10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to

Commission file number 1-3385

H. J. HEINZ COMPANY

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	25-0542520
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
600 Grant Street, Pittsburgh, Pennsylvania (Address of Principal Executive Offices)	15219 (Zip Code)

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 þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No þ

The number of shares of the Registrant’s Common Stock, par value $0.25 per share, outstanding as of January 31, 2007 was 324,849,361 shares.

PART I—FINANCIAL INFORMATION

Item 1.   Financial Statements

H. J. HEINZ COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Third Quarter Ended
	January 31,		January 25,
	2007		2006
	FY 2007		FY 2006
	(Unaudited)
	(In Thousands, Except
	per Share Amounts)
Sales	$	2,295,192	$	2,186,524
Cost of products sold		1,443,076		1,405,807
Gross profit		852,116		780,717
Selling, general and administrative expenses		475,788		473,081
Operating income		376,328		307,636
Interest income		14,752		7,693
Interest expense		86,054		86,336
Other expense, net		9,203		9,918
Income from continuing operations before income taxes		295,823		219,075
Provision for income taxes		76,785		85,897
Income from continuing operations		219,038		133,178
Loss from discontinued operations, net of tax		—		(16,578	)
Net income	$	219,038	$	116,600
Income/(loss) per common share
Diluted
Continuing operations	$	0.66	$	0.39
Discontinued operations		—		(0.05	)
Net income	$	0.66	$	0.35
Average common shares outstanding—diluted		332,509		337,822
Basic
Continuing operations	$	0.67	$	0.40
Discontinued operations		—		(0.05	)
Net income	$	0.67	$	0.35
Average common shares outstanding—basic		328,466		334,879
Cash dividends per share	$	0.35	$	0.30

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	Nine Months Ended
	January 31,			January 25,
	2007			2006
	FY 2007			FY 2006
	(Unaudited)
	(In Thousands, Except
	per Share Amounts)
Sales	$	6,587,337		$	6,243,786
Cost of products sold		4,116,206			3,956,735
Gross profit		2,471,131			2,287,051
Selling, general and administrative expenses		1,392,176			1,421,589
Operating income		1,078,955			865,462
Interest income		29,147			21,491
Interest expense		241,852			229,140
Other expense, net		24,020			19,836
Income from continuing operations before income taxes		842,230			637,977
Provision for income taxes		231,660			196,295
Income from continuing operations		610,570			441,682
(Loss)/income from discontinued operations, net of tax		(5,856	)		36,013
Net income	$	604,714		$	477,695
Income/(loss) per common share
Diluted
Continuing operations	$	1.83		$	1.29
Discontinued operations		(.02	)		0.10
Net income	$	1.81		$	1.39
Average common shares outstanding—diluted		333,985			343,532
Basic
Continuing operations	$	1.85		$	1.30
Discontinued operations		(.02	)		0.11
Net income	$	1.83		$	1.40
Average common shares outstanding—basic		330,192			340,484
Cash dividends per share	$	1.05		$	0.90

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	January 31,		May 3,
	2007		2006*
	FY 2007		FY 2006
	(Unaudited)
	(Thousands of Dollars)
Assets
Current Assets:
Cash and cash equivalents	$	419,010	$	445,427
Receivables, net		1,080,525		1,002,125
Inventories		1,266,772		1,073,682
Prepaid expenses		132,718		139,714
Other current assets		30,463		42,987
Total current assets		2,929,488		2,703,935
Property, plant and equipment		3,904,956		3,764,476
Less accumulated depreciation		1,978,666		1,863,919
Total property, plant and equipment, net		1,926,290		1,900,557
Goodwill		2,793,906		2,822,567
Trademarks, net		873,837		776,857
Other intangibles, net		412,877		269,564
Other non-current assets		1,340,065		1,264,287
Total other non-current assets		5,420,685		5,133,275
Total assets	$	10,276,463	$	9,737,767

* Summarized from audited fiscal year 2006 balance sheet.

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	January 31,			May 3,
	2007			2006*
	FY 2007			FY 2006
	(Unaudited)
	(Thousands of Dollars)
Liabilities and Shareholders’ Equity
Current Liabilities:
Short-term debt	$	111,381		$	54,052
Portion of long-term debt due within one year		3,063			917
Accounts payable		969,732			1,035,084
Salaries and wages		67,253			84,815
Accrued marketing		288,488			216,267
Other accrued liabilities		388,141			476,683
Income taxes		72,377			150,413
Total current liabilities		1,900,435			2,018,231
Long-term debt		4,805,276			4,357,013
Deferred income taxes		638,923			518,724
Non-pension post-retirement benefits		205,813			207,840
Other liabilities and minority interest		517,520			587,136
Total long-term liabilities		6,167,532			5,670,713
Shareholders’ Equity:
Capital stock		107,852			107,856
Additional capital		553,354			502,235
Retained earnings		5,711,025			5,454,108
		6,372,231			6,064,199
Less:
Treasury stock at cost (105,615,625 shares at January 31, 2007 and 100,339,405 shares at May 3, 2006)		4,199,268			3,852,220
Unearned compensation		—			32,773
Accumulated other comprehensive (income)/loss		(35,533	)		130,383
Total shareholders’ equity		2,208,496			2,048,823
Total liabilities and shareholders’ equity	$	10,276,463		$	9,737,767

* Summarized from audited fiscal year 2006 balance sheet.

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	January 31, 2007			January 25, 2006
	FY 2007			FY 2006
	(Unaudited)
	(Thousands of Dollars)
Cash Flows from Operating Activities:
Net income	$	604,714		$	477,695
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		172,986			170,407
Amortization		21,686			23,890
Deferred tax (benefit)/provision		(24,651	)		102,306
(Gains)/losses on disposals and impairment charges		(2,536	)		21,861
Other items, net		8,385			30,017
Changes in current assets and liabilities, excluding effects of acquisitions and divestitures:
Receivables		(69,250	)		46,694
Inventories		(181,390	)		(178,920	)
Prepaid expenses and other current assets		14,045			(23,893	)
Accounts payable		(128,660	)		(58,270	)
Accrued liabilities		(28,677	)		67,387
Income taxes		3,013			(176,254	)
Cash provided by operating activities		389,665			502,920
Cash Flows from Investing Activities:
Capital expenditures		(150,516	)		(151,017	)
Proceeds from disposals of property, plant and equipment		41,850			5,155
Acquisitions, net of cash acquired		(85,928	)		(1,053,616	)
Net (payments)/proceeds related to divestitures		(4,811	)		171,649
Other items, net		(27,486	)		(5,406	)
Cash used for investing activities		(226,891	)		(1,033,235	)
Cash Flows from Financing Activities:
Proceeds from long-term debt		—			229,554
Payments on long-term debt		(51,054	)		(13,140	)
Net proceeds from commercial paper and short-term debt		456,197			961,430
Dividends		(347,797	)		(307,086	)
Purchases of treasury stock		(498,667	)		(525,321	)
Exercise of stock options		194,167			51,536
Other items, net		10,747			11,908
Cash (used for)/provided by financing activities		(236,407	)		408,881
Cash provided by operating activities of discontinued operations spun-off to Del Monte		33,511			13,312
Cash presented in discontinued operations as of January 25, 2006		—			(15,984	)
Effect of exchange rate changes on cash and cash equivalents		13,705			(15,362	)
Net decrease in cash and cash equivalents		(26,417	)		(139,468	)
Cash and cash equivalents at beginning of year		445,427			1,083,749
Cash and cash equivalents at end of period	$	419,010		$	944,281

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)   Basis of Presentation

The interim condensed consolidated financial statements of H. J. Heinz Company, together with its subsidiaries (collectively referred to as the “Company”), are unaudited. In the opinion of management, all adjustments, which are of a normal and recurring nature, except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q, necessary for a fair statement of the results of operations of these interim periods have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full fiscal year due to the seasonal nature of the Company’s business. These statements should be read in conjunction with the Company’s consolidated financial statements and related notes, and management’s discussion and analysis of financial condition and results of operations which appear in the Company’s Annual Report on Form 10-K for the year ended May 3, 2006.

(2)   Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. (SFAS) 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R). Among other things, SFAS 158 requires an employer to recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. This provision of SFAS 158, along with disclosure requirements, is effective for the Company prospectively at the end of Fiscal 2007. Based on the funded status of the Company’s pension and postretirement benefit plans disclosed in the Fiscal 2006 Annual Report on Form 10-K, the adoption of SFAS 158 would have resulted in the following impacts: a reduction in the prepaid pension assets of approximately $528 million, a pension and postretirement liability increase of approximately $47 million, a decrease in the deferred tax liability of approximately $185 million and a shareholders’ equity reduction of approximately $390 million. There is no impact to the Company’s statements of income or cash flows. The ultimate impact at the time of adoption is contingent on plan asset returns and the assumptions that will be used to measure the funded status of each of the Company’s pension and postretirement benefit plans at the end of Fiscal 2007. Additionally, SFAS 158 requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. This provision becomes effective for the Company in Fiscal 2009. The Company does not expect the impact of the change in measurement date to have a material impact on the financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in financial statements. This Interpretation includes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosures. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of adopting FIN 48 in Fiscal 2008.

Prior to May 4, 2006, the Company accounted for its stock-based compensation plans under the measurement and recognition provisions of Accounting Principles Board Opinion No. (“APB”) 25,

7

Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”). Under the intrinsic-value method prescribed by APB 25, compensation cost for stock options was measured at the grant date as the excess, if any, of the quoted market price of the 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 FAS 123R, Share-Based Payment (“FAS 123R”), which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the Consolidated Statements of Income based on their fair values. Determining the fair value of share-based awards at the grant date requires judgment in estimating the expected term that the stock options will be outstanding prior to exercise as well as the volatility and dividends over the expected term. Judgment is also required in estimating the amount of stock-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, stock-based compensation expense could be materially impacted.

(3)   Discontinued Operations

In the fourth quarter of Fiscal 2006 the Company completed its sale of the European seafood and Tegel^® poultry businesses in line with the Company’s plan to exit non-strategic businesses. In accordance with accounting principles generally accepted in the United States of America, the operating results related to these businesses have been included in discontinued operations in the Company’s consolidated statements of income for the third quarter and nine months ended January 25, 2006. The Company recorded a loss of $3.3 million ($5.9 million after-tax) from these businesses for the nine months ended January 31, 2007, primarily resulting from purchase price adjustments pursuant to the transaction agreements. The discontinued operations generated sales of $184.5 million and $576.2 million and net (loss)/income of $(18.2) million (net of $27.3 million in tax expense) and $2.3 million (net of $37.0 million in tax expense) for the third quarter and nine months ended January 25, 2006, respectively.

Net income from discontinued operations related to the businesses spun-off to Del Monte in Fiscal 2003 was $1.7 million and $33.7 million for the third quarter and nine months ended January 25, 2006, respectively, and reflects the favorable settlement of tax liabilities.

(4)   Fiscal 2006 Special Items

Reorganization Costs

In Fiscal 2006, the Company recorded pre-tax reorganization charges for targeted workforce reductions consistent with the Company’s goals to streamline its businesses totaling $14.0 million ($10.0 million after tax) and $70.4 million ($49.1 million after tax) during the third quarter and nine months ended January 25, 2006, respectively. Additionally, pre-tax costs of $13.9 million ($14.8 million after tax) and $29.6 million ($26.8 million after tax) were incurred in the third quarter and nine months ended January 25, 2006, respectively, primarily as a result of strategic reviews related to the Company’s portfolio realignment. For the third quarter ended January 25, 2006, the total impact of these initiatives on continuing operations was $22.0 million pre-tax ($18.3 million after-tax), of which $1.8 million was recorded as costs of products sold and $20.2 million in selling, general and administrative expenses (“SG&A”). In addition, $6.6 million was recorded in income from discontinued operations, net of tax. For the nine months ended

8

January 25, 2006, the total impact of these initiatives on continuing operations was $88.2 million pre-tax ($65.3 million after-tax), of which $9.3 million was recorded as costs of products sold and $78.9 million in SG&A. In addition, $10.7 million was recorded in income from discontinued operations, net of tax. There were no material reorganization costs in Fiscal 2007.

Divestitures/Impairment Charges

The following losses/impairment charges were recorded in Fiscal 2006. There were no material divestitures or impairment charges in Fiscal 2007.

•  During the third quarter of Fiscal 2006, the Company completed the sale of the HAK^® vegetable product line in Northern Europe and received proceeds from this divestiture of $51.1 million, which was in excess of the cost basis by $3.2 million ($3.5 million after tax). This excess was recorded in cost of products sold.

•  During the third quarter of Fiscal 2006, the Company sold its equity investment in The Hain Celestial Group, Inc. (“Hain”) and recognized a $6.9 million ($4.5 million after-tax) loss which was recorded within other expense, net. Net proceeds from the sale of this investment were $116.1 million.

•  In the third quarter of Fiscal 2006, the Company recognized a non-cash asset impairment charge of $15.8 million pre-tax ($8.5 million after-tax) on a small noodle business in Indonesia, which was sold in the second quarter of Fiscal 2007. The charge was primarily recorded as a component of cost of products sold.

•  During the second quarter of Fiscal 2006, the Company recognized a net $12.7 million ($13.6 million after tax) charge primarily related to the sale of a small seafood business in Israel which closed in the third quarter of Fiscal 2006.

Income Taxes

The American Jobs Creation Act (“AJCA”) provided a deduction of 85% of qualified foreign dividends in excess of a “Base Period” dividend amount. During the third quarter of Fiscal 2006, the Company finalized plans to repatriate dividends that qualified under the AJCA. The total impact of the AJCA on tax expense related to special items for the third quarter and nine months ended January 25, 2006 was $24.3 million, of which $27.7 million of expense was recorded in continuing operations and $3.4 million was a benefit in discontinued operations.

During the third quarter of Fiscal 2006, the Company reversed valuation allowances of $20.6 million in continuing operations related to the non-cash asset impairment charges recorded in Fiscal 2005 on cost and equity investments. The reversal of the valuation allowances was based upon tax planning strategies that were expected to generate sufficient capital gains during the capital loss carryforward period.

As a result of the European Seafood business being classified as discontinued operations during the third quarter of Fiscal 2006, the Company recorded a deferred tax liability of $19.6 million in connection with the difference between the book and tax bases of the net assets held for sale. The recording of the deferred tax liability resulted in a $24.6 million tax charge in discontinued operations and a tax benefit of $5.0 million recorded as part of other comprehensive income during the third quarter of Fiscal 2006.

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(5)   Inventories

The composition of inventories at the balance sheet dates was as follows:

	January 31,		May 3,
	2007		2006
	(Thousands of Dollars)
Finished goods and work-in-process	$	948,537	$	817,037
Packaging material and ingredients		318,235		256,645
	$	1,266,772	$	1,073,682

(6)   Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended January 31, 2007, by reportable segment, are as follows:

	North
	American
	Consumer			U.S.								Rest of
	Products			Foodservice			Europe			Asia/Pacific		World			Total
				(Thousands of Dollars)
Balance at
May 3, 2006	$	1,067,727		$	278,039		$	1,265,469		$	195,206	$	16,126		$	2,822,567
Acquisitions		36,133			—			1,052			—		—			37,185
Purchase accounting adjustments		(21,233	)		(15,217	)		(92,753	)		—		633			(128,570	)
Disposals		—			—			(229	)		—		—			(229	)
Translation adjustments		(8,590	)		—			63,258			9,703		(1,418	)		62,953
Balance at January 31, 2007	$	1,074,037		$	262,822		$	1,236,797		$	204,909	$	15,341		$	2,793,906

During October 2006, the Company acquired Renée’s Gourmet Foods, a Canadian manufacturer of premium salad dressings, sauces, dips, marinades and mayonnaise for approximately $67 million. The Company recorded a preliminary purchase price allocation related to this acquisition and expects to finalize this allocation upon completion of third party valuation procedures. Operating results of the acquired business have been included in the consolidated statement of income from the acquisition date forward. Pro-forma results of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported. During the third quarter of Fiscal 2007, the Company acquired the remaining interest in its Petrosoyuz joint venture for approximately $15.0 million.

During Fiscal 2007, the Company finalized the purchase price allocations for the acquisitions of HP Foods, Nancy’s Specialty Foods, and Kabobs, Inc., resulting in adjustments primarily between goodwill, trademarks, other intangible assets, and deferred income taxes.

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Trademarks and other intangible assets at January 31, 2007 and May 3, 2006, subject to amortization expense, are as follows:

	January 31, 2007							May 3, 2006
			Accum							Accum
	Gross		Amort			Net		Gross		Amort			Net
	(Thousands of Dollars)
Trademarks	$	194,945	$	(61,200	)	$	133,745	$	197,957	$	(61,279	)	$	136,678
Licenses		208,186		(133,918	)		74,268		208,186		(129,630	)		78,556
Recipes/processes		63,507		(14,844	)		48,663		95,456		(14,079	)		81,377
Customer related assets		150,583		(16,200	)		134,383		105,510		(11,507	)		94,003
Other		69,675		(55,894	)		13,781		70,832		(55,204	)		15,628
	$	686,896	$	(282,056	)	$	404,840	$	677,941	$	(271,699	)	$	406,242

Amortization expense for trademarks and other intangible assets subject to amortization was $6.6 million and $7.7 million for the third quarters ended January 31, 2007 and January 25, 2006, respectively, and $16.7 million and $19.9 million for the nine months ended January 31, 2007 and January 25, 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 January 31, 2007, annual amortization expense for each of the next five fiscal years is estimated to be approximately $27 million.

Intangible assets not subject to amortization at January 31, 2007 totaled $881.9 million and consisted of $740.1 million of trademarks, $125.1 million of recipes/processes, and $16.7 million of licenses. Intangible assets not subject to amortization at May 3, 2006 totaled $640.2 million, and consisted solely of trademarks.

(7)   Income Taxes

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 the various locations and the applicable tax rates.

The current year-to-date effective tax rate was 27.5% compared to 30.8% for the prior year. During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. This revaluation is expected to reduce Fiscal 2007 tax expense by approximately $35 million, of which $30.9 million was recorded in the first nine months of Fiscal 2007. The remainder of the tax benefit will be recognized through the effective tax rate in the fourth quarter. During the third quarter of Fiscal 2007, final conditions necessary to reverse a foreign tax reserve related to a prior year transaction were achieved. As a result, the Company realized a non-cash tax benefit of $64.1 million. Also during the third quarter of Fiscal 2007, the Company modified its plans for repatriation of foreign earnings. Consequently, the Company expects to record incremental tax charges of $76.0 million during Fiscal 2007, of which $62.9 million was recorded in the third quarter of Fiscal 2007. The remainder of the tax charge will be recognized through the effective tax rate in the fourth quarter. The Company continues to anticipate that the reported tax rate on continuing operations for the year will be approximately 30%.

The Fiscal 2006 year-to-date tax expense benefited from the reversal of a tax provision of $23.4 million related to a foreign affiliate along with an additional benefit of $16.3 million resulting from tax planning initiatives related to foreign tax credits, all of which was partially offset by the non-deductibility of certain asset write-offs.

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The resolution of tax uncertainties 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.

(8)   Stock-Based Compensation Plans

As of January 31, 2007, the Company had outstanding stock option awards, restricted stock units and restricted stock awards issued pursuant to various shareholder-approved plans and a shareholder authorized employee stock purchase plan. The compensation cost related to these plans recognized in general and administrative expenses, and the related tax benefit was $25.4 million and $8.9 million for the nine months ended January 31, 2007 and $7.2 million and $2.4 million for the third quarter ended January 31, 2007, respectively. These first nine months of Fiscal 2007 include an incremental $13.8 million of compensation costs ($8.8 million after-tax or $0.03 impact on both basic and diluted earnings per share) related to FAS 123R.

The Company has two plans from which it can issue stock option awards, the Fiscal Year 2003 Stock Incentive Plan (the “2003 Plan”), which was approved by shareholders on September 12, 2002, and the 2000 Stock Option Plan (the “2000 Plan”), which was approved by shareholders on September 12, 2000. The Company’s primary means for issuing equity-based awards is the 2003 Plan. Pursuant to the 2003 Plan, the Management Development & Compensation Committee is authorized to grant a maximum of 9.4 million shares for issuance as restricted stock units or restricted stock. Any available shares may be issued as stock options. The maximum number of shares that may be granted under this plan is 18.9 million shares.

Stock Options

On May 4, 2006, the Company adopted FAS 123R and began recognizing the cost of all employee stock options on a straight-line basis over their respective requisite service periods (generally equal to an award’s vesting period), net of estimated forfeitures, using the modified-prospective transition method. Under this transition method, Fiscal 2007 results include stock-based compensation expense related to stock options granted on or prior to, but not vested as of, May 3, 2006, based on the grant date fair value originally estimated and disclosed in a pro-forma manner in prior period financial statements in accordance with the original provisions of FAS 123. All stock-based payments granted subsequent to May 3, 2006, will be expensed based on the grant date fair value estimated in accordance with the provisions of FAS 123R. All stock-based compensation expense is recognized as a component of general and administrative expenses. Results for prior periods have not been restated.

FAS 123R also requires the attribution of compensation expense based on the concept of “requisite service period.” For awards with vesting provisions tied to retirement status (i.e., non-substantive vesting provisions,) compensation cost should be recognized from the date of grant to the earlier of the vesting date or the date of retirement-eligibility. The use of the non-substantive vesting approach will not affect the overall amount of compensation expense recognized, but could accelerate the recognition of expense. The Company will continue to follow its previous vesting approach for the remaining portion of those outstanding awards that were unvested and granted prior to May 4, 2006, and accordingly, will recognize expense from the grant date to the earlier of the actual date of retirement or the vesting date. Had the Company previously applied the accelerated method of expense recognition, the impact would have been immaterial to the third quarter and nine months ended January 25, 2006.

Stock options generally require a service period from one to four years after the date of grant. Awards granted prior to Fiscal 2004 generally had a requisite service period of three years. Prior to Fiscal 2006, awards generally had a maximum term of ten years. Beginning in Fiscal 2006, awards have a maximum term of seven years.

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In accordance with their respective plans, stock option awards are forfeited if a holder voluntarily terminates employment prior to the vesting date. The Company estimates forfeitures based on an analysis of historical trends updated as discrete new information becomes available and will be re-evaluated on an annual basis. Compensation cost in any period is at least equal to the grant-date fair value of the vested portion of an award on that date.

The Company previously presented all benefits of tax deductions resulting from the exercise of stock-based compensation as operating cash flows in the condensed consolidated statements of cash flows. Upon adoption of FAS 123R, the benefit of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as financing cash flows. For the nine months ended, January 31, 2007, $7.2 million of cash tax benefits was reported as an operating cash inflow and $2.9 million of excess tax benefits as a financing cash inflow.

As of January 31, 2007, 8,527 shares remained available for issuance under the 2000 Plan. During the third quarter and nine months ended January 31, 2007, respectively, 5,486 and 24,481 shares were forfeited and returned to the plan. During the nine months ended January 31, 2007, 221,597 shares were issued from the 2000 Plan.

A summary of the Company’s 2003 Plan at January 31, 2007 is as follows:

	2003 Plan
	(Amounts
	in Thousands)
Number of shares authorized		18,869
Number of stock option shares issued		(2,008	)
Number of stock option shares forfeited and returned to the plan		112
Number of restricted stock units and restricted stock issued		(2,901	)
Shares available for grant as stock options		14,072

During the second quarter, the Company granted 894,930 option awards to employees sourced from the 2000 and 2003 Plans. The weighted average fair value per share of the options granted during the nine months ended January 31, 2007 and January 25, 2006 as computed using the Black-Scholes pricing model was $6.69 and $6.68, respectively. The weighted average assumptions used to estimate these fair values are as follows:

	Nine Months Ended
	January 31,			January 25,
	2007			2006
Dividend yield		3.3	%		3.2	%
Expected volatility		17.87	%		22.0	%
Weighted-average expected life (in years)		5.0			5.1
Risk-free interest rate		4.72	%		4.0	%

The dividend yield assumption is based on the current fiscal year dividend payouts. The Company estimates expected volatility and expected option life assumption consistent with SFAS 123R and Securities and Exchange Commission Staff Accounting Bulletin No. 107. 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.

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A summary of the Company’s stock option activity for the nine months ended January 31, 2007, and related information is as follows:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise Price		Contractual		Aggregate
	Options			(per share)		Term (yrs.)		Intrinsic Value
	(Amounts in Thousands, Except per Share and Term Data)
Options outstanding at May 3, 2006		31,515		$	39.33		4.40	$	1,239,426
Options granted		894			41.92		6.59		37,515
Options exercised		(5,492	)		35.35				(194,167	)
Options forfeited and returned to the plan		(303	)		46.01				(13,969	)
Options outstanding at January 31, 2007		26,614			40.16		3.88		1,068,805
Options vested and exercisable at January 31, 2007		23,079			40.58		3.52		936,562

The Company received proceeds of $194.2 million and $51.5 million from the exercise of stock options during the nine months ended January 31, 2007 and January 25, 2006, respectively. The tax benefit recognized as a result of stock option exercises was $4.8 million and $0.4 million for the third quarters of 2007 and 2006, respectively. The tax benefit recognized as a result of stock option exercises was $10.4 million and $3.0 million for the nine months ended January 31, 2007 and January 25, 2006, respectively.

A summary of the status of the Company’s unvested stock options for the nine months ended January 31, 2007 is as follows:

				Weighted
				Average Grant
				Date
	Number of			Fair Value
	Options			(per share)
	(Amounts in Thousands, Except per Share Data)
Unvested options at May 3, 2006		5,970		$	7.72
Options granted		895			6.69
Options vested		(3,317	)		8.23
Options forfeited and returned to the plan		(14	)		7.14
Unvested options at January 31, 2007		3,535			6.97

As of January 31, 2007 there was $10.9 million of unrecognized compensation cost related to unvested option awards under the 2000 and 2003 Plans. This cost is expected to be recognized over a weighted average period of 1.97 years.

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Fiscal Year 2006 Stock-Based Compensation Pro Forma Summary

Had compensation cost for the Company’s stock option plan been determined in the prior year based on the fair-value based method for all awards, the pro forma income and earnings per share from continuing operations amounts would have been as follows:

	January 25, 2006
	Third Quarter Ended		Nine Months Ended
	(In Thousands, Except per Share Amounts)
Income from continuing operations:
As reported	$	133,178	$	441,682
Fair value-based expense, net of tax		1,907		8,909
Pro forma	$	131,271	$	432,773
Income per common share from continuing operations:
Diluted
As reported	$	0.39	$	1.29
Pro forma	$	0.39	$	1.26
Basic
As reported	$	0.40	$	1.30
Pro forma	$	0.39	$	1.27

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. Restricted stock is reserved in the recipients’ name at the grant date and issued upon vesting. The Company is entitled to an income tax deduction in an amount equal to the taxable income reported by the holder upon vesting of the award.

Total compensation expense relating to RSUs and restricted stock was $4.6 million and $3.3 million for the third quarters ended January 31, 2007 and January 25, 2006, respectively. Total compensation expense relating to RSUs and restricted stock was $14.5 million and $13.9 million for the nine months ended January 31, 2007 and January 25, 2006, respectively. Unrecognized compensation cost in connection with these grants totaled $32.2 million and $32.1 million at January 31, 2007 and January 25, 2006, respectively. The cost is expected to be recognized over a weighted-average period of 2.7 years. The unearned compensation balance of $32.8 million as of May 4, 2006 related to RSUs and restricted stock awards was reclassified into additional paid-in-capital upon adoption of SFAS 123R.

A summary of the Company’s RSU and restricted stock awards at January 31, 2007 is as follows:

	2003 Plan
	(Amounts
	in Thousands)
Number of shares authorized		9,440
Number of shares reserved for issuance		(3,351	)
Number of shares forfeited and returned to the plan		450
Shares available for grant		6,539

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A summary of the activity of unvested RSU and restricted stock awards for the nine months ended January 31, 2007, and related information is as follows:

				Weighted
				Average
				Grant Date
	Number of			Fair Value
	Units			(per share)
	(Amounts in Thousands, Except per Share Data)
Unvested units and stock at May 3, 2006		1,813		$	35.48
Units and stock granted		358			41.78
Units and stock vested		(130	)		36.12
Units and stock forfeited and returned to the plan		(18	)		36.84
Unvested units and stock at January 31, 2007		2,023			36.54

Upon share option exercise or vesting of restricted stock and RSUs, the Company uses available treasury shares and maintains a repurchase program that anticipates exercises and vesting of awards so that shares are available for issuance. The Company records forfeitures of restricted stock as treasury share repurchases. The Company expects to repurchase approximately 15.0 million shares during Fiscal 2007.

Global Stock Purchase Plan

The Company has a shareholder approved employee stock purchase plan (the “GSPP”) that permits substantially all employees to purchase shares of the 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 three million shares. During the two offering periods from February 16, 2005 to February 15, 2006, employees purchased 352,395 shares under the plan. During the two offering periods from February 16, 2006 to February 15, 2007, employees purchased 268,224 shares under the plan. Shares issued under the GSPP will be sourced from available treasury shares.

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(9)   Pensions and Other Post-Retirement Benefits

The components of net periodic benefit cost are as follows:

	Third Quarter Ended
	January 31,			January 25,			January 31,			January 25,
	2007			2006			2007			2006
	Pension Benefits						Post-Retirement Benefits
	(Thousands of Dollars)
Service cost	$	10,890		$	9,956		$	1,601		$	1,563
Interest cost		34,302			29,820			3,815			3,827
Expected return on plan assets		(50,096	)		(41,229	)		—			—
Amortization of net initial asset		—			(4	)		—			—
Amortization of prior service cost		(870	)		530			(1,524	)		(707	)
Amortization of unrecognized loss		13,118			14,706			1,479			1,826
Gain due to curtailment, settlement and special termination benefits		(846	)		(6,733	)		—			—
Net periodic benefit cost		6,498			7,046			5,371			6,509
Less periodic benefit cost associated with discontinued operations		—			94			—			—
Periodic benefit cost associated with continuing operations	$	6,498		$	6,952		$	5,371		$	6,509

	Nine Months Ended
	January 31,			January 25,			January 31,			January 25,
	2007			2006			2007			2006
	Pension Benefits						Post-Retirement Benefits
				(Thousands of Dollars)
Service cost	$	32,079		$	30,978		$	4,837		$	4,654
Interest cost		101,504			90,708			11,488			11,437
Expected return on plan assets		(148,078	)		(125,090	)		—			—
Amortization of net initial asset		—			(15	)		—			—
Amortization of prior service cost		(2,553	)		2,586			(4,573	)		(2,122	)
Amortization of unrecognized loss		38,926			44,246			4,438			5,477
(Gain)/loss due to curtailment, settlement and special termination benefits		(846	)		(540	)		—			1,250
Net periodic benefit cost		21,032			42,873			16,190			20,696
Less periodic benefit cost associated with discontinued operations		—			282			—			—
Periodic benefit cost associated with continuing operations	$	21,032		$	42,591		$	16,190		$	20,696

As of January 31, 2007, the Company has contributed $47 million to fund its obligations under these plans. As previously disclosed, the Company expects to make combined cash contributions of approximately $60 million in Fiscal 2007.

Prepaid benefit costs of $774.8 million and $733.5 million are included as components of other non-current assets in the condensed consolidated balance sheets at January 31, 2007 and May 3, 2006, respectively.

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(10)   Segments

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.

Descriptions of the Company’s reportable segments are as follows:

North American Consumer Products—This segment primarily manufactures, markets and sells ketchup, condiments, sauces, pasta meals, and frozen potatoes, entrees, snacks, and appetizers to the grocery channels in the United States of America and includes our Canadian business.

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.

Europe—This segment includes the Company’s operations in Europe and sells products in all of the Company’s categories.

Asia/Pacific—This segment includes the Company’s operations in New Zealand, Australia, Japan, China, South Korea, Indonesia, Singapore, and Thailand. This segment’s operations include products in all of the Company’s categories.

Rest of World—This segment includes the Company’s operations in Africa, India, Latin America, the Middle East, and other areas that sell products in all of the Company’s categories.

The Company’s management evaluates performance based on several factors including net sales, operating income, operating income excluding special items, and the use of capital resources. Intersegment revenues are accounted for at current market values. Items below the operating income line of the consolidated statements of income are not presented by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s management.

The following table presents information about the Company’s reportable segments:

	Third Quarter Ended				Nine Months Ended
	January 31,		January 25,		January 31,		January 25,
	2007		2006		2007		2006
	FY 2007		FY 2006		FY 2007		FY 2006
			(Thousands of Dollars)
Net external sales:
North American Consumer Products	$	714,536	$	658,771	$	2,001,757	$	1,828,770
U.S. Foodservice		386,013		401,098		1,158,848		1,139,654
Europe		812,996		772,212		2,238,286		2,159,654
Asia/Pacific		275,763		258,985		885,619		819,300
Rest of World		105,884		95,458		302,827		296,408
Consolidated Totals	$	2,295,192	$	2,186,524	$	6,587,337	$	6,243,786

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	Third Quarter Ended						Nine Months Ended
	January 31,			January 25,			January 31,			January 25,
	2007			2006			2007			2006
	FY 2007			FY 2006			FY 2007			FY 2006
				(Thousands of Dollars)
Intersegment revenues:
North American Consumer Products	$	12,654		$	13,202		$	38,465		$	38,633
U.S. Foodservice		6,173			6,726			17,551			16,931
Europe		6,416			2,732			15,142			9,206
Asia/Pacific		874			479			3,310			1,702
Rest of World		490			378			1,276			942
Non-Operating(a)		(26,607	)		(23,517	)		(75,744	)		(67,414	)
Consolidated Totals	$	—		$	—		$	—		$	—
Operating income (loss):
North American Consumer Products	$	161,862		$	154,440		$	471,041		$	425,389
U.S. Foodservice		54,343			56,902			168,936			154,566
Europe		151,904			124,147			410,639			324,757
Asia/Pacific		27,656			(957	)		103,020			53,744
Rest of World		11,902			4,927			35,569			6,292
Non-Operating(a)		(31,339	)		(31,823	)		(110,250	)		(99,286	)
Consolidated Totals	$	376,328		$	307,636		$	1,078,955		$	865,462
Operating income (loss) excluding special items(b):
North American Consumer Products	$	161,862		$	154,479		$	471,041		$	427,817
U.S. Foodservice		54,343			57,273			168,936			161,617
Europe		151,904			138,509			410,639			372,459
Asia/Pacific		27,656			18,185			103,020			80,675
Rest of World		11,902			8,293			35,569			27,044
Non-Operating(a)		(31,339	)		(31,511	)		(110,250	)		(87,717	)
Consolidated Totals	$	376,328		$	345,228		$	1,078,955		$	981,895

(a)	Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments.
(b)	Third Quarter ended January 25, 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 divestitures as follows: U.S. Foodservice, $0.4 million; Europe, $14.4 million; Asia/Pacific, $19.1 million; Rest of World, $3.4 million; and Non-Operating, $0.3 million.

Nine Months ended January 25, 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 divestitures as follows: North American Consumer Products, $2.4 million; U.S. Foodservice, $7.1 million; Europe, $47.7 million; Asia/Pacific, $26.9 million; Rest of World, $20.7 million; and Non-Operating, $11.6 million.

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The Company’s revenues are generated via the sale of products in the following categories:

	Third Quarter Ended				Nine Months Ended
	January 31,		January 25,		January 31,		January 25,
	2007		2006		2007		2006
	FY 2007		FY 2006		FY 2007		FY 2006
			(Thousands of Dollars)
Ketchup and Sauces	$	890,018	$	872,114	$	2,706,142	$	2,545,123
Meals and Snacks		1,085,428		1,039,810		2,948,715		2,821,238
Infant Foods		236,019		196,934		662,918		598,630
Other		83,727		77,666		269,562		278,795
Total	$	2,295,192	$	2,186,524	$	6,587,337	$	6,243,786

(11)   Net Income Per Common Share

The following are reconciliations of income to income applicable to common stock and the number of common shares outstanding used to calculate basic EPS to those shares used to calculate diluted EPS:

	Third Quarter Ended				Nine Months Ended
	January 31,		January 25,		January 31,		January 25,
	2007		2006		2007		2006
	FY 2007		FY 2006		FY 2007		FY 2006
			(In Thousands)
Income from continuing operations	$	219,038	$	133,178	$	610,570	$	441,682
Preferred dividends		3		4		10		11
Income from continuing operations applicable to common stock	$	219,035	$	133,174	$	610,560	$	441,671
Average common shares outstanding—basic		328,466		334,879		330,192		340,484
Effect of dilutive securities:
Convertible preferred stock		123		124		123		124
Stock options, restricted stock and the global stock purchase plan		3,920		2,819		3,670		2,924
Average common shares outstanding—diluted		332,509		337,822		333,985		343,532

Diluted earnings per share is based upon the weighted-average shares of common stock and dilutive common stock equivalents outstanding during the periods presented. Common stock equivalents arising from dilutive stock options and restricted common stock units are computed using the treasury stock method.

Options to purchase an aggregate of 9,197,422 shares of common stock for the third quarter and nine months ended January 31, 2007 and 18,586,855 shares of common stock for the third quarter and nine months ended January 25, 2006, were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market prices of the common stock for each respective period. These options expire at various points in time through 2013. The Company elected to apply the long-form method for determining the pool of windfall tax benefits in connection with the adoption of FAS 123R.

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(12)   Comprehensive Income

	Third Quarter Ended						Nine Months Ended
	January 31,			January 25,			January 31,			January 25,
	2007			2006			2007			2006
	FY 2007			FY 2006			FY 2007			FY 2006
				(Thousands of Dollars)
Net income	$	219,038		$	116,600		$	604,714		$	477,695
Other comprehensive income:
Foreign currency translation adjustments		57,067			37,510			149,455			(157,888	)
Minimum pension liability adjustment		4,394			(59	)		8,863			(2,222	)
Net deferred (losses)/ gains on derivatives from periodic revaluations		5,384			7,587			(6,023	)		19
Net deferred losses/(gains) on derivatives reclassified to earnings		(1,405	)		(5,394	)		13,621			3,646
Comprehensive income	$	284,478		$	156,244		$	770,630		$	321,250

(13)   Derivative Financial Instruments and Hedging Activities

The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and utilizes certain derivative financial instruments to manage its foreign currency and interest rate exposures. There have been no material changes in the Company’s market risk during the nine months ended January 31, 2007. For additional information, refer to pages 27-29 of the Company’s Annual Report on Form 10-K for the fiscal year ended May 3, 2006.

As of January 31, 2007, the Company is hedging forecasted transactions for periods not exceeding two years. During the next 12 months, the Company expects $1.4 million of net deferred gains reported in accumulated other comprehensive income to be reclassified to earnings, assuming market rates remain constant through contract maturities. Hedge ineffectiveness related to cash flow hedges, which is reported in current period earnings as other income and expense, was not significant for the third quarter and nine months ended January 31, 2007 and January 25, 2006. Amounts reclassified to earnings because the hedged transaction was no longer expected to occur were not significant for the third quarter and nine months ended January 31, 2007 and January 25, 2006.

The Company had outstanding cross currency swaps with a total notional amount of $1.9 billion and $2.0 billion as of January 31, 2007 and January 25, 2006, respectively, which were designated as net investment hedges of foreign operations. These contracts are scheduled to mature within two years. The Company assesses hedge effectiveness for these contracts based on changes in fair value attributable to changes in spot prices. Net losses of $21.3 million ($12.2 million after-tax) and $30.7 million ($14.6 million after-tax) which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive income within unrealized translation adjustment for the third quarter and nine months ended January 31, 2007, respectively. Net losses of $17.2 million ($10.6 million after-tax) which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive income within unrealized translation adjustment for the third quarter and nine months ended January 25, 2006. Gains of $3.2 million and $13.1 million, which represented the changes in fair value excluded from the assessment of hedge effectiveness, were included in current period earnings as a component of interest expense for the third quarter and nine months ended January 31, 2007, respectively. Gains of $0.2 million, which represented the changes in fair value excluded from the assessment of hedge effectiveness, were included in

21

current period earnings as a component of interest expense for the third quarter and nine months ended January 25, 2006.

The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting. As of January 31, 2007, the Company maintained forward contracts with a total notional amount of $111.2 million that do not qualify as hedges, but which have the impact of largely mitigating volatility associated with earnings from foreign subsidiaries. These forward contracts are accounted for on a full mark-to-market basis through current earnings and mature during the fourth quarter of Fiscal 2007. Net unrealized gains related to these contracts totaled $0.6 million at January 31, 2007.

(14)   Supplemental Non-Cash Investing and Financing Activities

A capital lease obligation of $51.0 million was incurred when the Company entered into a lease for equipment during the first quarter of Fiscal 2007. This equipment was previously under an operating lease. This non-cash transaction has been excluded from the condensed consolidated statement of cash flows for the nine months ended January 31, 2007.

22

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

THREE MONTHS ENDED JANUARY 31, 2007 AND JANUARY 25, 2006

Results of Continuing Operations

Sales for the three months ended January 31, 2007 increased $108.7 million, or 5.0%, to $2.30 billion. Sales were favorably impacted by an increase in volume of 1.4% driven primarily by North American Consumer Products, Italian infant nutrition and the Australian business. In addition, approximately one third of the third quarter volume increase was driven by the combined emerging RICIP markets of Russia, India, China, Indonesia and Poland. These increases were partially offset by declines in our soup businesses in both U.S. Foodservice and in the U.K. Net pricing increased sales by 2.3%, mainly due to our businesses in the U.S., U.K. and Latin America. Divestitures, net of acquisitions, decreased sales by 2.7%. Foreign exchange translation rates increased sales by 4.0%.

Gross profit increased $71.4 million, or 9.1%, to $852.1 million, and the gross profit margin increased to 37.1% from 35.7%. These increases reflect higher volume, increased pricing, productivity initiatives and favorable foreign exchange, partially offset by commodity cost increases and the impact of divestitures. Also contributing to the favorable comparison is an $18.8 million asset impairment charge in the prior year related to the sale of an Indonesian noodle business discussed below.

Selling, general and administrative expenses (“SG&A”) increased $2.7 million, or 0.6%, to $475.8 million and decreased as a percentage of sales to 20.7% from 21.6%. The decrease as a percentage of sales is due to the $20.2 million of special items in the prior year discussed below, as well as the targeted workforce reductions in the prior year which have resulted in reduced selling and distribution expenses (“S&D”) despite volume increases, and reduced general and administrative expense (“G&A”). The 0.6% increase in total SG&A is largely due to the impact of foreign exchange, increased marketing expense and increased compensation costs, including the impact of the adoption of FAS 123(R).

Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $14.3 million, or 2.6%, to $564.6 million on a gross sales increase of 4.1%. Marketing support recorded as a reduction of revenue, typically deals and allowances, increased $0.5 million, or 0.1%, to $484.4 million. Marketing support recorded as a component of SG&A increased $13.7 million, or 20.6%, to $80.3 million. Spending increased across virtually the entire Company, particularly in the Italian infant nutrition and U.S. Consumer Products businesses, while the U.K. reduced spending.

Operating income increased $68.7 million, or 22.3%, to $376.3 million, which was favorably impacted by increased volume, the higher gross profit margin and the $37.6 million of prior year special items discussed below, which consisted primarily of severance, strategic review costs and net losses/impairment charges on divestitures.

Net interest expense decreased $7.3 million, to $71.3 million, as the impact of reduced debt balances was partially offset by higher average interest rates in Fiscal 2007. Other expenses, net, decreased $0.7 million, to $9.2 million, primarily due to the $6.9 million loss in the prior year on the sale of the Company’s equity investment in The Hain Celestial Group, Inc. (“Hain”), partially offset by increased minority interest expense resulting from improved business performance.

The effective tax rate for the current quarter is 26.0% compared to 39.2% in the prior year. During the current quarter, final conditions necessary to reverse a foreign tax reserve related to a prior year transaction were achieved, and as a result, the Company realized a non-cash tax benefit of $64.1 million. Also during the third quarter of Fiscal 2007, the Company modified its plans for

23

repatriation of foreign earnings. Consequently, the Company expects to record incremental tax charges of $76.0 million during Fiscal 2007, related to the changes in its plans for repatriation of foreign earnings, of which $62.9 million was recorded during the current quarter. The remainder of the tax charge will be recognized through the effective tax rate in the fourth quarter. The prior year’s tax rate was impacted by tax charges associated with the American Jobs Creations Act (“AJCA”) partially offset by a $20.6 million reversal of valuation allowances associated with the prior year non-cash asset impairment charges. The Company continues to expect a reported tax rate on continuing operations for the year of approximately 30%.

Income from continuing operations was $219.0 million compared to $133.2 million in the year earlier quarter, an increase of 64.5%, primarily due to improved business performance, the $34.8 million of special items in the prior year discussed below and a lower effective tax rate. Diluted earnings per share from continuing operations was $0.66 in the current year compared to $0.39 in the prior year, up 69.2%, which also benefited from a 1.6% reduction in diluted shares outstanding.

OPERATING RESULTS BY BUSINESS SEGMENT

North American Consumer Products

Sales of the North American Consumer Products segment increased $55.8 million, or 8.5%, to $714.5 million. Volume increased 5.2%, due largely to continued strong growth in Smart Ones^® and Boston Market^® frozen entrees and desserts as well as growth in Heinz^® ketchup. The increase in Smart Ones^® frozen entrees and desserts reflects increased distribution and consumption driven by new product launches and increased marketing, and the increase in Boston Market^® relates primarily to increases in consumption driven by new product launches. The increase in Heinz^® ketchup resulted from new product launches and the successful implementation of a new promotion strategy. Volume increases were also generated from increased consumption of both Ore-Ida^® frozen potatoes and TGI Friday’s^® frozen snacks as well as from Classico^® pasta sauces, resulting from new product launches and increased marketing and promotions. In addition, our Canadian business generated significant volume growth, up approximately 11%, resulting from improvements across the majority of its core products and the successful introduction of Smart Ones^® frozen entrees. Partially offsetting these increases was a volume decline in Nancy’s^® frozen appetizers, due to customer service issues resulting from manufacturing integration inefficiencies. Pricing increased 1.7% largely due to Heinz^® ketchup, resulting from reduced promotions as part of the strategy to increase consumption through sales of larger sizes at full price, and Boston Market^® frozen entrees and Classico^® pasta sauces, both resulting from reduced promotions. Acquisitions increased sales 1.4%, due to the acquisition of Renée’s Gourmet Foods, a Canadian manufacturer of premium salad dressings, sauces, dips, marinades and mayonnaise. Favorable Canadian exchange translation rates increased sales 0.2%.

Gross profit increased $13.5 million, or 4.9%, to $286.6 million, resulting from increased volume and higher pricing. The gross profit margin decreased to 40.1% from 41.5%, primarily due to increased manufacturing costs resulting from inefficiencies during the start-up phase of a plant consolidation and higher commodity costs. Operating income increased $7.4 million, or 4.8%, to $161.9 million, due to the increase in gross profit, partially offset by increased marketing expenses, primarily for Smart Ones^® frozen entrees and desserts, Ore-Ida^® frozen potatoes and frozen snacks. Effective cost control continued as G&A remained fairly flat to prior year and S&D as a percentage of sales declined, due to reduced transportation costs as a result of distribution efficiencies.

U.S. Foodservice

Sales of the U.S. Foodservice segment decreased $15.1 million, or 3.8%, to $386.0 million. Volume decreased 4.3%, due primarily to declines in frozen soup and appetizers, resulting from mild weather conditions and reduced distribution, and declines in portion control condiments, resulting from exiting several low-margin contracts in the PPI business unit. These declines were partially offset by higher volume in Heinz^® ketchup, largely due to new customers and strong sales of the top down

24

bottle. Pricing increased 2.6%, reflecting lower deal spending on Heinz^® ketchup, Heinz^® tomato products and frozen desserts. Divestitures, net of acquisitions, reduced sales 2.1%.

Gross profit decreased $4.2 million, or 3.5%, to $116.2 million, due mainly to the volume decline, as the gross profit margin increased slightly to 30.1% from 30.0%. The impact of higher commodity costs was offset by favorable net pricing and productivity initiatives. Operating income decreased $2.6 million, or 4.5%, to $54.3 million, due to the decrease in gross profit, as increases in marketing and G&A were more than offset by reduced S&D costs, reflecting strong productivity initiatives to reduce transportation costs.

Europe

Heinz Europe’s sales increased $40.8 million, or 5.3%, to $813.0 million. Higher pricing increased sales 2.0%, driven primarily by the reduction of inefficient promotions on Heinz^® soup in the U.K as well as price increases in infant feeding in both Italy and the U.K. Volume decreased 0.6%, primarily due to reduced promotions on Heinz^® soup in the U.K. and market softness in the non-branded portion of our European frozen business. These declines were partially offset by volume improvements driven by the Italian infant nutrition business, Heinz^® ketchup across Europe, Heinz^® beans in the U.K., Weight Watchers^® branded products and Pudliszki^® ketchup and ready meals in Poland. Divestitures reduced sales 6.6%, and favorable exchange translation rates increased sales by 10.5%.

Gross profit increased $27.6 million, or 9.3%, to $323.4 million, and the gross profit margin increased to 39.8% from 38.3%. These increases are due to higher pricing and favorable exchange translation rates, partially offset by the impact of divestitures and increased commodity costs. Operating income increased $27.8 million, or 22.4%, to $151.9 million, due primarily to the increase in gross profit, reduced G&A and the $14.4 million of special items in the prior year discussed below, partially offset by higher marketing expense. The decrease in G&A reflects prior year targeted workforce reductions, including the elimination of European headquarters, as well as $14.0 million of special items in the prior year discussed below. The increase in marketing expense is due to the increased investment the Company is making behind its key brands, including Plasmon^®, Heinz^® and Pudliszki^®.

Asia/Pacific

Sales in Asia/Pacific increased $16.8 million, or 6.5%, to $275.8 million. Volume increased sales 2.5%, reflecting continued strong performance in Australia and our LongFong frozen food business in China, both largely due to new product introductions. Higher pricing increased sales 1.8%, mainly due to price increases taken on Indonesian sauces and our Watties^® brands in New Zealand. Divestitures reduced sales 0.6% and favorable foreign exchange translation rates increased sales 2.9%.

Gross profit increased $28.7 million, or 49.5%, to $86.8 million, and the gross profit margin increased to 31.5% from 22.4% due primarily to volume improvements and an $18.8 million asset impairment charge in the prior year on an Indonesian noodle business discussed below. The increase was also a result of higher pricing and reduced commodity costs in Indonesia. Operating income increased $28.6 million, to $27.7 million, primarily due to the increase in gross profit and reduced G&A, partially offset by increased marketing.

Rest of World

Sales for Rest of World increased $10.4 million, or 10.9%, to $105.9 million. Volume increased 10.9% due primarily to increased demand and marketing support for nutritional drinks in India and increases in ketchup and baby food in Latin America. Higher pricing increased sales by 8.6%, largely due to reduced promotions and price increases taken in Latin America. Divestitures reduced sales 7.5% and foreign exchange translation rates reduced sales 1.0%.

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Gross profit increased $5.7 million, or 18.7%, to $36.0 million, primarily resulting from increased volume and higher pricing. Operating income increased $7.0 million, to $11.9 million, due primarily to the increase in gross profit and strategic review costs in Israel in the prior year.

NINE MONTHS ENDED JANUARY 31, 2007 AND JANUARY 25, 2006

Results of Continuing Operations

Sales for the nine months ended January 31, 2007 increased $343.6 million, or 5.5%, to $6.59 billion. Sales were favorably impacted by a volume increase of 2.9%, led by the North American Consumer Products segment and the Australian business. Strong volume increases were also noted in our New Zealand and Italian infant nutrition businesses, U.S. Foodservice and the emerging markets of India, China and Poland, in line with the Company’s strategy to focus on key emerging markets. These increases were partially offset by declines in the U.K. and Russia. Net pricing increased sales by 1.7%, mainly due to our businesses in North America, the U.K., Indonesia and Latin America. Divestitures, net of acquisitions, decreased sales by 1.4%. Foreign exchange translation rates increased sales by 2.4%.

Gross profit increased $184.1 million, or 8.0%, to $2.47 billion, and the gross profit margin increased to 37.5% from 36.6%. These increases reflect higher volume, increased pricing, higher margin acquisitions, productivity improvements and favorable foreign exchange, partially offset by commodity cost increases. The prior year includes an $18.8 million asset impairment charge on an Indonesian noodle business discussed below.

SG&A decreased $29.4 million, or 2.1%, to $1.39 billion and decreased as a percentage of sales to 21.1% from 22.8%. These decreases are primarily due to the favorable impact of the prior year targeted workforce reductions, particularly in Europe and Asia, and the $94.8 million of special items in the prior year discussed below, which consisted primarily of severance, strategic review costs and net losses/impairment charges on divestitures. These declines were partially offset by increased marketing expense, costs related to the proxy contest affecting the Company’s 2006 election of directors, and higher accrued incentive compensation costs, including the expensing of stock options. S&D costs were higher as a result of the volume increase; however as a percentage of sales, S&D declined.

Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $41.6 million, or 2.7%, to $1.59 billion on a gross sales increase of 4.6%. Marketing support recorded as a reduction of revenue, typically deals and allowances, increased $9.6 million, or 0.7%, to $1.36 billion. This increase is largely due to foreign exchange translation rates, partially offset by decreases relating to spending reductions on less efficient promotions and a realignment of list prices. Marketing support recorded as a component of SG&A increased $32.0 million, or 16.4%, to $227.9 million, as the Company continues to invest behind its top brands.

Operating income increased $213.5 million, or 24.7%, to $1.08 billion, which was favorably impacted by increased volume, the higher gross profit margin and the $116.4 million of prior year special items discussed below.

Net interest expense increased $5.1 million, to $212.7 million, due primarily to higher average interest rates in Fiscal 2007. Other expenses, net, increased $4.2 million, to $24.0 million, largely due to increased currency losses and minority interest expense, the later of which is a result of improved business performance in our joint ventures, partially offset by the $6.9 million loss on the sale of the Company’s equity investment in Hain in the prior year.

The current year-to-date effective tax rate was 27.5% compared to 30.8% for the prior year. During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. This revaluation is expected to reduce Fiscal 2007 tax expense by approximately $35 million, of which $30.9 million

26

was recorded in the first nine months of Fiscal 2007. The remainder of the tax benefit will be recognized through the effective tax rate in the fourth quarter. During the third quarter of Fiscal 2007, final conditions necessary to reverse a foreign tax reserve related to a prior year transaction were achieved. As a result, the Company realized a non-cash tax benefit of $64.1 million. Also during the third quarter of Fiscal 2007, the Company modified its plans for repatriation of foreign earnings. Consequently, the Company expects to record incremental tax charges of approximately $76.0 million during Fiscal 2007 related to the changes in its plans for repatriation of foreign earnings, of which $62.9 million was recorded in the first nine months of Fiscal 2007. The remainder will be recognized through the effective tax rate in the fourth quarter. The Fiscal 2006 year-to-date tax expense benefited from the reversal of a tax provision of $23.4 million related to a foreign affiliate along with an additional benefit of $16.3 million resulting from tax planning initiatives related to foreign tax credits, all of which was partially offset by the non-deductibility of certain asset write-offs.

Income from continuing operations was $610.6 million compared to $441.7 million in the prior year, an increase of 38.2%, primarily due to the increase in operating income and a lower effective tax rate, partially offset by higher net interest expense. Diluted earnings per share from continuing operations was $1.83 in the current year compared to $1.29 in the prior year, an increase of 41.9%, which also benefited from a 2.8% reduction in diluted shares outstanding.

OPERATING RESULTS BY BUSINESS SEGMENT

North American Consumer Products

Sales of the North American Consumer Products segment increased $173.0 million, or 9.5%, to $2.0 billion. Volume increased 4.8%, largely resulting from strong growth in Smart Ones^® and Boston Market^® frozen entrees and desserts. The increase in Smart Ones^® reflects new distribution and increased consumption driven by new product launches and increased marketing, and the increase in Boston Market^® relates primarily to increases in consumption driven by new product launches. Classico^® pasta sauces volume also grew, aided by increased consumption, promotions and new product introductions. New products and improved distribution of Delimex^®, TGI Friday’s^® and Bagel Bites^® frozen snacks helped drive the volume increase. In addition, our Canadian business generated significant volume growth of approximately 5%, resulting from new products in several core categories, including a successful national launch of Smart Ones^®, offsetting lost distribution of infant feeding due to the introduction of a branded competitor at a significant customer. These increases were partially offset by the expected first quarter volume decline in Heinz^® ketchup, reflecting fewer promotions as part of the strategy to increase consumption of more profitable larger sizes. Pricing increased 1.6% largely due to Heinz^® ketchup and Ore-Ida^® frozen potatoes, resulting from reduced inefficient promotions. Acquisitions increased sales 2.1%, primarily from the prior year acquisitions of Nancy’s Specialty Foods and HP Foods as well as the current year acquisition of Renée’s Gourmet Foods. Favorable Canadian exchange translation rates increased sales 1.0%.

Gross profit increased $73.2 million, or 9.6%, to $832.4 million, and the gross profit margin increased slightly to 41.6% from 41.5%. These increases are due primarily to increased volume, higher pricing, productivity initiatives, the favorable impact of acquisitions and reduced manufacturing costs in the Canadian business, partially offset by increased commodity costs. Operating income increased $45.7 million, or 10.7%, to $471.0 million, mainly due to the increase in gross profit. This increase was partially offset by increased marketing expenses, primarily for Smart Ones^® frozen entrees and desserts, Ore-Ida^® frozen potatoes and frozen snacks, and increased research and development costs. In addition, operating income benefited from reduced S&D as a percentage of sales, despite the strong volume improvement, due to reduced transportation costs from distribution efficiencies.

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U.S. Foodservice

Sales of the U.S. Foodservice segment increased $19.2 million, or 1.7%, to $1.16 billion. Volume increased 1.8%, due to higher volume in Heinz^® ketchup. Pricing increased 1.6%, largely due to Heinz^® ketchup and tomato products, single serve condiments and frozen desserts, partially offset by price reductions on frozen soup. Divestitures, net of acquisitions, reduced sales 1.7%.

Gross profit increased $11.3 million, or 3.3%, to $351.1 million, and the gross profit margin increased to 30.3% from 29.8% reflecting the increased volume, higher pricing and prior year reorganization costs related to targeted workforce reductions of $3.0 million, partially offset by higher commodity costs. Operating income increased $14.4 million, or 9.3%, to $168.9 million, largely due to the increase in gross profit and $7.1 million of reorganization costs incurred in the prior year related to targeted workforce reductions, partially offset by incentive compensation accruals. In addition, operating income benefited from reduced S&D as a percentage of sales, despite the strong volume improvement, due to reduced transportation costs resulting from productivity initiatives.

Europe

Heinz Europe’s sales increased $78.6 million, or 3.6%, to $2.24 billion. Pricing increased 1.0%, driven primarily by promotional timing of Heinz^® soup and pasta meals in the U.K. Volume remained relatively constant as improvements in Heinz^® ketchup, Heinz^® beans, Italian infant feeding, Weight Watchers^® branded products and Pudliszki^® ketchup and ready meals in Poland were offset by reduced promotions in HP^® and Lea & Perrins^® sauces, market softness in our Russian and non-branded European frozen businesses and promotional timing in U.K. ready-to-serve soups and pasta convenience meals. The acquisition of HP Foods and Petrosoyuz in Fiscal 2006 increased sales 2.6%. Divestitures reduced sales 6.2%, and favorable exchange translation rates increased sales by 6.3%.

Gross profit increased $51.2 million, or 6.1%, to $890.6 million, and the gross profit margin increased to 39.8% from 38.9%. These increases are due to higher pricing and the favorable impact of exchange translation rates, partially offset by increased raw potato and other manufacturing costs in our frozen food business. Operating income increased $85.9 million, or 26.4%, to $410.6 million, due to the increase in gross profit, the $47.7 million of special items discussed below, and reduced G&A, partially offset by increased marketing expense. The decrease in G&A is chiefly a result of prior year targeted workforce reductions, including the elimination of European headquarters.

Asia/Pacific

Sales in Asia/Pacific increased $66.3 million, or 8.1%, to $885.6 million. Volume increased sales 6.4%, reflecting strong volume in Australia, New Zealand and China, largely due to increased marketing and new product introductions. These increases were offset by declines in Indonesian drinks. Higher pricing increased sales 1.8%, mainly due to price increases taken on Indonesian sauces and drinks, partially offset by increased promotional spending in Australia. Divestitures reduced sales 0.2%, and foreign exchange translation rates increased sales by 0.1%.

Gross profit increased $41.5 million, or 17.1%, to $284.5 million, benefiting from volume improvements, and the gross profit margin increased to 32.1% from 29.7% primarily due to higher pricing and the $18.8 million asset impairment charge on an Indonesian noodle business in the prior year, partially offset by commodity cost increases in Indonesia. Operating income increased $49.3 million, to $103.0 million, primarily due to the increase in gross profit and reduced G&A, partially offset by increased marketing. The reduction in G&A is a result of effective cost control in our Chinese businesses, targeted workforce reductions, including the elimination of Asian headquarters, in the prior year, and $8.1 million of reorganization costs in the prior year related to these workforce reductions.

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Rest of World

Sales for Rest of World increased $6.4 million, or 2.2%, to $302.8 million. Volume increased 7.8% due primarily to market and share growth in nutritional drinks in India and increases in ketchup and baby food in Latin America. Higher pricing increased sales by 7.2%, largely due to reduced promotions on ketchup and price increases taken on baby food in Latin America. Divestitures reduced sales 10.6% and foreign exchange translation rates reduced sales 2.1%.

Gross profit increased $7.4 million, or 7.7%, to $104.0 million, as increased volume and higher pricing were partially offset by higher commodity costs in India and the impact of divestitures. Operating income increased $29.3 million, to $35.6 million, due primarily to the increase in gross profit, an asset impairment charge for the seafood business in Israel related to its sale in the prior year and strategic review costs in Israel in the prior year.

Discontinued Operations

In the fourth quarter of Fiscal 2006, the Company completed its sale of the European seafood and Tegel^® poultry businesses, in line with the Company’s plan to exit non-strategic businesses. In accordance with accounting principles generally accepted in the United States of America, the operating results related to these businesses have been included in discontinued operations in the Company’s consolidated statements of income for the third quarter and nine months ended January 25, 2006. The Company recorded a loss of $3.3 million ($5.9 million after-tax) from these businesses for the nine months ended January 31, 2007, primarily resulting from purchase price adjustments pursuant to the transaction agreements. The discontinued operations generated sales of $184.5 million and $576.2 million and net (loss)/income of $(18.2) million (net of $27.3 million in tax expense) and $2.3 million (net of $37.0 million in tax expense) for the third quarter and nine months ended January 25, 2006, respectively.

Net income from discontinued operations related to the businesses spun-off to Del Monte in Fiscal 2003 was $1.7 million and $33.7 million for the third quarter and nine months ended January 25, 2006, respectively and reflects the favorable settlement of tax liabilities.

Fiscal 2006 Special Items

Reorganization Costs

In Fiscal 2006, the Company recorded pre-tax reorganization charges for targeted workforce reductions consistent with the Company’s goals to streamline its businesses totaling $14.0 million ($10.0 million after tax) and $70.4 million ($49.1 million after tax) during the third quarter and nine months ended January 25, 2006, respectively. Additionally, pre-tax costs of $13.9 million ($14.8 million after tax) and $29.6 million ($26.8 million after tax) were incurred in the third quarter and nine months ended January 25, 2006, respectively, primarily as a result of strategic reviews related to the Company’s portfolio realignment. For the third quarter ended January 25, 2006, the total impact of these initiatives on continuing operations was $22.0 million pre-tax ($18.3 million after-tax), of which $1.8 million was recorded as costs of products sold and $20.2 million in SG&A. In addition, $6.6 million was recorded in income of discontinued operations, net of tax. For the nine months ended January 25, 2006, the total impact of these initiatives on continuing operations was $88.2 million pre-tax ($65.3 million after-tax), of which $9.3 million was recorded as costs of products sold and $78.9 million in SG&A. In addition, $10.7 million was recorded in income of discontinued operations, net of tax. There were no material reorganization costs in Fiscal 2007.

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Divestitures/Impairment Charges

The following losses/impairment charges were recorded in Fiscal 2006. There were no material divestitures or impairment charges in Fiscal 2007.

•  During the third quarter of Fiscal 2006, the Company completed the sale of the HAK^® vegetable product line in Northern Europe and received proceeds from this divestiture of $51.1 million, which was in excess of the cost basis by $3.2 million ($3.5 million after tax). This excess was recorded in cost of products sold.

•  During the third quarter of Fiscal 2006, the Company sold its equity investment in Hain and recognized a $6.9 million ($4.5 million after-tax) loss which was recorded within other expense, net. Net proceeds from the sale of this investment were $116.1 million.

•  In the third quarter of Fiscal 2006, the Company recognized a non-cash asset impairment charge of $15.8 million pre-tax ($8.5 million after-tax) on a small noodle business in Indonesia, which was sold in the second quarter of Fiscal 2007. The charge was primarily recorded as a component of cost of products sold.

•  During the second quarter of Fiscal 2006, the Company recognized a net $12.7 million ($13.6 million after tax) charge primarily related to the sale of a small seafood business in Israel which closed in the third quarter of Fiscal 2006.

Income Taxes

The AJCA provided a deduction of 85% of qualified foreign dividends in excess of a “Base Period” dividend amount. During the third quarter of Fiscal 2006, the Company finalized plans to repatriate dividends that qualified under the AJCA. The total impact of the AJCA on tax expense related to special items for the third quarter and nine months ended January 25, 2006 was $24.3 million, of which $27.7 million of expense was recorded in continuing operations and $3.4 million was a benefit in discontinued operations.

During the third quarter of Fiscal 2006, the Company reversed valuation allowances of $20.6 million in continuing operations related to the non-cash asset impairment charges recorded in Fiscal 2005 on cost and equity investments. The reversal of the valuation allowances was based upon tax planning strategies that were expected to generate sufficient capital gains during the capital loss carryforward period.

As a result of the European Seafood business being classified as discontinued operations during the third quarter of Fiscal 2006, the Company recorded a deferred tax liability of $19.6 million in connection with the difference between the book and tax bases of the net assets held for sale. The recording of the deferred tax liability resulted in a $24.6 million tax charge in discontinued operations and a tax benefit of $5.0 million recorded as part of other comprehensive income during the third quarter of Fiscal 2006.

Liquidity and Financial Position

For the first nine months of Fiscal 2007, cash provided by operating activities was $389.7 million, a decrease of $113.3 million from the prior year. The decrease in Fiscal 2007 versus Fiscal 2006 is primarily due to unfavorable movement in accrued liabilities largely due to the payment of reorganization costs in the current year, accounts payable due to the timing of payments, and accounts receivable partly due to higher sales, partially offset by favorable movement in income taxes due to the timing of payments. The Company continues to make progress in reducing its cash conversion cycle, with a reduction of 8 days in Fiscal 2007 compared to Fiscal 2006.

During the first quarter of Fiscal 2007, a foreign subsidiary of the Company revalued certain of its assets, under local law, increasing the local tax basis by approximately $245 million. As a result of this revaluation, the Company incurred a foreign income tax liability of $29.6 million related to this

30

revaluation which was paid during the third quarter of Fiscal 2007. This revaluation is expected to benefit cash flow from operations by approximately $100 million over the five to twenty year tax amortization period.

Cash used for investing activities totaled $226.9 million compared to $1.03 billion last year. Capital expenditures totaled $150.5 million (2.3% of sales) compared to $151.0 million (2.2% of sales) last year. Proceeds from disposals of property, plant and equipment were $41.9 million compared to $5.2 million in the prior year. This increase represents the disposal of 12 plants during the current year in line with our plan to reduce our number of plants by 15 by the end of the current fiscal year. Acquisitions, net of divestitures, used $90.7 million in the first nine months of Fiscal 2007 primarily related to the Company’s purchase of Renée’s Gourmet Foods and the purchase of the minority ownership interest in our Heinz Petrosoyuz business in Russia. Divestitures during the current year included the sale of a non-core U.S. Foodservice product line, a frozen and chilled product line in the U.K., and a pet food business in Argentina. In addition, transaction costs related to the European seafood and Tegel^® poultry divestitures were also paid during the current year. In the first nine months of 2006, acquisitions, net of divestitures, used $882.0 million, primarily related to the Company’s purchases of HP Foods, Nancy’s Specialty Foods, and Petrosoyuz, partially offset by the sales of the Company’s equity investment in Hain and the HAK^® vegetable product line in Northern Europe.

Cash used by financing activities totaled $236.4 million compared to providing $408.9 million last year. Proceeds from short-term debt and commercial paper were $456.2 million this year compared to $961.4 million in the prior year. Payments on long-term debt were $51.1 million in the current year while proceeds from long-term debt were $216.4 million in the prior year. Cash used for the purchases of treasury stock, net of proceeds from option exercises, was $304.5 million this year compared to $473.8 million in the prior year. Dividend payments totaled $347.8 million, compared to $307.1 million for the same period last year, reflecting a 16.7% increase in the annual dividend on common stock.

At January 31, 2007, the Company had total debt of $4.92 billion (including $52.0 million relating to the fair value of interest rate swaps) and cash and cash equivalents of $419.0 million. The $507.7 million increase in total debt since prior year end is primarily the result of share repurchases and net acquisitions.

The Company and H.J. Heinz Finance Company maintain a $2 billion credit agreement that expires in 2009. The credit agreement supports the Company’s commercial paper borrowings. As a result, these borrowings are classified as long-term debt based upon the Company’s intent and ability to refinance these borrowings on a long-term basis. The Company maintains in excess of $1 billion of other credit facilities used primarily by the Company’s foreign subsidiaries. These resources, the Company’s existing cash balance, strong operating cash flow and access to the capital markets, if required should enable the Company to meet its cash requirements for operations, including capital expansion programs, debt maturities, share repurchases and dividends to shareholders.

In Fiscal 2007, cash required for reorganization costs related to workforce reductions was approximately $50 million. The Company is on track to achieve the full year estimated savings of $45 million in Fiscal 2007 as a result of the reorganization.

As of January 31, 2007, the Company’s long-term debt ratings at Moody’s and Standard & Poor’s were Baa2 and BBB, respectively.

The impact of inflation on both the Company’s financial position and the results of operations is not expected to adversely affect Fiscal 2007 results.

Contractual Obligations

The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements and unconditional purchase obligations. In addition, the Company has

31

purchase obligations for materials, supplies, services, and property, plant and equipment as part of the ordinary conduct of business. A few of these obligations are long-term and are based on minimum purchase requirements. In the aggregate, such commitments are not at prices in excess of current markets. Due to the proprietary nature of some of the Company’s materials and processes, certain supply contracts contain penalty provisions for early terminations. The Company does not believe that a material amount of penalties is reasonably likely to be incurred under these contracts based upon historical experience and current expectations.

The following table represents the contractual obligations of the Company as of January 31, 2007.

	Less than						More than
	1 Year		1-3 Years		3-5 Years		5 Years		Total
			(Thousands of Dollars)
Long Term Debt	$	228	$	625,284	$	946,134	$	3,124,170	$	4,695,816
Capital Lease Obligations		4,742		19,767		18,831		75,863		119,203
Operating Leases		37,050		109,434		77,376		215,057		438,917
Purchase Obligations		428,245		1,248,947		623,022		164,551		2,464,765
Other Long Term Liabilities Recorded on the Balance Sheet		83,523		196,491		195,908		174,001		649,923
Total	$	553,788	$	2,199,923	$	1,861,271	$	3,753,642	$	8,368,624

Other long-term liabilities primarily consist of certain specific incentive compensation arrangements and pension and postretirement benefit commitments. The following liabilities included on the consolidated balance sheet are excluded from the table above: interest payments, income taxes, minority interest and insurance accruals. The Company is unable to estimate the timing of the payments for these items.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. (SFAS) 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). Among other things, SFAS 158 requires an employer to recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. This provision of SFAS 158, along with disclosure requirements, is effective for the Company prospectively at the end of Fiscal 2007. Based on the funded status of the Company’s pension and postretirement benefit plans disclosed in the Fiscal 2006 Annual Report on Form 10-K, the adoption of SFAS 158 would have resulted in the following impacts: a reduction in the prepaid pension assets of approximately $528 million, a pension and postretirement liability increase of approximately $47 million, a decrease in the deferred tax liability of approximately $185 million and a shareholders’ equity reduction of approximately $390 million. There is no impact to the Company’s statements of income or cash flows. The ultimate impact at the time of adoption is contingent on plan asset returns and the assumptions that will be used to measure the funded status of each of the Company’s pension and postretirement benefit plans at the end of Fiscal 2007. Additionally, SFAS 158 requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. This provision becomes effective for the Company in Fiscal 2009. The Company does not expect the impact of the change in measurement date to have a material impact on the financial statements.

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In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in financial statements.

This Interpretation includes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosures. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of adopting FIN 48 in Fiscal 2008.

Prior to May 4, 2006, the Company accounted for its stock-based compensation plans under the measurement and recognition provisions of Accounting Principles Board Opinion No. (“APB”) 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”). Under the intrinsic-value method prescribed by APB 25, compensation cost for stock options was measured at the grant date as the excess, if any, of the quoted market price of the 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 FAS 123R, Share-Based Payment (“FAS 123R”), which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the Consolidated Statements of Income based on their fair values. Determining the fair value of share-based awards at the grant date requires judgment in estimating the expected term that the stock options will be outstanding prior to exercise as well as the volatility and dividends over the expected term. Judgment is also required in estimating the amount of stock-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, stock-based compensation expense could be materially impacted.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

Statements about future growth, profitability, costs, expectations, plans, or objectives included in this report, including the management’s discussion and analysis, the financial statements and footnotes, are forward-looking statements based on management’s estimates, assumptions, and projections. These forward-looking statements are subject to risks, uncertainties, assumptions and other important factors, many of which may be beyond Heinz’s control and could cause actual results to differ materially from those expressed or implied in this report and the financial statements and footnotes. Uncertainties contained in such statements include, but are not limited to:

•  sales, earnings, and volume growth,

•  general economic, political, and industry conditions,

•  competitive conditions, which affect, among other things, customer preferences and the pricing of products, production, energy and raw material costs,

•  the ability to identify and anticipate and respond through innovation to consumer trends,

•  the need for product recalls,

•  the ability to maintain favorable supplier relationships,

•  currency valuations and interest rate fluctuations,

•  changes in credit ratings,

•  access to the domestic and international capital markets,

33

•  the ability to identify and complete and the timing, pricing and success of acquisitions, joint ventures, divestitures and other strategic initiatives,

•  the ability to successfully complete cost reduction programs,

•  the voting results on shareholder proposals, including the proposed amendments to require majority voting,

•  the ability to limit disruptions to the business resulting from the emphasis on three core categories and potential divestitures,

•  the ability to effectively integrate acquired businesses, new product and packaging innovations,

•  product mix,

•  the effectiveness of advertising, marketing, and promotional programs,

•  the ability to maintain sales growth while reducing any spending on advertising, marketing and promotional programs,

•  supply chain efficiency,

•  cash flow initiatives,

•  risks inherent in litigation, including tax litigation, and international operations, particularly the performance of business in hyperinflationary environments,

•  changes in estimates in critical accounting judgments and changes in laws and regulations, including tax laws,

•  the success of tax planning strategies,

•  the possibility of increased pension expense and contributions and other people-related costs,

•  the possibility of an impairment in Heinz’s investments,

•  the potential impact of natural disasters, including flooding in Indonesia,

•  the ability to implement new information systems, and

•  other factors described in “Risk Factors” and “Cautionary Statement Relevant to Forward-Looking Information” in the Company’s Form 10-K for the fiscal year ended May 3, 2006.

The forward-looking statements are and will be based on management’s then current views and assumptions regarding future events and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the securities laws.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk during the nine months ended January 31, 2007. For additional information, refer to pages 27-29 of the Company’s Annual Report on Form 10-K for the fiscal year ended May 3, 2006.

Item 4.   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 designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and

34

(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.

(b) Changes in Internal Control over Financial Reporting

During the third quarter of Fiscal 2007, the Company continued its implementation of SAP software across its U.K. operations. As appropriate, the Company is modifying the design and documentation of internal control process and procedures relating to the new system to supplement and complement existing internal controls over financial reporting.

35

PART II—OTHER INFORMATION

Item 1.   Legal Proceedings

Nothing to report under this item.

Item 1A.   Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended May 3, 2006. The risk factors disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended May 3, 2006, in addition to the other information set forth in this report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to the Company or that the Company deems to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

In the third quarter of Fiscal 2007, the Company repurchased the following number of shares of its common stock:

							Maximum
					Total Number of		Number of
					Shares Purchased		Shares that
	Total		Average		as Part of		May Yet Be
	Number		Price		Publicly		Purchased
	of Shares		Paid per		Announced		Under the
Period	Purchased		Share		Programs		Programs
November 2, 2006 — November 29, 2006		—		—		—		—
November 30, 2006 — December 27, 2006		1,479,000		46.14		—		—
December 28, 2006 — January 31, 2007		4,892,600		46.27		—		—
Total		6,371,600	$	46.24		—		—

The shares repurchased were acquired under the share repurchase program authorized by the Board of Directors on June 8, 2005 for a maximum of 30 million shares. All repurchases were made in open market transactions. As of January 31, 2007, the maximum number of shares that may yet be purchased under the 2005 program is 4,028,692. In addition, on May 31, 2006, the Board of Directors authorized a share repurchase program of up to 25 million shares, all of which may yet be purchased under the program.

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

Nothing to report under this item.

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Item 6.   Exhibits

Exhibits required to be furnished by Item 601 of Regulation S-K are listed below. The Company may have omitted certain exhibits in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K and has omitted certain schedules to Exhibit 4 in accordance with Item 601(b)(2) of Regulation S-K. The Company agrees to furnish such documents to the Commission upon request. Documents not designated as being incorporated herein by reference are set forth herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K.

12.	Computation of Ratios of Earnings to Fixed Charges.
31(a).	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.
31(b).	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.
32(a).	18 U.S.C. Section 1350 Certification by the Chief Executive Officer.
32(b).	18 U.S.C. Section 1350 Certification by the Chief Financial Officer.

37

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: February 27, 2007

By  /s/  Arthur B. Winkleblack

Arthur B. Winkleblack

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

Date: February 27, 2007

By  /s/  Edward J. McMenamin

Edward J. McMenamin

Senior Vice President — Finance

and Corporate Controller

(Principal Accounting Officer)

38

EXHIBIT INDEX

DESCRIPTION OF EXHIBIT

Exhibits required to be furnished by Item 601 of Regulation S-K are listed below. Documents not designated as being incorporated herein by reference are furnished herewith. The Company may have omitted certain exhibits in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. The Company agrees to furnish such documents to the Commission upon request. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K.

12.	Computation of Ratios of Earnings to Fixed Charges.
31(a).	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.
31(b).	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.
32(a).	18 U.S.C. Section 1350 Certification by the Chief Executive Officer.
32(b).	18 U.S.C. Section 1350 Certification by the Chief Financial Officer.

39

EX-12

Exhibit 12

H. J. HEINZ COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

	Nine Months
	Ended
	January 31,
	2007
	(Thousands of
	Dollars)
Fixed Charges:
Interest expense*	$	247,286
Capitalized interest		—
Interest component of rental expense		22,012
Total fixed charges	$	269,298
Earnings:
Income from continuing operations before adjustments for minority interests in consolidated subsidiaries, income or loss from equity investees, and income taxes	$	854,822
Add: Interest expense*		247,286
Add: Interest component of rental expense		22,012
Add: Amortization of capitalized interest		1,187
Earnings as adjusted	$	1,125,307
Ratio of earnings to fixed charges		4.18

*  Interest expense includes amortization of debt expense and any discount or premium relating to indebtedness.

EX-31.A

Exhibit 31(a)

I, William R. Johnson, Chairman, President and Chief Executive Officer of H. J. Heinz Company certify that:

1. I have reviewed this quarterly report on Form 10-Q of H. J. Heinz Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2007

By:  /s/  William R. Johnson

Name: William R. Johnson

Title: Chairman, President and

Chief Executive Officer

EX-31.B

Exhibit 31(b)

I, Arthur B. Winkleblack, Executive Vice President and Chief Financial Officer of H. J. Heinz Company certify that:

1. I have reviewed this quarterly report on Form 10-Q of H. J. Heinz Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2007

By  /s/  Arthur B. Winkleblack

Name: Arthur B. Winkleblack

Title: Executive Vice President and

Chief Financial Officer

EX-32.A

Exhibit 32(a)

18 U.S.C. SECTION 1350 CERTIFICATION

I, William R. Johnson, Chairman, President and Chief Executive Officer, of H. J. Heinz Company, a Pennsylvania corporation (the “Company”), hereby certify that, to my knowledge:

1. The Company’s periodic report on Form 10-Q for the period ended January 31, 2007 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2007

/s/  William R. Johnson

Name: William R. Johnson

Title: Chairman, President and

Chief Executive Officer

EX-32.B

Exhibit 32(b)

18 U.S.C. SECTION 1350 CERTIFICATION

I, Arthur B. Winkleblack, Executive Vice President and Chief Financial Officer of H. J. Heinz Company, a Pennsylvania corporation (the “Company”), hereby certify that, to my knowledge:

1. The Company’s periodic report on Form 10-Q for the period ended January 31, 2007 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2007

/s/  Arthur B. Winkleblack

Name: Arthur B. Winkleblack

Title: Executive Vice President

and Chief Financial Officer