10-Q
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the quarterly period ended
August 2, 2006
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OR
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
to
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Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as
specified in its charter)
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PENNSYLVANIA
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25-0542520
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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600 Grant Street, Pittsburgh,
Pennsylvania
(Address of Principal
Executive Offices)
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15219
(Zip Code)
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Registrants telephone number, including area code:
(412) 456-5700
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes X No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated
filer X Accelerated
Filer Non-Accelerated
Filer
Indicate by check mark whether the registrant is a shell Company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes No X
The number of shares of the Registrants Common Stock, par
value $0.25 per share, outstanding as of August 2,
2006 was 331,481,280 shares.
TABLE OF CONTENTS
PART IFINANCIAL
INFORMATION
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Item 1.
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Financial
Statements
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H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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First Quarter Ended
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August 2, 2006
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July 27, 2005
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FY 2007
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FY 2006
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(Unaudited)
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(In Thousands, Except
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per Share Amounts)
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Sales
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$
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2,059,920
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$
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1,900,278
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Cost of products sold
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1,287,503
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1,197,716
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Gross profit
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772,417
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702,562
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Selling, general and
administrative expenses
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452,775
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445,697
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Operating income
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319,642
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256,865
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Interest income
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7,292
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8,053
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Interest expense
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75,626
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66,304
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Other expense, net
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7,711
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2,836
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Income from continuing operations
before income taxes
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243,597
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195,778
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Provision for income taxes
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49,496
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55,605
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Income from continuing operations
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194,101
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140,173
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Income from discontinued
operations, net of tax
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17,101
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Net income
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$
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194,101
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$
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157,274
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Income per common share:
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Diluted
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Continuing operations
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$
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0.58
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$
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0.40
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Discontinued operations
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0.05
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Net income
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$
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0.58
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$
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0.45
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Average common shares
outstandingdiluted
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334,711
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348,885
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Basic
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Continuing operations
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$
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0.59
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$
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0.41
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Discontinued operations
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0.05
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Net income
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$
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0.59
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$
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0.45
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Average common shares
outstandingbasic
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331,584
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345,735
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Cash dividends per share
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$
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0.35
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$
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0.30
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See Notes to Condensed Consolidated Financial Statements.
2
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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August 2, 2006
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May 3, 2006*
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FY 2007
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FY 2006
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(Unaudited)
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(Thousands of Dollars)
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Assets
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Current Assets:
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Cash and cash equivalents
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$
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368,067
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$
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445,427
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Receivables, net
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941,064
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1,002,125
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Inventories
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1,070,858
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1,073,682
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Prepaid expenses
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179,150
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139,714
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Other current assets
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39,640
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42,987
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Total current assets
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2,598,779
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2,703,935
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Property, plant and equipment
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3,775,907
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3,764,476
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Less accumulated depreciation
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1,862,450
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1,863,919
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Total property, plant and
equipment, net
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1,913,457
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1,900,557
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Goodwill
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2,820,638
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2,822,567
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Trademarks, net
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786,118
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776,857
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Other intangibles, net
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274,578
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269,564
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Other non-current assets
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1,323,756
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1,264,287
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Total other non-current assets
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5,205,090
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5,133,275
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Total assets
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$
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9,717,326
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$
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9,737,767
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* |
Summarized from audited fiscal year 2006 balance sheet.
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See Notes to Condensed Consolidated Financial Statements.
3
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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|
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|
|
|
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August 2, 2006
|
|
|
May 3, 2006*
|
|
|
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FY 2007
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|
FY 2006
|
|
|
|
(Unaudited)
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(Thousands of Dollars)
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Liabilities
and Shareholders Equity
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Current Liabilities:
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Short-term debt
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$
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52,279
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$
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54,052
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Portion of long-term debt due
within one year
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3,009
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917
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Accounts payable
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985,456
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1,035,084
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Salaries and wages
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68,052
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84,815
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Accrued marketing
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206,675
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216,267
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Other accrued liabilities
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365,910
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476,683
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Income taxes
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178,652
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150,413
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Total current liabilities
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1,860,033
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2,018,231
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Long-term debt
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4,399,717
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4,357,013
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Deferred income taxes
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|
513,565
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518,724
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Non-pension post-retirement
benefits
|
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|
207,246
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207,840
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Other liabilities and minority
interest
|
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573,225
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587,136
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Total long-term liabilities
|
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5,693,753
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5,670,713
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Shareholders Equity:
|
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Capital stock
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107,856
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107,856
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Additional capital
|
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504,469
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502,235
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Retained earnings
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5,531,835
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5,454,108
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6,144,160
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6,064,199
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Less:
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Treasury stock at cost
(99,615,206 shares at August 2, 2006 and
100,339,405 shares at May 3, 2006)
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3,879,472
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3,852,220
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Unearned compensation
|
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|
|
|
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32,773
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Accumulated other comprehensive
loss
|
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|
101,148
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|
|
|
130,383
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|
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Total shareholders equity
|
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2,163,540
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|
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|
2,048,823
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Total liabilities and
shareholders equity
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$
|
9,717,326
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$
|
9,737,767
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* |
Summarized from audited fiscal year 2006 balance sheet.
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See Notes to Condensed Consolidated Financial Statements.
4
H. J.
HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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First Quarter Ended
|
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|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
FY 2007
|
|
|
FY 2006
|
|
|
|
(Unaudited)
|
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|
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(Thousands of Dollars)
|
|
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
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Net income
|
|
$
|
194,101
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|
|
$
|
157,274
|
|
Adjustments to reconcile net income
to cash provided by operating activities:
|
|
|
|
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|
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|
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Depreciation
|
|
|
55,632
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|
|
|
55,475
|
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Amortization
|
|
|
9,764
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|
|
|
5,768
|
|
Deferred tax benefit
|
|
|
(39,521
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)
|
|
|
(11,307
|
)
|
Other items, net
|
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|
(2,012
|
)
|
|
|
13,358
|
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Changes in current assets and
liabilities, excluding effects of acquisitions and divestitures:
|
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|
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Receivables
|
|
|
6,855
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|
|
|
87,993
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Inventories
|
|
|
(2,602
|
)
|
|
|
19,906
|
|
Prepaid expenses and other current
assets
|
|
|
(31,475
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)
|
|
|
(56,112
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)
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Accounts payable
|
|
|
(53,113
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)
|
|
|
(73,239
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)
|
Accrued liabilities
|
|
|
(138,408
|
)
|
|
|
(21,977
|
)
|
Income taxes
|
|
|
48,295
|
|
|
|
(11,223
|
)
|
|
|
|
|
|
|
|
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Cash provided by operating
activities
|
|
|
47,516
|
|
|
|
165,916
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Cash Flows from Investing
Activities:
|
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|
|
|
|
|
|
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Capital expenditures
|
|
|
(38,927
|
)
|
|
|
(47,162
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)
|
Proceeds from disposals of
property, plant and equipment
|
|
|
24,402
|
|
|
|
1,807
|
|
Acquisitions, net of cash acquired
|
|
|
(1,496
|
)
|
|
|
(62,458
|
)
|
Proceeds from divestitures
|
|
|
11,925
|
|
|
|
993
|
|
Other items, net
|
|
|
(9,526
|
)
|
|
|
(5,450
|
)
|
|
|
|
|
|
|
|
|
|
Cash used for investing activities
|
|
|
(13,622
|
)
|
|
|
(112,270
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(22,538
|
)
|
|
|
|
|
(Payments on)/proceeds from
commercial paper and short-term debt, net
|
|
|
(10,505
|
)
|
|
|
456,329
|
|
Dividends
|
|
|
(116,374
|
)
|
|
|
(104,208
|
)
|
Purchases of treasury stock
|
|
|
(86,901
|
)
|
|
|
(258,539
|
)
|
Exercise of stock options
|
|
|
85,650
|
|
|
|
26,672
|
|
Other items, net
|
|
|
8,325
|
|
|
|
11,908
|
|
|
|
|
|
|
|
|
|
|
Cash (used for)/provided by
financing activities
|
|
|
(142,343
|
)
|
|
|
132,162
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities of discontinued operations spun-off to Del Monte
|
|
|
30,630
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
459
|
|
|
|
(62,724
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and
cash equivalents
|
|
|
(77,360
|
)
|
|
|
123,084
|
|
Cash and cash equivalents at
beginning of year
|
|
|
445,427
|
|
|
|
1,083,749
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
368,067
|
|
|
$
|
1,206,833
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5
H. J.
HEINZ COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(1)
|
Basis of
Presentation
|
The interim condensed consolidated financial statements of H. J.
Heinz Company, together with its subsidiaries (collectively
referred to as the Company), are unaudited. In the
opinion of management, all adjustments, which are of a normal
and recurring nature, except those which have been disclosed
elsewhere in this Quarterly Report on
Form 10-Q,
necessary for a fair statement of the results of operations of
these interim periods have been included. The results for
interim periods are not necessarily indicative of the results to
be expected for the full fiscal year due to the seasonal nature
of the Companys business. These statements should be read
in conjunction with the Companys consolidated financial
statements and related notes, and managements discussion
and analysis of financial condition and results of operations
which appear in the Companys Annual Report on Form
10-K for the
year ended May 3, 2006.
|
|
(2)
|
Recently
Issued Accounting Standards
|
In June 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. The provisions
of FIN 48 are effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the
impact of adopting FIN 48 in Fiscal 2008.
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 No. 123,
Accounting for Stock-Based Compensation
(FAS 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 FAS 123R,
Share-Based Payment (FAS 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.
6
|
|
(3)
|
Discontinued
Operations
|
In the fourth quarter of Fiscal 2006, the Company completed its
sale of the European seafood and
Tegel®
poultry businesses, in line with the Companys strategy to
exit non-strategic businesses. In accordance with accounting
principles generally accepted in the United States of America,
the operating results related to these businesses have been
included in discontinued operations in the Companys
consolidated statements of income for the quarter ended
July 27, 2005. The discontinued operations generated sales
of $209.9 million and net income of $17.1 million (net
of $5.5 million in tax) for the quarter ended July 27,
2005.
In the first quarter of Fiscal 2006, the Company recognized
reorganization charges primarily for severance and employee
benefit costs consistent with the Companys goals to
streamline its businesses, and strategic reviews related to the
Companys portfolio realignment. The amount of such charges
recorded in continuing operations of the Company totaled
$32.4 million ($23.5 million after-tax), of which
$2.1 million was recorded as costs of products sold and
$30.3 million in selling, general and administrative
expense (SG&A). In addition, $1.0 million
was recorded in income of discontinued operations, net of tax.
There were no material reorganization costs in the first quarter
of Fiscal 2007.
The composition of inventories at the balance sheet dates was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2006
|
|
|
May 3, 2006
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Finished goods and
work-in-process
|
|
$
|
848,985
|
|
|
$
|
817,037
|
|
|
|
Packaging material and ingredients
|
|
|
221,873
|
|
|
|
256,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,070,858
|
|
|
$
|
1,073,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the first quarter
ended August 2, 2006, by reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
Products
|
|
|
Foodservice
|
|
|
Europe
|
|
|
Asia/Pacific
|
|
|
World
|
|
|
Total
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
Balance at
May 3, 2006
|
|
$
|
1,067,727
|
|
|
$
|
278,039
|
|
|
$
|
1,265,469
|
|
|
$
|
195,206
|
|
|
$
|
16,126
|
|
|
$
|
2,822,567
|
|
|
|
Purchase accounting adjustments
|
|
|
179
|
|
|
|
(17,999
|
)
|
|
|
1,895
|
|
|
|
|
|
|
|
|
|
|
|
(15,925
|
)
|
|
|
Translation adjustments
|
|
|
(1,374
|
)
|
|
|
|
|
|
|
20,371
|
|
|
|
(4,046
|
)
|
|
|
(955
|
)
|
|
|
13,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 2, 2006
|
|
$
|
1,066,532
|
|
|
$
|
260,040
|
|
|
$
|
1,287,735
|
|
|
$
|
191,160
|
|
|
$
|
15,171
|
|
|
$
|
2,820,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of Fiscal 2007, the Company adjusted
the purchase price allocation for the Kabobs, Inc. acquisition,
based upon preliminary results of third party valuation
procedures. This adjustment resulted in a reclassification
between goodwill, trademarks, and other intangible assets.
Additionally, the Company finalized the purchase price
allocation for the Nancys Specialty Foods, Inc.
acquisition, within the North American Consumer Products
segment. The
7
Company expects to finalize the purchase price allocation for
the HP Foods acquisition during Fiscal 2007 upon completion of
third party valuation procedures.
Trademarks and other intangible assets at August 2, 2006
and May 3, 2006, subject to amortization expense, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2006
|
|
|
May 3, 2006
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Trademarks
|
|
$
|
198,140
|
|
|
$
|
(62,686
|
)
|
|
$
|
135,454
|
|
|
$
|
197,957
|
|
|
$
|
(61,279
|
)
|
|
$
|
136,678
|
|
|
|
Licenses
|
|
|
208,186
|
|
|
|
(131,059
|
)
|
|
|
77,127
|
|
|
|
208,186
|
|
|
|
(129,630
|
)
|
|
|
78,556
|
|
|
|
Other
|
|
|
280,748
|
|
|
|
(83,297
|
)
|
|
|
197,451
|
|
|
|
271,798
|
|
|
|
(80,790
|
)
|
|
|
191,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
687,074
|
|
|
$
|
(277,042
|
)
|
|
$
|
410,032
|
|
|
$
|
677,941
|
|
|
$
|
(271,699
|
)
|
|
$
|
406,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for trademarks and other intangible assets
subject to amortization was $8.3 million and
$5.2 million for the quarters ended August 2, 2006 and
July 27, 2005, respectively. Based upon the amortizable
intangible assets recorded on the balance sheet as of
August 2, 2006, annual amortization expense for each of the
next five fiscal years is estimated to be approximately
$33 million.
Intangible assets not subject to amortization at August 2,
2006 and May 3, 2006, were $650.7 million and
$640.2 million, respectively, and consisted solely of
trademarks.
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.
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 $243.8 million. This
revaluation is expected to reduce Fiscal 2007 tax expense by
approximately $35 million. Of this $35 million tax
benefit, the first quarter Fiscal 2007 tax expense benefited
from a one time tax benefit of $22 million and
$3 million recognized through the reduction in the current
year effective tax rate for a total tax benefit in the first
quarter of Fiscal 2007 of approximately $25 million. The
remainder of the benefit will be recognized over the year
through the effective tax rate. In addition, the Company
incurred a foreign income tax liability of $29.3 related to this
revaluation which will be paid during the third quarter of
Fiscal 2007. The decrease in the effective tax rate for the
first quarter from 28.4% in the prior year to 20.3% in the
current year is primarily attributable to this revaluation.
The resolution of tax uncertainties 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.
|
|
(8)
|
Stock-Based
Compensation Plans
|
As of August 2, 2006, 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 for the
first quarter ended August 2, 2006 was $6.1 million
and $2.2 million, respectively. These amounts include an
incremental $2.5 million of compensation costs
($1.6 million after-tax or $0.01 impact on both basic and
diluted earnings per share) related to the adoption of
FAS 123R.
8
The Companys primary means for issuing equity-based awards
is the Fiscal Year 2003 Stock Incentive Plan (the
2003 Plan), which was approved by shareholders on
September 12, 2002. 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, with any
remaining shares available to be issued as stock options. The
maximum number of shares that may be granted under this plan is
18.9 million shares.
Stock
Options
On May 4, 2006, the Company adopted FAS 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 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 FAS 123. All stock-based payments granted subsequent to
May 3, 2006, will be expensed based on the grant date fair
value estimated in accordance with the provisions of
FAS 123R. All stock-based compensation expense is
recognized as a component of general and administrative
expenses. Results for prior periods have not been restated.
FAS 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 should be 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 will 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 three months ended July 27, 2005.
Beginning with Fiscal 2006 awards, stock options generally
require a service period from one to four years after the date
of grant and have a maximum term of seven years. Prior to Fiscal
2006, awards generally had a maximum term of ten years. Awards
granted prior to Fiscal 2004 generally had a requisite service
period of three years.
In accordance with the plan agreement, stock option awards are
typically 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 condensed consolidated statements of
cash flows. Upon adoption of FAS 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 first quarter ended, August 2, 2006,
$1.4 million of excess tax benefits were reported as a
financing cash inflow and $3.2 million of cash tax benefits
as an operating cash inflow.
The Company has two plans from which it can issue stock option
awards, the 2003 Plan and the 2000 Stock Option Plan (the
2000 Plan), which was approved by shareholders on
September 12, 2000. As of August 2, 2006,
216,883 shares remained available for issuance under the
2000 Plan. During the quarter, 11,240 shares were forfeited
and returned to the plan.
9
A summary of the Companys 2003 Plan at August 2, 2006
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 Plan
|
|
|
|
|
|
(Amounts
|
|
|
|
|
|
in Thousands)
|
|
|
|
|
Number of shares authorized
|
|
|
18,869
|
|
|
|
Number of stock option shares
issued
|
|
|
(1,354
|
)
|
|
|
Number of stock option shares
forfeited and returned to the plan
|
|
|
112
|
|
|
|
Number of restricted stock units
and restricted stock issued
|
|
|
(2,677
|
)
|
|
|
|
|
|
|
|
|
|
Shares available for grant as
stock options
|
|
|
14,950
|
|
|
|
|
|
|
|
|
A summary of the Companys stock option activity for the
first quarter ended August 2, 2006, and related information
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Terms (yrs.)
|
|
|
Intrinsic Value
|
|
|
|
|
|
(Amounts in Thousands, Except per Share and Term Data)
|
|
|
|
|
Options outstanding at
May 3, 2006
|
|
|
31,515
|
|
|
$
|
39.33
|
|
|
|
4.40
|
|
|
$
|
1,239,426
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(2,535
|
)
|
|
|
33.79
|
|
|
|
|
|
|
|
(85,650
|
)
|
|
|
Options forfeited and returned
to the plan
|
|
|
(67
|
)
|
|
|
46.30
|
|
|
|
|
|
|
|
(3,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
August 2, 2006
|
|
|
28,913
|
|
|
$
|
39.80
|
|
|
|
4.22
|
|
|
$
|
1,150,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable
at
August 2, 2006
|
|
|
25,166
|
|
|
|
40.46
|
|
|
|
3.83
|
|
|
$
|
1,018,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of options granted
was $6.78 per share for the first quarter ended
July 27, 2005.
The Company received proceeds of $85.7 million and
$26.7 million from the exercise of stock options during the
first quarter ended August 2, 2006 and July 27, 2005,
respectively. The tax benefit recognized as a result of stock
option exercises was $4.6 million and $2.2 million for
the first quarters of 2007 and 2006, respectively.
A summary of the status of the Companys unvested stock
options for the first quarter ended August 2, 2006 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
Number of
|
|
|
Date
|
|
|
|
|
|
Options
|
|
|
Fair Value
|
|
|
|
|
|
(000s)
|
|
|
(per share)
|
|
|
|
|
Unvested options at May 3,
2006
|
|
|
5,970
|
|
|
$
|
8.78
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
Options vested
|
|
|
(2,218
|
)
|
|
|
9.39
|
|
|
|
Options forfeited and
returned to the plan
|
|
|
(6
|
)
|
|
|
6.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested options at August 2,
2006
|
|
|
3,746
|
|
|
$
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
10
As of August 2, 2006, there was $13.1 million of
unrecognized compensation cost related to unvested option awards
under the plan. This cost is expected to be recognized over a
weighted average period of 1.9 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. 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.
Total compensation expense relating to RSUs and restricted stock
was $3.6 million and $6.2 million for the first
quarters ended August 2, 2006 and July 27, 2005,
respectively. Unrecognized compensation cost in connection with
these grants totaled $29.9 million and $38.2 million
at August 2, 2006 and July 27, 2005, respectively. The
cost is expected to be recognized over a weighted-average period
of 2.8 years. The unearned compensation balance of
$32.8 million as of May 4, 2006 related to RSUs
and restricted stock awards was reclassified into additional
paid-in-capital
upon adoption of SFAS 123R.
A summary of the Companys RSU and restricted stock awards
at August 2, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 Plan
|
|
|
|
|
|
(Amounts
|
|
|
|
|
|
in Thousands)
|
|
|
|
|
Number of shares authorized
|
|
|
9,440
|
|
|
|
Number of shares reserved for
issuance
|
|
|
(2,881
|
)
|
|
|
Number of shares forfeited and
returned to the plan
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
Shares available for grant
|
|
|
6,763
|
|
|
|
|
|
|
|
|
A summary of the activity of unvested RSU and restricted stock
awards for the first quarter ended August 2, 2006, and
related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
|
|
Units
|
|
|
(per share)
|
|
|
|
|
|
(Amounts in Thousands,
|
|
|
|
|
|
Except per Share Data)
|
|
|
|
|
Unvested units and stock at
May 3, 2006
|
|
|
1,769
|
|
|
$
|
35.50
|
|
|
|
Units and stock granted
|
|
|
27
|
|
|
|
39.20
|
|
|
|
Units and stock vested
|
|
|
(108
|
)
|
|
|
36.75
|
|
|
|
Units and stock forfeited and
returned to the plan
|
|
|
(2
|
)
|
|
|
35.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested units and stock at
August 2, 2006
|
|
|
1,686
|
|
|
$
|
35.48
|
|
|
|
|
|
|
|
|
|
|
|
|
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 expects to repurchase 14.0 million
shares during Fiscal 2007.
11
Fiscal
Year 2006 Stock-Based Compensation Pro Forma
Summary
Had compensation cost for the Companys stock option plan
been determined in the prior year based on the
fair-value-based
method for all awards, the pro forma income and earnings per
share from continuing operations amounts would have been as
follows:
|
|
|
|
|
|
|
|
|
|
|
July 27, 2005
|
|
|
|
|
|
(In Thousands,
|
|
|
|
|
|
Except per Share Amounts)
|
|
|
|
|
Income from continuing operations:
|
|
|
|
|
|
|
As reported
|
|
$
|
140,173
|
|
|
|
Fair value-based
expense, net of tax
|
|
|
4,042
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
136,131
|
|
|
|
|
|
|
|
|
|
|
Income per common share from
continuing operations:
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.40
|
|
|
|
Pro
forma
|
|
$
|
0.39
|
|
|
|
Basic
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.41
|
|
|
|
Pro
forma
|
|
$
|
0.39
|
|
Fair
Value Assumptions
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions for the first quarter ended July 27,
2005. There were no stock option grants for the first quarter
ended August 2, 2006.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2006
|
|
|
|
|
Risk-free interest rate
|
|
|
4.0%
|
|
|
|
Dividend yield
|
|
|
3.2%
|
|
|
|
Volatility
|
|
|
22.3%
|
|
|
|
Expected option term (in years)
|
|
|
5.1 yrs
|
|
Global
Stock Purchase Plan
The Company has a shareholder approved employee 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 was the lower of the fair market value on
either the first or last day of the period. The number of shares
available for issuance under the GSPP is a total of three
million shares. During Fiscal 2006, employees purchased
352,395 shares under the plan. The Company expects
approximately 270,000 shares to be purchased under the plan
in Fiscal 2007. Shares issued under the GSPP will be sourced
from available treasury shares.
12
|
|
(9)
|
Pensions
and Other Post-Retirement Benefits
|
The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
|
|
Pension Benefits
|
|
|
Post Retirement Benefits
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Service cost
|
|
$
|
10,530
|
|
|
$
|
10,539
|
|
|
$
|
1,619
|
|
|
$
|
1,536
|
|
|
|
Interest cost
|
|
|
33,438
|
|
|
|
30,287
|
|
|
|
3,837
|
|
|
|
3,792
|
|
|
|
Expected return on plan assets
|
|
|
(48,742
|
)
|
|
|
(41,990
|
)
|
|
|
|
|
|
|
|
|
|
|
Amortization of net initial asset
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(845
|
)
|
|
|
807
|
|
|
|
(1,525
|
)
|
|
|
(707
|
)
|
|
|
Amortization of unrecognized loss
|
|
|
12,844
|
|
|
|
14,787
|
|
|
|
1,480
|
|
|
|
1,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
7,225
|
|
|
|
14,425
|
|
|
|
5,411
|
|
|
|
6,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less periodic benefit cost
associated with discontinued operations
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic benefit cost associated
with continuing operations
|
|
$
|
7,225
|
|
|
$
|
14,331
|
|
|
$
|
5,411
|
|
|
$
|
6,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 2, 2006, the Company has contributed
$13.2 million to fund its obligations under these plans. As
previously disclosed, the Company expects to make combined cash
contributions of approximately $60 million in Fiscal 2007.
Prepaid benefit costs of $749.8 million and
$733.5 million are included as components of other
non-current assets in the condensed consolidated balance sheets
at August 2, 2006 and May 3, 2006, respectively.
The Companys segments are primarily organized by
geographical area. The composition of segments and measure of
segment profitability are consistent with that used by the
Companys management.
Descriptions of the Companys reportable segments are as
follows:
North American Consumer ProductsThis segment primarily
manufactures, markets and sells ketchup, condiments, sauces,
pasta meals, and frozen potatoes, entrees, snacks, and
appetizers to the grocery channels in the United States of
America and includes our Canadian business.
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.
EuropeThis segment includes the Companys operations
in Europe and sells products in all of the Companys
categories.
Asia/PacificThis segment includes the Companys
operations in New Zealand, Australia, Japan, China, South Korea,
Indonesia, Singapore, and Thailand. This segments
operations include products in all of the Companys
categories.
13
Rest of WorldThis segment includes the Companys
operations in Africa, India, Latin America, the Middle East, and
other areas 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 are accounted for at current
market values. Items below the operating income line of the
consolidated statements of income are not presented by segment,
since they are excluded from the measure of segment
profitability reviewed by the Companys management.
The following table presents information about the
Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
|
|
FY 2007
|
|
|
FY 2006
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Net external sales:
|
|
|
|
|
|
|
|
|
|
|
North American
Consumer Products
|
|
$
|
615,577
|
|
|
$
|
544,960
|
|
|
|
U.S. Foodservice
|
|
|
366,613
|
|
|
|
353,211
|
|
|
|
Europe
|
|
|
685,862
|
|
|
|
641,899
|
|
|
|
Asia/Pacific
|
|
|
291,533
|
|
|
|
259,920
|
|
|
|
Rest of World
|
|
|
100,335
|
|
|
|
100,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
2,059,920
|
|
|
$
|
1,900,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues:
|
|
|
|
|
|
|
|
|
|
|
North American
Consumer Products
|
|
$
|
12,829
|
|
|
$
|
12,303
|
|
|
|
U.S. Foodservice
|
|
|
6,054
|
|
|
|
4,898
|
|
|
|
Europe
|
|
|
4,914
|
|
|
|
3,235
|
|
|
|
Asia/Pacific
|
|
|
935
|
|
|
|
774
|
|
|
|
Rest of World
|
|
|
219
|
|
|
|
263
|
|
|
|
Non-Operating(a)
|
|
|
(24,951
|
)
|
|
|
(21,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
North American
Consumer Products
|
|
$
|
143,214
|
|
|
$
|
123,931
|
|
|
|
U.S. Foodservice
|
|
|
55,056
|
|
|
|
50,462
|
|
|
|
Europe
|
|
|
119,349
|
|
|
|
93,723
|
|
|
|
Asia/Pacific
|
|
|
31,047
|
|
|
|
18,689
|
|
|
|
Rest of World
|
|
|
11,839
|
|
|
|
6,367
|
|
|
|
Non-Operating(a)
|
|
|
(40,863
|
)
|
|
|
(36,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
319,642
|
|
|
$
|
256,865
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
|
|
FY 2007
|
|
|
FY 2006
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Operating income (loss) excluding
special items(b):
|
|
|
|
|
|
|
|
|
|
|
North American
Consumer Products
|
|
$
|
143,214
|
|
|
$
|
125,767
|
|
|
|
U.S. Foodservice
|
|
|
55,056
|
|
|
|
51,810
|
|
|
|
Europe
|
|
|
119,349
|
|
|
|
106,891
|
|
|
|
Asia/Pacific
|
|
|
31,047
|
|
|
|
24,415
|
|
|
|
Rest of World
|
|
|
11,839
|
|
|
|
8,332
|
|
|
|
Non-Operating(a)
|
|
|
(40,863
|
)
|
|
|
(27,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
319,642
|
|
|
$
|
289,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes corporate overhead, intercompany eliminations and
charges not directly attributable to operating segments.
|
|
|
(b)
|
First Quarter ended July 27, 2005Excludes costs
totaling $32.4 million associated with targeted workforce
reductions and costs incurred in connection with strategic
reviews for several non-core businesses as follows: North
American Consumer Products, $1.8 million;
U.S. Foodservice, $1.3 million; Europe,
$13.2 million; Asia/Pacific, $5.7 million; Rest of
World, $2.0 million; and Non-Operating $8.4 million.
|
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
|
|
FY 2007
|
|
|
FY 2006
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Ketchup and Sauces
|
|
$
|
900,975
|
|
|
$
|
802,929
|
|
|
|
Meals and Snacks
|
|
|
853,943
|
|
|
|
813,101
|
|
|
|
Infant Foods
|
|
|
213,697
|
|
|
|
194,378
|
|
|
|
Other
|
|
|
91,305
|
|
|
|
89,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,059,920
|
|
|
$
|
1,900,278
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
(11)
|
Net
Income Per Common Share
|
The following are reconciliations of income to income applicable
to common stock and the number of common shares outstanding used
to calculate basic EPS to those shares used to calculate diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
|
|
FY 2007
|
|
|
FY 2006
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
Income from continuing operations
|
|
$
|
194,101
|
|
|
$
|
140,173
|
|
|
|
Preferred dividends
|
|
|
3
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
applicable to common stock
|
|
$
|
194,098
|
|
|
$
|
140,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingbasic
|
|
|
331,584
|
|
|
|
345,735
|
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
122
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock and the global stock
purchase plan
|
|
|
3,005
|
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingdiluted
|
|
|
334,711
|
|
|
|
348,885
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share is based upon the weighted-average
shares of common stock and dilutive common stock equivalents
outstanding during the periods presented. Common stock
equivalents arising from dilutive stock options and restricted
common stock units are computed using the treasury stock method.
Options to purchase an aggregate of 10,096,291 and
18,617,139 shares of common stock for the first quarter
ended August 2, 2006 and July 27, 2005, respectively,
were not included in the computation of diluted earnings per
share because the options exercise prices were greater
than the average market prices of the common stock for each
respective period. These options expire at various points in
time through 2009. The Company elected to apply the long-form
method for determining the pool of windfall tax benefits in
connection with the adoption of FAS 123R.
|
|
(12)
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended
|
|
|
|
|
|
August 2, 2006
|
|
|
July 27, 2005
|
|
|
|
|
|
FY 2007
|
|
|
FY 2006
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Net income
|
|
$
|
194,101
|
|
|
$
|
157,274
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
|
29,407
|
|
|
|
(242,120
|
)
|
|
|
Minimum pension
liability adjustment
|
|
|
2,705
|
|
|
|
385
|
|
|
|
Net deferred
gains/(losses) on derivatives from periodic revaluations
|
|
|
(8,990
|
)
|
|
|
6,076
|
|
|
|
Net deferred
(gains)/losses on derivatives reclassified to earnings
|
|
|
6,113
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss).
|
|
$
|
223,336
|
|
|
$
|
(78,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
(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 and interest rate exposures. There have been no
material changes in the Companys market risk during the
first quarter ended August 2, 2006. For additional
information, refer to pages 27-29 of the Companys
Annual Report on
Form 10-K
for the fiscal year ended May 3, 2006.
As of August 2, 2006, the Company is hedging forecasted
transactions for periods not exceeding two years. During the
next 12 months, the Company expects $7.4 million of
net deferred losses reported in accumulated other comprehensive
loss to be reclassified to earnings, assuming market rates
remain constant through contract maturities. Hedge
ineffectiveness related to cash flow hedges, which is reported
in current period earnings as other income and expense, was not
significant for the first quarter ended August 2, 2006 and
July 27, 2005. Amounts reclassified to earnings because the
hedged transaction was no longer expected to occur were not
significant for the first quarters ended August 2, 2006 and
July 27, 2005.
As of August 2, 2006, the Company had outstanding cross
currency swaps with a total notional amount of
$1.9 billion, which were designated as net investment
hedges of foreign operations. These contracts are scheduled to
mature within two years. The Company assesses hedge
effectiveness for these contracts based on changes in fair value
attributable to changes in spot prices. Net losses of
$4.6 million (net of income taxes of $6.8 million)
which represented effective hedges of net investments, were
reported as a component of accumulated other comprehensive loss
within unrealized translation adjustment for the first quarter
ended August 2, 2006. Gains of $5.1 million, which
represented the changes in fair value excluded from the
assessment of hedge effectiveness, were included in current
period earnings as a component of interest expense for the first
quarter ended August 2, 2006.
|
|
(14)
|
Supplemental
Non-Cash Investing and Financing Activities
|
A capital lease obligation of $51.0 million was incurred
when the Company entered into a lease for equipment during the
first quarter ended August 2, 2006. This equipment was
previously under an operating lease. This non-cash transaction
has been excluded from the condensed consolidated statement of
cash flows for the quarter ended August 2, 2006.
17
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Discontinued
Operations
In the fourth quarter of Fiscal 2006, the Company completed its
sale of the European seafood and
Tegel®
poultry businesses, in line with the Companys strategy
to exit non-strategic businesses. In accordance with accounting
principles generally accepted in the United States of America,
the operating results related to these businesses have been
included in discontinued operations in the Companys
consolidated statements of income for the quarter ended
July 27, 2005. The discontinued operations generated sales
of $209.9 million and net income of $17.1 million (net
of $5.5 million in tax) for the quarter ended July 27,
2005.
Reorganization
Costs
In the first quarter of Fiscal 2006, the Company recognized
reorganization charges primarily for severance and employee
benefit costs consistent with the Companys goals to
streamline its businesses, and strategic reviews related to the
Companys portfolio realignment. The amount of such charges
recorded in continuing operations of the Company totaled
$32.4 million ($23.5 million after-tax), of which
$2.1 million was recorded as costs of products sold and
$30.3 million in selling, general and administrative
expense (SG&A). In addition, $1.0 million
was recorded in income of discontinued operations, net of tax.
There were no material reorganization costs in the first quarter
of Fiscal 2007.
THREE
MONTHS ENDED AUGUST 2, 2006 AND JULY 27,
2005
Results
of Continuing Operations
Sales for the three months ended August 2, 2006 increased
$159.6 million, or 8.4%, to $2.06 billion. Volume
increased significantly, up 5.1%, and increases were generated
in all of the Companys segments, led by the North American
Consumer Products and U.S. Foodservice segments. Strong
volume increases were also noted in our businesses in Australia
and Italy, as well as in the emerging markets of India, China,
Indonesia and Poland, in line with the Companys strategy
to focus on such key emerging markets. Net pricing increased
sales by 0.9%, mainly in the North American Consumer Products
segment, Indonesia and Latin America. Acquisitions, net of
divestitures, increased sales by 1.4%. Foreign exchange
translation rates increased sales by 1.1%.
Gross profit increased $69.9 million, or 9.9%, to
$772.4 million, and the gross profit margin increased to
37.5% from 37.0%. These increases were due to higher volume,
increased pricing, productivity improvements and higher margin
acquisitions, partially offset by increased commodity costs.
SG&A increased $7.1 million, or 1.6%, to
$452.8 million; however, as a percentage of sales, SG&A
decreased to 22.0% from 23.5%. The decrease as a percentage of
sales is primarily due to the $30.3 million of special
items in the prior year discussed above. The 1.6% increase in
SG&A is primarily due to increased marketing expense, higher
selling and distribution costs resulting from increased volume,
costs related to the proxy contest of approximately
$11 million and higher accrued incentive compensation
costs, including the expensing of stock options. These increases
were partially offset by the favorable impact of the prior year
targeted workforce reductions, particularly in Europe and Asia,
and the $30.3 million of special items discussed above.
Total marketing support (recorded as a reduction of revenue or
as a component of SG&A) increased $36.3 million, or
7.8%, to $502.9 million on a gross sales increase of 7.9%.
Marketing support recorded as a reduction of revenue, typically
deals and allowances, totaled $432.3 million and decreased
as a percentage of gross sales to 17.3% from 17.7%, in line with
the Companys strategy. This decrease is due to reduced
spending on less efficient promotions and realignment of some
list
18
prices. Marketing support recorded as a component of SG&A
increased $12.7 million, or 21.9%, to $70.6 million,
largely in North American Consumer Products and Europe, as the
Company continues to invest behind its top brands.
Operating income increased $62.8 million, or 24.4%, to
$319.6 million, which was favorably impacted by increased
volume, the higher gross profit margin and the
$32.4 million of prior year special items discussed above.
Net interest expense increased $10.1 million, to
$68.3 million largely due to higher average interest rates
in Fiscal 2007. Other expenses, net, increased $4.9 million
to $7.7 million, chiefly due to increased minority interest
expense and currency losses.
The effective tax rate for the current quarter was 20.3%
compared to 28.4% last year. During the first quarter of Fiscal
2007, a foreign subsidiary of the Company revalued certain of
its assets, under local law, increasing the local tax basis by
$243.8 million. This revaluation is expected to reduce
Fiscal 2007 tax expense by approximately $35 million. Of
this $35 million tax benefit, the first quarter Fiscal 2007
tax expense benefited from a one time tax benefit of
$22 million and $3 million recognized through the
reduction in the current year effective tax rate for a total tax
benefit in the first quarter of Fiscal 2007 of approximately
$25 million. The remainder of the benefit will be
recognized over the year through the effective tax rate. The
decrease in the effective tax rate in the current quarter is
primarily attributable to this revaluation.
Income from continuing operations for the first quarter of
Fiscal 2007 was $194.1 million compared to
$140.2 million in the year earlier quarter, an increase of
38.5%, primarily due to the increase in operating income and a
lower effective tax rate, partially offset by increased net
interest expense. Diluted earnings per share from continuing
operations was $0.58 in the current year compared to $0.40 in
the prior year, up 45.0%.
OPERATING
RESULTS BY BUSINESS SEGMENT
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$70.6 million, or 13.0%, to $615.6 million. Volume
increased 4.3%, as a result of strong consumption growth in
Smart
Ones®
and Boston
Market®
frozen entrees, sides and desserts as well as
Delimex®
and TGI
Fridays®
frozen snacks. In addition,
Classico®
pasta sauces achieved continued volume growth, aided by
increased promotions and new product introductions. These
increases were partially offset by an expected volume decline in
Heinz®
ketchup relating to reduced promotions and a strategy to
increase the consumption of more profitable larger sizes.
Pricing increased 2.2% largely due to
Heinz®
ketchup,
Ore-Ida®
frozen potatoes and
Classico®
pasta sauces. The prior year acquisitions of Nancys
Specialty Foods, Inc. and HP Foods increased sales 4.5% and
favorable Canadian exchange translation rates increased sales
2.0%.
Gross profit increased $35.4 million, or 15.8%, to
$259.8 million, and the gross profit margin increased to
42.2% from 41.2%. These increases are due primarily to increased
volume, higher pricing and the favorable impact of acquisitions,
partially offset by increased commodity costs. Operating income
increased $19.3 million, or 15.6%, to $143.2 million,
due to the increase in gross profit partially offset by
increased research and development costs, as well as increased
marketing expenses, primarily related to frozen snacks and
Smart
Ones®
frozen entrees.
U.S. Foodservice
Sales of the U.S. Foodservice segment increased
$13.4 million, or 3.8%, to $366.6 million. Volume
increased 5.0%, due to higher single serve condiments and
Heinz®
ketchup volume, as well as continued expansion of frozen
soup. Pricing reduced sales 0.4% as price reductions on frozen
soup,
19
resulting from lower distribution costs, were offset by
increases on single-serve condiments and tomato products and
sauces. Divestitures, net of acquisitions, reduced sales 0.8%.
Gross profit increased $3.7 million, or 3.4%, to
$111.4 million, and the gross profit margin was consistent
with the prior year. The increase in gross profit was primarily
due to the Kabobs, Inc. acquisition. Operating income increased
$4.6 million, or 9.1%, to $55.1 million, due to the
increase in gross profit and increased volume, partially offset
by increased incentive compensation accruals.
Europe
Heinz Europes sales increased $44.0 million, or 6.8%,
to $685.9 million. Volume increased 2.2%, principally in
the Italian infant feeding business, due to increased
promotions, and
Heinz®
ketchup, resulting from increased marketing and promotional
support as well as new customers, including McDonalds.
Strong volume growth of 22.2% was achieved in our business in
Poland as a result of increased marketing support. These
increases were partially offset by declines in the U.K. in
ready-to-serve
soup, due to promotional timing, and pasta convenience meals.
Net pricing decreased sales 0.5%, resulting chiefly from the
increased promotions in Italian infant feeding in order to
address competitive activity. The acquisitions of HP Foods and
Petrosoyuz in Fiscal 2006 increased sales 7.0%. Divestitures
reduced sales 4.8% and favorable exchange translation rates
increased sales by 3.0%.
Gross profit increased $20.5 million, or 8.1%, to
$271.9 million, and the gross profit margin increased to
39.6% from 39.2%. These increases are primarily due to the
favorable impact of acquisitions and increased volume, partially
offset by increased raw material costs. Operating income
increased $25.6 million, or 27.3%, to $119.3 million,
due to the increase in gross profit and reduced general and
administrative expenses (G&A), partially offset
by increased marketing expense. The reduction in G&A is
primarily a result of the prior year targeted workforce
reductions, including the elimination of European headquarters.
In addition, there was $13.2 million of reorganization
costs in the prior year related to these workforce reductions
and strategic review costs.
Asia/Pacific
Sales in Asia/Pacific increased $31.6 million, or 12.2%, to
$291.5 million. Volume increased significantly, up 13.4%,
reflecting strong volume in Australia, New Zealand, Indonesia
and China, largely due to new product introductions and
increased marketing. Higher pricing, primarily in Indonesia,
increased sales 1.3%. Unfavorable exchange translation rates
decreased sales by 2.6%.
Gross profit increased $7.7 million, or 9.1%, to
$92.2 million. The gross profit margin decreased to 31.6%
from 32.5%. The gross profit margin decline was primarily a
result of higher commodity costs and unfavorable mix in
Indonesia, partially offset by higher pricing. The 9.1% increase
in gross profit also benefited from the strong volume
improvements. Operating income increased $12.4 million, or
66.1%, to $31.0 million, primarily due to the increase in
gross profit and reduced G&A, resulting from targeted
workforce reductions, including the elimination of Asia
headquarters in the prior year. In addition, there were
$5.7 million of reorganization costs in the prior year
related to these workforce reductions.
Rest of
World
Sales for Rest of World were consistent with the prior year at
$100.3 million, despite a reduction of 10.5% due to
divestitures and another 2.3% due to unfavorable foreign
exchange translation rates. Volume increased 5.8% due to
increased market share on nutritional drinks in India and
ketchup and baby food in Latin America. Higher pricing increased
sales by 7.1%, largely due to price increases on baby food and
reduced promotions on ketchup in Latin America.
Gross profit increased $2.0 million, or 6.1%, to
$34.2 million, due mainly to increased pricing and improved
business mix. Operating income increased $5.5 million, or
86.0% to $11.8 million.
20
Liquidity
and Financial Position
Cash provided by operating activities was $47.5 million, a
decrease of $118.4 million from the prior year. The
decrease in the first quarter of Fiscal 2007 versus Fiscal 2006
is primarily due to unfavorable movement in accrued liabilities
and less improvement in accounts receivable than in the prior
year, partially offset by favorable movement in income taxes and
higher net income. The Company continues to make progress in
reducing our cash conversion cycle, with a reduction of
9 days, to 47 days in the first quarter of Fiscal
2007, reflecting improvements in core operations and the impact
of prior year divestitures.
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 $243.8 million. As a
result of this revaluation, the Company incurred a foreign
income tax liability of $29.3 million related to this
revaluation which will be paid during the third quarter of
Fiscal 2007. Additionally, cash flow from operations is expected
to be improved by approximately $100 million over the five
to twenty year tax amortization period.
Cash used for investing activities totaled $13.6 million
compared to $112.3 million last year. Proceeds from
divestitures, net of acquisitions, provided $10.4 million
in Fiscal 2007 primarily related to the Companys sale in
the first quarter of a non-core U.S. Foodservice product
line, a frozen and chilled product line in the U.K., and a pet
food business in Argentina. In Fiscal 2006, acquisitions, net of
divestitures, used $61.5 million in cash, primarily related
to the Companys purchase of Petrosoyuz. Capital
expenditures totaled $38.9 million (1.9% of sales) compared
to $47.2 million (2.2% of total company sales) last year.
Proceeds from disposals of property, plant and equipment were
$24.4 million compared to $1.8 million in the prior
year.
Cash used by financing activities totaled $142.3 million
compared to providing $132.2 million last year. Payments on
short-term debt and commercial paper were $10.5 million
this year compared to proceeds of $456.3 million in the
prior year. Payments on long-term debt were $22.5 million
in the current year. Cash used for the purchases of treasury
stock, net of proceeds from option exercises, was
$1.3 million this year compared to $231.9 million in
the prior year. Dividend payments totaled $116.4 million,
compared to $104.2 million for the same period last year,
reflecting a 16.7% increase in the annual dividend on common
stock.
At August 2, 2006, the Company had total debt of
$4.46 billion (including $23.1 million relating to the
fair value of interest rate swaps) and cash and cash equivalents
of $368.1 million. The increase in total debt since prior
year end is primarily the result of a new capital lease
obligation incurred in the first quarter.
The Company and H.J. Heinz Finance Company maintain a
$2 billion credit agreement that expires in 2009. The
credit agreement supports the Companys commercial paper
borrowings. As a result, these borrowings are classified as
long-term debt based upon the Companys intent and ability
to refinance these borrowings on a long-term basis. The Company
maintains in excess of $1 billion of other credit
facilities used primarily by the Companys foreign
subsidiaries. These resources, the Companys existing cash
balance, strong operating cash flow, and access to the capital
markets, if required should enable the Company to meet its cash
requirements for operations, including capital expansion
programs, debt maturities, share repurchases and dividends to
shareholders.
In the first quarter of Fiscal 2007, cash required for
reorganization costs related to workforce reductions was
approximately $35 million. The Company is on track to
achieve the full year estimated savings of $45 million in
Fiscal 2007 as a result of the reorganization.
As of August 25, 2006, the Companys long-term debt
ratings at Moodys and Standard & Poors were
Baa2 and BBB+, respectively.
The impact of inflation on both the Companys financial
position and the results of operations is not expected to
adversely affect Fiscal 2007 results.
21
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. There have been no material
changes to contractual obligations during the three months ended
August 2, 2006. For additional information, refer to
pages 26 and 27 of the Companys Annual Report on
Form 10-K
for the fiscal year ended May 3, 2006.
Recently
Issued Accounting Standards
In June 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 derecognition, classification, interest and penalties,
accounting in interim periods, and disclosures. The provisions
of FIN 48 are effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the
impact of adopting FIN 48 in Fiscal 2008.
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 No. 123,
Accounting for Stock-Based Compensation
(FAS 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 FAS 123R,
Share-Based Payment (FAS 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.
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
22
and other important factors, many of which may be beyond
Heinzs control and could cause actual results to differ
materially from those expressed or implied in this report and
the financial statements and footnotes. Uncertainties contained
in such statements include, but are not limited to,
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sales, earnings, and volume growth,
|
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general economic, political, and industry conditions,
|
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competitive conditions, which affect, among other things,
customer preferences and the pricing of products, production,
energy and raw material costs,
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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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change in credit ratings,
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the ability to identify and complete and the timing, pricing and
success of acquisitions, joint ventures, divestitures and other
strategic initiatives,
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approval of acquisitions and divestitures by competition
authorities, and satisfaction of other legal requirements,
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the ability to successfully complete cost reduction programs,
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the voting results on shareholder proposals, including the
recent nomination of nominees for election as directors of the
Company,
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the ability to limit disruptions to the business resulting from
the emphasis on three core categories and potential divestitures,
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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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the ability to maintain sales growth while reducing spending on
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, and
international operations, particularly the performance of
business in hyperinflationary environments,
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changes in estimates in critical accounting judgments and other
laws and regulations, including tax laws,
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the success of tax planning strategies,
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the possibility of increased pension expense and contributions
and other people-related costs,
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the possibility of an impairment in Heinzs
investments, and
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other factors described in Risk Factors and
Cautionary Statement Relevant to Forward-Looking
Information in the Companys
Form 10-K
for the fiscal year ended May 3, 2006.
|
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
23
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise, except as required by the securities laws.
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Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
There have been no material changes in the Companys market
risk during the first quarter ended August 2, 2006. For
additional information, refer to pages 27-29 of the
Companys Annual Report on
Form 10-K
for the fiscal year ended May 3, 2006.
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Item 4.
|
Controls
and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures, as of the end
of the period covered by this report, were designed and are
functioning effectively to provide 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
disclosure.
(b) Changes in Internal Control over Financial Reporting
During the first quarter of Fiscal 2007, the Company implemented
SAP software in its U.K. operations. As appropriate, the Company
is modifying the design and documentation of internal control
process and procedures relating to the new system to supplement
and complement existing internal controls over financial
reporting.
24
PART IIOTHER
INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Nothing to report under this item.
There have been no material changes in our risk factors from
those disclosed in Part I, Item 1A to our Annual
Report on
Form 10-K
for the fiscal year ended May 3, 2006. The risk factors
disclosed in Part I, Item 1A to our Annual Report on
Form 10-K
for the fiscal year ended May 3, 2006, in addition to the
other information set forth in this report, could materially
affect our business, financial condition or results of
operations. Additional risks and uncertainties not currently
known to the Company or that the Company deems to be immaterial
also may materially adversely affect our business, financial
condition or results of operations.
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Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
In the first quarter of Fiscal 2007, the Company repurchased the
following number of shares of its common stock:
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Maximum
|
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Total Number of
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|
|
Number of
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Shares Purchased
|
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|
Shares that
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Total
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Average
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as Part of
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May Yet Be
|
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Number
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Price
|
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Publicly
|
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Purchased
|
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of Shares
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Paid per
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Announced
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Under the
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Period
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Purchased
|
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Share
|
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Programs
|
|
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Programs
|
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May 4, 2006 - May 31,
2006
|
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90,000
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$42.13
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|
June 1, 2006 - June 28,
2006
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June 29, 2006 -
August 2, 2006
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1,785,800
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42.00
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Total
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1,875,800
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$42.00
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The shares repurchased were acquired under the share repurchase
program authorized by the Board of Directors on June 8,
2005 for a maximum of 30 million shares. All repurchases
were made in open market transactions. As of August 2,
2006, the maximum number of shares that may yet be purchased
under the 2005 program is 13,195,292. In addition, on
May 31, 2006, the Board of Directors authorized a share
repurchase program of up to 25 million shares, all of which
may yet be purchased under the program.
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Item 3.
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Defaults
upon Senior Securities
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Nothing to report under this item.
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Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Nothing to report under this item.
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Item 5.
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Other
Information
|
Nothing to report under this item.
Exhibits required to be furnished by Item 601 of
Regulation S-K
are listed below. The Company may have omitted certain exhibits
in accordance with Item 601(b)(4)(iii)(A) of
Regulation S-K
and has omitted certain schedules to Exhibit 4 in
accordance with Item 601(b)(2) of
Regulation S-K.
The Company agrees to furnish such documents to the Commission
upon request. Documents not
25
designated as being incorporated herein by reference are set
forth herewith. The paragraph numbers correspond to the exhibit
numbers designated in Item 601 of
Regulation S-K.
12. Computation of Ratios of Earnings to
Fixed Charges.
31(a). Rule 13a-14(a)/15d-14(a)
Certification by the Chief Executive Officer.
31(b). Rule 13a-14(a)/15d-14(a)
Certification by the Chief Financial Officer.
32(a). 18 U.S.C. Section 1350
Certification by the Chief Executive Officer.
32(b). 18 U.S.C. Section 1350
Certification by the Chief Financial Officer.
26
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
H. J. HEINZ COMPANY
(Registrant)
Date: August 31, 2006
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|
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By:
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/s/ Arthur
B. Winkleblack
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Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 31, 2006
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By:
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/s/ Edward
J. McMenamin
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Edward J. McMenamin
Senior Vice PresidentFinance
and Corporate Controller
(Principal Accounting Officer)
27
EXHIBIT INDEX
DESCRIPTION OF EXHIBIT
Exhibits required to be furnished by Item 601 of
Regulation S-K
are listed below. Documents not designated as being incorporated
herein by reference are furnished herewith. The Company may have
omitted certain exhibits in accordance with
Item 601(b)(4)(iii)(A) of
Regulation S-K.
The Company agrees to furnish such documents to the Commission
upon request. The paragraph numbers correspond to the exhibit
numbers designated in Item 601 of
Regulation S-K.
12. Computation of Ratios of Earnings to Fixed
Charges.
31(a). Rule 13a-14(a)/15d-14(a)
Certification by the Chief Executive Officer.
31(b). Rule 13a-14(a)/15d-14(a)
Certification by the Chief Financial Officer.
32(a). 18 U.S.C. Section 1350 Certification
by the Chief Executive Officer.
32(b). 18 U.S.C. Section 1350 Certification
by the Chief Financial Officer.