-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HxDKmvkJuPr7uHx/ArfwaU2l+eOSH2nprSfhIzKkWMIb/YTxeKV90ew/wNMvmi4c GwKddj5xGvw/e2FI3JML0w== 0000950132-97-000159.txt : 19970318 0000950132-97-000159.hdr.sgml : 19970318 ACCESSION NUMBER: 0000950132-97-000159 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970129 FILED AS OF DATE: 19970317 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEINZ H J CO CENTRAL INDEX KEY: 0000046640 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 250542520 STATE OF INCORPORATION: PA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03385 FILM NUMBER: 97557636 BUSINESS ADDRESS: STREET 1: 600 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4124565700 MAIL ADDRESS: STREET 2: P O BOX 57 CITY: PITTSBURGH STATE: PA ZIP: 15230 10-Q 1 HEINZ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 29, 1997 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO FOR THE NINE MONTHS ENDED JANUARY 29, 1997 COMMISSION FILE NUMBER 1-3385 H. J. HEINZ COMPANY (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0542520 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 GRANT STREET, PITTSBURGH, 15219 PENNSYLVANIA (Zip Code) (Address of Principal Executive Offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 412-456-5700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No The number of shares of the Registrant's Common Stock, par value $.25 per share, outstanding as of February 28, 1997, was 367,650,493 shares. PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Nine Months Nine Months Ended Ended January 29, 1997 January 31, 1996 ---------------- ---------------- FY 1997 FY 1996 (Unaudited) (In Thousands, Except per Share Amounts) Sales................... $6,910,356 $6,575,708 Cost of products sold... 4,418,924 4,166,161 ---------- ---------- Gross profit............ 2,491,432 2,409,547 Selling, general and administrative expenses. 1,445,107 1,427,731 ---------- ---------- Operating income........ 1,046,325 981,816 Interest income......... 28,701 30,392 Interest expense........ 204,481 208,849 Other expense, net...... 27,117 23,243 ---------- ---------- Income before income taxes................... 843,428 780,116 Provision for income taxes................... 311,991 290,996 ---------- ---------- Net income.............. $ 531,437 $ 489,120 ========== ========== Net income per share.... $ 1.42 $ 1.30 ========== ========== Cash dividends per share................... $ .84 1/2 $ .77 ========== ========== Average shares for earnings per share...... 373,934 376,929 ========== ==========
See Notes to Condensed Consolidated Financial Statements. ------------ 2 H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Three Months Ended Ended January 29, 1997 January 31, 1996 ---------------- ----------------- FY 1997 FY 1996 (Unaudited) (In Thousands, Except per Share Amounts) Sales....................................... $2,307,538 $2,193,138 Cost of products sold....................... 1,459,249 1,380,830 ---------- ---------- Gross profit................................ 848,289 812,308 Selling, general and administrative expenses.................................... 502,998 497,873 ---------- ---------- Operating income............................ 345,291 314,435 Interest income............................. 8,324 10,869 Interest expense............................ 70,496 70,858 Other expense, net.......................... 6,436 9,114 ---------- ---------- Income before income taxes.................. 276,683 245,332 Provision for income taxes.................. 102,296 88,848 ---------- ---------- Net income.................................. $ 174,387 $ 156,484 ========== ========== Net income per share........................ $ .47 $ .42 ========== ========== Cash dividends per share.................... $ .29 $ .26 1/2 ========== ========== Average shares for earnings per share....... 373,934 376,929 ========== ==========
See Notes to Condensed Consolidated Financial Statements. ------------ 3 H. J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
January 29, 1997 May 1, 1996* ---------------- ------------ FY 1997 FY 1996 (Unaudited) (Thousands of Dollars) Assets Current Assets: Cash and cash equivalents........................ $ 124,883 $ 90,064 Short-term investments, at cost which approximates market.............................. 23,379 18,316 Receivables, net................................. 1,215,057 1,207,874 Inventories...................................... 1,675,529 1,493,963 Prepaid expenses and other current assets........ 324,824 236,475 ---------- ---------- Total current assets........................... 3,363,672 3,046,692 ---------- ---------- Property, plant and equipment.................... 4,433,415 4,220,044 Less accumulated depreciation.................... 1,727,281 1,603,216 ---------- ---------- Total property, plant and equipment, net....... 2,706,134 2,616,828 ---------- ---------- Investments, advances and other assets........... 560,089 573,645 Goodwill, net.................................... 1,817,336 1,737,478 Other intangibles, net........................... 644,317 649,048 ---------- ---------- Total other noncurrent assets.................. 3,021,742 2,960,171 ---------- ---------- Total assets................................... $9,091,548 $8,623,691 ========== ==========
*Summarized from audited fiscal year 1996 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------ 4 H. J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
January 29, 1997 May 1, 1996* ---------------- ------------ FY 1997 FY 1996 (Unaudited) (Thousands of Dollars) Liabilities and Shareholders' Equity Current Liabilities: Short-term debt.................................. $ 446,814 $ 994,586 Portion of long-term debt due within one year.... 566,763 87,583 Accounts payable................................. 817,566 870,337 Salaries and wages............................... 64,211 72,678 Accrued marketing................................ 136,344 146,055 Other accrued liabilities........................ 285,567 368,182 Income taxes..................................... 218,281 175,701 ---------- ---------- Total current liabilities...................... 2,535,546 2,715,122 ---------- ---------- Long-term debt................................... 2,758,463 2,281,659 Deferred income taxes............................ 386,505 319,936 Non-pension postretirement benefits.............. 206,106 209,994 Other liabilities................................ 360,694 390,223 ---------- ---------- Total long-term debt and other liabilities..... 3,711,768 3,201,812 ---------- ---------- Shareholders' Equity: Capital stock.................................... 108,019 108,045 Additional capital............................... 158,856 154,602 Retained earnings................................ 4,377,578 4,156,380 Cumulative translation adjustments............... (157,485) (155,753) ---------- ---------- 4,486,968 4,263,274 Less: Treasury stock at cost (63,530,274 shares at January 29, 1997 and 62,498,417 shares at May 1, 1996)........................................... 1,590,943 1,500,866 Unfunded pension obligation..................... 32,355 32,550 Unearned compensation relating to the ESOP...... 19,436 23,101 ---------- ---------- Total shareholders' equity..................... 2,844,234 2,706,757 ---------- ---------- Total liabilities and shareholders' equity..... $9,091,548 $8,623,691 ========== ==========
*Summarized from audited fiscal year 1996 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------ 5 H. J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Nine Months Ended Ended January 29, 1997 January 31, 1996 ---------------- ----------------- FY 1997 FY 1996 (Unaudited) (Thousands of Dollars) Cash Provided by Operating Activities....... $ 434,858 $ 274,191 --------- --------- Cash Flows from Investing Activities: Capital expenditures...................... (277,681) (246,069) Acquisitions, net of cash acquired........ (179,627) (96,532) Purchases of short-term investments....... (3,337) (864,989) Sales and maturities of short-term investments.............................. 13,651 890,427 Investment in tax benefits................ (3,016) 61,952 Other items, net.......................... 28,757 58,524 --------- --------- Cash (used for) investing activities.... (421,253) (196,687) --------- --------- Cash Flows from Financing Activities: Proceeds from long-term debt.............. 45,185 5,606 Payments on long-term debt................ (100,049) (51,141) Proceeds from commercial paper and short- term borrowings, net..................... 468,693 237,431 Dividends................................. (310,239) (283,917) Purchases of treasury stock............... (208,281) (65,118) Exercise of stock options................. 105,589 70,716 Other items, net.......................... 27,384 46,271 --------- --------- Cash provided by (used for) financing activities............................. 28,282 (40,152) --------- --------- Effect of exchange rate changes on cash and cash equivalents........................... (7,068) (7,653) --------- --------- Net increase in cash and cash equivalents... 34,819 29,699 Cash and cash equivalents at beginning of year....................................... 90,064 124,338 --------- --------- Cash and cash equivalents at end of period.. $ 124,883 $ 154,037 ========= =========
See Notes to Condensed Consolidated Financial Statements. ------------ 6 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) The Management's Discussion and Analysis of Financial Condition and Results of Operations which follows these notes contains additional information on the results of operations and the financial position of the company. Those comments should be read in conjunction with these notes. The company's annual report on Form 10-K for the fiscal year ended May 1, 1996 includes additional information about the company, its operations, and its financial position, and should be read in conjunction with this quarterly report on Form 10-Q. (2) The results for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year due to the seasonal nature of the company's business. Certain prior year amounts have been reclassified in order to conform with the fiscal 1997 presentation. (3) In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results of operations of these interim periods have been included. (4) The composition of inventories at the balance sheet dates was as follows:
January 29, 1997 May 1, 1996 ---------------- ----------- (Thousands of Dollars) Finished goods and work-in-process............. $1,241,995 $1,115,367 Packaging material and ingredients............. 433,534 378,596 ---------- ---------- $1,675,529 $1,493,963 ========== ==========
(5) The provision for income taxes consists of provisions for federal, state, U.S. possessions and foreign income taxes. The company operates in an international environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable tax rates. (6) On July 10, 1996, the company acquired Southern Country Foods Limited in Australia, one of the world's largest producers of canned corn beef and meals. Southern Country Foods, with annual sales of approximately $55 million, sells two-thirds of its products in the Pacific Rim, the Middle East and Canada. On September 23, 1996, the company acquired substantially all of the pet food businesses of Martin Feed Mills Limited of Elmira, Ontario. Martin produces and markets cat and dog food throughout Canada and also exports to Japan and Europe. Martin sells pet food under the Techni-Cal brand and markets products under the Medi-Cal label through veterinary offices and clinics. On November 4, 1996, the company acquired the assets of the canned beans and pasta business of Nestle Canada Inc., together with a two-year license to use the Libby's brand. Under the agreement, the company also acquired the trademarks Deep-Browned Beans, Alpha-Getti and Zoodles, among others. On December 5, 1996, the company acquired the assets of Shortland Cannery Limited, an Auckland, New Zealand meat processor. Shortland markets New Zealand's number-one canned corn beef line and produces other meat products. More than half of Shortland's revenues are from exports to United States markets and parts of Asia and the Pacific Rim. Shortland sells its products under the Hellaby, Crown and Pacific labels. During fiscal 1997, the company also made other smaller acquisitions. All of the above acquisitions have been accounted for as purchases and, accordingly, the respective purchase prices have been allocated on a preliminary basis to the respective assets and liabilities 7 based on their estimated fair values as of the dates of the acquisitions. Operating results of these acquisitions have been included in the Consolidated Statement of Income from the dates of the acquisition. Pro forma results of the company, assuming all of the above fiscal 1997 acquisitions had been made at the beginning of each period presented, would not be materially different from the results reported. (7) On August 29, 1996, the company amended the line of credit agreements that support its domestic commercial paper programs, increasing availability and extending maturity dates. The amended terms provide for one agreement totaling $2.3 billion that expires in September 2001. The previous agreements provided for lines of credit totaling $2.0 billion, of which $1.2 billion was scheduled to expire in September 1996 and $800.0 million was scheduled to expire in September 2000. At January 29, 1997, the company had $1.8 billion of domestic commercial paper outstanding. Due to the long-term nature of the amended credit agreement, all of the outstanding domestic commercial paper has been classified as long-term debt as of January 29, 1997. As of May 1, 1996, $1.5 billion of domestic commercial paper was outstanding, of which $800.0 million was classified as long-term debt. (8) On September 10, 1996, the company's board of directors raised the quarterly dividend on the company's common stock to $0.29 per share from $0.26 1/2 per share, for an indicated annual rate of $1.16 per share. (9) On May 2, 1996, the company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The implementation of this standard did not have a material effect on the company's financial position or results of operations. (10) On March 14, 1997, the company announced its intentions to implement a plan to reorganize and restructure the company which is expected to reduce fiscal 1997 full-year pre-tax earnings. See Item 2 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") of this report for additional information. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS NINE MONTHS ENDED JANUARY 29, 1997 AND JANUARY 31, 1996 For the nine months ended January 29, 1997, sales increased $334.6 million, or 5.1%, to $6,910.4 million from $6,575.7 million recorded in the same period a year ago. The sales increase came primarily from acquisitions (net of divestitures) of 2.8%, price increases of 1.3%, and volume gains of 0.9%. The effect of foreign exchange rates was negligible. Domestic operations provided 55.4% of the current period's net sales compared to 57.0% in the same period last year. Fiscal 1996 acquisitions impacting the year-to-year sales dollar comparison include: Nature's Recipe Pet Food in the U.S.; Alimentos Pilar S.A. of Argentina; Fattoria Scaldasole S.p.A. in Italy; Earth's Best, Inc. in the U.S.; Britwest Ltd. in the United Kingdom; the Craig's foodservice business in New Zealand; Indian Ocean Tuna Ltd. in the Seychelles; and the Mareblu brand of canned tuna in Italy. Also contributing to the sales dollar increase were the following fiscal 1997 acquisitions: Southern Country Foods Limited in Australia; substantially all of the pet food businesses of Martin Feed Mills Limited of Elmira, Ontario; the canned beans and pasta business of Nestle Canada Inc.; Shortland Cannery Limited in New Zealand; and other smaller acquisitions. Price increases recorded in single-serve condiments, retail frozen potatoes, infant food, and tuna were partially offset by price decreases in Weight Watchers classroom activities. Volume increases recorded in pet food, foodservice frozen potatoes, bakery products, tuna, pizza components and Weight Watchers classroom activities overseas were partially offset by volume declines in weight loss products, infant food, frozen entrees, and retail frozen potatoes. Gross profit increased $81.9 million to $2,491.4 million from $2,409.5 million a year ago. The gross profit increase is mainly attributable to increased sales. The ratio of gross profit to sales, however, decreased to 36.1% from 36.6%. The current year's gross profit ratio was impacted by higher commodity prices, an unfavorable profit mix and charges for restructuring and related costs; offset somewhat by a gain on the sale of real estate and favorable pricing. Operating income, excluding non-recurring items, increased $73.0 million, or 7.4%, to $1,054.8 million from $981.8 million for the same period last year. Non-recurring items include a charge for restructuring and related costs, and a gain from the sale of real estate. Including these non-recurring items, operating income increased $64.5 million, or 6.6%, to $1,046.3 million. The increase in operating income was primarily due to the sales-driven increase in gross profit and decreased marketing expenses; partially offset by higher general and administrative expenses associated with restructuring and related costs and acquisitions, and higher selling and distribution expenses directly attributable to higher sales levels. For the nine months ended January 29, 1997, domestic operations provided 54.9% of operating income compared to 56.2% for the same period a year ago. Net interest expense decreased $2.7 million to $175.8 million from $178.5 million in the comparable period a year ago as the impact of higher average borrowings was more than offset by lower average interest rates. The effective tax rate for the first nine months of fiscal 1997 was 37.0% compared to 37.3% for the same period a year ago. Net income for the first nine months was $531.4 million compared to $489.1 million for the same period last year, and earnings per share was $1.42 compared to $1.30. Excluding the non-recurring items noted above, earnings per share was $1.43 which represents an increase of 10.0% over the prior period. 9 RESULTS OF OPERATIONS THREE MONTHS ENDED JANUARY 29, 1997 AND JANUARY 31, 1996 For the three months ended January 29, 1997, sales increased $114.4 million, or 5.2%, to $2,307.5 million from $2,193.1 million recorded in the same period a year ago. The sales increase came from acquisitions (net of divestitures) of 3.1%, price increases of 1.6%, and the effect of favorable foreign exchange rates of 1.2%; partially offset by slightly lower sales volumes of 0.7%. Domestic operations provided 53.6% of the current period's net sales compared to 56.6% in the same period last year. Fiscal 1996 and fiscal 1997 acquisitions impacting the quarter-to-quarter sales dollar comparison include: Nature's Recipe Pet Food in the U.S.; Alimentos Pilar S.A. of Argentina; substantially all of the pet food businesses of Martin Feed Mills Limited of Elmira, Ontario; Earth's Best, Inc. in the U.S.; Britwest Ltd. in the United Kingdom; the Craig's foodservice business in New Zealand; Indian Ocean Tuna Ltd. in the Seychelles; the Mareblu brand of canned tuna in Italy; Southern Country Foods Limited in Australia; the canned beans and pasta business of Nestle Canada Inc.; Shortland Cannery Limited in New Zealand; and other smaller acquisitions. Price increases in foodservice single-serve condiments, pet food, tuna, and retail frozen potatoes were partially offset by decreases in retail ketchup. The strengthening of overseas currencies, particularly in the United Kingdom and New Zealand, against the U. S. Dollar increased sales $27.2 million, or 1.2%. Volume decreases in tuna, weight loss products, and frozen entrees were partially offset by volume increases in soup, Weight Watchers classroom activities overseas, and foodservice ketchup. Gross profit increased $36.0 million to $848.3 million from $812.3 million a year ago. The ratio of gross profit to sales decreased slightly to 36.8% from 37.0%. The current quarter's gross profit ratio was impacted by an unfavorable profit mix and restructuring and related costs; offset somewhat by a gain on the sale of real estate and favorable pricing. Operating income, excluding non-recurring items, increased $35.8 million, or 11.4%, to $350.2 million from $314.4 million in the third quarter of last year. During the current quarter, $18.1 million in charges were recorded for costs related to the worldwide restructuring program, including headcount reductions at the company's overseas affiliates in New Zealand, Italy and Australia. These charges were partially offset by a gain on the sale of real estate of $13.2 million. Including these non-recurring items, operating income increased $30.9 million, or 9.8%, to $345.3 million. The increase in operating income was primarily due to the sales-driven increase in gross profit and decreased marketing expenses; partially offset by higher general and administrative expenses associated with restructuring related charges and acquisitions, and higher selling and distribution expenses directly attributable to higher sales levels. For the third quarter ended January 29, 1997, domestic operations provided 55.5% of operating income compared to 58.1% in the same period last year. Net interest expense increased $2.2 million to $62.2 million from $60.0 million in the third quarter a year ago due mainly to lower interest income on marketable securities. Interest expense remained comparable period to period. The effective tax rate for the third quarter was 37.0% compared to 36.2% for the same period a year ago. Net income for the current quarter was $174.4 million compared to $156.5 million for the same quarter last year, and earnings per share was $0.47 compared to $0.42, an increase of 11.9%. Excluding the non-recurring items noted above, earnings per share was $0.48 which represents an increase of 14.3% over the prior year's comparable quarter. 10 LIQUIDITY AND FINANCIAL POSITION Cash provided by operating activities totaled $434.9 million for the nine month period ended January 29, 1997 compared to $274.2 million last year. Cash used for investing activities required $421.3 million compared to $196.7 million last year. Cash used for acquisitions in the current period totaled $179.6 million, due mainly to the purchases of Martin Feed Mills Limited in Canada; the assets of the canned beans and pasta business of Nestle Canada Inc., together with a two-year license to use the Libby's brand; Shortland Cannery Limited in New Zealand; and Southern Country Foods Limited in Australia. Acquisitions in the prior year's comparable period totaled $96.5 million and included PMV/Zabreh in the Czech Republic; the additional investment in Kecskemeti Konzervgyar R.T. in Hungary; the purchase of Britwest Ltd. in the United Kingdom; the purchase of Fattoria Scaldasole S.p.A. in Italy; the purchase of the Craig's brand of jams and dressings from Kraft General Foods New Zealand Ltd.; and the purchase of a majority interest in Indian Ocean Tuna Limited, located in the Seychelles. Purchases of property, plant and equipment totaled $277.7 million in the current period compared to $246.1 million a year ago. Investments in tax benefits required $3.0 million compared to providing $62.0 million in the prior period, due mainly to the company's sale of certain domestic investments in the prior period. Financing activities provided $28.3 million for the nine months ended January 29, 1997 compared to requiring $40.2 million a year ago. Stock options exercised provided $105.6 million in the current period versus $70.7 million in the prior year's comparable period. Proceeds from commercial paper and short-term borrowings, net provided $468.7 million compared to $237.4 million in the prior period. Proceeds from long-term debt provided $45.2 million compared to $5.6 million in the prior period. During the nine months ended January 29, 1997, treasury stock purchases totaled $208.3 million (6.2 million shares) versus $65.1 million (2.1 million shares) in the prior year's first nine months. Payments on long-term debt totaled $100.0 million for the current period compared to $51.1 million last year. Dividend payments totaled $310.2 million compared to $283.9 million a year ago. On August 29, 1996, the company amended the line of credit agreements that support its domestic commercial paper programs, increasing availability and extending maturity dates. The amended terms provide for one agreement totaling $2.3 billion that expires in September 2001. The previous agreements provided for lines of credit totaling $2.0 billion, of which $1.2 billion would have expired in September 1996 and $800.0 million was scheduled to expire in September 2000. On January 29, 1997, the company had $1.8 billion of domestic commercial paper outstanding. Due to the long-term nature of the amended credit agreement, all of the outstanding domestic commercial paper has been classified as long-term debt as of January 29, 1997. As of May 1, 1996, $1.5 billion of domestic commercial paper was outstanding, of which $800.0 million was classified as long-term debt. On September 10, 1996, the company's board of directors raised the quarterly dividend on the company's common stock to $0.29 per share from $0.26 1/2 per share, for an indicated annual rate of $1.16 per share. On March 12, 1997, the company's board of directors declared the quarterly dividend on the company's common stock of $0.29 per share payable April 10, 1997 to shareholders of record at the close of business on March 24, 1997. The company's financial position continues to remain strong, enabling it to meet cash requirements for operations, capital expansion programs and dividends to shareholders. 11 OTHER MATTERS On March 14, 1997, the company announced its intention to implement a plan to reorganize and restructure the company which will reduce fiscal 1997 full- year pre-tax earnings by approximately $650 million, net of anticipated capital gains of approximately $100 million from the sale of non-strategic assets in New Zealand and real estate in the U.K. The plan will include the following initiatives: 1. The company has entered into a letter of agreement with McCain Foods Limited to sell, for approximately $500 million, Ore-Ida's foodservice business, including six facilities, subject to customary due diligence, the formal approval of the Board of Directors of McCain Foods and regulatory approvals. The aggregate cash proceeds from this transaction, the transactions in the above paragraph and the sale of other businesses the company intends to sell during the next 12 months is expected to total $750 million to $850 million. 2. The company will close or sell at least 25 plants throughout the world while investing heavily to upgrade and build plants to add capacity in fast-growing markets. Excluding the sale of plants and businesses, the global workforce will be reduced by approximately 2,500. Specific plants and businesses to be closed will not be publicly identified until after affected employees have been notified. This process will take place over the next few months. 3. The company intends to eliminate certain end of quarter trade promotion practices to improve inventory turns, cash flow and working capital for the benefit of both the company and its customers. As a result of this initiative, sales in the fourth quarter are expected to be flat compared to last year. This action is designed to fundamentally change the way the company goes to market in key U.S. businesses. An impact of approximately $90 million to $95 million for this initiative is included in the $650 million cost of the reorganization noted above. 4. The company plans to exit at least four non-strategic businesses that do not fit its core categories or are underperforming. 5. The company will dramatically reduce the cost of its entire U.S. Weight Watchers meeting system to replicate its very successful Weight Watchers system in the U.K., the European continent, Australia and South America. The plan is expected to generate $120 million in savings, $300 million of working capital improvements and $1 billion in free cash flow through fiscal 1998 that will ensure 10% to 12% earnings growth from a fiscal 1997 operating base of $1.93 per share into the future. When fully implemented, the plan should provide approximately $200 million in annual savings. The plan will be finalized and acted upon by the company's Board of Directors prior to the end of the fiscal year. More specific announcements regarding the details of the company's worldwide reorganization and restructuring plan will be made over the next few months. 12 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Nothing to report under this item. ITEM 2. CHANGES IN SECURITIES Nothing to report under this item. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Nothing to report under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Nothing to report under this item. ITEM 5. OTHER INFORMATION See "Other Matters" in Part I--Item 2 of this Quarterly Report on Form 10-Q. This report contains certain forward-looking statements which are based on management's current views and assumptions regarding future events and financial performance. Reference should be made to the section "Forward-Looking Statements" in Item 1 of the registrant's Annual Report on Form 10-K for the fiscal year ended May 1, 1996 for a description of the important factors that could cause actual results to differ materially from those discussed herein. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required to be furnished by Item 601 of Regulation S-K are listed below and are filed as part hereof. The Registrant has omitted certain exhibits in accordance with Item 601(b)(4)(iii)(A) of Regulation S- K. The Registrant agrees to furnish such documents to the Commission upon request. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K. 11.Computation of net income per share. 27.Financial Data Schedule. 99.Additional Exhibits--H.J. Heinz Company Press Release dated March 14, 1997. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended January 29, 1997. 13 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. H. J. HEINZ COMPANY (Registrant) Date: March 17, 1997 /s/ Paul F. Renne By................................... Paul F. Renne Senior Vice President-Finance and Chief Financial Officer (Principal Financial Officer) Date: March 17, 1997 /s/ Edward J. McMenamin By................................... Edward J. McMenamin Corporate Controller (Principal Accounting Officer) 14 EX-11 2 COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11 H. J. Heinz Company and Subsidiaries COMPUTATION OF NET INCOME PER SHARE (Unaudited)
Nine Months Ended ----------------------- January 29, January 31, 1997 1996 ----------- ----------- FY 1997 FY 1996 Primary income per share: Net income........................................... $531,437 $489,120 Preferred dividends.................................. 32 44 -------- -------- Net income applicable to common stock................ $531,405 $489,076 ======== ======== Average common shares outstanding and common stock equivalents............................ 373,934 376,929 ======== ======== Net income per share--primary........................ $ 1.42 $ 1.30 ======== ======== Fully diluted income per share: Net income........................................... $531,437 $489,120 ======== ======== Average common shares outstanding and common stock equivalents............................ 373,934 376,929 Additional common shares assuming: Conversion of $1.70 third cumulative preferred stock.............................................. 345 469 Additional common shares assuming options were exercised at the period-end market price..................... 853 1,372 -------- -------- Average common shares outstanding and common stock equivalents............................ 375,132 378,770 ======== ======== Net income per share--fully diluted................. $ 1.42 $ 1.29 ======== ========
All amounts in thousands except per share amounts. ------------ EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR THE PERIOD ENDED JANUARY 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. U.S. DOLLARS 9-MOS APR-30-1997 MAY-02-1996 JAN-29-1997 1 124,883 23,379 1,215,057 0 1,675,529 3,363,672 4,433,415 1,727,281 9,091,548 2,535,546 2,758,463 0 245 107,774 2,736,215 9,091,548 6,910,356 6,910,356 4,418,924 4,418,924 0 0 204,481 843,428 311,991 531,437 0 0 0 531,437 1.42 1.42
EX-99 4 PRESS RELEASE Exhibit 99 FOR RELEASE UPON RECEIPT CONTACT: Ted Smyth Debora S. Foster VP - Corp. Affairs Gen. Mgr. - Corp. Communications (412)456-5780 (412)456-5778 Michael Mullen Ketchum Public Relations (412)456-5778 Heinz Reorganizes for Sales and Earnings Growth and Shareholder Value San Francisco, CA, March 14, 1997 -- H. J. Heinz Company (NYSE; HNZ) today announced its largest ever reorganization plan designed to strengthen the company's six core businesses and improve Heinz's profitability and global growth. Heinz, the global food company, has number-one brands such as Heinz ketchup and infant foods, Ore-Ida, Weight Watchers, StarKist, Farley's and 9- Lives. Brand-building, increasing media spend by 30% over two years, overseas expansion, Efficient Consumer Response (ECR), value-added manufacturing, price- based costing and working capital savings are important elements of the plan to make Heinz one of the three preeminent branded food companies in the world. "Heinz has launched this bold initiative, which we call Project Millennia, to deliver the 21st Century early and produce unprecedented competitive strength to ride the global growth wave in terms of brand growth, financial performance and enhanced shareholder value," said Heinz Chairman and Chief Executive Officer Anthony J. F. O'Reilly to The Security Analysts of San Francisco. "This plan will make Heinz one of the three preeminent branded food companies in the world," O'Reilly said. - - more - 2 "Heinz is one of the most global of American food companies," O'Reilly said. "With GDP growth in Asia predicted at 7% this year and 6% in Eastern Europe, this is the right time for Heinz to accelerate the sales of its big brands to the millions of new consumers who are enjoying economic liberalization." Reorganization Initiatives: -------------------------- Heinz announced its intention to implement a plan to reorganize the company for the new millennium which will reduce Fiscal 1997 (ends April 30) full-year pre-tax earnings by approximately $650 million, net of anticipated capital gains of approximately $100 million from the sale of non-strategic assets in New Zealand and real estate in the U.K. The plan will include the following initiatives: 1. Heinz has entered into a letter of agreement with McCain Foods Limited to sell, for approximately $500 million, Ore-Ida's foodservice business, including two potato factories at Burley and Plover and four appetizer plants for a total of six factories, subject to customary due diligence, the formal approval of the Board of Directors of McCain Foods and regulatory approvals. Heinz is pleased that McCain plans to offer employment to substantially all of the Ore-Ida employees currently working full-time at its production facilities, and to headquarters and sales personnel as deemed necessary to support the business. Heinz will now focus on expanding its foodservice global leadership in high-margin ketchup and condiments, tuna and portion control, not only in the U.S., but also in Europe and Asia. The aggregate cash proceeds from all these transactions, and from the sale of other plants and businesses Heinz intends to sell during the next 12 months, should be approximately $750 million to $850 million. (See separate release issued March 14, 1997.) 2. The company will close or sell at least 25 plants throughout the world while investing heavily to upgrade and build plants to add capacity in fast-growing markets. Excluding the sale of plants and businesses, the global workforce will be reduced by approximately 2,500. "We regret the loss of jobs but this plan is necessary to make us more competitive in the tough global marketplace," said Dr. O'Reilly. "We will be sensitive and responsive to our people who are affected." Specific plants and businesses for closure will not be publicly identified until after affected employees have been notified in the next few months. - more - 3 3. These plant closures or sales will be facilitated by the elimination of end-of-quarter trade promotion practices to improve inventory turns, cash flow and working capital for both Heinz and its customers. These practices have built up in all companies, "and I stress in all companies," Dr. O'Reilly noted, over the past 10 years and are no longer efficient because of new technology such as scanning, EDI, cross-dock software and computer-assisted ordering which enable the retailer and manufacturer to work in tandem to achieve more efficient ECR and Continuous Replenishment Program objectives. As a result of this initiative, sales in the fourth quarter are expected to be flat compared to last year. This action is designed to fundamentally change the way Heinz goes to market in key U.S. businesses. If the company had continued to do business as usual, it would have expected to achieve an additional $90 to $95 million in operating income for the fourth quarter, "yielding EPS of $1.93 for the full year, the impact of which is included in the $650 million cost of the reorganization," Dr. O'Reilly added. 4. The company plans to exit at least four non-strategic businesses that do not fit its core categories or are underperforming. 5. The company will dramatically reduce the costs of its entire U.S. Weight Watchers meeting system, at a cost of $55 million within the reorganization charge, to replicate its very successful Weight Watchers system in the U.K., the European continent, Australia and South America. Dr. O'Reilly added, "This growth plan is designed to: . Ensure 10 to 12% earnings growth into the next century. . Target sales to grow to $14 to $15 billion by 2003, compared to approximately $9.5 billion this year. . Grow Fiscal `98 earnings 10 to 12% from this year's anticipated operating base of $1.93. . Generate working capital reductions of $300 million within the next 12 months. . Yield pre-tax savings of approximately $120 million in Fiscal `98 and approximately $200 million in Fiscal `99 and beyond. . Achieve over $2 billion in free cash flow over the next five years, with $1 billion in the next 12 months." - more - 4 Third Quarter Results: --------------------- Earlier in the morning, Heinz announced record third-quarter results. Earnings per share, excluding non-recurring items, were $0.48. This represented an increase of 14.3 % over the same period last year. Sales growth for the third quarter was strong at over 5%. (See separate release issued March 14, 1997.) Growth Initiatives: ------------------ Future growth initiatives focus on investing in Heinz's big global brands, maximizing market share and extending successful products to new markets. Heinz has number-one brands in ketchup, weight control, tuna, frozen potatoes, soups, beans, infant foods and pet food around the world. The company has an enviable array of 25 power brands that have at least $100 million in sales. Funding for these growth initiatives will come from improved asset utilization, ECR programs, the closure of 25 plants and the exit from lower- margin businesses. "As a result of the reorganization," Dr. O'Reilly said, "the company expects overseas sales to increase from its current level of 43% of annual revenues. The overseas growth will stem from rapid expansion into the fast- growing markets of Eastern Europe, Asia, the Indian sub-continent and South America." Heinz President and Chief Operating Officer William R. Johnson said: "By moving into higher profit businesses, we expect to increase our gross margin from 36% today to 40% by Fiscal 2001. Our asset turnover should increase from 1.0 to 1.3 times, a 30% improvement. And, we expect to generate free cash flow of more than $2 billion over five years." International Growth and Brand Building Under "Project Millennia": ----------------------------------------------------------------- . Tuna sales in Europe will grow in double digits, supplied by the low- cost canneries in the Seychelles and Ghana. . International expansion of pet treats and specialty pet products. Both are high-margin and rapidly growing segments. Heinz is seeking acquisitions -- similar to the company's Alimentos Pilar, S.A. acquisition in Argentina last year -- in South America, Japan and Southern Africa. It already plans to sell pet treats in Australia and, additionally, to sell into European markets from a production base in Ireland. - more - 5 . Develop a pan-European category-based strategy in Europe -- building on Heinz's exceptional strengths in the U.K., Italy, Spain and Portugal, -- to expand sales in the rest of the continent, particularly for tuna, pet treats, ketchup, infant foods, foodservice and Weight Watchers. . Expand sales of Heinz ketchup in Germany, which consumes 30% of all ketchup sold in Europe. Plans call for increasing Heinz's share of that market from 17% to 35% in the next five years. . Double the Heinz European foodservice business over the next five years, a category which is growing rapidly. . Increase production capacity for single-serve products in Australia. This production capacity, along with last year's acquisition of the Craig's line of single-serve items by Wattie's in New Zealand, will enable Heinz to supply the Asian market with a growing range of these items --from ketchup to jellies. . Introduce the Earth's Best line of organic baby food (bought by Heinz U.S.A. last year) into Canada and Australia. . Deliver 35% annual sales growth in Eastern Europe to reach $400 million by 2003. . Increase Heinz's business in India, where baby foods -- combined with nutritional drinks and Heinz branded products for children and adults -- will deliver annual sales growth of 20% to top $300 million by 2005. . Expand marketing for baby food in China, where the Heinz brand remains number-one in infant dry cereal. . Double the company's Japanese business over the next three to five years, focusing on low-cost, high-quality products made in New Zealand. Marketing Innovations: --------------------- . Return to television advertising in the United States for the company's flagship product line, Heinz ketchup, which has a leading 50% market share. . Introduce an innovative "stand-up" resealable pouch for pet treats. - more - 6 . Aggressively market Ore-Ida's frozen stuffed pasta line, whose Rosetto brand is already number-one in the U.S. The company expects to expand the entire category by 12% a year to $350 million over the next five years. . Increase marketing for Ore-Ida retail potato products in the U.S.A. which are number-one with a 55% dollar market share. . Introduce into the U.S. the Weight Watchers "1,2,3 Success" Program, which has been very popular in the U.K., where registrations have increased by 50%. Weight Watchers in the U.K., Continental Europe, Australia, and South America have combined OI of $40 million, including $10 million from Weight Watchers foods in the U.K. . Begin "price-based costing" for The Budget Gourmet brand of frozen products, using low manufacturing costs to generate an everyday retail price of 99 cents each. . Complete an agreement with Hain Food Group Inc. to manufacture and market Weight Watchers brand dry and refrigerated products, including salad dressings, canned soup, sauces and cookies. This allows Weight Watchers Gourmet Food Company to concentrate on its core frozen entrees, desserts and side dishes. . Refocus on "Smart Ones from Weight Watchers" line of frozen entrees. This will involve improving the overall quality of the line, along with pricing and product varieties. . Continue to build market share for tuna in the U.K., Italy and parts of Eastern Europe. The company already owns one of the brand leaders (Petit Navire) in France. Heinz's operating profits from tuna sold in Europe increased 200% this fiscal year and substantial improvement is expected again next year. . Entered a joint venture in Australia to market tuna oil, which is rich in Omega 3 fatty acids (linked to reducing the risk of heart disease) and long-chain polyunsaturated fats (critical to intellectual development in children). A by-product of tuna processing, tuna oil offers margins of over 50%. . Partner with Dunkin' Donuts to sell bagels produced by Heinz Bakery Products. The venture is expected to deliver $50 million in sales next year, with good margins based on our state-of-the-art, low-cost dedicated production systems. - more - 7 Reorganization Plan For Manufacturing and Distribution Facilities: ----------------------------------------------------------------- . Signed a letter of agreement to sell Ore-Ida's foodservice business (including six factories) to McCain Foods Limited of New Brunswick, Canada. . Close one of five major ketchup and condiment-making factories in North America. . Accelerating ECR initiatives at Heinz North America. This action should deliver annualized operating savings of $20 to $30 million by Fiscal 1999 and decrease working capital by about $40 to $50 million. . Realign production and distribution centers for pet foods to place factories and warehouses closer to Heinz customers. As a result, the company will reduce its distribution costs. This will generate $10 to $15 million in annual operating savings. . Develop alliances with other dry pet food manufacturers. Such co-packing arrangements will allow Heinz to substantially reduce its delivered cost for dry pet food. . Consolidate pet treat production to reduce overhead costs. . Dramatic reduction of Weight Watchers costs by exiting the Personal Cuisine business in 238 of our centers which sold food. We will close 55 centers and will retain 183 of the high-attendance centers as classrooms only. These actions should reduce cost for Weight Watchers in the U.S. by $10 to $15 million annually. . Consolidate the manufacture of Weight Watchers brand foods for Europe in a single, expanded factory in Dundalk, Ireland. Currently, the products -- which are highly successful and sold in the U.K., France and the Nordic countries -- are co-packed for Heinz in five different locations. With 57% market share in the U.K., Weight Watchers entrees exceed the combined share of Nestle and Unilever. . Automate the labor-intensive cleaning of tuna at StarKist plants in Puerto Rico and American Samoa. This effort will generate an annual savings of $12 to $15 million and enhance product quality. - more - 8 . Optimize production between Puerto Rico and Samoa to reflect the lowest delivered cost on each variety of tuna fish (albacore, chunk light and special recipe) taking account of labor rates, cost of fish and tax benefits. . Downsize or close as many as three seafood production facilities that no longer fit within Heinz's global low-cost manufacturing strategy. In Europe, StarKist is leveraging the substantial benefits of its low-cost, duty-free plants in Ghana and the Seychelles. . Revise the manufacturing configuration for Heinz Bakery Products by closing, selling or downsizing up to five of its ten plants. . Reorganizing the Wattie's business in New Zealand by combining the three remaining companies into one unit, eliminating substantial overhead and centralizing all ECR and category management initiatives. . Closed several production facilities in Australia and New Zealand. Wattie's will now focus on developing its Tomoana plant site as a supply source for Japan. Worldwide Expansion and Development of Production Centers: --------------------------------------------------------- Heinz is planning to expand and develop its international production centers in these locations: . The Seychelles for tuna sold in Europe . Ghana for tuna sold in Europe . Puerto Rico and Samoa for Star-Kist tuna . Ireland for frozen food sold into the U.K. and Europe . Ozzaro Taro for infant foods in Northern Italy . Aligarh, India for nutritional drinks and infant foods . Jacksonville, Florida for portion control products . Hastings and Tomoana, in New Zealand, particularly for exports to Asia and the Pacific. # # 9 ABOUT HEINZ: With sales approaching $10 billion, H. J. Heinz Company is one of the world's leading food processors and purveyors of nutritional services. Its 50 affiliates operate in some 200 countries, offering more than 4,000 products. Among the company's famous brands are Heinz, StarKist, Ore-Ida, 9-Lives, Weight Watchers, Wattie's, Plasmon, Farley's, The Budget Gourmet, Earth's Best, Ken-L Ration, Kibbles `n Bits, Orlando, Olivine, and Guloso. * * * The above contains certain forward-looking statements which are based on management's current views and assumptions regarding future events and financial performance. Reference should be made to the section "Forward-Looking Statements" in Item 1 of H. J. Heinz Company's Annual Report on Form 10-K for the fiscal year ended May 1, 1996 for a description of the important factors that could cause actual results to differ materially from those discussed above. * * * Note to assignment editors: A Heinz video news release/B-roll which includes - -------------------------- interviews with A. J. F. O'Reilly and William R. Johnson and company production footage is available as follows: SATELLITE INFORMATION --------------------- FEED #1 FEED #2 ------- ------- DATE: March 14, 1997 March 14, 1997 TIME: 1:30 pm-2:00 pm (Eastern) 4:00 pm-4:15 pm (Eastern) (10:30 am -11:00 am (Pacific) (1:00 pm-1:15pm Pacific) COORDS: GALAXY C4 TRANS 9 GALAXY 9 TRANS 22 AUDIO: 6.2, 6.8 MHz 6.2, 6.8 MHz -----END PRIVACY-ENHANCED MESSAGE-----