SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
   
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  For the fiscal year ended May 2, 2007April 30, 2008
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  For the transition period from               to                
 
Commission File Number 1-3385
 
H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)
 
   
PENNSYLVANIA 25-0542520
(State of Incorporation) (I.R.S. Employer Identification No.)
600 Grant Street,
Pittsburgh, PennsylvaniaOne PPG Place
 15222
15219
Pittsburgh, Pennsylvania
(Zip Code)
(Address of principal executive offices)  
 
412-456-5700
(Registrant’s telephone number)
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
   
Title of each class
 
Name of each exchange on which registered
 
Common Stock, par value $.25 per share The New York Stock Exchange
   
Third Cumulative Preferred Stock,  
$1.70 First Series, par value $10 per share The New York Stock Exchange
 
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 ofRegulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filerþ     Accelerated Filer  o      Non- Accelerated Filer  oNon-accelerated filer o
(Do not check if a smaller reporting company)		Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell Company (as defined inRule 12b-2 of the Exchange Act).  Yes o     No þ
 
As of November 1, 2006October 31, 2007 the aggregate market value of the Registrant’s voting stock held by non-affiliates of the Registrant was approximately $13,237,975,131.$14.2 billion.
 
The number of shares of the Registrant’s Common Stock, par value $.25 per share, outstanding as of May 31, 2007,2008, was 322,030,854312,559,006 shares.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on August 15, 2007,13, 2008, which will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended May 2, 2007,April 30, 2008, are incorporated into Part III, Items 10, 11, 12, 13, and 14.
 

TABLE OF CONTENTS

PART I
Item 1. Business.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FISCAL YEAR 2007 OPERATING RESULTS BY BUSINESS SEGMENT
FISCAL YEAR 2006 OPERATING RESULTS BY BUSINESS SEGMENT
Liquidity and Financial Position
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers of the Registrant
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
SIGNATURES
Schedule II
EXHIBIT INDEX
EX-3(I)
EX-10(A)(XXIII)
EX-10(A)(XXXIII)
EX-10.A.XXXIV
EX-12
EX-21
EX-23
EX-24
EX-31(A)
EX-31(B)
EX-32(A)
EX-32(B)

 
PART I
Item 1.  Business.
 
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 Company’s principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant foodnutrition and other processed food products.
 
The Company’s 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 Company’s 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, blending, fermentation, pasteurization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking or extruding, then labeled and cased for market. Quality assurance procedures are designed for each product and process and applied to ensure quality and compliance with applicable laws.
 
The Company manufactures and contracts for the manufacture of its products from a wide variety of raw foods. Pre-season contracts are made with farmers for a portion of raw materials such as tomatoes, cucumbers, potatoes, onions and some other fruits and vegetables. Dairy products, meat, sugar and other sweeteners including high fructose corn syrup, spices, flour and certain other fruits and vegetables are generally purchased on the open market.from approved suppliers.
 
The following table lists the number of the Company’s principal food processing factories and major trademarks by region:
 
                    
 Factories   Factories  
 Owned Leased 
Major Owned and Licensed Trademarks
 Owned Leased 
Major Owned and Licensed Trademarks
North America  23   4  Heinz, Classico, Quality Chef Foods, Jack Daniel’s*, Catelli, Wyler’s, Heinz Bell ’Orto, Bella Rossa, Chef Francisco, Dianne’s, Ore-Ida, Tater Tots, Bagel Bites, Weight Watchers* Smart Ones, Boston Market*, Poppers, T.G.I. Friday’s*, Delimex, Truesoups, Alden Merrell, Escalon, PPI, Todd’s, Appetizers And, Inc., Nancy’s, Lea & Perrins, Renee’s Gourmet, HP, Diana, Bravo  22   4  Heinz, Classico, Quality Chef Foods, Jack Daniel’s*, Catelli, Wyler’s, Heinz Bell ’Orto, Bella Rossa, Chef Francisco, Dianne’s, Ore-Ida, Tater Tots, Bagel Bites, Weight Watchers* Smart Ones, Boston Market*, Poppers, T.G.I. Friday’s*, Delimex, Truesoups, Alden Merrell, Escalon, PPI, Todd’s, Appetizers And, Inc., Nancy’s, Lea & Perrins, Renee’s Gourmet, HP, Diana, Bravo
Europe  22   —  Heinz, Orlando, Karvan Cevitam, Brinta, Roosvicee, Venz, Weight Watchers*, Farley’s, Farex, Sonnen Bassermann, Plasmon, Nipiol, Dieterba, Bi-Aglut, Aproten, Pudliszki, Ross, Honig, De Ruijter, Aunt Bessie*, Mum’s Own, Moya Semya, Picador, Derevenskoye, Mechta Hoziajki, Lea & Perrins, HP, Amoy*, Daddies, Squeezme!  21   —  Heinz, Orlando, Karvan Cevitam, Brinta, Roosvicee, Venz, Weight Watchers*, Farley’s, Farex, Sonnen Bassermann, Plasmon, Nipiol, Dieterba, Bi-Aglut, Aproten, Pudliszki, Ross, Honig, De Ruijter, Aunt Bessie*, Mum’s Own, Moya Semya, Picador, Derevenskoye, Mechta Hoziajki, Lea & Perrins, HP, Amoy*, Daddies, Squeezme!, Wyko
Asia/Pacific  14   2  Heinz, Tom Piper, Wattie’s, ABC, Chef, Craig’s, Bruno, Winna, Hellaby, Hamper, Farley’s, Greenseas, Gourmet, Nurture, LongFong, Ore-Ida, SinSin, Lea & Perrins, HP, Star-Kist, Classico, Weight Watchers*, Pataks*  17   2  Heinz, Tom Piper, Wattie’s, ABC, Chef, Craig’s, Bruno, Winna, Hellaby, Hamper, Farley’s, Greenseas, Gourmet, Nurture, LongFong, Ore-Ida, SinSin, Lea & Perrins, HP, Star-Kist, Classico, Weight Watchers*, Pataks*, Cottee’s*, Rose’s*, Complan, Glucon D, Nycil
Rest of World  9   3  Heinz, Wellington’s, Complan, Glucon D, Nycil, Today, Mama’s, John West, Farley’s, Dieterba, HP, Lea & Perrins, Classico, Banquete  5   3  Heinz, Wellington’s, Today, Mama’s, John West, Farley’s, Dieterba, HP, Lea & Perrins, Classico, Banquete
          
  68   9  * Used under license  65   9  * Used under license
          
 
The Company also owns or leases office space, warehouses, distribution centers and research and other facilities throughout the world. The Company’s food processing plantsfactories and principal properties are in good condition and are satisfactory for the purposes for which they are being utilized.


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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 Company’s raw food ingredients are harvested on a seasonal basis, most of the Company’s products are produced throughout the year. Seasonal factors inherent in the business have always influenced the quarterly sales, and operating income and cash flows of the Company. Consequently, comparisons between quarters have always been more meaningful when made between the same quarters of prior years.
 
The products of the Company are sold under highly competitive conditions, with many large and small competitors. The Company regards its principal competition to be other manufacturers of processed foods, including branded retail products, foodservice products and private label products, that compete with the Company for consumer preference, distribution, shelf space and merchandising support. Product quality and consumer value are important areas of competition.
 
The Company’s 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 2007,2008, one customer, Wal-Mart Stores Inc., represented 10.4% of the Company’s sales. We closely monitor the credit risk associated with our customers and to date have nevernot experienced significantmaterial 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 Company’s estimated capital expenditures for environmental control facilities for the remainder of Fiscal Year 20082009 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 Company’s 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,April 30, 2008, approximately 33,000 persons32,500 people around the world.
 
Segment information is set forth in this report on pages 6869 through 7172 in Note 15, “Segment Information” in Item 8 — “Financial8—“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 Company’s operations.
 
The Company’s annual report onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 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 Company’s website atwww.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 SEC’s 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 at1-800-SEC-0330. Reports filed with the SEC are also made available on its website atwww.sec.govwww.sec.gov..


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Executive Officers of the Registrant
 
The following is a list of the names and ages of all of the executive officers of H. J. Heinz Company indicating all positions and offices held by each such person and each such person’s principal occupations or employment during the past five years. All the executive officers have been elected to serve until the next annual election of officers, until their successors are elected, or until their earlier resignation or removal. The annual election of officers is scheduled to occur on August 13, 2008.
Positions and Offices Held with the Company and
Age (as of
Principal Occupations or
Name
August 13, 2008)
Employment During Past Five Years
William R. Johnson59Chairman, President, and Chief Executive Officer since September 2000.
Theodore N. Bobby57Executive 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 President—Legal Affairs from September 1999 to January 2005.
Edward J. McMenamin51Senior Vice President—Finance and Corporate Controller since August 2004; Vice President Finance from June 2001 to August 2004.
Michael D. Milone51Senior Vice President-Heinz Pacific, Rest of World and Enterprise Risk Management since May 2006; Senior Vice President—President Rest of World and Asia from May 2005 to May 2006; Senior Vice President—President Rest of World from December 2003 to May 2005; Chief Executive Officer Star-Kist Foods, Inc. from June 2002 to December 2003.
David C. Moran50Executive 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 President—President Heinz North America Consumer Products from May 2005 to November 2005; President North America Consumer Products from January 2003 to May 2005.
C. Scott O’Hara47Executive Vice President—President and Chief Executive Officer Heinz Europe since May 2006; Executive Vice President—Asia Pacific/Rest of World from January 2006 to May 2006; Senior Vice President Europe—The Gillette Company from October 2004 to January 2006; General Manager U.K. and NL—The Gillette Company from June 2001 to October 2004.
D. Edward I. Smyth58��Senior Vice President—Chief Administrative Officer and Corporate and Government Affairs since December 2002


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Positions and Offices Held with the Company and
Age (as of
Principal Occupations or
Name
August 13, 2008)
Employment During Past Five Years
Christopher J. Warmoth49Senior Vice President—Heinz 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. Winkleblack51Executive Vice President and Chief Financial Officer since January 2002.
Item 1A.  Risk Factors
 
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially and adversely affect the Company’s business, financial condition, and results of operations. Additional risks and uncertainties that are not presently known to the Company or thatare currently deemed by the Company currently deemsto be immaterial also may impair the Company’s business operations and financial condition.
 
Competitive product and pricing pressures in the food industry could adversely affect the Company’s 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 Company’s 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 Company’s competitors may have substantial financial, marketing, and other resources that may change the competitive environment. Such competition could cause the Company to reduce pricesand/or increase capital, marketing, and other expenditures, or could result in the loss of category share. Such changes could have a material adverse impact on the Company’s 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.impacted in a materially adverse way.
 
The Company’s performance ismay be adversely affected by economic and political conditions in the U.S. and in various other nations where it does business.
 
The Company’s 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,recessionary conditions, foreign ownership restrictions, nationalization, the performance of businesses in hyperinflationary environments, and terrorist acts and political unrest and terrorist acts in the U.S., Venezuela and other international locations where the Company does business. Such changes in either domestic or foreign jurisdictions could materially and adversely affect our financial results.
 
Increases in the cost and restrictions on the availability of raw materials could adversely affect our financial results.
 
The Company sources raw materials including agricultural commodities such as tomatoes, cucumbers, potatoes, onions, other fruits and vegetables, dairy products, meat, sugar and other sweeteners, including high fructose corn syrup, spices, and flour, as well as packaging materials such

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as glass, plastic, metal, paper, fiberboard, and other materials in order to manufacture products. The availability or cost of such commodities may fluctuate widely due to government policy and regulation, crop failures or shortages due to plant disease or insect and other pest infestation, weather conditions, increased demand for biofuels, or other unforeseen circumstances. To the extent that any of the foregoing factors increase the prices of such commodities and the Company is unable to increase its prices or adequately hedge against such changes in a manner that offsets such changes, the results of its operations could be materially and adversely affected. Similarly, if supplier arrangements and relationships result in increased and unforeseen expenses, the Company’s financial results could be materially and adversely impacted.


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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 financialand/or operational instability of key suppliers, distributors, warehousing and transportation providers, or brokers, or other reasons could impair our ability to manufacture or sell our products. To the extent the Company is unable to, or it is notcannot 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 ana materially adverse affect on our business and results of operations, and additional resources could be required to restore our supply chain.
 
Higher energy costs and other factors affecting the cost of producing, transporting, and distributing the Company’s 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,transportation, and distribution of products. Fuel costs may fluctuate due to a number of factors outside the control of the Company, including government policy and regulation and weather conditions. Additionally, the Company may be unable to maintain favorable arrangements with respect to the costs of procuring raw materials, packaging, services, and transporting products, which could result in increased expenses and negatively affect operations. If the Company is unable to hedge against such increases or raise the prices of its products to offset the changes, its results of operations could be materially and adversely affected.
 
The results of the Company could be adversely impacted as a result of increased pension, labor, and people-related expenses.
 
Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material adverse effect on the Company’s consolidated operating results or financial condition. The Company’s 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 Company’s 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 Company’s 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 Company’s sales and profitability. Avian flu or other pandemics could disrupt production of the Company’s products, reduce demand for certain of the Company’s


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products, or disrupt the marketplace in the foodservice or retail environment with consequent material adverse effect on the Company’s results of operations.


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The need for and effect of product recalls could have an adverse impact on the Company’s business.
 
If any of the Company’s 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 Company’s 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 Company’s ability to identify and respond to consumer trends through innovation. The Company may be required to increase expenditures for new product development. The Company may not be successful in developing new products or improving existing products, or its new products may not achieve consumer acceptance, each of which could materially and negatively impact sales.
 
The failure to successfully integrate acquisitions and joint ventures into our existing operations or the failure to gain applicable regulatory approval for such transactions could adversely affect our financial results.
 
The Company’s 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 Company’s success depends, in part, upon its ability to identify such acquisition, joint venture, and divestiture opportunities and to negotiate favorable contractual terms. Activities in such areas are regulated by numerous antitrust and competition laws in the U. S., the European Union, and other jurisdictions, and the Company may be required to obtain the approval of suchacquisition and joint venture transactions by competition authorities, as well as satisfy other legal requirements. The failure to obtain such approvals could materially and adversely affect our results.
 
The Company’s 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 Company’s 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.dollars for external reporting purposes. Increases or decreases in the value of the U.S. dollar may materially and negatively affect the value of these items in the Company’s consolidated financial statements, even if their value has not changed in their original currency.
 
The Company could incur more debt, which could have an adverse impact on our business.
The Company may incur additional indebtedness in the future to fund acquisitions, repurchase shares, or fund other activities for general business purposes, which could result in a downward change in credit rating. The Company’s ability to make payments on and refinance its indebtedness and fund planned capital expenditures depends upon its ability to generate cash in the future. The


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cost of incurring additional debt could increase in the event of possible downgrades in the Company’s credit rating. Additionally, the Company’s ability to pay cash dividends will depend upon its ability to generate cash and profits, which, to a certain extent, is subject to economic, financial, competitive, and other factors beyond the Company’s control.
The failure to complete the strategic transformation through further simplification and cost savingsimplement our growth plans could adversely affect the Company’s 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


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inability to continue to execute on its publicly-announced growth plans throughregarding product innovation, implementing cost-cutting measures, improving supply chain efficiency, enhancing processes and systems, including information technology systems, on a global basis, and growing market share and volume. The failure to fully implement the plans could materially and adversely affect the Company’s 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 management’s discussion and analysis, the financial statements and footnotes, are forward-looking statements based on management’s estimates, assumptions, and projections. These forward-looking statements are subject to risks, uncertainties, assumptions and other important factors, many of which may be beyond Heinz’sthe Company’s control and could cause actual results to differ materially from those expressed or implied in this report and the financial statements and footnotes. Uncertainties contained in such statements include, but are not limited to:
 
 • sales, earnings, and volume growth,
 
 • general economic, political, and industry conditions, including those that could impact consumer spending,
 
 • competitive conditions, which affect, among other things, customer preferences and the pricing of products, production, energy and raw materialenergy costs,
 
 • increases in the cost and restrictions on the availability of raw materials including agricultural commodities and packaging materials, the ability to increase product prices in response, and the impact on profitability,
 
 • the ability to identify and anticipate and respond through innovation to consumer trends,
 
 • the need for product recalls,
 
 • the ability to maintain favorable supplier relationships,
 
 • currency valuations and interest rate fluctuations,
 
 • changes in credit ratings, leverage, and economic conditions, and the impact of these factors on our cost of borrowing and access to capital markets,
 
 • the ability to identify and complete and the timing, pricing and successexecute our strategy, which includes our continued evaluation of potential acquisition opportunities, including strategic acquisitions, joint ventures, divestitures and other strategic initiatives,
• approval of acquisitions including our ability to identify, finance and divestitures by competition authorities,complete these initiatives, and satisfaction of other legal requirements,our ability to realize anticipated benefits from them,
 
 • the ability to successfully complete cost reduction programs and increase productivity,
 
 • the ability to effectively integrate acquired businesses, new product and packaging innovations,
 
 • product mix,
 
 • the effectiveness of advertising, marketing, and promotional programs,
 
 • supply chain efficiency,
 
 • cash flow initiatives,
 
 • risks inherent in litigation, including tax litigation,


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• the ability to further penetrate and grow in international operations,markets, economic or political instability in those markets, particularly in Venezuela, and the performance of business in hyperinflationary environments,
 
 • changes in estimates in critical accounting judgments and changes in laws and regulations, including tax laws,
 
 • the success of tax planning strategies,
 
 • the possibility of increased pension expense and contributions and other people-related costs,
 
 • the potential adverse impact of natural disasters, such as flooding and crop failures,


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 • the ability to implement new information systems and potential disruptions due to failures in technology systems,
• with regard to dividends, dividends must be declared by the Board of Directors and will be subject to certain legal requirements being met at the time of declaration, as well as anticipated cash needs, and
 
 • other factors as described in “Risk Factors” above.
 
The forward-looking statements are and will be based on management’s then current views and assumptions regarding future events and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the securities laws.
Item 1B.  Unresolved Staff Comments
 
None.
Item 2.  Properties.
 
See table in Item 1.
Item 3.  Legal Proceedings.
 
None.
Item 4.  Submission of Matters to a Vote of Security Holders.
 
The Company has not submitted any matters to a vote of security holders since the last annual meeting of shareholders on August 16, 2006.None.


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PART II
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Information relating to the Company’s common stock is set forth in this report on page 3033 under the caption “Stock Market Information” in Item 7 — “Management’s7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and on pages 7172 through 7273 in Note 16, “Quarterly Results” in Item 8 — “Financial8—“Financial Statements and Supplementary Data.”
 
In the fourth quarter of Fiscal 2007,2008, the Company repurchased the following number of shares of its common stock:
 
                 
           Maximum
 
  Total
     Total Number of
  Number of Shares
 
  Number of
  Average
  Shares Purchased as
  that May Yet Be
 
  Shares
  Price Paid
  Part of Publicly
  Purchased Under
 
Period
 Purchased  per Share  Announced Programs  the Programs 
 
February 1, 2007 —                
February 28, 2007  631,500  $46.73   —   — 
March 1, 2007 —                
March 28, 2007  2,302,400   46.04   —   — 
March 29, 2007 —                
May 2, 2007  2,675,000   47.29   —   — 
                 
Total  5,608,900  $46.71   —   — 
                 
                 
           Maximum
 
  Total
     Total Number of
  Number of Shares
 
  Number of
  Average
  Shares Purchased as
  that May Yet Be
 
  Shares
  Price Paid
  Part of Publicly
  Purchased Under
 
Period
 Purchased  per Share  Announced Programs  the Programs 
 
January 31, 2008 —
February 27, 2008		  —  $—   —   — 
February 28, 2008 —
March 26, 2008		  4,150,000   44.48   —   — 
March 27, 2008 —
April 30, 2008		  580,000   47.14   —   — 
                 
Total  4,730,000  $44.81   —   — 
                 
 
Of theThe shares repurchased 4,028,692 shares were acquired under the share repurchase program authorized by the Board of Directors on June 8, 2005May 31, 2006 for a maximum of 3025 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,April 30, 2008, the maximum number of shares that may yet be purchased under the 2006 program is 23,419,792.10,366,192.


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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 20032004 through 2007.2008. All amounts are in thousands except per share data.
 
                                        
 Fiscal Year Ended  Fiscal Year Ended 
 May 2,
 May 3,
 April 27,
 April 28,
 April 30,
  April 30,
 May 2,
 May 3,
 April 27,
 April 28,
 
 2007
 2006
 2005
 2004
 2003
  2008
 2007
 2006
 2005
 2004
 
 (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)  (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) 
Sales(1) $9,001,630  $8,643,438  $8,103,456  $7,625,831  $7,566,800  $10,070,778  $9,001,630  $8,643,438  $8,103,456  $7,625,831 
Interest expense(1)  333,270   316,296   232,088   211,382   222,729   364,856   333,270   316,296   232,088   211,382 
Income from continuing operations(1)  791,602   442,761   688,004   715,451   478,303   844,925   791,602   442,761   688,004   715,451 
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 
Income from continuing operations per share—diluted(1)  2.63   2.38   1.29   1.95   2.02 
Income from continuing operations per share—basic(1)  2.67   2.41   1.31   1.97   2.03 
Short-term debt and current portion of long-term debt(2)  468,243   54,969   573,269   436,450   154,786   452,708   468,243   54,969   573,269   436,450 
Long-term debt, exclusive of current portion(2)  4,413,641   4,357,013   4,121,984   4,537,980   4,776,143   4,730,946   4,413,641   4,357,013   4,121,984   4,537,980 
Total assets(3)  10,033,026   9,737,767   10,577,718   9,877,189   9,224,751   10,565,043   10,033,026   9,737,767   10,577,718   9,877,189 
Cash dividends per common share  1.40   1.20   1.14   1.08   1.485   1.52   1.40   1.20   1.14   1.08 
 
(1)Amounts exclude the operating results related to the Company’s European seafood business andTegel® poultry businesses in New Zealand which were divested in Fiscal 2006 and have been presented as discontinued operations.
 
(2)Long-term debt, exclusive of current portion, includes $198.3 million, $71.0 million, ($1.4) million, $186.1 million, $125.3 million, and $294.8$125.3 million of hedge accounting adjustments associated with interest rate swaps at April 30, 2008, May 2, 2007, May 3, 2006, April 27, 2005, and April 28, 2004, and April 30, 2003, respectively. Long-term debt reflects the prospective classification of Heinz Finance Company’s $325 million of mandatorily redeemable preferred shares from minority interest toare classified as 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)FiscalFiscals 2008 and 2007 reflectsreflect the adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans —Plans- an amendment of FASB Statements No. 87, 88, 106 and 132(R).” See Note 2, “Recently Issued Accounting Standards” inItem 8 —8- “Financial Statements and Supplementary Data.”
 
As a result of the Company’s strategic transformation, the Fiscal 2006 results from continuing operations include expenses of $124.7 million pretax ($80.3 million after tax) for targeted workforce reductions consistent with the Company’s goals to streamline its businesses and expenses of $22.0 million pretax ($16.3 million after tax) for strategic review costs related to the potential divestiture of several businesses. Also, $206.5 million pretax ($153.9 million after tax) was recorded for net losses on non-core businesses and product lines which were sold and asset impairment charges on non-core businesses and product lines which were sold in Fiscal 2007. Also during 2006, the Company reversed valuation allowances of $27.3 million primarily related to The Hain Celestial Group, Inc. (“Hain”). In addition, results include $24.4 million of tax expense relating to the impact of the American Jobs Creation Act. For more details regarding these items, see pages 4647 to 4748 in Note 4, “Fiscal 2006 Transformation Costs” in Item 8 — “Financial8—“Financial Statements and Supplementary Data.”


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Fiscal 2005 results from continuing operations include a $64.5 million non-cash impairment charge for the Company’s 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 sponsorede-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 thea 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).


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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Executive Overview- Fiscal 20072008
 
The H.J. Heinz Company has been a pioneer in the food industry for 138139 years and possesses one of the world’s best and most recognizable brands —brands—Heinz®. WhileIn the first half of this decade, 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 onwas reshaped around three core businesses. This strategic transformation begancategories, Ketchup, Condiments and Sauces, Meals and Snacks and Infant/Nutrition. Beginning with the spin-off of our non-core U.S. businesses in December 2002 and was completedending in Fiscal 2006 with the sales of our non-core European Seafood and New Zealand Poultry businesses.businesses, we divested over $3 billion of non-core sales from businesses where we lacked scale and competitive advantage. During this same time period, we acquired almost $1.5 billion of new revenue in core categories and faster-growing emerging markets. Consequently, our core categories now generate almost 96% of our sales and each is showing strong growth. Additionally, our top 15 brands, each of which exceeds $100 million in annual sales, drive approximately 70% of our sales. TheHeinz® brand generates almost $4 billion of annual sales and has extraordinary reach across all of our categories and most of our markets. Our focus on three core categories, our top 15 brands and emerging markets has enhanced our growth trajectory and enabled us to achieve improved productivity.
Performance under the Fiscal2007-2008 Superior Value and Growth Plan
Unless specifically noted, all amounts in this section represent figures over the two-year time frame of the Plan (Fiscal2007-2008). Also, all growth rates represent compounded annual growth rates (“CAGR”) over this same two-year period, using Fiscal 2006 continuing operations, excluding special items as the base (see table in “Fiscal 2006 Transformation Costs” which reconciles Fiscal 2006 reported amounts to amounts excluding special items).
 
On June 1, 2006, the Company presented its Superior Value and Growth Plan for fiscal years 2007 and 2008. Under this plan,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 setestablished financial and operational targets aimed at increasing shareholder value. The Company achieved itshas met or exceeded virtually all of the targets for Fiscal 2007established in the two year Plan and believes that it is well positioned for continued growth in Fiscals 2009 and 2010. For the two years ending with Fiscal 2008. Specifically:2008:
 
 • Net sales grew at a CAGR of 8%, to over 4% to $9.0 billion.$10 billion for the first time in the Company’s history, driven primarily by strong volume and net pricing as well as favorable foreign exchange.
 
 • Operating income grew 7.2%at a CAGR of 8%, excluding special items in the prior year, including anas strong top-line growth and productivity more than offset higher commodity costs and incremental $64 million (or 24%) in consumer marketing investment (see table in “Fiscal 2006 Transformation Costs”investments, which reconciles Fiscal 2006 reported amounts to amounts excluding special items)grew at a CAGR of 19%.
 
 • Operating free cash flow in Fiscal 2008 (cash flow from operations of $1,062$1,188 million less capital expenditures of $245$302 million plus proceeds from disposals of PP&E of $61$9 million) grew to $878 million.$895 million and was nearly $1.8 billion over the two-year Plan period.
 
 • EPS grew to $2.38,$2.63, an average annual increase of 13% excluding prior year special items.12%.
 
The following is a detailed update onanalysis of the Company’s progressoverall performance 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.Plan.
 
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 average annual increased marketing spending of $50 million17% and double digit increases in research and development costsinvestment (“R&D”). In addition, thisThis strategy also focused on growthexpansion in various emerging markets, where growth potential was viewed as high. During


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Fiscal 2007,2008 and over the entire two-year Plan period, we madedelivered excellent progress againstresults relative to this imperative as evidenced by the following:
 
 • Our top 15 brands, which generate nearly 70% of total sales, grew 8.5%.at a CAGR of 12%, driven by strong volume and net price increases as well as favorable impacts from foreign exchange.
 
 • WeOver the two-year Plan period, we launched more than 100a number of new products, which accounted for approximately 11% of sales and was supported by a 24%19% average annual increase in marketing.
 
 • R&D increased nearly 20%at a CAGR of 18% as we increased capabilities in the areas of innovation and consumer insight.
 
 • Innovation in our emerging markets (Russia, Poland, the Czech Republic, Indonesia, China, India, South Africa, the Middle East and Latin America) drove strong growth, with aan average annual sales increase of 12% in our RICIP markets (Russia, India, China, Indonesia and Poland) and Latin America. These markets19%, which accounted for approximately 10% of sales and 27%26% of the Company’s total sales growth over the two-year period. These markets accounted for approximately 13% of total Company sales in Fiscal 2007.2008.
Looking forward to Fiscal 2008, the Company’s 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 theSmart 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 Company’s investment in growth behind the core portfolio has been fueled by the second pillar of our two-year plan,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 2007results relative to this imperative:
 
 • D&A as a percentage of gross sales was reduced by 100170 basis points, slightly30 basis point ahead of our original target.
 
 • COGSTotal gross profit dollars exceeded target expectations by $200 million, or almost 6%, although gross margin was reduced by 90200 basis points asbelow target due to higher than expected commodity inflation. As a percentageresult of sales, excluding prior year special items,new product introductions, volume growth, pricing, productivity and totalforeign exchange, the Company has successfully offset commodity costs and achieved strong gross profit exceeded target expectations.growth.
 
 • The Company divested or closed 1620 plants around the globe, one more than our original goal for the year.4 of which were during Fiscal 2008.
 
 • SG&A, excluding marketing, was 17.2% as a percentage of sales in Fiscal 2008, 30 basis points better than target. As a result of productivity gains in SG&A and despite increasinga 19% average annual increase in consumer marketing, by 60 basis points as a percentage of sales,we delivered consistent operating income margin increased by 50 basis points, excluding prior year special items.growth at a CAGR of 8%.
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 Company’s total anticipated productivity is now $380 million over two years, which exceeds its previous estimates.
 
Generate Cash to Deliver Superior Value
 
Heinz’sThe Company’s growth, cost savings and working capital productivity drove operating free cash flow of $878almost $1.8 billion, which averaged 9% of revenue and 109% of net income over the two years. This was $123 million, or almost 10% of revenue. This was 10%7% ahead of the goal fortarget. A key driver in achieving our strong cash flow results was the year and better than the prior year. significant reduction in our Cash Conversion Cycle (“CCC”) of 7 days, which is a 12% reduction when comparing Fiscal 2006 to 2008.
Much of this increased cash flow has been returned directly to shareholders, as evidenced by the following:
 
 • Increase in the Company’s dividend in Fiscal 2007 by 17%32 cents, or a CAGR of 12.5%, to a$1.52. This increase was to maintain our target payout ratio of close toapproximately 60%.


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 • Decrease in average shares outstanding by 2.8%,6% when comparing Fiscal 2006 to 2008, resulting from net share repurchases in Fiscal 2007 of $501 million.$1 billion.
 
 • Total shareholder return inCombining dividends and share repurchases over the last two years, the Company has returned more than $2 billion to shareholders.
High-Performance Growth Plan for Fiscal2009-2010
The following are the major targets the Company has set under its new High-Performance Growth Plan for Fiscals2009-2010:
• For Fiscal 20072009 and Fiscal 2010, the Company expects combined sales volume and net price growth of almost 15%.6%+ annually and EPS growth of 8% to 11% per year.
 
 • After-tax return on invested capital (“ROIC”) improved 100 basis pointsEmerging market revenues are targeted to 15.8%.grow in the high teens over the next two years.
• The Plan calls for 6% to 7% annual growth in operating income, while increasing the investment in marketing by $60 million to $100 million over the two-year period. Pricing and productivity gains are expected to help offset the 8 to 9% inflation expected in commodities to maintain the current gross profit and operating income margins realized in Fiscal 2008.
• Annualized dividend raised to $1.66 per share, an increase of 9.2%, for Fiscal 2009 and the Company anticipates a dividend payout ratio of around 60% for Fiscal 2010.
• The Company expects operating free cash flow of approximately $1.7 billion over the two-year period, driven by a 2 to 3 day reduction per year in CCC.
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 Company’s revenues are generated via the sale of products in the following categories:
 
                        
 Fiscal Year Ended  Fiscal Year Ended 
 May 2,
 May 3,
 April 27,
  April 30,
 May 2,
 May 3,
 
 2007
 2006
 2005
  2008
 2007
 2006
 
 (52 Weeks) (53 Weeks) (52 Weeks)  (52 Weeks) (52 Weeks) (53 Weeks) 
 (Dollars in thousands)  (Dollars in thousands) 
Ketchup and sauces $3,682,102  $3,530,346  $3,234,229  $4,081,864  $3,682,102  $3,530,346 
Meals and snacks  4,026,168   3,876,743   3,680,920   4,521,697   4,026,168   3,876,743 
Infant foods  929,075   863,943   855,558 
Infant/Nutrition  1,089,544   929,075   863,943 
Other  364,285   372,406   332,749   377,673   364,285   372,406 
              
Total $9,001,630  $8,643,438  $8,103,456  $10,070,778  $9,001,630  $8,643,438 
              
 
Fiscal YearsYear Ended April 30, 2008 compared to Fiscal Year Ended May 2, 2007
Sales for Fiscal 2008 increased $1.07 billion, or 11.9%, to $10.07 billion, reflecting growth in all five business segments. Volume increased 3.6%, as continued solid growth in the North American Consumer Products segment, Australia, New Zealand and the emerging markets were combined with strong performance of beans, soup and pasta meals in the U.K. andHeinz® ketchup across Europe. The emerging markets produced a 9.1% volume increase and accounted for over 24% of the Company’s total sales growth for the year. These volume increases were partially offset by declines in U.S. Foodservice. Net pricing increased sales by 3.3%, mainly in the North American Consumer Products, European and U.S. Foodservice segments and our businesses in Latin America and Indonesia. Divestitures, net of acquisitions, decreased sales by 0.2%. Foreign exchange translation rates increased sales by 5.1%.
Sales of the Company’s top 15 brands grew 13.4% from prior year, led by strong increases inHeinz®,Smart Ones®,Classico®,Boston Market®,Pudliszki®,Weight Watchers® andABC®. These


15

increases are a result of the Company’s strategy of focused innovation and marketing support behind these top brands.
Gross profit increased $288 million, or 8.5%, to $3.68 billion, benefiting from favorable volume, pricing and foreign exchange translation rates. The gross profit margin decreased to 36.5% from 37.7%, as pricing and productivity improvements were more than offset by increased commodity costs. The most significant commodity cost increases were for dairy, oils and grains.
SG&A increased $166 million, or 8.5%, to $2.11 billion. As a percentage of sales, SG&A decreased to 21.0% from 21.6%. The increase in SG&A is due to a 14.9% increase in marketing expense, a 16.9% increase in R&D and higher selling and distribution costs (“S&D”) resulting from increased volume, higher fuel costs and foreign exchange translation rates. Additional investments were also made in the current year for global task force initiatives, streamlining and system capability improvements. These increases were partially offset by the benefits of effective cost control and prior year workforce reductions and costs related to the proxy contest.
Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $177 million, or 8.1%, to $2.36 billion on a gross sales increase of 11.0%. Marketing support recorded as a reduction of revenue, typically D&A, increased $127 million, or 6.9%, to $1.98 billion, but decreased as a percentage of gross sales to 16.4% from 17.1%, in line with the Company’s strategy to reduce spending on less efficient promotions and realignment of some list prices. Marketing support recorded as a component of SG&A increased $50 million, or 14.9%, to $383 million, as we increased consumer marketing across the Company’s businesses supporting innovation and our top brands.
Operating income increased $122 million, or 8.5%, to $1.57 billion, reflecting the strong sales growth, productivity improvements and favorable impacts from foreign exchange, partially offset by increased commodity costs.
Net interest expense increased $32 million, to $323 million, largely as a result of higher debt in Fiscal 2008 related to share repurchase activity. Other expenses, net, decreased $3 million to $28 million, primarily due to an insignificant gain recognized on the sale of our business in Zimbabwe.
The current year effective tax rate was 30.6% compared to 29.6% for the prior year. The current year’s tax rate was higher than the prior year’s primarily due to benefits recognized in Fiscal 2007 for reversal of a foreign tax reserve, tax planning completed in a foreign jurisdiction, and R&D tax credits. Those prior year benefits were partially offset by lower repatriation costs and increased benefits from tax audit settlements occurring during Fiscal 2008, along with changes in valuation allowances for foreign losses.
Income from continuing operations was $845 million compared to $792 million in the prior year, an increase of 6.7%, due to the increase in operating income, which was partially offset by higher net interest expense and a higher effective tax rate. Diluted earnings per share from continuing operations were $2.63 in the current year compared to $2.38 in the prior year, up 10.5%, which also benefited from a 3.2% reduction in fully diluted shares outstanding.
FISCAL YEAR 2008 OPERATING RESULTS BY BUSINESS SEGMENT
During the first quarter of Fiscal 2008, the Company changed its segment reporting to reclassify its business in India from the Rest of World segment to the Asia/Pacific segment, reflecting organizational changes. Prior periods have been conformed to the current presentation. (See Note 15, “Segments” in Item 8—“Financial Statements and Supplementary Data” for further discussion of the Company’s reportable segments).


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North American Consumer Products
Sales of the North American Consumer Products segment increased $272 million, or 9.9%, to $3.01 billion. Volume increased 3.5%, due primarily toSmart Ones® frozen entrees and desserts, Boston Market® frozen entrees andClassico® pasta sauces. TheSmart Ones® volume improvement was driven by successful new product introductions like Anytime SelectionsTM, Fruit InspirationsTM and various dessert items, as well as the impact of the launch ofSmart Ones® products into Canada. TheBoston Market® improvements were mainly driven by new products and increased consumption, and the success ofClassico®was primarily due to new products as well as increased promotions in Canada. These volume improvements were partially offset by a decline inOre-Ida® frozen potatoes reflecting the timing of price increases taken during both the fourth quarter of last year and the third quarter of this year. TheOre-Ida® frozen potatoes price increases, along with other commodity cost related price increases, resulted in overall price gains of 3.5%. The prior year acquisition of Renee’s Gourmet Foods in Canada increased sales 0.7% and favorable Canadian exchange translation rates increased sales 2.2%.
Gross profit increased $85 million, or 7.5%, to $1.22 billion, due primarily to the sales increase along with favorable foreign exchange translation rates. The gross profit margin decreased to 40.5% from 41.4%, as increased pricing, favorable mix and productivity improvements only partially offset increased commodity costs. Operating income increased $53 million, or 8.4%, to $678 million, due to the strong increase in sales, partially offset by higher commodity costs and increased S&D due to higher volume and fuel costs.
Europe
Heinz Europe sales increased $456 million, or 14.8%, to $3.53 billion, driven by new product innovation and more focus on the key brands in the portfolio. Volume increased 4.5%, principally due to strong performance ofHeinz® ketchup across Europe, soup, beans and pasta meals in the U.K.,Pudliszki® branded products in Poland, andHeinz® sauces and condiments in Russia. Volume also benefited from new product introductions across continental Europe, such asWeight Watchers® Big Soups in Germany, Austria and Switzerland. Net pricing increased sales 3.3%, resulting chiefly from commodity-related price increases onHeinz® ketchup and soup, the majority of the products in our Russian market and Italian infant nutrition products. Pricing was also favorable due to promotional timing onHeinz® beans. Divestitures, net of acquisitions, reduced sales 1.4% and favorable foreign exchange translation rates increased sales by 8.5%.
Gross profit increased $135 million, or 10.9%, to $1.37 billion, and the gross profit margin decreased to 38.8% from 40.2%. The 10.9% increase reflects improved pricing and volume and the favorable impact of foreign exchange translation rates, while the decline in gross profit margin is largely due to increased commodity costs and higher manufacturing costs in our U.K., European frozen and Netherlands businesses. Operating income increased $71 million, or 12.4%, to $637 million, due to higher sales and reductions in general and administrative expenses (“G&A”), partially offset by higher commodity costs and increased marketing spending in support of our strong brands across Europe.
Asia/Pacific
Heinz Asia/Pacific sales increased $281 million, or 21.3%, to $1.60 billion. Volume increased 6.5%, reflecting significant improvements across the majority of the businesses within this segment, particularly Australia, India and China, related primarily to new product introductions supported by a 34.7% increase in marketing. Pricing increased 2.8%, due to increases on soy sauce and beverages in Indonesia,LongFong® frozen products in China and nutritional products in India. Acquisitions, net of divestitures, increased sales 1.6%, and favorable foreign exchange translation rates increased sales by 10.4%.
Gross profit increased $101 million, or 23.9%, to $526 million, and the gross profit margin increased to 32.9% from 32.2%. These increases were due to increased volume, pricing, favorable mix


17

and foreign exchange translation rates, which more than offset increased commodity costs. Operating income increased by $45 million, or 29.8%, to $195 million, primarily reflecting the increase in sales and gross margin, partially offset by increased marketing spending and increased S&D due to higher volume.
U.S. Foodservice
Sales of the U.S. Foodservice segment increased $3 million, or 0.2%, to $1.56 billion. Pricing increased sales 1.7%, largely due to commodity-related price increases and reduced promotional spending onHeinz® ketchup, frozen soup and tomato products, partially offset by declines in frozen desserts. Volume decreased by 1.1%, as higher volume from frozen desserts sold to casual dining customers was more than offset by declines in the portion control business, tomato products and frozen appetizers. The volume reflected softness in the U.S. restaurant business as well as increased competition on our non-branded products. Divestitures reduced sales 0.4%.
Gross profit decreased $47 million, or 10.0%, to $419 million, and the gross profit margin decreased to 26.8% from 29.9%, as commodity costs continue to disproportionately impact the foodservice business, despite gains on commodity derivative contracts. The declines also reflect costs incurred in the current year in anticipation of a plant closure in the first quarter of Fiscal 2009, partially offset by increased pricing and productivity. Operating income decreased $47 million, or 21.5%, to $170 million, all of which is due to the decline in gross profit. The Company is simplifying its U.S. Foodservice business, while increasing the level of innovation in its foodservice brands, and expects more profitable growth in this segment as macroeconomic conditions improve.
Rest of World
Sales for Rest of World increased $58 million, or 18.7%, to $368 million. Volume increased 6.3% due primarily to increased demand for the Company’s products in Latin America as well as strong performance across our Middle East business. Higher pricing increased sales by 13.6%, largely due to price increases and reduced promotions in Latin America as well as commodity-related price increases in South Africa. Divestitures reduced growth 1.7% and favorable foreign exchange translation rates increased sales 0.6%.
Gross profit increased $22 million, or 19.9%, to $133 million, due mainly to increased pricing, higher volume and improved business mix, partially offset by increased commodity costs. Operating income increased $6 million, or 15.1%, to $45 million.
Fiscal Year Ended May 2, 2007 compared to Fiscal Year Ended May 3, 2006
 
Sales for Fiscal 2007 increased $358.2$358 million, or 4.1%, to $9.00 billion. Sales were favorably impacted by a volume increase of 0.7%, despite one less selling week in Fiscal 2007 compared with Fiscal 2006. Volume growth was led by North American Consumer Products, Australia, New Zealand and Germany, and the emerging markets of India, China and Poland. These increases were partially offset by declines in the U.K. and Russian businesses. Pricing increased sales by 2.1%, mainly due to our businesses in North America, the U.K, Indonesia and Latin America. Divestitures, net of acquisitions, decreased sales by 1.6%. Foreign exchange translation rates increased sales by 2.9%.
 
Gross profit increased $299.8$300 million, or 9.7%, to $3.39 billion, and the gross profit margin increased to 37.7% from 35.8%. These improvements reflect higher volume, increased pricing, productivity improvements and favorable foreign exchange translation rates, partially offset by commodity cost increases. Also contributing to the favorable comparison are the $91.6$92 million of prior yearFiscal 2006 strategic transformation costs discussed below.
 
SG&A decreased $33.3$33 million, or 1.7%, to $1.95 billion and decreased as a percentage of sales to 21.6% from 22.9%. These decreases are primarily due to the favorable impact of the prior yearFiscal 2006 targeted workforce reductions, particularly in Europe and Asia, and the $144.8$145 million of prior year Fiscal 2006


18

strategic transformation costs discussed below. These declines were partially offset by increased marketing and R&D expenses, costs related to the proxy contest affecting the Company’s 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&D was higher as a result of the volume increase; however, as a percentage of sales, S&D declined.
 
Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $4.4$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,D&A, decreased $59.7$60 million, or 3.1%, to $1.85 billion. This decrease is largely due to spending reductions on less efficient promotions and a realignment of list prices, partially offset by the impact of foreign exchange translation rates. Marketing support recorded as a component of SG&A increased $64.1$64 million, or 23.8%, to $333.5$334 million, consistent with the Company’s continued strategy to invest behind its key brands.
 
Operating income increased $333.1$333 million, or 29.9%, to $1.45 billion, which was favorably impacted by increased volume, the higher gross profit margin and the $236.4$236 million of prior yearFiscal 2006 strategic transformation costs discussed below.
 
Net interest expense increased $8.3$8 million, to $291.4$291 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$111 million write down of the Company’s net investment in Zimbabwe. Other expenses, net, increased $4.9$5 million, to $30.9$31 million, largely due to increased currency losses and minority interest expense, the later of which is a result of improved business performance in our joint ventures, partially offset by the $6.9$7 million loss on the sale of the Company’s equity investment in The Hain Celestial Group, Inc. (“Hain”) in the prior year.Fiscal 2006.
 
The current yearFiscal 2007 effective tax rate was 29.6% compared to 36.2% for the prior year.in Fiscal 2006. During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. This revaluation reduced Fiscal 2007 tax expense by approximately $35 million. During the third quarter of Fiscal 2007, final conditions necessary to reverse a foreign tax reserve related to a prior year transaction were achieved. As a result, the Company realized a non-cash tax benefit of $64.1$64 million. At the same time, the Company modified its plans for repatriation of foreign earnings, ultimately incurring an additional charge of $89.8$90 million. Full year Fiscal 2007 repatriation costs were $107.8$108 million, exceeding Fiscal 2006’s repatriation costs by approximately $78.2$78 million. In addition, Fiscal 2007 tax expense benefited from the reductions in foreign statutory tax rates and initiatives associated with R&D tax credits. The Fiscal 2006 tax expense benefited from the reversal of a tax provision of $23.4$23 million related to a foreign affiliate along with an additional benefit of $16.3$16 million resulting from tax planning initiatives related to foreign tax credits, which was partially offset by the non-deductibility of certain asset write-offs.
 
Income from continuing operations was $791.6$792 million compared to $442.8$443 million in the prior year,Fiscal 2006, an increase of 78.8%, primarily due to the increase in operating income and a lower effective tax rate, partially offset by higher net interest expense. Diluted earnings per share from continuing operations was $2.38 in the current yearFiscal 2007 compared to $1.29 in the prior year,Fiscal 2006, an increase of 84.5%, which also benefited from a 2.8% reduction in fully diluted shares outstanding.
 
FISCAL YEAR 2007 OPERATING RESULTS BY BUSINESS SEGMENT
 
North American Consumer Products
 
Sales of the North American Consumer Products segment increased $185.4$185 million, or 7.3%, to $2.74 billion. Volume increased 2.6%, largely resulting from strong growth inSmart Ones® andBoston Market® frozen entrees and desserts,Classico® pasta sauces andOre-Ida® frozen potatoes. The increases reflect new distribution, increased consumption driven by new product launches and


19

increased marketing support. These increases were partially offset by the expected volume decline inHeinz® 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 toHeinz® ketchup,Ore-Ida®frozen potatoes,Smart Ones® frozen entrees andBagel Bites®andTGIFTGI Friday’s® frozen snacks, all resulting primarily from reduced inefficient promotions. Acquisitions increased sales 1.9%, primarily from the prior yearFiscal 2006 acquisitions of Nancy’s Specialty Foods and HP Foods as well as the current yearFiscal 2007 acquisition of Renée’s Gourmet Foods. Favorable Canadian exchange translation rates increased sales 0.7%.
 
Gross profit increased $85.8$86 million, or 8.2%, to $1.14 billion, and the gross profit margin increased to 41.4% from 41.1%. These improvements were due primarily to increased volume, higher pricing and the favorable impact of acquisitions, partially offset by increased commodity costs. Operating income increased $42.3$42 million, or 7.3%, to $625.7$626 million, mainly due to the improvement in gross profit and $6.6$7 million of prior yearFiscal 2006 transformation costs discussed below. This increase was partially offset by a $32.2$32 million or 40.4% increase in consumer marketing, primarily forHeinz®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.


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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 toHeinz® ketchup and tomato products, single serve condiments and frozen desserts. Volume decreased 0.4%, as higher volume inHeinz®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 Europe’s sales increased $89.0$89 million, or 3.0%, to $3.08 billion. Pricing increased 1.7%, driven primarily by value-added innovation and reduced promotions onHeinz® soup and pasta meals in the U.K and in the Italian infant nutrition business. Volume declined 2.4% as improvements inHeinz® ketchup,Heinz® beans,Weight Watchers® branded products andPudliszki®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 current2007 fiscal year compared to the 2006 fiscal year. The acquisition of HP Foods and Petrosoyuz in Fiscal 2006 increased sales 1.9%, while divestitures reduced sales 5.6%. Favorable foreign exchange translation rates increased sales by 7.3%.
 
Gross profit increased $112.0$112 million, or 10.0%, to $1.24 billion, and the gross profit margin increased to 40.2% from 37.6%. These improvements are due to higher pricing, favorable impact of foreign exchange translation rates and $36.3$36 million of prior yearFiscal 2006 transformation costs discussed below. These improvements were partially offset by reduced volume and increased commodity and manufacturing costs. Operating income increased $152.2$152 million, or 36.7%, to $566.4$566 million, due to the increase in gross profit, the $112.2$112 million of prior yearFiscal 2006 transformation costs discussed below, and reduced general and administrative expenses (“G&A”),&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$98 million, or 7.6%8.0%, to $1.20$1.32 billion. Volume increased sales 4.2%4.6%, reflecting strong volume in Australia, New Zealand and China, largely due to increased marketing and new product introductions.introductions, as well as market and share growth in nutritional drinks in India. Higher pricing increased sales 2.1%2.3%, mainly due to commodity-related price increases taken on Indonesian sauces and drinks. Divestitures reduced sales 0.3%, and foreign exchange translation rates increased sales by 1.7%1.5%.
 
Gross profit increased $51.5$50 million, or 15.4%13.4%, to $386.8$425 million, and the gross profit margin increased to 32.2% from 30.0%30.7%. These improvements were due to volume increases and higher pricing, partially offset by increased commodity costs, most notably in Indonesia. The prior yearFiscal 2006 also included an $18.8a $19 million asset impairment charge on an Indonesian noodle business. Operating income increased $50.6$49 million, to $135.8$150 million, largely reflecting the increase in gross profit and reduced


20

G&A, partially offset by increased marketing. The reduction in G&A is a result of effective cost control in our Chinese businesses, targeted workforce reductions, including the elimination of Asian headquarters in the prior year,Fiscal 2006, and $10.2$10 million of reorganization costs in the prior yearFiscal 2006 related to the workforce reductions discussed below.


16

U.S. Foodservice
Sales of the U.S. Foodservice segment decreased $14 million, or 0.9%, to $1.56 billion, primarily due to the impact of divestitures. Divestitures, net of acquisitions, reduced sales 2.1%. Pricing increased 1.7%, largely due toHeinz® ketchup and tomato products, single serve condiments and frozen desserts. Volume decreased 0.4%, as higher volume inHeinz® ketchup was offset by declines resulting primarily from one less week in Fiscal 2007 and a decision to exit certain low margin accounts.
Gross profit increased $29 million, or 6.6%, to $465 million, and the gross profit margin increased to 29.9% from 27.8%, due to $8 million of Fiscal 2006 reorganization costs discussed below and a $22 million impairment charge in Fiscal 2006 related to the sale of the Portion Pac Bulk product line. In addition, increased pricing was offset by higher commodity costs. Operating income increased $39 million, or 21.9%, to $216 million, largely due to the increase in gross profit and reduced S&D expense as a percentage of sales resulting from productivity initiatives.
Rest of World
 
Sales for Rest of World increased $12.2decreased $0.9 million, or 2.9%0.3%, to $427.1$310 million. Volume increased 6.1%5.0% 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%8.9%, largely due to reduced promotions on ketchup and price increases taken on baby food in Latin America. Divestitures reduced sales 8.8%11.8% and foreign exchange translation rates reduced sales 1.9%2.3%.
 
Gross profit increased $16.1$17 million, or 12.1%18.4%, to $148.9$111 million, as increased volume and higher pricing were partially offset by higher commodity costs in India and the impact of divestitures. The prior yearFiscal 2006 also included $5.8$8 million of asset impairment charges discussed below. Operating income increased $36.0$38 million, to $53.9$39 million, due primarily to the increase in gross profit and the $27.9$30 million in prior yearof Fiscal 2006 transformation costs primarily related to divestitures.
 
As a result of general economic uncertainty, coupled with restrictions on the repatriation of earnings, as of the end of November 2002 the Company deconsolidated its Zimbabwean operations and classified its remaining net investment of approximately $111 million as a cost investment. In the fourth quarter of Fiscal 2006, the Company wrote off its net investment in Zimbabwe. The decision to write downoff the Zimbabwe investment related to management’s 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. Management’s 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 Company’s 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 inHeinz® ketchup,TGI Friday’s® andDelimex® brands of frozen snacks,Classico® pasta sauces,Smart Ones® frozen entrees and inOre-Ida® potatoes. Pricing was up 0.4% and the HP Foods and Nancy’s 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 inHeinz® 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 Europe’s 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 onHeinz® soup, partially offset by price increases onHeinz® 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 2005’s results include the proceeds of an agreement related to the recall in Israel.


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Discontinued Operations
 
During fiscal years 2003 through 2006, the Company focused on exiting non-strategic business operations. Certain of these businesses which were sold arewere accounted for as discontinued operations.
 
In the fourth quarter of Fiscal 2006, the Company completed the sale of the European seafoodSeafood business, which included the brands ofJohn West®,Petit Navire®,Marie Elisabeth® andMareblu®. The Company received net proceeds of $469.3$469 million for this disposal and recognized a $199.8$200 million pretax ($122.9123 million after tax) gain which has been recorded in discontinued operations. Also in the


21

fourth quarter of Fiscal 2006, the Company completed the sale of theTegel® poultryPoultry business in New Zealand and received net proceeds of $150.4$150 million, and recognized a $10.4$10 million non-taxable gain, which is also recorded in discontinued operations.
 
In accordance with accounting principles generally accepted in the United States of America, the operating results related to these businesses have been included in discontinued operations in the Company’s consolidated statements of income for all periods presented.income. The Company recorded a loss of $3.3$3 million ($5.96 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$688 million (partial year) and $808.8 million and net income of $169.1$169 million (net of $90.2 million in tax expense) and $47.8 million (net of $23.3$90 million in tax expense) for the yearsyear ended May 3, 2006 and April 27, 2005, respectively.2006.
 
In addition, net income from discontinued operations includes amounts related to the favorable settlement of tax liabilities associated with the businesses spun-off to Del Monte in Fiscal 2003. Such amounts totaled $33.7 million and $16.9$34 million for the yearsyear ended May 3, 2006 and April 27, 2005, respectively.2006.
 
Fiscal 2006 Transformation Costs
 
In executing its strategic transformation during Fiscal 2006, the Company incurred the following associated costs. These costs were directly linked to the Company’s transformation strategy.
 
Reorganization Costs
 
In Fiscal 2006, the Company recorded pretax integration and reorganization charges for targeted workforce reductions consistent with the Company’s goals to streamline its businesses totaling $124.7$125 million ($80.380 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$22 million ($16.316 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$147 million pre-tax ($96.697 million after-tax), of which $17.4$17 million was recorded as costs of products sold and $129.3$129 million in SG&A. In addition, $10.5$11 million was recorded in discontinued operations, net of tax. The amount included in accrued expenses related to these initiatives totaled $51.6$52 million at May 3, 2006, all of which was paid during Fiscal 2007.


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Other Divestitures/Impairment Charges
 
The following gains/(losses)/gains or non-cash asset impairment charges were recorded in continuing operations during Fiscal 2006:
 
                    
Business or Product Line
 
Segment
 Pre-Tax After-Tax  
Segment
 Pre-Tax After-Tax 
   (In millions)    (In millions) 
Loss on sale of Seafood business in Israel Rest of World $(15.9) $(15.9) Rest of World $(16) $(16)
Impairment charge on Portion Pac Bulk product line U.S. Foodservice  (21.5)  (13.3) U.S. Foodservice  (22)  (13)
Impairment charge on U.K. Frozen and Chilled product lines Europe  (15.2)  (15.2) Europe  (15)  (15)
Impairment charge on European production assets Europe  (18.7)  (18.7) Europe  (19)  (19)
Impairment charge on Noodle product line in Indonesia Asia/Pacific  (15.8)  (8.5) Asia/Pacific  (16)  (9)
Impairment charge on investment in Zimbabwe business Rest of World  (111.0)  (105.6) Rest of World  (111)  (106)
Other Various  (1.5)  0.5  Various  (2)  1 
          
Total
   $(199.6) $(176.7)   $(200) $(177)
          


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Of the above pre-tax amounts, $74.1$74 million was recorded in cost of products sold, $15.5$16 million in SG&A, $111.0$111 million in asset impairment charges for cost and equity investments, and $(1.0)$(1) 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$7 million ($4.55 million after-tax) loss which is recorded within other expense, net. Net proceeds from the sale of this investment were $116.1$116 million. During the third quarter of Fiscal 2005, the Company recognized a $64.5$65 million impairment charge on its equity investment in Hain. The charge reduced Heinz’s 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 sponsorede-commerce business venture. Due to the uncertainty of realizability and executing possible tax planning strategies, the Company recorded a valuation allowance of $27.3$27 million against the potential tax benefits primarily related to the Hain impairment. This valuation allowance was subsequently released in Fiscal 2006 based upon tax planning strategies that are expected to generate sufficient capital gains that will occur during the capital loss carryforward period. See further discussion in Note 7, “Income Taxes” in Item 8— “Financial“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 theHAK® vegetable product line which was sold in Fiscal 2006.
 
There were no material gains/(losses) on divested businesses or asset impairment charges in FiscalFiscals 2008 or 2007.
 
Other Non-recurring — Non-recurring—American Jobs Creation Act
 
The AJCAAmerican 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$17 million, of which $24.4$24 million of expense was recorded in continuing operations and $7.1$7 million was a benefit in discontinued operations.


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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 Company’s reported results prepared in accordance with GAAP. The following table provides a reconciliation of the Company’s 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  Fiscal Year Ended May 3, 2006 
       Income from
 Per
        Income from
 Earnings
 
 Net
 Gross
 Operating
 Continuing
 Share
  Net
 Gross
 Operating
 Continuing
 Per Share
 
 Sales Profit Income Operations —Diluted  Sales Profit Income Operations —Diluted 
 (Amounts in millions, except per share amounts)  (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  $8,643  $3,093  $1,114  $443  $1.29 
Separation, downsizing and integration  —   17.4   146.7   96.6   0.28   —   17   147   97   0.28 
Net loss on disposals & impairments  —   74.1   89.7   48.3   0.14   —   74   90   48   0.14 
Asset impairment charges for cost and equity investments  —   —   —   105.6   0.31   —   —   —   106   0.31 
American Jobs Creation Act  —   —   —   24.4   0.07   —   —   —   24   0.07 
                      
Results from continuing operations excluding special items $8,643.4  $3,184.6  $1,350.0  $717.7  $2.10  $8,643  $3,185  $1,350  $718  $2.10 
                      
 
(Note: Totals may not add due to rounding.)


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Liquidity and Financial Position
For Fiscal 2008, cash provided by operating activities was $1.19 billion, an increase of $126 million from the prior year. The increase in Fiscal 2008 versus Fiscal 2007 is primarily due to favorable movements in accounts payable and income taxes, and cash paid in the prior year for reorganization costs related to workforce reductions in Fiscal 2006. These improvements were partially offset by higher inventories and receivables. The higher inventory levels were required to support customer service demands created by the Company’s strong growth. The Company’s cash conversion cycle of 49 days in Fiscal 2008 was consistent with that of Fiscal 2007, as a two day improvement in payables was offset by a two day increase in inventories. Days in inventory increased this year due to the volume growth and related capacity constraints in a number of areas.
During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. As a result of this revaluation, the Company incurred a foreign income tax liability of approximately $30 million related to this revaluation which was paid during the third quarter of Fiscal 2007. Additionally, cash flow from operations is expected to be improved by approximately $90 million over the five to twenty year tax amortization period.
Cash used for investing activities totaled $554 million compared to $326 million last year. Capital expenditures totaled $302 million (3.0% of sales) compared to $245 million (2.7% of sales) last year, which reflect capacity-related spending in support of future growth and an ongoing investment in improved systems. Proceeds from disposals of property, plant and equipment were $9 million compared to $61 million in the prior year, representing the disposal of four plants in the current year versus 16 plants during Fiscal 2007. In Fiscal 2008, cash paid for acquisitions, net of divestitures, required $88 million, primarily related to the acquisition of the license to theCottee’s® andRose’s® premium branded jams, jellies and toppings business in Australia and New Zealand, theWyko® sauce business in the Netherlands and the buy-out of the minority ownership on the Company’s Long Fong business in China, partially offset by the divestiture of a tomato paste business in Portugal. In Fiscal 2007, acquisitions, net of divestitures, used $93 million primarily related to the Company’s purchase of Renée’s Gourmet Foods and the purchase of the minority ownership in our Heinz Petrosoyuz business in Russia. Divestitures in the prior year included the sale of a non-core U.S. Foodservice product line, a frozen and chilled product line in the U.K. and a pet food business in Argentina. In addition, transaction costs related to the European Seafood andTegel® Poultry divestitures were also paid during Fiscal 2007. During Fiscal 2008, the Company terminated the cross currency swaps that were previously designated as net investment hedges of foreign operations. The notional amount of these contracts totaled $1.6 billion, and the Company paid $93 million of cash to the counterparties, which is presented in investing activities in the consolidated statements of cash flows. In addition, the Company paid $74 million in the current year and $41 million in the prior year to the counterparties as a result of cross currency swap contract maturities and such payments are presented within other investing items, net.
The early termination of the net investment hedges described above and interest rate swaps described below were completed in conjunction with the reorganizations of the Company’s foreign operations and interest rate swap portfolio.
Cash used by financing activities totaled $758 million compared to $621 million last year. Proceeds from commercial paper and short-term debt were $484 million this year compared to $384 million in the prior year. Payments on long-term debt were $368 million in the current year compared to $52 million in the prior year, representing the maturity and payment of the $300 million 6% U.S. Dollar Notes in the current year as well as the repurchase in Fiscal 2008 of a portion of the 6% U.S. Dollar Notes due March 15, 2012. Cash used for the purchases of treasury stock, net of proceeds from option exercises, was $502 million this year compared to $501 million in the prior year, in line with the Company’s plans for repurchasing $1 billion in net shares cumulatively in Fiscals 2007 and 2008. Dividend payments totaled $485 million, compared to $461 million in the prior year, reflecting


24

an 8.6% increase in the annualized dividend on common stock. During Fiscal 2008, the Company terminated certain interest rate swaps that were previously designated as fair value hedges of fixed rate debt obligations. The notional amount of these interest rate contracts totaled $612 million, and the Company received a total of $104 million of cash from the termination of these contracts, which has been presented in the consolidated statements of cash flows within financing activities. The $104 million gain is being amortized to reduce interest expense over the remaining term of the corresponding debt obligations (average of 22 years).
 
In Fiscal 2006, the Company divested its European seafoodSeafood business andTegel® poultryPoultry 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 Company’s 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 Company’s purchase of Renée’s 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 andTegel® poultry divestitures were also paid during the current year. In Fiscal 2006, acquisitions required $1.1 billion, primarily related to the Company’s purchases of HP Foods, Nancy’s 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 andTegel® poultry businesses, the sale of the Company’s equity investment in Hain and the sale of theHAK® 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 Company’s 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 2005,2006, the Company generated cash flows from the favorable settlement of tax liabilities related to these spun-off businesses. These cash flows, which represent solely cash flows from operations, have been classified separately on the Company’s Consolidated Statements of Cash Flow StatementsFlows for Fiscals 2007 2006 and 20052006 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,May 29, 2008, the Company announced that its Board of Directors approved an 8.6%a 9.2% increase in the annual dividend on common stock for Fiscal 2008 (from $1.40from 38 cents to 41.5 cents quarterly to an annual indicative rate of $1.52$1.66 per share),share for Fiscal 2009, effective with the July 20072008 dividend payment. Fiscal 20082009 dividends are expected to approximate $480be approximately $525 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,April 30, 2008, the Company had total debt of $4.88$5.18 billion (including $71.2$199 million relating to the fair value of interest rate swaps)SFAS No. 133 hedge accounting adjustments) and cash and cash equivalents of $652.9$618 million. The $469.9 million increase in totalTotal debt balances since prior year end isincreased primarily the result ofdue to share repurchases and net acquisitions.repurchases.
 
Return on average shareholders’ equity (“ROE”) is calculated by taking net income divided by average shareholders’ equity. Average shareholders’ equity is a five-point quarterly average. ROE was 44.0% in Fiscal 2008, 37.4% in Fiscal 2007 and 29.1% in Fiscal 20062006. Fiscal 2008 and 34.4% in Fiscal 2005. Fiscal 2007 ROE was favorably impacted by higher net income and decreased average equity reflecting the adoption of SFAS No. 158 and share repurchases. Fiscal 2006 ROE was unfavorably impacted by 6.5% due to the previously discussed strategic transformation costs. 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.
 
ROICReturn on invested capital (“ROIC”) is calculated by taking net income, plus net interest expense net of tax, divided by average invested capital. Average invested capital is a five-point quarterly average of debt plus total equity less cash and cash equivalents, short-term investments and the value of interest rate swaps.SFAS No. 133 hedge accounting adjustments. ROIC was 16.8% in Fiscal 2008, 15.8% in Fiscal 2007 and 13.1% in Fiscal 20062006. Fiscal 2008 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 maintainsand H.J. Heinz Finance Company maintain a $2 billion credit agreement that expires in August 2009. The credit agreement supports the Company’s commercial paper borrowings. As a result, these borrowings are classified as long-term debt based upon the Company’s intent and ability to refinance these borrowings on a long-term basis. The Company maintains in excess of $900 million$1 billion of other credit facilities used primarily by the Company’s foreign subsidiaries. These resources, the Company’s existing cash balance, strong operating cash flow, and access to the capital


25

markets, if required, should enable the Company to meet its cash requirements for operations, including capital expansion programs, debt maturities, acquisitions, share repurchases and dividends to shareholders.
 
As of May 2, 2007,April 30, 2008, the Company’s long-term debt ratings at Moody’s, and Standard & Poor’s and Fitch Rating were Baa2, BBB 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 Company’s 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.April 30, 2008.
 
                                        
 Less than
     More than
    Less than
     More than
   
 1 year 1-3 years 3-5 years 5 years Total  1 year 1-3 years 3-5 years 5 years Total 
 (Amounts in thousands)  (Amounts in thousands) 
Long Term Debt(1) $538,236  $1,521,200  $1,873,122  $3,259,179  $7,191,737  $530,731  $1,778,224  $1,641,220  $3,233,352  $7,183,527 
Capital Lease Obligations  10,046   19,423   54,391   33,581   117,441   10,161   19,475   48,179   32,574   110,389 
Operating Leases  67,002   108,994   71,476   188,163   435,635   68,752   106,689   87,514   190,984   453,939 
Purchase Obligations  1,092,699   955,771   453,787   34,394   2,536,651   1,254,104   745,641   184,074   25,907   2,209,726 
Other Long Term Liabilities Recorded on the Balance Sheet  75,615   192,621   181,990   158,947   609,173   101,928   236,512   231,383   167,033   736,856 
                      
Total $1,783,598  $2,798,009  $2,634,766  $3,674,264  $10,890,637  $1,965,676  $2,886,541  $2,192,370  $3,649,850  $10,694,437 
                      
 
(1)Amounts include expected cash payments for interest on fixed rate long-term debt. Due to the uncertainty of forecasting expected variable rate interest payments, those amounts are not included in the table.
 
Other long-term liabilities primarily consist of certain specific incentive compensation arrangements and pension and postretirement benefit commitments. The following long-term liabilities


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.
 
The Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) as of the beginning of fiscal year 2008. At April 30, 2008, the total amount of gross unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was approximately $189 million. However, the net obligation to taxing authorities under FIN 48 was approximately $103 million. The difference relates primarily to outstanding refund claims. The timing of payments will depend on the progress of examinations with tax authorities. The Company does not expect a significant tax payment related to these net obligations within the next year. The Company is unable to make a reasonably reliable estimate of when cash settlements with taxing authorities may occur.


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Off-Balance Sheet Arrangements and Other Commitments
 
The Company does not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. In addition, the Company does not have any related party transactions that materially affect the results of operations, cash flow or financial condition.
As of April 30, 2008, the Company was party to an operating lease for buildings and equipment in which the Company has guaranteed a supplemental payment obligation of approximately $64 million at the termination of the lease. The Company believes, based on current facts and circumstances, that any payment pursuant to this guarantee is remote. In May 2008, the construction of a new frozen food factory in South Carolina commenced. It is expected that the factory will be operational in approximately 18 to 24 months and that it will be financed by an operating lease.
 
Market Risk Factors
 
The Company is exposed to market risks from adverse changes in foreign exchange rates, interest rates, commodity prices and production costs. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes.
 
Foreign Exchange Rate Sensitivity:  The Company’s cash flow and earnings are subject to fluctuations due to exchange rate variation. Foreign currency risk exists by nature of the Company’s 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)  Aggregate Notional Amount Net Unrealized Gains/(Losses) 
 May 2, 2007 May 3, 2006 May 2, 2007 May 3, 2006  April 30, 2008 May 2, 2007 April 30, 2008 May 2, 2007 
 (Dollars in millions)  (Dollars in millions) 
Purpose of Hedge:                                
Intercompany cash flows $1,010  $652  $(3.8) $5.4  $1,110  $1,010  $25  $(4)
Forecasted purchases of raw materials and finished goods and foreign currency denominated obligations  360   346   (3.2)  (1.3)  541   360   6   (3)
Forecasted sales and foreign currency denominated assets  136   153   8.2   (4.3)  57   136   —   8 
Net investments in foreign operations  1,964   1,855   (72.9)  (42.2)  —   1,964   —   (73)
                  
 $3,470  $3,006  $(71.7) $(42.4) $1,708  $3,470  $31  $(72)
                  
 
As of May 2, 2007,April 30, 2008, the Company’s foreign currency contracts mature within two years. Contracts that meet qualifying criteria are accounted for as either foreign currency cash flow hedges or net investment hedges of foreign operations. Any gains and losses related to contracts that do not qualify for hedge accounting are recorded in current period earnings in other income and expense.


27

Substantially all of the Company’s 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 — “Financial8—“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 Company’s long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company’s debt obligations totaled $4.9$5.18 billion (including $199 million relating to the SFAS No. 133 hedge accounting adjustments) and $4.4$4.88 billion (including $71 million relating to the SFAS No. 133 hedge accounting adjustments) at April 30, 2008 and May 2, 2007, and May 3, 2006, respectively. The Company’s debt obligations are summarized in Note 8, “Debt” in Item 8 — “Financial8—“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,April 30, 2008, a variance of 1/8%1/8% in the related interest rate would cause annual interest expense related to this debt to change by approximately $3.4$2 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  April 30, 2008 May 2, 2007 
 (Dollars in millions)  (Dollars in millions) 
Pay floating swaps—notional amount $2,588.4  $2,615.4  $1,642  $2,588 
Net unrealized gains/(losses) $71.2  $(1.4)
Net unrealized gains $95  $71 
Weighted average maturity (years)  8.9   10.0   4   9 
Weighted average receive rate  6.37%  6.37%  6.36%  6.37%
Weighted average pay rate  6.35%  5.07%  6.15%  6.35%
 
The Company had interest rate contracts with a total notional amount of $107.6$177 million and $108 million at April 30, 2008 and May 2, 2007, and May 3, 2006respectively, 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 yearsone year from the current fiscal year-end. Net unrealized lossesgains related to these interest rate contracts were insignificant as of April 30, 2008, and net unrealized losses totaled $2.3 million and $4.4$2 million at May 2, 2007 and May 3, 2006, respectively.2007.
 
Effect of Hypothetical 10% Fluctuation in Market Prices:As of May 2, 2007,April 30, 2008, the potential gain or loss in the fair value of the Company’s outstanding foreign currency contracts and interest rate contracts assuming a hypothetical 10% fluctuation in currency and swap rates would be approximately:
 
        
 Fair Value Effect  Fair Value Effect 
 (Dollars in
  (Dollars in
 
 millions)  millions) 
Foreign currency contracts $329  $177 
Interest rate swap contracts $81  $21 
 
However, it should be noted that any change in the fair value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. In relation to currency contracts, this hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar.


28

Recently Issued Accounting Standards
 
In SeptemberJuly 2006, the Financial Accounting Standards Board (“FASB”) issued 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). 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 Company’s defined benefit pension plans and other postretirement benefit plans is reflected in the Company’s consolidated balance sheet as of May 2, 2007. Refer to Note 2 in Item 8—“Financial Statements and Supplementary Data.”
In July 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48)(“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 requiredSee Note 7, “Income Taxes” in Item 8—“Financial Statements and Supplementary Data” for additional information.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”,which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies whenever other accounting pronouncements require or permit assets or liabilities to be adopted bymeasured at fair value, but does not expand the use of fair value to new accounting transactions. SFAS No. 157 is effective for financial assets and liabilities in fiscal years beginning after November 15, 2007, and for non-financial assets and liabilities in fiscal years beginning after November 15, 2008. The Company inwill adopt SFAS No. 157 for its financial assets and liabilities on May 1, 2008, the first quarterday of fiscal 2008.Fiscal 2009. The cumulative effectCompany’s financial instruments consist primarily of applying FIN 48, if any, is to be reported as an adjustment tocash and cash equivalents, receivables, accounts payable, short-term and long-term debt, swaps, forward contracts, and option contracts. The recorded values of the opening balance of retained earnings in the year of adoption.Company’s financial instruments approximate fair value. The Company is currently evaluating the impact of adopting FIN 48SFAS No. 157 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statement Nos. 87, 88, 106 and 132(R).” SFAS No. 158 required that the Company recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in the consolidated balance sheet and to recognize changes in that funded status in the year in which changes occur through comprehensive income. Effective May 2, 2007, the Company adopted these provisions of SFAS No. 158. SFAS No. 158 also requires that employers measure plan assets and obligations as of the date of their year-end financial statements beginning with the Company’s fiscal year ending April 29, 2009. The Company does not expect the impact of the change in measurement date to have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51.” These new standards will significantly change the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS Nos. 141(R) and 160 are required to be adopted simultaneously and are effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Thus, the Company will be required to adopt these standards on April 30, 2009, the first day of Fiscal 2010. The Company is currently evaluating the impact of adopting SFAS Nos. 141(R) and 160 on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”. This new standard requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 161 in the fourth quarter of Fiscal 2008.2009.


29

Discussion of Significant Accounting Estimates
 
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results and require management’s 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 Costs—Trade promotions are an important component of the sales and marketing of the Company’s 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 Company’s 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 authorizedauthorization 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 Company’s 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 Company’s 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 Equipment—Investments 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 temporaryother-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 Company’s internal projections and annual operating plans, and in addition, external factors such as market devaluation and inflationchanges in macroeconomic trends which are developed in connection with the Company’s longer-termlong-term strategic planning. As each is


30

management’s best estimate on then available information, resulting estimates may differ from actual cash flows.
 
Goodwill and Indefinite LivedIndefinite-Lived Intangibles—Carrying 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.”exist. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, loss of key personnel, and acts by governments and courts, may signal that an asset has become impaired. All goodwill is assigned to reporting units, which are one level below our operating segments. Goodwill is assigned to the reporting unit that benefits from the synergies arising from each business combination. We perform our impairment tests of goodwill at the reporting unit level. The Company’s 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 Company’s 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 Company’s longer-termlong-term strategic planning. Inherent in estimating future performance, in particular assumptions regarding external factors such as capital markets, are uncertainties beyond the Company’s control.
 
Retirement Benefits—The Company sponsors pension and other retirement plans in various forms covering substantially all employees who meet eligibility requirements. Several statisticalactuarial and other factors that attempt to anticipate future events are used in calculating the expense and obligations related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, turnover rates and rate of future compensation increases as determined by the Company, within certain guidelines. In addition, the Company’s actuarial consultants useCompany uses best estimate assumptions, provided by actuarial consultants, for withdrawal and mortality rates to estimate benefit expense. The financial and actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension expense recorded by the Company.
 
The Company recognized pension expense related to defined benefit programs of $31.6$7 million, $77.1$32 million and $65.6$77 million for fiscal years 2008, 2007 2006 and 20052006, respectively, which reflected expected return on plan assets of $198.5$227 million, $169.0$199 million and $168.4$169 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$60 million to its pension plans in Fiscal 2008.2008 compared to $63 million in Fiscal 2007 and $65 million in Fiscal 2006. The Company expects to contribute approximately $80 million to its pension plans in Fiscal 2009.


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 April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005.2006. For purposes of calculating Fiscal 20082009 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 thatwhere the Company operates a benefit plan) as of the measurement date. The Company uses bond yields of appropriate duration for each country by matching to the duration of plan liabilities. The weighted average


31

discount rate used to measure the projected benefit obligation for the year ending May 2, 2007April 30, 2008 increased slightly to 5.5%6.1% from 5.3%5.5% as of May 3, 2006.2, 2007.
 
Deferred gains and losses result from actual experience different from expected financial and actuarial assumptions. The pension plans currently have a deferred loss amount of $633.5$803 million at May 2, 2007.April 30, 2008. During 2007,2008, the deferred loss amount was positivelynegatively impacted by an increase in the average discount rate offset partially by actual asset returns being less than expected. Deferred gains and losses are amortized through the actuarial calculation into annual expense over the estimated average remaining service period of plan participants, which is currently 11 years.
 
The Company also provides certain postretirement health care benefits. The postretirement health care benefit expense and obligation are determined using the Company’s assumptions regarding health care cost trend rates. The health care trend rates are developed based on historical cost data, the near-term outlook on health care trends and the likely long-term trends. The domestic postretirement health care benefit obligation at May 2, 2007April 30, 2008 was determined using an average initial health care trend rate of 8.7%9.3% which gradually decreases to an average ultimate rate of 4.9%5% in 2015.5 years. The foreign postretirement health care benefit obligation at April 30, 2008 was determined using an average initial health care trend rate of 6.7% which gradually decreases to an average ultimate rate of 4% in 7 years. A one percentage point increase in the assumed health care cost trend rate would increase the service and interest cost components of annual expense by $1.6$2 million and increase the benefit obligation by $17.7$18 million. A one percentage point decrease in the assumed health care cost trend rates would decrease the service and interest cost by $1.4$1 million and decrease the benefit obligation by $15.9$16 million.
 
Sensitivity of Assumptions
 
If we assumed a 100 basis point change in the following assumptions, our Fiscal 20072008 projected benefit obligation and expense would increase (decrease) by the following amounts (in millions):
 
                
 100 Basis Point  100 Basis Point 
 Increase Decrease  Increase Decrease 
Pension benefits
                
Discount rate used in determining projected benefit obligation $(332.2) $384.8  $(341) $392 
Discount rate used in determining net pension expense $(27.7) $30.8  $(26) $29 
Long-term rate of return on assets used in determining net pension expense $(27.3) $27.3  $(29) $29 
Other benefits
                
Discount rate used in determining projected benefit obligation $(21.6) $21.9  $(22) $22 
Discount rate used in determining net benefit expense $(2.8) $3.2  $(3) $3 


29

Income Taxes—The 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 Company’s annual tax rate and in evaluating uncertainty in its tax positions. The Company establishes reserves when it becomes probable thatrecognizes a benefit for tax return positionpositions that it considers supportable maybelieves will more likely than not be challenged andsustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company may not succeed in completely defending that challenge.believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts these reserves in lightthe amount of changing facts and circumstances, such asrecognized tax benefit based on its evaluation of information that has become available since the settlementend of a tax audit.its last financial reporting period. The Company’s annual tax rate includes the impact of reserve provisions andthese changes to reserves. While it is often difficult to predictin recognized tax benefits. When adjusting the final outcome or the timingamount of resolution of any particularrecognized tax matter,benefits the Company believesdoes not consider information that its reserves reflecthas become available after the probable outcomebalance sheet date, but does disclose the effects of known tax contingencies. Favorable resolutionnew information whenever those effects would be recognized as a reductionmaterial to the Company’s annualfinancial statements. The difference between the amount of benefit taken or expected to be taken in a tax rate inreturn and the yearamount of resolution. The Company’sbenefit recognized for financial reporting represents unrecognized tax reserves


32

benefits. These unrecognized tax benefits are presented in the balance sheet principally within accrued income taxes.
 
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
 
The resolution ofChanges in recognized tax reservesbenefits and changes in valuation allowances could be material to the Company’s results of operations for any period, but is not expected to be material to the Company’s financial position.
 
Inflation and Input Costs
 
In general, costs are affected by inflation and the effects of inflation on costs may be experienced by the Company in future periods. Management believes, however, that such effects have not been material toDuring Fiscal 2008, the Company duringhas experienced inflationary increases in commodity input costs and expects this trend to continue through Fiscal 2009. The most significant commodity cost increases in Fiscal 2008 were for dairy, edible oils and processed grains. Strong sales growth, price increases, continued productivity improvements and the past three years in the United States or in foreign non-hyperinflationary countries. Company’s geographic diversity are helping to offset these cost increases.
The Company operates in certain countries around the world, such as Venezuela, that have experienced hyperinflation. In hyperinflationary foreign countries, the Company attempts to mitigate the effects of inflation by increasing prices in line with inflation, where possible, and efficiently managing its working capital levels.
 
The impact of inflation on both the Company’s financial position and results of operations is not expected to adversely affect Fiscal 2008 results. The Company’s 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 Company’s common stock as of May 31, 20072008 approximated 39,000.37,000. The closing price of the common stock on The New York Stock Exchange composite listing on May 2, 2007April 30, 2008 was $46.61.$47.03.


30

Stock price information for common stock by quarter follows:
 
                
 Stock Price Range  Stock Price Range 
 High Low  High Low 
2008
        
First $48.50  $42.84 
Second  47.18   41.82 
Third  48.75   41.37 
Fourth  48.25   41.60 
2007
                
First $44.15  $39.62  $44.15  $39.62 
Second  42.65   40.33   42.65   40.33 
Third  47.16   41.78   47.16   41.78 
Fourth  48.73   44.28   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 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 2527 through 26.28.


3133

 
Item 8.  Financial Statements and Supplementary Data.
 
TABLE OF CONTENTS
 
     
Report of Management on Internal Control over Financial Reporting
 3335
Report of Independent Registered Public Accounting Firm
 3436
Consolidated Statements of Income
 3637
Consolidated Balance Sheets
 3738
Consolidated Statements of Shareholders’ Equity
 3940
Consolidated Statements of Cash Flows
 4041
Notes to Consolidated Financial Statements
 4142


3234

 
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 Company’s 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 Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year. Our management’s assessment ofPricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as of May 2, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,April 30, 2008, as stated in their report which appears herein.
 
/s/  William R. Johnson
Chairman, President and
Chief Executive Officer
 
/s/  Arthur B. Winkleblack

Executive Vice President and

Chief Financial Officer
 
June 21, 200719, 2008


3335

 
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 Company’s 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 April 30, 2008 and 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, 2007April 30, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. TheseAlso in our opinion, the Company maintained, in all material respects, effective internal control over financial statements and financial statement schedule arereporting as of April 30, 2008, based on criteria established inInternal Control—Integrated Frameworkissued by the responsibilityCommittee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management. Our responsibilitymanagement is to express an opinion onresponsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated 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 auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements includesincluded examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
 
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation effective May 4, 2006 and as discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans effective May 2, 2007.
Internal control over financial reporting
Also, in our opinion, management’s 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 inInternal 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 inInternal Control — Integrated Framework issued by the COSO. The Company’s 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 management’s assessment and on the effectiveness of the Company’s 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 management’s 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 company’s 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 company’s 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 company’s 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, 200719, 2008


3536

H. J. Heinz Company and Subsidiaries
Consolidated Statements of Income
             
  Fiscal Year Ended 
  April 30, 2008
  May 2, 2007
  May 3, 2006
 
  (52 Weeks)  (52 Weeks)  (53 Weeks) 
  (In thousands, except per share amounts) 
 
Sales $10,070,778  $9,001,630  $8,643,438 
Cost of products sold  6,390,086   5,608,730   5,550,364 
             
Gross profit  3,680,692   3,392,900   3,093,074 
Selling, general and administrative expenses  2,111,725   1,946,185   1,979,462 
             
Operating income  1,568,967   1,446,715   1,113,612 
Interest income  41,519   41,869   33,190 
Interest expense  364,856   333,270   316,296 
Asset impairment charges for cost and equity investments  —   —   110,994 
Other expense, net  27,836   30,915   26,051 
             
Income from continuing operations before income taxes  1,217,794   1,124,399   693,461 
Provision for income taxes  372,869   332,797   250,700 
             
Income from continuing operations  844,925   791,602   442,761 
(Loss)/income from discontinued operations, net of tax  —   (5,856)  202,842 
             
Net income $844,925  $785,746  $645,603 
             
Income/(Loss) Per Common Share:            
Diluted            
Continuing operations $2.63  $2.38  $1.29 
Discontinued operations  —   (0.02)  0.59 
             
Net Income $2.63  $2.36  $1.89 
             
Average common shares outstanding—Diluted  321,717   332,468   342,121 
             
Basic            
Continuing operations $2.67  $2.41  $1.31 
Discontinued operations  —   (0.02)  0.60 
             
Net Income $2.67  $2.39  $1.90 
             
Average common shares outstanding—Basic  317,019   328,625   339,102 
             
Cash dividends per share $1.52  $1.40  $1.20 
             
See Notes to Consolidated Financial Statements


37

H. J. Heinz Company and Subsidiaries
Consolidated Balance Sheets
         
  April 30,
  May 2,
 
  2008  2007 
  (Dollars in thousands) 
 
Assets
        
Current assets:        
Cash and cash equivalents $617,687  $652,896 
Receivables (net of allowances: 2008—$15,687 and 2007—$14,706)  1,161,481   996,852 
Inventories:        
Finished goods andwork-in-process
  1,100,735   943,449 
Packaging material and ingredients  277,481   254,508 
         
Total inventories  1,378,216   1,197,957 
Prepaid expenses  139,492   132,561 
Other current assets  28,690   38,736 
         
Total current assets  3,325,566   3,019,002 
         
Property, plant and equipment:        
Land  56,007   51,950 
Buildings and leasehold improvements  842,198   788,053 
Equipment, furniture and other  3,502,071   3,214,860 
         
   4,400,276   4,054,863 
Less accumulated depreciation  2,295,563   2,056,710 
         
Total property, plant and equipment, net  2,104,713   1,998,153 
         
Other non-current assets:        
Goodwill  2,997,462   2,834,639 
Trademarks, net  957,111   892,749 
Other intangibles, net  456,948   412,484 
Other non-current assets  723,243   875,999 
         
Total other non-current assets  5,134,764   5,015,871 
         
Total assets $10,565,043  $10,033,026 
         
See Notes to Consolidated Financial Statements


38

H. J. Heinz Company and Subsidiaries
 
Consolidated Statements of IncomeBalance Sheets
 
             
  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 outstanding—Diluted  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 outstanding—Basic  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 andwork-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,
  April 30,
 May 2,
 
 2007 2006  2008 2007 
 (Dollars in thousands)  (Dollars in thousands) 
Liabilities and Shareholders’ Equity
                
Current liabilities:                
Short-term debt $165,054  $54,052  $124,290  $165,054 
Portion of long-term debt due within one year  303,189   917   328,418   303,189 
Accounts payable  1,181,078   1,035,084   1,247,479   1,181,078 
Salaries and wages  85,818   84,815   92,553   85,818 
Accrued marketing  262,217   216,267   298,342   262,217 
Other accrued liabilities  414,130   476,683   487,656   414,130 
Income taxes  93,620   150,413   91,322   93,620 
          
Total current liabilities  2,505,106   2,018,231   2,670,060   2,505,106 
          
Long-term debt and other liabilities:                
Long-term debt  4,413,641   4,357,013   4,730,946   4,413,641 
Deferred income taxes  463,666   518,724   409,186   463,666 
Non-pension postretirement benefits  253,117   207,840 
Non-pension post-retirement benefits  257,051   253,117 
Minority interest  98,309   120,152   65,727   98,309 
Other liabilities  457,504   466,984   544,253   457,504 
          
Total long-term debt and other liabilities  5,686,237   5,670,713   6,007,163   5,686,237 
          
Shareholders’ equity:                
Capital stock:                
Third cumulative preferred, $1.70 first series, $10 par value*  77   82   72   77 
Common stock, 431,096,486 shares issued, $0.25 par value  107,774   107,774   107,774   107,774 
          
  107,851   107,856   107,846   107,851 
Additional capital  580,606   502,235   617,811   580,606 
Retained earnings  5,778,617   5,454,108   6,129,008   5,778,617 
          
  6,467,074   6,064,199   6,854,665   6,467,074 
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 
Treasury shares, at cost (119,628,499 shares at April 30, 2008 and 109,317,154 shares at May 2, 2007)  4,905,755   4,406,126 
Accumulated other comprehensive loss  219,265   130,383   61,090   219,265 
          
Total shareholders’ equity  1,841,683   2,048,823   1,887,820   1,841,683 
          
Total liabilities and shareholders’ equity $10,033,026  $9,737,767  $10,565,043  $10,033,026 
          
 
*The preferred stock outstanding is convertible at a rate of one share of preferred stock into 15 shares of common stock. The Company can redeem the stock at $28.50 per share. As of May 2, 2007,April 30, 2008, there were authorized, but unissued, 2,200,000 shares of third cumulative preferred stock for which the series had not been designated.
 
See Notes to Consolidated Financial Statements


3839

H. J. Heinz Company and Subsidiaries
 
Consolidated Statements of Shareholders’ Equity
 
                                                
 May 2, 2007 May 3, 2006 April 27, 2005  April 30, 2008 May 2, 2007 May 3, 2006 
 Shares Dollars Shares Dollars Shares Dollars  Shares Dollars Shares Dollars Shares Dollars 
 (Amounts in thousands, expect per share amounts)  (Amounts in thousands, expect per share amounts) 
PREFERRED STOCK
                                                
Balance at beginning of year  8  $82   9  $83   10  $94   8  $77   8  $82   9  $83 
Conversion of preferred into common stock  —   (5)  (1)  (1)  (1)  (11)  (1)  (5)  —   (5)  (1)  (1)
            ��             
Balance at end of year  8   77   8   82   9   83   7   72   8   77   8   82 
                          
Authorized shares- May 2, 2007  8                     
Authorized shares- April 30, 2008  7                     
      
COMMON STOCK
                                                
Balance at beginning of year  431,096   107,774   431,096   107,774   431,096   107,774   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   431,096   107,774   431,096   107,774   431,096   107,774 
                          
Authorized shares- May 2, 2007  600,000                     
Authorized shares- April 30, 2008  600,000                     
      
ADDITIONAL CAPITAL
                                                
Balance at beginning of year      502,235       430,073       403,043       580,606       502,235       430,073 
Conversion of preferred into common stock      (191)      (32)      (350)      (219)      (191)      (32)
Stock options exercised, net of shares tendered for payment      79,735†      46,861†      27,030†      20,920†      79,735†       46,861† 
Stock option expense      11,987       —       —       8,919       11,987       — 
Restricted stock unit activity      16,000       21,958       (7,051)      4,961       16,000       21,958 
Transfer of unearned compensation balance per SFAS No. 123R      (32,773)      —       —       —       (32,773)      — 
Initial adoption of FIN 48      (1,719)      —       — 
Other, net*      3,613       3,375       7,401       4,343       3,613       3,375 
              
Balance at end of year      580,606       502,235       430,073       617,811       580,606       502,235 
              
RETAINED EARNINGS
                                                
Balance at beginning of year      5,454,108       5,210,748       4,856,918       5,778,617       5,454,108       5,210,748 
Net income      785,746       645,603       752,699       844,925       785,746       645,603 
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)
Preferred (per share $1.70 per share in 2008, 2007, and 2006)      (12)      (13)      (14)
Common (per share $1.52, $1.40, and $1.20 in 2008, 2007, and 2006, respectively)      (485,234)      (461,224)      (408,137)
Initial adoption of FIN 48      (9,288)      —       — 
Other, net*      —       5,908       —       —       —       5,908 
              
Balance at end of year      5,778,617       5,454,108       5,210,748       6,129,008       5,778,617       5,454,108 
              
TREASURY STOCK
                                                
Balance at beginning of year  (100,339)  (3,852,220)  (83,419)  (3,140,586)  (79,139)  (2,927,839)  (109,317)  (4,406,126)  (100,339)  (3,852,220)  (83,419)  (3,140,586)
Shares reacquired  (16,651)  (760,686)  (21,925)  (823,370)  (7,825)  (291,348)  (13,054)  (580,707)  (16,651)  (760,686)  (21,925)  (823,370)
Conversion of preferred into common stock  7   195   1   33   16   361   8   224   7   195   1   33 
Stock options exercised, net of shares tendered for payment  7,265   195,117   4,575   101,945   2,845   62,669   2,116   62,486   7,265   195,117   4,575   101,945 
Restricted stock unit activity  96   2,438   58   1,303   251   5,724   289   8,591   96   2,438   58   1,303 
Other, net*  305   9,030   371   8,455   433   9,847   330   9,777   305   9,030   371   8,455 
                          
Balance at end of year  (109,317)  (4,406,126)  (100,339)  (3,852,220)  (83,419)  (3,140,586)  (119,628)  (4,905,755)  (109,317)  (4,406,126)  (100,339)  (3,852,220)
                          
UNEARNED COMPENSATION
                                                
Balance at beginning of year      (32,773)      (31,141)      (32,275)      —       (32,773)      (31,141)
Restricted stock unit activity      —       (2,195)      2,123       —       —       (2,195)
Transfer of balance to additional capital per SFAS No. 123R      32,773       —       —       —       32,773       — 
Other, net*      —       563       (989)      —       —       563 
              
Balance at end of year      —       (32,773)      (31,141)      —       —       (32,773)
              
OTHER COMPREHENSIVE INCOME/(LOSS)
                        
OTHER COMPREHENSIVE (LOSS)/INCOME
                        
Balance at beginning of year      (130,383)      25,622       (513,526)      (219,265)      (130,383)      25,622 
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 pension and post-retirement benefit losses (net of $75,407 tax benefit in 2008)      (155,989)      —       — 
Reclassification of net pension and post-retirement benefit losses to net income (net of $14,159 tax benefit in 2008)      27,787       —       — 
Minimum pension liability (net of $4,167 tax expense and $3,306 tax benefit in 2007 and 2006, respectively)      —       8,041       (8,583)
Unrealized translation adjustments (net of $25,823 tax expense, $29,635 tax benefit, and $11,912 tax benefit in 2008, 2007 and 2006, respectively)      281,090       293,673       (147,746)
Net change in fair value of cash flow hedges (net of $7,527 tax expense and $4,423 tax benefit in 2008 and 2007, respectively)      16,273       (3,401)      8,236 
Net hedging (gains)/losses reclassified into earnings (net of $7,287 tax expense, $6,163 tax benefit, and $5,915 tax expense in 2008, 2007, and 2006, respectively)      (10,986)      11,239       (7,912)
              
Net other comprehensive income adjustments      309,552       (156,005)      539,148 
Net other comprehensive income/(loss) adjustments      158,175       309,552       (156,005)
              
Initial adoption of SFAS No. 158, net of $182,530 tax benefit      (398,434)      —       —       —       (398,434)      — 
              
Balance at end of year      (219,265)††      (130,383)      25,622       (61,090)††      (219,265)      (130,383)
              
TOTAL SHAREHOLDERS’ EQUITY
     $1,841,683      $2,048,823      $2,602,573      $1,887,820      $1,841,683      $2,048,823 
              
COMPREHENSIVE INCOME
                                                
Net income     $785,746      $645,603      $752,699      $844,925      $785,746      $645,603 
Net other comprehensive income adjustments      309,552       (156,005)      539,148 
Net other comprehensive income/(loss) adjustments      158,175       309,552       (156,005)
              
TOTAL COMPREHENSIVE INCOME
     $1,095,298      $489,598      $1,291,847      $1,003,100      $1,095,298      $489,598 
              
 
*Includes activity of the Global Stock Purchase Plan. Retained Earnings in Fiscal 2006 reflects the final settlement associated with businesses spun-off to Del Monte in Fiscal 2003.
 
†Includes income tax benefit resulting from exercised stock options.
 
††Comprised of unrealized translation adjustment of $248,138, minimum$529,228, pension liabilityand post-retirement benefits net prior service cost of $(72,183)$(11,833) and net losses of $(586,986), and deferred net gains on derivative financial instruments $3,214, and initial adoption of SFAS No. 158 $(398,434).$8,501.
 
See Notes to Consolidated Financial Statements


3940

H. J.  Heinz Company and Subsidiaries
 
Consolidated Statements of Cash Flows
 
                        
 Fiscal Year Ended  Fiscal Year Ended 
 May 2,
 May 3,
 April 27,
  April 30,
 May 2,
 May 3,
 
 2007
 2006
 2005
  2008
 2007
 2006
 
 (52 Weeks) (53 Weeks) (52 Weeks)  (52 Weeks) (52 Weeks) (53 Weeks) 
 (Dollars in thousands)  (Dollars in thousands) 
Operating activities:
                        
Net income $785,746  $645,603  $752,699  $844,925  $785,746  $645,603 
Adjustments to reconcile net income to cash provided by operating activities:                        
Depreciation  233,374   227,454   227,187   250,826   233,374   227,454 
Amortization  32,823   36,384   25,265   38,071   32,823   36,384 
Deferred tax provision/(benefit)  52,244   (57,693)  53,857   18,543   52,244   (57,693)
(Gains)/losses on disposals and impairment charges  (1,391)  48,023   100,818   (15,706)  (1,391)  48,023 
Other items, net  11,066   39,066   43,989   22,343   11,066   39,066 
Changes in current assets and liabilities, excluding effects of acquisitions and divestitures:                        
Receivables  10,987   115,583   45,851   (55,832)  10,987   115,583 
Inventories  (82,534)  (47,401)  (25,315)  (133,600)  (82,534)  (47,401)
Prepaid expenses and other current assets  14,208   13,555   2,633   5,748   14,208   13,555 
Accounts payable  56,524   56,545   8,140   89,160   56,524   56,545 
Accrued liabilities  (4,489)  57,353   25,077   28,259   (4,489)  57,353 
Income taxes  (46,270)  (59,511)  (99,408)  95,566   (46,270)  (59,511)
              
Cash provided by operating activities  1,062,288   1,074,961   1,160,793   1,188,303   1,062,288   1,074,961 
              
Investing activities:
                        
Capital expenditures  (244,562)  (230,577)  (240,671)  (301,588)  (244,562)  (230,577)
Proceeds from disposals of property, plant and equipment  60,661   19,373   22,252   8,531   60,661   19,373 
Acquisitions, net of cash acquired  (88,996)  (1,100,436)  (126,549)  (151,604)  (88,996)  (1,100,436)
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 
Net proceeds/(payments) related to divestitures  63,481   (4,144)  856,729 
Termination of net investment hedges  (93,153)  —   — 
Other items, net  (49,203)  3,094   (10,236)  (79,894)  (49,203)  3,094 
              
Cash used for investing activities  (326,244)  (451,817)  (264,054)  (554,227)  (326,244)  (451,817)
              
Financing activities:
                        
Payments on long-term debt  (52,069)  (727,772)  (480,471)  (368,214)  (52,069)  (727,772)
Proceeds from long-term debt  —   230,790   —   —   —   230,790 
Net proceeds from commercial paper and short-term debt  384,055   298,525   26,468   483,730   384,055   298,525 
Dividends  (461,237)  (408,151)  (398,869)  (485,246)  (461,237)  (408,151)
Purchase of treasury stock  (760,686)  (823,370)  (291,348)
Purchases of treasury stock  (580,707)  (760,686)  (823,370)
Exercise of stock options  259,816   142,046   79,383   78,596   259,816   142,046 
Termination of interest rate swaps  103,522   —   — 
Other items, net  9,212   18,507   13,952   10,224   9,212   18,507 
              
Cash used for financing activities  (620,909)  (1,269,425)  (1,050,885)  (758,095)  (620,909)  (1,269,425)
              
Cash provided by operating activities of discontinued operations spun-off to Del Monte  33,511   13,312   28,196   —   33,511   13,312 
Effect of exchange rate changes on cash and cash equivalents  58,823   (5,353)  69,660   88,810   58,823   (5,353)
              
Net increase/(decrease) in cash and cash equivalents  207,469   (638,322)  (56,290)
Net (decrease)/increase in cash and cash equivalents  (35,209)  207,469   (638,322)
Cash and cash equivalents at beginning of year  445,427   1,083,749   1,140,039   652,896   445,427   1,083,749 
              
Cash and cash equivalents at end of year $652,896  $445,427  $1,083,749  $617,687  $652,896  $445,427 
              
 
See Notes to Consolidated Financial Statements


4041

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 April 30, 2008, May 2, 2007, and May 3, 2006 and April 27, 2005.2006.
 
Principles of Consolidation:
 
The consolidated financial statements include the accounts of the Company and entities in which the Company maintains a controlling financial interest. Control is generally determined based on the majority ownership of an entity’s voting interests. In certain situations, control is based on participation in the majority of an entity’s 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 downoff the Zimbabwe investment related to management’s 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. Management’s determination was based on an evaluation of political and economic conditions existing in Zimbabwe and the ability for the Company to recover its cost in this investment. This evaluation considered the continued economic turmoil, further instability in the local currency and the uncertainty regarding the ability to source raw material in the future. In Fiscal 2008, the Company sold this business resulting in an insignificant gain.
 
Use of Estimates:
 
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
 
Translation of Foreign Currencies:
 
For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive income/(loss) within shareholders’ equity. Gains and losses from foreign currency transactions are included in net income for the period.
 
Cash Equivalents:
 
Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less.


4142

 
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: buildings—40 years or less, machinery and equipment—15 years or less, computer software—3-73 to 7 years, and leasehold improvements—over 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 Company’s impairment review is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset exceeds the future undiscounted cash flows. When an impairment is indicated, the asset is written down to its fair value.
 
Intangibles:
 
Intangible assets with finite useful lives are amortized on a straight-line basis over the estimated periods benefited, and are reviewed when appropriate for possible impairment, similar to property, plant and equipment. Goodwill and intangible assets with indefinite useful lives are not amortized. The carrying values of goodwill and other intangible assets with indefinite useful lives are tested at least annually for impairment.
 
Revenue Recognition:
 
The Company recognizes revenue when title, ownership and risk of loss pass to the customer. This occurs upon delivery of the product to the customer. Customers generally do not have the right to return products unless damaged or defective. Revenue is recorded, net of sales incentives, and includes shipping and handling charges billed to customers. Shipping and handling costs are primarily classified as part of selling, general and administrative expenses.
 
Marketing Costs:
 
The Company promotes its products with advertising, consumer incentives and trade promotions. Such programs include, but are not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. Advertising costs are expensed as incurred. Consumer incentive and trade promotion activities are recorded as a reduction of revenue or as a component of cost of products sold based on amounts estimated as being due to customers and consumers at the end of a period, based principally on historical utilization and redemption rates. For interim reporting purposes, advertising, consumer incentive and product placement expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the full year.


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


43

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
realized, a valuation allowance is recognized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
 
The Company has not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable.
 
Stock-Based Employee Compensation Plans:
 
Prior to May 4, 2006, the Company accounted for its stock-based compensation plans under the measurement and recognition provisions of Accounting Principles Board Opinion No. (“APB”) 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation (“SFAS 123”). Under the intrinsic-value method prescribed by APB 25, compensation cost for stock options was measured at the grant date as the excess, if any, of the quoted market price of the Company’s 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 Company’s 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.


4344

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

Had compensation cost for the Company’s stock option planplans been determined in the prior yearsFiscal 2006 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  Fiscal Year Ended 
 May 3,
 April 27,
  May 3,
 
 2006
 2005
  2006
 
 (53 Weeks) (52 Weeks)  (53 Weeks) 
 (In thousands,
  (In thousands,
 
 except per share amounts)  except per share amounts) 
Income from continuing operations:            
As reported $442,761  $688,004  $442,761 
Fair value-based expense, net of tax  12,333   17,846   12,333 
        
Pro forma $430,428  $670,158  $430,428 
        
Income per common share from continuing operations:            
Diluted            
As reported $1.29  $1.95  $1.29 
Pro forma $1.26  $1.90  $1.26 
Basic            
As reported $1.31  $1.97  $1.31 
Pro forma $1.27  $1.91  $1.27 
 
Financial Instruments:
 
The Company’s financial instruments consist primarily of cash and cash equivalents, receivables, accounts payable, short-term and long-term debt, swaps, forward contracts, and option contracts. The carrying values for the Company’s financial instruments approximate fair value. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes.
 
The Company uses derivative financial instruments for the purpose of hedging currency, debt and interest rate exposures, which exist as part of ongoing business operations. The Company carries derivative instruments on the balance sheet at fair value, determined by reference to quoted market data. Derivatives with scheduled maturities of less than one year are included in receivables or accounts payable, based on the instrument’s 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 instrument’s 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 cashCash flows related to derivative instruments designated as cash flow hedges are generally classified in the consolidated statements of cash flows within operating activities as a component of other items, net. Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activitiesactivities. Cash flows related to the termination of derivative instruments designated as a componentfair value hedges of other items, net.
2.  Recently Issued Accounting Standards
In September 2006,fixed rate debt obligations are classified in the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—anconsolidated statements of cash flows within financing activities.


4445

 
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 Company’s 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 
2.  Recently Issued Accounting Standards
 
In July 2006, the FASBFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48)(“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 requiredSee Note 7 for additional information.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”,which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies whenever other accounting pronouncements require or permit assets or liabilities to be adopted bymeasured at fair value, but does not expand the use of fair value to new accounting transactions. SFAS No. 157 is effective for financial assets and liabilities in fiscal years beginning after November 15, 2007, and for non-financial assets and liabilities in fiscal years beginning after November 15, 2008. The Company inwill adopt SFAS No. 157 for its financial assets and liabilities on May 1, 2008, the first quarterday of fiscal 2008.Fiscal 2009. The cumulative effectCompany’s financial instruments consist primarily of applying FIN 48, if any, is to be reported as an adjustment tocash and cash equivalents, receivables, accounts payable, short-term and long-term debt, swaps, forward contracts, and option contracts. The recorded values of the opening balance of retained earnings in the year of adoption.Company’s financial instruments approximate fair value. The Company is currently evaluating the impact of adopting FIN 48SFAS No. 157 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statement Nos. 87, 88, 106 and 132(R).” SFAS No. 158 required that the Company recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in the consolidated balance sheet and to recognize changes in that funded status in the year in which changes occur through comprehensive income. Effective May 2, 2007, the Company adopted these provisions of SFAS No. 158. SFAS No. 158 also requires that employers measure plan assets and obligations as of the date of their year-end financial statements beginning with the Company’s fiscal year ending April 29, 2009. The Company does not expect the impact of the change in measurement date to have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51.” These new standards will significantly change the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS Nos. 141(R) and 160 are required to be adopted simultaneously and are effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Thus, the Company will be required to adopt these standards on April 30, 2009, the first day of Fiscal 2010. The Company is currently evaluating the impact of adopting SFAS Nos. 141(R) and 160 on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”. This new standard requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements


46

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 161 in the fourth quarter of Fiscal 2008.2009.
 
3.  Discontinued Operations
 
During fiscal years 2003 through 2006, the Company focused on exiting non-strategic business operations. Certain of these businesses which were sold arewere 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 ofJohn West®,Petit Navire®,Marie Elisabeth® andMareblu®. 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 theTegel® 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 Company’s consolidated statements of income for all periods presented.income. The Company recorded a loss of $3.3 million ($5.9 million after-tax) from these businesses for the year ended May 2, 2007,


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 yearsyear ended May 3, 2006 and April 27, 2005, respectively.2006.
 
In addition, net income from discontinued operations includes amounts related to the favorable settlement of tax liabilities associated with the businesses spun-off to Del Monte in Fiscal 2003. Such amounts totaled $33.7 million and $16.9 million for the yearsyear ended May 3, 2006 and April 27, 2005, respectively.2006.
 
4.  Fiscal 2006 Transformation Costs
 
In executing its strategic transformation during Fiscal 2006, the Company incurred the following associated costs. These costs were directly linked to the Company’s transformation strategy.
 
Reorganization Costs:
 
In Fiscal 2006, the Company recorded pretax integration and reorganization charges for targeted workforce reductions consistent with the Company’s 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)
           


4647

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

Other Divestitures/Impairment Charges:
The following (losses)/gains or non-cash asset impairment charges were recorded in continuing operations during Fiscal 2006:
           
Business or Product Line
 
Segment
 Pre-Tax  After-Tax 
    (In millions) 
 
Loss on sale of Seafood business in Israel Rest of World $(15.9)��$(15.9)
Impairment charge on Portion Pac Bulk product line U.S. Foodservice  (21.5)  (13.3)
Impairment charge on U.K. Frozen and Chilled product lines Europe  (15.2)  (15.2)
Impairment charge on European production assets Europe  (18.7)  (18.7)
Impairment charge on Noodle product line in Indonesia Asia/Pacific  (15.8)  (8.5)
Impairment charge on investment in Zimbabwe business Rest of World  (111.0)  (105.6)
Other Various  (1.5)  0.5 
           
Total
   $(199.6) $(176.7)
           
Of the above pre-tax amounts, $74.1 million was recorded in cost of products sold, $15.5 million in SG&A, $111.0 million in asset impairment charges for cost and equity investments, and $(1.0) million in other expense.
 
Also during the third quarter of Fiscal 2006, the Company sold its equity investment in The Hain Celestial Group, Inc. (“Hain”) and recognized a $6.9 million ($4.5 million after-tax) loss which is recorded within other expense, net. Net proceeds from the sale of this investment were $116.1 million. During the third quarter of Fiscal 2005, the Company recognized a $64.5 million impairment charge on its equity investment in Hain. The charge reduced Heinz’s 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 sponsorede-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 theHAK® vegetable product line which was sold in Fiscal 2006.
There were no material gains/(losses) on divested businesses or asset impairment charges in Fiscal 2007.2007 or 2008.
 
Other Non-recurring—American 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.
 
5.  Acquisitions
 
During the first quarter of Fiscal 2008, the Company acquired the license to theCottee’s® andRose’s® premium branded jams, jellies and toppings business in Australia and New Zealand for approximately $58 million. During the second quarter of Fiscal 2008, the Company acquired the remaining interest in its Shanghai LongFong Foods business for approximately $18 million in cash


48

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
and $15 million of deferred consideration. During the fourth quarter of Fiscal 2008, the Company acquired theWyko® sauce business in the Netherlands for approximately $66 million. The Company also made payments during Fiscal 2008 related to acquisitions completed in prior fiscal years, none of which were significant.
During Fiscal 2007, the Company acquired Renée’s Gourmet Foods, a Canadian manufacturer of premium chilled salad dressings, sauces, dips, marinades and mayonnaise, for approximately $68.1$68 million. In addition, during Fiscal 2007, the Company acquired the remaining interest in its Petrosoyuz joint venture for approximately $15.0$15 million. The Company also made payments during Fiscal 2007 related to acquisitions completed in prior fiscal years, none of which were significant.
 
The Company acquired the following businesses during Fiscal 2006 for a total purchase price of $1.1 billion:
 
 • In August 2005, the Company acquired HP Foods Limited, HP Foods Holdings Limited, and HP Foods International Limited (collectively referred to as “HPF”) for a purchase price of approximately $877 million. HPF is a manufacturer and marketer of sauces which are primarily sold in the United Kingdom, the United States, and Canada. The Company acquired HPF’s brands includingHP®andLea & PerrinPerrins®and a perpetual license to marketAmoy®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. Petrosoyuz’s business includes brands such asPikador®,Derevenskoye®,Mechta Hoziajki®andMoya Sem’ya®.
 
 • In July 2005, the Company acquired Nancy’s 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 d’oeuvres 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 d’oeuvres 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.acquisitions, except as disclosed above.


49

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
6.  Goodwill and Other Intangible Assets
 
Changes in the carrying amount of goodwill for the fiscal year ended May 2, 2007,April 30, 2008, by reportable segment, are as follows:
 
                                                
 North
            North
           
 American
       Rest
    American
       Rest
   
 Consumer
 U.S.
   Asia/
 of
    Consumer
   Asia/
 U.S.
 of
   
 Products Foodservice Europe Pacific World Total  Products Europe Pacific Foodservice World Total 
 (Thousands of dollars)  (Thousands of dollars) 
Balance at May 3, 2006 $1,067,727  $278,039  $1,265,469  $195,206  $16,126  $2,822,567 
Balance at May 2, 2007 $1,081,673  $1,259,514  $214,964  $262,823  $15,665  $2,834,639 
Acquisitions  35,694   —   1,209   414   —   37,317   —   15,259   47,603   —   —   62,862 
Purchase accounting adjustments  (21,706)  (15,216)  (103,144)  —   633   (139,433)  2,820   (2,155)  —   —   —   665 
Disposals  —   —   (229)  (2,234)  —   (2,463)  —   (1,239)  —   —   —   (1,239)
Translation adjustments  (42)  —   96,209   21,578   (1,094)  116,651   11,795   69,549   19,852   —   (661)  100,535 
                          
Balance at May 2, 2007 $1,081,673  $262,823  $1,259,514  $214,964  $15,665  $2,834,639 
Balance at April 30, 2008 $1,096,288  $1,340,928  $282,419  $262,823  $15,004  $2,997,462 
                          
 
The annual impairment tests are performed inas of the fourthlast day of the third 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 Renée’s Gourmet Foods and the remaining interest in its Petrosoyuz joint venture. Also during Fiscal 2007, theThe Company finalized the purchase price allocationsallocation for the acquisitionsCottee’s® andRose’s® acquisition during the fourth quarter of HP Foods, Nancy’s Specialty Foods, Kabobs, Inc., and Renée’s Gourmet Foods, resulting in adjustments primarily between goodwill, trademarks, other intangible assets, and deferred income taxes.Fiscal 2008. The Company also recorded a preliminary purchase price allocation related to theWyko® acquisition, which is expected to be finalized upon completion of valuation procedures.
 
Trademarks and other intangible assets at April 30, 2008 and May 2, 2007, and May 3, 2006, subject to amortization expense, are as follows:
 
                                                
 May 2, 2007 May 3, 2006  April 30, 2008 May 2, 2007 
 Gross Accum Amort Net Gross Accum Amort Net  Gross Accum Amort Net Gross Accum Amort Net 
 (Thousands of dollars)  (Thousands of dollars) 
Trademarks $196,703  $(63,110) $133,593  $197,957  $(61,279) $136,678  $200,966  $(69,104) $131,862  $196,703  $(63,110) $133,593 
Licenses  208,186   (135,349)  72,837   208,186   (129,630)  78,556   208,186   (141,070)  67,116   208,186   (135,349)  72,837 
Recipes/processes  64,315   (15,779)  48,536   95,456   (14,079)  81,377   71,495   (19,306)  52,189   64,315   (15,779)  48,536 
Customer related assets  152,668   (19,183)  133,485   105,510   (11,507)  94,003   183,204   (31,418)  151,786   152,668   (19,183)  133,485 
Other  70,386   (56,344)  14,042   70,832   (55,204)  15,628   73,848   (59,639)  14,209   70,386   (56,344)  14,042 
                          
 $692,258  $(289,765) $402,493  $677,941  $(271,699) $406,242  $737,699  $(320,537) $417,162  $692,258  $(289,765) $402,493 
                          
 
Amortization expense for trademarks and other intangible assets subject to amortization was $27.7 million, $25.7 million $27.6 million and $18.0$27.6 million for the fiscal years ended April 30, 2008, May 2, 2007 and 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,April 30, 2008, amortization expense for each of the next five fiscal years is estimated to be approximately $30$28 million.
 
Intangible assets not subject to amortization at April 30, 2008 totaled $996.9 million and consisted of $825.2 million of trademarks, $135.3 million of recipes/processes, and $36.4 million of licenses. Intangibles assets not subject to amortization at May 2, 2007 totaled $902.7 million and 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.


4950

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

consisted of $759.2 million of trademarks, $126.6 million of recipes/processes, and $16.9 million of licenses.
7.  Income Taxes
 
The following table summarizes the provision/(benefit) for U.S. federal, state and foreign taxes on income from continuing operations.
 
                        
 2007 2006 2005  2008 2007 2006 
 (Dollars in thousands)  (Dollars in thousands) 
Current:                        
U.S. federal $89,020  $71,533  $68,905  $80,638  $89,020  $71,533 
State  9,878   14,944   9,128   15,323   9,878   14,944 
Foreign  181,655   225,498   169,629   258,365   181,655   225,498 
              
  280,553   311,975   247,662   354,326   280,553   311,975 
              
Deferred:                        
U.S. federal  104,113   (54,957)  45,020   14,975   104,113   (54,957)
State  5,444   3,015   3,144   2,381   5,444   3,015 
Foreign  (57,313)  (9,333)  3,685   1,187   (57,313)  (9,333)
              
  52,244   (61,275)  51,849   18,543   52,244   (61,275)
              
Provision for income taxes $332,797  $250,700  $299,511  $372,869  $332,797  $250,700 
              
 
Tax benefits related to stock options and other equity instruments recorded directly to additional capital totaled $6.2 million in Fiscal 2008, $15.5 million in Fiscal 2007 and $6.7 million in Fiscal 2006 and $10.5 million in Fiscal 2005.2006.
 
The components of income from continuing operations before income taxes consist of the following:
 
                        
 2007 2006 2005  2008 2007 2006 
 (Dollars in thousands)  (Dollars in thousands) 
Domestic $293,580  $87,409  $385,926  $268,450  $293,580  $87,409 
Foreign  830,819   606,052   601,589   949,344   830,819   606,052 
              
From continuing operations $1,124,399  $693,461  $987,515  $1,217,794  $1,124,399  $693,461 
              
 
The differences between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate on continuing operations are as follows:
 
                        
 2007 2006 2005  2008 2007 2006 
U.S. federal statutory tax rate  35.0%  35.0%  35.0%  35.0%  35.0%  35.0%
Tax on income of foreign subsidiaries  (5.4)  (3.6)  (5.3)  (4.5)  (5.4)  (3.6)
State income taxes (net of federal benefit)  1.0   1.8   0.9   0.7   1.0   1.8 
Earnings repatriation  9.6   4.3   (0.5)  3.3   9.6   4.3 
Reduction of tax reserves for statute of limitations expiration  (5.9)  —   —   (0.1)  (5.9)  — 
Effects of revaluation of tax basis of foreign assets  (4.6)  (2.3)  (2.6)  (2.4)  (4.6)  (2.3)
Other  (0.1)  1.0   2.8   (1.4)  (0.1)  1.0 
              
Effective tax rate  29.6%  36.2%  30.3%  30.6%  29.6%  36.2%
              


51

H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
The increase in the effective tax rate in Fiscal 2008 is primarily the result of benefits recognized in Fiscal 2007 for reversal of a foreign tax reserve, tax planning completed in a foreign jurisdiction, and R&D tax credits. Those prior year benefits were partially offset by lower repatriation costs and increased benefits from tax audit settlements occurring during Fiscal 2008, along with changes in valuation allowances for foreign losses. The decrease in the effective tax rate in Fiscal 2007 iswas 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, ane-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 April 30, 2008 and May 2, 2007 and May 3, 2006.2007.
 
                
 2007 2006  2008 2007 
 (Dollars in thousands)  (Dollars in thousands) 
Depreciation/amortization $634,192  $582,543  $689,112  $634,192 
Benefit plans  43,632   155,052   33,719   43,632 
Deferred income  30,145   — 
Other  39,377   47,314   56,160   39,377 
          
Deferred tax liabilities
  717,201   784,909   809,136   717,201 
          
Operating loss carryforwards  (41,210)  (70,192)  (40,852)  (41,210)
Benefit plans  (198,011)  (140,810)  (248,808)  (198,011)
Depreciation/amortization  (53,722)  (821)  (69,909)  (53,722)
Tax credit carryforwards  (851)  (54,897)  (12,998)  (851)
Deferred income  (39,942)  — 
Other  (72,593)  (92,471)  (96,618)  (72,593)
          
Deferred tax assets
  (366,387)  (359,191)  (509,127)  (366,387)
          
Valuation allowance  44,935   30,950   52,008   44,935 
          
Net deferred tax liabilities
 $395,749  $456,668  $352,017  $395,749 
          
 
The Company also has foreign deferred tax assets and valuation allowances of $143.6$143.0 million, each related to statutory increases in the capital tax bases of certain internally generated intangible assets for which the probability of realization is remote.
 
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.


52

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
The resolution of tax reserves and changes in valuation allowances could be material to the Company’s results of operations for any period, but is not expected to be material to the Company’s financial position.
 
The net change in the Fiscal 20072008 valuation allowance shown above is an increase of $7.0 million. The increase was primarily due to the recording of additional valuation allowance for state deferred tax assets that are not expected to be utilized prior to their expiration date. The net change in the Fiscal 2007 valuation allowance was an increase of $14.0 million. The increase was primarily due to the recording of additional valuation allowance for state and foreign loss carryforwards that arewere not expected to be utilized prior to their expiration date. The net change in the Fiscal 2006 valuation allowance shown above iswas a decrease of $39.3 million. The decrease was primarily due to the reversal of valuation allowances of $27.3 million in continuing operations related to the non-cash asset impairment charges recorded in Fiscal 2005 on cost and equity investments.

At the end of Fiscal 2008, foreign operating loss carryforwards totaled $125.2 million. Of that amount, $70.9 million expire between 2009 and 2018; the other $54.3 million do not expire. Deferred tax assets of $10.3 million have been recorded for state operating loss carryforwards. These losses expire between 2009 and 2028.
The Company adopted FIN 48 on May 3, 2007. As a result of adoption, the Company recognized a $9.3 million decrease to retained earnings and a $1.7 million decrease to additional capital from the cumulative effect of adoption.
Changes in the total amount of gross unrecognized tax benefits are as follows:
     
  (Dollars in
 
  millions) 
 
Balance at May 3, 2007 $183.7 
Increases for tax positions of prior years  10.6 
Decreases for tax positions of prior years  (31.0)
Increases based on tax positions related to the current year  9.9 
Decreases due to settlements with taxing authorities  (41.0)
Decreases due to lapse of statute of limitations  (3.1)
     
Balance at April 30, 2008 $129.1 
     
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $55.7 million and $71.2 million, on April 30, 2008 and May 3, 2007, respectively.
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. For Fiscal 2008, the approximate amount of interest and penalties included in the provision for income taxes was $10.7 million and $0.6 million, respectively. The total amount of interest and penalties accrued as of May 3, 2007 was $55.9 million and $2.2 million, respectively. The corresponding amounts of accrued interest and penalties at April 30, 2008 were $57.2 million and $2.8 million, respectively.
It is reasonably possible that the amount of unrecognized tax benefits will decrease by as much as $24 million in the next 12 months primarily due to the progression of federal, state, and foreign audits in process. In addition, it is also reasonably possible that during the next 12 months the Company may reach a conclusion regarding its appeal, filed October 15, 2007, of a U.S. Court of Federal Claims decision regarding a refund claim resulting from a Fiscal 1995 transaction. Upon conclusion of the appeal, the amount of unrecognized tax benefits will decrease by approximately $43 million the benefit of which, if any, would be reflected through additional capital.


5153

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

The provision for income taxes consists of provisions for federal, state and foreign income taxes. The Company operates in an international environment with significant operations relatedin various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. In the normal course of business the Company is subject to examination by taxing authorities throughout the non-cash asset impairment charges recorded inworld, including such major jurisdictions as Canada, Italy, the United Kingdom and the United States. The Company has substantially concluded all U.S. federal income tax matters for years through Fiscal 2005, onwith the cost and equity investments discussed above. The net change inexception of the Company’s appeal of a U.S. Court of Federal Claims decision regarding a refund claim. In the Company’s majornon-U.S. jurisdictions, the Company has substantially concluded all income tax matters for years through 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 2027.2002.
 
Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to $3.1$3.3 billion at May 2, 2007.April 30, 2008.
 
During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. As a result of this revaluation, the Company incurred a foreign tax liability of $29.6approximately $30 million related to this revaluation which was paid during the third quarter of Fiscal 2007. This revaluation is expected to benefit cash flow from operations by approximately $100$90 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 Company’s financial results. The Company is evaluating the decision of the Court in order to determine if an appeal will be filed.
 
8.  Debt
 
Short-term debt consisted of bank debt and other borrowings of $165.1$124.3 million and $54.1$165.1 million as of April 30, 2008 and May 2, 2007, and May 3, 2006, respectively. The weighted average interest rate was 5.4%6.9% and 5.2%5.4% for Fiscal 20072008 and Fiscal 2006,2007, respectively.
 
The Company maintains a $2 billion credit agreement that expires in August 2009. The credit agreement supports the Company’s commercial paper borrowings. As a result, the commercial paper borrowings are classified as long-term debt based upon the Company’s intent and ability to refinance these borrowings on a long-term basis. In addition, the Company has $911 million$1.1 billion of foreign lines of credit available at May 2, 2007.April 30, 2008.


5254

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

Long-term debt was comprised of the following as of April 30, 2008 and May 2, 2007 and May 3, 2006:2007:
 
                
 2007 2006  2008 2007 
 (Dollars in thousands)  (Dollars in thousands) 
Commercial Paper (variable rate) $673,604  $408,070  $1,223,367  $673,604 
6.00% U.S. Dollar Notes due March 2008  299,824   299,619   —   299,824 
6.226% Heinz Finance Preferred Stock due July 2008  325,000   325,000   325,000   325,000 
6.625% U.S. Dollar Notes due July 2011  749,563   749,457   749,668   749,563 
6.00% U.S. Dollar Notes due March 2012  632,201   631,732   598,301   632,201 
U.S. Dollar Remarketable Securities due November 2020  800,000   800,000 
U.S. Dollar Remarketable Securities due December 2020  800,000   800,000 
6.375% U.S. Dollar Debentures due July 2028  229,842   232,656   230,101   229,842 
6.25% British Pound Notes due February 2030  247,089   228,848   246,386   247,089 
6.75% U.S. Dollar Notes due March 2032  449,779   472,923   449,855   449,779 
Canadian Dollar Credit Agreement due October 2010  157,842   180,636   144,669   157,842 
Other U.S. Dollar due June 2011—November 2034 (3.00—7.98%)  59,216   9,713 
OtherNon-U.S. Dollar due March 2022 (weighted average rate of 11.00%)
  21,675   20,705 
Other U.S. Dollar due May 2008—November 2034 (3.00—7.97)%  56,136   59,216 
OtherNon-U.S. Dollar due May 2008—March 2022 (7.00—11.00)%
  37,360   21,675 
          
  4,645,635   4,359,359   4,860,843   4,645,635 
SFAS No. 133 Hedge Accounting Adjustments (See Note 13)  71,195   (1,429)  198,521   71,195 
Less portion due within one year  (303,189)  (917)  (328,418)  (303,189)
          
Total long-term debt $4,413,641  $4,357,013  $4,730,946  $4,413,641 
          
Weighted-average interest rate on long-term debt, including the impact of applicable interest rate swaps  6.14%  5.25%  5.90%  6.14%
          
 
During the fourth quarter of Fiscal 2007,2008, the Company executed open market debt repurchases that reducedpaid off $300 million of notes which matured on March 15, 2008. During Fiscal 2008 the notional amountsCompany also repurchased $34.5 million of its 6.375%6.0% notes due 2028 by $3.2 million2012 and its 6.75% notes due 2032 by $23.3 million andeffectively terminated the corresponding interest rate swaps.
 
In the fourth quarter ofDuring Fiscal 2006,2007, the Company paid off €417.9repurchased $3.2 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 $11.5and $23.3 million andof 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 April 30, 2008 and May 2, 2007 and May 3, 2006.2007. Annual maturities of long-term debt during the next five fiscal years are $303.2 million in 2008, $328.0$328.4 million in 2009, $676.7$1,226.5 million in 2010, $161.0$160.8 million in 2011, and $1,424.0$1,389.7 million in 2012.2012 and $1.3 million in 2013.
 
As of May 2, 2007,April 30, 2008, the Company had $800 million of remarketable securities due December 2020. On December 1, 2005, the Company remarketed the $800 million remarketable securities at a coupon of 6.428% and amended the terms of the securities so that the securities will be remarketed every third year rather than annually. The next remarketing is scheduled for December 1, 2008. If the securities are not remarketed, then the Company is required to repurchase all of the securities at 100% of the principal amount plus accrued interest. The Company intends to remarket the securities in 2008; therefore, the debt is classified as long-term at April 30, 2008.
 
The adoption of SFAS No. 150 required the classification ofH.J. Heinz Finance’sFinance Company’s 3,250 mandatorily redeemable preferred shares to change prospectively from minority interest toare classified as long-term debt.debt as a result of the adoption of SFAS No. 150. 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.


55

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
9.  Supplemental Cash Flows Information
 
                        
 2007 2006 2005  2008 2007 2006 
 (Dollars in thousands)  (Dollars in thousands) 
Cash Paid During the Year For:                        
Interest $268,781  $292,285  $226,928  $360,698  $268,781  $292,285 
              
Income taxes $283,431  $326,370  $381,443  $261,283  $283,431  $326,370 
              
Details of Acquisitions:                        
Fair value of assets $108,438  $1,296,379  $187,108  $165,093  $108,438  $1,296,379 
Liabilities*  19,442   192,486   48,179   13,489   19,442   192,486 
              
Cash paid  88,996   1,103,893   138,929   151,604   88,996   1,103,893 
Less cash acquired  —   3,457   12,380   —   —   3,457 
              
Net cash paid for acquisitions $88,996  $1,100,436  $126,549  $151,604  $88,996  $1,100,436 
              
 
 
*Includes obligations to sellers of $11.5 million, $2.0 million and $5.7 million in 2008, 2007 and $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,April 30, 2008, the Company had outstanding stock option awards, restricted stock units and restricted stock awards issued pursuant to various shareholder-approved plans and a shareholder authorizedshareholder-authorized employee stock purchase plan. The compensation cost related to these plans recognized in general and administrative expenses, and the related tax benefit was $31.7 million and $11.1 million for the fiscal year ended April 30, 2008, respectively and $32.0 million and $11.1 million for the fiscal year ended May 2, 2007, respectively. 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 optionequity based awards, the “FiscalFiscal Year 2003 Stock Incentive Plan”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 Company’s 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: Shares issued under these plans are sourced from available treasury shares.
 
On May 4, 2006, the Company adopted SFAS 123R and began recognizing the cost of all employee stock options on a straight-line basis over their respective requisite service periods (generally equal to


54

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

an award’s vesting period), net of estimated forfeitures, using the modified-prospective transition method. Under this transition method, Fiscal 2008 and 2007 results include stock-based compensation expense related to stock options granted on or prior to, but not vested as of, May 3, 2006, based on the grant date fair value originally estimated and disclosed in a pro-forma manner in prior period financial statements in accordance with the original provisions of SFAS 123. All stock-based payments granted subsequent to May 3, 2006, will be expensed based on the grant date fair value


56

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
estimated in accordance with the provisions of SFAS 123R. All stock-based compensation expense is recognized as a component of general and administrative expenses. Results for prior periods have not been restated.
 
SFAS 123R also requires the attribution of compensation expense based on the concept of “requisite service period.” For awards with vesting provisions tied to retirement status (i.e., non-substantive vesting provisions,) compensation cost is recognized from the date of grant to the earlier of the vesting date or the date of retirement-eligibility. The use of the non-substantive vesting approach does not affect the overall amount of compensation expense recognized, but could accelerate the recognition of expense. The Company will continue to follow its previous vesting approach for the remaining portion of those outstanding awards that were unvested and granted prior to May 4, 2006, and accordingly, will recognize expense from the grant date to the earlier of the actual date of retirement or the vesting date. Had the Company previously applied the accelerated method of expense recognition, the impact would have been immaterial to the fiscal yearsyear ended May 3, 2006 and April 27, 2005.2006.
Stock Options:
 
Stock options generally requirevest over a service period fromof one to four years after the date of grant. Awards granted prior to Fiscal 2004 generally had a requisite servicevesting 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, April 30, 2008, $2.7 million of cash tax benefits was reported as an operating cash inflow and $1.7 million of excess tax benefits as a financing cash inflow. For the fiscal year ended, May 2, 2007, $10.4 million of cash tax benefits was reported as an operating cash inflow and $4.6 million of excess tax benefits as a financing cash inflow.
 
As of May 2, 2007, 12,967April 30, 2008, 29,994 shares remained available for issuance under the 2000 Plan. During the fiscal year ended May 2, 2007, 28,921April 30, 2008, 29,866 shares were forfeited and returned to the plan. During the fiscal year ended May 2, 2007, 221,597April 30, 2008, 12,839 shares were issued from the 2000 Plan.
 
A summary of the Company’s 2003 Plan at May 2, 2007April 30, 2008 is as follows:
 
     
  2003 Plan 
  (Amounts in
 
  thousands) 
 
Number of shares authorized  18,869 
Number of stock option shares issuedgranted  (2,0083,347)
Number of stock option shares forfeited and returned to the plan  113178 
Number of restricted stock units and restricted stock issued  (2,9053,421)
     
Shares available for grant as stock options  14,06912,279 
     


5557

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

During the second quarter of Fiscal 2007,2008, the Company granted 894,9301,352,155 option awards to employees sourced from the 2000 and 2003 Plans. The weighted average fair value per share of the options granted during the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005 as computed using the Black-Scholes pricing model was $6.25, $6.69, $6.66 and $9.33,$6.66, respectively. The weighted average assumptions used to estimate these fair values are as follows:
 
                        
 Fiscal Year Ended  Fiscal Year Ended 
 May 2,
 May 3,
 April 27,
  April 30,
 May 2,
 May 3,
 
 2007 2006 2005  2008 2007 2006 
Dividend yield  3.3%  3.2%  3.0%  3.3%  3.3%  3.2%
Expected Volatility  17.9%  22.0%  25.4%
Expected volatility  15.8%  17.9%  22.0%
Expected term (years)  5.0   5.0   7.9   5.0   5.0   5.0 
Risk-free interest rate  4.7%  4.0%  4.4%  4.3%  4.7%  4.0%
 
The dividend yield assumption is based on the current fiscal year dividend payouts. The Company estimates expected volatility and expected option life assumption consistent with SFAS 123R and Securities and Exchange Commission Staff Accounting Bulletin No. 107.123R. The expected volatility of the Company’s 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 Company’s stock option activity and related information is as follows:
 
                        
   Weighted
      Weighted
   
   Average
      Average
   
 Number of
 Exercise Price
 Aggregate
  Number of
 Exercise Price
 Aggregate
 
 Options (per share) Intrinsic Value  Options (per share) Intrinsic Value 
 (Amounts in thousands, except per share data)  (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   35,464  $38.27  $1,357,071 
Options granted  1,165   37.01   43,126   1,165   37.01   43,126 
Options exercised  (4,575)  30.66   (140,266)  (4,575)  30.66   (140,266)
Options forfeited and returned to the plan  (539)  38.06   (20,505)  (539)  38.06   (20,505)
              
Options outstanding at May 3, 2006  31,515   39.33   1,239,426   31,515   39.33   1,239,426 
Options granted  895   41.92   37,515   895   41.92   37,515 
Options exercised  (7,266)  35.77   (259,860)  (7,266)  35.77   (259,860)
Options forfeited and returned to the plan  (347)  44.60   (15,481)  (347)  44.60   (15,481)
              
Options outstanding at May 2, 2007  24,797  $40.39  $1,001,600   24,797   40.39   1,001,600 
Options granted  1,352   45.54   61,579 
Options exercised  (2,116)  37.31   (78,960)
Options forfeited and returned to the plan  (1,899)  51.32   (97,461)
              
Options vested and exercisable at April 27, 2005  24,161  $38.56  $931,625 
Options outstanding at April 30, 2008  22,134  $40.06  $886,758 
       
Options vested and exercisable at May 3, 2006  25,545  $39.29  $1,003,646   25,545  $39.29  $1,003,646 
Options vested and exercisable at May 2, 2007  21,309  $40.88  $871,095   21,309  $40.88  $871,095 
Options vested and exercisable at April 30, 2008  19,249  $39.77  $765,552 


5658

 
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:April 30, 2008:
 
                                                
 Options Outstanding Options Exercisable  Options Outstanding Options Exercisable 
   Weighted-
 Weighted-
   Weighted-
      Weighted-
 Weighted-
   Weighted-
   
   Average
 Average
   Average
      Average
 Average
   Average
   
   Remaining
 Remaining
   Remaining
 Weighted-
    Remaining
 Remaining
   Remaining
 Weighted-
 
Range of Exercise
 Number
 Life
 Exercise Price
 Number
 Life
 Average
  Number
 Life
 Exercise Price
 Number
 Life
 Average
 
Price Per Share
 Outstanding (Years) Per Share Exercisable (Years) Exercise Price  Outstanding (Years) Per Share Exercisable (Years) Exercise Price 
 (Options in thousands)  (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 
$29.18-$35.38  7,357   3.8  $33.32   7,326   3.8  $33.31 
$35.39-$44.77  9,506   3.1   40.46   7,965   2.8   40.71 
$44.78-$54.00  5,816   1.1   50.47   5,816   1.1   50.47   5,271   1.7   48.76   3,958   0.2   49.83 
                          
  24,797   3.7  $40.39   21,309   3.3  $40.88   22,134   3.0  $40.06   19,249   2.6  $39.77 
                          
 
The Company received proceeds of $78.6 million, $259.8 million, $142.0 million and $79.4$142.0 million from the exercise of stock options during the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006, and April 27, 2005, respectively. The tax benefit recognized as a result of stock option exercises was $4.4 million, $15.2 million $6.7 million and $7.8$6.7 million for the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006, and April 27, 2005, respectively.
 
A summary of the status of the Company’s unvested stock options is as follows:
 
                
   Weighted
    Weighted
 
   Average
    Average
 
   Grant Date
    Grant Date
 
 Number of
 Fair Value
  Number of
 Fair Value
 
 
Options
 (per share)  Options (per share) 
 (Amounts in thousands, except per share data)  (Amounts in thousands, except per share data) 
Unvested options at May 3, 2006  5,970  $7.72 
Unvested options at May 2, 2007  3,488  $6.98 
Options granted  895   6.69   1,352   6.25 
Options vested  (3,362)  8.21   (1,886)  6.88 
Options forfeited and returned to the plan  (15)  7.14   (69)  6.98 
      
Unvested options at May 2, 2007  3,488   6.98 
Unvested options at April 30, 2008  2,885  $7.07 
      
 
As of May 2, 2007 there was $8.8 million of unrecognizedUnrecognized compensation cost related to unvested option awards under the 2000 and 2003 Plans.Plans totaled $8.5 million and $8.8 million as of April 30, 2008 and May 2, 2007, respectively. This cost is expected to be recognized over a weighted average period of 1.92.3 years.
 
Restricted Stock Units and Restricted Shares:
 
The 2003 Plan authorizes up to 9.4 million shares for issuance as restricted stock units (“RSUs”) or restricted stock with vesting periods from the first to the fifth anniversary of the grant date as set forth in the award agreements. Upon vesting, the RSUs are converted into shares of the Company’s stock on a one-for-one basis and issued to employees, subject to any deferral elections made by a recipient or required by the plan. Restricted stock is reserved in the recipients’ name at the grant date and issued upon vesting. The Company is entitled to an income tax deduction in an amount equal to the taxable income reported by the holder upon vesting of the award. RSUs generally vest over a period of one to four years after the date of grant.
 
Total compensation expense relating to RSUs and restricted stock was $21.1 million, $18.7 million $21.5 million and $15.9$21.5 million for the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006, and April 27, 2005, respectively. Unrecognized compensation cost in connection with these grants totaled $28.4$35.7 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


5759

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

$28.4 million and $32.8 million at April 30, 2008, May 2, 2007 and May 3, 2006, respectively. The cost is expected to be recognized over a weighted-average period of 2.3 years. The unearned compensation balance of $32.8 million as of May 4, 2006 related to RSUs and restricted stock awards waswere reclassified into additionalpaid-in-capital capital upon adoption of SFAS 123R.
 
A summary of the Company’s RSU and restricted stock awards at May 2, 2007April 30, 2008 is as follows:
 
     
  2003 Plan 
  (Amounts in thousands) 
 
Number of shares authorized  9,440 
Number of shares reserved for issuance  (3,3574,072)
Number of shares forfeited and returned to the plan  453651 
     
Shares available for grant  6,5366,019 
     
 
A summary of the activity of unvested RSU and restricted stock awards and related information is as follows:
 
                
   Weighted Average
    Weighted
 
   Grant Date
    Average
 
   Fair Value
    Grant Date
 
 Number of Units (Per Share)    Fair Value
 
 (Amounts in thousands,
  Number of Units (Per Share) 
 except per share data)  (Amounts in thousands,
 
 except per share data) 
Unvested units and stock at May 3, 2006  1,813  $35.48 
Unvested units and stock at May 2, 2007  2,025  $36.57 
Units and stock granted  364   41.88   715   46.00 
Units and stock vested  (131)  36.12   (579)  35.94 
Units and stock forfeited and returned to the plan  (21)  37.13   (74)  38.92 
      
Unvested units and stock at May 2, 2007  2,025   36.57 
Unvested units and stock at April 30, 2008  2,087  $39.88 
      
 
Grants of restricted stock and RSUs were 708,180364,112 and 415,738708,180 for the fiscal years ended May 2, 2007 and May 3, 2006, and April 27, 2005, respectively. Restricted stock and RSUs that vested during the fiscal years ended May 2, 2007 and May 3, 2006 were 130,803 and April 27, 2005 were 70,775, and 392,868, respectively. Restricted stock and RSUs that were forfeited and returned to the plan were 60,05421,476 and 37,04660,054 for the fiscal years ended May 2, 2007 and 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 16.613.1 million shares during Fiscal 2007.2008.
 
Global Stock Purchase Plan:
 
The Company has a shareholder approvedshareholder-approved employee global stock purchase plan (the “GSPP”) that permits substantially all employees to purchase shares of the Company’s 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 Company’s common stock on the last day of the offering period. The number of shares available for issuance under the GSPP is a total of threefive million shares. During the two offering periods from February 16, 20052007 to February 15, 2006,2008, employees purchased 352,395302,284 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.


5860

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

During the two offering periods from February 16, 2006 to February 15, 2007, employees purchased 268,224 shares under the plan.
 
Annual Incentive Bonus:
 
The Company’s management incentive plans cover officers and other key employees. Participants may elect to be paid on a current or deferred basis. The aggregate amount of all awards may not exceed certain limits in any year. Compensation under the management incentive plans was approximately $45 million, $41 million $37 million, and $26$37 million in Fiscal years 2008, 2007 2006 and 20052006 respectively.
 
Long-Term Performance Program:
 
In Fiscal 2007,2008, the Company granted performance awards as permitted in the Fiscal Year 2003 Stock Incentive Plan, subject to the achievement of certain performance goals. These performance awards are tied to the Company’s relative Total Share HolderShareholder Return (“TSR”) Ranking within the defined Long-term Performance Program (“LTPP”) Peer Grouppeer group and the2-year average after-tax Return on Invested Capital (“ROIC”) metrics. The Relative TSR metric is based on the two-year cumulative return to shareholders due to dividends andfrom the change in stock price and dividends between the starting and ending values.dates. The starting value was established based on the average of each LTPP Peer Grouppeer group Company stock price for the 60 trading days prior to and including May 3, 2006.2, 2007. The ending value iswill be based on the average ofstock price for the 60 trading days prior to and including the close of the Fiscal 20082009 year end, plus dividends paid over the 2 year performance period. The Fiscal2007-20082008-2009 LTPP will be fully funded if2-year cumulative EPS equals or exceeds the predetermined level.
Expense was recorded based on The Company also granted performance awards in Fiscal 2007 under the Company’s 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 was2007-2008 LTPP. The compensation cost related to LTPP awards recognized in general and administrative expense under this plan.
Performance Unit Awards Program:
In Fiscal 2005,expenses (“G&A”) was $23.8 million, and 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 Company’s 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 targetrelated tax benefit was met, the amount of any award was dependent upon the level of sales growth of the Company$8.1 million for the performance period. Expensefiscal year ended April 30, 2008. The compensation cost related to these plans, recognized in G&A was recognized based upon management’s estimate of$14.2 million, and the likelihood of meetingrelated tax benefit was $5.5 million for the performance targets based on current and future expectations of the Company’s performance. In Fiscal years 2006 and 2005, there was no expense recognized nor incentive paid under this program.fiscal year ended May 2, 2007.
 
11.  Retirement Plans
 
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 Company’s 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 Company’s 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 following table sets forth the funded status of the Company’s principal defined benefit plans at April 30, 2008 and May 2, 2007.
         
  2008  2007 
  (Dollars in thousands) 
 
Change in Benefit Obligation:        
Benefit obligation at the beginning of the year $2,794,722  $2,601,229 
Service cost  39,832   42,886 
Interest cost  152,073   135,984 
Participants’ contributions  13,090   10,347 
Amendments  14,907   4,046 
Actuarial (gain)/loss  (89,838)  21,301 
Divestitures  —   (459)
Settlement  —   (10,664)
Special termination benefits  —   3,188 
Benefits paid  (149,048)  (143,298)
Exchange/other  67,437   130,162 
         
Benefit obligation at the end of the year $2,843,175  $2,794,722 
         
Change in Plan Assets:        
Fair value of plan assets at the beginning of the year $2,888,780  $2,621,220 
Actual (loss)/return on plan assets  (79,759)  207,470 
Divestitures  —   (172)
Settlement  —   (10,664)
Employer contribution  59,799   62,505 
Participants’ contributions  13,090   10,347 
Benefits paid  (149,048)  (143,298)
Exchange  60,261   141,372 
         
Fair value of plan assets at the end of the year  2,793,123   2,888,780 
         
Funded status $(50,052) $94,058 
         
Amount recognized in the consolidated balance sheet consists of:        
Noncurrent assets $191,079  $284,619 
Current liabilities  (19,826)  (8,545)
Noncurrent liabilities  (221,305)  (182,016)
         
Net amount recognized $(50,052) $94,058 
         
Amounts recognized in accumulated other comprehensive loss consist of:        
Net actuarial loss $802,738  $633,461 
Prior service cost  25,572   11,746 
         
Net amount recognized $828,310  $645,207 
         
Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic pension costs in the following fiscal year are as follows:        
Net actuarial loss $36,512  $42,921 
Prior service cost  3,567   (1,093)
         
Net amount recognized $40,079  $41,828 
         
The accumulated benefit obligation for all defined benefit pension plans was $2,600.2 million at April 30, 2008 and $2,561.1 million at May 2, 2007. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were $656.7 million, $173.0 million and $430.5 million respectively, as of April 30, 2008 and $607.4 million, $551.2 million and $437.8 million, respectively, as of May 2, 2007. The change in other comprehensive loss related to pension benefit losses arising during the period is $236.0 million at April 30, 2008. The change in other comprehensive loss related to the


62

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
reclassification of pension benefit losses to net income is $42.1 million at April 30, 2008. The change in minimum liability included in other comprehensive loss was a decrease of $12.2 million at May 2, 2007.
The weighted-average rates used for the years ended April 30, 2008 and May 2, 2007 in determining the projected benefit obligations for defined benefit plans were as follows:
         
  2008  2007 
 
Discount rate  6.1%  5.5%
Compensation increase rate  5.2%  5.0%
Total pension cost of the Company’s principal pension plans consisted of the following:
             
  2008  2007  2006 
  (Dollars in thousands) 
 
Components of defined benefit net periodic benefit cost:            
Service cost $39,832  $42,886  $42,081 
Interest cost  152,073   135,984   124,064 
Expected return on assets  (227,373)  (198,470)  (168,990)
Amortization of:            
Net initial asset  —   —   (21)
Prior service cost  (1,403)  (3,465)  2,207 
Net actuarial loss  44,121   52,302   58,869 
Loss due to curtailment, settlement and special termination benefits  —   2,335   18,846 
             
Net periodic benefit cost  7,250   31,572   77,056 
Defined contribution plans  34,027   34,940   28,139 
             
Total pension cost  41,277   66,512   105,195 
             
Less pension cost associated with discontinued operations  —   —   375 
             
Pension cost associated with continuing operations $41,277  $66,512  $104,820 
             
The weighted-average rates used for the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005 in determining the defined benefit plans’ net pension costs were as follows:
 
                        
 2007 2006 2005  2008 2007 2006 
Expected rate of return  8.2%  8.2%  8.2%  8.2%  8.2%  8.2%
Discount rate  5.3%  5.5%  5.8%  5.5%  5.3%  5.5%
Compensation increase rate  4.0%  4.0%  3.9%  5.0%  4.0%  4.0%
 
The Company’s expected rate of return is determined based on a methodology that considers investment real returns for certain asset classes over historic periods of various durations, in conjunction with the long-term outlook for inflation (i.e. “building block” approach). This methodology is applied to the actual asset allocation, which is in line with the investment policy guidelines for each plan. The Company also considers long-term rates of return for each asset class based on projections from consultants and investment advisers regarding the expectations of future investment performance of capital markets.


63

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
Plan Assets:
 
The Company’s defined benefit pension plans’ weighted average asset allocation at April 30, 2008 and May 2, 2007 and May 3, 2006 and weighted average target allocation were as follows:
 
                        
 Plan Assets at Target
  Plan Assets at Target
 
Asset Category
 2007 2006 Allocation  2008 2007 Allocation 
Equity securities  68%  68%  64%  65%  68%  65%
Debt securities  29%  29%  34%  32%  29%  33%
Real estate  1%  1%  1%  1%  1%  1%
Other  2%  2%  1%  2%  2%  1%
              
  100%  100%  100%  100%  100%  100%
              
 
The underlying basis of the investment strategy of the Company’s defined benefit plans is to ensure that pension funds are available to meet the plans’ benefit obligations when they are due. The Company’s investment objectives include: prudently investing plan assets in a high-quality, diversified manner in order to maintain the security of the funds; achieving an optimal return on plan assets within specified risk tolerances; and investing according to local regulations and requirements specific to each country in which a defined benefit plan operates. The investment strategy expects equity investments to yield a higher return over the long term than fixed income securities, while fixed income securities are expected to provide certain matching characteristics to the plans’ benefit payment cash flow requirements. Company common stock held as part of the equity securities amounted to less than one percent of plan assets at April 30, 2008 and May 2, 2007 and May 3, 2006.2007.
 
Cash Flows:
 
The Company contributed approximately $63$60 million to the defined benefit plans in Fiscal 2007.2008. The Company funds its U.S. defined benefit plans in accordance with IRS regulations, while foreign defined benefit plans are funded in accordance with local laws and regulations in each respective country. Discretionary contributions to the pension funds may also be made by the Company from time to time. Defined benefit plan contributions for the next fiscal year are expected to be approximately $55$80 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  $168,750 
2010 $155,476  $166,008 
2011 $158,938  $168,318 
2012 $162,722  $172,486 
Years2013-2017
 $951,264 
2013 $171,284 
Years2014-2018
 $879,329 
 
12.  Postretirement Benefits Other Than Pensions and Other Post Employment Benefits
 
The Company and certain of its subsidiaries provide health care and life insurance benefits for retired employees and their eligible dependents. Certain of the Company’s U.S. and Canadian employees may become eligible for such benefits. The Company currently does not fund these benefit arrangements until claims occur and may modify plan provisions or terminate plans at its discretion. 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 Company’s 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)
The Company uses an April 30 measurement date for its domestic plans and a March 31 measurement date for the Canadian plan.
The following table sets forth the combined status of the Company’s postretirement benefit plans at April 30, 2008 and May 2, 2007.
         
  2008  2007 
  (Dollars in thousands) 
 
Change in benefit obligation:        
Benefit obligation at the beginning of the year $273,161  $273,434 
Service cost  6,451   6,253 
Interest cost  15,626   15,893 
Participants’ contributions  973   913 
Amendments  1,001   — 
Actuarial gain  (5,523)  (2,262)
Benefits paid  (20,386)  (21,180)
Exchange/other  5,295   110 
         
Benefit obligation at the end of the year  276,598   273,161 
         
Funded status $(276,598) $(273,161)
         
Amount recognized in the consolidated balance sheet consists of:        
Current liabilities $(19,547) $(20,090)
Noncurrent liabilities  (257,051)  (253,071)
         
Net amount recognized $(276,598) $(273,161)
         
Amounts recognized in accumulated other comprehensive loss consist of:        
Net actuarial loss $50,329  $59,702 
Prior service cost  (8,242)  (14,019)
         
Net amount recognized $42,087  $45,683 
         
Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic pension costs in the following fiscal year are as follows:        
Net actuarial loss $3,693  $4,549 
Negative prior service cost  (3,783)  (4,766)
         
Net amount recognized $(90) $(217)
         
The change in other comprehensive loss related to postretirement benefit gains arising during the period is $4.6 million at April 30, 2008. The change in other comprehensive loss related to the reclassification of post-retirement benefit gains to net income is $0.2 million at April 30, 2008.
The weighted-average discount rate used in the calculation of the accumulated post-retirement benefit obligation at April 30, 2008 and May 2, 2007 was 5.9%.


65

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
Net postretirement costs consisted of the following:
 
                        
 2007 2006 2005  2008 2007 2006 
 (Dollars in thousands)  (Dollars in thousands) 
Components of defined benefit net periodic benefit cost:                        
Service cost $6,253  $6,242  $5,769  $6,451  $6,253  $6,242 
Interest cost  15,893   15,631   16,057   15,626   15,893   15,631 
Amortization of:                        
Prior service cost  (6,098)  (2,830)  (3,026)  (4,770)  (6,098)  (2,830)
Net actuarial loss  5,465   6,925   5,634   4,579   5,465   6,925 
Loss due to curtailment and special termination benefits  —   1,846   —   —   —   1,846 
              
Net periodic benefit cost  21,513   27,814   24,434  $21,886  $21,513  $27,814 
              
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 5.9% in 2008, 6.1% in 2007 and 5.5% in 2006 and 6.2% in 2005.2006.
 
The domestic weighted-average assumed annual composite rate of increase in the per capita cost of company-provided health care benefits begins at 8.7%9.3% for 2008,2009, gradually decreases to 4.9%5% by 20152014 and remains at that level thereafter. The foreign weighted-average assumed annual composite rate of increase in the per capita cost of company-provided health care benefits begins at 6.7% for 2009, gradually decreases to 4% by 2016 and remains at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical benefits. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
 
                
 1% Increase 1% Decrease  1% Increase 1% Decrease 
 (Dollars in thousands)  (Dollars in thousands) 
Effect on total service and interest cost components $1,588  $(1,404) $1,581  $1,406 
Effect on postretirement benefit obligation $17,703  $(15,931) $18,016  $16,284 
 
Cash Flows:
 
The Company paid $21.2$20.4 million for benefits in the postretirement medical plans in Fiscal 2007.2008. The Company funds its postretirement medical plans in order to make payment on claims as they occur during the fiscal year. Payments for the next fiscal year are expected to be approximately $22.2$21.3 million.
 
Benefit payments expected in future years are as follows (dollars in thousands):
 
        
2008 $22,166 
2009 $23,209  $21,296 
2010 $24,219  $22,624 
2011 $25,044  $23,766 
2012 $25,499  $24,733 
Years2013-2017
 $128,703 
2013 $25,038 
Years2014-2018
 $132,239 
 
Estimated future medical subsidy receipts are approximately $1.7$1.4 million annually from 20082009 through 20122013 and $10.1$8.4 million for the period from 20132014 through 2017.2018.


6566

 
H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

 
13.  Derivative Financial Instruments and Hedging Activities
 
The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures.
 
At April 30, 2008, the Company had outstanding currency exchange and interest rate derivative contracts with notional amounts of $1.71 billion and $1.82 billion, respectively. At May 2, 2007, the Company had outstanding currency exchange and interest rate derivative contracts with notional amounts of $3.47 billion and $2.70 billion, respectively. 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 asset of $126.0 million at April 30, 2008, and a net liability of $2.0 million and $48.4 million at May 2, 2007 and May 3, 2006, respectively.2007.
 
Foreign Currency Hedging:
 
The Company uses forward contracts and to a lesser extent, option contracts to mitigate its foreign currency exchange rate exposure due to forecasted purchases of raw materials and sales of finished goods, and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. Consequently, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive loss and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item.
 
The Company had outstanding cross currency swaps with a total notional amount of $1.96 billion 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 contractsDuring Fiscal 2008, the Company made cash payments to the counterparties totaling $74.5 million as a result of contract maturities and $93.2 million as a result of early termination of contracts. As of April 30, 2008 there are scheduled to mature within two years.no outstanding cross currency swaps. The Company assessesassessed hedge effectiveness for these contracts based on changes in fair value attributable to changes in spot prices. Net losses of $95.8 million ($72.0 million after-tax) and $72.9 million ($43.9 million after-tax) 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 20072008 and Fiscal 2006,2007, respectively. Gains of $15.9$3.6 million and $5.5$15.9 million, which represented the changes in fair value excluded from the assessment of hedge effectiveness, were included in current period earnings as a component of interest expense for Fiscal 20072008 and Fiscal 2006,2007, respectively.
 
The Company has used certain foreign currency debt instruments asearly termination of the net investment hedges described above and interest rate swaps described below were completed in conjunction with the reorganizations of the Company’s 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.operations and interest rate swap portfolio.
 
Interest Rate Hedging:
 
The Company uses interest rate swaps to manage debt and interest rate exposure.exposures. Derivatives used to hedge risk associated with changes in the fair value of certain fixed-rate debt obligations are primarily designated as fair value hedges. Consequently, changes in the fair value of these derivatives, along with changes in the fair value of the hedged debt obligations that are attributable to the hedged risk, are recognized in current period earnings. During Fiscal 2008, the Company terminated certain interest rate swaps that were previously designated as fair value hedges of fixed rate debt obligations. The notional amount of these interest rate contracts totaled $612.0 million and the Company received a total of $103.5 million of cash from the termination of these contracts. The $103.5 million gain is being amortized to reduce interest expense over the remaining term of the


67

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
corresponding debt obligations (average of 22 years). SFAS No. 133 hedge accounting adjustments related to hedged debt obligations totaled $198.5 million and $71.2 million as of April 30, 2008 and May 2, 2007, respectively.
 
Hedge Ineffectiveness:
 
Hedge ineffectiveness related to cash flow hedges, which is reported in current period earnings as other income and expense, was not significant for the years ended April 30, 2008, May 2, 2007 and May 3, 2006 and


66

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

April 27, 2005.2006. 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,April 30, 2008, the Company is hedging forecasted transactions for periods not exceeding two years. During the next 12 months, the Company expects $2.7$8.7 million of net deferred gains reported in accumulated other comprehensive loss to be reclassified to earnings, assuming market rates remain constant through contract maturities. Net deferred lossesAmounts reclassified to earnings because the hedgedhedge transaction was no longer expected to occur were not significant for the years ended April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005.2006.
 
Other Activities:
 
The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting. Although these derivatives do not qualify as hedges, they have the economic impact of largely mitigating foreign currency or interest rate exposures. These derivative financial instruments are accounted for on a full mark to marketmark-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 2007,2008, one customer represented 10.4% of the Company’s sales. WeThe Company closely monitormonitors the credit risk associated with ourits customers and to date have neverhas not experienced significantmaterial losses.


6768

 
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  Fiscal Year Ended 
 May 2,
 May 3,
 April 27,
  April 30,
 May 2,
 May 3,
 
 2007
 2006
 2005
  2008
 2007
 2006
 
 (52 Weeks) (53 Weeks) (52 Weeks)  (52 Weeks) (52 Weeks) (53 Weeks) 
 (Amounts in thousands)  (Amounts in thousands) 
Income from continuing operations $791,602  $442,761  $688,004  $844,925  $791,602  $442,761 
Preferred dividends  13   14   15   12   13   14 
              
Income from continuing operations applicable to common stock $791,589  $442,747  $687,989  $844,913  $791,589  $442,747 
              
Average common shares outstanding—basic  328,625   339,102   350,042   317,019   328,625   339,102 
Effect of dilutive securities:                        
Convertible preferred stock  123   125   137   109   123   125 
Stock options, restricted stock and the global stock purchase plan  3,720   2,894   3,271   4,589   3,720   2,894 
              
Average common shares outstanding—diluted  332,468   342,121   353,450   321,717   332,468   342,121 
              
 
Diluted earnings per share is based upon the weighted-averageaverage 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, and the global stock purchase plan are computed using the treasury stock method.
 
Options to purchase an aggregate of 6.1 million, 9.1 million 18.2 million and 15.918.2 million shares of common stock as of April 30, 2008, May 2, 2007 and 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 pricesinclusion of the common stock for each respective period.these options would be anti-dilutive. These options expire at various points in time through 2013.2014. The Company elected to apply the long-form method for determining the pool of windfall tax benefits in connection with the adoption of SFAS 123R.
 
15.  Segment Information
 
The Company’s segments are primarily organized by geographical area. The composition of segments and measure of segment profitability are consistent with that used by the Company’s management. During the first quarter of Fiscal 2008, the Company changed its segment reporting to reclassify its business in India from the Rest of World segment to the Asia/Pacific segment, reflecting organizational changes. Prior periods have been conformed to the current presentation. Net external sales for this business were $117.3 million and $104.2 million for Fiscal 2007 and 2006, respectively. Operating income for this business was $14.4 million and $16.2 million for Fiscal 2007 and 2006, respectively. Operating income excluding special items for this business was $14.4 million and $14.1 million for Fiscal 2007 and 2006, respectively. Depreciation and amortization expense for this business was $1.7 million for Fiscal 2007 and 2006. Capital expenditures for this business were $1.5 million and $2.3 million for Fiscal 2007 and 2006, respectively. Identifiable assets for this business were $84.1 million and $69.9 million for Fiscal 2007 and 2006, respectively.


69

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
Descriptions of the Company’s reportable segments are as follows:
 
 • North American Consumer Products—This 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.
 
 • Europe—This segment includes the Company’s operations in Europe, including Eastern Europe and Russia, and sells products in all of the Company’s categories.
• Asia/Pacific—This segment includes the Company’s operations in New Zealand, Australia, India, Japan, China, South Korea, Indonesia, and Singapore. This segment’s operations include products in all of the Company’s categories.
• U.S. Foodservice—This 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)

• Europe—This segment includes the Company’s operations in Europe and sells products in all of the Company’s categories.
• Asia/Pacific—This segment includes the Company’s operations in New Zealand, Australia, Japan, China, South Korea, Indonesia, and Singapore. This segment’s operations include products in all of the Company’s categories.
 
 • Rest of World—This segment includes the Company’s operations in Africa, India, Latin America, and the Middle East and other areas that sell products in all of the Company’s categories.
 
The Company’s 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. Itemsand 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 Company’s management.
The following table presents information about the Company’s 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 
                         


6970

H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
The following table presents information about the Company’s reportable segments:
                         
  Fiscal Year Ended 
  April 30,
  May 2,
  May 3,
  April 30,
  May 2,
  May 3,
 
  2008
  2007
  2006
  2008
  2007
  2006
 
  (52 Weeks)  (52 Weeks)  (53 Weeks)  (52 Weeks)  (52 Weeks)  (53 Weeks) 
  (Dollars in thousands) 
  Net External Sales  Operating Income (Loss) 
 
North American Consumer Products $3,011,513  $2,739,527  $2,554,118  $678,388  $625,675  $583,367 
Europe  3,532,326   3,076,770   2,987,737   636,866   566,362   414,178 
Asia/Pacific  1,599,860   1,319,231   1,221,054   194,900   150,177   101,447 
U.S. Foodservice  1,559,370   1,556,339   1,569,833   169,581   216,115   177,292 
Rest of World  367,709   309,763   310,696   45,437   39,484   1,618 
Non-Operating(a)  —   —   —   (156,205)  (151,098)  (164,290)
                         
Consolidated Totals $10,070,778  $9,001,630  $8,643,438  $1,568,967  $1,446,715  $1,113,612 
                         
                         
                         
  Operating Income (Loss) Excluding(b)
          
  Special Items          
 
North American Consumer Products $678,388  $625,675  $589,958             
Europe  636,866   566,362   526,372             
Asia/Pacific  194,900   150,177   126,563             
U.S. Foodservice  169,581   216,115   212,053             
Rest of World  45,437   39,484   31,609             
Non-Operating(a)  (156,205)  (151,098)  (136,564)            
                         
Consolidated Totals $1,568,967  $1,446,715  $1,349,991             
                         
                         
  Depreciation and Amortization Expenses  Capital Expenditures(c) 
 
Total North America $122,200  $112,031  $103,492  $121,937  $97,954  $82,726 
Europe  115,578   108,479   98,106   119,425   99,939   102,275 
Asia/Pacific  35,410   29,390   28,708   36,404   36,903   36,479 
Rest of World  5,690   5,010   5,349   10,064   7,586   6,139 
Non-Operating(a)  10,019   11,287   11,778   13,758   2,180   2,958 
                         
Consolidated Totals $288,897  $266,197  $247,433  $301,588  $244,562  $230,577 
                         
                         
                         
  Identifiable Assets          
 
Total North America $3,795,272  $3,752,033  $3,530,639             
Europe  4,731,760   4,166,174   4,285,233             
Asia/Pacific  1,433,467   1,213,867   1,208,504             
Rest of World  235,625   189,543   208,175             
Non-Operating(d)  368,919   711,409   505,216             
                         
Consolidated Totals $10,565,043  $10,033,026  $9,737,767             
                         

                         
  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             
                         

71

H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
 
(a)Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments.
 
(b)Fiscal year ended May 3, 2006:Excludes costs associated with targeted workforce reductions, costs incurred in connection with strategic reviews of several non-core businesses and net losses/impairment charge on divestures as follows: North American Consumer Products, $6.6 million; U.S. Foodservice, $34.8 million; Europe, $112.2 million; Asia/Pacific, $27.2$25.1 million; U.S. Foodservice, $34.8 million; Rest of World, $27.9$30.0 million; and Non-Operating $27.7 million.
Fiscal year ended April 27, 2005: Excludes the $27.0 million non-cash asset impairment charge on theHAK® 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 Company’s revenues are generated via the sale of products in the following categories:
 
                        
 Fiscal Year Ended  Fiscal Year Ended 
 May 2,
 May 3,
 April 27,
  April 30,
 May 2,
 May 3,
 
 2007
 2006
 2005
  2008
 2007
 2006
 
 (52 Weeks) (53 Weeks) (52 Weeks)  (52 Weeks) (52 Weeks) (53 Weeks) 
 (Dollars in thousands)  (Dollars in thousands) 
Ketchup and sauces $3,682,102  $3,530,346  $3,234,229  $4,081,864  $3,682,102  $3,530,346 
Meals and snacks  4,026,168   3,876,743   3,680,920   4,521,697   4,026,168   3,876,743 
Infant foods  929,075   863,943   855,558 
Infant/Nutrition  1,089,544   929,075   863,943 
Other  364,285   372,406   332,749   377,673   364,285   372,406 
              
Total $9,001,630  $8,643,438  $8,103,456  $10,070,778  $9,001,630  $8,643,438 
              

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  Fiscal Year Ended 
 Net External Sales Long-Lived Assets  Net External Sales Long-Lived Assets 
 May 2,
 May 3,
 April 27,
        April 30,
 May 2,
 May 3,
       
 2007
 2006
 2005
 May 2,
 May 3,
 April 27,
  2008
 2007
 2006
 April 30,
 May 2,
 May 3,
 
 (52 Weeks) (53 Weeks) (52 Weeks) 2007 2006 2005  (52 Weeks) (52 Weeks) (53 Weeks) 2008 2007 2006 
 (Dollars in thousands)  (Dollars in thousands) 
United States $3,809,786  $3,693,262  $3,379,961  $2,377,900  $2,359,630  $2,110,987  $3,971,296  $3,809,786  $3,693,262  $2,393,732  $2,377,900  $2,359,630 
United Kingdom  1,643,268   1,636,089   1,600,978   1,588,218   1,442,562   751,496   1,844,014   1,643,268   1,636,089   1,582,088   1,588,218   1,442,562 
Other  3,548,576   3,314,087   3,122,517   2,171,907   1,967,353   2,263,181   4,255,468   3,548,576   3,314,087   2,540,414   2,171,907   1,967,353 
                          
Total $9,001,630  $8,643,438  $8,103,456  $6,138,025  $5,769,545  $5,125,664  $10,070,778  $9,001,630  $8,643,438  $6,516,234  $6,138,025  $5,769,545 
                          
 
16.  Quarterly Results
 
                                        
 2007  2008 
 First
 Second
 Third
 Fourth
 Total
  First
 Second
 Third
 Fourth
 Total
 
 (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (52 Weeks)  (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (52 Weeks) 
 (Unaudited)  (Unaudited) 
 (Dollars in thousands, except per share amounts)  (Dollars in thousands, except per share amounts) 
Sales $2,059,920  $2,232,225  $2,295,192  $2,414,293  $9,001,630  $2,248,285  $2,523,379  $2,610,863  $2,688,251  $10,070,778 
Gross profit  772,417   846,598   852,116   921,769   3,392,900   838,400   931,802   935,416   975,074   3,680,692 
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   205,294   227,037   218,532   194,062   844,925 
Per Share Amounts:                                        
Income from continuing operations—diluted $0.58  $0.59  $0.66  $0.55  $2.38 
Income from continuing operations—basic  0.59   0.60   0.67   0.56   2.41 
Net income—diluted $0.63  $0.71  $0.68  $0.61  $2.63 
Net income—basic  0.64   0.72   0.69   0.62   2.67 
Cash dividends  0.35   0.35   0.35   0.35   1.40   0.38   0.38   0.38   0.38   1.52 
                     
  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 Company’s 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.


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H. J. Heinz Company and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)

 
                     
  2007 
  First
  Second
  Third
  Fourth
  Total
 
  (13 Weeks)  (13 Weeks)  (13 Weeks)  (13 Weeks)  (52 Weeks) 
  (Unaudited) 
  (Dollars in thousands, except per share amounts) 
 
Sales $2,059,920  $2,232,225  $2,295,192  $2,414,293  $9,001,630 
Gross profit  772,417   846,598   852,116   921,769   3,392,900 
Income from continuing operations  194,101   197,431   219,038   181,032   791,602 
Net income  194,101   191,575   219,038   181,032   785,746 
Per Share Amounts:                    
Income from continuing operations—diluted $0.58  $0.59  $0.66  $0.55  $2.38 
Income from continuing operations—basic  0.59   0.60   0.67   0.56   2.41 
Cash dividends  0.35   0.35   0.35   0.35   1.40 
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 Company’s consolidated financial position, results of operations or liquidity.
 
Lease Commitments:
 
Operating lease rentals for warehouse, production and office facilities and equipment amounted to approximately $107.2 million, in 2008, $104.3 million in 2007 and $97.6 million in 2006 and $101.2 million in 2005.2006. Future lease payments for non-cancellable operating leases as of May 2, 2007April 30, 2008 totaled $435.6$454.0 million (2008-$67.0 million, (2009-$59.868.8 million, 2010-$49.258.3 million, 2011-$36.748.4 million, 2012-$34.744.7 million, 2013-$42.8 million and thereafter-$188.2191.0 million).
 
As of May 2, 2007,April 30, 2008, the Company was party to an operating lease for buildings and equipment in which the Company has guaranteed a supplemental payment obligation of approximately $64 million at the termination of the lease. The Company believes, based on current facts and circumstances, that any payment pursuant to this guarantee is remote. No significant credit guarantees existed between the Company and third parties as of April 30, 2008.
In May 2, 2007.2008, the construction of a new frozen food factory in South Carolina commenced. It is expected that the factory will be operational in approximately 18 to 24 months and that it will be financed by an operating lease.
 
18.  Advertising Costs
 
Advertising expenses (including production and communication costs) for fiscal years 2008, 2007 and 2006 and 2005 were $338.0$339.3 million, $296.9$315.2 million and $273.7$296.9 million, respectively. For fiscal years 2008, 2007 and 2006, and 2005, $147.1$118.9 million, $148.9$123.6 million and $140.1$148.9 million, respectively, were recorded as a reduction of revenue and $190.9$220.4 million, $148.0$191.5 million and $133.6$148.0 million, respectively, were recorded as a component of SG&A.
19.  Subsequent Event
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 Cottee’s and Rose’s brands, as well as Monbulk, Choc Whizz and Ice Magic Brands.


7273

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 Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s 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 Company’s 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 SEC’s 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) Management’s Report on Internal Control Over Financial Reporting.
 
Our management’s report on Internal Control Over Financial Reporting is set forth in Item 8 and incorporated herein by reference.
 
Our management’s assessment ofPricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of ourthe Company’s internal control over financial reporting as of May 2, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,April 30, 2008, as stated in their report as set forth in Item 8.
 
(c) Changes in Internal ControlsControl over Financial Reporting
 
During the fourth quarter of Fiscal 2007,2008, the Company continued its implementation of SAP software across its U.K., Ireland, and Poland operations. As appropriate, the Company is modifying the design and documentation of internal control processes and procedures relating to the new systemsystems to supplement and complement existing internal controls over financial reporting. There were no additional changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controlscontrol over financial reporting.
Item 9B.  Other Information.
 
There is nothing to be reported under this item.


7374

 
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 Information—Section 16 Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held August 15, 2007.13, 2008. Information regarding the audit committee members and the audit committee financial expert is set forth under the captions “Report of the Audit Committee” and “Relationship with Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 15, 2007.13, 2008. Information relating to the executive officers of the Company is set forth under the caption “Executive Officers of the Registrant” in Part I of this report, and such information is incorporated herein by reference. The Company’s 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 Company’s 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 Company’s website, www.heinz.com, and are available in print to any shareholder upon request. Such specified 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 person’s 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. Johnson58Chairman, President, and Chief Executive Officer since September 2000.
Jeffrey P. Berger57Executive Vice President and Chairman of Global Foodservice since May 2007; Executive Vice President—Global 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. Bobby56Executive 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 President—Legal Affairs from September 1999 to January 2005.
Edward J. McMenamin50Senior Vice President—Finance 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. Milone51Senior Vice President-Heinz Australia, New Zealand and Rest of World since May 2006; Senior Vice President—President Rest of World and Asia from May 2005 to May 2006; Senior Vice President—President Rest of World from December 2003 to May 2005; Chief Executive Officer Star-Kist Foods, Inc. from June 2002 to December 2003; Vice President—Global Category Development from May 1998 to June 2002.
David C. Moran49Executive 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 President—President 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 O’Hara46Executive Vice President—President and Chief Executive Officer Heinz Europe since May 2006; Executive Vice President—Asia Pacific/Rest of World from January 2006 to May 2006; Senior Vice President Europe—The Gillette Company from October 2004 to January 2006; General Manager U.K. and NL—The Gillette Company from June 2001 to October 2004.
D. Edward I. Smyth57Senior Vice President—Chief Administrative Officer and Corporate and Government Affairs since December 2002; Senior Vice President—Corporate and Government Affairs from May 1998 to December 2002.
Chris Warmoth48Senior Vice President—Heinz 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, TheCoca-Cola Company from December 2001 to April 2003.
Arthur B. Winkleblack50Executive 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”,Analysis,” “Director Compensation Table”,Table,” and “Report of the Management Development and Compensation Committee on Executive Compensation” in the Company’s definitive

75

Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 15, 2007.13, 2008. Such information is incorporated herein by reference.
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
Information relating to the ownership of equity securities of the Company by certain beneficial owners and management is set forth under the captions “Security Ownership of Certain Principal Shareholders” and “Security Ownership of Management” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held August 15, 2007.13, 2008. Such information is incorporated herein by reference.
 
The number of shares to be issued upon exercise and the number of shares remaining available for future issuance under the Company’s equity compensation plans at May 2, 2007April 30, 2008 were as follows:
 
Equity Compensation Plan Information
 
                        
 (a) (b) (c)  (a) (b) (c) 
     Number of securities
      Number of securities
 
     remaining available
      remaining available
 
     for future issuance
      for future issuance
 
 Number of securities to
 Weighted-average
 under equity
  Number of securities to
 Weighted-average
 under equity
 
 be issued upon exercise
 exercise price of
 compensation Plans
  be issued upon exercise
 exercise price of
 compensation Plans
 
 of outstanding options,
 outstanding options,
 (excluding securities
  of outstanding options,
 outstanding options,
 (excluding securities
 
 warrants and rights warrants and rights reflected in column (a))  warrants and rights warrants and rights reflected in column (a)) 
Equity Compensation plans approved by stockholders  27,100,450  $40.04   14,081,528   24,610,332  $39.96   12,307,925 
Equity Compensation plans not approved by stockholders(1)(2)  68,238   N/A(3)  N/A(1)(4)  60,093   N/A(3)  N/A(1)(4)
              
Total  27,168,688  $40.04   14,081,528   24,670,425  $39.96   12,307,925 
              


75

(1)The H. J. Heinz Company Restricted Stock Recognition Plan for Salaried Employees (the “Restricted Stock Plan”) was designed to provide recognition and reward in the form of awards of restricted stock to employees who have a history of outstanding accomplishment and who, because of their experience and skills, are expected to continue to contribute significantly to the success of the Company. Eligible employees were those full-time salaried employees not participating in the shareholder-approved H. J. Heinz Company Incentive Compensation Plan in effect as of May 1, 2002, and who have not been awarded an option to purchase Company Common Stock. The Company has ceased issuing shares from this Restricted Stock Plan, and it is the Company’s 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 Company’s policy on related person transactions and certain relationships with a beneficial shareholder is set forth under the caption “Related Person Transaction Policy” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 15, 2007.13, 2008. Such information is incorporated herein by reference.
 
Information relating to director independence is set forth under the caption “Director Independence Standards” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 15, 2007.13, 2008. Such information is incorporated herein by reference.
Item 14.  Principal Accountant Fees and Services.
 
Information relating to the principal auditor’s fees and services is set forth under the caption “Relationship With Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 15, 2007.13, 2008. Such information is incorporated herein by reference.


7776

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 8—‘‘“Financial Statements and Supplementary Data”:
    Consolidated Balance Sheets as of April 30, 2008 and May 2, 2007 and May 3, 2006
    Consolidated Statements of Income for the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005
    Consolidated Statements of Shareholders’ Equity for the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005
    Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2008, May 2, 2007 and 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, 2007,19, 2008, on the Company’s consolidated financial statements and financial statement schedule filed as a part hereof for the fiscal years ended April 30, 2008, May 2, 2007 and May 3, 2006 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 April 30, 2008, May 2, 2007 and 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 ofRegulation 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 ofRegulation S-K.
  3(i) The Company’sSecond Amended and Restated Articles of AmendmentIncorporation of H.J. Heinz Company dated May 2,August 15, 2007, amending and restating the Company’s amended and restated Articles of Incorporation.Amendment in their entirety.
  3(ii) The Company’s By-Laws, as amended effective June 12, 2002August 15, 2007, are incorporated herein by reference to Exhibit 3 to3(ii) of the Company’s Quarterly Report onForm 10-Q for the three monthsquarterly period ended July 31, 2002.August 1, 2007.
  4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder in amounts that exceed 10 percent of the total assets of the Company on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission.
    (a) The Indenture among the Company, H. J. Heinz Finance Company, and Bank One, National Association dated as of July 6, 2001 relating to the H. J. Heinz Finance Company’s $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 Company’s Annual Report onForm 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 Company’s Quarterly Report onForm 10-Q for the three months ended August 1, 2001.


7877

         
    (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 Company’s quarterly report onForm 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 Company’s Annual Report onForm 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 Company’s 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 Company’s 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 Company’s Annual Report onForm 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 Company’s Annual Report onForm 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 Company’s 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 Company’s 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 Company’s 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 Company’s Annual Report onForm 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 Company’s 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 Company’s Annual Report onForm 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 Company’s Annual Report on Form10-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 Company’s Proxy Statement dated August 2, 2002.

7978

         
      (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 Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
      (xviii) Form of Restricted Stock Unit Award and Agreement forNon-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
      (xx) Form of Five-Year Restricted Stock Unit Retention Award and Agreement forNon-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
      (xxii) Form of Three-Year Restricted Stock Unit Retention Award and Agreement forNon-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
      (xxiii) Named Executive Officer and Director Compensation
      (xxiv) Jeffrey P. BergerForm of Fiscal Year 2006 Restricted Stock Unit Award and Agreement dated November 9, 2004for U.S. Employees is incorporated herein by reference to the Company’s Annual Report onForm 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.non-U.S. Based Employees is incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended April 27, 2005.
      (xxvi) Form of Fiscal Year 2006 RestrictedAmendment Number One to the H.J. Heinz Company 2000 Stock Unit Award and Agreement for non-U.S. Based EmployeesOption Plan is incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended April 27, 2005.

80
79

         
      (xxvii) Amendment Number One to the H.J. Heinz Company 20001996 Stock Option Plan is incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended April 27, 2005.
      (xxviii) Amendment Number One to the H.J. Heinz Company 1996 Stock Option PlanForm of Fiscal Year 2006 Severance Protection Agreement is incorporated herein by reference to the Company’s Annual Report onForm 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 Company’s 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 Company’s 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 Company’sForm 8-K filed on June 12, 2006.
      (xxxii)(xxx) Form of Fiscal Year 2007 Restricted Stock Unit Award and Agreement is incorporated herein by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended November 1, 2006.
      (xxxiii)(xxxi) Form of Fiscal Year 2008 Stock Option Award and Agreement (U.S. Employees) is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxii)Form of Stock Option Award and Agreement is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxiii)Form of Restricted Stock Unit Award and Agreement.Agreement is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
      (xxxiv) Form of Revised Fiscal Year 2008 Restricted Stock Unit Award and Agreement is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxv)Form of Restricted Stock Unit Award and Agreement (U.S. Employees Retention) is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxvi)Second Amended and Restated Fiscal Year 2003 Stock Incentive Plan.Plan is hereby incorporated herein by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxvii)Second Amended and Restated Global Stock Purchase Plan is hereby incorporated herein by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxviii)Time Sharing Agreement dated as of September 14, 2007, between H.J. Heinz Company and William R. Johnson incorporated herein by reference to Exhibit 10.1 of the Company’sForm 8-K dated September 14, 2007.
(xxxix)Retirement and Consulting Agreement and a Non-Competition and Non-Solicitation Agreement dated January 30, 2008 between H. J. Heinz Company and Jeffrey P. Berger are hereby incorporated by reference to Exhibit 10.1 of the Company’s Form8-K dated February 1, 2008.
  12. Computation of Ratios of Earnings to Fixed Charges.
  21. Subsidiaries of the Registrant.
  23. Consent of PricewaterhouseCoopers LLP.
  24. Powers-of-attorney of the Company’s directors.


80

  31(a) Rule 13a-14(a)/15d-14(a) Certification by William R. Johnson.
  31(b) Rule 13a-14(a)/15d-14(a) Certification by Arthur B. Winkleblack.
  32(a) Certification by the Chief Executive Officer Relating to the Annual Report Containing Financial Statements.
  32(b) Certification by the Chief Financial Officer Relating to the Annual Report Containing Financial Statements.
 
Copies of the exhibits listed above will be furnished upon request to holders or beneficial holders of any class of the Company’s 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, 2007.19, 2008.
 
H. J. HEINZ COMPANY
(Registrant)
 
 By: 
/s/  Arthur B. Winkleblack
Arthur B. Winkleblack
Executive Vice President and Chief Financial Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on June 21, 2007.19, 2008.
 
   
Signature
 
Capacity
 
/s/  William R. Johnson

William R. Johnson		 Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
/s/  Arthur B. Winkleblack

Arthur B. Winkleblack		 Executive Vice President and
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. O’Hare
Nelson Peltz
Dennis H. Reilley
Lynn C. Swann
Thomas J. Usher
Michael F. Weinstein		 Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
Director    }
 By: 
/s/  Arthur B. Winkleblack

Arthur B. Winkleblack
Attorney-in-Fact


82

Schedule II
 
H. J. Heinz Company and Subsidiaries

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Fiscal Years Ended April 30, 2008, May 2, 2007 and May 3, 2006 and April 27, 2005
(Thousands of Dollars)
 
                                        
   Additions        Additions     
 Balance at
 Charged to
 Charged
   Balance at
  Balance at
 Charged to
 Charged
   Balance at
 
 beginning
 costs and
 to other
   end of
  beginning
 costs and
 to other
   end of
 
Description
 of period expenses accounts Deductions period  of period expenses accounts Deductions period 
Fiscal year ended April 30, 2008:                    
Reserves deducted in the balance sheet from the assets to which they apply:                    
Receivables $14,706  $2,379  $2,286  $3,684  $15,687 
           
Fiscal year ended May 2, 2007:                                        
Reserves deducted in the balance sheet from the assets to which they apply:                                        
Receivables $16,988  $3,839  $1,266  $7,387  $14,706  $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  $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 ofRegulation 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 ofRegulation S-K.
  3(i) The Company’sSecond Amended and Restated Articles of AmendmentIncorporation of H.J. Heinz Company dated May 2,August 15, 2007, amending and restating the Company’s amended and restated Articles of Incorporation.Amendment in their entirety.
  3(ii) The Company’s By-Laws, as amended effective June 12, 2002August 15, 2007, are incorporated herein by reference to Exhibit 3 to3(ii) of the Company’s Quarterly Report onForm 10-Q for the three monthsquarterly period ended July 31, 2002.August 1, 2007.
  4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder in amounts that exceed 10 percent of the total assets of the Company on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission.
    (a) The Indenture among the Company, H. J. Heinz Finance Company, and Bank One, National Association dated as of July 6, 2001 relating to the H. J. Heinz Finance Company’s $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 Company’s Annual Report on Form10-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 Company’s Quarterly Report onForm 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 Company’s quarterly report onForm 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 Company’s Annual Report onForm 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 Company’s 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 Company’s 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 Company’s Annual Report onForm 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 Company’s Annual Report onForm 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 Company’s 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 Company’s 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 Company’s 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 Company’s Annual Report onForm 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 Company’s 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 Company’s Annual Report onForm 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 Company’s Annual Report onForm 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 Company’s 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 Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
    (xviii) Form of Restricted Stock Unit Award and Agreement forNon-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
    (xx) Form of Five-Year Restricted Stock Unit Retention Award and Agreement forNon-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report onForm 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 Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
    (xxii) Form of Three-Year Restricted Stock Unit Retention Award and Agreement forNon-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 26, 2005.
    (xxiii) Named Executive Officer and Director Compensation
    (xxiv) Jeffrey P. BergerForm of Fiscal Year 2006 Restricted Stock Unit Award and Agreement dated November 9, 2004for U.S. Employees is incorporated herein by reference to the Company’s Annual Report onForm 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.non-U.S. Based Employees is incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended April 27, 2005.
    (xxvi) Form of Fiscal Year 2006 RestrictedAmendment Number One to the H.J. Heinz Company 2000 Stock Unit Award and Agreement for non-U.S. Based EmployeesOption Plan is incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended April 27, 2005.
    (xxvii) Amendment Number One to the H.J. Heinz Company 20001996 Stock Option Plan is incorporated herein by reference to the Company’s Annual Report onForm 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 Company’s 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 Company’s Annual Report onForm 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 Company’s Annual Report on Form 10-K for the fiscal year ended May 3, 2006.
(xxxi)(xxxix) Form of Long-Term Performance Program Award Agreement is hereby incorporated by reference to Exhibit 99 of the Company’sForm 8-K filed on June 12, 2006.
    (xxxii)(xxx) Form of Fiscal Year 2007 Restricted Stock Unit Award and Agreement is incorporated herein by reference to the Company’s Quarterly Report on Form10-Q for the quarterly period ended November 1, 2006.
    (xxxiii)(xxxi) Form of Fiscal Year 2008 Stock Option Award and Agreement (U.S. Employees) is hereby incorporated by reference to the Company’s Quarterly Report on Form10-Q for the quarterly period ended August 1, 2007.
(xxxii)Form of Stock Option Award and Agreement is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
(xxxiii)Form of Restricted Stock Unit Award and Agreement.Agreement is hereby incorporated by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.
    (xxxiv) Form of Revised Fiscal Year 2008 Restricted Stock Unit Award and Agreement is hereby incorporated by reference to the Company’s Quarterly Report on Form10-Q for the quarterly period ended August 1, 2007.
(xxxv)Form of Restricted Stock Unit Award and Agreement (U.S. Employees Retention) is hereby incorporated by reference to the Company’s Quarterly Report on Form10-Q for the quarterly period ended August 1, 2007.
(xxxvi)Second Amended and Restated Fiscal Year 2003 Stock Incentive Plan.Plan is hereby incorporated herein by reference to the Company’s Quarterly Report on Form10-Q for the quarterly period ended August 1, 2007.
(xxxvii)Second Amended and Restated Global Stock Purchase Plan is hereby incorporated herein by reference to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.

Description of Exhibit
(xxxviii)Time Sharing Agreement dated as of September 14, 2007, between H. J. Heinz Company and William R. Johnson incorporated herein by reference to Exhibit 10.1 of the Company’sForm 8-K dated September 14, 2007.
(xxxix)Retirement and Consulting Agreement and a Non-Competition and Non-Solicitation Agreement dated January 30, 2008 between H.J. Heinz Company and Jeffrey P. Berger are hereby incorporated by reference to Exhibit 10.1 of the Company’sForm 8-K dated February 1, 2008.
  12. Computation of Ratios of Earnings to Fixed Charges.
  21. Subsidiaries of the Registrant.
  23. Consent of PricewaterhouseCoopers LLP.
  24. Powers-of-attorney of the Company’s 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.