lifted. All awards of this type are now made under the Fiscal
Year 2003 Stock Incentive Plan. |
|
(2) |
|
The Executive Deferred Compensation Plan, as amended and
restated on December 27, 2001 and the Deferred Compensation
Plan for Non-Employee Directors as amended and restated on
January 1, 2004, permit full-time salaried personnel based
in the U.S. who have been identified as key employees and
non-employee directors, to defer all or part of his or her cash
compensation into either a cash account that accrues interest,
or into a Heinz stock account. The election to defer is
irrevocable. The Management Development & Compensation
Committee of the Board of Directors administers the Plan. All
amounts are payable at the times and in the amounts elected by
the executives at the time of the deferral. The deferral period
shall be at least one year and shall be no greater than the date
of retirement or other termination, whichever is earlier.
Amounts deferred into cash accounts are payable in cash, and all
amounts deferred into the Heinz stock account are payable in
Heinz Common Stock. Compensation deferred into the Heinz stock
account appreciates or depreciates according to the fair market
value of Heinz Common Stock. |
|
(3) |
|
The grants made under the Restricted Stock Plan, the Executive
Deferred Compensation Plan and the Deferred Compensation Plan
for Non-Employee Directors are restricted or reserved shares of
Common Stock, and therefore there is no exercise price. |
|
(4) |
|
The maximum number of shares of Common Stock that the Chief
Executive Officer was authorized to grant under the Restricted
Stock Plan was established annually by the Executive Committee
of the Board of Directors; provided, however, that such number
of shares did not exceed in any plan year 1% of all then
outstanding shares of Common Stock. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Information relating to the Companys policy on related
person transactions and certain relationships with a beneficial
shareholder is set forth under the caption Related Person
Transaction Policy in the Companys definitive Proxy
Statement in connection with its Annual Meeting of Shareholders
to be held on August 13, 2008. Such information is
incorporated herein by reference.
Information relating to director independence is set forth under
the caption Director Independence Standards in the
Companys definitive Proxy Statement in connection with its
Annual Meeting of Shareholders to be held on August 13,
2008. Such information is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
Information relating to the principal auditors fees and
services is set forth under the caption Relationship With
Independent Registered Public Accounting Firm in the
Companys definitive Proxy Statement in connection with its
Annual Meeting of Shareholders to be held on August 13,
2008. Such information is incorporated herein by reference.
76
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
|
|
|
|
|
|
|
|
|
(a)(1)
|
|
The following financial statements and reports are filed as part
of this report under Item 8Financial Statements
and Supplementary Data:
|
|
|
|
|
Consolidated Balance Sheets as of April 30, 2008 and
May 2, 2007
|
|
|
|
|
Consolidated Statements of Income for the fiscal years ended
April 30, 2008, May 2, 2007 and May 3, 2006
|
|
|
|
|
Consolidated Statements of Shareholders Equity for the
fiscal years ended April 30, 2008, May 2, 2007 and
May 3, 2006
|
|
|
|
|
Consolidated Statements of Cash Flows for the fiscal years ended
April 30, 2008, May 2, 2007 and May 3, 2006
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm of
PricewaterhouseCoopers LLP dated June 19, 2008, on the
Companys consolidated financial statements and financial
statement schedule filed as a part hereof for the fiscal years
ended April 30, 2008, May 2, 2007 and May 3, 2006
|
(2)
|
|
The following report and schedule is filed herewith as a part
hereof:
|
|
|
|
|
Schedule II (Valuation and Qualifying Accounts and
Reserves) for the three fiscal years ended April 30, 2008,
May 2, 2007 and May 3, 2006
|
|
|
|
|
All other schedules are omitted because they are not applicable
or the required information is included herein or is shown in
the consolidated financial statements or notes thereto filed as
part of this report incorporated herein by reference.
|
(3)
|
|
Exhibits required to be filed by Item 601 of
Regulation S-K
are listed below. Documents not designated as being incorporated
herein by reference are filed herewith. The paragraph numbers
correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
|
|
|
3(i)
|
|
Second Amended and Restated Articles of Incorporation of H.J.
Heinz Company dated August 15, 2007, amending and restating
the amended and restated Articles of Amendment in their entirety.
|
|
|
3(ii)
|
|
The Companys By-Laws, as amended effective August 15,
2007, are incorporated herein by reference to Exhibit 3(ii)
of the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
4.
|
|
Except as set forth below, there are no instruments with respect
to long-term debt of the Company that involve indebtedness or
securities authorized thereunder in amounts that exceed
10 percent of the total assets of the Company on a
consolidated basis. The Company agrees to file a copy of any
instrument or agreement defining the rights of holders of
long-term debt of the Company upon request of the Securities and
Exchange Commission.
|
|
|
|
|
(a)
|
|
The Indenture among the Company, H. J. Heinz Finance Company,
and Bank One, National Association dated as of July 6, 2001
relating to the H. J. Heinz Finance Companys
$750,000,000 6.625% Guaranteed Notes due 2011, $700,000,000
6.00% Guaranteed Notes due 2012 and $550,000,000 6.75%
Guaranteed Notes due 2032 is incorporated herein by reference to
Exhibit 4 of the Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
(b)
|
|
The Certificate of Designations, Preferences and Rights of
Voting Cumulative Preferred Stock, Series A of H. J. Heinz
Finance Company is incorporated herein by reference to
Exhibit 4 of the Companys Quarterly Report on
Form 10-Q
for the three months ended August 1, 2001.
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
Amended and Restated Five-Year Credit Agreement dated as of
September 6, 2001 and amended and restated as of
August 4, 2004 among H.J. Heinz Company, H.J. Heinz Finance
Company, the Banks listed on the signature pages thereto and JP
Morgan Chase Bank, as Administrative Agent, is incorporated
herein by reference to Exhibit 4 to the Companys
quarterly report on
Form 10-Q
for the period ended January 25, 2006.
|
|
|
10(a)
|
|
Management contracts and compensatory plans:
|
|
|
|
|
|
|
(i)
|
|
1986 Deferred Compensation Program for H. J. Heinz Company and
affiliated companies, as amended and restated in its entirety
effective December 6, 1995, is incorporated herein by
reference to Exhibit 10(c)(i) to the Companys Annual
Report on
Form 10-K
for the fiscal year ended May 1, 1995.
|
|
|
|
|
|
|
(ii)
|
|
H. J. Heinz Company 1990 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 3, 1990.
|
|
|
|
|
|
|
(iii)
|
|
H. J. Heinz Company 1994 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 5, 1994.
|
|
|
|
|
|
|
(iv)
|
|
H. J. Heinz Company Supplemental Executive Retirement Plan, as
amended, is incorporated herein by reference to
Exhibit 10(c)(ix) to the Companys Annual Report on
Form 10-K
for the fiscal year ended April 28, 1993.
|
|
|
|
|
|
|
(v)
|
|
H. J. Heinz Company Executive Deferred Compensation Plan (as
amended and restated on December 27, 2001) is
incorporated by reference to Exhibit 10(a)(vii) of the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
|
|
(vi)
|
|
H. J. Heinz Company Incentive Compensation Plan is incorporated
herein by reference to Appendix B to the Companys
Proxy Statement dated August 5, 1994.
|
|
|
|
|
|
|
(vii)
|
|
H. J. Heinz Company Stock Compensation Plan for Non-Employee
Directors is incorporated herein by reference to Appendix A
to the Companys Proxy Statement dated August 3, 1995.
|
|
|
|
|
|
|
(viii)
|
|
H. J. Heinz Company 1996 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 2, 1996.
|
|
|
|
|
|
|
(ix)
|
|
H. J. Heinz Company Deferred Compensation Plan for Directors is
incorporated herein by reference to Exhibit 10(a)(xiii) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended April 29, 1998.
|
|
|
|
|
|
|
(x)
|
|
H. J. Heinz Company 2000 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 4, 2000.
|
|
|
|
|
|
|
(xi)
|
|
H. J. Heinz Company Executive Estate Life Insurance Program is
incorporated herein by reference to Exhibit 10(a)(xv) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
|
|
(xii)
|
|
H. J. Heinz Company Restricted Stock Recognition Plan for
Salaried Employees is incorporated herein by reference to
Exhibit 10(a)(xvi) to the Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
|
|
(xiii)
|
|
H. J. Heinz Company Senior Executive Incentive Compensation Plan
is incorporated by reference to the Companys Proxy
Statement dated August 2, 2002.
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(xiv)
|
|
Deferred Compensation Plan for Non-Employee Directors of
H. J. Heinz Company (as amended and restated effective
January 1, 2004), is incorporated herein by reference to
Exhibit 10 to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 28, 2004.
|
|
|
|
|
|
|
(xv)
|
|
Form of Stock Option Award and Agreement for U.S. Employees
is incorporated herein by reference to Exhibit 10(a) to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xvi)
|
|
Form of Stock Option Award and Agreement for U.S. Employees
Based in the U.K. on International Assignment is incorporated
herein by reference to Exhibit 10(a) to the Companys
Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xvii)
|
|
Form of Restricted Stock Unit Award and Agreement for
U.S. Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xviii)
|
|
Form of Restricted Stock Unit Award and Agreement for
Non-U.S. Based
Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xix)
|
|
Form of Five-Year Restricted Stock Unit Retention Award and
Agreement for U.S. Employees is incorporated herein by
reference to Exhibit 10(a) to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xx)
|
|
Form of Five-Year Restricted Stock Unit Retention Award and
Agreement for
Non-U.S. Based
Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xxi)
|
|
Form of Three-Year Restricted Stock Unit Retention Award and
Agreement for U.S. Employees is incorporated herein by
reference to Exhibit 10(a) to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xxii)
|
|
Form of Three-Year Restricted Stock Unit Retention Award and
Agreement for
Non-U.S. Based
Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
|
|
(xxiii)
|
|
Named Executive Officer and Director Compensation
|
|
|
|
|
|
|
(xxiv)
|
|
Form of Fiscal Year 2006 Restricted Stock Unit Award and
Agreement for U.S. Employees is incorporated herein by
reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
|
|
|
|
|
|
|
(xxv)
|
|
Form of Fiscal Year 2006 Restricted Stock Unit Award and
Agreement for
non-U.S. Based
Employees is incorporated herein by reference to the
Companys Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
|
|
|
|
|
|
|
(xxvi)
|
|
Amendment Number One to the H.J. Heinz Company 2000 Stock Option
Plan is incorporated herein by reference to the Companys
Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(xxvii)
|
|
Amendment Number One to the H.J. Heinz Company 1996 Stock Option
Plan is incorporated herein by reference to the Companys
Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
|
|
|
|
|
|
|
(xxviii)
|
|
Form of Fiscal Year 2006 Severance Protection Agreement is
incorporated herein by reference to the Companys Annual
Report on
Form 10-K
for the fiscal year ended April 27, 2005.
|
|
|
|
|
|
|
(xxix)
|
|
Form of Long-Term Performance Program Award Agreement is hereby
incorporated by reference to Exhibit 99 of the
Companys
Form 8-K
filed on June 12, 2006.
|
|
|
|
|
|
|
(xxx)
|
|
Form of Fiscal Year 2007 Restricted Stock Unit Award and
Agreement is incorporated herein by reference to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended November 1, 2006.
|
|
|
|
|
|
|
(xxxi)
|
|
Form of Fiscal Year 2008 Stock Option Award and Agreement
(U.S. Employees) is hereby incorporated by reference to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxii)
|
|
Form of Stock Option Award and Agreement is hereby incorporated
by reference to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxiii)
|
|
Form of Restricted Stock Unit Award and Agreement is hereby
incorporated by reference to the Companys Quarterly Report
on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxiv)
|
|
Form of Revised Fiscal Year 2008 Restricted Stock Unit Award and
Agreement is hereby incorporated by reference to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxv)
|
|
Form of Restricted Stock Unit Award and Agreement
(U.S. Employees Retention) is hereby incorporated by
reference to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxvi)
|
|
Second Amended and Restated Fiscal Year 2003 Stock Incentive
Plan is hereby incorporated herein by reference to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxvii)
|
|
Second Amended and Restated Global Stock Purchase Plan is hereby
incorporated herein by reference to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
|
|
|
|
(xxxviii)
|
|
Time Sharing Agreement dated as of September 14, 2007,
between H.J. Heinz Company and William R. Johnson incorporated
herein by reference to Exhibit 10.1 of the Companys
Form 8-K
dated September 14, 2007.
|
|
|
|
|
|
|
(xxxix)
|
|
Retirement and Consulting Agreement and a Non-Competition and
Non-Solicitation Agreement dated January 30, 2008 between
H. J. Heinz Company and Jeffrey P. Berger are hereby
incorporated by reference to Exhibit 10.1 of the
Companys Form
8-K dated
February 1, 2008.
|
|
|
12.
|
|
Computation of Ratios of Earnings to Fixed Charges.
|
|
|
21.
|
|
Subsidiaries of the Registrant.
|
|
|
23.
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
|
24.
|
|
Powers-of-attorney of the Companys directors.
|
80
|
|
|
|
|
|
|
|
|
|
|
31(a)
|
|
Rule 13a-14(a)/15d-14(a)
Certification by William R. Johnson.
|
|
|
31(b)
|
|
Rule 13a-14(a)/15d-14(a)
Certification by Arthur B. Winkleblack.
|
|
|
32(a)
|
|
Certification by the Chief Executive Officer Relating to the
Annual Report Containing Financial Statements.
|
|
|
32(b)
|
|
Certification by the Chief Financial Officer Relating to the
Annual Report Containing Financial Statements.
|
Copies of the exhibits listed above will be furnished upon
request to holders or beneficial holders of any class of the
Companys stock, subject to payment in advance of the cost
of reproducing the exhibits requested.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on June 19, 2008.
H. J. HEINZ COMPANY
(Registrant)
|
|
|
|
By:
|
/s/ Arthur
B. Winkleblack
|
Arthur B. Winkleblack
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated, on
June 19, 2008.
|
|
|
Signature
|
|
Capacity
|
|
/s/ William
R. Johnson
William
R. Johnson
|
|
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
|
/s/ Arthur
B. Winkleblack
Arthur
B. Winkleblack
|
|
Executive Vice President and
(Principal Financial Officer)
|
/s/ Edward
J. McMenamin
Edward
J. McMenamin
|
|
Senior Vice President-Finance and
Corporate Controller
(Principal Accounting Officer)
|
|
|
|
|
|
William R. Johnson
Charles E. Bunch
Leonard S. Coleman, Jr.
John G. Drosdick
Edith E. Holiday
Candace Kendle
Dean R. OHare
Nelson Peltz
Dennis H. Reilley
Lynn C. Swann
Thomas J. Usher
Michael F. Weinstein
|
|
Director }
Director }
Director }
Director }
Director }
Director }
Director }
Director }
Director }
Director }
Director }
Director }
|
|
By: /s/ Arthur
B. Winkleblack
Arthur
B. Winkleblack
Attorney-in-Fact
|
82
Schedule II
H. J.
Heinz Company and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Fiscal Years Ended April 30, 2008, May 2, 2007 and
May 3, 2006
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged
|
|
|
|
|
|
Balance at
|
|
|
|
beginning
|
|
|
costs and
|
|
|
to other
|
|
|
|
|
|
end of
|
|
Description
|
|
of period
|
|
|
expenses
|
|
|
accounts
|
|
|
Deductions
|
|
|
period
|
|
|
Fiscal year ended April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted in the balance sheet from the assets to which
they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
14,706
|
|
|
$
|
2,379
|
|
|
$
|
2,286
|
|
|
$
|
3,684
|
|
|
$
|
15,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended May 2, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted in the balance sheet from the assets to which
they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
16,988
|
|
|
$
|
3,839
|
|
|
$
|
1,266
|
|
|
$
|
7,387
|
|
|
$
|
14,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended May 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted in the balance sheet from the assets to which
they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
21,844
|
|
|
$
|
3,213
|
|
|
$
|
|
|
|
$
|
8,069
|
|
|
$
|
16,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibits required to be filed by Item 601 of
Regulation S-K
are listed below. Documents not designated as being incorporated
herein by reference are filed herewith. The paragraph numbers
correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
|
|
|
3(i)
|
|
Second Amended and Restated Articles of Incorporation of H.J.
Heinz Company dated August 15, 2007, amending and restating
the Companys amended and restated Articles of Amendment in
their entirety.
|
|
|
3(ii)
|
|
The Companys By-Laws, as amended effective August 15,
2007, are incorporated herein by reference to Exhibit 3(ii)
of the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
|
|
|
4.
|
|
Except as set forth below, there are no instruments with respect
to long-term debt of the Company that involve indebtedness or
securities authorized thereunder in amounts that exceed
10 percent of the total assets of the Company on a
consolidated basis. The Company agrees to file a copy of any
instrument or agreement defining the rights of holders of
long-term debt of the Company upon request of the Securities and
Exchange Commission.
|
|
|
|
|
(a)
|
|
The Indenture among the Company, H. J. Heinz Finance Company,
and Bank One, National Association dated as of July 6, 2001
relating to the H. J. Heinz Finance Companys $750,000,000
6.625% Guaranteed Notes due 2011, $700,000,000 6.00% Guaranteed
Notes due 2012 and $550,000,000 6.75% Guaranteed Notes due 2032
is incorporated herein by reference to Exhibit 4 of the
Companys Annual Report on Form
10-K for the
fiscal year ended May 1, 2002.
|
|
|
|
|
(b)
|
|
The Certificate of Designations, Preferences and Rights of
Voting Cumulative Preferred Stock, Series A of H. J. Heinz
Finance Company is incorporated herein by reference to
Exhibit 4 of the Companys Quarterly Report on
Form 10-Q
for the three months ended August 1, 2001.
|
|
|
|
|
(c)
|
|
Amended and Restated Five-Year Credit Agreement dated as of
September 6, 2001 and amended and restated as of
August 4, 2004 among H.J. Heinz Company, H.J. Heinz Finance
Company, the Banks listed on the signature pages thereto and JP
Morgan Chase Bank, as Administrative Agent, is incorporated
herein by reference to Exhibit 4 to the Companys
quarterly report on
Form 10-Q
for the period ended January 25, 2006.
|
|
|
10(a)
|
|
Management contracts and compensatory plans:
|
|
|
|
|
(i)
|
|
1986 Deferred Compensation Program for H. J. Heinz Company and
affiliated companies, as amended and restated in its entirety
effective December 6, 1995, is incorporated herein by
reference to Exhibit 10(c)(i) to the Companys Annual
Report on
Form 10-K
for the fiscal year ended May 1, 1995.
|
|
|
|
|
(ii)
|
|
H. J. Heinz Company 1990 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 3, 1990.
|
|
|
|
|
(iii)
|
|
H. J. Heinz Company 1994 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 5, 1994.
|
|
|
|
|
(iv)
|
|
H. J. Heinz Company Supplemental Executive Retirement Plan, as
amended, is incorporated herein by reference to
Exhibit 10(c)(ix) to the Companys Annual Report on
Form 10-K
for the fiscal year ended April 28, 1993.
|
|
|
|
|
(v)
|
|
H. J. Heinz Company Executive Deferred Compensation Plan (as
amended and restated on December 27, 2001) is
incorporated by reference to Exhibit 10(a)(vii) of the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
|
|
|
|
|
(vi)
|
|
H. J. Heinz Company Incentive Compensation Plan is incorporated
herein by reference to Appendix B to the Companys
Proxy Statement dated August 5, 1994.
|
|
|
|
|
(vii)
|
|
H. J. Heinz Company Stock Compensation Plan for Non-Employee
Directors is incorporated herein by reference to Appendix A
to the Companys Proxy Statement dated August 3, 1995.
|
|
|
|
|
(viii)
|
|
H. J. Heinz Company 1996 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 2, 1996.
|
|
|
|
|
(ix)
|
|
H. J. Heinz Company Deferred Compensation Plan for Directors is
incorporated herein by reference to Exhibit 10(a)(xiii) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended April 29, 1998.
|
|
|
|
|
(x)
|
|
H. J. Heinz Company 2000 Stock Option Plan is incorporated
herein by reference to Appendix A to the Companys
Proxy Statement dated August 4, 2000.
|
|
|
|
|
(xi)
|
|
H. J. Heinz Company Executive Estate Life Insurance Program is
incorporated herein by reference to Exhibit 10(a)(xv) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
(xii)
|
|
H. J. Heinz Company Restricted Stock Recognition Plan for
Salaried Employees is incorporated herein by reference to
Exhibit 10(a)(xvi) to the Companys Annual Report on
Form 10-K
for the fiscal year ended May 1, 2002.
|
|
|
|
|
(xiii)
|
|
H. J. Heinz Company Senior Executive Incentive Compensation Plan
is incorporated by reference to the Companys Proxy
Statement dated August 2, 2002.
|
|
|
|
|
(xiv)
|
|
Deferred Compensation Plan for Non-Employee Directors of H. J.
Heinz Company (as amended and restated effective January 1,
2004), is incorporated herein by reference to Exhibit 10 to
the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 28, 2004.
|
|
|
|
|
(xv)
|
|
Form of Stock Option Award and Agreement for U.S. Employees
is incorporated herein by reference to Exhibit 10(a) to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
(xvi)
|
|
Form of Stock Option Award and Agreement for U.S. Employees
Based in the U.K. on International Assignment is incorporated
herein by reference to Exhibit 10(a) to the Companys
Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
(xvii)
|
|
Form of Restricted Stock Unit Award and Agreement for
U.S. Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
(xviii)
|
|
Form of Restricted Stock Unit Award and Agreement for
Non-U.S. Based
Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
(xix)
|
|
Form of Five-Year Restricted Stock Unit Retention Award and
Agreement for U.S. Employees is incorporated herein by
reference to Exhibit 10(a) to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
|
|
|
|
|
(xx)
|
|
Form of Five-Year Restricted Stock Unit Retention Award and
Agreement for
Non-U.S. Based
Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
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Description of Exhibit
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(xxi)
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Form of Three-Year Restricted Stock Unit Retention Award and
Agreement for U.S. Employees is incorporated herein by
reference to Exhibit 10(a) to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
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(xxii)
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Form of Three-Year Restricted Stock Unit Retention Award and
Agreement for
Non-U.S. Based
Employees is incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended January 26, 2005.
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(xxiii)
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Named Executive Officer and Director Compensation
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(xxiv)
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Form of Fiscal Year 2006 Restricted Stock Unit Award and
Agreement for U.S. Employees is incorporated herein by
reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
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(xxv)
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Form of Fiscal Year 2006 Restricted Stock Unit Award and
Agreement for
non-U.S. Based
Employees is incorporated herein by reference to the
Companys Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
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(xxvi)
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Amendment Number One to the H.J. Heinz Company 2000 Stock Option
Plan is incorporated herein by reference to the Companys
Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
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(xxvii)
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Amendment Number One to the H.J. Heinz Company 1996 Stock Option
Plan is incorporated herein by reference to the Companys
Annual Report on
Form 10-K
for the fiscal year ended April 27, 2005.
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(xxviii)
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Form of Fiscal Year 2006 Severance Protection Agreement is
incorporated herein by reference to the Companys Annual
Report on
Form 10-K
for the fiscal year ended April 27, 2005.
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(xxxix)
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Form of Long-Term Performance Program Award Agreement is hereby
incorporated by reference to Exhibit 99 of the
Companys
Form 8-K
filed on June 12, 2006.
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(xxx)
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Form of Fiscal Year 2007 Restricted Stock Unit Award and
Agreement is incorporated herein by reference to the
Companys Quarterly Report on Form
10-Q for the
quarterly period ended November 1, 2006.
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(xxxi)
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Form of Fiscal Year 2008 Stock Option Award and Agreement
(U.S. Employees) is hereby incorporated by reference to the
Companys Quarterly Report on Form
10-Q for the
quarterly period ended August 1, 2007.
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(xxxii)
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Form of Stock Option Award and Agreement is hereby incorporated
by reference to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
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(xxxiii)
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Form of Restricted Stock Unit Award and Agreement is hereby
incorporated by reference to the Companys Quarterly Report
on
Form 10-Q
for the quarterly period ended August 1, 2007.
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(xxxiv)
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Form of Revised Fiscal Year 2008 Restricted Stock Unit Award and
Agreement is hereby incorporated by reference to the
Companys Quarterly Report on Form
10-Q for the
quarterly period ended August 1, 2007.
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(xxxv)
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Form of Restricted Stock Unit Award and Agreement
(U.S. Employees Retention) is hereby incorporated by
reference to the Companys Quarterly Report on Form
10-Q for the
quarterly period ended August 1, 2007.
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(xxxvi)
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Second Amended and Restated Fiscal Year 2003 Stock Incentive
Plan is hereby incorporated herein by reference to the
Companys Quarterly Report on Form
10-Q for the
quarterly period ended August 1, 2007.
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(xxxvii)
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Second Amended and Restated Global Stock Purchase Plan is hereby
incorporated herein by reference to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended August 1, 2007.
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Description of Exhibit
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(xxxviii)
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Time Sharing Agreement dated as of September 14, 2007,
between H. J. Heinz Company and William R. Johnson
incorporated herein by reference to Exhibit 10.1 of the
Companys
Form 8-K
dated September 14, 2007.
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(xxxix)
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Retirement and Consulting Agreement and a Non-Competition and
Non-Solicitation Agreement dated January 30, 2008 between
H.J. Heinz Company and Jeffrey P. Berger are hereby incorporated
by reference to Exhibit 10.1 of the Companys
Form 8-K
dated February 1, 2008.
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12.
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Computation of Ratios of Earnings to Fixed Charges.
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21.
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Subsidiaries of the Registrant.
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23.
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Consent of PricewaterhouseCoopers LLP.
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24.
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Powers-of-attorney of the Companys directors.
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31(a)
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Rule 13a-14(a)/15d-14(a)
Certification by William R. Johnson.
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31(b)
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Rule 13a-14(a)/15d-14(a)
Certification by Arthur B. Winkleblack.
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32(a)
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Certification by the Chief Executive Officer Relating to the
Annual Report Containing Financial Statements.
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32(b)
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Certification by the Chief Financial Officer Relating to the
Annual Report Containing Financial Statements.
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