H. J. HEINZ COMPANY 10-K
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ
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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 May 2,
2007
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or
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as
specified in its charter)
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PENNSYLVANIA
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25-0542520
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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600 Grant Street,
Pittsburgh, Pennsylvania
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15219
(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, 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 þ Accelerated
Filer o Non-
Accelerated Filer o
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 November 1, 2006 the aggregate market value of the
Registrants voting stock held by non-affiliates of the
Registrant was approximately $13,237,975,131.
The number of shares of the Registrants Common Stock, par
value $.25 per share, outstanding as of May 31, 2007, was
322,030,854 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on August 15, 2007,
which will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrants
fiscal year ended May 2, 2007, are incorporated into
Part III, Items 10, 11, 12, 13, and 14.
TABLE OF CONTENTS
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 processed food products throughout the
world. The Companys principal products include ketchup,
condiments and sauces, frozen food, soups, beans and pasta
meals, infant food 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, washed, trimmed, 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, homogenization,
chilling, freezing, pickling, drying, freeze drying, baking or
extruding, then labeled and cased for market.
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 generally purchased on
the open market.
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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23
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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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22
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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!
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Asia/Pacific
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14
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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*
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Rest of World
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9
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3
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Heinz, Wellingtons,
Complan, Glucon D, Nycil, Today, Mamas, John West,
Farleys, Dieterba, HP, Lea & Perrins, Classico,
Banquete
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68
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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 plants
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 and operating income 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 2007, one customer represented 10.4% of the
Companys sales. We closely monitor the credit risk
associated with our customers and to date have never experienced
significant 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 2008 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 May 2,
2007, approximately 33,000 persons around the world.
Segment information is set forth in this report on pages 68
through 71 in Note 15, Segment Information in
Item 8 Financial 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.
3
In addition to the factors discussed elsewhere in this Report,
the following risks and uncertainties could materially adversely
affect the Companys business, financial condition, and
results of operations. Additional risks and uncertainties not
presently known to the Company or that the Company currently
deems 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 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 negatively impacted.
The
Companys performance is 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, recession, foreign
ownership restrictions, nationalization, the performance of
businesses in hyperinflationary environments, and political
unrest and terrorist acts in the U.S. and other
international locations where the Company does business. Such
changes in either domestic or foreign jurisdictions could
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 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, 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 adversely impacted.
4
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, or it is not financially feasible, to 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 an 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, transport,
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 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 products, or disrupt the marketplace in the
foodservice or retail environment with consequent material
adverse effect on the Companys results of operations.
5
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 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 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 such
transactions by competition authorities, as well as satisfy
other legal requirements. The failure to obtain such approvals
could 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. Increases or decreases in the value of the
U.S. dollar may 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
failure to complete the strategic transformation through further
simplification and cost savings could adversely affect the
Companys ability to increase net income.
As publicly announced, the Company has been implementing a
strategic transformation initiative to simplify its business,
further prune and realign its portfolio, sell underutilized
assets, reduce cost and increase efficiency, and sharpen its
focus on three core categories of Ketchup & Sauces,
Meals & Snacks, and Infant Food. The success of the
Company could be impacted by its
6
inability to continue to execute on its plans through product
innovation, implementing cost-cutting measures, enhancing
processes and systems on a global basis, and growing market
share and volume. The failure to fully implement the plans could
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 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 availability of raw materials and packaging,
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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,
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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 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, and
international operations, particularly the performance of
business in hyperinflationary environments,
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changes in estimates in critical accounting judgments and
changes in laws and regulations, including tax laws,
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the success of tax planning strategies,
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the possibility of increased pension expense and contributions
and other people-related costs,
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the potential adverse impact of natural disasters, such as
flooding and crop failures,
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7
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the ability to implement new information systems, and
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other factors as described in Risk Factors above.
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The forward-looking statements are and will be based on
managements then current views and assumptions regarding
future events and speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
the securities laws.
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Item 1B.
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Unresolved
Staff Comments
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None.
See table in Item 1.
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Item 3.
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Legal
Proceedings.
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None.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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The Company has not submitted any matters to a vote of security
holders since the last annual meeting of shareholders on
August 16, 2006.
8
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Information relating to the Companys common stock is set
forth in this report on page 30 under the caption
Stock Market Information in Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and on pages 71
through 72 in Note 16, Quarterly Results in
Item 8 Financial Statements and
Supplementary Data.
In the fourth 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
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Total Number of
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Number of Shares
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Number of
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Average
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Shares Purchased as
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that May Yet Be
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Shares
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Price Paid
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Part of Publicly
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Purchased Under
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Period
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Purchased
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per Share
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Announced Programs
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the Programs
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February 1, 2007
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February 28, 2007
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631,500
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$
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46.73
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March 1, 2007
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March 28, 2007
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2,302,400
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46.04
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March 29, 2007
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May 2, 2007
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2,675,000
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47.29
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Total
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5,608,900
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$
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46.71
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Of the shares repurchased, 4,028,692 shares were acquired
under the share repurchase program authorized by the Board of
Directors on June 8, 2005 for a maximum of 30 million
shares. Once that program was completed in April 2007, the
remaining 1,580,208 shares were repurchased in April under
the 25 million share program authorized by the Board of
Directors on May 31, 2006. All repurchases were made in
open market transactions. As of May 2, 2007, the maximum
number of shares that may yet be purchased under the 2006
program is 23,419,792.
9
|
|
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 2003 through 2007. All amounts are in thousands
except per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
April 28,
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Sales(1)
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
|
$
|
7,625,831
|
|
|
$
|
7,566,800
|
|
Interest expense(1)
|
|
|
333,270
|
|
|
|
316,296
|
|
|
|
232,088
|
|
|
|
211,382
|
|
|
|
222,729
|
|
Income from continuing
operations(1)
|
|
|
791,602
|
|
|
|
442,761
|
|
|
|
688,004
|
|
|
|
715,451
|
|
|
|
478,303
|
|
Income from continuing operations
per share diluted(1)
|
|
|
2.38
|
|
|
|
1.29
|
|
|
|
1.95
|
|
|
|
2.02
|
|
|
|
1.35
|
|
Income from continuing operations
per share basic(1)
|
|
|
2.41
|
|
|
|
1.31
|
|
|
|
1.97
|
|
|
|
2.03
|
|
|
|
1.36
|
|
Short-term debt and current
portion of long-term debt
|
|
|
468,243
|
|
|
|
54,969
|
|
|
|
573,269
|
|
|
|
436,450
|
|
|
|
154,786
|
|
Long-term debt, exclusive of
current portion(2)
|
|
|
4,413,641
|
|
|
|
4,357,013
|
|
|
|
4,121,984
|
|
|
|
4,537,980
|
|
|
|
4,776,143
|
|
Total assets(3)
|
|
|
10,033,026
|
|
|
|
9,737,767
|
|
|
|
10,577,718
|
|
|
|
9,877,189
|
|
|
|
9,224,751
|
|
Cash dividends per common share
|
|
|
1.40
|
|
|
|
1.20
|
|
|
|
1.14
|
|
|
|
1.08
|
|
|
|
1.485
|
|
|
|
|
(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
$71.0 million, ($1.4) million, $186.1 million,
$125.3 million, and $294.8 million of hedge accounting
adjustments associated with interest rate swaps at May 2,
2007, May 3, 2006, April 27, 2005, April 28,
2004, and April 30, 2003, respectively. Long-term debt
reflects the prospective classification of Heinz Finance
Companys $325 million of mandatorily redeemable
preferred shares from minority interest to long-term debt
beginning in the second quarter of Fiscal 2004 as a result of
the adoption of Statement of Financial Accounting Standards
(SFAS) No. 150. |
|
(3) |
|
Fiscal 2007 reflects 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
$124.7 million pretax ($80.3 million after tax) for
targeted workforce reductions consistent with the Companys
goals to streamline its businesses and $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 46 to 47 in Note 4, Fiscal 2006
Transformation Costs in Item 8
Financial Statements and Supplementary Data.
10
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 the 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.
Fiscal 2003 results from continuing operations include costs
related to the Del Monte transaction and costs to reduce
overhead of the remaining businesses totaling
$164.6 million pretax ($113.1 million after-tax).
These include employee termination and severance costs, legal
and other professional service costs and costs related to the
early extinguishment of debt. In addition, Fiscal 2003 includes
losses on the exit of non-strategic businesses of
$62.4 million pretax ($49.3 million after-tax).
11
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Executive
Overview- Fiscal 2007
The H.J. Heinz Company has been a pioneer in the food industry
for 138 years and possesses one of the worlds best
and most recognizable brands
Heinz®.
While the Company has prospered for a long time, we are
constantly finding new ways to capitalize on emerging consumer
trends and better methods of doing business. Over the past
several years, we have been making great progress in simplifying
and focusing the Company on three core businesses. This
strategic transformation began with the spin-off of our non-core
U.S. businesses in December 2002, and was completed in
Fiscal 2006 with the sales of our European Seafood and New
Zealand Poultry businesses.
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 set financial and operational targets, aimed at
increasing shareholder value. The Company achieved its targets
for Fiscal 2007 and is well positioned for continued growth in
Fiscal 2008. Specifically:
|
|
|
|
|
Net sales grew over 4% to $9.0 billion.
|
|
|
|
Operating income grew 7.2%, excluding special items in the prior
year, including an incremental $64 million (or 24%) in
consumer marketing investment (see table in Fiscal 2006
Transformation Costs which reconciles Fiscal 2006 reported
amounts to amounts excluding special items).
|
|
|
|
Operating free cash flow (cash flow from operations of
$1,062 million less capital expenditures of
$245 million plus proceeds from disposals of PP&E of
$61 million) grew to $878 million.
|
|
|
|
EPS grew to $2.38, an increase of 13% excluding prior year
special items.
|
The following is a detailed update on the Companys
progress against the three imperatives under our Superior Value
and Growth Plan at the end of Fiscal 2007 as well as a summary
of our expectations under these imperatives for Fiscal 2008.
Grow
the Core Portfolio
This imperative is focused on a strategy to grow our largest
brands in our three core categories. This strategy established
targets for increased marketing spending of $50 million and
double digit increases in research and development costs
(R&D). In addition, this strategy also focused
on growth in various emerging markets, where growth potential
was viewed as high. During Fiscal 2007, we made excellent
progress against this imperative as evidenced by the following:
|
|
|
|
|
Our top 15 brands, which generate nearly 70% of total sales,
grew 8.5%.
|
|
|
|
We launched more than 100 new products supported by a 24%
increase in marketing.
|
|
|
|
R&D increased nearly 20% as we increased capabilities in
the areas of innovation and consumer insight.
|
|
|
|
Innovation in our emerging markets drove strong growth, with a
sales increase of 12% in our RICIP markets (Russia, India,
China, Indonesia and Poland) and Latin America. These markets
accounted for approximately 10% of sales and 27% of the
Companys total sales growth in Fiscal 2007.
|
Looking forward to Fiscal 2008, the Companys innovation
pipeline contains over 200 consumer-validated new products
across our markets. The Company is planning incremental
improvements in the health and wellness profile of its products
in Fiscal 2008 as well as convenience products like
12
portable hand-held snacks under the Smart
Ones®
brand and microwavable soups in the UK, Australia and New
Zealand.
The Company plans to support new products introduced in Fiscal
2008 with an additional $30 to $40 million of incremental
marketing spending, completing a two-year increase of around
$100 million. The Company will continue to invest for
growth in our emerging RICIP and Latin American markets, which
we expect to continue delivering double-digit growth in Fiscal
2008. By the end of Fiscal 2008, we expect these markets to
reach $1 billion in sales.
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
(COGS) and selling, general and administrative
expenses (SG&A). The following summarizes our
progress in Fiscal 2007 relative to this imperative:
|
|
|
|
|
D&A as a percentage of gross sales was reduced by
100 basis points, slightly ahead of our original target.
|
|
|
|
COGS was reduced by 90 basis points as a percentage of
sales, excluding prior year special items, and total gross
profit exceeded target expectations.
|
|
|
|
The Company divested or closed 16 plants around the globe, one
more than our original goal for the year.
|
|
|
|
As a result of productivity gains and, despite increasing
consumer marketing by 60 basis points as a percentage of
sales, operating income margin increased by 50 basis
points, excluding prior year special items.
|
In Fiscal 2008, the Company will continue to invest in improved
business systems in order to boost the efficiency of its
promotional programs, particularly in Europe. We expect further
decreases in trade spending with a goal of reducing it by
130 basis points as a percentage of gross sales over the
two-year plan. Trade promotion reductions and other productivity
measures coupled with strategic pricing are expected to drive
gross margin expansion.
A Global Supply Chain Task Force has been established with the
goal of further driving cost reductions, primarily in COGS. We
expect additional SG&A savings in Fiscal 2008 aided by
headcount reductions, pension savings and more efficient
indirect procurement. The Companys total anticipated
productivity is now $380 million over two years, which
exceeds its previous estimates.
Generate
Cash to Deliver Superior Value
Heinzs growth, cost savings and working capital
productivity drove operating free cash flow of
$878 million, or almost 10% of revenue. This was 10% ahead
of the goal for the year and better than the prior year. Much of
this increased cash flow has been returned directly to
shareholders, as evidenced by the following:
|
|
|
|
|
Increase in the Companys dividend in Fiscal 2007 by 17%,
to a payout ratio of close to 60%.
|
|
|
|
Decrease in average shares outstanding by 2.8%, resulting from
net share repurchases in Fiscal 2007 of $501 million.
|
|
|
|
Total shareholder return in Fiscal 2007 of almost 15%.
|
|
|
|
After-tax return on invested capital (ROIC) improved
100 basis points to 15.8%.
|
In Fiscal 2008, we expect to continue to generate strong cash
flow. Based on this confidence, the Board of Directors increased
the dividend for Fiscal 2008 by 8.6%, for an annual indicative
rate of $1.52 per share. We expect to return approximately 60%
of our earnings to our shareholders in the
13
form of dividends. We also expect to return an additional
$500 million to shareholders through net share repurchases
in Fiscal 2008.
Results
of Continuing Operations
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
Ketchup and sauces
|
|
$
|
3,682,102
|
|
|
$
|
3,530,346
|
|
|
$
|
3,234,229
|
|
Meals and snacks
|
|
|
4,026,168
|
|
|
|
3,876,743
|
|
|
|
3,680,920
|
|
Infant foods
|
|
|
929,075
|
|
|
|
863,943
|
|
|
|
855,558
|
|
Other
|
|
|
364,285
|
|
|
|
372,406
|
|
|
|
332,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Years Ended May 2, 2007 and May 3, 2006
Sales for Fiscal 2007 increased $358.2 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 $299.8 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, partially offset by commodity cost increases.
Also contributing to the favorable comparison are the
$91.6 million of prior year strategic transformation costs
discussed below.
SG&A decreased $33.3 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 prior year targeted workforce
reductions, particularly in Europe and Asia, and the
$144.8 million of prior year 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). Selling and
distribution costs (S&D) were 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 $4.4 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
deals and allowances, decreased $59.7 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 $64.1 million, or 23.8%, to
$333.5 million, consistent with the Companys
continued strategy to invest behind its key brands.
Operating income increased $333.1 million, or 29.9%, to
$1.45 billion, which was favorably impacted by increased
volume, the higher gross profit margin and the
$236.4 million of prior year strategic transformation costs
discussed below.
Net interest expense increased $8.3 million, to
$291.4 million, due primarily to higher average interest
rates and higher average debt in Fiscal 2007. Fiscal 2006 income
from continuing operations
14
was unfavorably impacted by the $111.0 million write down
of the Companys net investment in Zimbabwe. Other
expenses, net, increased $4.9 million, to
$30.9 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 $6.9 million loss on the sale of the
Companys equity investment in The Hain Celestial Group,
Inc. (Hain) in the prior year.
The current year effective tax rate was 29.6% compared to 36.2%
for the prior year. During the first quarter of Fiscal 2007, a
foreign subsidiary of the Company revalued certain of its
assets, under local law, increasing the local tax basis by
approximately $245 million. This revaluation reduced 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 $64.1 million. At the same time,
the Company modified its plans for repatriation of foreign
earnings, ultimately incurring an additional charge of
$89.8 million. Full year Fiscal 2007 repatriation costs
were $107.8 million, exceeding Fiscal 2006s
repatriation costs by approximately $78.2 million. In
addition, Fiscal 2007 tax expense benefited from 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 $23.4 million related to
a foreign affiliate along with an additional benefit of
$16.3 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 $791.6 million
compared to $442.8 million in the prior year, 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 the current year compared to $1.29 in
the prior year, 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
$185.4 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
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
TGIF®
frozen snacks, all resulting primarily from reduced inefficient
promotions. Acquisitions increased sales 1.9%, primarily from
the prior year acquisitions of Nancys Specialty Foods and
HP Foods as well as the current year acquisition of
Renées Gourmet Foods. Favorable Canadian exchange
translation rates increased sales 0.7%.
Gross profit increased $85.8 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 $42.3 million, or 7.3%, to
$625.7 million, mainly due to the improvement in gross
profit and $6.6 million of prior year transformation costs
discussed below. This increase was partially offset by a
$32.2 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.
15
U.S.
Foodservice
Sales of the U.S. Foodservice segment decreased
$13.5 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 the fiscal year and a decision to exit certain low
margin accounts.
Gross profit increased $29.0 million, or 6.6%, to
$465.3 million, and the gross profit margin increased to
29.9% from 27.8%, due to $7.5 million of prior year
reorganization costs discussed below and a $21.5 million
impairment charge in the prior year related to the sale of the
Portion Pac Bulk product line. In addition, increased pricing
was offset by higher commodity costs. Operating income increased
$38.8 million, or 21.9%, to $216.1 million, largely
due to the increase in gross profit and reduced S&D expense
as a percentage of sales resulting from productivity initiatives.
Europe
Heinz Europes sales increased $89.0 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 current fiscal year. The acquisition of HP
Foods and Petrosoyuz in Fiscal 2006 increased sales 1.9%, while
divestitures reduced sales 5.6%. Favorable exchange translation
rates increased sales by 7.3%.
Gross profit increased $112.0 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 exchange translation rates and
$36.3 million of prior year transformation costs discussed
below. These improvements were partially offset by reduced
volume and increased commodity and manufacturing costs.
Operating income increased $152.2 million, or 36.7%, to
$566.4 million, due to the increase in gross profit, the
$112.2 million of prior year transformation costs discussed
below, and reduced general and administrative expenses
(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 $85.1 million, or 7.6%, to
$1.20 billion. Volume increased sales 4.2%, reflecting
strong volume in Australia, New Zealand and China, largely due
to increased marketing and new product introductions. Higher
pricing increased sales 2.1%, 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 1.7%.
Gross profit increased $51.5 million, or 15.4%, to
$386.8 million, and the gross profit margin increased to
32.2% from 30.0%. These improvements were due to volume
increases and higher pricing, partially offset by increased
commodity costs, most notably in Indonesia. The prior year also
included an $18.8 million asset impairment charge on an
Indonesian noodle business. Operating income increased
$50.6 million, to $135.8 million, largely reflecting
the increase in gross profit and reduced 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 the prior year, and $10.2 million of
reorganization costs in the prior year related to the workforce
reductions discussed below.
16
Rest of
World
Sales for Rest of World increased $12.2 million, or 2.9%,
to $427.1 million. Volume increased 6.1% due primarily to
market and share growth in nutritional drinks in India, ketchup
and baby food in Latin America and in our business in South
Africa. Higher pricing increased sales by 7.6%, largely due to
reduced promotions on ketchup and price increases taken on baby
food in Latin America. Divestitures reduced sales 8.8% and
foreign exchange translation rates reduced sales 1.9%.
Gross profit increased $16.1 million, or 12.1%, to
$148.9 million, as increased volume and higher pricing were
partially offset by higher commodity costs in India and the
impact of divestitures. The prior year also included
$5.8 million of asset impairment charges discussed below.
Operating income increased $36.0 million, to
$53.9 million, due primarily to the increase in gross
profit and the $27.9 million in prior year 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 down the Zimbabwe
investment related to managements determination that this
investment was not a core business and, as a consequence, the
Company would explore strategic options to exit this business.
The Company is still exploring such options. 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.
Fiscal
Years Ended May 3, 2006 and April 27,
2005
Sales for Fiscal 2006 increased $540.0 million, or 6.7%, to
$8.6 billion. Sales were favorably impacted by a volume
increase of 3.8% driven primarily by the North American Consumer
Products segment, as well as the Australian, Indonesian and
Italian businesses. These volume increases were partially offset
by declines in the European frozen food business. Pricing
decreased sales slightly, by 0.1%, as improvements in Latin
America, Indonesia and North America were offset by declines in
Australia, U.K and Northern Europe. Acquisitions, net of
divestitures, increased sales by 4.4%. Foreign exchange
translation rates decreased sales by 1.5%.
Gross profit increased $59.5 million, or 2.0%, to
$3.1 billion, primarily due to the favorable impact of
acquisitions and higher sales volume, partially offset by
unfavorable exchange translation rates. The gross profit margin
decreased to 35.8% from 37.4% mainly due to the strategic
transformation costs discussed below, pricing declines in the
Europe segment, particularly in Northern Europe and in the U.K.
and due to increased commodity costs, particularly in the North
American and Indonesian businesses.
SG&A increased $227.4 million, or 13.0%, to
$2.0 billion, and increased as a percentage of sales to
22.9% from 21.6%. The increase as a percentage of sales is
primarily due to the $144.8 million (1.7% of sales) of
strategic transformation costs discussed below, the impact of
acquisitions, and higher fuel and transportation costs. These
increases were partially offset by decreased G&A in Europe,
due primarily to the elimination of European Headquarters and
reduced litigation costs.
Total marketing support (recorded as a reduction of revenue or
as a component of SG&A) increased $108.8 million, or
5.3%, to $2.2 billion on a gross sales increase of 6.5%.
Marketing support recorded as a reduction of revenue, typically
deals and allowances, increased $107.0 million, or 5.9%, to
$1.9 billion. This increase is largely a result of
increased trade promotion spending in the U.K. and Australia and
the impact of acquisitions. These increases were partially
offset by decreases in the Italian infant nutrition business and
foreign exchange translation rates. Marketing support recorded
17
as a component of SG&A increased $1.8 million, or
0.7%, to $269.4 million, as increases from acquisitions
were largely offset by declines in the U.K.
Operating income decreased $167.9 million, or 13.1%, to
$1.1 billion. Net interest expense increased
$78.0 million, to $283.1 million due to higher average
interest rates and higher average debt in Fiscal 2006 due to
acquisitions and share repurchases.
Fiscal 2006 income from continuing operations was unfavorably
impacted by the $111.0 million write down of the
Companys net investment in Zimbabwe. Fiscal 2005 includes
the non-cash impairment charges totaling $73.8 million
related to the cost and equity investments discussed below.
Other expenses, net, increased $11.1 million to
$26.1 million primarily due to the loss on the sale of
equity investments in Fiscal 2006.
The Fiscal 2006 effective tax rate was 36.2% compared to 30.3%
in Fiscal 2005. The increase in the effective tax rate is
primarily the result of increased costs of repatriation
including the effects of the American Jobs Creation Act
(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, offset by the reversal of valuation
allowances, the benefit of increased profits in lower tax rate
jurisdictions and a reduction in tax reserves.
Income from continuing operations was $442.8 million
compared to $688.0 million in Fiscal 2005, a decrease of
35.6%. Diluted earnings per share from continuing operations was
$1.29 in Fiscal 2006 compared to $1.95 in Fiscal 2005.
FISCAL
YEAR 2006 OPERATING RESULTS BY BUSINESS SEGMENT
North
American Consumer Products
Sales of the North American Consumer Products segment increased
$297.3 million, or 13.2%, to $2.6 billion. Volume
increased significantly, up 7.7%, as a result of strong growth
in
Heinz®
ketchup, TGI
Fridays®
and
Delimex®
brands of frozen snacks,
Classico®
pasta sauces, Smart
Ones®
frozen entrees and in
Ore-Ida®
potatoes. Pricing was up 0.4% and the HP Foods and Nancys
acquisitions increased sales 3.9%. Divestitures reduced sales
0.1% and favorable Canadian exchange translation rates increased
sales 1.3%.
Gross profit increased $106.6 million, or 11.3%, to
$1.0 billion, driven primarily by volume growth and
acquisitions. The gross profit margin declined to 41.1% from
41.8%, primarily due to increased commodity costs and a benefit
in Fiscal 2005 from the favorable termination of a long-term
co-packing arrangement with a customer. Operating income
increased $52.9 million, or 10.0%, to $583.4 million,
due to the increase in gross profit, partially offset by
increased S&D, primarily due to acquisitions and increased
volume, $6.6 million of transformation costs, and increased
R&D costs associated with the new Heinz Global Innovation
and Quality Center.
U.S.
Foodservice
Sales of the U.S. Foodservice segment increased
$66.0 million, or 4.4%, to $1.6 billion. The
acquisition of AAI and Kabobs, Inc. increased sales 3.9%. Volume
increased sales 0.2%, as increases in Truesoups frozen soups
were partially offset by declines in
Heinz®
ketchup. Pricing increased sales 0.3% as increases in custom
recipe tomato products and frozen desserts were partially offset
by declines in ketchup.
Gross profit decreased $21.2 million, or 4.6%, to
$436.3 million, as the favorable benefit of the AAI
acquisition was partially offset by $7.5 million of
reorganization costs discussed below and a $21.5 million
impairment charge for the planned sale of the Portion Pac Bulk
product line. The gross profit margin decreased to 27.8% from
30.4% primarily due to the reorganization costs and the asset
impairment charge, as well as increased commodity and fuel
costs. Operating income decreased
18
$47.5 million, or 21.1%, to $177.3 million, chiefly
due to $34.8 million of reorganization and asset impairment
charges and increased SG&A, largely due to higher fuel and
distribution costs and marketing support.
Europe
Heinz Europes sales increased $79.1 million, or 2.7%,
to $3.0 billion. The HP Foods and Petrosoyuz acquisitions
increased sales 9.1%. Volume increased 1.2%, principally due to
the Italian infant feeding business, convenience meals in Poland
and the U.K., and ketchup growth across Europe. These increases
were partially offset by the frozen foods business in the U.K.,
resulting from general category softness. Lower pricing
decreased sales 1.4%, driven by increased promotional spending
in the U.K on
Heinz®
soup, partially offset by price increases on
Heinz®
beans and improvements in the Italian infant feeding business.
Divestitures reduced sales 1.8%, and unfavorable exchange
translation rates decreased sales by 4.3%.
Gross profit decreased $10.9 million, or 1.0%, to
$1.1 billion, and the gross profit margin decreased to
37.6% from 39.0%. These decreases are primarily due to
$36.3 million of transformation costs discussed below,
unfavorable exchange translation rates, decreased pricing in the
U.K and higher manufacturing costs in Northern Europe. Operating
income decreased $85.8 million, or 17.2%, to
$414.2 million, due largely to the gross profit decrease,
unfavorable exchange translation rates and the
$112.2 million of transformation costs discussed below,
partially offset by the favorable impact of acquisitions,
reduced G&A and decreased marketing expense in the U.K.
Asia/Pacific
Sales in Asia/Pacific increased 7.6%. Volume increased sales
8.1%, reflecting double-digit volume growth in Australia along
with strong performances in the Watties business and in
Indonesia. These increases reflect new product introductions and
increased promotional programs. Unfavorable exchange translation
rates decreased sales by 1.0%, while lower pricing reduced sales
0.5%, primarily in the Australian business. The acquisition of
LongFong in China, net of a small divestiture, increased sales
1.1%.
Gross profit decreased $16.1 million, or 4.6%, to
$335.3 million, and the gross profit margin declined to
30.0% from 33.9%. These declines were primarily a result of an
$18.8 million asset impairment charge on an Indonesian
noodle product line divested in Fiscal 2007 and increased
commodity and manufacturing costs in Indonesia and China,
partially offset by the favorable impact of acquisitions and
sales volume. Operating income decreased $27.9 million, or
24.7%, to $85.2 million, primarily due to the decline in
gross profit margin, increased S&D and $10.2 million
of reorganization costs related to targeted workforce reductions
discussed below.
Rest of
World
Sales for Rest of World increased 4.6%. Volume increased 3.8%
reflecting strong infant feeding sales in Latin America and
beverage sales in India. Higher pricing increased sales by 6.2%,
largely due to price increases and reduced promotions in Latin
America. Divestitures, net of acquisitions, reduced sales by
2.6%, and foreign exchange translation rates reduced sales by
2.8%.
Gross profit increased $5.0 million, or 3.9%, to
$132.8 million, due mainly to increased pricing which was
partially offset by $5.8 million in asset impairment
charges discussed below. Operating income decreased
$16.9 million, to $17.9 million, as the increase in
gross profit was more than offset by the $27.9 million in
transformation costs primarily related to divestitures. In
addition, Fiscal 2005s results include the proceeds of an
agreement related to the recall in Israel.
19
Discontinued
Operations
During fiscal years 2003 through 2006, the Company focused on
exiting non-strategic business operations. Certain of these
businesses which were sold are 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 for all
periods presented. 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
$808.8 million and net income of $169.1 million (net
of $90.2 million in tax expense) and $47.8 million
(net of $23.3 million in tax expense) for the years ended
May 3, 2006 and April 27, 2005, respectively.
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 and
$16.9 million for the years ended May 3, 2006 and
April 27, 2005, respectively.
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). Approximately 1,000 positions were eliminated as a
result of this program, primarily in the G&A area.
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
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.
20
Other
Divestitures/Impairment Charges
The following gains/(losses) 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 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. The Company also recorded a $9.3 million non-cash
charge in the third quarter of Fiscal 2005 to recognize the
impairment of a cost-basis investment in a grocery industry
sponsored
e-commerce
business venture. 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, Income Taxes in
Item 8 Financial Statements and
Supplementary Data.
In the fourth quarter of Fiscal 2005, the Company recognized a
non-cash asset impairment charge of $27.0 million pre-tax
($18.0 million after-tax) related to the
HAK®
vegetable product line which was sold in Fiscal 2006.
There were no material gains/(losses) on divested businesses or
asset impairment charges in Fiscal 2007.
Other
Non-recurring American Jobs Creation
Act
The 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.
21
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 Years Ended May 3, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
|
|
|
Per
|
|
|
|
Net
|
|
|
Gross
|
|
|
Operating
|
|
|
Continuing
|
|
|
Share
|
|
|
|
Sales
|
|
|
Profit
|
|
|
Income
|
|
|
Operations
|
|
|
Diluted
|
|
|
|
(Amounts in millions, except per share amounts)
|
|
|
Reported results from continuing
operations
|
|
$
|
8,643.4
|
|
|
$
|
3,093.1
|
|
|
$
|
1,113.6
|
|
|
$
|
442.8
|
|
|
$
|
1.29
|
|
Separation, downsizing and
integration
|
|
|
|
|
|
|
17.4
|
|
|
|
146.7
|
|
|
|
96.6
|
|
|
|
0.28
|
|
Net loss on disposals &
impairments
|
|
|
|
|
|
|
74.1
|
|
|
|
89.7
|
|
|
|
48.3
|
|
|
|
0.14
|
|
Asset impairment charges for cost
and equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.6
|
|
|
|
0.31
|
|
American Jobs Creation Act
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.4
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from continuing operations
excluding special items
|
|
$
|
8,643.4
|
|
|
$
|
3,184.6
|
|
|
$
|
1,350.0
|
|
|
$
|
717.7
|
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note:
Totals may not add due to rounding.)
Liquidity
and Financial Position
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.
For Fiscal 2007, cash provided by operating activities was
$1,062 million, a decrease of $12.7 million from the
prior year. The decrease in Fiscal 2007 versus Fiscal 2006 is
primarily due to unfavorable movement in accrued liabilities
largely due to the payment of accrued reorganization costs in
the current year, partially offset by favorable movement in
income taxes due to the timing of payments. The Company
continues to make progress in reducing its cash conversion
cycle, with a reduction of seven days in Fiscal 2007 compared to
Fiscal 2006, to 49 days.
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 $29.6 million
related to this revaluation which was paid during the third
quarter of Fiscal 2007. Additionally, cash flow from operations
is expected to be improved by approximately $100 million
over the five to twenty year tax amortization period related to
the revalued assets.
Cash used for investing activities totaled $326.2 million
compared to $451.8 million last year. Capital expenditures
totaled $244.6 million (2.7% of sales) compared to
$230.6 million (2.5% of sales) last year. Proceeds from
disposals of property, plant and equipment were
$60.7 million compared to $19.4 million in the prior
year. This increase includes the disposal of a number of plants
during the
22
current year. In Fiscal 2007, acquisitions, net of divestitures,
used $93.1 million primarily related to the Companys
purchase of Renées Gourmet Foods and the purchase of
the minority ownership interest in our Petrosoyuz business in
Russia. Divestitures during the current 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 the current year. In
Fiscal 2006, acquisitions required $1.1 billion, primarily
related to the Companys purchases of HP Foods,
Nancys Specialty Foods, Inc., Kabobs, Inc. and Petrosoyuz.
Proceeds from divestitures in Fiscal 2006, provided
$856.7 million, related primarily to the sales of the
European seafood and
Tegel®
poultry businesses, the sale of the Companys equity
investment in Hain and the sale of the
HAK®
vegetable product line in Northern Europe.
Cash used for financing activities totaled $620.9 million
compared to $1.3 billion last year. Proceeds from
short-term debt and commercial paper were $384.1 million
this year compared to $298.5 million in the prior year. Net
payments on long-term debt were $52.1 million in the
current year compared to $497.0 million in the prior year.
The prior year payments reflect the retirement of
Euro-denominated long-term debt of 418 million. Cash
used for the purchase of treasury stock, net of proceeds from
option exercises, was $500.9 million this year compared to
$681.3 million in the prior year, in line with the
Companys plans of repurchasing $1.0 billion in net
shares over Fiscals 2007 and 2008. Dividend payments totaled
$461.2 million, compared to $408.2 million for the
same period last year, reflecting a 16.7% increase in the annual
dividend rate on common stock.
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, 2006 and 2005, 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
Cash Flow Statements for Fiscals 2007, 2006 and 2005 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 June 1, 2007, the Company announced that its Board of
Directors approved an 8.6% increase in the annual dividend on
common stock for Fiscal 2008 (from $1.40 to an annual indicative
rate of $1.52 per share), effective with the July 2007 dividend
payment. Fiscal 2008 dividends are expected to approximate
$480 million. In addition, the Company anticipates spending
approximately $500 million on stock repurchases, net of
options exercised, during Fiscal 2008 to complete its
$1 billion goal referenced above.
At May 2, 2007, the Company had total debt of
$4.88 billion (including $71.2 million relating to the
fair value of interest rate swaps) and cash and cash equivalents
of $652.9 million. The $469.9 million increase in
total debt since prior year end is primarily the result of share
repurchases and net acquisitions.
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 37.4% in Fiscal 2007,
29.1% in Fiscal 2006 and 34.4% in Fiscal 2005. Fiscal 2007 ROE
was favorably impacted by 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. ROE in Fiscal 2005 was
unfavorably impacted by 4.2% related to asset impairment charges
and by increased average equity reflecting fluctuations in
foreign exchange translation rates.
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 value of interest rate swaps. ROIC was 15.8%
in Fiscal 2007, 13.1% in Fiscal 2006 and 15.4% in Fiscal 2005.
Fiscal 2007 ROIC was
23
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. ROIC was unfavorably impacted by 1.7% in Fiscal 2005
related to asset impairment charges.
The Company maintains 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
$900 million of other credit facilities used primarily by
the Companys foreign subsidiaries. These resources, the
Companys existing cash balance, strong operating cash flow
and access to the capital markets, if required, should enable
the Company to meet its cash requirements for operations,
including capital expansion programs, debt maturities, share
repurchases and dividends to shareholders.
As of May 2, 2007, the Companys long-term debt
ratings at Moodys and Standard & Poors
were Baa2 and BBB, respectively.
In Fiscal 2007, cash required for reorganization costs related
to workforce reductions in Fiscal 2006 was approximately
$50 million. The Company achieved full year estimated
savings of $45 million in Fiscal 2007 as a result of the
reorganization.
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 May 2, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Long Term Debt(1)
|
|
$
|
538,236
|
|
|
$
|
1,521,200
|
|
|
$
|
1,873,122
|
|
|
$
|
3,259,179
|
|
|
$
|
7,191,737
|
|
Capital Lease Obligations
|
|
|
10,046
|
|
|
|
19,423
|
|
|
|
54,391
|
|
|
|
33,581
|
|
|
|
117,441
|
|
Operating Leases
|
|
|
67,002
|
|
|
|
108,994
|
|
|
|
71,476
|
|
|
|
188,163
|
|
|
|
435,635
|
|
Purchase Obligations
|
|
|
1,092,699
|
|
|
|
955,771
|
|
|
|
453,787
|
|
|
|
34,394
|
|
|
|
2,536,651
|
|
Other Long Term Liabilities
Recorded on the Balance Sheet
|
|
|
75,615
|
|
|
|
192,621
|
|
|
|
181,990
|
|
|
|
158,947
|
|
|
|
609,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,783,598
|
|
|
$
|
2,798,009
|
|
|
$
|
2,634,766
|
|
|
$
|
3,674,264
|
|
|
$
|
10,890,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
24
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.
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.
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)
|
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
|
(Dollars in millions)
|
|
|
Purpose of Hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany cash flows
|
|
$
|
1,010
|
|
|
$
|
652
|
|
|
$
|
(3.8
|
)
|
|
$
|
5.4
|
|
Forecasted purchases of raw
materials and finished goods and foreign currency denominated
obligations
|
|
|
360
|
|
|
|
346
|
|
|
|
(3.2
|
)
|
|
|
(1.3
|
)
|
Forecasted sales and foreign
currency denominated assets
|
|
|
136
|
|
|
|
153
|
|
|
|
8.2
|
|
|
|
(4.3
|
)
|
Net investments in foreign
operations
|
|
|
1,964
|
|
|
|
1,855
|
|
|
|
(72.9
|
)
|
|
|
(42.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,470
|
|
|
$
|
3,006
|
|
|
$
|
(71.7
|
)
|
|
$
|
(42.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 2, 2007, 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.
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 8 Financial Statements and
Supplementary Data.)
25
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 $4.9 billion and $4.4 billion at
May 2, 2007 and May 3, 2006, respectively. The
Companys debt obligations are summarized in Note 8,
Debt in Item 8 Financial
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 May 2, 2007, a
variance of 1/8% in the related interest rate would cause annual
interest expense related to this debt to change by approximately
$3.4 million. The following table presents additional
information related to interest rate contracts designated as
fair value hedges by the Company:
|
|
|
|
|
|
|
|
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
|
(Dollars in millions)
|
|
|
Pay floating swapsnotional
amount
|
|
$
|
2,588.4
|
|
|
$
|
2,615.4
|
|
Net unrealized gains/(losses)
|
|
$
|
71.2
|
|
|
$
|
(1.4
|
)
|
Weighted average maturity (years)
|
|
|
8.9
|
|
|
|
10.0
|
|
Weighted average receive rate
|
|
|
6.37
|
%
|
|
|
6.37
|
%
|
Weighted average pay rate
|
|
|
6.35
|
%
|
|
|
5.07
|
%
|
The Company had interest rate contracts with a total notional
amount of $107.6 million at May 2, 2007 and
May 3, 2006 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 two years
from the current fiscal year-end. Net unrealized losses related
to these interest rate contracts totaled $2.3 million and
$4.4 million at May 2, 2007 and May 3, 2006,
respectively.
Effect of Hypothetical 10% Fluctuation in Market
Prices: As of May 2, 2007, 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
|
|
$
|
329
|
|
Interest rate swap contracts
|
|
$
|
81
|
|
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.
Recently
Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plansan amendment of FASB Statements No. 87, 88, 106
and 132(R). Among other things, SFAS No. 158 requires an
employer to record non-cash adjustments to recognize the funded
status of each of its defined pension and postretirement benefit
plans as a net asset or liability in its statement of financial
position with an offsetting amount in accumulated other
comprehensive income, and to recognize changes in that
26
funded status in the year in which changes occur through
comprehensive income. The Company adopted the recognition and
related disclosure provisions of SFAS No. 158 on
May 2, 2007. As a result of this adoption, the current
funded status of the Companys defined benefit pension
plans and other postretirement benefit plans is reflected in the
Companys consolidated balance sheet as of May 2,
2007. Refer to Note 2 in Item 8Financial
Statements and Supplementary Data.
In July 2006, the 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
required to be adopted by the Company in the first quarter of
fiscal 2008. The cumulative effect of applying FIN 48, if
any, is to be reported as an adjustment to the opening balance
of retained earnings in the year of adoption. The Company is
currently evaluating the impact of adopting FIN 48 in the
first quarter of Fiscal 2008.
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 authorized 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
27
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 market devaluation and
inflation which are developed in connection with the
Companys longer-term strategic planning. As each is
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, in
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. 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 longer-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
statistical 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
Companys actuarial consultants use best estimate
assumptions 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 of $31.6 million,
$77.1 million and $65.6 million for fiscal years 2007,
2006 and 2005 respectively, which reflected expected return on
plan assets of $198.5 million, $169.0 million and
$168.4 million, respectively. The Company contributed
$62.5 million in Fiscal 2007 compared to $64.6 million
in Fiscal 2006 and $39.9 million in Fiscal 2005. The
Company expects to contribute approximately $55 million to
its pension plans in Fiscal 2008.
28
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 May 2, 2007, May 3, 2006 and
April 27, 2005. For purposes of calculating Fiscal 2008
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 that 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 discount rate used to measure
the projected benefit obligation for the year ending May 2,
2007 increased slightly to 5.5% from 5.3% as of May 3, 2006.
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
$633.5 million at May 2, 2007. During 2007, the
deferred loss amount was positively impacted by an increase in
the average discount rate offset partially by actual asset
returns 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 postretirement health care benefit obligation at May 2,
2007 was determined using an average initial health care trend
rate of 8.7% which gradually decreases to an average ultimate
rate of 4.9% in 2015. 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
$1.6 million and increase the benefit obligation by
$17.7 million. A one percentage point decrease in the
assumed health care cost trend rates would decrease the service
and interest cost by $1.4 million and decrease the benefit
obligation by $15.9 million.
Sensitivity
of Assumptions
If we assumed a 100 basis point change in the following
assumptions, our Fiscal 2007 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
|
|
$
|
(332.2
|
)
|
|
$
|
384.8
|
|
Discount rate used in determining
net pension expense
|
|
$
|
(27.7
|
)
|
|
$
|
30.8
|
|
Long-term rate of return on assets
used in determining net pension expense
|
|
$
|
(27.3
|
)
|
|
$
|
27.3
|
|
Other benefits
|
|
|
|
|
|
|
|
|
Discount rate used in determining
projected benefit obligation
|
|
$
|
(21.6
|
)
|
|
$
|
21.9
|
|
Discount rate used in determining
net benefit expense
|
|
$
|
(2.8
|
)
|
|
$
|
3.2
|
|
29
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
its tax positions. The Company establishes reserves when it
becomes probable that a tax return position that it considers
supportable may be challenged and that the Company may not
succeed in completely defending that challenge. The Company
adjusts these reserves in light of changing facts and
circumstances, such as the settlement of a tax audit. The
Companys annual tax rate includes the impact of reserve
provisions and changes to reserves. While it is often difficult
to predict the final outcome or the timing of resolution of any
particular tax matter, the Company believes that its reserves
reflect the probable outcome of known tax contingencies.
Favorable resolution would be recognized as a reduction to the
Companys annual tax rate in the year of resolution. The
Companys tax reserves 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.
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.
Inflation
In general, costs are affected by inflation and the effects of
inflation may be experienced by the Company in future periods.
Management believes, however, that such effects have not been
material to the Company during the past three years in the
United States or in foreign non-hyperinflationary countries. 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.
The impact of inflation on both the Companys financial
position and results of operations is not expected to adversely
affect Fiscal 2008 results. The Companys financial
position continues to remain strong, enabling it to meet cash
requirements for operations, including anticipated additional
pension plan contributions, capital expansion programs and
dividends to shareholders.
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, 2007 approximated 39,000. The closing price of the
common stock on The New York Stock Exchange composite listing on
May 2, 2007 was $46.61.
30
Stock price information for common stock by quarter follows:
|
|
|
|
|
|
|
|
|
|
|
Stock Price Range
|
|
|
|
High
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
First
|
|
$
|
44.15
|
|
|
$
|
39.62
|
|
Second
|
|
|
42.65
|
|
|
|
40.33
|
|
Third
|
|
|
47.16
|
|
|
|
41.78
|
|
Fourth
|
|
|
48.73
|
|
|
|
44.28
|
|
2006
|
|
|
|
|
|
|
|
|
First
|
|
$
|
37.87
|
|
|
$
|
34.87
|
|
Second
|
|
|
37.42
|
|
|
|
34.01
|
|
Third
|
|
|
35.97
|
|
|
|
33.42
|
|
Fourth
|
|
|
42.79
|
|
|
|
33.48
|
|
|
|
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 25 through 26.
31
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
TABLE OF
CONTENTS
|
|
|
|
|
Report of Management on Internal
Control over Financial Reporting
|
|
|
33
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
34
|
|
Consolidated Statements of Income
|
|
|
36
|
|
Consolidated Balance Sheets
|
|
|
37
|
|
Consolidated Statements of
Shareholders Equity
|
|
|
39
|
|
Consolidated Statements of Cash
Flows
|
|
|
40
|
|
Notes to Consolidated Financial
Statements
|
|
|
41
|
|
32
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. Our managements assessment of
the effectiveness of the Companys internal control over
financial reporting as of May 2, 2007 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, 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 21, 2007
33
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
H. J. Heinz Company:
We have completed integrated audits of H. J. Heinz
Companys consolidated financial statements and of its
internal control over financial reporting as of May 2, 2007
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based
on our audits, are presented below.
Consolidated
financial statements and financial statement schedule
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
May 2, 2007 and May 3, 2006, and the results of their
operations and their cash flows for each of the three years in
the period ended May 2, 2007 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. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
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. We believe that our audits provide a reasonable
basis for our opinion.
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.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
the Report of Management on Internal Control over Financial
Reporting appearing under Item 8, that the Company
maintained effective internal control over financial reporting
as of May 2, 2007 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of May 2, 2007, based
on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
34
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
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 21, 2007
35
H. J.
Heinz Company and Subsidiaries
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
April 27, 2005
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
Cost of products sold
|
|
|
5,608,730
|
|
|
|
5,550,364
|
|
|
|
5,069,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,392,900
|
|
|
|
3,093,074
|
|
|
|
3,033,530
|
|
Selling, general and
administrative expenses
|
|
|
1,946,185
|
|
|
|
1,979,462
|
|
|
|
1,752,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,446,715
|
|
|
|
1,113,612
|
|
|
|
1,281,472
|
|
Interest income
|
|
|
41,869
|
|
|
|
33,190
|
|
|
|
26,939
|
|
Interest expense
|
|
|
333,270
|
|
|
|
316,296
|
|
|
|
232,088
|
|
Asset impairment charges for cost
and equity investments
|
|
|
|
|
|
|
110,994
|
|
|
|
73,842
|
|
Other expense, net
|
|
|
30,915
|
|
|
|
26,051
|
|
|
|
14,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
1,124,399
|
|
|
|
693,461
|
|
|
|
987,515
|
|
Provision for income taxes
|
|
|
332,797
|
|
|
|
250,700
|
|
|
|
299,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
791,602
|
|
|
|
442,761
|
|
|
|
688,004
|
|
(Loss)/income from discontinued
operations, net of tax
|
|
|
(5,856
|
)
|
|
|
202,842
|
|
|
|
64,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
785,746
|
|
|
$
|
645,603
|
|
|
$
|
752,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.38
|
|
|
$
|
1.29
|
|
|
$
|
1.95
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
0.59
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2.36
|
|
|
$
|
1.89
|
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingDiluted
|
|
|
332,468
|
|
|
|
342,121
|
|
|
|
353,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.41
|
|
|
$
|
1.31
|
|
|
$
|
1.97
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
0.60
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2.39
|
|
|
$
|
1.90
|
|
|
$
|
2.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingBasic
|
|
|
328,625
|
|
|
|
339,102
|
|
|
|
350,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
1.40
|
|
|
$
|
1.20
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
36
H. J.
Heinz Company and Subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
652,896
|
|
|
$
|
445,427
|
|
Receivables (net of allowances:
2007$14,706 and 2006 $16,988)
|
|
|
996,852
|
|
|
|
1,002,125
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods and
work-in-process
|
|
|
943,449
|
|
|
|
817,037
|
|
Packing material and ingredients
|
|
|
254,508
|
|
|
|
256,645
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
1,197,957
|
|
|
|
1,073,682
|
|
Prepaid expenses
|
|
|
132,561
|
|
|
|
139,714
|
|
Other current assets
|
|
|
38,736
|
|
|
|
42,987
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,019,002
|
|
|
|
2,703,935
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
51,950
|
|
|
|
55,167
|
|
Buildings and leasehold
improvements
|
|
|
788,053
|
|
|
|
762,735
|
|
Equipment, furniture and other
|
|
|
3,214,860
|
|
|
|
2,946,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,054,863
|
|
|
|
3,764,476
|
|
Less accumulated depreciation
|
|
|
2,056,710
|
|
|
|
1,863,919
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and
equipment, net
|
|
|
1,998,153
|
|
|
|
1,900,557
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,834,639
|
|
|
|
2,822,567
|
|
Trademarks, net
|
|
|
892,749
|
|
|
|
776,857
|
|
Other intangibles, net
|
|
|
412,484
|
|
|
|
269,564
|
|
Other non-current assets
|
|
|
875,999
|
|
|
|
1,264,287
|
|
|
|
|
|
|
|
|
|
|
Total other non-current assets
|
|
|
5,015,871
|
|
|
|
5,133,275
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,033,026
|
|
|
$
|
9,737,767
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
37
H. J.
Heinz Company and Subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Liabilities and
Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
165,054
|
|
|
$
|
54,052
|
|
Portion of long-term debt due
within one year
|
|
|
303,189
|
|
|
|
917
|
|
Accounts payable
|
|
|
1,181,078
|
|
|
|
1,035,084
|
|
Salaries and wages
|
|
|
85,818
|
|
|
|
84,815
|
|
Accrued marketing
|
|
|
262,217
|
|
|
|
216,267
|
|
Other accrued liabilities
|
|
|
414,130
|
|
|
|
476,683
|
|
Income taxes
|
|
|
93,620
|
|
|
|
150,413
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,505,106
|
|
|
|
2,018,231
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and other
liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
4,413,641
|
|
|
|
4,357,013
|
|
Deferred income taxes
|
|
|
463,666
|
|
|
|
518,724
|
|
Non-pension postretirement benefits
|
|
|
253,117
|
|
|
|
207,840
|
|
Minority interest
|
|
|
98,309
|
|
|
|
120,152
|
|
Other liabilities
|
|
|
457,504
|
|
|
|
466,984
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and other
liabilities
|
|
|
5,686,237
|
|
|
|
5,670,713
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Capital stock:
|
|
|
|
|
|
|
|
|
Third cumulative preferred, $1.70
first series, $10 par value*
|
|
|
77
|
|
|
|
82
|
|
Common stock,
431,096,486 shares issued, $0.25 par value
|
|
|
107,774
|
|
|
|
107,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,851
|
|
|
|
107,856
|
|
Additional capital
|
|
|
580,606
|
|
|
|
502,235
|
|
Retained earnings
|
|
|
5,778,617
|
|
|
|
5,454,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,467,074
|
|
|
|
6,064,199
|
|
Less:
|
|
|
|
|
|
|
|
|
Treasury shares, at cost
(109,317,154 shares at May 2, 2007 and
100,339,405 shares at May 3, 2006)
|
|
|
4,406,126
|
|
|
|
3,852,220
|
|
Unearned compensation
|
|
|
|
|
|
|
32,773
|
|
Accumulated other comprehensive
loss
|
|
|
219,265
|
|
|
|
130,383
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,841,683
|
|
|
|
2,048,823
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
10,033,026
|
|
|
$
|
9,737,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
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 May 2, 2007, 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
38
H. J.
Heinz Company and Subsidiaries
Consolidated
Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
April 27, 2005
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
|
(Amounts in thousands, expect per share amounts)
|
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
8
|
|
|
$
|
82
|
|
|
|
9
|
|
|
$
|
83
|
|
|
|
10
|
|
|
$
|
94
|
|
Conversion of preferred into common
stock
|
|
|
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
8
|
|
|
|
77
|
|
|
|
8
|
|
|
|
82
|
|
|
|
9
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized shares- May 2, 2007
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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- May 2, 2007
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
502,235
|
|
|
|
|
|
|
|
430,073
|
|
|
|
|
|
|
|
403,043
|
|
Conversion of preferred into common
stock
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
(350
|
)
|
Stock options exercised, net of
shares tendered for payment
|
|
|
|
|
|
|
79,735
|
|
|
|
|
|
|
|
46,861
|
|
|
|
|
|
|
|
27,030
|
|
Stock option expense
|
|
|
|
|
|
|
11,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock unit activity
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
21,958
|
|
|
|
|
|
|
|
(7,051
|
)
|
Transfer of unearned compensation
balance per SFAS No. 123R
|
|
|
|
|
|
|
(32,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net*
|
|
|
|
|
|
|
3,613
|
|
|
|
|
|
|
|
3,375
|
|
|
|
|
|
|
|
7,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
580,606
|
|
|
|
|
|
|
|
502,235
|
|
|
|
|
|
|
|
430,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
5,454,108
|
|
|
|
|
|
|
|
5,210,748
|
|
|
|
|
|
|
|
4,856,918
|
|
Net income
|
|
|
|
|
|
|
785,746
|
|
|
|
|
|
|
|
645,603
|
|
|
|
|
|
|
|
752,699
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred (per share $1.70 per
share in 2007, 2006 and 2005)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(15
|
)
|
Common (per share $1.40, $1.20, and
$1.14 in 2007, 2006, and 2005 respectively)
|
|
|
|
|
|
|
(461,224
|
)
|
|
|
|
|
|
|
(408,137
|
)
|
|
|
|
|
|
|
(398,854
|
)
|
Other, net*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
5,778,617
|
|
|
|
|
|
|
|
5,454,108
|
|
|
|
|
|
|
|
5,210,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(100,339
|
)
|
|
|
(3,852,220
|
)
|
|
|
(83,419
|
)
|
|
|
(3,140,586
|
)
|
|
|
(79,139
|
)
|
|
|
(2,927,839
|
)
|
Shares reacquired
|
|
|
(16,651
|
)
|
|
|
(760,686
|
)
|
|
|
(21,925
|
)
|
|
|
(823,370
|
)
|
|
|
(7,825
|
)
|
|
|
(291,348
|
)
|
Conversion of preferred into common
stock
|
|
|
7
|
|
|
|
195
|
|
|
|
1
|
|
|
|
33
|
|
|
|
16
|
|
|
|
361
|
|
Stock options exercised, net of
shares tendered for payment
|
|
|
7,265
|
|
|
|
195,117
|
|
|
|
4,575
|
|
|
|
101,945
|
|
|
|
2,845
|
|
|
|
62,669
|
|
Restricted stock unit activity
|
|
|
96
|
|
|
|
2,438
|
|
|
|
58
|
|
|
|
1,303
|
|
|
|
251
|
|
|
|
5,724
|
|
Other, net*
|
|
|
305
|
|
|
|
9,030
|
|
|
|
371
|
|
|
|
8,455
|
|
|
|
433
|
|
|
|
9,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(109,317
|
)
|
|
|
(4,406,126
|
)
|
|
|
(100,339
|
)
|
|
|
(3,852,220
|
)
|
|
|
(83,419
|
)
|
|
|
(3,140,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNEARNED COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
(32,773
|
)
|
|
|
|
|
|
|
(31,141
|
)
|
|
|
|
|
|
|
(32,275
|
)
|
Restricted stock unit activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,195
|
)
|
|
|
|
|
|
|
2,123
|
|
Transfer of balance to additional
capital per SFAS No. 123R
|
|
|
|
|
|
|
32,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
|
|
|
|
(989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,773
|
)
|
|
|
|
|
|
|
(31,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE
INCOME/(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
(130,383
|
)
|
|
|
|
|
|
|
25,622
|
|
|
|
|
|
|
|
(513,526
|
)
|
Minimum pension liability (net of
$4,167 tax expense, $3,306 tax benefit, and $116,117 tax expense
in 2007, 2006 and 2005 respectively)
|
|
|
|
|
|
|
8,041
|
|
|
|
|
|
|
|
(8,583
|
)
|
|
|
|
|
|
|
273,934
|
|
Unrealized translation adjustments
(net of $29,635 tax benefit, $11,912 tax benefit, and $32,768
tax expense in 2007, 2006 and 2005 respectively)
|
|
|
|
|
|
|
293,673
|
|
|
|
|
|
|
|
(147,746
|
)
|
|
|
|
|
|
|
263,585
|
|
Net change in fair value of cash
flow hedges (net of $4,423 tax expense in 2007)
|
|
|
|
|
|
|
(3,401
|
)
|
|
|
|
|
|
|
8,236
|
|
|
|
|
|
|
|
23,754
|
|
Net hedging losses/(gains)
reclassified into earnings (net of $6,163 tax benefit, $5,915
tax expense, and $14,556 tax expense in 2007, 2006 and 2005
respectively)
|
|
|
|
|
|
|
11,239
|
|
|
|
|
|
|
|
(7,912
|
)
|
|
|
|
|
|
|
(22,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
adjustments
|
|
|
|
|
|
|
309,552
|
|
|
|
|
|
|
|
(156,005
|
)
|
|
|
|
|
|
|
539,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial adoption of SFAS
No. 158, net of $182,530 tax benefit
|
|
|
|
|
|
|
(398,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
(219,265
|
)
|
|
|
|
|
|
|
(130,383
|
)
|
|
|
|
|
|
|
25,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS
EQUITY
|
|
|
|
|
|
$
|
1,841,683
|
|
|
|
|
|
|
$
|
2,048,823
|
|
|
|
|
|
|
$
|
2,602,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
785,746
|
|
|
|
|
|
|
$
|
645,603
|
|
|
|
|
|
|
$
|
752,699
|
|
Net other comprehensive income
adjustments
|
|
|
|
|
|
|
309,552
|
|
|
|
|
|
|
|
(156,005
|
)
|
|
|
|
|
|
|
539,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME
|
|
|
|
|
|
$
|
1,095,298
|
|
|
|
|
|
|
$
|
489,598
|
|
|
|
|
|
|
$
|
1,291,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
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 $248,138, minimum pension liability of $(72,183),
deferred net gains on derivative financial instruments $3,214,
and initial adoption of SFAS No. 158 $(398,434).
|
See Notes to Consolidated Financial Statements
39
H. J.
Heinz Company and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
785,746
|
|
|
$
|
645,603
|
|
|
$
|
752,699
|
|
Adjustments to reconcile net
income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
233,374
|
|
|
|
227,454
|
|
|
|
227,187
|
|
Amortization
|
|
|
32,823
|
|
|
|
36,384
|
|
|
|
25,265
|
|
Deferred tax provision/(benefit)
|
|
|
52,244
|
|
|
|
(57,693
|
)
|
|
|
53,857
|
|
(Gains)/losses on disposals and
impairment charges
|
|
|
(1,391
|
)
|
|
|
48,023
|
|
|
|
100,818
|
|
Other items, net
|
|
|
11,066
|
|
|
|
39,066
|
|
|
|
43,989
|
|
Changes in current assets and
liabilities, excluding effects of acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
10,987
|
|
|
|
115,583
|
|
|
|
45,851
|
|
Inventories
|
|
|
(82,534
|
)
|
|
|
(47,401
|
)
|
|
|
(25,315
|
)
|
Prepaid expenses and other current
assets
|
|
|
14,208
|
|
|
|
13,555
|
|
|
|
2,633
|
|
Accounts payable
|
|
|
56,524
|
|
|
|
56,545
|
|
|
|
8,140
|
|
Accrued liabilities
|
|
|
(4,489
|
)
|
|
|
57,353
|
|
|
|
25,077
|
|
Income taxes
|
|
|
(46,270
|
)
|
|
|
(59,511
|
)
|
|
|
(99,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities
|
|
|
1,062,288
|
|
|
|
1,074,961
|
|
|
|
1,160,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(244,562
|
)
|
|
|
(230,577
|
)
|
|
|
(240,671
|
)
|
Proceeds from disposals of
property, plant and equipment
|
|
|
60,661
|
|
|
|
19,373
|
|
|
|
22,252
|
|
Acquisitions, net of cash acquired
|
|
|
(88,996
|
)
|
|
|
(1,100,436
|
)
|
|
|
(126,549
|
)
|
Net (payments)/proceeds related to
divestitures
|
|
|
(4,144
|
)
|
|
|
856,729
|
|
|
|
51,150
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
(293,475
|
)
|
Sales of short-term investments
|
|
|
|
|
|
|
|
|
|
|
333,475
|
|
Other items, net
|
|
|
(49,203
|
)
|
|
|
3,094
|
|
|
|
(10,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for investing activities
|
|
|
(326,244
|
)
|
|
|
(451,817
|
)
|
|
|
(264,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(52,069
|
)
|
|
|
(727,772
|
)
|
|
|
(480,471
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
|
230,790
|
|
|
|
|
|
Net proceeds from commercial paper
and short-term debt
|
|
|
384,055
|
|
|
|
298,525
|
|
|
|
26,468
|
|
Dividends
|
|
|
(461,237
|
)
|
|
|
(408,151
|
)
|
|
|
(398,869
|
)
|
Purchase of treasury stock
|
|
|
(760,686
|
)
|
|
|
(823,370
|
)
|
|
|
(291,348
|
)
|
Exercise of stock options
|
|
|
259,816
|
|
|
|
142,046
|
|
|
|
79,383
|
|
Other items, net
|
|
|
9,212
|
|
|
|
18,507
|
|
|
|
13,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(620,909
|
)
|
|
|
(1,269,425
|
)
|
|
|
(1,050,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities of discontinued operations spun-off to Del Monte
|
|
|
33,511
|
|
|
|
13,312
|
|
|
|
28,196
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
58,823
|
|
|
|
(5,353
|
)
|
|
|
69,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash
and cash equivalents
|
|
|
207,469
|
|
|
|
(638,322
|
)
|
|
|
(56,290
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
445,427
|
|
|
|
1,083,749
|
|
|
|
1,140,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
652,896
|
|
|
$
|
445,427
|
|
|
$
|
1,083,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
40
H. J.
Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements
|
|
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
May 2, 2007, May 3, 2006 and April 27, 2005.
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. The Company has no material investments in variable
interest entities. 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 down the Zimbabwe
investment related to managements determination that this
investment was not a core business and, as a consequence, the
Company would explore strategic options to exit this business.
The Company is still exploring such options. 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, instability in the
local currency and the uncertainty regarding the ability to
source raw material in the future.
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
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.
41
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
software3-7 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 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 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.
42
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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 realized, a valuation allowance is recognized.
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.
43
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Had compensation cost for the Companys stock option plan
been determined in the prior years 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:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(In thousands,
|
|
|
|
except per share amounts)
|
|
|
Income from continuing operations:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
442,761
|
|
|
$
|
688,004
|
|
Fair value-based expense, net of
tax
|
|
|
12,333
|
|
|
|
17,846
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
430,428
|
|
|
$
|
670,158
|
|
|
|
|
|
|
|
|
|
|
Income per common share from
continuing operations:
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.29
|
|
|
$
|
1.95
|
|
Pro forma
|
|
$
|
1.26
|
|
|
$
|
1.90
|
|
Basic
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.31
|
|
|
$
|
1.97
|
|
Pro forma
|
|
$
|
1.27
|
|
|
$
|
1.91
|
|
Financial
Instruments:
The Companys financial instruments consist primarily of
cash and cash equivalents, 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 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. The cash flows related to derivative
instruments 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 as a component of other items, net.
|
|
2.
|
Recently
Issued Accounting Standards
|
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plansan
44
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
amendment of FASB Statements No. 87, 88, 106 and 132(R).
Among other things, SFAS No. 158 requires an employer
to record non-cash adjustments to recognize the funded status of
each of its defined pension and postretirement benefit plans as
a net asset or liability in its statement of financial position
with an offsetting amount in accumulated other comprehensive
income, and to recognize changes in that funded status in the
year in which changes occur through comprehensive income. The
following table reflects the effects of the adoption of
SFAS No. 158 on the Companys consolidated
balance sheet as of May 2, 2007. See the related footnote
disclosures in Notes 11 and 12.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application
|
|
|
|
|
|
After Application
|
|
|
|
of SFAS No. 158
|
|
|
Adjustments
|
|
|
of SFAS No. 158
|
|
|
|
(Dollars in thousands)
|
|
|
Total other non-current assets
|
|
$
|
5,521,506
|
|
|
$
|
(505,635
|
)
|
|
$
|
5,015,871
|
|
Total assets
|
|
$
|
10,538,661
|
|
|
$
|
(505,635
|
)
|
|
$
|
10,033,026
|
|
Total current liabilities
|
|
$
|
2,494,871
|
|
|
$
|
10,235
|
|
|
$
|
2,505,106
|
|
Deferred income taxes
|
|
$
|
646,196
|
|
|
$
|
(182,530
|
)
|
|
$
|
463,666
|
|
Other liabilities
|
|
$
|
392,410
|
|
|
$
|
65,094
|
|
|
$
|
457,504
|
|
Total long-term debt and other
liabilities
|
|
$
|
5,803,673
|
|
|
$
|
(117,436
|
)
|
|
$
|
5,686,237
|
|
Accumulated other comprehensive
income/(loss)
|
|
$
|
179,169
|
|
|
$
|
(398,434
|
)
|
|
$
|
(219,265
|
)
|
Total shareholders equity
|
|
$
|
2,240,117
|
|
|
$
|
(398,434
|
)
|
|
$
|
1,841,683
|
|
Total liabilities and
shareholders equity
|
|
$
|
10,538,661
|
|
|
$
|
(505,635
|
)
|
|
$
|
10,033,026
|
|
In July 2006, the 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
required to be adopted by the Company in the first quarter of
fiscal 2008. The cumulative effect of applying FIN 48, if
any, is to be reported as an adjustment to the opening balance
of retained earnings in the year of adoption. The Company is
currently evaluating the impact of adopting FIN 48 in the
first quarter of Fiscal 2008.
|
|
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 are 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 for all
periods presented. The Company recorded a loss of
$3.3 million ($5.9 million after-tax) from these
businesses for the year ended May 2, 2007,
45
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
primarily resulting from purchase price adjustments pursuant to
the transaction agreements. These discontinued operations
generated sales of $688.0 million (partial year) and
$808.8 million and net income of $169.1 million (net
of $90.2 million in tax expense) and $47.8 million
(net of $23.3 million in tax expense) for the years ended
May 3, 2006 and April 27, 2005, respectively.
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 and
$16.9 million for the years ended May 3, 2006 and
April 27, 2005, respectively.
|
|
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.
Other
Divestitures/Impairment Charges:
The following gains/(losses) 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
46
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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. The Company also recorded a $9.3 million non-cash
charge in the third quarter of Fiscal 2005 to recognize the
impairment of a cost-basis investment in a grocery industry
sponsored
e-commerce
business venture. 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.
In the fourth quarter of Fiscal 2005, the Company recognized a
non-cash asset impairment charge of $27.0 million pre-tax
($18.0 million after-tax) related to the
HAK®
vegetable product line which was sold in Fiscal 2006.
There were no material gains/(losses) on divested businesses or
asset impairment charges in Fiscal 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 $17.3 million, of which $24.4 million
of expense was recorded in continuing operations and
$7.1 million was a benefit in discontinued operations.
During Fiscal 2007, the Company acquired Renées
Gourmet Foods, a Canadian manufacturer of premium chilled salad
dressings, sauces, dips, marinades and mayonnaise, for
approximately $68.1 million. In addition, during Fiscal
2007, the Company acquired the remaining interest in its
Petrosoyuz joint venture for approximately $15.0 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 &
Perrin®
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
|
47
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
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.
The Company made several acquisitions in Fiscal 2005 for a total
purchase price of $132.1 million, none of which were
individually significant. The acquisitions included Shanghai
LongFong Foods, a maker of frozen Chinese snacks and desserts,
Appetizers And, Inc., a manufacturer and marketer of high
quality, frozen hors doeuvres sold primarily to the
U.S. foodservice industry, and certain assets from ABAL,
S.A. de C.V., a Mexican foodservice company.
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.
|
|
6.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the fiscal year
ended May 2, 2007, by reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
Rest
|
|
|
|
|
|
|
Consumer
|
|
|
U.S.
|
|
|
|
|
|
Asia/
|
|
|
of
|
|
|
|
|
|
|
Products
|
|
|
Foodservice
|
|
|
Europe
|
|
|
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
|
|
Acquisitions
|
|
|
35,694
|
|
|
|
|
|
|
|
1,209
|
|
|
|
414
|
|
|
|
|
|
|
|
37,317
|
|
Purchase accounting adjustments
|
|
|
(21,706
|
)
|
|
|
(15,216
|
)
|
|
|
(103,144
|
)
|
|
|
|
|
|
|
633
|
|
|
|
(139,433
|
)
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
(2,463
|
)
|
Translation adjustments
|
|
|
(42
|
)
|
|
|
|
|
|
|
96,209
|
|
|
|
21,578
|
|
|
|
(1,094
|
)
|
|
|
116,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 2, 2007
|
|
$
|
1,081,673
|
|
|
$
|
262,823
|
|
|
$
|
1,259,514
|
|
|
$
|
214,964
|
|
|
$
|
15,665
|
|
|
$
|
2,834,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The annual impairment tests are performed in the fourth quarter
of each fiscal year unless events suggest an impairment may have
occurred in the interim.
48
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
During Fiscal 2007 the Company acquired Renées
Gourmet Foods and the remaining interest in its Petrosoyuz joint
venture. Also during Fiscal 2007, the Company finalized the
purchase price allocations for the acquisitions of HP Foods,
Nancys Specialty Foods, Kabobs, Inc., and
Renées Gourmet Foods, resulting in adjustments
primarily between goodwill, trademarks, other intangible assets,
and deferred income taxes.
Trademarks and other intangible assets at May 2, 2007 and
May 3, 2006, subject to amortization expense, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2007
|
|
|
May 3, 2006
|
|
|
|
Gross
|
|
|
Accum Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Accum Amort
|
|
|
Net
|
|
|
|
(Thousands of dollars)
|
|
|
Trademarks
|
|
$
|
196,703
|
|
|
$
|
(63,110
|
)
|
|
$
|
133,593
|
|
|
$
|
197,957
|
|
|
$
|
(61,279
|
)
|
|
$
|
136,678
|
|
Licenses
|
|
|
208,186
|
|
|
|
(135,349
|
)
|
|
|
72,837
|
|
|
|
208,186
|
|
|
|
(129,630
|
)
|
|
|
78,556
|
|
Recipes/processes
|
|
|
64,315
|
|
|
|
(15,779
|
)
|
|
|
48,536
|
|
|
|
95,456
|
|
|
|
(14,079
|
)
|
|
|
81,377
|
|
Customer related assets
|
|
|
152,668
|
|
|
|
(19,183
|
)
|
|
|
133,485
|
|
|
|
105,510
|
|
|
|
(11,507
|
)
|
|
|
94,003
|
|
Other
|
|
|
70,386
|
|
|
|
(56,344
|
)
|
|
|
14,042
|
|
|
|
70,832
|
|
|
|
(55,204
|
)
|
|
|
15,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
692,258
|
|
|
$
|
(289,765
|
)
|
|
$
|
402,493
|
|
|
$
|
677,941
|
|
|
$
|
(271,699
|
)
|
|
$
|
406,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for trademarks and other intangible assets
subject to amortization was $25.7 million,
$27.6 million and $18.0 million for the fiscal years
ended May 2, 2007, May 3, 2006 and April 27,
2005, 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
May 2, 2007, amortization expense for each of the next five
fiscal years is estimated to be approximately $30 million.
Intangible assets not subject to amortization at May 2,
2007 totaled $902.7 million and consisted of
$759.2 million of trademarks, $126.6 million of
recipes/processes, and $16.9 million of licenses.
Intangibles assets not subject to amortization at May 3,
2006 totaled $640.2 million, and consisted solely of
trademarks.
49
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes the provision/(benefit) for
U.S. federal, state and foreign taxes on income from
continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
89,020
|
|
|
$
|
71,533
|
|
|
$
|
68,905
|
|
State
|
|
|
9,878
|
|
|
|
14,944
|
|
|
|
9,128
|
|
Foreign
|
|
|
181,655
|
|
|
|
225,498
|
|
|
|
169,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,553
|
|
|
|
311,975
|
|
|
|
247,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
104,113
|
|
|
|
(54,957
|
)
|
|
|
45,020
|
|
State
|
|
|
5,444
|
|
|
|
3,015
|
|
|
|
3,144
|
|
Foreign
|
|
|
(57,313
|
)
|
|
|
(9,333
|
)
|
|
|
3,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,244
|
|
|
|
(61,275
|
)
|
|
|
51,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
332,797
|
|
|
$
|
250,700
|
|
|
$
|
299,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits related to stock options and other equity
instruments recorded directly to additional capital totaled
$15.5 million in Fiscal 2007, $6.7 million in Fiscal
2006 and $10.5 million in Fiscal 2005.
The components of income from continuing operations before
income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Domestic
|
|
$
|
293,580
|
|
|
$
|
87,409
|
|
|
$
|
385,926
|
|
Foreign
|
|
|
830,819
|
|
|
|
606,052
|
|
|
|
601,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
1,124,399
|
|
|
$
|
693,461
|
|
|
$
|
987,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the U.S. federal statutory tax rate
and the Companys consolidated effective tax rate on
continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S. federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Tax on income of foreign
subsidiaries
|
|
|
(5.4
|
)
|
|
|
(3.6
|
)
|
|
|
(5.3
|
)
|
State income taxes (net of federal
benefit)
|
|
|
1.0
|
|
|
|
1.8
|
|
|
|
0.9
|
|
Earnings repatriation
|
|
|
9.6
|
|
|
|
4.3
|
|
|
|
(0.5
|
)
|
Reduction of tax reserves for
statute of limitations expiration
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
Effects of revaluation of tax
basis of foreign assets
|
|
|
(4.6
|
)
|
|
|
(2.3
|
)
|
|
|
(2.6
|
)
|
Other
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
29.6
|
%
|
|
|
36.2
|
%
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in the effective tax rate in Fiscal 2007 is
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
50
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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 Fiscal 2005 effective tax rate
was favorably impacted by changes to the capital structure in
certain foreign subsidiaries, tax credits resulting from tax
planning associated with a change in certain foreign tax
legislation, reduction of the charge associated with remittance
of foreign dividends and the settlement of tax audits, partially
offset by impairment charges for Hain, an
e-commerce
business venture, and other operating losses for which no tax
benefit can currently be recorded.
The following table and note summarize deferred tax (assets) and
deferred tax liabilities as of May 2, 2007 and May 3,
2006.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Depreciation/amortization
|
|
$
|
634,192
|
|
|
$
|
582,543
|
|
Benefit plans
|
|
|
43,632
|
|
|
|
155,052
|
|
Other
|
|
|
39,377
|
|
|
|
47,314
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities
|
|
|
717,201
|
|
|
|
784,909
|
|
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
|
(41,210
|
)
|
|
|
(70,192
|
)
|
Benefit plans
|
|
|
(198,011
|
)
|
|
|
(140,810
|
)
|
Depreciation/amortization
|
|
|
(53,722
|
)
|
|
|
(821
|
)
|
Tax credit carryforwards
|
|
|
(851
|
)
|
|
|
(54,897
|
)
|
Other
|
|
|
(72,593
|
)
|
|
|
(92,471
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
(366,387
|
)
|
|
|
(359,191
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
44,935
|
|
|
|
30,950
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax
liabilities
|
|
$
|
395,749
|
|
|
$
|
456,668
|
|
|
|
|
|
|
|
|
|
|
The Company also has foreign deferred tax assets and valuation
allowances of $143.6 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.
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 2007 valuation allowance shown
above is 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 are not expected
to be utilized prior to their expiration date. The net change in
the Fiscal 2006 valuation allowance shown above is a decrease of
$39.3 million. The decrease was primarily due to the
reversal of valuation allowances of $27.3 million in
continuing
51
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
operations related to the non-cash asset impairment charges
recorded in Fiscal 2005 on the cost and equity investments
discussed above. The net change in the Fiscal 2005 valuation
allowance was an increase of $50.6 million. The increase
was primarily due to increases in the valuation allowance
related to additional deferred tax assets for loss carryforwards
of $43.8 million.
At the end of Fiscal 2007, foreign operating loss carryforwards
totaled $119.5 million. Of that amount, $46.1 million
expire between 2008 and 2017; the other $73.4 million do
not expire. Deferred tax assets of $11.5 million have been
recorded for state operating loss carryforwards. These losses
expire between 2008 and 2027.
Undistributed earnings of foreign subsidiaries considered to be
indefinitely reinvested amounted to $3.1 billion at
May 2, 2007.
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 $29.6 million related
to this revaluation which was paid during the third quarter of
Fiscal 2007. This revaluation is expected to benefit cash flow
from operations by approximately $100 million over the five
to twenty year tax amortization period.
On May 24, 2007, the U.S. Court of Claims ruled
against the Company in a case in which the Company was seeking a
refund of $42.6 million of federal income tax plus
interest. The refund claim arose from a transaction in Fiscal
1995. Because the refund claim was fully reserved, the adverse
decision will have no impact on the Companys financial
results. The Company is evaluating the decision of the Court in
order to determine if an appeal will be filed.
Short-term debt consisted of bank debt and other borrowings of
$165.1 million and $54.1 million as of May 2,
2007 and May 3, 2006, respectively. The weighted average
interest rate was 5.4% and 5.2% for Fiscal 2007 and Fiscal 2006,
respectively.
The Company maintains a $2 billion credit agreement that
expires in 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 $911 million of foreign lines of credit available at
May 2, 2007.
52
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt was comprised of the following as of May 2,
2007 and May 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial Paper (variable rate)
|
|
$
|
673,604
|
|
|
$
|
408,070
|
|
6.00% U.S. Dollar Notes due March
2008
|
|
|
299,824
|
|
|
|
299,619
|
|
6.226% Heinz Finance Preferred
Stock due July 2008
|
|
|
325,000
|
|
|
|
325,000
|
|
6.625% U.S. Dollar Notes due July
2011
|
|
|
749,563
|
|
|
|
749,457
|
|
6.00% U.S. Dollar Notes due March
2012
|
|
|
632,201
|
|
|
|
631,732
|
|
U.S. Dollar Remarketable
Securities due November 2020
|
|
|
800,000
|
|
|
|
800,000
|
|
6.375% U.S. Dollar Debentures due
July 2028
|
|
|
229,842
|
|
|
|
232,656
|
|
6.25% British Pound Notes due
February 2030
|
|
|
247,089
|
|
|
|
228,848
|
|
6.75% U.S. Dollar Notes due March
2032
|
|
|
449,779
|
|
|
|
472,923
|
|
Canadian Dollar Credit Agreement
due October 2010
|
|
|
157,842
|
|
|
|
180,636
|
|
Other U.S. Dollar due June
2011November 2034 (3.007.98%)
|
|
|
59,216
|
|
|
|
9,713
|
|
Other
Non-U.S.
Dollar due March 2022 (weighted average rate of 11.00%)
|
|
|
21,675
|
|
|
|
20,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,645,635
|
|
|
|
4,359,359
|
|
SFAS No. 133 Hedge
Accounting Adjustments (See Note 13)
|
|
|
71,195
|
|
|
|
(1,429
|
)
|
Less portion due within one year
|
|
|
(303,189
|
)
|
|
|
(917
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
4,413,641
|
|
|
$
|
4,357,013
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate on
long-term debt, including the impact of applicable interest rate
swaps
|
|
|
6.14
|
%
|
|
|
5.25
|
%
|
|
|
|
|
|
|
|
|
|
During Fiscal 2007, the Company executed open market debt
repurchases that reduced the notional amounts of its
6.375% notes due 2028 by $3.2 million and its
6.75% notes due 2032 by $23.3 million and terminated
the corresponding interest rate swaps.
In the fourth quarter of Fiscal 2006, the Company paid off
417.9 million of notes ($506.1 million) which
matured on April 10, 2006. During Fiscal 2006, the Company
executed open market debt repurchases that reduced the notional
amounts of its 6% notes due 2012 by $65.5 million, its
6.375% notes due 2028 by $11.5 million, and its
6.75% notes due 2032 by $75 million and terminated the
corresponding interest rate swaps.
The fair value of the debt obligations approximated the recorded
value as of May 2, 2007 and May 3, 2006. Annual
maturities of long-term debt during the next five fiscal years
are $303.2 million in 2008, $328.0 million in 2009,
$676.7 million in 2010, $161.0 million in 2011 and
$1,424.0 million in 2012.
As of May 2, 2007, 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 adoption of SFAS No. 150 required the classification of
Heinz Finances 3,250 mandatorily redeemable preferred
shares to change prospectively from minority interest to
long-term debt. Each
53
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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.
|
|
9.
|
Supplemental
Cash Flows Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Paid During the Year For:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
268,781
|
|
|
$
|
292,285
|
|
|
$
|
226,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
283,431
|
|
|
$
|
326,370
|
|
|
$
|
381,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets
|
|
$
|
108,438
|
|
|
$
|
1,296,379
|
|
|
$
|
187,108
|
|
Liabilities*
|
|
|
19,442
|
|
|
|
192,486
|
|
|
|
48,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
88,996
|
|
|
|
1,103,893
|
|
|
|
138,929
|
|
Less cash acquired
|
|
|
|
|
|
|
3,457
|
|
|
|
12,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisitions
|
|
$
|
88,996
|
|
|
$
|
1,100,436
|
|
|
$
|
126,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes obligations to sellers of $2.0 million,
$5.7 million and $5.5 million in 2007, 2006 and 2005,
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 May 2, 2007, 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
$32.0 million and $11.1 million for the fiscal year
ended May 2, 2007, respectively. Fiscal 2007 includes an
incremental $16.4 million of compensation costs
($10.4 million after-tax or $0.03 impact on both basic and
diluted earnings per share) related to SFAS 123R.
The Company has two plans from which it can issue stock option
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.
Stock
Options:
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
54
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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 SFAS 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 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 years ended May 3, 2006 and April 27, 2005.
Stock options generally require a service period from one to
four years after the date of grant. Awards granted prior to
Fiscal 2004 generally had a requisite service 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 condensed 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, 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 May 2, 2007, 12,967 shares remained available
for issuance under the 2000 Plan. During the fiscal year ended
May 2, 2007, 28,921 shares were forfeited and returned
to the plan. During the fiscal year ended May 2, 2007,
221,597 shares were issued from the 2000 Plan.
A summary of the Companys 2003 Plan at May 2, 2007 is
as follows:
|
|
|
|
|
|
|
2003 Plan
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
Number of shares authorized
|
|
|
18,869
|
|
Number of stock option shares
issued
|
|
|
(2,008
|
)
|
Number of stock option shares
forfeited and returned to the plan
|
|
|
113
|
|
Number of restricted stock units
and restricted stock issued
|
|
|
(2,905
|
)
|
|
|
|
|
|
Shares available for grant as
stock options
|
|
|
14,069
|
|
|
|
|
|
|
55
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
During the second quarter of Fiscal 2007, the Company granted
894,930 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 May 2, 2007,
May 3, 2006 and April 27, 2005 as computed using the
Black-Scholes pricing model was $6.69, $6.66 and $9.33,
respectively. The weighted average assumptions used to estimate
these fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Dividend yield
|
|
|
3.3
|
%
|
|
|
3.2
|
%
|
|
|
3.0
|
%
|
Expected Volatility
|
|
|
17.9
|
%
|
|
|
22.0
|
%
|
|
|
25.4
|
%
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
7.9
|
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
4.0
|
%
|
|
|
4.4
|
%
|
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 and Securities and Exchange Commission Staff
Accounting Bulletin No. 107. 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 28, 2004
|
|
|
37,485
|
|
|
$
|
37.49
|
|
|
$
|
1,405,163
|
|
Options granted
|
|
|
1,587
|
|
|
|
37.04
|
|
|
|
58,779
|
|
Options exercised
|
|
|
(2,845
|
)
|
|
|
27.77
|
|
|
|
(79,008
|
)
|
Options forfeited and returned to
the plan
|
|
|
(763
|
)
|
|
|
36.54
|
|
|
|
(27,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 vested and exercisable at
April 27, 2005
|
|
|
24,161
|
|
|
$
|
38.56
|
|
|
$
|
931,625
|
|
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
|
|
56
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 May 2, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-$35.61
|
|
|
8,470
|
|
|
|
5.0
|
|
|
$
|
33.30
|
|
|
|
7,418
|
|
|
|
4.9
|
|
|
$
|
33.20
|
|
$35.62-$44.77
|
|
|
10,511
|
|
|
|
4.1
|
|
|
|
40.53
|
|
|
|
8,075
|
|
|
|
3.6
|
|
|
|
41.03
|
|
$44.78-$54.00
|
|
|
5,816
|
|
|
|
1.1
|
|
|
|
50.47
|
|
|
|
5,816
|
|
|
|
1.1
|
|
|
|
50.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,797
|
|
|
|
3.7
|
|
|
$
|
40.39
|
|
|
|
21,309
|
|
|
|
3.3
|
|
|
$
|
40.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company received proceeds of $259.8 million,
$142.0 million and $79.4 million from the exercise of
stock options during the fiscal years ended May 2, 2007,
May 3, 2006 and April 27, 2005, respectively. The tax
benefit recognized as a result of stock option exercises was
$15.2 million, $6.7 million and $7.8 million for
the fiscal years ended May 2, 2007, May 3, 2006 and
April 27, 2005, 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 3,
2006
|
|
|
5,970
|
|
|
$
|
7.72
|
|
Options granted
|
|
|
895
|
|
|
|
6.69
|
|
Options vested
|
|
|
(3,362
|
)
|
|
|
8.21
|
|
Options forfeited and returned to
the plan
|
|
|
(15
|
)
|
|
|
7.14
|
|
|
|
|
|
|
|
|
|
|
Unvested options at May 2,
2007
|
|
|
3,488
|
|
|
|
6.98
|
|
|
|
|
|
|
|
|
|
|
As of May 2, 2007 there was $8.8 million of
unrecognized compensation cost related to unvested option awards
under the 2000 and 2003 Plans. 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
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.
Total compensation expense relating to RSUs and restricted stock
was $18.7 million, $21.5 million and
$15.9 million for the fiscal years ended May 2, 2007,
May 3, 2006 and April 27, 2005, respectively.
Unrecognized compensation cost in connection with these grants
totaled $28.4 million, $32.8 million and
$31.1 million at May 2, 2007, May 3, 2006 and
April 27, 2005, respectively. The cost is expected to be
recognized over a weighted-average period of 2.5 years. The
unearned compensation
57
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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 May 2, 2007 is as follows:
|
|
|
|
|
|
|
2003 Plan
|
|
|
|
(Amounts in thousands)
|
|
|
Number of shares authorized
|
|
|
9,440
|
|
Number of shares reserved for
issuance
|
|
|
(3,357
|
)
|
Number of shares forfeited and
returned to the plan
|
|
|
453
|
|
|
|
|
|
|
Shares available for grant
|
|
|
6,536
|
|
|
|
|
|
|
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 3, 2006
|
|
|
1,813
|
|
|
$
|
35.48
|
|
Units and stock granted
|
|
|
364
|
|
|
|
41.88
|
|
Units and stock vested
|
|
|
(131
|
)
|
|
|
36.12
|
|
Units and stock forfeited and
returned to the plan
|
|
|
(21
|
)
|
|
|
37.13
|
|
|
|
|
|
|
|
|
|
|
Unvested units and stock at
May 2, 2007
|
|
|
2,025
|
|
|
|
36.57
|
|
|
|
|
|
|
|
|
|
|
Grants of restricted stock and RSUs were 708,180 and 415,738 for
the fiscal years ended May 3, 2006 and April 27, 2005,
respectively. Restricted stock and RSUs that vested during the
fiscal years ended May 3, 2006 and April 27, 2005 were
70,775 and 392,868, respectively. Restricted stock and RSUs that
were forfeited and returned to the plan were 60,054 and 37,046
for the fiscal years ended May 3, 2006 and April 27,
2005, 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
16.6 million shares during Fiscal 2007.
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 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 three million shares. During the two offering
periods from February 16, 2005 to February 15, 2006,
employees purchased 352,395 shares under the plan. During
the two offering periods from February 16, 2006 to
February 15, 2007, employees purchased 268,224 shares
under the plan. Shares issued under the GSPP are sourced from
available treasury shares.
58
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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
$41 million, $37 million, and $26 million in
Fiscal years 2007, 2006 and 2005 respectively.
Long-Term
Performance Program:
In Fiscal 2007, the Company granted performance awards as
permitted in the Fiscal Year 2003 Stock Incentive Plan, subject
to the achievement of certain performance goals. These
performance awards are tied to the Companys relative Total
Share Holder Return (TSR) Ranking within the defined
Long-term Performance Program (LTPP) Peer Group and
the 2-year
average after-tax Return on Invested Capital (ROIC)
metrics. The Relative TSR metric is based on the two-year return
to shareholders due to dividends and change in stock price
between the starting and ending values. The starting value was
established based on the average of each LTPP Peer Group Company
stock price for the 60 trading days prior to and including
May 3, 2006. The ending value is based on the average of
the 60 days prior to and including the close of the Fiscal
2008 year end, plus dividends paid over the 2 year
performance period. The Fiscal
2007-2008
LTPP will be fully funded if
2-year
cumulative EPS equals or exceeds the predetermined level.
Expense was recorded based on the Companys actual
performance against relative TSR and after-tax ROIC metrics,
using an ending date of May 2, 2007. In Fiscal year 2007,
$14.2 million was recognized in general and administrative
expense under this plan.
Performance
Unit Awards Program:
In Fiscal 2005, the Company granted performance awards as
permitted in the Fiscal Year 2003 Stock Incentive Plan, subject
to the achievement of certain performance goals. These
performance awards were tied to the Companys financial
measures of net income and sales growth over a two-year period.
Awards were payable at the end of the two-year performance
period based upon the Company achieving these targets. Once the
minimum net income target was met, the amount of any award was
dependent upon the level of sales growth of the Company for the
performance period. Expense was recognized based upon
managements estimate of the likelihood of meeting the
performance targets based on current and future expectations of
the Companys performance. In Fiscal years 2006 and 2005,
there was no expense recognized nor incentive paid under this
program.
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.
Effective May 2, 2007, the Company adopted
SFAS No. 158, which requires an employer to record
non-cash adjustments to recognize the funded status of each of
its defined pension and postretirement benefit plans as a net
asset or liability in its statement of financial position with
an offsetting amount in accumulated other comprehensive income,
and to recognize changes in that funded status in the year in
which changes occur through comprehensive income. Additionally,
SFAS No. 158 requires an employer to measure the
funded status of each of its plans as of the date of its
year-end statement of financial position. This provision becomes
effective for the Company in Fiscal 2009. The Company does not
expect the impact of the change in measurement date to have a
59
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
material impact on the financial statements. The incremental
effect of applying SFAS No. 158 on individual line
items in the consolidated balance sheet at May 2, 2007 is
discussed in Note 2.
The following table sets forth the funded status of the
Companys principal defined benefit plans at May 2,
2007 and May 3, 2006.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning
of the year
|
|
$
|
2,601,229
|
|
|
$
|
2,342,701
|
|
Service cost
|
|
|
42,886
|
|
|
|
42,081
|
|
Interest cost
|
|
|
135,984
|
|
|
|
124,064
|
|
Participants contributions
|
|
|
10,347
|
|
|
|
11,078
|
|
Amendments
|
|
|
4,046
|
|
|
|
(10,434
|
)
|
Actuarial loss
|
|
|
21,301
|
|
|
|
139,007
|
|
Acquisitions
|
|
|
|
|
|
|
110,949
|
|
Divestitures
|
|
|
(459
|
)
|
|
|
(33,932
|
)
|
Curtailment
|
|
|
|
|
|
|
(22,863
|
)
|
Settlement
|
|
|
(10,664
|
)
|
|
|
(16,628
|
)
|
Special termination benefits
|
|
|
3,188
|
|
|
|
22,025
|
|
Benefits paid
|
|
|
(143,298
|
)
|
|
|
(115,464
|
)
|
Exchange/other
|
|
|
130,162
|
|
|
|
8,645
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of
the year
|
|
|
2,794,722
|
|
|
|
2,601,229
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the
beginning of the year
|
|
$
|
2,621,220
|
|
|
$
|
2,213,143
|
|
Actual return on plan assets
|
|
|
207,470
|
|
|
|
427,859
|
|
Acquisitions
|
|
|
|
|
|
|
65,187
|
|
Divestitures
|
|
|
(172
|
)
|
|
|
(33,732
|
)
|
Settlement
|
|
|
(10,664
|
)
|
|
|
(16,628
|
)
|
Employer contribution
|
|
|
62,505
|
|
|
|
64,649
|
|
Participants contributions
|
|
|
10,347
|
|
|
|
11,078
|
|
Benefits paid
|
|
|
(143,298
|
)
|
|
|
(115,464
|
)
|
Exchange
|
|
|
141,372
|
|
|
|
5,128
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the
end of the year
|
|
|
2,888,780
|
|
|
|
2,621,220
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
94,058
|
|
|
|
19,991
|
|
Unamortized prior service cost
|
|
|
|
|
|
|
3,981
|
|
Unamortized net actuarial loss
|
|
|
|
|
|
|
645,766
|
|
Unamortized net initial asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
94,058
|
|
|
$
|
669,738
|
|
|
|
|
|
|
|
|
|
|
Amount recognized in the
consolidated balance sheet consists of:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
|
|
|
$
|
733,453
|
|
Accrued benefit liability
|
|
|
|
|
|
|
(185,821
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
122,106
|
|
Noncurrent assets
|
|
|
284,619
|
|
|
|
|
|
Current liabilities
|
|
|
(8,545
|
)
|
|
|
|
|
Noncurrent liabilities
|
|
|
(182,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
94,058
|
|
|
$
|
669,738
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated
other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
633,461
|
|
|
$
|
|
|
Prior service cost
|
|
|
11,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
645,207
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
60
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Amounts in accumulated other
comprehensive loss expected to be recognized as components of
net periodic pension costs in Fiscal 2008 are as follows:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
42,921
|
|
|
$
|
|
|
Negative prior service cost
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
41,828
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit
pension plans was $2,561.1 million at May 2, 2007 and
$2,398.7 million at May 3, 2006. 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 $607.4 million,
$551.2 million and $437.8 million, respectively, as of
May 2, 2007 and $670.7 million, $614.6 million
and $487.3 million, respectively, as of May 3, 2006.
The change in minimum liability included in other comprehensive
loss was a decrease of $12.2 million at May 2, 2007
and an increase of $11.9 million at May 3, 2006. The
prepaid benefit cost is included in other non-current assets in
the consolidated balance sheet as of May 3, 2006.
The weighted-average rates used for the years ended May 2,
2007 and May 3, 2006 in determining the projected benefit
obligations for defined benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
5.5
|
%
|
|
|
5.3
|
%
|
Compensation increase rate
|
|
|
5.0
|
%
|
|
|
4.0
|
%
|
Total pension cost of the Companys principal pension plans
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Components of defined benefit net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
42,886
|
|
|
$
|
42,081
|
|
|
$
|
46,102
|
|
Interest cost
|
|
|
135,984
|
|
|
|
124,064
|
|
|
|
122,981
|
|
Expected return on assets
|
|
|
(198,470
|
)
|
|
|
(168,990
|
)
|
|
|
(168,371
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net initial asset
|
|
|
|
|
|
|
(21
|
)
|
|
|
(862
|
)
|
Prior service cost
|
|
|
(3,465
|
)
|
|
|
2,207
|
|
|
|
9,251
|
|
Net actuarial loss
|
|
|
52,302
|
|
|
|
58,869
|
|
|
|
56,506
|
|
Loss due to curtailment,
settlement and special termination benefits
|
|
|
2,335
|
|
|
|
18,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
31,572
|
|
|
|
77,056
|
|
|
|
65,607
|
|
Defined contribution plans
|
|
|
34,940
|
|
|
|
28,139
|
|
|
|
25,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost
|
|
|
66,512
|
|
|
|
105,195
|
|
|
|
90,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less pension cost associated with
discontinued operations
|
|
|
|
|
|
|
375
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension cost associated with
continuing operations
|
|
$
|
66,512
|
|
|
$
|
104,820
|
|
|
$
|
90,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The weighted-average rates used for the fiscal years ended
May 2, 2007, May 3, 2006 and April 27, 2005 in
determining the defined benefit plans net pension costs
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected rate of return
|
|
|
8.2
|
%
|
|
|
8.2
|
%
|
|
|
8.2
|
%
|
Discount rate
|
|
|
5.3
|
%
|
|
|
5.5
|
%
|
|
|
5.8
|
%
|
Compensation increase rate
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.9
|
%
|
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.
Plan
Assets:
The Companys defined benefit pension plans weighted
average asset allocation at May 2, 2007 and May 3,
2006 and weighted average target allocation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at
|
|
|
Target
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Allocation
|
|
|
Equity securities
|
|
|
68
|
%
|
|
|
68
|
%
|
|
|
64
|
%
|
Debt securities
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
34
|
%
|
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 May 2, 2007 and
May 3, 2006.
Cash
Flows:
The Company contributed approximately $63 million to the
defined benefit plans in Fiscal 2007. 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 $55 million, however actual contributions may
be affected by pension asset and liability valuations during the
year.
62
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Benefit payments expected in future years are as follows
(dollars in thousands):
|
|
|
|
|
2008
|
|
$
|
146,737
|
|
2009
|
|
$
|
153,964
|
|
2010
|
|
$
|
155,476
|
|
2011
|
|
$
|
158,938
|
|
2012
|
|
$
|
162,722
|
|
Years
2013-2017
|
|
$
|
951,264
|
|
|
|
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 and
may modify plan provisions or terminate plans at its discretion.
The Company uses an April 30 measurement date for its
domestic plans and a March 31 measurement date for the
Canadian plan.
Effective May 2, 2007, the Company adopted
SFAS No. 158, which requires an employer to record
non-cash adjustments to recognize the funded status of each of
its defined pension and postretirement benefit plans as a net
asset or liability in its statement of financial position with
an offsetting amount in accumulated other comprehensive income,
and to recognize changes in that funded status in the year in
which changes occur through comprehensive income. Additionally,
SFAS No. 158 requires an employer to measure the funded
status of each of its plans as of the date of its year-end
statement of financial position. This provision becomes
effective for the Company in Fiscal 2009. The Company does not
expect the impact of the change in measurement date to have a
material impact on the financial statements. The incremental
effect of applying SFAS No. 158 on individual line
items in the consolidated balance sheet at May 2, 2007 is
discussed in Note 2.
63
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth the combined status of the
Companys postretirement benefit plans at May 2, 2007
and May 3, 2006.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at the
beginning of the year
|
|
$
|
273,434
|
|
|
$
|
290,787
|
|
Service cost
|
|
|
6,253
|
|
|
|
6,242
|
|
Interest cost
|
|
|
15,893
|
|
|
|
15,631
|
|
Participants contributions
|
|
|
913
|
|
|
|
1,188
|
|
Amendments
|
|
|
|
|
|
|
(15,188
|
)
|
Actuarial gain
|
|
|
(2,262
|
)
|
|
|
(11,703
|
)
|
Loss due to curtailment and
special termination benefits
|
|
|
|
|
|
|
2,037
|
|
Benefits paid
|
|
|
(21,180
|
)
|
|
|
(20,778
|
)
|
Exchange/other
|
|
|
110
|
|
|
|
5,218
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of
the year
|
|
|
273,161
|
|
|
|
273,434
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(273,161
|
)
|
|
|
(273,434
|
)
|
Unamortized prior service cost
|
|
|
|
|
|
|
(20,118
|
)
|
Unamortized net actuarial loss
|
|
|
|
|
|
|
67,314
|
|
|
|
|
|
|
|
|
|
|
Net accrued benefit liability
|
|
$
|
(273,161
|
)
|
|
$
|
(226,238
|
)
|
|
|
|
|
|
|
|
|
|
Amount recognized in the
consolidated balance sheet consists of:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(20,090
|
)
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
(253,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(273,161
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated
other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
59,702
|
|
|
$
|
|
|
Prior service cost
|
|
|
(14,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
45,683
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other
comprehensive loss expected to be recognized as components of
net periodic pension costs in Fiscal 2008 are as follows:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
4,549
|
|
|
$
|
|
|
Negative prior service cost
|
|
|
(4,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(217
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average discount rate used in the calculation of
the accumulated post-retirement benefit obligation at
May 2, 2007 and May 3, 2006 was 5.9% and 6.1%,
respectively.
64
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Net postretirement costs consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Components of defined benefit net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
6,253
|
|
|
$
|
6,242
|
|
|
$
|
5,769
|
|
Interest cost
|
|
|
15,893
|
|
|
|
15,631
|
|
|
|
16,057
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(6,098
|
)
|
|
|
(2,830
|
)
|
|
|
(3,026
|
)
|
Net actuarial loss
|
|
|
5,465
|
|
|
|
6,925
|
|
|
|
5,634
|
|
Loss due to curtailment and
special termination benefits
|
|
|
|
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
21,513
|
|
|
|
27,814
|
|
|
|
24,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic benefit cost associated
with continuing operations
|
|
$
|
21,513
|
|
|
$
|
27,814
|
|
|
$
|
24,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average discount rate used in the calculation of
the net postretirement benefit cost was 6.1% in 2007, 5.5% in
2006 and 6.2% in 2005.
The weighted-average assumed annual composite rate of increase
in the per capita cost of company-provided health care benefits
begins at 8.7% for 2008, gradually decreases to 4.9% by 2015 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
|
|
$
|
1,588
|
|
|
$
|
(1,404
|
)
|
Effect on postretirement benefit
obligation
|
|
$
|
17,703
|
|
|
$
|
(15,931
|
)
|
Cash
Flows:
The Company paid $21.2 million for benefits in the
postretirement medical plans in Fiscal 2007. 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
$22.2 million.
Benefit payments expected in future years are as follows
(dollars in thousands):
|
|
|
|
|
2008
|
|
$
|
22,166
|
|
2009
|
|
$
|
23,209
|
|
2010
|
|
$
|
24,219
|
|
2011
|
|
$
|
25,044
|
|
2012
|
|
$
|
25,499
|
|
Years
2013-2017
|
|
$
|
128,703
|
|
Estimated future medical subsidy receipts are approximately
$1.7 million annually from 2008 through 2012 and
$10.1 million for the period from 2013 through 2017.
65
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 and interest rate exposures.
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. At May 3, 2006, the Company had outstanding
currency exchange and interest rate derivative contracts with
notional amounts of $3.01 billion and $2.72 billion,
respectively. The fair value of derivative financial instruments
was a net liability of $2.0 million and $48.4 million
at May 2, 2007 and May 3, 2006, respectively.
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 and $1.86 billion as
of May 2, 2007 and May 3, 2006, respectively, which
were designated as net investment hedges of foreign operations.
These contracts are scheduled to mature within two years. The
Company assesses hedge effectiveness for these contracts based
on changes in fair value attributable to changes in spot prices.
Net losses of $72.9 million ($43.9 million after-tax)
and $26.6 million ($16.3 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 2007 and Fiscal
2006, respectively. Gains of $15.9 million and
$5.5 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 2007 and Fiscal 2006, respectively.
The Company has used certain foreign currency debt instruments
as net investment hedges of foreign operations. Losses of
$51.2 million, ($32.2 million after-tax) which
represented effective hedges of net investments, were reported
as a component of accumulated other comprehensive loss within
unrealized translation adjustment for the year ended
April 27, 2005.
Interest
Rate Hedging:
The Company uses interest rate swaps to manage interest rate
exposure. 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.
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 May 2, 2007,
May 3, 2006 and
66
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
April 27, 2005. The Company excludes the time value
component of option contracts from the assessment of hedge
effectiveness.
Deferred
Hedging Gains and Losses:
As of May 2, 2007, the Company is hedging forecasted
transactions for periods not exceeding two years. During the
next 12 months, the Company expects $2.7 million of
net deferred gains reported in accumulated other comprehensive
loss to be reclassified to earnings, assuming market rates
remain constant through contract maturities. Net deferred losses
reclassified to earnings because the hedged transaction was no
longer expected to occur were not significant for the years
ended May 2, 2007, May 3, 2006 and April 27, 2005.
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 2007, one customer
represented 10.4% of the Companys sales. We closely
monitor the credit risk associated with our customers and to
date have never experienced significant losses.
67
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
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Amounts in thousands)
|
|
|
Income from continuing operations
|
|
$
|
791,602
|
|
|
$
|
442,761
|
|
|
$
|
688,004
|
|
Preferred dividends
|
|
|
13
|
|
|
|
14
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
applicable to common stock
|
|
$
|
791,589
|
|
|
$
|
442,747
|
|
|
$
|
687,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingbasic
|
|
|
328,625
|
|
|
|
339,102
|
|
|
|
350,042
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
123
|
|
|
|
125
|
|
|
|
137
|
|
Stock options, restricted stock
and the global stock purchase plan
|
|
|
3,720
|
|
|
|
2,894
|
|
|
|
3,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstandingdiluted
|
|
|
332,468
|
|
|
|
342,121
|
|
|
|
353,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 9.1 million,
18.2 million and 15.9 million shares of common stock
as of May 2, 2007, May 3, 2006 and April 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 2013. 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.
Descriptions of the Companys 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.
|
68
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
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, and Singapore. This
segments operations include products in all of the
Companys categories.
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
|
Net External Sales
|
|
|
Intersegment Sales
|
|
|
North American Consumer Products
|
|
$
|
2,739,527
|
|
|
$
|
2,554,118
|
|
|
$
|
2,256,862
|
|
|
$
|
51,204
|
|
|
$
|
51,489
|
|
|
$
|
51,742
|
|
U.S. Foodservice
|
|
|
1,556,339
|
|
|
|
1,569,833
|
|
|
|
1,503,818
|
|
|
|
23,513
|
|
|
|
23,285
|
|
|
|
22,550
|
|
Europe
|
|
|
3,076,770
|
|
|
|
2,987,737
|
|
|
|
2,908,618
|
|
|
|
21,308
|
|
|
|
12,455
|
|
|
|
17,328
|
|
Asia/Pacific
|
|
|
1,201,928
|
|
|
|
1,116,864
|
|
|
|
1,037,514
|
|
|
|
4,225
|
|
|
|
2,304
|
|
|
|
3,420
|
|
Rest of World
|
|
|
427,066
|
|
|
|
414,886
|
|
|
|
396,644
|
|
|
|
1,569
|
|
|
|
1,843
|
|
|
|
1,571
|
|
Non-Operating(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,819
|
)
|
|
|
(91,376
|
)
|
|
|
(96,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) Excluding(b)
|
|
|
|
Operating Income (Loss)
|
|
|
Special Items
|
|
|
North American Consumer Products
|
|
$
|
625,675
|
|
|
$
|
583,367
|
|
|
$
|
530,444
|
|
|
$
|
625,675
|
|
|
$
|
589,958
|
|
|
$
|
530,444
|
|
U.S. Foodservice
|
|
|
216,115
|
|
|
|
177,292
|
|
|
|
224,784
|
|
|
|
216,115
|
|
|
|
212,053
|
|
|
|
224,784
|
|
Europe
|
|
|
566,362
|
|
|
|
414,178
|
|
|
|
499,951
|
|
|
|
566,362
|
|
|
|
526,372
|
|
|
|
526,927
|
|
Asia/Pacific
|
|
|
135,782
|
|
|
|
85,211
|
|
|
|
113,119
|
|
|
|
135,782
|
|
|
|
112,440
|
|
|
|
113,119
|
|
Rest of World
|
|
|
53,879
|
|
|
|
17,854
|
|
|
|
34,739
|
|
|
|
53,879
|
|
|
|
45,732
|
|
|
|
34,739
|
|
Non-Operating(a)
|
|
|
(151,098
|
)
|
|
|
(164,290
|
)
|
|
|
(121,565
|
)
|
|
|
(151,098
|
)
|
|
|
(136,564
|
)
|
|
|
(121,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
1,446,715
|
|
|
$
|
1,113,612
|
|
|
$
|
1,281,472
|
|
|
$
|
1,446,715
|
|
|
$
|
1,349,991
|
|
|
$
|
1,308,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expenses
|
|
|
Capital Expenditures(c)
|
|
|
Total North America
|
|
$
|
112,031
|
|
|
$
|
103,492
|
|
|
$
|
96,649
|
|
|
$
|
97,954
|
|
|
$
|
82,726
|
|
|
$
|
95,194
|
|
Europe
|
|
|
108,479
|
|
|
|
98,106
|
|
|
|
95,970
|
|
|
|
99,939
|
|
|
|
102,275
|
|
|
|
98,729
|
|
Asia/Pacific
|
|
|
27,676
|
|
|
|
27,021
|
|
|
|
26,186
|
|
|
|
35,450
|
|
|
|
34,206
|
|
|
|
28,961
|
|
Rest of World
|
|
|
6,724
|
|
|
|
7,036
|
|
|
|
7,664
|
|
|
|
9,039
|
|
|
|
8,412
|
|
|
|
8,997
|
|
Non-Operating(a)
|
|
|
11,287
|
|
|
|
11,778
|
|
|
|
9,102
|
|
|
|
2,180
|
|
|
|
2,958
|
|
|
|
8,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
266,197
|
|
|
$
|
247,433
|
|
|
$
|
235,571
|
|
|
$
|
244,562
|
|
|
$
|
230,577
|
|
|
$
|
240,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
$
|
3,752,033
|
|
|
$
|
3,530,639
|
|
|
$
|
3,606,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
4,166,174
|
|
|
|
4,285,233
|
|
|
|
4,437,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia/Pacific
|
|
|
1,129,767
|
|
|
|
1,138,566
|
|
|
|
1,364,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World
|
|
|
273,643
|
|
|
|
278,113
|
|
|
|
280,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating(d)
|
|
|
711,409
|
|
|
|
505,216
|
|
|
|
887,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Totals
|
|
$
|
10,033,026
|
|
|
$
|
9,737,767
|
|
|
$
|
10,577,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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;
U.S. Foodservice, $34.8 million; Europe,
$112.2 million; Asia/Pacific, $27.2 million; Rest of
World, $27.9 million; and Non-Operating $27.7 million. |
|
|
|
Fiscal year ended April 27, 2005: Excludes
the $27.0 million non-cash asset impairment charge on the
HAK®
vegetable product line in Northern Europe. |
|
(c) |
|
Excludes property, plant and equipment obtained through
acquisitions. |
|
(d) |
|
Includes identifiable assets not directly attributable to
operating segments. |
The results for the year ended April 27, 2005 were impacted
by a $34.1 million charge for trade promotion spending for
the Italian infant nutrition business of which
$21.1 million was recorded in the second quarter and
$13.0 million in the fourth quarter. The charge relates to
an under-accrual in fiscal years 2001, 2002 and 2003. The amount
of the charge that corresponds to each of the fiscal years 2001,
2002 and 2003 is less than 2% of net income for each of those
years.
The Companys revenues are generated via the sale of
products in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
(Dollars in thousands)
|
|
|
Ketchup and sauces
|
|
$
|
3,682,102
|
|
|
$
|
3,530,346
|
|
|
$
|
3,234,229
|
|
Meals and snacks
|
|
|
4,026,168
|
|
|
|
3,876,743
|
|
|
|
3,680,920
|
|
Infant foods
|
|
|
929,075
|
|
|
|
863,943
|
|
|
|
855,558
|
|
Other
|
|
|
364,285
|
|
|
|
372,406
|
|
|
|
332,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
May 2,
|
|
|
May 3,
|
|
|
April 27,
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
United States
|
|
$
|
3,809,786
|
|
|
$
|
3,693,262
|
|
|
$
|
3,379,961
|
|
|
$
|
2,377,900
|
|
|
$
|
2,359,630
|
|
|
$
|
2,110,987
|
|
United Kingdom
|
|
|
1,643,268
|
|
|
|
1,636,089
|
|
|
|
1,600,978
|
|
|
|
1,588,218
|
|
|
|
1,442,562
|
|
|
|
751,496
|
|
Other
|
|
|
3,548,576
|
|
|
|
3,314,087
|
|
|
|
3,122,517
|
|
|
|
2,171,907
|
|
|
|
1,967,353
|
|
|
|
2,263,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,001,630
|
|
|
$
|
8,643,438
|
|
|
$
|
8,103,456
|
|
|
$
|
6,138,025
|
|
|
$
|
5,769,545
|
|
|
$
|
5,125,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(14 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Sales(1)
|
|
$
|
1,900,278
|
|
|
$
|
2,156,984
|
|
|
$
|
2,186,524
|
|
|
$
|
2,399,652
|
|
|
$
|
8,643,438
|
|
Gross profit(1)
|
|
|
702,562
|
|
|
|
803,772
|
|
|
|
780,717
|
|
|
|
806,023
|
|
|
|
3,093,074
|
|
Income from continuing
operations(1)
|
|
|
140,173
|
|
|
|
168,331
|
|
|
|
133,178
|
|
|
|
1,079
|
|
|
|
442,761
|
|
Net income
|
|
|
157,274
|
|
|
|
203,821
|
|
|
|
116,600
|
|
|
|
167,908
|
|
|
|
645,603
|
|
Per Share Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations diluted( 1)
|
|
$
|
0.40
|
|
|
$
|
0.49
|
|
|
$
|
0.39
|
|
|
$
|
0.00
|
|
|
$
|
1.29
|
|
Income from continuing
operations basic(1)
|
|
|
0.41
|
|
|
|
0.50
|
|
|
|
0.40
|
|
|
|
0.00
|
|
|
|
1.31
|
|
Cash dividends
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
1.20
|
|
|
|
|
(1) |
|
Amounts exclude the operating results related to the
Companys European seafood business and
Tegel®
poultry business in New Zealand, which were divested during
Fiscal 2006 and which were presented as discontinued operations
beginning in the third quarter of Fiscal 2006. |
71
H. J.
Heinz Company and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Continuing operations for the first quarter of Fiscal 2006
includes charges of $32.4 million pretax
($23.5 million after tax) associated with targeted
workforce reductions and costs incurred in connection with
strategic reviews for several non-core businesses. Continuing
operations for the second quarter of Fiscal 2006 includes
charges of $46.5 million pretax ($37.1 million after
tax) associated with targeted workforce reductions, costs
incurred in connection with strategic reviews for several
non-core businesses and net losses/impairment charges on
divestitures. Continuing operations for the third quarter of
Fiscal 2006 includes charges of $41.5 million pretax
($34.8 million after tax) associated with targeted
workforce reductions, costs incurred in connection with
strategic reviews for several non-core businesses and net
losses/impairment charges on divestitures. Continuing operations
for the fourth quarter of Fiscal 2006 includes charges of
$232.8 million pretax ($179.5 million after tax)
associated with targeted workforce reductions, costs incurred in
connection with strategic reviews for several non-core
businesses, net losses/impairment charges on divestitures and
the impact of the American Jobs Creation Act.
|
|
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
$104.3 million in 2007, $97.6 million in 2006 and
$101.2 million in 2005. Future lease payments for
non-cancellable operating leases as of May 2, 2007 totaled
$435.6 million (2008-$67.0 million,
2009-$59.8 million, 2010-$49.2 million,
2011-$36.7 million, 2012-$34.7 million and
thereafter-$188.2 million).
As of May 2, 2007, 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 May 2, 2007.
Advertising expenses (including production and communication
costs) for fiscal 2007, 2006 and 2005 were $338.0 million,
$296.9 million and $273.7 million, respectively. For
fiscal years 2007, 2006 and 2005, $147.1 million,
$148.9 million and $140.1 million, respectively, were
recorded as a reduction of revenue and $190.9 million,
$148.0 million and $133.6 million, respectively, were
recorded as a component of SG&A.
On May 31, 2007, the Company signed an agreement for the
purchase of the Cadbury Schweppes jams, toppings and jellies
business in Australia. The agreement provides for the purchase
of licenses to use the Cottees and Roses brands, as
well as Monbulk, Choc Whizz and Ice Magic Brands.
72
|
|
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.
Our managements assessment of the effectiveness of our
internal control over financial reporting as of May 2, 2007
has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report as
set forth in Item 8.
(c) Changes in Internal Controls over Financial Reporting
During the fourth quarter of Fiscal 2007, the Company continued
its implementation of SAP software across its U.K. operations.
As appropriate, the Company is modifying the design and
documentation of internal control processes and procedures
relating to the new system 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 controls over
financial reporting.
|
|
Item 9B.
|
Other
Information.
|
There is nothing to be reported under this item.
73
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 15, 2007. 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 15,
2007. 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 information is incorporated
herein by reference.
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 15, 2007.
|
|
|
|
|
|
|
|
|
|
|
Positions and Offices Held with the Company and
|
|
|
Age (as of
|
|
Principal Occupations or
|
Name
|
|
August 15, 2007)
|
|
Employment During Past Five Years
|
|
William R. Johnson
|
|
|
58
|
|
|
Chairman, President, and Chief
Executive Officer since September 2000.
|
Jeffrey P. Berger
|
|
|
57
|
|
|
Executive Vice President and
Chairman of Global Foodservice since May 2007; Executive Vice
PresidentGlobal Foodservice and President and Chief
Executive Officer-Heinz North America Foodservice from May 2006
to May 2007; President Foodservice from January 2003 to May
2005; President Heinz US Foodservice from 1994 to January
2003.
|
Theodore N. Bobby
|
|
|
56
|
|
|
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.
|
Edward J. McMenamin
|
|
|
50
|
|
|
Senior Vice PresidentFinance
and Corporate Controller since August 2004; Vice President
Finance from June 2001 to August 2004.
|
74
|
|
|
|
|
|
|
|
|
|
|
Positions and Offices Held with the Company and
|
|
|
Age (as of
|
|
Principal Occupations or
|
Name
|
|
August 15, 2007)
|
|
Employment During Past Five Years
|
|
Michael D. Milone
|
|
|
51
|
|
|
Senior Vice President-Heinz
Australia, New Zealand and Rest of World 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; Vice
PresidentGlobal Category Development from May 1998 to June
2002.
|
David C. Moran
|
|
|
49
|
|
|
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; President Heinz Retail
Sales Company from October 1999 to January 2003.
|
C. Scott OHara
|
|
|
46
|
|
|
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.
|
D. Edward I. Smyth
|
|
|
57
|
|
|
Senior Vice PresidentChief
Administrative Officer and Corporate and Government Affairs
since December 2002; Senior Vice PresidentCorporate and
Government Affairs from May 1998 to December 2002.
|
Chris Warmoth
|
|
|
48
|
|
|
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.
|
Arthur B. Winkleblack
|
|
|
50
|
|
|
Executive Vice President and Chief
Financial Officer since January 2002.
|
|
|
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
75
Proxy Statement in connection with its Annual Meeting of
Shareholders to be held on August 15, 2007. 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 15, 2007. 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 May 2, 2007
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
|
|
|
27,100,450
|
|
|
$
|
40.04
|
|
|
|
14,081,528
|
|
Equity Compensation plans not
approved by stockholders(1)(2)
|
|
|
68,238
|
|
|
|
N/A
|
(3)
|
|
|
N/A
|
(1)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,168,688
|
|
|
$
|
40.04
|
|
|
|
14,081,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
76
|
|
|
(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 15, 2007. 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 15,
2007. 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 15,
2007. Such information is incorporated herein by reference.
77
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
May 2, 2007 and May 3, 2006
|
|
|
|
|
Consolidated Statements of Income
for the fiscal years ended May 2, 2007, May 3, 2006 and April
27, 2005
|
|
|
|
|
Consolidated Statements of
Shareholders Equity for the fiscal years ended May 2,
2007, May 3, 2006 and April 27, 2005
|
|
|
|
|
Consolidated Statements of Cash
Flows for the fiscal years ended May 2, 2007, May 3, 2006 and
April 27, 2005
|
|
|
|
|
Notes to Consolidated Financial
Statements
|
|
|
|
|
Report of Independent Registered
Public Accounting Firm of PricewaterhouseCoopers LLP dated June
21, 2007, on the Companys consolidated financial
statements and financial statement schedule filed as a part
hereof for the fiscal years ended May 2, 2007, May 3, 2006 and
April 27, 2005
|
(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 May 2, 2007, May 3, 2006 and April 27, 2005
|
|
|
|
|
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)
|
|
The Companys Articles of
Amendment dated May 2, 2007, amending the Companys amended
and restated Articles of Incorporation.
|
|
|
3(ii)
|
|
The Companys By-Laws, as
amended effective June 12, 2002 are incorporated herein by
reference to Exhibit 3 to the Companys Quarterly Report on
Form 10-Q for the three months ended July 31, 2002.
|
|
|
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.
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
Jeffrey P. Berger Restricted Stock
Unit Award and Agreement dated November 9, 2004 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 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.
|
|
|
|
|
|
|
(xxvi)
|
|
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.
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(xxvii)
|
|
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.
|
|
|
|
|
|
|
(xxviii)
|
|
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.
|
|
|
|
|
|
|
(xxix)
|
|
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.
|
|
|
|
|
|
|
(xxx)
|
|
Amended and Restated H.J. Heinz
Company Global Stock Purchase Plan is incorporated herein by
reference to Exhibit 10(a) of the Companys Annual Report
on Form 10-K for the fiscal year ended May 3, 2006.
|
|
|
|
|
|
|
(xxxi)
|
|
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.
|
|
|
|
|
|
|
(xxxii)
|
|
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.
|
|
|
|
|
|
|
(xxxiii)
|
|
Form of Fiscal Year 2008
Restricted Stock Unit Award and Agreement.
|
|
|
|
|
|
|
(xxxiv)
|
|
Amended and Restated Fiscal Year
2003 Stock Incentive Plan.
|
|
|
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.
|
|
|
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 21, 2007.
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 21, 2007.
|
|
|
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
Chief Financial Officer
(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 May 2, 2007, May 3, 2006 and
April 27, 2005
(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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended April 27,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted in the balance
sheet from the assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
21,313
|
|
|
$
|
9,267
|
|
|
$
|
2,390
|
|
|
$
|
11,126
|
|
|
$
|
21,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
The Companys Articles of
Amendment dated May 2, 2007, amending the Companys amended
and restated Articles of Incorporation.
|
|
|
3(ii)
|
|
The Companys By-Laws, as
amended effective June 12, 2002 are incorporated herein by
reference to Exhibit 3 to the Companys Quarterly Report on
Form 10-Q for the three months ended July 31, 2002.
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
|
|
|
|
|
(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)
|
|
Jeffrey P. Berger Restricted Stock
Unit Award and Agreement dated November 9, 2004 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 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.
|
|
|
|
|
(xxvi)
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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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(xxvii)
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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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(xxviii)
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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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(xxix)
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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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(xxx)
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Amended and Restated H.J. Heinz
Company Global Stock Purchase Plan is incorporated herein by
reference to Exhibit 10(a) of the Companys Annual Report
on Form 10-K for the fiscal year ended May 3, 2006.
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(xxxi)
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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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(xxxii)
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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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(xxxiii)
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Form of Fiscal Year 2008
Restricted Stock Unit Award and Agreement.
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(xxxiv)
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Amended and Restated Fiscal Year
2003 Stock Incentive Plan.
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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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