that a material amount of penalties is reasonably likely to be incurred under these contracts based upon historical experience and current expectations.
The following table represents the contractual obligations of the Company as of April 30, 2008.29, 2009.
Other long-term liabilities primarily consist of certain specific incentive compensation arrangements and pension and postretirement benefit commitments. The following long-term liabilities included on the consolidated balance sheet are excluded from the table above: income taxes, minority interest and insurance accruals. The Company is unable to estimate the timing of the payments for these items.
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 in the United States of America, 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, andprinciples;
(3) Provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3)(4) 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.reporting, as required by Section 404 of the Sarbanes-Oxley Act. Management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year. PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as of April 30, 2008,29, 2009, as stated in their report which appears herein.
/s/ William R. Johnson
Chairman, President and
Chief Executive Officer
/s/ Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer
June 19, 200817, 2009
35
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
H. J. Heinz Company:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of H. J. Heinz Company and its subsidiaries at April 29, 2009 and April 30, 2008, and May 2, 2007, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 200829, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2008,29, 2009, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation effective May 4, 2006 and as discussed in Note 210 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans effective May 2, 2007.
A 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 19, 200817, 2009
36
H. J. Heinz Company and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | Fiscal Year Ended | |
| | April 30, 2008
| | May 2, 2007
| | May 3, 2006
| | | April 29, 2009
| | April 30, 2008
| | May 2, 2007
| |
| | (52 Weeks) | | (52 Weeks) | | (53 Weeks) | | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | |
| | (In thousands, except per share amounts) | | | (In thousands, except per share amounts) | |
|
Sales | | $ | 10,070,778 | | | $ | 9,001,630 | | | $ | 8,643,438 | | | $ | 10,148,082 | | | $ | 10,070,778 | | | $ | 9,001,630 | |
Cost of products sold | | | 6,390,086 | | | | 5,608,730 | | | | 5,550,364 | | | | 6,564,447 | | | | 6,390,086 | | | | 5,608,730 | |
| | | | | | | | | | | | | | |
Gross profit | | | 3,680,692 | | | | 3,392,900 | | | | 3,093,074 | | | | 3,583,635 | | | | 3,680,692 | | | | 3,392,900 | |
Selling, general and administrative expenses | | | 2,111,725 | | | | 1,946,185 | | | | 1,979,462 | | | | 2,089,983 | | | | 2,111,725 | | | | 1,946,185 | |
| | | | | | | | | | | | | | |
Operating income | | | 1,568,967 | | | | 1,446,715 | | | | 1,113,612 | | | | 1,493,652 | | | | 1,568,967 | | | | 1,446,715 | |
Interest income | | | 41,519 | | | | 41,869 | | | | 33,190 | | | | 64,150 | | | | 41,519 | | | | 41,869 | |
Interest expense | | | 364,856 | | | | 333,270 | | | | 316,296 | | | | 339,635 | | | | 364,856 | | | | 333,270 | |
Asset impairment charges for cost and equity investments | | | — | | | | — | | | | 110,994 | | |
Other expense, net | | | 27,836 | | | | 30,915 | | | | 26,051 | | |
Other income/(expense), net | | | | 78,033 | | | | (27,836 | ) | | | (30,915 | ) |
| | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 1,217,794 | | | | 1,124,399 | | | | 693,461 | | | | 1,296,200 | | | | 1,217,794 | | | | 1,124,399 | |
Provision for income taxes | | | 372,869 | | | | 332,797 | | | | 250,700 | | | | 373,128 | | | | 372,869 | | | | 332,797 | |
| | | | | | | | | | | | | | |
Income from continuing operations | | | 844,925 | | | | 791,602 | | | | 442,761 | | | | 923,072 | | | | 844,925 | | | | 791,602 | |
(Loss)/income from discontinued operations, net of tax | | | — | | | | (5,856 | ) | | | 202,842 | | |
Loss from discontinued operations, net of tax | | | | — | | | | — | | | | (5,856 | ) |
| | | | | | | | | | | | | | |
Net income | | $ | 844,925 | | | $ | 785,746 | | | $ | 645,603 | | | $ | 923,072 | | | $ | 844,925 | | | $ | 785,746 | |
| | | | | | | | | | | | | | |
Income/(Loss) Per Common Share: | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 2.63 | | | $ | 2.38 | | | $ | 1.29 | | | $ | 2.90 | | | $ | 2.63 | | | $ | 2.38 | |
Discontinued operations | | | — | | | | (0.02 | ) | | | 0.59 | | | | — | | | | — | | | | (0.02 | ) |
| | | | | | | | | | | | | | |
Net Income | | $ | 2.63 | | | $ | 2.36 | | | $ | 1.89 | | | $ | 2.90 | | | $ | 2.63 | | | $ | 2.36 | |
| | | | | | | | | | | | | | |
Average common shares outstanding—Diluted | | | 321,717 | | | | 332,468 | | | | 342,121 | | | | 318,063 | | | | 321,717 | | | | 332,468 | |
| | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 2.67 | | | $ | 2.41 | | | $ | 1.31 | | | $ | 2.94 | | | $ | 2.67 | | | $ | 2.41 | |
Discontinued operations | | | — | | | | (0.02 | ) | | | 0.60 | | | | — | | | | — | | | | (0.02 | ) |
| | | | | | | | | | | | | | |
Net Income | | $ | 2.67 | | | $ | 2.39 | | | $ | 1.90 | | | $ | 2.94 | | | $ | 2.67 | | | $ | 2.39 | |
| | | | | | | | | | | | | | |
Average common shares outstanding—Basic | | | 317,019 | | | | 328,625 | | | | 339,102 | | | | 313,747 | | | | 317,019 | | | | 328,625 | |
| | | | | | | | | | | | | | |
Cash dividends per share | | $ | 1.52 | | | $ | 1.40 | | | $ | 1.20 | | | $ | 1.66 | | | $ | 1.52 | | | $ | 1.40 | |
| | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements
37
H. J. Heinz Company and Subsidiaries
| | | | | | | | | | | | | | | | |
| | April 30,
| | May 2,
| | | April 29,
| | April 30,
| |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
| | (Dollars in thousands) | | | (In thousands) | |
|
Assets | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 617,687 | | | $ | 652,896 | | | $ | 373,145 | | | $ | 617,687 | |
Receivables (net of allowances: 2008—$15,687 and 2007—$14,706) | | | 1,161,481 | | | | 996,852 | | |
Receivables (net of allowances: 2009—$11,395 and 2008—$15,687) | | | | 1,171,797 | | | | 1,161,481 | |
Inventories: | | | | | | | | | | | | | | | | |
Finished goods andwork-in-process | | | 1,100,735 | | | | 943,449 | | | | 973,983 | | | | 1,100,735 | |
Packaging material and ingredients | | | 277,481 | | | | 254,508 | | | | 263,630 | | | | 277,481 | |
| | | | | | | | | | |
Total inventories | | | 1,378,216 | | | | 1,197,957 | | | | 1,237,613 | | | | 1,378,216 | |
Prepaid expenses | | | 139,492 | | | | 132,561 | | | | 125,765 | | | | 139,492 | |
Other current assets | | | 28,690 | | | | 38,736 | | | | 36,701 | | | | 28,690 | |
| | | | | | | | | | |
Total current assets | | | 3,325,566 | | | | 3,019,002 | | | | 2,945,021 | | | | 3,325,566 | |
| | | | | | | | | | |
Property, plant and equipment: | | | | | | | | | | | | | | | | |
Land | | | 56,007 | | | | 51,950 | | | | 76,193 | | | | 56,007 | |
Buildings and leasehold improvements | | | 842,198 | | | | 788,053 | | | | 775,217 | | | | 842,198 | |
Equipment, furniture and other | | | 3,502,071 | | | | 3,214,860 | | | | 3,258,152 | | | | 3,502,071 | |
| | | | | | | | | | |
| | | 4,400,276 | | | | 4,054,863 | | | | 4,109,562 | | | | 4,400,276 | |
Less accumulated depreciation | | | 2,295,563 | | | | 2,056,710 | | | | 2,131,260 | | | | 2,295,563 | |
| | | | | | | | | | |
Total property, plant and equipment, net | | | 2,104,713 | | | | 1,998,153 | | | | 1,978,302 | | | | 2,104,713 | |
| | | | | | | | | | |
Other non-current assets: | | | | | | | | | | | | | | | | |
Goodwill | | | 2,997,462 | | | | 2,834,639 | | | | 2,687,788 | | | | 2,997,462 | |
Trademarks, net | | | 957,111 | | | | 892,749 | | | | 889,815 | | | | 957,111 | |
Other intangibles, net | | | 456,948 | | | | 412,484 | | | | 405,351 | | | | 456,948 | |
Restricted cash | | | | 192,736 | | | | — | |
Other non-current assets | | | 723,243 | | | | 875,999 | | | | 565,171 | | | | 723,243 | |
| | | | | | | | | | |
Total other non-current assets | | | 5,134,764 | | | | 5,015,871 | | | | 4,740,861 | | | | 5,134,764 | |
| | | | | | | | | | |
Total assets | | $ | 10,565,043 | | | $ | 10,033,026 | | | $ | 9,664,184 | | | $ | 10,565,043 | |
| | | | | | | | | | |
See Notes to Consolidated Financial Statements
38
H. J. Heinz Company and Subsidiaries
| | | | | | | | | | | | | | | | |
| | April 30,
| | May 2,
| | | April 29,
| | April 30,
| |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
| | (Dollars in thousands) | | | (In thousands) | |
|
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Short-term debt | | $ | 124,290 | | | $ | 165,054 | | | $ | 61,297 | | | $ | 124,290 | |
Portion of long-term debt due within one year | | | 328,418 | | | | 303,189 | | | | 4,341 | | | | 328,418 | |
Accounts payable | | | 1,247,479 | | | | 1,181,078 | | | | 1,113,307 | | | | 1,247,479 | |
Salaries and wages | | | 92,553 | | | | 85,818 | | | | 91,283 | | | | 92,553 | |
Accrued marketing | | | 298,342 | | | | 262,217 | | | | 233,316 | | | | 298,342 | |
Other accrued liabilities | | | 487,656 | | | | 414,130 | | | | 485,406 | | | | 487,656 | |
Income taxes | | | 91,322 | | | | 93,620 | | | | 73,896 | | | | 91,322 | |
| | | | | | | | | | |
Total current liabilities | | | 2,670,060 | | | | 2,505,106 | | | | 2,062,846 | | | | 2,670,060 | |
| | | | | | | | | | |
Long-term debt and other liabilities: | | | | | | | | | | | | | | | | |
Long-term debt | | | 4,730,946 | | | | 4,413,641 | | | | 5,076,186 | | | | 4,730,946 | |
Deferred income taxes | | | 409,186 | | | | 463,666 | | | | 345,749 | | | | 409,186 | |
Non-pension post-retirement benefits | | | 257,051 | | | | 253,117 | | | | 214,786 | | | | 257,051 | |
Minority interest | | | 65,727 | | | | 98,309 | | | | 59,167 | | | | 65,727 | |
Other liabilities | | | 544,253 | | | | 457,504 | | | | 685,512 | | | | 544,253 | |
| | | | | | | | | | |
Total long-term debt and other liabilities | | | 6,007,163 | | | | 5,686,237 | | | | 6,381,400 | | | | 6,007,163 | |
| | | | | | | | | | |
Shareholders’ equity: | | | | | | | | | | | | | | | | |
Capital stock: | | | | | | | | | | | | | | | | |
Third cumulative preferred, $1.70 first series, $10 par value* | | | 72 | | | | 77 | | | | 70 | | | | 72 | |
Common stock, 431,096,486 shares issued, $0.25 par value | | | 107,774 | | | | 107,774 | | |
Common stock, 431,096 shares issued, $0.25 par value | | | | 107,774 | | | | 107,774 | |
| | | | | | | | | | |
| | | 107,846 | | | | 107,851 | | | | 107,844 | | | | 107,846 | |
Additional capital | | | 617,811 | | | | 580,606 | | | | 737,917 | | | | 617,811 | |
Retained earnings | | | 6,129,008 | | | | 5,778,617 | | | | 6,525,719 | | | | 6,129,008 | |
| | | | | | | | | | |
| | | 6,854,665 | | | | 6,467,074 | | | | 7,371,480 | | | | 6,854,665 | |
Less: | | | | | | | | | | | | | | | | |
Treasury shares, at cost (119,628,499 shares at April 30, 2008 and 109,317,154 shares at May 2, 2007) | | | 4,905,755 | | | | 4,406,126 | | |
Treasury shares, at cost (116,237 shares at April 29, 2009 and 119,628 shares at April 30, 2008) | | | | 4,881,842 | | | | 4,905,755 | |
Accumulated other comprehensive loss | | | 61,090 | | | | 219,265 | | | | 1,269,700 | | | | 61,090 | |
| | | | | | | | | | |
Total shareholders’ equity | | | 1,887,820 | | | | 1,841,683 | | | | 1,219,938 | | | | 1,887,820 | |
| | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 10,565,043 | | | $ | 10,033,026 | | | $ | 9,664,184 | | | $ | 10,565,043 | |
| | | | | | | | | | |
| | |
* | | The preferred stock outstanding is convertible at a rate of one share of preferred stock into 15 shares of common stock. The Company can redeem the stock at $28.50 per share. As of April 30, 2008,29, 2009, there were authorized, but unissued, 2,200,0002,200 shares of third cumulative preferred stock for which the series had not been designated. |
See Notes to Consolidated Financial Statements
39
H. J. Heinz Company and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 30, 2008 | | May 2, 2007 | | May 3, 2006 | | | April 29, 2009 | | April 30, 2008 | | May 2, 2007 | |
| | 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 | | | $ | 77 | | | | 8 | | | $ | 82 | | | | 9 | | | $ | 83 | | | | 7 | | | $ | 72 | | | | 8 | | | $ | 77 | | | | 8 | | | $ | 82 | |
Conversion of preferred into common stock | | | (1 | ) | | | (5 | ) | | | — | | | | (5 | ) | | | (1 | ) | | | (1 | ) | | | — | | | | (2 | ) | | | (1 | ) | | | (5 | ) | | | — | | | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of year | | | 7 | | | | 72 | | | | 8 | | | | 77 | | | | 8 | | | | 82 | | | | 7 | | | | 70 | | | | 7 | | | | 72 | | | | 8 | | | | 77 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Authorized shares- April 30, 2008 | | | 7 | | | | | | | | | | | | | | | | | | | | | | |
Authorized shares- April 29, 2009 | | | | 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- April 30, 2008 | | | 600,000 | | | | | | | | | | | | | | | | | | | | | | |
Authorized shares- April 29, 2009 | | | | 600,000 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
ADDITIONAL CAPITAL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of year | | | | | | | 580,606 | | | | | | | | 502,235 | | | | | | | | 430,073 | | | | | | | | 617,811 | | | | | | | | 580,606 | | | | | | | | 502,235 | |
Conversion of preferred into common stock | | | | | | | (219 | ) | | | | | | | (191 | ) | | | | | | | (32 | ) | | | | | | | (95 | ) | | | | | | | (219 | ) | | | | | | | (191 | ) |
Stock options exercised, net of shares tendered for payment | | | | | | | 20,920 | † | | | | | | | 79,735† | | | | | | | | 46,861† | | | | | | | | 98,736 | (4) | | | | | | | 20,920 | (4) | | | | | | | 79,735 | (4) |
Stock option expense | | | | | | | 8,919 | | | | | | | | 11,987 | | | | | | | | — | | | | | | | | 9,405 | | | | | | | | 8,919 | | | | | | | | 11,987 | |
Restricted stock unit activity | | | | | | | 4,961 | | | | | | | | 16,000 | | | | | | | | 21,958 | | | | | | | | (538 | ) | | | | | | | 4,961 | | | | | | | | 16,000 | |
Transfer of unearned compensation balance per SFAS No. 123R | | | | | | | — | | | | | | | | (32,773 | ) | | | | | | | — | | | | | | | | — | | | | | | | | — | | | | | | | | (32,773 | ) |
Initial adoption of FIN 48 | | | | | | | (1,719 | ) | | | | | | | — | | | | | | | | — | | | | | | | | — | | | | | | | | (1,719 | ) | | | | | | | — | |
Other, net* | | | | | | | 4,343 | | | | | | | | 3,613 | | | | | | | | 3,375 | | |
Tax settlement(1) | | | | | | | | 8,537 | | | | | | | | — | | | | | | | | — | |
Other, net(2) | | | | | | | | 4,061 | | | | | | | | 4,343 | | | | | | | | 3,613 | |
| | | | | | | | | | | | | | |
Balance at end of year | | | | | | | 617,811 | | | | | | | | 580,606 | | | | | | | | 502,235 | | | | | | | | 737,917 | | | | | | | | 617,811 | | | | | | | | 580,606 | |
| | | | | | | | | | | | | | |
RETAINED EARNINGS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | |
Balance at beginning of year | | | | | | | 5,778,617 | | | | | | | | 5,454,108 | | | | | | | | 5,210,748 | | | | | | | | 6,129,008 | | | | | | | | 5,778,617 | | | | | | | | 5,454,108 | |
Net income | | | | | | | 844,925 | | | | | | | | 785,746 | | | | | | | | 645,603 | | | | | | | | 923,072 | | | | | | | | 844,925 | | | | | | | | 785,746 | |
Cash dividends: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred (per share $1.70 per share in 2008, 2007, and 2006) | | | | | | | (12 | ) | | | | | | | (13 | ) | | | | | | | (14 | ) | |
Common (per share $1.52, $1.40, and $1.20 in 2008, 2007, and 2006, respectively) | | | | | | | (485,234 | ) | | | | | | | (461,224 | ) | | | | | | | (408,137 | ) | |
Preferred (per share $1.70 per share in 2009, 2008, and 2007) | | | | | | | | (12 | ) | | | | | | | (12 | ) | | | | | | | (13 | ) |
Common (per share $1.66, $1.52, and $1.40 in 2009, 2008, and 2007, respectively) | | | | | | | | (525,281 | ) | | | | | | | (485,234 | ) | | | | | | | (461,224 | ) |
Initial adoption of FIN 48 | | | | | | | (9,288 | ) | | | | | | | — | | | | | | | | — | | | | | | | | — | | | | | | | | (9,288 | ) | | | | | | | — | |
Other, net* | | | | | | | — | | | | | | | | — | | | | | | | | 5,908 | | |
Other(3) | | | | | | | | (1,068 | ) | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | |
Balance at end of year | | | | | | | 6,129,008 | | | | | | | | 5,778,617 | | | | | | | | 5,454,108 | | | | | | | | 6,525,719 | | | | | | | | 6,129,008 | | | | | | | | 5,778,617 | |
| | | | | | | | | | | | | | |
TREASURY STOCK | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning 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 | ) |
Shares reacquired | | | (13,054 | ) | | | (580,707 | ) | | | (16,651 | ) | | | (760,686 | ) | | | (21,925 | ) | | | (823,370 | ) | | | (3,650 | ) | | | (181,431 | ) | | | (13,054 | ) | | | (580,707 | ) | | | (16,651 | ) | | | (760,686 | ) |
Conversion of preferred into common stock | | | 8 | | | | 224 | | | | 7 | | | | 195 | | | | 1 | | | | 33 | | | | 3 | | | | 97 | | | | 8 | | | | 224 | | | | 7 | | | | 195 | |
Stock options exercised, net of shares tendered for payment | | | 2,116 | | | | 62,486 | | | | 7,265 | | | | 195,117 | | | | 4,575 | | | | 101,945 | | | | 6,179 | | | | 178,559 | | | | 2,116 | | | | 62,486 | | | | 7,265 | | | | 195,117 | |
Restricted stock unit activity | | | 289 | | | | 8,591 | | | | 96 | | | | 2,438 | | | | 58 | | | | 1,303 | | | | 485 | | | | 15,026 | | | | 289 | | | | 8,591 | | | | 96 | | | | 2,438 | |
Other, net* | | | 330 | | | | 9,777 | | | | 305 | | | | 9,030 | | | | 371 | | | | 8,455 | | |
Other, net(2) | | | | 374 | | | | 11,662 | | | | 330 | | | | 9,777 | | | | 305 | | | | 9,030 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of year | | | (119,628 | ) | | | (4,905,755 | ) | | | (109,317 | ) | | | (4,406,126 | ) | | | (100,339 | ) | | | (3,852,220 | ) | | | (116,237 | ) | | | (4,881,842 | ) | | | (119,628 | ) | | | (4,905,755 | ) | | | (109,317 | ) | | | (4,406,126 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
UNEARNED COMPENSATION | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of year | | | | | | | — | | | | | | | | (32,773 | ) | | | | | | | (31,141 | ) | | | | | | | — | | | | | | | | — | | | | | | | | (32,773 | ) |
Restricted stock unit activity | | | | | | | — | | | | | | | | — | | | | | | | | (2,195 | ) | |
Transfer of balance to additional capital per SFAS No. 123R | | | | | | | — | | | | | | | | 32,773 | | | | | | | | — | | | | | | | | — | | | | | | | | — | | | | | | | | 32,773 | |
Other, net* | | | | | | | — | | | | | | | | — | | | | | | | | 563 | | |
| | | | | | | | | | | | | | |
Balance at end of year | | | | | | | — | | | | | | | | — | | | | | | | | (32,773 | ) | | | | | | | — | | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | |
OTHER COMPREHENSIVE (LOSS)/INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of year | | | | | | | (219,265 | ) | | | | | | | (130,383 | ) | | | | | | | 25,622 | | | | | | | | (61,090 | ) | | | | | | | (219,265 | ) | | | | | | | (130,383 | ) |
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 pension and post-retirement benefit losses (net of $138,862 and $75,407 tax benefit in 2009 and 2008, respectively) | | | | | | | | (301,347 | ) | | | | | | | (155,989 | ) | | | | | | | — | |
Reclassification of net pension and post-retirement benefit losses to net income (net of $12,273 and $14,159 tax benefit in 2009 and 2008, respectively) | | | | | | | | 24,744 | | | | | | | | 27,787 | | | | | | | | — | |
Minimum pension liability (net of $4,167 tax expense in 2007) | | | | | | | | — | | | | | | | | — | | | | | | | | 8,041 | |
Unrealized translation adjustments (net of $14,004 tax benefit, $25,823 tax expense, and $29,635 tax benefit in 2009, 2008 and 2007, respectively) | | | | | | | | (944,439 | ) | | | | | | | 281,090 | | | | | | | | 293,673 | |
Net change in fair value of cash flow hedges (net of $9,413 tax expense, $7,527 tax expense and $4,423 tax benefit in 2009, 2008 and 2007, respectively) | | | | | | | | 33,204 | | | | | | | | 16,273 | | | | | | | | (3,401 | ) |
Net hedging (gains)/losses reclassified into earnings (net of $5,486 tax expense, $7,287 tax expense, and $6,163 tax benefit in 2009, 2008, and 2007, respectively) | | | | | | | | (20,772 | ) | | | | | | | (10,986 | ) | | | | | | | 11,239 | |
| | | | | | | | | | | | | | |
Net other comprehensive income/(loss) adjustments | | | | | | | 158,175 | | | | | | | | 309,552 | | | | | | | | (156,005 | ) | |
Net other comprehensive (loss) /income adjustments | | | | | | | | (1,208,610 | ) | | | | | | | 158,175 | | | | | | | | 309,552 | |
| | | | | | | | | | | | | | |
Initial adoption of SFAS No. 158, net of $182,530 tax benefit | | | | | | | — | | | | | | | | (398,434 | ) | | | | | | | — | | |
Adoption of SFAS No. 158, net of $182,530 tax benefit | | | | | | | | — | | | | | | | | — | | | | | | | | (398,434 | ) |
| | | | | | | | | | | | | | |
Balance at end of year | | | | | | | (61,090 | )†† | | | | | | | (219,265 | ) | | | | | | | (130,383 | ) | | | | | | | (1,269,700 | )(5) | | | | | | | (61,090 | ) | | | | | | | (219,265 | ) |
| | | | | | | | | | | | | | |
TOTAL SHAREHOLDERS’ EQUITY | | | | | | $ | 1,887,820 | | | | | | | $ | 1,841,683 | | | | | | | $ | 2,048,823 | | | | | | | $ | 1,219,938 | | | | | | | $ | 1,887,820 | | | | | | | $ | 1,841,683 | |
| | | | | | | | | | | | | | |
COMPREHENSIVE INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | $ | 844,925 | | | | | | | $ | 785,746 | | | | | | | $ | 645,603 | | | | | | | $ | 923,072 | | | | | | | $ | 844,925 | | | | | | | $ | 785,746 | |
Net other comprehensive income/(loss) adjustments | | | | | | | 158,175 | | | | | | | | 309,552 | | | | | | | | (156,005 | ) | |
Net other comprehensive (loss)/ income adjustments | | | | | | | | (1,208,610 | ) | | | | | | | 158,175 | | | | | | | | 309,552 | |
| | | | | | | | | | | | | | |
TOTAL COMPREHENSIVE INCOME | | | | | | $ | 1,003,100 | | | | | | | $ | 1,095,298 | | | | | | | $ | 489,598 | | |
TOTAL COMPREHENSIVE (LOSS)/INCOME | | | | | | | $ | (285,538 | ) | | | | | | $ | 1,003,100 | | | | | | | $ | 1,095,298 | |
| | | | | | | | | | | | | | |
| | |
*(1) | | See Note No. 6 for further details. |
(2) | | 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. |
(3) | | Includes adoption of the measurement date provisions of SFAS No. 158 and unpaid dividend equivalents on restricted stock units. |
†(4) | | Includes income tax benefit resulting from exercised stock options. |
|
††(5) | | Comprised of unrealized translation adjustment of $529,228,$(415,211), pension and post-retirement benefits net prior service cost of $(11,833)$(14,075) and net losses of $(586,986)$(861,347), and deferred net gains on derivative financial instruments of $8,501.$20,933. |
See Notes to Consolidated Financial Statements
40
H. J. Heinz Company and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | Fiscal Year Ended | |
| | April 30,
| | May 2,
| | May 3,
| | | April 29,
| | April 30,
| | May 2,
| |
| | 2008
| | 2007
| | 2006
| | | 2009
| | 2008
| | 2007
| |
| | (52 Weeks) | | (52 Weeks) | | (53 Weeks) | | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 844,925 | | | $ | 785,746 | | | $ | 645,603 | | | $ | 923,072 | | | $ | 844,925 | | | $ | 785,746 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | 250,826 | | | | 233,374 | | | | 227,454 | | | | 241,294 | | | | 250,826 | | | | 233,374 | |
Amortization | | | 38,071 | | | | 32,823 | | | | 36,384 | | | | 40,081 | | | | 38,071 | | | | 32,823 | |
Deferred tax provision/(benefit) | | | 18,543 | | | | 52,244 | | | | (57,693 | ) | |
(Gains)/losses on disposals and impairment charges | | | (15,706 | ) | | | (1,391 | ) | | | 48,023 | | |
Deferred tax provision | | | | 108,950 | | | | 18,543 | | | | 52,244 | |
Net gains on disposals | | | | (6,445 | ) | | | (15,706 | ) | | | (1,391 | ) |
Pension contributions | | | | (133,714 | ) | | | (58,061 | ) | | | (62,505 | ) |
Other items, net | | | 22,343 | | | | 11,066 | | | | 39,066 | | | | (70,140 | ) | | | 80,404 | | | | 73,571 | |
Changes in current assets and liabilities, excluding effects of acquisitions and divestitures: | | | | | | | | | | | | | | | | | | | | | | | | |
Receivables | | | (55,832 | ) | | | 10,987 | | | | 115,583 | | | | (10,866 | ) | | | (55,832 | ) | | | 10,987 | |
Inventories | | | (133,600 | ) | | | (82,534 | ) | | | (47,401 | ) | | | 50,731 | | | | (133,600 | ) | | | (82,534 | ) |
Prepaid expenses and other current assets | | | 5,748 | | | | 14,208 | | | | 13,555 | | | | 996 | | | | 5,748 | | | | 14,208 | |
Accounts payable | | | 89,160 | | | | 56,524 | | | | 56,545 | | | | (62,934 | ) | | | 89,160 | | | | 56,524 | |
Accrued liabilities | | | 28,259 | | | | (4,489 | ) | | | 57,353 | | | | 24,641 | | | | 28,259 | | | | (4,489 | ) |
Income taxes | | | 95,566 | | | | (46,270 | ) | | | (59,511 | ) | | | 61,216 | | | | 95,566 | | | | (46,270 | ) |
| | | | | | | | | | | | | | |
Cash provided by operating activities | | | 1,188,303 | | | | 1,062,288 | | | | 1,074,961 | | | | 1,166,882 | | | | 1,188,303 | | | | 1,062,288 | |
| | | | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (301,588 | ) | | | (244,562 | ) | | | (230,577 | ) | | | (292,121 | ) | | | (301,588 | ) | | | (244,562 | ) |
Proceeds from disposals of property, plant and equipment | | | 8,531 | | | | 60,661 | | | | 19,373 | | | | 5,407 | | | | 8,531 | | | | 60,661 | |
Acquisitions, net of cash acquired | | | (151,604 | ) | | | (88,996 | ) | | | (1,100,436 | ) | | | (293,898 | ) | | | (151,604 | ) | | | (88,996 | ) |
Net proceeds/(payments) related to divestitures | | | 63,481 | | | | (4,144 | ) | | | 856,729 | | | | 13,351 | | | | 63,481 | | | | (4,144 | ) |
Change in restricted cash | | | | (192,736 | ) | | | — | | | | — | |
Termination of net investment hedges | | | (93,153 | ) | | | — | | | | — | | | | — | | | | (93,153 | ) | | | — | |
Other items, net | | | (79,894 | ) | | | (49,203 | ) | | | 3,094 | | | | (1,197 | ) | | | (79,894 | ) | | | (49,203 | ) |
| | | | | | | | | | | | | | |
Cash used for investing activities | | | (554,227 | ) | | | (326,244 | ) | | | (451,817 | ) | | | (761,194 | ) | | | (554,227 | ) | | | (326,244 | ) |
| | | | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Payments on long-term debt | | | (368,214 | ) | | | (52,069 | ) | | | (727,772 | ) | | | (427,417 | ) | | | (368,214 | ) | | | (52,069 | ) |
Proceeds from long-term debt | | | — | | | | — | | | | 230,790 | | | | 853,051 | | | | — | | | | — | |
Net proceeds from commercial paper and short-term debt | | | 483,730 | | | | 384,055 | | | | 298,525 | | |
Net (payments on)/proceeds from commercial paper and short-term debt | | | | (483,666 | ) | | | 483,730 | | | | 384,055 | |
Dividends | | | (485,246 | ) | | | (461,237 | ) | | | (408,151 | ) | | | (525,293 | ) | | | (485,246 | ) | | | (461,237 | ) |
Purchases of treasury stock | | | (580,707 | ) | | | (760,686 | ) | | | (823,370 | ) | | | (181,431 | ) | | | (580,707 | ) | | | (760,686 | ) |
Exercise of stock options | | | 78,596 | | | | 259,816 | | | | 142,046 | | | | 264,898 | | | | 78,596 | | | | 259,816 | |
Termination of interest rate swaps | | | 103,522 | | | | — | | | | — | | | | — | | | | 103,522 | | | | — | |
Other items, net | | | 10,224 | | | | 9,212 | | | | 18,507 | | | | (16,478 | ) | | | 10,224 | | | | 9,212 | |
| | | | | | | | | | | | | | |
Cash used for financing activities | | | (758,095 | ) | | | (620,909 | ) | | | (1,269,425 | ) | | | (516,336 | ) | | | (758,095 | ) | | | (620,909 | ) |
| | | | | | | | | | | | | | |
Cash provided by operating activities of discontinued operations spun-off to Del Monte | | | — | | | | 33,511 | | | | 13,312 | | | | — | | | | — | | | | 33,511 | |
Effect of exchange rate changes on cash and cash equivalents | | | 88,810 | | | | 58,823 | | | | (5,353 | ) | | | (133,894 | ) | | | 88,810 | | | | 58,823 | |
| | | | | | | | | | | | | | |
Net (decrease)/increase in cash and cash equivalents | | | (35,209 | ) | | | 207,469 | | | | (638,322 | ) | | | (244,542 | ) | | | (35,209 | ) | | | 207,469 | |
Cash and cash equivalents at beginning of year | | | 652,896 | | | | 445,427 | | | | 1,083,749 | | | | 617,687 | | | | 652,896 | | | | 445,427 | |
| | | | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 617,687 | | | $ | 652,896 | | | $ | 445,427 | | | $ | 373,145 | | | $ | 617,687 | | | $ | 652,896 | |
| | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements
41
H. J. Heinz Company and Subsidiaries
| |
1. | Significant Accounting Policies |
Fiscal Year:
H. J. Heinz Company (the “Company”) operates on a 52-week or 53-week fiscal year ending the Wednesday nearest April 30. However, certain foreign subsidiaries have earlier closing dates to facilitate timely reporting. Fiscal years for the financial statements included herein ended April 29, 2009, April 30, 2008, and May 2, 2007, and May 3, 2006.2007.
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. Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. All intercompany accounts and transactions are eliminated.
As a result of general economic uncertainty, coupled with restrictions on the repatriation of earnings, as of the end of November 2002 the Company deconsolidated its Zimbabwean operations and classified its remaining net investment of approximately $111 million as a cost investment. In the fourth quarter of Fiscal 2006, the Company wrote off its net investment in Zimbabwe. The decision to write off the Zimbabwe investment related to management’s determination that this investment was not a core business. 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.
42
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method.
Property, Plant and Equipment:
Land, buildings and equipment are recorded at cost. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets, which generally have the following ranges: buildings—40 years or less, machinery and equipment—15 years or less, computer software—3 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
42
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 accumulated depreciation are removed from the accounts and any related gains or losses are included in income. Property,The Company reviews property, plant and equipment, are reviewed for possible impairment when appropriate.whenever circumstances change such that the indicated recorded value of an asset may not be recoverable or has suffered an other-than-temporary impairment. Factors that may affect recoverability include changes in planned use of equipment or software, and the closing of facilities. 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.
Goodwill and 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.impairment, or when circumstances indicate that a possible impairment may exist. The annual impairment tests are performed as of the last day of the third quarter of each fiscal year. All goodwill is assigned to reporting units, which are primarily one level below our operating segments. 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 and revenue and expense growth rates, and in addition, external factors such as changes in macroeconomic trends and cost of capital.
Revenue Recognition:
The Company recognizes revenue when title, ownership and risk of loss pass to the customer. This generally 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 primarily 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. 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. We perform monthly and quarterly evaluations of our outstanding trade promotions, making adjustments where appropriate to reflect changes in estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorization process for deductions taken by a customer from amounts otherwise due to the Company. Expenses associated with coupons, which we refer to as
43
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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. For interim reporting purposes, advertising, consumer incentive and product placement expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the full year.
Income Taxes:
Deferred income taxes result primarily from temporary differences between financial and tax reporting. If it is more likely than not that some portion or all of a deferred tax asset will not be
43
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
realized, a valuation allowance is recognized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
The Company has not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable.
Stock-Based Employee Compensation Plans:
Prior to May 4, 2006,The Company recognizes the Company accounted for its stock-based compensation plans under the measurement and recognition provisionscost 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 paymentsawards to employees, including grants of employee stock options, on a straight-line basis over their respective requisite service periods (generally equal to an award’s vesting period). A stock-based award is considered vested for expense attribution purposes when the employee’s retention of the award is no longer contingent on providing subsequent service. Accordingly, the Company recognizes compensation cost immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period. The vesting approach used does not affect the overall amount of compensation expense recognized, but could accelerate the recognition of expense. The Company follows 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. Judgment is required in estimating the amount of stock-based awards expected to be recognized inforfeited prior to vesting. If actual forfeitures differ significantly from these estimates, stock-based compensation expense could be materially impacted.
Compensation cost related to all stock-based awards is determined using the Consolidated Statements of Income based on theirgrant date fair values.value. Determining the fair value of share-based awardsemployee stock options 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. JudgmentCompensation cost for restricted stock units is also required in estimatingdetermined as the amountfair value of stock-based awards expected to be forfeitedthe Company’s stock at the grant date. The Company applies the modified-prospective transition method for stock options granted on or prior to, vesting. If actual forfeitures differ significantly frombut not vested as of, May 3, 2006. Compensation cost related to these estimates,stock options is determined using 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 Statement of Financial Accounting Standards (“SFAS”) No. 123.
All stock-based compensation expense could be materially impacted.is recognized as a component of general and administrative expenses in the Consolidated Statements of Income.
44
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Had compensation cost for the Company’s stock option plans been determined in Fiscal 2006 based on the fair-value based method for all awards, the pro forma income and earnings per share from continuing operations would have been as follows:
| | | | |
| | Fiscal Year Ended | |
| | May 3,
| |
| | 2006
| |
| | (53 Weeks) | |
| | (In thousands,
| |
| | except per share amounts) | |
|
Income from continuing operations: | | | | |
As reported | | $ | 442,761 | |
Fair value-based expense, net of tax | | | 12,333 | |
| | | | |
Pro forma | | $ | 430,428 | |
| | | | |
Income per common share from continuing operations: | | | | |
Diluted | | | | |
As reported | | $ | 1.29 | |
Pro forma | | $ | 1.26 | |
Basic | | | | |
As reported | | $ | 1.31 | |
Pro forma | | $ | 1.27 | |
Financial Instruments:
The 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 quotedusing observable 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. Cash flows related to derivative instruments designatedGains and losses on fair value hedges are recognized in current period earnings in the same line item as the underlying hedged item. The effective portion of gains and losses on cash flow hedges are generally classified in the consolidated statements of cash flows within operating activitiesdeferred as a component of accumulated other items, net.comprehensive loss and are recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. Hedge ineffectiveness related to cash flow hedges is reported in current period earnings within other income and expense. The income statement classification of gains and losses related to derivative contracts that do not qualify for hedge accounting is determined based on the underlying intent of the contracts. Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities. Cash flows related to the termination of derivative instruments designated as fair value hedges of fixed rate debt obligations are classified in the consolidated statements of cash flows within financing activities.
45
H. J. Heinz Company and Subsidiaries
Notes All other cash flows related to Consolidated Financial Statements — (Continued)derivative instruments are generally classified in the consolidated statements of cash flows within operating activities.
| |
2. | Recently Issued Accounting Standards |
In JulySeptember 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109(“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in financial statements. This Interpretation includes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosures. See Note 7 for additional information.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”,Measurements,” which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies whenever other accounting pronouncements require or permit assets or liabilities to be measured at fair value, but does not expand the use of fair value to new accounting transactions. SFAS No. 157 is effective for financial assets and liabilities in fiscal years beginning after November 15, 2007, and for non-financial assets and liabilities in fiscal years beginning after November 15, 2008. The Company will adoptadopted SFAS No. 157 for its financial assets and liabilities on May 1, 2008, the2008. See Note No. 12 for additional information. The Company will adopt SFAS No. 157 for its non-financial assets and liabilities that are recognized at fair value on a non-recurring basis, including goodwill, other intangible assets, exit liabilities and purchase price allocations on April 30, 2009 (the first day of Fiscal 2009. The Company’s financial instruments consist primarily of cash2010) and cash equivalents, receivables, accounts payable, short-term and long-term debt, swaps, forward contracts, and option contracts. The recorded values ofthis adoption is not expected to have a material impact on the Company’s financial instruments approximate fair value. The Company is currently evaluating the impact of adopting SFAS No. 157 on its consolidated financial statements.
In September 2006,On May 1, 2008, the FASB issuedCompany adopted the measurement date provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment
45
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
of FASB Statement Nos.Statements No. 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 theseThe measurement date provisions of SFAS No. 158. SFAS No. 158 also requires that employers measurerequire plan assets and obligations to be measured as of the date of theirthe year-end financial statements beginning with the Company’s fiscal year ending April 29, 2009.statements. The Company does not expect the impactpreviously measured its foreign pension and other postretirement benefit obligations as of March 31 each year. The adoption of the change in measurement date toprovisions of SFAS No. 158 did not have a material impacteffect on the Company’s consolidated financial statements.statement of income or consolidated balance sheet for the fiscal year ended April 29, 2009.
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,SFAS No. 141(R) and its related standards will impact the Companyaccounting for any future business combinations completed after April 29, 2009. The nature and extent of the impact will depend upon the terms and conditions of any such transaction. SFAS No. 160 changes the accounting and reporting for minority interests, which will be requiredrecharacterized as noncontrolling interests and classified as a component of shareholders’ equity. SFAS No. 160 requires retrospective adoption of the presentation and disclosures for existing minority interests. All other requirements of SFAS No. 160 will be applied prospectively. SFAS No. 160 is not expected to adopt thesehave a material impact on the Company’s financial statements upon adoption. These standards will be adopted 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”.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. As SFAS No. 161 only requires enhanced disclosures, it will have no impact on the Company’s financial position, results of operations, or cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS No. 161 in the fourth quarter of Fiscal 2009. See Note No. 13 for additional information.
In June 2008, the FASB issued Financial Statement of Position (“FSP”)EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSPEITF 03-6-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSPEITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions of FSPEITF 03-6-1. The Company has completed its evaluation of the impact of adopting FSPEITF 03-6-1 in Fiscal 2010. The adoption will have no impact on net income, but is expected to result in a $0.02 and $0.01 reduction in both basic and diluted earnings per share in Fiscal 2008 and 2009, respectively.
In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”. This new standard requires enhanced disclosures about plan assets in an employer’s defined benefit pension or other postretirement plan. Companies will be required to disclose information about how investment allocation decisions are made, the fair value of each major category of plan assets, the basis used to determine the overall expected long-term rate of return on
46
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
issuedassets assumption, a description of the inputs and valuation techniques used to develop fair value measurements of plan assets, and significant concentrations of credit risk. This statement is effective for fiscal years and interim periods beginningending after NovemberDecember 15, 2008.2009. The Company is currently evaluating the impact of adopting SFAS No. 161FSP FAS 132(R) -1 in the fourth quarter of Fiscal 2009.2010.
| |
3. | Discontinued Operations |
During fiscal years 2003 through 2006, the Company focused on exiting non-strategic business operations. Certain of these businesses which were sold were accounted for as discontinued operations.
In the fourth quarter of Fiscal 2006, the Company completed theits 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.businesses. The Company recorded a loss of $3.3 million ($5.9 million after-tax) loss from discontinued operations related to these businesses for the year ended May 2, 2007, primarily resulting from purchase price adjustments pursuant to the transaction agreements. These discontinued operations generated sales of $688.0 million (partial year) and net income of $169.1 million (net of $90.2 million in tax expense) for the year ended May 3, 2006.
In addition, net income from discontinued operations includes amounts related to the favorable settlement of tax liabilities associated with the businesses spun-off to Del Monte in Fiscal 2003. Such amounts totaled $33.7 million for the year ended May 3, 2006.
| |
4. | Fiscal 2006 Transformation CostsAcquisitions |
In executing its strategic transformation during Fiscal 2006,During 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.
47
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Other Divestitures/Impairment Charges:
The following (losses)/gains or non-cash asset impairment charges were recorded in continuing operations during Fiscal 2006:
| | | | | | | | | | |
Business or Product Line | | Segment | | Pre-Tax | | | After-Tax | |
| | | | (In millions) | |
|
Loss on sale of Seafood business in Israel | | Rest of World | | $ | (15.9 | ) | �� | $ | (15.9 | ) |
Impairment charge on Portion Pac Bulk product line | | U.S. Foodservice | | | (21.5 | ) | | | (13.3 | ) |
Impairment charge on U.K. Frozen and Chilled product lines | | Europe | | | (15.2 | ) | | | (15.2 | ) |
Impairment charge on European production assets | | Europe | | | (18.7 | ) | | | (18.7 | ) |
Impairment charge on Noodle product line in Indonesia | | Asia/Pacific | | | (15.8 | ) | | | (8.5 | ) |
Impairment charge on investment in Zimbabwe business | | Rest of World | | | (111.0 | ) | | | (105.6 | ) |
Other | | Various | | | (1.5 | ) | | | 0.5 | |
| | | | | | | | | | |
Total | | | | $ | (199.6 | ) | | $ | (176.7 | ) |
| | | | | | | | | | |
Of the above pre-tax amounts, $74.1 million was recorded in cost of products sold, $15.5 million in SG&A, $111.0 million in asset impairment charges for cost and equity investments, and $(1.0) million in other expense.
Also during the thirdsecond quarter of Fiscal 2006,2009, the Company sold its equity investmentacquired Bénédicta, a sauce business 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 $116.1France for approximately $116 million. During the third quarter of Fiscal 2005,2009, the Company recognizedacquired Golden Circle Limited, a $64.5fruit and juice business in Australia for approximately $211 million, impairment charge on its equity investment in Hain. The charge reduced Heinz’s carrying value in Hain to fair market value asincluding the assumption of January 26, 2005, with no resulting impact on cash flows. Due to$68 million of debt that was immediately refinanced by the uncertainty of realizability and executing possible tax planning strategies,Company. Additionally, the Company recordedacquired La Bonne Cuisine, a valuation allowancechilled dip business in New Zealand for approximately $28 million in the third quarter of $27.3 million againstFiscal 2009. During the potential tax benefits primarilyfourth quarter of Fiscal 2009, the Company acquired Papillon, a South African producer of chilled products for approximately $6 million. The Company also made payments during Fiscal 2009 related to the Hain impairment. This valuation allowance was subsequently releasedacquisitions completed in Fiscal 2006 based upon tax planning strategies that are expected to generate sufficient capital gains that will occur during the capital loss carryforward period. See further discussion in Note 7.
There were no material gains/(losses) on divested businesses or asset impairment charges in Fiscal 2007 or 2008.
Other Non-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,prior fiscal years, none of which $24.4 million of expense was recorded in continuing operations and $7.1 million was a benefit in discontinued operations.were significant.
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 as well as deferred consideration which is scheduled to Consolidated Financial Statements — (Continued)
and $15 millionbe paid in Fiscal 2010. The final consideration amount will be determined based on the financial performance of deferred consideration.the business. 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 million. In addition, during Fiscal 2007, the Company acquired the remaining interest in its Petrosoyuz joint venture for approximately $15 million. The Company also made payments during Fiscal 2007 related to acquisitions completed in prior fiscal years, none of which were significant.
The Company acquired the following businesses during Fiscal 2006 for a total purchase price of $1.1 billion:
| | |
| • | In August 2005, the Company acquired HP Foods Limited, HP Foods Holdings Limited, and HP Foods International Limited (collectively referred to as “HPF”) for a purchase price of approximately $877 million. HPF is a manufacturer and marketer of sauces which are primarily sold in the United Kingdom, the United States, and Canada. The Company acquired HPF’s brands includingHP® andLea & Perrins® 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 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.
All of the above-mentioned acquisitions have been accounted for as purchases and, accordingly, the respective purchase prices have been allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. Operating results of the businesses acquired have been included in the consolidated statements of income from the respective acquisition dates forward. Pro forma results of the Company, assuming all of the acquisitions had occurred at the beginning of each period presented, would not be materially different from the results reported. There are no significant contingent payments, options or commitments associated with any of the acquisitions, except as disclosed above.
4947
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
| |
6.5. | Goodwill and Other Intangible Assets |
Changes in the carrying amount of goodwill for the fiscal year ended April 30, 2008,29, 2009, by reportable segment, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North
| | | | | | | | | | | | | North
| | | | | | | | | | | |
| | American
| | | | | | | | Rest
| | | | | American
| | | | | | | | Rest
| | | |
| | Consumer
| | | | Asia/
| | U.S.
| | of
| | | | | Consumer
| | | | Asia/
| | U.S.
| | of
| | | |
| | Products | | Europe | | Pacific | | Foodservice | | World | | Total | | | Products | | Europe | | Pacific | | Foodservice | | World | | Total | |
| | (Thousands of dollars) | | | (Thousands of dollars) | |
|
Balance at May 2, 2007 | | $ | 1,081,673 | | | $ | 1,259,514 | | | $ | 214,964 | | | $ | 262,823 | | | $ | 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 | |
Acquisitions | | | — | | | | 15,259 | | | | 47,603 | | | | — | | | | — | | | | 62,862 | | | | — | | | | 36,983 | | | | 18,238 | | | | — | | | | 394 | | | | 55,615 | |
Purchase accounting adjustments | | | 2,820 | | | | (2,155 | ) | | | — | | | | — | | | | — | | | | 665 | | | | — | | | | (868 | ) | | | (1,574 | ) | | | — | | | | — | | | | (2,442 | ) |
Disposals | | | — | | | | (1,239 | ) | | | — | | | | — | | | | — | | | | (1,239 | ) | | | — | | | | — | | | | — | | | | (2,300 | ) | | | — | | | | (2,300 | ) |
Translation adjustments | | | 11,795 | | | | 69,549 | | | | 19,852 | | | | — | | | | (661 | ) | | | 100,535 | | | | (21,447 | ) | | | (286,045 | ) | | | (50,861 | ) | | | — | | | | (2,194 | ) | | | (360,547 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at April 30, 2008 | | $ | 1,096,288 | | | $ | 1,340,928 | | | $ | 282,419 | | | $ | 262,823 | | | $ | 15,004 | | | $ | 2,997,462 | | |
Balance at April 29, 2009 | | | $ | 1,074,841 | | | $ | 1,090,998 | | | $ | 248,222 | | | $ | 260,523 | | | $ | 13,204 | | | $ | 2,687,788 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The annual impairment tests are performed as of the last day of the third quarter of each fiscal year unless events suggest an impairment may have occurred in the interim.
The Company finalized the purchase price allocationallocations for theCottee’s® Wyko acquisition during the second quarter of Fiscal 2009 andRose’s® acquisition the Bénédicta and La Bonne Cuisine acquisitions during the fourth quarter of Fiscal 2008.2009 resulting in adjustments between goodwill, trademarks, other intangible assets and deferred taxes. The Company also recorded a preliminary purchase price allocation related to theWyko® Golden Circle acquisition, which is expected to be finalized upon completion of valuation procedures.
Trademarks and other intangible assets at April 29, 2009 and April 30, 2008, and May 2, 2007, subject to amortization expense, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 30, 2008 | | May 2, 2007 | | | April 29, 2009 | | April 30, 2008 | |
| | Gross | | Accum Amort | | Net | | Gross | | Accum Amort | | Net | | | Gross | | Accum Amort | | Net | | Gross | | Accum Amort | | Net | |
| | (Thousands of dollars) | | | (Thousands of dollars) | |
|
Trademarks | | $ | 200,966 | | | $ | (69,104 | ) | | $ | 131,862 | | | $ | 196,703 | | | $ | (63,110 | ) | | $ | 133,593 | | | $ | 272,710 | | | $ | (71,138 | ) | | $ | 201,572 | | | $ | 200,966 | | | $ | (69,104 | ) | | $ | 131,862 | |
Licenses | | | 208,186 | | | | (141,070 | ) | | | 67,116 | | | | 208,186 | | | | (135,349 | ) | | | 72,837 | | | | 208,186 | | | | (146,789 | ) | | | 61,397 | | | | 208,186 | | | | (141,070 | ) | | | 67,116 | |
Recipes/processes | | | 71,495 | | | | (19,306 | ) | | | 52,189 | | | | 64,315 | | | | (15,779 | ) | | | 48,536 | | | | 72,988 | | | | (22,231 | ) | | | 50,757 | | | | 71,495 | | | | (19,306 | ) | | | 52,189 | |
Customer related assets | | | 183,204 | | | | (31,418 | ) | | | 151,786 | | | | 152,668 | | | | (19,183 | ) | | | 133,485 | | | | 179,657 | | | | (38,702 | ) | | | 140,955 | | | | 183,204 | | | | (31,418 | ) | | | 151,786 | |
Other | | | 73,848 | | | | (59,639 | ) | | | 14,209 | | | | 70,386 | | | | (56,344 | ) | | | 14,042 | | | | 68,128 | | | | (55,091 | ) | | | 13,037 | | | | 73,848 | | | | (59,639 | ) | | | 14,209 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 737,699 | | | $ | (320,537 | ) | | $ | 417,162 | | | $ | 692,258 | | | $ | (289,765 | ) | | $ | 402,493 | | | $ | 801,669 | | | $ | (333,951 | ) | | $ | 467,718 | | | $ | 737,699 | | | $ | (320,537 | ) | | $ | 417,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expense for trademarks and other intangible assets subject to amortization was $30.3 million, $27.7 million $25.7 million and $27.6$25.7 million for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007, and May 3, 2006, respectively. The finalization of the purchase price allocation for the HP Foods acquisition resulted in a $5.3 million adjustment to amortization expense during the second quarter of Fiscal 2007. Based upon the amortizable intangible assets recorded on the balance sheet as of April 30, 2008,29, 2009, amortization expense for each of the next five fiscal years is estimated to be approximately $28$30 million.
Intangible assets not subject to amortization at April 29, 2009 totaled $827.4 million and consisted of $688.2 million of trademarks, $111.6 million of recipes/processes, and $27.6 million of licenses. 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
5048
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
consisted of $759.2$825.2 million of trademarks, $126.6$135.3 million of recipes/processes, and $16.9$36.4 million of licenses.
The following table summarizes the provision/(benefit) for U.S. federal, state and foreign taxes on income from continuing operations.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Current: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. federal | | $ | 80,638 | | | $ | 89,020 | | | $ | 71,533 | | | $ | 72,336 | | | $ | 80,638 | | | $ | 89,020 | |
State | | | 15,323 | | | | 9,878 | | | | 14,944 | | | | 1,699 | | | | 15,323 | | | | 9,878 | |
Foreign | | | 258,365 | | | | 181,655 | | | | 225,498 | | | | 190,143 | | | | 258,365 | | | | 181,655 | |
| | | | | | | | | | | | | | |
| | | 354,326 | | | | 280,553 | | | | 311,975 | | | | 264,178 | | | | 354,326 | | | | 280,553 | |
| | | | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. federal | | | 14,975 | | | | 104,113 | | | | (54,957 | ) | | | 74,554 | | | | 14,975 | | | | 104,113 | |
State | | | 2,381 | | | | 5,444 | | | | 3,015 | | | | 8,383 | | | | 2,381 | | | | 5,444 | |
Foreign | | | 1,187 | | | | (57,313 | ) | | | (9,333 | ) | | | 26,013 | | | | 1,187 | | | | (57,313 | ) |
| | | | | | | | | | | | | | |
| | | 18,543 | | | | 52,244 | | | | (61,275 | ) | | | 108,950 | | | | 18,543 | | | | 52,244 | |
| | | | | | | | | | | | | | |
Provision for income taxes | | $ | 372,869 | | | $ | 332,797 | | | $ | 250,700 | | | $ | 373,128 | | | $ | 372,869 | | | $ | 332,797 | |
| | | | | | | | | | | | | | |
Tax benefits related to stock options and other equity instruments recorded directly to additional capital totaled $17.6 million in Fiscal 2009, $6.2 million in Fiscal 2008 and $15.5 million in Fiscal 2007 and $6.7 million in Fiscal 2006.2007.
The components of income from continuing operations before income taxes consist of the following:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
|
Domestic | | $ | 268,450 | | | $ | 293,580 | | | $ | 87,409 | |
Foreign | | | 949,344 | | | | 830,819 | | | | 606,052 | |
| | | | | | | | | | | | |
From continuing operations | | $ | 1,217,794 | | | $ | 1,124,399 | | | $ | 693,461 | |
| | | | | | | | | | | | |
The differences between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate on continuing operations are as follows:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
|
U.S. federal statutory tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
Tax on income of foreign subsidiaries | | | (4.5 | ) | | | (5.4 | ) | | | (3.6 | ) |
State income taxes (net of federal benefit) | | | 0.7 | | | | 1.0 | | | | 1.8 | |
Earnings repatriation | | | 3.3 | | | | 9.6 | | | | 4.3 | |
Reduction of tax reserves for statute of limitations expiration | | | (0.1 | ) | | | (5.9 | ) | | | — | |
Effects of revaluation of tax basis of foreign assets | | | (2.4 | ) | | | (4.6 | ) | | | (2.3 | ) |
Other | | | (1.4 | ) | | | (0.1 | ) | | | 1.0 | |
| | | | | | | | | | | | |
Effective tax rate | | | 30.6 | % | | | 29.6 | % | | | 36.2 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
| | (Dollars in thousands) | |
|
Domestic | | $ | 527,680 | | | $ | 268,450 | | | $ | 293,580 | |
Foreign | | | 768,520 | | | | 949,344 | | | | 830,819 | |
| | | | | | | | | | | | |
From continuing operations | | $ | 1,296,200 | | | $ | 1,217,794 | | | $ | 1,124,399 | |
| | | | | | | | | | | | |
5149
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The differences between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate on continuing operations are as follows:
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
U.S. federal statutory tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
Tax on income of foreign subsidiaries | | | (3.2 | ) | | | (4.5 | ) | | | (5.4 | ) |
State income taxes (net of federal benefit) | | | 0.7 | | | | 0.7 | | | | 1.0 | |
Earnings repatriation | | | 0.4 | | | | 3.3 | | | | 9.6 | |
Reduction of tax reserves for statute of limitations expiration | | | (0.7 | ) | | | (0.1 | ) | | | (5.9 | ) |
Tax rate difference on intercompany loans | | | (2.1 | ) | | | (1.0 | ) | | | (0.8 | ) |
Effects of revaluation of tax basis of foreign assets | | | (0.7 | ) | | | (2.4 | ) | | | (4.6 | ) |
Other | | | (0.6 | ) | | | (0.4 | ) | | | 0.7 | |
| | | | | | | | | | | | |
Effective tax rate | | | 28.8 | % | | | 30.6 | % | | | 29.6 | % |
| | | | | | | | | | | | |
The decrease in the effective tax rate in Fiscal 2009 is primarily the result of reduced repatriation costs partially offset by decreased benefits from the revaluation of tax basis of foreign assets. 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 research and development (“R&D&D”) tax credits. Those prior yearFiscal 2007 benefits were partially offset by lower repatriation costs and increased benefits from tax audit settlements occurring during Fiscal 2008, along with changes in valuation allowances for foreign losses. The decrease in the effective tax rate in Fiscal 2007 was primarily the result of an increasebenefited from tax planning in benefits associated with tax planning,a foreign jurisdiction and a reduction in foreign tax reserves, a prior year write-off of investment in affiliates for which no tax benefit could be recognized, a decrease in costs associated with tax audit settlements and decreases to foreign statutory tax rates, partially offset by increased costs of repatriation and changes in valuation allowances. The Fiscal 2006 effective tax rate was unfavorably impacted by increased costs of repatriation including the effects of the AJCA, a reduction in tax benefits associated with tax planning, increased costs associated with audit settlements and the write-off of investment in affiliates for which no tax benefit could be recognized, partially offset by the reversal of valuation allowances, the benefit of increased profits in lower tax rate jurisdictions and a reduction in tax reserves.repatriation.
The following table and note summarize deferred tax (assets) and deferred tax liabilities as of April 29, 2009 and April 30, 2008 and May 2, 2007.2008.
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Depreciation/amortization | | $ | 689,112 | | | $ | 634,192 | | | $ | 643,538 | | | $ | 689,112 | |
Benefit plans | | | 33,719 | | | | 43,632 | | | | 1,854 | | | | 33,719 | |
Deferred income | | | 30,145 | | | | — | | | | 84,939 | | | | 30,145 | |
Other | | | 56,160 | | | | 39,377 | | | | 90,640 | | | | 56,160 | |
| | | | | | | | | | |
Deferred tax liabilities | | | 809,136 | | | | 717,201 | | | | 820,971 | | | | 809,136 | |
| | | | | | | | | | |
Operating loss carryforwards | | | (40,852 | ) | | | (41,210 | ) | | | (87,923 | ) | | | (40,852 | ) |
Benefit plans | | | (248,808 | ) | | | (198,011 | ) | | | (295,254 | ) | | | (248,808 | ) |
Depreciation/amortization | | | (69,909 | ) | | | (53,722 | ) | | | (53,461 | ) | | | (69,909 | ) |
Tax credit carryforwards | | | (12,998 | ) | | | (851 | ) | | | (34,721 | ) | | | (12,998 | ) |
Deferred income | | | (39,942 | ) | | | — | | | | (44,308 | ) | | | (39,942 | ) |
Other | | | (96,618 | ) | | | (72,593 | ) | | | (91,851 | ) | | | (96,618 | ) |
| | | | | | | | | | |
Deferred tax assets | | | (509,127 | ) | | | (366,387 | ) | | | (607,518 | ) | | | (509,127 | ) |
| | | | | | | | | | |
Valuation allowance | | | 52,008 | | | | 44,935 | | | | 59,072 | | | | 52,008 | |
| | | | | | | | | | |
Net deferred tax liabilities | | $ | 352,017 | | | $ | 395,749 | | | $ | 272,525 | | | $ | 352,017 | |
| | | | | | | | | | |
50
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Company also has foreign deferred tax assets and valuation allowances of $143.0$107.2 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 20082009 valuation allowance shown above is an increase of $7.1 million. The increase was primarily due to the recording of additional valuation allowance for foreign loss carryforwards and state deferred tax assets that are not expected to be utilized prior to their expiration date. The net change in the Fiscal 2008 valuation allowance was an increase of $7.0 million. The increase was primarily due to the recording of additional valuation allowance for state deferred tax assets that arewere not expected to be utilized prior to their expiration date. The net change in the Fiscal 2007 valuation allowance was an increase of $14.0 million. The increase was primarily due to the recording of additional valuation allowance for state and foreign loss carryforwards that were not expected to be utilized prior to their expiration date. The net change in the Fiscal 2006 valuation allowance was a decrease of $39.3 million. The decrease was primarily due to the reversal of valuation allowances of $27.3 million in continuing operations related to the non-cash asset impairment charges recorded in Fiscal 2005 on cost and equity investments.
At the end of Fiscal 2008,2009, foreign operating loss carryforwards totaled $125.2$285.8 million. Of that amount, $70.9$145.7 million expire between 20092010 and 2018;2019; the other $54.3$140.1 million do not expire. Deferred tax assets of $10.3$31.3 million have been recorded for foreign tax credit carryforwards. These credit carryforwards expire between 2015 and 2019. Deferred tax assets of $9.9 million have been recorded for state operating loss carryforwards. These losses expire between 20092010 and 2028.2029.
The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 4848”) 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
| | | 2009 | | 2008 | |
| | millions) | | | (Dollars in millions) | |
|
Balance at May 3, 2007 | | $ | 183.7 | | |
Balance at the beginning of the fiscal year | | | $ | 129.1 | | | $ | 183.7 | |
Increases for tax positions of prior years | | | 10.6 | | | | 11.3 | | | | 10.6 | |
Decreases for tax positions of prior years | | | (31.0 | ) | | | (59.5 | ) | | | (31.0 | ) |
Increases based on tax positions related to the current year | | | 9.9 | | | | 15.0 | | | | 9.9 | |
Decreases due to settlements with taxing authorities | | | (41.0 | ) | | | (0.8 | ) | | | (41.0 | ) |
Decreases due to lapse of statute of limitations | | | (3.1 | ) | | | (8.5 | ) | | | (3.1 | ) |
| | | | | | | | |
Balance at April 30, 2008 | | $ | 129.1 | | |
Balance at the end of the fiscal year | | | $ | 86.6 | | | $ | 129.1 | |
| | | | | | | | |
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $55.7$51.9 million and $71.2$55.7 million, on April 29, 2009 and April 30, 2008, respectively.
51
H. J. Heinz Company and May 3, 2007, respectively.Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. For Fiscal 2009, the total amount of gross interest and penalty expense included in the provision for income taxes was $2.8 million and $0.4 million, respectively. For Fiscal 2008, the approximatetotal amount of gross interest and penaltiespenalty expense 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, 2007April 29, 2009 was $55.9$22.5 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$39.3 million in the next 12 months primarily due to the progression of federal, state, and foreign audits in process. In addition,During the fourth quarter of Fiscal 2009, the Company completed its analysis of the realizability of the Golden Circle Limited tax losses and determined that it is also reasonably possiblemore likely than not that Golden Circle will be able to sustain all of the losses. This resulted in the reversal of the $15.4 million unrecognized tax benefits recorded during the next 12 monthsthird quarter of Fiscal 2009, which was offset to goodwill on the opening balance sheet. During the second quarter of Fiscal 2009, the Company may reach a conclusion regardingeffectively settled 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 effective settlement resulted in a $42.7 million decrease in the amount of unrecognized tax benefits, will decrease by approximately $43$8.5 million of which was recorded as a credit to additional capital during the second quarter and was received as a refund of tax during the fourth quarter. The effective settlement resulted in a Fiscal 2009 tax benefit of which, if any, would be reflected through additional capital.
53
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)$5.2 million representing interest income on the refund of tax.
The provision for income taxes consists of provisions for federal, state and foreign income taxes. The Company operates in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, Italy, the United Kingdom and the United States. The Company has substantially concluded all Italian and U.S. federal income tax matters for years through Fiscal 2005 with the exception 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 concludedand all income tax matters for years through Fiscal 2002.2006 in the United Kingdom and Fiscal 2004 in Canada.
Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to $3.3 billion at April 30, 2008.29, 2009.
During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. As a result of this revaluation, the Company incurred a foreign tax liability of approximately $30 million related to this revaluation which was paid during the third quarter of Fiscal 2007. This revaluation is expected to benefit cash flow from operations by approximately $90 million over the five to twenty year tax amortization period.
Short-term debt consisted of bank debt and other borrowings of $124.3$61.3 million and $165.1$124.3 million as of April 29, 2009 and April 30, 2008, and May 2, 2007, respectively. The weighted average interest rate was 6.9%6.7% and 5.4%6.9% for Fiscal 20082009 and Fiscal 2007,2008, respectively.
TheIn April 2009, the Company maintains a $2and H. J. Heinz Finance Company (“HFC”) replaced their existing $2.0 billion credit agreement thatwith $1.8 billion of credit agreements, consisting of a $1.2 billion Three-Year Credit Agreement which expires in August 2009. The credit agreement supports the Company’s commercial paper borrowings. AsApril 2012 and 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 $1.1 billion of foreign lines of credit available at April 30, 2008.$600 million364-Day Credit Agreement.
5452
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
These agreements support the Company’s commercial paper borrowings and $204.3 million of Australian denominated borrowings. As a result, the commercial paper and Australian denominated 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 connection with the credit agreements, the Company is required to pay commitment fees of approximately $8 million in Fiscal 2010 which will be reported as interest expense in the consolidated statements of income. The new credit agreements include a leverage ratio covenant in addition to customary covenants that are substantially similar to those in the former credit agreement. The Company was in compliance with all of its covenants as of April 29, 2009. In addition, the Company has $542.5 million of foreign lines of credit available at April 29, 2009.
Long-term debt was comprised of the following as of April 29, 2009 and April 30, 2008 and May 2, 2007:2008:
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Commercial Paper (variable rate) | | $ | 1,223,367 | | | $ | 673,604 | | | $ | 639,958 | | | $ | 1,223,367 | |
6.00% U.S. Dollar Notes due March 2008 | | | — | | | | 299,824 | | |
6.226% Heinz Finance Preferred Stock due July 2008 | | | 325,000 | | | | 325,000 | | | | — | | | | 325,000 | |
8.0% Heinz Finance Preferred Stock due July 2013 | | | | 350,000 | | | | — | |
5.35% U.S. Dollar Notes due July 2013 | | | | 499,853 | | | | — | |
6.625% U.S. Dollar Notes due July 2011 | | | 749,668 | | | | 749,563 | | | | 749,773 | | | | 749,668 | |
6.00% U.S. Dollar Notes due March 2012 | | | 598,301 | | | | 632,201 | | | | 598,744 | | | | 598,301 | |
U.S. Dollar Remarketable Securities due December 2020 | | | 800,000 | | | | 800,000 | | | | 800,000 | | | | 800,000 | |
6.375% U.S. Dollar Debentures due July 2028 | | | 230,101 | | | | 229,842 | | | | 230,360 | | | | 230,101 | |
6.25% British Pound Notes due February 2030 | | | 246,386 | | | | 247,089 | | | | 183,440 | | | | 246,386 | |
6.75% U.S. Dollar Notes due March 2032 | | | 449,855 | | | | 449,779 | | | | 440,867 | | | | 449,855 | |
Canadian Dollar Credit Agreement due October 2010 | | | 144,669 | | | | 157,842 | | |
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 | | |
Australian Dollar Credit Agreement (variable rate) | | | | 204,287 | | | | — | |
Canadian Dollar Credit Agreement due October 2010 (variable rate) | | | | 39,917 | | | | 144,669 | |
Other U.S. Dollar due May 2008—November 2034 (2.99—7.99)% | | | | 55,609 | | | | 56,136 | |
OtherNon-U.S. Dollar due May 2008—March 2022 (7.00—12.00)% | | | | 36,244 | | | | 37,360 | |
| | | | | | | | | | |
| | | 4,860,843 | | | | 4,645,635 | | | | 4,829,052 | | | | 4,860,843 | |
SFAS No. 133 Hedge Accounting Adjustments (See Note 13) | | | 198,521 | | | | 71,195 | | | | 251,475 | | | | 198,521 | |
Less portion due within one year | | | (328,418 | ) | | | (303,189 | ) | | | (4,341 | ) | | | (328,418 | ) |
| | | | | | | | | | |
Total long-term debt | | $ | 4,730,946 | | | $ | 4,413,641 | | | $ | 5,076,186 | | | $ | 4,730,946 | |
| | | | | | | | | | |
Weighted-average interest rate on long-term debt, including the impact of applicable interest rate swaps | | | 5.90 | % | | | 6.14 | % | | | 5.31 | % | | | 5.90 | % |
| | | | | | | | | | |
During the fourth quarter of FiscalOn July 15, 2008, the Company paid off $300completed the sale of $500 million 5.35% Notes due 2013. Also on the same day the Company’s HFC subsidiary completed the sale of notes which matured on March 15, 2008. During Fiscal 2008 the Company also repurchased $34.5$350 million or 3,500 shares of its 6.0% notes due 2012Series B Preferred Stock. The proceeds from both transactions were used for general corporate purposes, including the repayment of commercial paper and effectively terminated the corresponding interest rate swaps.other indebtedness incurred to redeem HFC’s Series A Preferred Stock.
During Fiscal 2007, the Company repurchased $3.2 million of its 6.375% notes due 2028 and $23.3 million of its 6.75% notes due 2032 and terminated the corresponding interest rate swaps.
The fair value of the debt obligations approximated the recorded value as of April 30, 2008 and May 2, 2007. Annual maturities of long-term debt during the next five fiscal years are $328.4 million in 2009, $1,226.5 million in 2010, $160.8 million in 2011, $1,389.7 million in 2012 and $1.3 million in 2013.
As of April 30, 2008, the Company had $800 million of remarketable securities due December 2020. On December 1, 2005, the Company remarketed the $800 million remarketable securities at a coupon of 6.428% and amended the terms of the securities so that the securities will be remarketed every third year rather than annually. The next remarketing is scheduled for December 1, 2008. If the securities are not remarketed, then the Company is required to repurchase all of the securities at 100% of the principal amount plus accrued interest. The Company intends to remarket the securities in 2008; therefore, the debt is classified as long-term at April 30, 2008.
H.J. Heinz Finance Company’s 3,250HFC’s 3,500 mandatorily redeemable preferred shares are classified as long-term debt as a result of the adoption of SFAS No. 150.debt. Each share of preferred stock is entitled to annual cash dividends at a rate of 6.226%8% or $6,226$8,000 per share. On July 15, 2008, each share will be redeemed for $100,000 in cash for a total redemption price of $325 million.
5553
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
July 15, 2013, each share will be redeemed for $100,000 in cash for a total redemption price of $350 million.
During Fiscal 2008, the Company paid off $300 million of notes which matured on March 15, 2008 and repurchased $34.5 million of its 6.0% notes due 2012 and effectively terminated the corresponding interest rate swaps.
The aggregate fair value of the debt obligations, based on market quotes, approximated the recorded value as of April 29, 2009 and April 30, 2008. Annual maturities of long-term debt during the next five fiscal years are $4.3 million in 2010, $58.6 million in 2011, $2,235.9 million in 2012 (includes the commercial paper and Australian Dollar credit agreement in the table above), $1.7 million in 2013 and $851.0 million in 2014.
As of April 29, 2009, the Company had $800 million of remarketable securities due December 2020. On December 1, 2008, the Company was contractually required to remarket $800 million in dealer securities. At the time of the contractually required remarketing and for the majority of the fourth calendar quarter of 2008, the global capital markets were characterized by extreme volatility and illiquidity. These market conditions resulted in the Company having to reset the coupon on the remarketable securities at higher than anticipated levels. The total coupon of 15.59% represented an 11.5% yield to investors and 4.09% for the cost of the three-year remarketing option. The next remarketing is scheduled for December 1, 2011. 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. If the Company purchases or otherwise acquires the securities from the holders, the Company is required to pay to the holder of the remarketing option the option settlement amount. As of December 1, 2008, the date of the most recent remarketing, the fair value of the dealer’s option to remarket the securities every three years through 2020 was estimated to be approximately $150 million. This value fluctuates based on market conditions.
Subsequent to fiscal year end, the Company entered into a three-year $175 million accounts receivable securitization program.
| |
9.8. | Supplemental Cash Flows Information |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Cash Paid During the Year For: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest | | $ | 360,698 | | | $ | 268,781 | | | $ | 292,285 | | | $ | 310,047 | | | $ | 360,698 | | | $ | 268,781 | |
| | | | | | | | | | | | | | |
Income taxes | | $ | 261,283 | | | $ | 283,431 | | | $ | 326,370 | | | $ | 203,298 | | | $ | 261,283 | | | $ | 283,431 | |
| | | | | | | | | | | | | | |
Details of Acquisitions: | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of assets | | $ | 165,093 | | | $ | 108,438 | | | $ | 1,296,379 | | | $ | 478,440 | | | $ | 165,093 | | | $ | 108,438 | |
Liabilities* | | | 13,489 | | | | 19,442 | | | | 192,486 | | | | 181,093 | | | | 13,489 | | | | 19,442 | |
| | | | | | | | | | | | | | |
Cash paid | | | 151,604 | | | | 88,996 | | | | 1,103,893 | | | | 297,347 | | | | 151,604 | | | | 88,996 | |
Less cash acquired | | | — | | | | — | | | | 3,457 | | | | 3,449 | | | | — | | | | — | |
| | | | | | | | | | | | | | |
Net cash paid for acquisitions | | $ | 151,604 | | | $ | 88,996 | | | $ | 1,100,436 | | | $ | 293,898 | | | $ | 151,604 | | | $ | 88,996 | |
| | | | | | | | | | | | | | |
| | |
* | | Includes obligations to sellers of $11.5 million $2.0 million and $5.7$2.0 million in 2008 2007 and 2006,2007, 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
54
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
operating lease. This non-cash transaction has been excluded from the consolidated statement of cash flows for the year ended May 2, 2007.
| |
10.9. | Employees’ Stock Incentive Plans and Management Incentive Plans |
As of April 30, 2008,29, 2009, the Company had outstanding stock option awards, restricted stock units and restricted stock awards issued pursuant to various shareholder-approved plans and ashareholder-authorized employee stock purchase plan. The compensation cost related to these plans recognized in general and administrative expenses, and the related tax benefit was $37.9 million and $12.8 million for the fiscal year ended April 29, 2009, $31.7 million and $11.1 million for the fiscal year ended April 30, 2008, respectively and $32.0 million and $11.1 million for the fiscal year ended May 2, 2007, respectively.
The Company has two plans from which it can issue equity based awards, the Fiscal Year 2003 Stock Incentive Plan (the “2003 Plan”), which was approved by shareholders on September 12, 2002, and the 2000 Stock Option Plan (the “2000 Plan”), which was approved by shareholders on September 12, 2000. The 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. Shares issued under these plans are sourced from available treasury shares.
On May 4, 2006, the Company adopted SFAS 123R and began recognizing the cost of all employee stock options on a straight-line basis over their respective requisite service periods (generally equal to an 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 year ended May 3, 2006.
Stock Options:
Stock options generally vest over a period of one to four years after the date of grant. Awards granted prior tobetween Fiscal 2004 generally had a vesting period of three years. Prior toand 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 presentedpresents all benefits of tax deductions resulting from the exercise of stock-based compensation as operating cash flows in the consolidated statements of cash flows. Upon adoption of SFAS 123R,flows, except the benefit of tax deductions in excess of the compensation cost recognized for those options (excess(“excess tax benefits)benefits”) which are classified as financing cash flows. For the fiscal year ended April 29, 2009, $9.5 million of cash tax benefits was reported as an operating cash inflow and $4.8 million of excess tax benefits as a financing cash inflow. For the fiscal year ended April 30, 2008, $2.7 million of cash tax benefits was reported as an operating cash inflow and $1.7 million of excess tax benefits as a financing cash inflow. For the fiscal year ended May 2, 2007, $10.4 million of cash tax benefits was reported as an operating cash inflow and $4.6 million of excess tax benefits as a financing cash inflow.
As of April 30, 2008, 29,99429, 2009, 28,081 shares remained available for issuance under the 2000 Plan. During the fiscal year ended April 30, 2008, 29,86629, 2009, 9,673 shares were forfeited and returned to the plan. During the fiscal year ended April 30, 2008, 12,83929, 2009, 11,586 shares were issued from the 2000 Plan.
55
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A summary of the Company’s 2003 Plan at April 30, 200829, 2009 is as follows:
| | | | |
| | 2003 Plan | |
| | (Amounts in
| |
| | thousands) | |
|
Number of shares authorized | | | 18,869 | |
Number of stock option shares granted | | | (3,3474,887 | ) |
Number of stock option shares cancelled/forfeited and returned to the plan | | | 178179 | |
Number of restricted stock units and restricted stock issued | | | (3,4213,755 | ) |
| | | | |
Shares available for grant as stock options | | | 12,27910,406 | |
| | | | |
57
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
During Fiscal 2008,2009, the Company granted 1,352,1551,551,289 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 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 as computed using the Black-Scholes pricing model was $5.75, $6.25, $6.69, and $6.66,$6.69, respectively. The weighted average assumptions used to estimate these fair values are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | Fiscal Year Ended | |
| | April 30,
| | May 2,
| | May 3,
| | | April 29,
| | April 30,
| | May 2,
| |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Dividend yield | | | 3.3 | % | | | 3.3 | % | | | 3.2 | % | | | 3.3 | % | | | 3.3 | % | | | 3.3 | % |
Expected volatility | | | 15.8 | % | | | 17.9 | % | | | 22.0 | % | | | 14.9 | % | | | 15.8 | % | | | 17.9 | % |
Expected term (years) | | | 5.0 | | | | 5.0 | | | | 5.0 | | | | 5.5 | | | | 5.0 | | | | 5.0 | |
Risk-free interest rate | | | 4.3 | % | | | 4.7 | % | | | 4.0 | % | | | 3.1 | % | | | 4.3 | % | | | 4.7 | % |
The dividend yield assumption is based on the current fiscal year dividend payouts. The Company estimates expected volatility and expected option life assumption consistent with SFAS 123R. The expected volatility of the 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
| | | | |
| | | | | Average
| | | | |
| | Number of
| | | Exercise Price
| | | Aggregate
| |
| | Options | | | (per share) | | | Intrinsic Value | |
| | (Amounts in thousands, except per share data) | |
|
Options outstanding at April 27, 2005 | | | 35,464 | | | $ | 38.27 | | | $ | 1,357,071 | |
Options granted | | | 1,165 | | | | 37.01 | | | | 43,126 | |
Options exercised | | | (4,575 | ) | | | 30.66 | | | | (140,266 | ) |
Options forfeited and returned to the plan | | | (539 | ) | | | 38.06 | | | | (20,505 | ) |
| | | | | | | | | | | | |
Options outstanding at May 3, 2006 | | | 31,515 | | | | 39.33 | | | | 1,239,426 | |
Options granted | | | 895 | | | | 41.92 | | | | 37,515 | |
Options exercised | | | (7,266 | ) | | | 35.77 | | | | (259,860 | ) |
Options forfeited and returned to the plan | | | (347 | ) | | | 44.60 | | | | (15,481 | ) |
| | | | | | | | | | | | |
Options outstanding at May 2, 2007 | | | 24,797 | | | | 40.39 | | | | 1,001,600 | |
Options granted | | | 1,352 | | | | 45.54 | | | | 61,579 | |
Options exercised | | | (2,116 | ) | | | 37.31 | | | | (78,960 | ) |
Options forfeited and returned to the plan | | | (1,899 | ) | | | 51.32 | | | | (97,461 | ) |
| | | | | | | | | | | | |
Options outstanding at April 30, 2008 | | | 22,134 | | | $ | 40.06 | | | $ | 886,758 | |
| | | | | | | | | | | | |
Options vested and exercisable at May 3, 2006 | | | 25,545 | | | $ | 39.29 | | | $ | 1,003,646 | |
Options vested and exercisable at May 2, 2007 | | | 21,309 | | | $ | 40.88 | | | $ | 871,095 | |
Options vested and exercisable at April 30, 2008 | | | 19,249 | | | $ | 39.77 | | | $ | 765,552 | |
5856
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A summary of the Company’s stock option activity and related information is as follows:
| | | | | | | | | | | | |
| | | | | Weighted
| | | | |
| | | | | Average
| | | | |
| | Number of
| | | Exercise Price
| | | Aggregate
| |
| | Options | | | (per share) | | | Intrinsic Value | |
| | (Amounts in thousands, except per share data) | |
|
Options outstanding at May 3, 2006 | | | 31,515 | | | $ | 39.33 | | | $ | 1,239,426 | |
Options granted | | | 895 | | | | 41.92 | | | | 37,515 | |
Options exercised | | | (7,266 | ) | | | 35.77 | | | | (259,860 | ) |
Options cancelled/forfeited and returned to the plan | | | (347 | ) | | | 44.60 | | | | (15,481 | ) |
| | | | | | | | | | | | |
Options outstanding at May 2, 2007 | | | 24,797 | | | | 40.39 | | | | 1,001,600 | |
Options granted | | | 1,352 | | | | 45.54 | | | | 61,579 | |
Options exercised | | | (2,116 | ) | | | 37.31 | | | | (78,960 | ) |
Options cancelled/forfeited and returned to the plan | | | (1,899 | ) | | | 51.32 | | | | (97,461 | ) |
| | | | | | | | | | | | |
Options outstanding at April 30, 2008 | | | 22,134 | | | | 40.06 | | | | 886,758 | |
Options granted | | | 1,551 | | | | 50.91 | | | | 78,978 | |
Options exercised | | | (6,684 | ) | | | 42.35 | | | | (283,064 | ) |
Options cancelled/forfeited and returned to the plan | | | (2,901 | ) | | | 47.77 | | | | (138,601 | ) |
| | | | | | | | | | | | |
Options outstanding at April 29, 2009 | | | 14,100 | | | $ | 38.59 | | | $ | 544,071 | |
| | | | | | | | | | | | |
Options vested and exercisable at May 2, 2007 | | | 21,309 | | | $ | 40.88 | | | $ | 871,095 | |
Options vested and exercisable at April 30, 2008 | | | 19,249 | | | $ | 39.77 | | | $ | 765,552 | |
Options vested and exercisable at April 29, 2009 | | | 10,933 | | | $ | 36.18 | | | $ | 395,558 | |
The following summarizes information about shares under option in the respective exercise price ranges at April 30, 2008:29, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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-$35.38 | | | 7,357 | | | | 3.8 | | | $ | 33.32 | | | | 7,326 | | | | 3.8 | | | $ | 33.31 | | | | 5,445 | | | | 3.1 | | | $ | 33.33 | | | | 5,421 | | | | 3.1 | | | $ | 33.33 | |
$35.39-$44.77 | | | 9,506 | | | | 3.1 | | | | 40.46 | | | | 7,965 | | | | 2.8 | | | | 40.71 | | | | 5,827 | | | | 3.2 | | | | 38.64 | | | | 5,093 | | | | 3.1 | | | | 38.44 | |
$44.78-$54.00 | | | 5,271 | | | | 1.7 | | | | 48.76 | | | | 3,958 | | | | 0.2 | | | | 49.83 | | |
$44.78-$51.25 | | | | 2,828 | | | | 5.8 | | | | 48.60 | | | | 419 | | | | 5.3 | | | | 45.54 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 22,134 | | | | 3.0 | | | $ | 40.06 | | | | 19,249 | | | | 2.6 | | | $ | 39.77 | | | | 14,100 | | | | 3.7 | | | $ | 38.59 | | | | 10,933 | | | | 3.2 | | | $ | 36.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company received proceeds of $264.9 million, $78.6 million, $259.8 million, and $142.0$259.8 million from the exercise of stock options during the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007, and May 3, 2006, respectively. The tax benefit recognized as a result of stock option exercises was $14.3 million, $4.4 million $15.2 million and $6.7$15.2 million for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007, respectively.
57
H. J. Heinz Company and May 3, 2006, respectively.Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 2, 2007 | | | 3,488 | | | $ | 6.98 | | |
Unvested options at April 30, 2008 | | | | 2,885 | | | $ | 7.07 | |
Options granted | | | 1,352 | | | | 6.25 | | | | 1,551 | | | | 5.75 | |
Options vested | | | (1,886 | ) | | | 6.88 | | | | (1,269 | ) | | | 7.27 | |
Options forfeited and returned to the plan | | | (69 | ) | | | 6.98 | | |
| | | | | | |
Unvested options at April 30, 2008 | | | 2,885 | | | $ | 7.07 | | |
Unvested options at April 29, 2009 | | | | 3,167 | | | $ | 6.10 | |
| | | | | | |
Unrecognized compensation cost related to unvested option awards under the 2000 and 2003 Plans totaled $8.5$7.6 million and $8.8$8.5 million as of April 29, 2009 and April 30, 2008, and May 2, 2007, respectively. This cost is expected to be recognized over a weighted average period of 2.31.8 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 $26.6 million, $21.1 million $18.7 million and $21.5$18.7 million for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007, and May 3, 2006, respectively. Unrecognized compensation cost in connection with theseRSU and restricted stock grants totaled $31.8 million, $35.7 million,
59
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
$28.4 million and $32.8$28.4 million at April 29, 2009, April 30, 2008 and May 2, 2007, and May 3, 2006, respectively. The cost is expected to be recognized over a weighted-average period of 2.31.7 years. The unearned compensation balance of $32.8 million as of May 4, 2006 related to RSUs and restricted stock awards were reclassified into additional capital upon adoption of SFAS 123R.
A summary of the Company’s RSU and restricted stock awards at April 30, 200829, 2009 is as follows:
| | | | |
| | 2003 Plan | |
| | (Amounts in thousands) | |
|
Number of shares authorized | | | 9,440 | |
Number of shares reserved for issuance | | | (4,0724,649 | ) |
Number of shares forfeited and returned to the plan | | | 651894 | |
| | | | |
Shares available for grant | | | 6,0195,685 | |
| | | | |
58
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A summary of the activity of unvested RSU and restricted stock awards and related information is as follows:
| | | | | | | | | | | | | | | | |
| | | | Weighted
| | | | | Weighted
|
| | | | Average
| | | | | Average
|
| | | | Grant Date
| | | | | Grant Date
|
| | | | Fair Value
| | | | | Fair Value
|
| | Number of Units | | (Per Share) | | | Number of Units | | (Per Share) |
| | (Amounts in thousands,
| | | (Amounts in thousands,
|
| | except per share data) | | | except per share data) |
|
Unvested units and stock at May 3, 2006 | | | | 1,813 | | | $ | 35.48 | |
Units and stock granted | | | | 364 | | | | 41.88 | |
Units and stock vested | | | | (131 | ) | | | 36.12 | |
Units and stock cancelled/forfeited and returned to the plan | | | | (21 | ) | | | 37.13 | |
| | | | |
Unvested units and stock at May 2, 2007 | | | 2,025 | | | $ | 36.57 | | | | 2,025 | | | | 36.57 | |
Units and stock granted | | | 715 | | | | 46.00 | | | | 715 | | | | 46.00 | |
Units and stock vested | | | (579 | ) | | | 35.94 | | | | (579 | ) | | | 35.94 | |
Units and stock forfeited and returned to the plan | | | (74 | ) | | | 38.92 | | |
Units and stock cancelled/forfeited and returned to the plan | | | | (74 | ) | | | 38.92 | |
| | | | | | |
Unvested units and stock at April 30, 2008 | | | 2,087 | | | $ | 39.88 | | | | 2,087 | | | | 39.88 | |
Units and stock granted | | | | 577 | | | | 49.69 | |
Units and stock vested | | | | (910 | ) | | | 37.91 | |
Units and stock cancelled/forfeited and returned to the plan | | | | (32 | ) | | | 46.52 | |
| | | | | | |
Unvested units and stock at April 29, 2009 | | | | 1,722 | | | $ | 44.08 | |
| | | | |
Grants of restricted stock and RSUs were 364,112 and 708,180 for the fiscal years ended May 2, 2007 and May 3, 2006, respectively. Restricted stock and RSUs that vested during the fiscal years ended May 2, 2007 and May 3, 2006 were 130,803 and 70,775, respectively. Restricted stock and RSUs that were forfeited and returned to the plan were 21,476 and 60,054 for the fiscal years ended May 2, 2007 and May 3, 2006, respectively.
Upon share option exercise or vesting of restricted stock and RSUs, the Company uses available treasury shares and maintains a repurchase program that anticipates exercises and vesting of awards so that shares are available for issuance. The Company records forfeitures of restricted stock as treasury share repurchases. The Company repurchased approximately 13.13.7 million shares during Fiscal 2008.2009.
Global Stock Purchase Plan:
The Company has a shareholder-approved employee global stock purchase plan (the “GSPP”) that permits substantially all employees to purchase shares of the 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 five million shares. During the two offering periods from February 16, 20072008 to February 15, 2008,2009, employees purchased 302,284315,597 shares under the plan.
60
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
During the two offering periods from February 16, 20062007 to February 15, 2007,2008, employees purchased 268,224302,284 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 $38 million, $45 million and $41 million in fiscal years 2009, 2008 and $37 million in Fiscal years 2008, 2007, respectively.
59
H. J. Heinz Company and 2006 respectively.Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Long-Term Performance Program:
In Fiscal 2008,2009, 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 Shareholder Return (“Relative TSR”) Ranking within the defined Long-term Performance Program (“LTPP”) peer 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 from the change in stock price and dividends paid between the starting and ending dates. The starting value was based on the average of each LTPP peer group Companycompany stock price for the 60 trading days prior to and including May 2, 2007.1, 2008. The ending value will be based on the average stock price for the 60 trading days prior to and including the close of the Fiscal 20092010 year end, plus dividends paid over the 2 year performance period. The Fiscal2008-20092009-2010 LTPP will be fully funded if2-year cumulative EPS equals or exceeds the predetermined level.level as may be adjusted by the Management, Development and Compensation Committee of the Board of Directors for unusual, extraordinary and other special items and accounting changes. The Company also granted performance awards in Fiscal 2008 under the2008-2009 LTPP and in Fiscal 2007 under the2007-2008 LTPP. The compensation cost related to LTPP awards recognized in general and administrative expenses (“G&A”) was $17.4 million, and the related tax benefit was $5.9 million for the fiscal year ended April 29, 2009. The compensation cost related to these plans, recognized in G&A was $23.8 million, and the related tax benefit was $8.1 million for the fiscal year ended April 30, 2008. The compensation cost related to these plans, recognized in G&A was $14.2 million, and the related tax benefit was $5.5 million for the fiscal year ended May 2, 2007.
The Company maintains retirement plans for the majority of its employees. Current defined benefit plans are provided primarily for domestic union and foreign employees. Defined contribution plans are provided for the majority of its domestic non-union hourly and salaried employees as well as certain employees in foreign locations. TheEffective May 2, 2007, the Company usesadopted the provisions of SFAS No. 158, which requires the Company to 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 loss. On May 1, 2008, the Company adopted the measurement date provisions of SFAS No. 158 which requires plan assets and obligations to be measured as of the date of the year-end financial statements. Prior to adoption, the Company used an April 30 measurement date for its domestic plans, and a March 31 measurement date for its foreign plans. The Company now uses an April 30 measurement date for all of its defined benefit plans.
6160
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 29, 2009 and April 30, 2008 and May 2, 2007.2008.
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Change in Benefit Obligation: | | | | | | | | | | | | | | | | |
Benefit obligation at the beginning of the year | | $ | 2,794,722 | | | $ | 2,601,229 | | | $ | 2,843,175 | | | $ | 2,794,722 | |
Service cost | | | 39,832 | | | | 42,886 | | | | 33,321 | | | | 39,832 | |
Interest cost | | | 152,073 | | | | 135,984 | | | | 143,601 | | | | 152,073 | |
Participants’ contributions | | | 13,090 | | | | 10,347 | | | | 7,961 | | | | 13,090 | |
Amendments | | | 14,907 | | | | 4,046 | | | | 376 | | | | 14,907 | |
Actuarial (gain)/loss | | | (89,838 | ) | | | 21,301 | | |
Actuarial gain | | | | (133,203 | ) | | | (89,838 | ) |
Divestitures | | | — | | | | (459 | ) | | | (19,248 | ) | | | — | |
Settlement | | | — | | | | (10,664 | ) | | | (8,710 | ) | | | — | |
Special termination benefits | | | — | | | | 3,188 | | |
Benefits paid | | | (149,048 | ) | | | (143,298 | ) | | | (149,063 | ) | | | (149,048 | ) |
Effect of eliminating early measurement date | | | | 14,145 | | | | — | |
Exchange/other | | | 67,437 | | | | 130,162 | | | | (502,253 | ) | | | 67,437 | |
| | | | | | | | | | |
Benefit obligation at the end of the year | | $ | 2,843,175 | | | $ | 2,794,722 | | | $ | 2,230,102 | | | $ | 2,843,175 | |
| | | | | | | | | | |
Change in Plan Assets: | | | | | | | | | | | | | | | | |
Fair value of plan assets at the beginning of the year | | $ | 2,888,780 | | | $ | 2,621,220 | | | $ | 2,793,123 | | | $ | 2,888,780 | |
Actual (loss)/return on plan assets | | | (79,759 | ) | | | 207,470 | | |
Actual loss on plan assets | | | | (411,560 | ) | | | (79,759 | ) |
Divestitures | | | — | | | | (172 | ) | | | (19,248 | ) | | | — | |
Settlement | | | — | | | | (10,664 | ) | | | (8,710 | ) | | | — | |
Employer contribution | | | 59,799 | | | | 62,505 | | | | 136,032 | | | | 59,799 | |
Participants’ contributions | | | 13,090 | | | | 10,347 | | | | 7,961 | | | | 13,090 | |
Effect of eliminating early measurement date | | | | 15,856 | | | | — | |
Benefits paid | | | (149,048 | ) | | | (143,298 | ) | | | (149,063 | ) | | | (149,048 | ) |
Exchange | | | 60,261 | | | | 141,372 | | | | (489,689 | ) | | | 60,261 | |
| | | | | | | | | | |
Fair value of plan assets at the end of the year | | | 2,793,123 | | | | 2,888,780 | | | | 1,874,702 | | | | 2,793,123 | |
| | | | | | | | | | |
Funded status | | $ | (50,052 | ) | | $ | 94,058 | | | $ | (355,400 | ) | | $ | (50,052 | ) |
| | | | | | | | | | |
Amount recognized in the consolidated balance sheet consists of: | | | | | | | | | | | | | | | | |
Noncurrent assets | | $ | 191,079 | | | $ | 284,619 | | | $ | 37,324 | | | $ | 191,079 | |
Current liabilities | | | (19,826 | ) | | | (8,545 | ) | | | (22,521 | ) | | | (19,826 | ) |
Noncurrent liabilities | | | (221,305 | ) | | | (182,016 | ) | | | (370,203 | ) | | | (221,305 | ) |
| | | | | | | | | | |
Net amount recognized | | $ | (50,052 | ) | | $ | 94,058 | | | $ | (355,400 | ) | | $ | (50,052 | ) |
| | | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | | | | | | | | | | | |
Net actuarial loss | | $ | 802,738 | | | $ | 633,461 | | | $ | 1,079,453 | | | $ | 802,738 | |
Prior service cost | | | 25,572 | | | | 11,746 | | | | 15,673 | | | | 25,572 | |
| | | | | | | | | | |
Net amount recognized | | $ | 828,310 | | | $ | 645,207 | | | $ | 1,095,126 | | | $ | 828,310 | |
| | | | | | | | | | |
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 | | | $ | 51,183 | | | $ | 36,512 | |
Prior service cost | | | 3,567 | | | | (1,093 | ) | | | 2,013 | | | | 3,567 | |
| | | | | | | | | | |
Net amount recognized | | $ | 40,079 | | | $ | 41,828 | | | $ | 53,196 | | | $ | 40,079 | |
| | | | | | | | | | |
The accumulated benefit obligation for all defined benefit pension plans was $2,092.1 million at April 29, 2009 and $2,600.2 million at April 30, 2008 and $2,561.1 million at May 2, 2007.2008. 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 $1,080.8 million, $1,034.8 million and $768.1 million respectively, as of April 29, 2009 and $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 changeincrease in other comprehensive loss relatedthese amounts compared to theprior year is due to poor returns across global equity and
6261
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
bond markets. The change in other comprehensive loss related to pension benefit losses arising during the period was $484.4 million and $236.0 million at April 29, 2009 and April 30, 2008, respectively. The change in other comprehensive loss related to the reclassification of pension benefit losses to net income iswas $37.0 million and $42.1 million at April 29, 2009 and April 30, 2008. The change in minimum liability included in other comprehensive loss was a decrease of $12.2 million at May 2, 2007.2008, respectively.
The weighted-average rates used for the years ended April 29, 2009 and April 30, 2008 and May 2, 2007 in determining the projected benefit obligations for defined benefit plans were as follows:
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
|
Discount rate | | | 6.1 | % | | | 5.5 | % | | | 6.5 | % | | | 6.1 | % |
Compensation increase rate | | | 5.2 | % | | | 5.0 | % | | | 4.3 | % | | | 5.2 | % |
Total pension cost of the Company’s principal pension plans consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Components of defined benefit net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 39,832 | | | $ | 42,886 | | | $ | 42,081 | | | $ | 33,261 | | | $ | 39,832 | | | $ | 42,886 | |
Interest cost | | | 152,073 | | | | 135,984 | | | | 124,064 | | | | 143,552 | | | | 152,073 | | | | 135,984 | |
Expected return on assets | | | (227,373 | ) | | | (198,470 | ) | | | (168,990 | ) | | | (207,727 | ) | | | (227,373 | ) | | | (198,470 | ) |
Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | |
Net initial asset | | | — | | | | — | | | | (21 | ) | |
Prior service cost | | | (1,403 | ) | | | (3,465 | ) | | | 2,207 | | | | 3,184 | | | | (1,403 | ) | | | (3,465 | ) |
Net actuarial loss | | | 44,121 | | | | 52,302 | | | | 58,869 | | | | 33,264 | | | | 44,121 | | | | 52,302 | |
Loss due to curtailment, settlement and special termination benefits | | | — | | | | 2,335 | | | | 18,846 | | | | 695 | | | | — | | | | 2,335 | |
| | | | | | | | | | | | | | |
Net periodic benefit cost | | | 7,250 | | | | 31,572 | | | | 77,056 | | | | 6,229 | | | | 7,250 | | | | 31,572 | |
Defined contribution plans | | | 34,027 | | | | 34,940 | | | | 28,139 | | | | 36,404 | | | | 34,027 | | | | 34,940 | |
| | | | | | | | | | | | | | |
Total pension cost | | | 41,277 | | | | 66,512 | | | | 105,195 | | | | 42,633 | | | | 41,277 | | | | 66,512 | |
| | | | | | | | | | | | | | |
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 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 in determining the defined benefit plans’ net pension costs were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Expected rate of return | | | 8.2 | % | | | 8.2 | % | | | 8.2 | % | | | 8.2 | % | | | 8.2 | % | | | 8.2 | % |
Discount rate | | | 5.5 | % | | | 5.3 | % | | | 5.5 | % | | | 6.1 | % | | | 5.5 | % | | | 5.3 | % |
Compensation increase rate | | | 5.0 | % | | | 4.0 | % | | | 4.0 | % | | | 4.5 | % | | | 5.0 | % | | | 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.
6362
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 29, 2009 and April 30, 2008 and May 2, 2007 and weighted average target allocation were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Plan Assets at | | Target
| | | Plan Assets at | | Target
| |
Asset Category | | 2008 | | 2007 | | Allocation | | | 2009 | | 2008 | | Allocation | |
|
Equity securities | | | 65 | % | | | 68 | % | | | 65 | % | | | 58 | % | | | 65 | % | | | 63 | % |
Debt securities | | | 32 | % | | | 29 | % | | | 33 | % | | | 37 | % | | | 32 | % | | | 35 | % |
Real estate | | | 1 | % | | | 1 | % | | | 1 | % | | | 1 | % | | | 1 | % | | | 1 | % |
Other | | | 2 | % | | | 2 | % | | | 1 | % | | | 4 | % | | | 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 29, 2009 and April 30, 2008 and May 2, 2007.2008.
Cash Flows:
The Company contributed approximately $60$134 million to the defined benefit plans in Fiscal 2008.2009 of which $65 million was discretionary. The Company funds its U.S. defined benefit plans in accordance with IRS regulations, while foreign defined benefit plans are funded in accordance with local laws and regulations in each respective country. Discretionary contributions to the pension funds may also be made by the Company from time to time. Defined benefit plan contributions for the next fiscal year are expected to be approximately $80$250 million, however actual contributions may be affected by pension asset and liability valuations during the year.
Benefit payments expected in future years are as follows (dollars in thousands):
| | | | | | | | |
2009 | | $ | 168,750 | | |
2010 | | $ | 166,008 | | | $ | 165,784 | |
2011 | | $ | 168,318 | | | $ | 156,215 | |
2012 | | $ | 172,486 | | | $ | 152,971 | |
2013 | | $ | 171,284 | | | $ | 152,197 | |
Years2014-2018 | | $ | 879,329 | | |
2014 | | | $ | 152,066 | |
Years2015-2019 | | | $ | 785,469 | |
| |
12.11. | 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. In Fiscal 2009, the Company used an April 30 measurement date for all of its plans. In Fiscal 2008,
6463
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Thethe Company usesused 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 29, 2009 and April 30, 2008 and May 2, 2007.2008.
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Change in benefit obligation: | | | | | | | | | | | | | | | | |
Benefit obligation at the beginning of the year | | $ | 273,161 | | | $ | 273,434 | | | $ | 276,598 | | | $ | 273,161 | |
Service cost | | | 6,451 | | | | 6,253 | | | | 6,501 | | | | 6,451 | |
Interest cost | | | 15,626 | | | | 15,893 | | | | 15,357 | | | | 15,626 | |
Participants’ contributions | | | 973 | | | | 913 | | | | 833 | | | | 973 | |
Amendments | | | 1,001 | | | | — | | | | — | | | | 1,001 | |
Actuarial gain | | | (5,523 | ) | | | (2,262 | ) | | | (37,836 | ) | | | (5,523 | ) |
Benefits paid | | | (20,386 | ) | | | (21,180 | ) | | | (18,596 | ) | | | (20,386 | ) |
Effect of eliminating early measurement date | | | | 455 | | | | — | |
Exchange/other | | | 5,295 | | | | 110 | | | | (9,137 | ) | | | 5,295 | |
| | | | | | | | | | |
Benefit obligation at the end of the year | | | 276,598 | | | | 273,161 | | | | 234,175 | | | | 276,598 | |
| | | | | | | | | | |
Funded status | | $ | (276,598 | ) | | $ | (273,161 | ) | | $ | (234,175 | ) | | $ | (276,598 | ) |
| | | | | | | | | | |
Amount recognized in the consolidated balance sheet consists of: | | | | | | | | | | | | | | | | |
Current liabilities | | $ | (19,547 | ) | | $ | (20,090 | ) | | $ | (19,389 | ) | | $ | (19,547 | ) |
Noncurrent liabilities | | | (257,051 | ) | | | (253,071 | ) | | | (214,786 | ) | | | (257,051 | ) |
| | | | | | | | | | |
Net amount recognized | | $ | (276,598 | ) | | $ | (273,161 | ) | | $ | (234,175 | ) | | $ | (276,598 | ) |
| | | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | | | | | | | | | | | |
Net actuarial loss | | $ | 50,329 | | | $ | 59,702 | | | $ | 8,592 | | | $ | 50,329 | |
Prior service cost | | | (8,242 | ) | | | (14,019 | ) | | | (4,598 | ) | | | (8,242 | ) |
| | | | | | | | | | |
Net amount recognized | | $ | 42,087 | | | $ | 45,683 | | | $ | 3,994 | | | $ | 42,087 | |
| | | | | | | | | | |
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 | | | $ | 540 | | | $ | 3,693 | |
Negative prior service cost | | | (3,783 | ) | | | (4,766 | ) | | | (3,822 | ) | | | (3,783 | ) |
| | | | | | | | | | |
Net amount recognized | | $ | (90 | ) | | $ | (217 | ) | | $ | (3,282 | ) | | $ | (90 | ) |
| | | | | | | | | | |
The change in other comprehensive loss related to postretirement benefit gains arising during the period is $37.9 million and $4.6 million at April 29, 2009 and at April 30, 2008.2008, respectively. The change in other comprehensive loss related to the reclassification of post-retirement benefit gains to net income is $0.1 million and $0.2 million at April 29, 2009 and at April 30, 2008.2008, respectively.
The weighted-average discount rate used in the calculation of the accumulated post-retirement benefit obligation at April 29, 2009 and April 30, 2008 was 6.4% and May 2, 2007 was 5.9%., respectively.
6564
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Net postretirement costs consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Components of defined benefit net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 6,451 | | | $ | 6,253 | | | $ | 6,242 | | | $ | 6,502 | | | $ | 6,451 | | | $ | 6,253 | |
Interest cost | | | 15,626 | | | | 15,893 | | | | 15,631 | | | | 15,357 | | | | 15,626 | | | | 15,893 | |
Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service cost | | | (4,770 | ) | | | (6,098 | ) | | | (2,830 | ) | |
Prior service credit | | | | (3,812 | ) | | | (4,770 | ) | | | (6,098 | ) |
Net actuarial loss | | | 4,579 | | | | 5,465 | | | | 6,925 | | | | 3,681 | | | | 4,579 | | | | 5,465 | |
Loss due to curtailment and special termination benefits | | | — | | | | — | | | | 1,846 | | |
| | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 21,886 | | | $ | 21,513 | | | $ | 27,814 | | | $ | 21,728 | | | $ | 21,886 | | | $ | 21,513 | |
| | | | | | | | | | | | | | |
The weighted-average discount rate used in the calculation of the net postretirement benefit cost was 5.9% in 2009, 5.9% in 2008 and 6.1% in 2007 and 5.5% in 2006.2007.
The domestic weighted-average assumed annual composite rate of increase in the per capita cost of company-provided health care benefits begins at 9.3%9.0% for 2009,2010, gradually decreases to 5%5.0% by 20142015 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 2009,2010, gradually decreases to 4%4.3% by 20162017 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 | | $ | 1,581 | | | $ | 1,406 | | | $ | 1,874 | | | $ | 1,674 | |
Effect on postretirement benefit obligation | | $ | 18,016 | | | $ | 16,284 | | | $ | 16,318 | | | $ | 14,772 | |
Cash Flows:
The Company paid $20.4$18.6 million for benefits in the postretirement medical plans in Fiscal 2008.2009. The Company funds its postretirement medical plans in order to make payment on claims as they occur during the fiscal year. Payments for the next fiscal year are expected to be approximately $21.3$19.4 million.
Benefit payments expected in future years are as follows (dollars in thousands):
| | | | | | | | |
2009 | | $ | 21,296 | | |
2010 | | $ | 22,624 | | | $ | 19,389 | |
2011 | | $ | 23,766 | | | $ | 20,137 | |
2012 | | $ | 24,733 | | | $ | 20,971 | |
2013 | | $ | 25,038 | | | $ | 21,302 | |
Years2014-2018 | | $ | 132,239 | | |
2014 | | | $ | 21,796 | |
Years2015-2019 | | | $ | 113,262 | |
Estimated future medical subsidy receipts are approximately $1.4$1.0 million annually from 20092010 through 20132014 and $8.4$5.7 million for the period from 20142015 through 2018.2019.
| |
12. | Fair Value Measurements |
The Company adopted SFAS No. 157, “Fair Value Measurements” for its financial assets and liabilities on May 1, 2008. SFAS No. 157 defines fair value as the price that would be received to sell
6665
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below:
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
As of April 29, 2009, the fair values of the Company’s assets and liabilities measured on a recurring basis are categorized as follows:
| | | | | | | | | | | | | | | | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | (Thousands of dollars) | |
|
Assets: | | | | | | | | | | | | | | | | |
Derivatives(a) | | $ | — | | | $ | 219,845 | | | $ | — | | | $ | 219,845 | |
| | | | | | | | | | | | | | | | |
Total assets at fair value | | $ | — | | | $ | 219,845 | | | $ | — | | | $ | 219,845 | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Derivatives(a) | | $ | — | | | $ | 12,847 | | | $ | — | | | $ | 12,847 | |
| | | | | | | | | | | | | | | | |
Total liabilities at fair value | | $ | — | | | $ | 12,847 | | | $ | — | | | $ | 12,847 | |
| | | | | | | | | | | | | | | | |
| | |
(a) | | Foreign currency derivative contracts are valued based on observable market spot and forward rates, and are classified within Level 2 of the fair value hierarchy. Interest rate swaps are valued based on observable market swap rates, and are classified within Level 2 of the fair value hierarchy. The Company’s total rate of return swap is valued based on observable market swap rates and the Company’s credit spread, and is classified within Level 2 of the fair value hierarchy. |
Refer toNote 13-Derivative Financial Instruments and Hedging Activities for additional information regarding the balance sheet location and the risk classification of the Company’s derivatives.
| |
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 29, 2009, the Company had outstanding currency exchange, interest rate, and total rate of return derivative contracts with notional amounts of $1.25 billion, $1.52 billion and $175 million, respectively. At April 30, 2008, the Company had outstanding currency exchange and interest rate derivative contracts with notional amounts of $1.71 billion and $1.82 billion, respectively. At May 2, 2007, the Company had outstanding currency exchange and interest rate derivative contracts with notional amounts of $3.47 billion and $2.70 billion, respectively. The fair value of derivative financial instruments was a net asset of $207.0 million and $126.0 million at April 29, 2009 and April 30, 2008, respectively.
66
H. J. Heinz Company and a net liabilitySubsidiaries
Notes to Consolidated Financial Statements — (Continued)
The following table presents the fair values and corresponding balance sheet captions of $2.0 million at May 2, 2007.the Company’s derivative instruments as of April 29, 2009:
| | | | | | | | |
| | April 29, 2009 | |
| | Foreign Exchange
| | | Interest Rate
| |
| | Contracts | | | Contracts | |
| | (Dollars in thousands) | |
|
Assets: | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | |
Receivables | | $ | 28,406 | | | $ | 64,502 | |
Other non-current assets | | | 8,659 | | | | 86,434 | |
| | | | | | | | |
| | | 37,065 | | | | 150,936 | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Receivables | | | 11,644 | | | | — | |
Other non-current assets | | | — | | | | 20,200 | |
| | | | | | | | |
| | | 11,644 | | | | 20,200 | |
| | | | | | | | |
Total assets | | $ | 48,709 | | | $ | 171,136 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | |
Accounts payable | | $ | 12,198 | | | $ | — | |
Other liabilities | | | 598 | | | | — | |
| | | | | | | | |
| | | 12,796 | | | | — | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Accounts payable | | | 51 | | | | — | |
Other liabilities | | | — | | | | — | |
| | | | | | | | |
| | | 51 | | | | — | |
| | | | | | | | |
Total liabilities | | $ | 12,847 | | | $ | — | |
| | | | | | | | |
Refer to Note 12—Fair Value Measurements for further information on how fair value is determined for the Company’s derivatives.
67
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The following table presents the effect of derivative instruments on the statement of income for the fiscal year ended April 29, 2009:
| | | | | | | | |
| | Fiscal Year Ended | |
| | April 29, 2009 | |
| | Foreign Exchange
| | | Interest Rate
| |
| | Contracts | | | Contracts | |
| | (Dollars in thousands) | |
|
Cash flow hedges: | | | | | | | | |
Net gains recognized in other comprehensive loss (effective portion) | | $ | 42,617 | | | $ | — | |
| | | | | | | | |
Net gains/(losses) reclassified from other comprehensive loss into earnings (effective portion): | | | | | | | | |
Sales | | $ | (6,809 | ) | | $ | — | |
Cost of products sold | | | 45,836 | | | | — | |
Selling, general and administrative expenses | | | 1,896 | | | | — | |
Other income/(expense), net | | | (15,777 | ) | | | — | |
Interest expense | | | 1,112 | | | | — | |
| | | | | | | | |
| | | 26,258 | | | | — | |
| | | | | | | | |
Fair value hedges: | | | | | | | | |
Net gains recognized in other income/(expense), net | | | — | | | | 57,976 | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Net gains/(losses) recognized in other income/(expense), net | | | 65,135 | | | | (110 | ) |
Net gains recognized in interest income | | | — | | | | 20,200 | |
| | | | | | | | |
| | | 65,135 | | | | 20,090 | |
| | | | | | | | |
Total amount recognized in statement of income | | $ | 91,393 | | | $ | 78,066 | |
| | | | | | | | |
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. The Company’s principal foreign currency exposures include the Australian dollar, British pound sterling, Canadian dollar, euro, and the New Zealand dollar. 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 uses certain foreign currency debt instruments as net investment hedges of foreign operations. During Fiscal 2009, losses of $6.9 million, net of income taxes of $4.4 million, which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive loss within unrealized translation adjustment.
The Company had outstanding cross currency swaps with a total notional amount of $1.96 billion as of May 2, 2007, which were designated as net investment hedges of foreign operations. During
68
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 29, 2009 and April 30, 2008 there arewere no outstanding cross currency swaps. The Company assessed hedge effectiveness for these contracts based on changes in fair value attributable to changes in spot prices. Net losses of $95.8 million ($72.0 million after-tax) and $72.9 million ($43.9 million after-tax) which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive loss within unrealized translation adjustment for Fiscal 2008 and Fiscal 2007, respectively. Gains of $3.6 million and $15.9 million, which represented the changes in fair value excluded from the assessment of hedge effectiveness, were included in current period earnings as a component of interest expense for Fiscal 2008 and Fiscal 2007, respectively.
The early termination of the net investment hedges described above and the interest rate swaps described below were completed in conjunction with the reorganizations of the Company’s foreign operations and interest rate swap portfolio.
Hedge Ineffectiveness:
Hedge ineffectiveness related to cash flow hedges, which is reported in current period earnings as other income/(expense), net was not significant for the years ended April 29, 2009, April 30, 2008 and May 2, 2007. The Company excludes the time value component of option contracts from the assessment of hedge effectiveness, which was not significant for the years ended April 29, 2009, April 30, 2008 and May 2, 2007.
Deferred Hedging Gains and Losses:
As of April 29, 2009, the Company is hedging forecasted transactions for periods not exceeding 5 years. During the next 12 months, the Company expects $14.7 million of net deferred gains reported in accumulated other comprehensive loss to be reclassified to earnings, assuming market rates remain constant through contract maturities. Amounts reclassified to earnings because the hedge transaction was no longer expected to occur were not significant for the years ended April 29, 2009, April 30, 2008 and May 2, 2007.
Interest Rate Hedging:
The Company uses interest rate swaps to manage debt and interest rate exposures. The Company is exposed to interest rate volatility with regard to existing and future issuances of fixed and floating rate debt. Primary exposures include U.S. Treasury rates, London Interbank Offered Rates (LIBOR), and commercial paper rates in the United States. 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 corresponding debt obligations (average of 21 years remaining). SFAS No. 133 hedge accounting adjustments related to hedged debt obligations totaled $251.5 million and $198.5 million as of April 29, 2009 and April 30, 2008, respectively.
6769
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
corresponding debt obligations (average of 22 years). SFAS No. 133 hedge accounting adjustments related to hedged debt obligations totaled $198.5 million and $71.2 million as of April 30, 2008 and May 2, 2007, respectively.
Hedge Ineffectiveness:
Hedge ineffectiveness related to cash flow hedges, which is reported in current period earnings as other income and expense, was not significant for the years ended April 30, 2008, May 2, 2007 and May 3, 2006. The Company excludes the time value component of option contracts from the assessment of hedge effectiveness.
Deferred Hedging Gains and Losses:
As of April 30, 2008, the Company is hedging forecasted transactions for periods not exceeding two years. During the next 12 months, the Company expects $8.7 million of net deferred gains reported in accumulated other comprehensive loss to be reclassified to earnings, assuming market rates remain constant through contract maturities. Amounts reclassified to earnings because the hedge transaction was no longer expected to occur were not significant for the years ended April 30, 2008, May 2, 2007 and May 3, 2006.
Other Activities:
The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting. Although these derivatives do not qualify as hedges, theyaccounting but which have the economic impact of largely mitigating foreign currency or interest rate exposures. The Company maintained foreign currency forward contracts with a total notional amount of $349.1 million and $377.6 million that did not meet the criteria for hedge accounting as of April 29, 2009 and April 30, 2008, respectively. These derivative financial instrumentsforward contracts are accounted for on a full mark-to-market basis through current earnings, even though theywith gains and losses recorded as a component of other income/(expense), net. Net unrealized gains related to outstanding contracts totaled $11.6 million and $2.0 million as of April 29, 2009 and April 30, 2008, respectively. These contracts are scheduled to mature within the next 6 months.
The forward contracts that were not acquiredput in place during Fiscal 2009 to help mitigate the unfavorable translation impact on profit associated with movements in key foreign currencies resulted in gains of $107.3 million for trading purposes.the year ended April 29, 2009. During Fiscal 2009, the Company also received $106.3 million of cash related to these forward contracts.
The Company entered into a total rate of return swap with an unaffiliated international financial institution during the third quarter of Fiscal 2009 with a notional amount of $175 million. This instrument is being used as an economic hedge to reduce a portion of the interest cost related to the Company’s $800 million remarketable securities. The swap is being accounted for on a full mark-to-market basis through current earnings, with gains and losses recorded as a component of interest income. During Fiscal 2009, the Company recorded a $28.1 million benefit in interest income, representing changes in the fair value of the swap and interest earned on the arrangement. Net unrealized gains totaled $20.2 million as of April 29, 2009. This swap is scheduled to mature in three years, corresponding with the next scheduled remarketing of the Company’s $800 million remarketable securities. In connection with this swap, the Company is required to maintain a restricted cash collateral balance of $192.7 million with the counterparty for the term of the swap. Pursuant to the terms of the swap, the counterparty has the option for early termination of the agreement upon the occurrence of specified events as defined in the agreement. In the event of early termination there would be a net settlement between the Company and the counterparty primarily based on the change in fair value of the remarketable securities subsequent to the most recent remarketing date which coincides with the date of the swap.
Concentration of Credit Risk:
Counterparties to currency exchange and interest rate derivatives consist of major international financial institutions. The Company continually monitors its positions and the credit ratings of the counterparties involved and, by policy, limits the amount of credit exposure to any one party. While the Company may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. During Fiscal 2008,2009, one customer represented 10.4%10.8% of the Company’s sales. The Company closely monitors the credit risk associated with its counterparties and customers and to date has not experienced material losses.
6870
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 | |
| | April 30,
| | May 2,
| | May 3,
| | | April 29,
| | April 30,
| | May 2,
| |
| | 2008
| | 2007
| | 2006
| | | 2009
| | 2008
| | 2007
| |
| | (52 Weeks) | | (52 Weeks) | | (53 Weeks) | | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | |
| | (Amounts in thousands) | | | (Amounts in thousands) | |
|
Income from continuing operations | | $ | 844,925 | | | $ | 791,602 | | | $ | 442,761 | | | $ | 923,072 | | | $ | 844,925 | | | $ | 791,602 | |
Preferred dividends | | | 12 | | | | 13 | | | | 14 | | | | 12 | | | | 12 | | | | 13 | |
| | | | | | | | | | | | | | |
Income from continuing operations applicable to common stock | | $ | 844,913 | | | $ | 791,589 | | | $ | 442,747 | | | $ | 923,060 | | | $ | 844,913 | | | $ | 791,589 | |
| | | | | | | | | | | | | | |
Average common shares outstanding—basic | | | 317,019 | | | | 328,625 | | | | 339,102 | | | | 313,747 | | | | 317,019 | | | | 328,625 | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible preferred stock | | | 109 | | | | 123 | | | | 125 | | | | 106 | | | | 109 | | | | 123 | |
Stock options, restricted stock and the global stock purchase plan | | | 4,589 | | | | 3,720 | | | | 2,894 | | | | 4,210 | | | | 4,589 | | | | 3,720 | |
| | | | | | | | | | | | | | |
Average common shares outstanding—diluted | | | 321,717 | | | | 332,468 | | | | 342,121 | | | | 318,063 | | | | 321,717 | | | | 332,468 | |
| | | | | | | | | | | | | | |
Diluted earnings per share is based upon the average shares of common stock and dilutive common stock equivalents outstanding during the periods presented. Common stock equivalents arising from dilutive stock options, restricted common stock units, and the global stock purchase plan are computed using the treasury stock method.
Options to purchase an aggregate of 3.7 million, 6.1 million 9.1 million and 18.29.1 million shares of common stock as of April 29, 2009, April 30, 2008 and May 2, 2007, and May 3, 2006, respectively, were not included in the computation of diluted earnings per share because inclusion of these options would be anti-dilutive. These options expire at various points in time through 2014. The Company elected to apply the long-form method for determining the pool of windfall tax benefits in connection with the adoption of SFAS 123R.2016.
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 and operating 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. |
71
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
| | |
| • | 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. |
|
| • | Rest of World—This segment includes the Company’s operations in Africa, Latin America, and the Middle East 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 and items below the operating income line of the consolidated statements of income are not presented by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s management.
70
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 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended | |
| | | April 29,
| | April 30,
| | May 2,
| | April 29,
| | April 30,
| | May 2,
| |
| | | 2009
| | 2008
| | 2007
| | 2009
| | 2008
| | 2007
| |
| | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | |
| | | (Dollars in thousands) | |
| | | Net External Sales | | Operating Income (Loss) | |
| |
North American Consumer Products | | | $ | 3,135,994 | | | $ | 3,011,513 | | | $ | 2,739,527 | | | $ | 724,763 | | | $ | 678,388 | | | $ | 625,675 | |
Europe | | | | 3,410,735 | | | | 3,532,326 | | | | 3,076,770 | | | | 561,260 | | | | 636,866 | | | | 566,362 | |
Asia/Pacific | | | | 1,627,443 | | | | 1,599,860 | | | | 1,319,231 | | | | 182,472 | | | | 194,900 | | | | 150,177 | |
U.S. Foodservice | | | | 1,505,953 | | | | 1,559,370 | | | | 1,556,339 | | | | 129,209 | | | | 169,581 | | | | 216,115 | |
Rest of World | | | | 467,957 | | | | 367,709 | | | | 309,763 | | | | 52,348 | | | | 45,437 | | | | 39,484 | |
Non-Operating(a) | | | | — | | | | — | | | | — | | | | (156,400 | ) | | | (156,205 | ) | | | (151,098 | ) |
| | | | | | | | | | | | | | |
Consolidated Totals | | | $ | 10,148,082 | | | $ | 10,070,778 | | | $ | 9,001,630 | | | $ | 1,493,652 | | | $ | 1,568,967 | | | $ | 1,446,715 | |
| | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Depreciation and Amortization Expenses | | Capital Expenditures(c) | | | Depreciation and Amortization Expenses | | Capital Expenditures(b) | |
|
Total North America | | $ | 122,200 | | | $ | 112,031 | | | $ | 103,492 | | | $ | 121,937 | | | $ | 97,954 | | | $ | 82,726 | | | $ | 125,562 | | | $ | 122,200 | | | $ | 112,031 | | | $ | 87,912 | | | $ | 121,937 | | | $ | 97,954 | |
Europe | | | 115,578 | | | | 108,479 | | | | 98,106 | | | | 119,425 | | | | 99,939 | | | | 102,275 | | | | 105,846 | | | | 115,578 | | | | 108,479 | | | | 91,898 | | | | 119,425 | | | | 99,939 | |
Asia/Pacific | | | 35,410 | | | | 29,390 | | | | 28,708 | | | | 36,404 | | | | 36,903 | | | | 36,479 | | | | 35,969 | | | | 35,410 | | | | 29,390 | | | | 39,263 | | | | 36,404 | | | | 36,903 | |
Rest of World | | | 5,690 | | | | 5,010 | | | | 5,349 | | | | 10,064 | | | | 7,586 | | | | 6,139 | | | | 5,728 | | | | 5,690 | | | | 5,010 | | | | 15,574 | | | | 10,064 | | | | 7,586 | |
Non-Operating(a) | | | 10,019 | | | | 11,287 | | | | 11,778 | | | | 13,758 | | | | 2,180 | | | | 2,958 | | | | 8,270 | | | | 10,019 | | | | 11,287 | | | | 57,474 | | | | 13,758 | | | | 2,180 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Totals | | $ | 288,897 | | | $ | 266,197 | | | $ | 247,433 | | | $ | 301,588 | | | $ | 244,562 | | | $ | 230,577 | | | $ | 281,375 | | | $ | 288,897 | | | $ | 266,197 | | | $ | 292,121 | | | $ | 301,588 | | | $ | 244,562 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Identifiable Assets | | | | | | | | | Identifiable Assets | | | | | | | |
|
Total North America | | $ | 3,795,272 | | | $ | 3,752,033 | | | $ | 3,530,639 | | | | | | | | | | | | | | | $ | 3,691,868 | | | $ | 3,795,272 | | | $ | 3,752,033 | | | | | | | | | | | | | |
Europe | | | 4,731,760 | | | | 4,166,174 | | | | 4,285,233 | | | | | | | | | | | | | | | | 3,602,753 | | | | 4,731,760 | | | | 4,166,174 | | | | | | | | | | | | | |
Asia/Pacific | | | 1,433,467 | | | | 1,213,867 | | | | 1,208,504 | | | | | | | | | | | | | | | | 1,505,895 | | | | 1,433,467 | | | | 1,213,867 | | | | | | | | | | | | | |
Rest of World | | | 235,625 | | | | 189,543 | | | | 208,175 | | | | | | | | | | | | | | | | 292,266 | | | | 235,625 | | | | 189,543 | | | | | | | | | | | | | |
Non-Operating(d) | | | 368,919 | | | | 711,409 | | | | 505,216 | | | | | | | | | | | | | | |
Non-Operating(c) | | | | 571,402 | | | | 368,919 | | | | 711,409 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Consolidated Totals | | $ | 10,565,043 | | | $ | 10,033,026 | | | $ | 9,737,767 | | | | | | | | | | | | | | | $ | 9,664,184 | | | $ | 10,565,043 | | | $ | 10,033,026 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
7172
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
| | |
(a) | | Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments. |
|
(b) | | Fiscal year ended May 3, 2006:Excludes costs associated with targeted workforce reductions, costs incurred in connection with strategic reviews of several non-core businesses and net losses/impairment charge on divestures as follows: North American Consumer Products, $6.6 million; Europe, $112.2 million; Asia/Pacific, $25.1 million; U.S. Foodservice, $34.8 million; Rest of World, $30.0 million; and Non-Operating $27.7 million. |
|
(c) | | Excludes property, plant and equipment obtained through acquisitions. |
|
(d)(c) | | Includes identifiable assets not directly attributable to operating segments. |
The Company’s revenues are generated via the sale of products in the following categories:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | Fiscal Year Ended | |
| | April 30,
| | May 2,
| | May 3,
| | | April 29,
| | April 30,
| | May 2,
| |
| | 2008
| | 2007
| | 2006
| | | 2009
| | 2008
| | 2007
| |
| | (52 Weeks) | | (52 Weeks) | | (53 Weeks) | | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Ketchup and sauces | | $ | 4,081,864 | | | $ | 3,682,102 | | | $ | 3,530,346 | | | $ | 4,251,583 | | | $ | 4,081,864 | | | $ | 3,682,102 | |
Meals and snacks | | | 4,521,697 | | | | 4,026,168 | | | | 3,876,743 | | | | 4,361,878 | | | | 4,521,697 | | | | 4,026,168 | |
Infant/Nutrition | | | 1,089,544 | | | | 929,075 | | | | 863,943 | | | | 1,105,313 | | | | 1,089,544 | | | | 929,075 | |
Other | | | 377,673 | | | | 364,285 | | | | 372,406 | | | | 429,308 | | | | 377,673 | | | | 364,285 | |
| | | | | | | | | | | | | | |
Total | | $ | 10,070,778 | | | $ | 9,001,630 | | | $ | 8,643,438 | | | $ | 10,148,082 | | | $ | 10,070,778 | | | $ | 9,001,630 | |
| | | | | | | | | | | | | | |
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 | |
| | April 30,
| | May 2,
| | May 3,
| | | | | | | | | April 29,
| | April 30,
| | May 2,
| | | | | | | |
| | 2008
| | 2007
| | 2006
| | April 30,
| | May 2,
| | May 3,
| | | 2009
| | 2008
| | 2007
| | April 29,
| | April 30,
| | May 2,
| |
| | (52 Weeks) | | (52 Weeks) | | (53 Weeks) | | 2008 | | 2007 | | 2006 | | | (52 Weeks) | | (52 Weeks) | | (52 Weeks) | | 2009 | | 2008 | | 2007 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
United States | | $ | 3,971,296 | | | $ | 3,809,786 | | | $ | 3,693,262 | | | $ | 2,393,732 | | | $ | 2,377,900 | | | $ | 2,359,630 | | | $ | 4,074,032 | | | $ | 3,971,296 | | | $ | 3,809,786 | | | $ | 2,040,904 | | | $ | 2,393,732 | | | $ | 2,377,900 | |
United Kingdom | | | 1,844,014 | | | | 1,643,268 | | | | 1,636,089 | | | | 1,582,088 | | | | 1,588,218 | | | | 1,442,562 | | | | 1,616,084 | | | | 1,844,014 | | | | 1,643,268 | | | | 1,166,085 | | | | 1,582,088 | | | | 1,588,218 | |
Other | | | 4,255,468 | | | | 3,548,576 | | | | 3,314,087 | | | | 2,540,414 | | | | 2,171,907 | | | | 1,967,353 | | | | 4,457,966 | | | | 4,255,468 | | | | 3,548,576 | | | | 2,754,267 | | | | 2,540,414 | | | | 2,171,907 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 10,070,778 | | | $ | 9,001,630 | | | $ | 8,643,438 | | | $ | 6,516,234 | | | $ | 6,138,025 | | | $ | 5,769,545 | | | $ | 10,148,082 | | | $ | 10,070,778 | | | $ | 9,001,630 | | | $ | 5,961,256 | | | $ | 6,516,234 | | | $ | 6,138,025 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | | 2009 | |
| | 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 | | $ | 2,248,285 | | | $ | 2,523,379 | | | $ | 2,610,863 | | | $ | 2,688,251 | | | $ | 10,070,778 | | | $ | 2,583,208 | | | $ | 2,612,541 | | | $ | 2,414,576 | | | $ | 2,537,757 | | | $ | 10,148,082 | |
Gross profit | | | 838,400 | | | | 931,802 | | | | 935,416 | | | | 975,074 | | | | 3,680,692 | | | | 934,136 | | | | 920,715 | | | | 854,472 | | | | 874,312 | | | | 3,583,635 | |
Net income | | | 205,294 | | | | 227,037 | | | | 218,532 | | | | 194,062 | | | | 844,925 | | | | 228,964 | | | | 276,710 | | | | 242,263 | | | | 175,135 | | | | 923,072 | |
Per Share Amounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income—diluted | | $ | 0.63 | | | $ | 0.71 | | | $ | 0.68 | | | $ | 0.61 | | | $ | 2.63 | | | $ | 0.72 | | | $ | 0.87 | | | $ | 0.76 | | | $ | 0.55 | | | $ | 2.90 | |
Net income—basic | | | 0.64 | | | | 0.72 | | | | 0.69 | | | | 0.62 | | | | 2.67 | | | | 0.73 | | | | 0.88 | | | | 0.77 | | | | 0.56 | | | | 2.94 | |
Cash dividends | | | 0.38 | | | | 0.38 | | | | 0.38 | | | | 0.38 | | | | 1.52 | | | | 0.415 | | | | 0.415 | | | | 0.415 | | | | 0.415 | | | | 1.66 | |
7273
H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| |
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 willwould not be expected to 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 $114.4 million in 2009, $107.2 million in 2008 and $104.3 million in 2007 and $97.6 million in 2006.2007. Future lease payments for non-cancellable operating leases as of April 30, 200829, 2009 totaled $454.0$392.0 million(2009- (2010-$68.8 million, 2010-$58.363.5 million, 2011-$48.453.2 million, 2012-$44.747.6 million, 2013-$42.838.2 million, 2014-$39.8 million and thereafter-$191.0149.7 million).
As of April 30, 2008,29, 2009, 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$52 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, 2008.29, 2009.
In May 2008, the construction of a new frozen food factory in South Carolina commenced. It is expected that the factorythis project will be operationalcompleted in approximately 183 to 246 months and that it will be financed byat which time the Company plans to enter into an operating lease.
Advertising expenses (including production and communication costs) for fiscal years 2009, 2008 and 2007 and 2006 were $316.0 million, $339.3 million $315.2 million and $296.9$315.2 million, respectively. For fiscal years 2009, 2008 and 2007, and 2006,$115.9 million, $118.9 million $123.6 million and $148.9$123.6 million, respectively, were recorded as a reduction of revenue and $200.1 million, $220.4 million $191.5 million and $148.0$191.5 million, respectively, were recorded as a component of SG&A.selling, general and administrative expenses.
7374
| |
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.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as of April 30, 2008,29, 2009, as stated in their report as set forth in Item 8.
(c) Changes in Internal Control over Financial Reporting
During the fourth quarter of Fiscal 2008, the Company continued its implementation of SAP software across its U.K., Ireland, and Poland operations. As appropriate, the Company is modifying the design and documentation of internal control processes and procedures relating to the new systems to supplement and complement existing internal controls over financial reporting. There were no additional changesNo change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that havehas materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.
| |
Item 9B. | Other Information. |
There is nothing to be reported under this item.
7475
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 13, 2008.12, 2009. 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 13, 2008.12, 2009. 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.
| |
Item 11. | Executive Compensation. |
Information relating to executive compensation is set forth under the captions “Compensation Discussion and Analysis,” “Director Compensation Table,” and “Report of the Management Development and Compensation“Compensation Committee on Executive Compensation”Report” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 13, 2008.12, 2009. 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 13, 2008.12, 2009. 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 April 30, 200829, 2009 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 | | | 24,610,332 | | | $ | 39.96 | | | | 12,307,925 | | | | 16,357,017 | | | $ | 38.98 | | | | 10,434,471 | |
Equity Compensation plans not approved by stockholders(1)(2) | | | 60,093 | | | | N/A | (3) | | | N/A | (1)(4) | | | 24,642 | | | | N/A | (3) | | | N/A | (1)(4) |
| | | | | | | | | | | | | | |
Total | | | 24,670,425 | | | $ | 39.96 | | | | 12,307,925 | | | | 16,381,659 | | | $ | 38.98 | | | | 10,434,471 | |
| | | | | | | | | | | | | | |
7576
| | |
(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 arehave been 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, 2001effective January 1, 2005 and the Deferred Compensation Plan for Non-Employee Directors as amended and restated oneffective January 1, 2004,2005, permit full-time salaried personnel based in the U.S. who have been identified as key employees and non-employee directors, to defer all or part of his or her cash compensation into either a cash account that accrues interest, or into a Heinz stock account. The election to defer is irrevocable. The Management Development & Compensation Committee of the Board of Directors administers the Plan. All amounts are payable at the times and in the amounts elected by the executives at the time of the deferral. The deferral period shall be at least one year and shall be no greater than the date of retirement or other termination, whichever is earlier. Amounts deferred into cash accounts are payable in cash, and all amounts deferred into the Heinz stock account are payable in Heinz Common Stock. Compensation deferred into the Heinz stock account appreciates or depreciates according to the fair market value of Heinz Common Stock. |
|
(3) | | The grants made under the Restricted Stock Plan, the Executive Deferred Compensation Plan and the Deferred Compensation Plan for Non-Employee Directors are restricted or reserved shares of Common Stock, and therefore there is no exercise price. |
|
(4) | | The maximum number of shares of Common Stock that the Chief Executive Officer was authorized to grant under the Restricted Stock Plan was established annually by the Executive Committee of the Board of Directors; provided, however, that such number of shares did not exceed in any plan year 1% of all then outstanding shares of Common Stock. |
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Information relating to the Company’s policy on related person transactions and certain relationships with a beneficial shareholder is set forth under the caption “Related Person Transaction Policy”Transactions” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 13, 2008.12, 2009. 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 13, 2008.12, 2009. 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 13, 2008.12, 2009. Such information is incorporated herein by reference.
7677
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 29, 2009 and April 30, 2008 and May 2, 2007 |
| | | | Consolidated Statements of Income for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 |
| | | | Consolidated Statements of Shareholders’ Equity for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 |
| | | | Consolidated Statements of Cash Flows for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 |
| | | | Notes to Consolidated Financial Statements |
| | | | Report of Independent Registered Public Accounting Firm of PricewaterhouseCoopers LLP dated June 19, 2008,17, 2009, on the Company’s consolidated financial statements and financial statement schedule filed as a part hereof for the fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 |
(2) | | The following report and schedule is filed herewith as a part hereof: |
| | | | Schedule II (Valuation and Qualifying Accounts and Reserves) for the three fiscal years ended April 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006 |
| | | | All other schedules are omitted because they are not applicable or the required information is included herein or is shown in the consolidated financial statements or notes thereto filed as part of this report incorporated herein by reference. |
(3) | | Exhibits required to be filed by Item 601 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) | | SecondThird Amended and Restated Articles of Incorporation of H.J.H. J. Heinz Company dated August 15, 2007, amending and restating21, 2008, are incorporated herein by reference to Exhibit 3(i) of the amended and restated Articles of Amendment in their entirety.Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | 3(ii) | | The Company’s By-Laws, as amended effective August 15, 2007,January 21, 2009, are incorporated herein by reference to Exhibit 3(ii)3.2 of the Company’s QuarterlyCurrent Report onForm 10-Q8-K for the quarterly period ended August 1, 2007.filed on January 21, 2009. |
| | 4. | | Except as set forth below, there are no instruments with respect to long-term unregistered 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 filefurnish 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 ofThree-Year Credit Agreement dated April 29, 2009 among H. J. Heinz Company, H. J. Heinz Finance Company, the Banks listed on the signature pages thereto and JPMorgan Chase Bank, N.A. as Administrative Agent is hereby incorporated herein by reference to Exhibit 410.1 of the Company’s QuarterlyCurrent Report onForm 10-Q8-K for the three months ended August 1, 2001.dated April 29, 2009. |
7778
| | | | | | | | |
| | | | (c) | | Amended and Restated Five-Year364-Day Credit Agreement dated as of September 6, 2001 and amended and restated as of August 4, 2004April 29, 2009 among H.J.H. J. Heinz Company, H.J.H. J. Heinz Finance Company, the Banks listed on the signature pages thereto and JP MorganJPMorgan Chase Bank, N.A. as Administrative Agent is hereby incorporated herein by reference to Exhibit 4 to10.2 of the Company’s quarterly reportCurrent Report onForm 10-Q8-K for the period ended January 25, 2006.dated April 29, 2009. |
| | | | (d) | | Indenture among H. J. Heinz Company and Union Bank of California, N.A. dated as of July 15, 2008. |
| | 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,January 1, 2005, is incorporated herein by reference to Exhibit 10(c)(i)10(a)(xi) to the Company’s Annual Report onForm 10-K10-Q for the fiscal yearperiod ended May 1, 1995.July 30, 2008. |
| | | | | | (ii) | | H. J. Heinz Company 1990 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(v) to the Company’s Proxy Statement dated August 3, 1990.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | | | (iii) | | H. J. Heinz Company 1994 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(vi) to the Company’s Proxy Statement dated August 5, 1994.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | | | (iv) | | H. J. Heinz Company Supplemental Executive Retirement Plan, as amended and restated effective November 12, 2008, is incorporated herein by reference to Exhibit 10(c)(ix)10(a)(ii) to the Company’s AnnualQuarterly Report onForm 10-K10-Q for the fiscal yearperiod ended April 28, 1993.October 29, 2008. |
| | | | | | (v) | | H. J. Heinz Company Executive Deferred Compensation Plan, (asas amended and restated on December 27, 2001)effective January 1, 2005, is incorporated by reference to Exhibit 10(a)(vii)(xii) of the Company’s AnnualQuarterly Report onForm 10-K10-Q for the fiscal yearperiod ended May 1, 2002.July 30, 2008. |
| | | | | | (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)(vii) | | H. J. Heinz Company 1996 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(vii) to the Company’s Proxy Statement dated August 2, 1996.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | | | (ix)(viii) | | 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)(ix) | | H. J. Heinz Company 2000 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(viii) to the Company’s Proxy Statement dated August 4, 2000.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | | | (xi)(x) | | 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)(xi) | | H. J. Heinz Company Senior Executive Incentive Compensation Plan, as amended and restated effective January 1, 2008, is incorporated herein by reference to Exhibit 10(a)(xiii) to the Company’s Proxy Statement dated August 2, 2002.Quarterly Report onForm 10-Q for the period ending July 30, 2008. |
78
79
| | | | | | | | |
| | | | | | (xiv)(xii) | | Deferred Compensation Plan for Non-Employee Directors of H. J. Heinz Company, (asas amended and restated effective January 1, 2004),2005, is incorporated herein by reference to Exhibit 1010(a)(x) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 28, 2004.July 30, 2008. |
| | | | | | (xv)(xiii) | | 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)(xiv) | | 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)(xv) | | Named Executive Officer and Director Compensation |
| | | | | | (xxiv)(xvi) | | Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement for U.S. Employees is incorporated herein by reference to the Company’s Annual Report on FormForm 10-K for the fiscal year ended April 27, 2005. |
| | | | | | (xxv)(xvii) | | Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement fornon-U.S. Based Employees is incorporated herein by reference to the Company’s Annual Report on FormForm 10-K for the fiscal year ended April 27, 2005. |
| | | | | | (xxvi)(xviii) | | Amendment Number One to the H.J. Heinz Company 2000 Stock Option PlanForm of Revised Severance Protection Agreement is incorporated herein by reference to Exhibit 10(a)(i) to the Company’s AnnualQuarterly Report onForm 10-K10-Q for the fiscal yearperiod ended April 27, 2005. |
79
| | | | | | | | October 29, 2008. |
| | | | | | (xxvii) | | Amendment Number One to the H.J. Heinz Company 1996 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) | | 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. |
| | | | | | (xxix) | | 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. |
| | | | | | (xxx)(xix) | | 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. |
| | | | | | (xxxi)(xx) | | 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)(xxi) | | 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)(xxii) | | Form of 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. |
| | | | | | (xxxiv)(xxiii) | | 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)(xxiv) | | 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)(xxv) | | SecondThird Amended and Restated Fiscal Year 2003 Stock Incentive Plan is hereby incorporated herein by reference to Exhibit 10(a)(ix) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.July 30, 2008. |
80
| | | | | | | | |
| | | | | | (xxxvii)(xxvi) | | SecondThird Amended and Restated Global Stock Purchase Plan is hereby incorporated herein by reference to Exhibit 10(a)(xiv) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended August 1, 2007.July 30, 2008. |
| | | | | | (xxxviii)(xxvii) | | Time Sharing Agreement dated as of September 14, 2007, between H.J.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)(xxviii) | | Retirement and Consulting Agreement and a Non-Competition and Non-Solicitation Agreement dated January 30, 2008 between H. J. Heinz Company Annual Incentive Plan, as amended and Jeffrey P. Berger arerestated effective January 1, 2008, is hereby incorporated herein by reference to Exhibit 10.1 of10(a)(xv) to the Company’s Quarterly Report onForm8-K 10-Q dated February 1,for the quarterly period ended July 30, 2008. |
| | | | | | (xxix) | | Form of Stock Option Award and Agreement for U.K. Employees on International Assignment incorporated herein by reference to Exhibit 10(a)(xvii) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | | | (xxx) | | Form of Fiscal Year 2008 Restricted Stock Unit Award and Agreement (U.S. Employees—Retention). |
| | | | | | (xxxi) | | Form of Fiscal Year 2009 Restricted Stock Unit Award and Agreement (U.S. Employees) is incorporated herein by reference to Exhibit 10(a)(i) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | | | (xxxii) | | Form of Fiscal Year 2009 Long-Term Performance Program Award Agreement (U.S. Employees) is incorporated herein by reference to Exhibit 10(a)(iii) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | | | (xxxiii) | | Form of Fiscal Year 2009 Long-Term Performance Program Award Agreement(Non-U.S. Employees) is incorporated herein by reference to Exhibit 10(a)(iv) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | | | (xxxiv) | | Form of Fiscal Year2010-11 Long-Term Performance Program Award Agreement (U.S. Employees) |
| | | | | | (xxxv) | | Form of Fiscal Year2010-11 Long-Term Performance Program Award Agreement(Non-U.S. Employees) |
| | 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 19, 2008.17, 2009.
H. J. HEINZ COMPANY
(Registrant)
| | |
| By: | /s/ Arthur B. Winkleblack |
Arthur B. Winkleblack
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on June 19, 2008.17, 2009.
| | |
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 |
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Schedule II
H. J. Heinz Company and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Fiscal Years Ended April 29, 2009, April 30, 2008 and May 2, 2007 and May 3, 2006
(Thousands of Dollars)
| | | | | | | | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
| | Charged to
| | Charged
| | | | Balance at
| | | Balance at
| | Charged to
| | | | | | Balance at
| |
| | beginning
| | costs and
| | to other
| | | | end of
| | | beginning
| | costs and
| | | | | | end of
| |
Description | | of period | | expenses | | accounts | | Deductions | | period | | | of period | | expenses | | Deductions | | Exchange | | period | |
| |
Fiscal year ended April 29, 2009: | | | | | | | | | | | | | | | | | | | | | |
Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | | | | | | | | | | |
Receivables | | | $ | 15,687 | | | $ | 3,967 | | | $ | 6,585 | | | $ | (1,674 | ) | | $ | 11,395 | |
| | | | | | | | | | | |
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 | | | $ | 14,706 | | | $ | 2,918 | | | $ | 3,684 | | | $ | 1,747 | | | $ | 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 | | | $ | 4,041 | | | $ | 7,387 | | | $ | 1,064 | | | $ | 14,706 | |
| | | | | | | | | | | | | | | | | | | | | | |
Fiscal year ended May 3, 2006: | | | | | | | | | | | | | | | | | | | | | |
Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | | | | | | | | | | |
Receivables | | $ | 21,844 | | | $ | 3,213 | | | $ | — | | | $ | 8,069 | | | $ | 16,988 | | |
| | | | | | | | | | | | |
EXHIBIT INDEX
| | | | | | | | |
| | Description of Exhibit |
|
| | | | | | | | |
| | Exhibits required to be filed by Item 601 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) | | SecondThird Amended and Restated Articles of Incorporation of H.J. Heinz Company dated August 15, 2007, amending and restating21, 2008, are incorporated herein by reference to Exhibit 3(i) of the Company’s amended and restated Articles of Amendment in their entirety.Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | 3(ii) | | The Company’s By-Laws, as amended effective August 15, 2007,January 21, 2009, are incorporated herein by reference to Exhibit 3(ii)3.2 of the Company’s QuarterlyCurrent Report onForm 10-Q8-K for the quarterly period ended August 1, 2007.filed on January 21, 2009. |
| | 4. | | Except as set forth below, there are no instruments with respect to long-term unregistered 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 filefurnish 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 onForm10-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-YearThree-Year Credit Agreement dated as of September 6, 2001 and amended and restated as of August 4, 2004April 29, 2009 among H.J.H. J. Heinz Company, H.J. Heinz Finance Company, the Banks listed on the signature pages thereto and JP MorganJPMorgan Chase Bank, N.A. as Administrative Agent is hereby incorporated herein by reference to Exhibit 4 to10.1 of the Company’s quarterly reportCurrent Report onForm 10-Q8-K fordated April 29, 2009. |
| | | | (c) | | 364-Day Credit Agreement dated April 29, 2009 among H. J. Heinz Company, H. J. Heinz Finance Company, the period ended January 25, 2006.Banks listed on the signature pages thereto and JPMorgan Chase Bank, N.A. as Administrative Agent is hereby incorporated by reference to Exhibit 10.2 of the Company’s Current Report onForm 8-K dated April 29, 2009. |
| | | | (d) | | Indenture among H.J. Heinz Company and Union Bank of California, N.A. dated as of July 15, 2008. |
| | 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,January 1, 2005, is incorporated herein by reference to Exhibit 10(c)(i)10(a)(xi) to the Company’s Annual Report onForm 10-K10-Q for the fiscal yearperiod ended May 1, 1995.July 30, 2008. |
| | | | (ii) | | H. J. Heinz Company 1990 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(v) to the Company’s Proxy Statement dated August 3, 1990.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | (iii) | | H. J. Heinz Company 1994 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(vi) to the Company’s Proxy Statement dated August 5, 1994.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | (iv) | | H. J. Heinz Company Supplemental Executive Retirement Plan, as amended and restated effective November 12, 2008, is incorporated herein by reference to Exhibit 10(c)(ix)10(a)(ii) to the Company’s AnnualQuarterly Report onForm 10-K10-Q for the fiscal yearperiod 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.October 29, 2008. |
| | | | | | | | |
| | Description of Exhibit |
|
| | | | (vi)(v) | | H. J. Heinz Company IncentiveExecutive Deferred Compensation Plan, as amended and restated effective January 1, 2005, is incorporated herein by reference to Appendix B toExhibit 10(a)(xii) of the Company’s Proxy Statement dated August 5, 1994.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | (vii)(vi) | | 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)(vii) | | H. J. Heinz Company 1996 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(vii) to the Company’s Proxy Statement dated August 2, 1996.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | (ix)(viii) | | 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)(ix) | | H. J. Heinz Company 2000 Stock Option Plan, as amended and restated effective August 13, 2008, is incorporated herein by reference to Appendix AExhibit 10(a)(viii) to the Company’s Proxy Statement dated August 4, 2000.Quarterly Report onForm 10-Q for the period ended July 30, 2008. |
| | | | (xi)(x) | | 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)(xi) | | H. J. Heinz Company Senior Executive Incentive Compensation Plan, as amended and restated effective January 1, 2008, is incorporated herein by reference to Exhibit 10(a)(xiii) to the Company’s Proxy Statement dated August 2, 2002.Quarterly Report onForm 10-Q for the period ending July 30, 2008. |
| | | | (xiv)(xii) | | Deferred Compensation Plan for Non-Employee Directors of H. J. Heinz Company, (asas amended and restated effective January 1, 2004),2005, is incorporated herein by reference to Exhibit 1010(a)(x) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended January 28, 2004.July 30, 2008. |
| | | | (xv)(xiii) | | 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)(xiv) | | 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)(xv) | | 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.Named Executive Officer Compensation. |
| | | | (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)(xvi) | | Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement for 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)(xvii) | | Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement fornon-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) | | Amendment Number One to the H.J. Heinz Company 2000 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. |
| | | | (xxvii) | | Amendment Number One to the H.J. Heinz Company 1996 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)(xviii) | | Form of Fiscal Year 2006Revised Severance Protection Agreement is incorporated herein by reference to Exhibit 10(a)(i) to the Company’s AnnualQuarterly Report onForm 10-K10-Q for the fiscal yearperiod ended April 27, 2005.October 29, 2008. |
| | | | (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. |
| | | | (xxx)(xix) | | Form of Fiscal Year 2007 Restricted Stock Unit Award and Agreement is incorporated herein by reference to the Company’s Quarterly Report onForm10-Q for the quarterly period ended November 1, 2006. |
| | | | (xxxi)(xx) | | 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 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 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)(xxi) | | Form of Stock Option 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. |
| | | | (xxii) | | Form of 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. |
| | | | (xxiii) | | 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. |
| | | | (xxiv) | | Form of Restricted Stock 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. |
| | | | (xxv) | | Third Amended and Restated Fiscal Year 2003 Stock Incentive Plan is hereby incorporated herein by reference to Exhibit 10(a)(ix) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | (xxvi) | | Third Amended and Restated Global Stock Purchase Plan is hereby incorporated herein by reference to Exhibit 10(a)(xiv) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | (xxvii) | | 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)(xxviii) | | Retirement and Consulting Agreement and a Non-Competition and Non-Solicitation Agreement dated January 30, 2008 between H.J.H. J. Heinz Company Annual Incentive Plan, as amended and Jeffrey P. Berger arerestated effective January 1, 2008, is hereby incorporated herein by reference to Exhibit 10.110(a)(xv) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | (xxix) | | Form of Stock Option Award and Agreement for U.K. Employees on International Assignment incorporated herein by reference to Exhibit 10(a)(xvii) to the Company’s Quarterly Report onForm 8-K10-Q dated February 1,for the quarterly period ended July 30, 2008. |
| | | | (xxx) | | Form of Fiscal Year 2008 Restricted Stock Unit Award and Agreement (U.S. Employees—Retention). |
| | | | (xxxi) | | Form of Fiscal Year 2009 Restricted Stock Unit Award and Agreement (U.S. Employees) is incorporated herein by reference to Exhibit 10(a)(i) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | (xxxii) | | Form of Fiscal Year 2009 Long-Term Performance Program Award Agreement (U.S. Employees) is incorporated herein by reference to Exhibit 10(a)(iii) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | (xxxiii) | | Form of Fiscal Year 2009 Long-Term Performance Program Award Agreement(Non-U.S. Employees) is incorporated herein by reference to Exhibit 10(a)(iv) to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended July 30, 2008. |
| | | | (xxxiv) | | Form of Fiscal Year2010-11 Long-Term Performance Program Award Agreement (U.S. Employees) |
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| | Description of Exhibit |
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| | | | (xxxv) | | Form of Fiscal Year2010-11 Long-Term Performance Program Award Agreement(Non-U.S. Employees) |
| | 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. |