<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) March 14, 1995
H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-3385 25-0542520
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
600 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
412-456-5700
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE
NOT APPLICABLE
(FORMER NAME OR ADDRESS, IF CHANGED SINCE LAST REPORT)
===============================================================================
<PAGE>
On March 14, 1995, H. J. Heinz Company completed the acquisition of all of
the North American pet food businesses of The Quaker Oats Company as is more
fully described in the Current Report on Form 8-K filed on March 29, 1995.
Filed herewith as Items 7(a), 7(b) and 7(c) to this Form 8-K/A are the
required financial statements, pro forma financial information and exhibits.
In addition, Item 5 is hereby amended with additional information related to
the Company's debt ratings.
ITEM 5. OTHER INFORMATION.
On April 7, 1995, Moody's Investors Service lowered the senior debt rating
of H. J. Heinz Company from "Aa2" to "A1".
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
i. The Quaker Oats Company
North American Pet Food Business Audited Financial Statements
. Report of Independent Public Accountants
. Combined Statement of Certain Assets and Liabilities as of June 30,
1994
. Combined Statement of Revenues and Expenses for the Year Ended June
30, 1994
. Combined Statement of Changes in Equity for the Year Ended June 30,
1994
. Combined Statement of Cash Flows for the Year Ended June 30, 1994
. Notes to the Combined Financial Statements
ii. The Quaker Oats Company
North American Pet Food Business Unaudited Interim Financial Statements
. Combined Statement of Certain Assets and Liabilities as of March 13,
1995
. Combined Statements of Revenues and Expenses for the Eight Month and
Thirteen Day Periods Ended March 13, 1995 and March 13, 1994
. Combined Statements of Cash Flows for the Eight Month and Thirteen Day
Periods Ended March 13, 1995 and March 13, 1994
. Notes to the Combined Financial Statements
(B) PRO FORMA FINANCIAL INFORMATION.
. Introduction to Unaudited Pro Forma Combined Condensed Financial
Statements
. Unaudited Pro Forma Combined Condensed Balance Sheet as of January 25,
1995
. Notes to Unaudited Pro Forma Combined Condensed Balance Sheet as of
January 25, 1995
. Unaudited Pro Forma Combined Statement of Income for the Nine Months
Ended January 25, 1995
. Notes to Unaudited Pro Forma Combined Statement of Income for the Nine
Months Ended January 25, 1995
. Unaudited Pro Forma Combined Statement of Income for the Fiscal Year
Ended April 27, 1994
. Notes to Unaudited Pro Forma Combined Statement of Income for the
Fiscal Year Ended April 27, 1994
2
<PAGE>
(C) EXHIBITS.
23. Consent of Arthur Andersen LLP.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
H. J. Heinz Company
(Registrant)
Date: May 30, 1995 By: /s/ David R. Williams
------------------------
David R. Williams
Senior Vice President--
Finance
and Chief Financial Officer
3
<PAGE>
ITEM 7A. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
- -----------------------------------------------------
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1994
TOGETHER WITH AUDITOR'S REPORT
4
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The Quaker Oats Company
and the Board of Directors of
H.J. Heinz Company:
We have audited the accompanying combined statement of certain assets and
liabilities of The North American Pet Food Business (the "Business," as
described in Footnote 1) as of June 30, 1994, and the related combined
statements of revenues and expenses, changes in equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Business' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed more fully in Note 3, The North American Pet Food Business was
sold to H.J. Heinz Company, a Pennsylvania corporation, and its wholly owned
subsidiary Star-Kist Foods Inc., a California Corporation, on March 14, 1995.
In our opinion, the financial statements referred to above present fairly, in
all material respects, certain assets and liabilities of the Business as of
June 30, 1994, and its revenues and expenses, changes in equity and cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
April 11, 1995
5
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN FOOTNOTE 1)
COMBINED STATEMENT OF CERTAIN ASSETS AND LIABILITIES
JUNE 30, 1994
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS
- -------------------
<S> <C>
ASSETS
Current Assets:
Trade accounts receivable--net of allowances ($1.8)..................... $ 32.1
Inventories:
Finished goods......................................................... 24.6
Raw materials.......................................................... 2.7
Packaging materials and supplies....................................... 2.1
------
Total inventories..................................................... 29.4
Deferred income taxes................................................... 9.9
Other current assets.................................................... 4.6
------
Total Current Assets.................................................. 76.0
Property:
Land.................................................................... 3.3
Buildings and improvements.............................................. 50.7
Machinery and equipment................................................. 128.8
------
Gross Property......................................................... 182.8
Less accumulated depreciation........................................... 70.6
------
Property--Net.......................................................... 112.2
Intangible Assets--Net of Amortization................................... 96.6
Other Assets............................................................. 17.1
------
Total Assets.......................................................... $301.9
======
LIABILITIES AND EQUITY
Current Liabilities:
Trade accounts payable.................................................. $20.0
Accrued payroll, pension and bonus...................................... 6.3
Accrued advertising and merchandising................................... 12.6
Other current liabilities............................................... 14.1
------
Total Current Liabilities.............................................. 53.0
Postretirement Benefit Accrual........................................... 37.8
Deferred Income Taxes.................................................... 12.4
Other Liabilities........................................................ 4.1
Equity--Net Advances from The Quaker Oats Company........................ 194.6
------
Total Liabilities and Equity.......................................... $301.9
======
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of this statement.
6
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN FOOTNOTE 1)
COMBINED STATEMENT OF REVENUES AND EXPENSES
FOR THE YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS
- -------------------
<S> <C>
Net sales................................................................ $570.5
Cost of goods sold....................................................... 295.9
------
Gross profit............................................................. 274.6
Selling, general and administrative expenses............................. 235.8
Restructuring charge..................................................... 11.1
Interest expense--net.................................................... 6.5
------
Income before income taxes............................................... 21.2
Provision for income taxes............................................... 9.6
------
Net Income............................................................... $ 11.6
======
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of this statement.
7
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN FOOTNOTE 1)
COMBINED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS
- -------------------
<S> <C>
EQUITY--NET ADVANCES FROM THE QUAKER OATS COMPANY
Beginning Balance...................................................... $189.7
Net Income............................................................. 11.6
Net Remittances to The Quaker Oats Company............................. (6.7)
------
Ending Balance......................................................... $194.6
======
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of this statement.
8
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN FOOTNOTE 1)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1994
DOLLARS IN MILLIONS
- -------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income........................................................... $ 11.6
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 14.4
Deferred income taxes............................................... 5.5
Restructuring charge................................................ 11.1
Loss on disposition of property, plant and equipment................ 0.7
Decrease in trade accounts receivable............................... 0.5
(Increase) in inventories........................................... (0.7)
Decrease in other current assets.................................... 9.4
(Decrease) in trade accounts payable................................ (0.9)
(Decrease) in other current liabilities............................. (37.7)
Other items......................................................... 6.0
------
Net Cash Provided by Operating Activities.......................... 19.9
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment........................... (13.2)
------
Net Cash (Used in) Investing Activities............................. (13.2)
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in net advances from The Quaker Oats Company.................. (6.7)
------
Net Cash (Used in) Financing Activities............................. (6.7)
------
Net Change in Cash.................................................... $ --
======
</TABLE>
The accompanying notes to the combined financial statements are an integral
part of this statement.
9
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN FOOTNOTE 1)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE 1 PRINCIPLES OF COMBINATION
The financial statements include the operations and certain assets and
liabilities of the North American Pet Food Business (the "Business") of The
Quaker Oats Company ("Quaker"). Refer to Note 2, Basis of Presentation. The
Business, which includes Quaker's indirect wholly owned subsidiary Gaines Pet
Foods Corp. ("Gaines"), a Delaware corporation, has operations in the United
States, Canada and Mexico. All significant intercompany transactions have been
eliminated.
On March 14, 1995, Quaker completed the sale of the Business to H.J. Heinz
Company, a Pennsylvania corporation, and its wholly owned subsidiary Star-Kist
Foods Inc., a California corporation ("Heinz"). Refer to Note 3, Subsequent
Events, for further discussion.
NOTE 2 BASIS OF PRESENTATION
As a result of the Business' relationship with Quaker, the financial
position and results of operations are not necessarily indicative of what
actually would have occurred had the Business been a stand-alone entity.
Additionally, these financial statements are not necessarily indicative of
future financial position or results of operations.
Combined statement of certain assets and liabilities
The combined statement of certain assets and liabilities consist of the
items being sold to or assumed by Heinz and other assets and liabilities
specifically identifiable or allocable to the Business, but that are not being
sold to Heinz.
The assets and liabilities sold to or assumed by Heinz include: a) real
property at the Lawrence, Kansas, Topeka, Kansas, and Kankakee, Illinois,
manufacturing facilities and the Barrington, Illinois, Pet Nutrition Center
and buildings, structures and fixtures and other improvements located thereon;
b) certain tangible property located at these and other facilities; c)
inventory of the Business; d) promotional inventory; e) certain purchased
intellectual and intangible property; f) the goodwill of the Gaines
subsidiary; g) certain advertising and merchandising liabilities, and h)
certain vacation liabilities.
Other specifically identifiable assets and liabilities related to the
Business but not being sold to Heinz include: accounts receivable, current and
deferred income taxes, certain employee benefit liabilities and other
miscellaneous assets and liabilities. Allocated items include trade accounts
payable. Management believes that the methods used for allocating these items
are reasonable.
Combined statement of revenues and expenses
The combined statement of revenues and expenses reflects substantially all
of the Business' costs associated with the normal course of business. These
costs include direct expenses and certain expenses incurred by Quaker on the
Business' behalf. Refer to Note 5, Supplementary Expense Information, for
further details. Expenses that are not incurred for the benefit of Business
are not allocated.
10
<PAGE>
NOTE 3 SUBSEQUENT EVENTS
On February 6, 1995, Quaker entered into an agreement (the "Agreement") to
sell certain assets, liabilities and obligations of the Business to Heinz,
including all of the issued and outstanding stock of Gaines. The sale was
completed on March 14, 1995. The assets sold included, among other things,
various machinery, equipment, inventory, books and records, intellectual and
intangible property, manufacturing facilities in Kankakee, Illinois, and
Lawrence and Topeka, Kansas, and a pet nutrition center in Barrington,
Illinois. Major brands sold included Kibbles'n Bits, Cycle, Gravy Train and
Ken-L Ration dog food and Snausages, Pup-Peroni and Pounce pet treats. The
liabilities assumed included, among other things, certain coupon and trade
deal liabilities and vacation liabilities. The balances as of June 30, 1994,
of assets sold and liabilities assumed by Heinz in the Agreement were as
follows:
<TABLE>
<CAPTION>
BALANCE AT
ASSET/(LIABILITY) JUNE 30, 1994
- ----------------- -------------
<S> <C>
Premium inventory................................................. $ 0.4
Inventory......................................................... 29.4
Fixed assets net of accumulated depreciation...................... 112.2
Vacation liability................................................ (3.7)
Trade deal liability.............................................. (4.6)
Coupon liability.................................................. (7.5)
</TABLE>
Quaker has no financial interest in the Business after the date of sale to
Heinz except to settle outstanding liabilities and collect outstanding
receivables which were not sold to Heinz. In addition, Quaker may remain
liable after the sale to Heinz for certain known and unknown existing
obligations and liabilities that are not transferred to and assumed by Heinz.
NOTE 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES--Inventories are valued at the lower of cost or market, using
the cost methods described below, and include the cost of raw materials, labor
and overhead. The percentage of year-end inventories valued using each of the
methods was as follows:
<TABLE>
<CAPTION>
JUNE 30, 1994
-------------
<S> <C>
Last-in, first-out (LIFO)......................................... 92.0%
Average quarterly cost............................................ 8.0%
</TABLE>
If the LIFO method of valuing these inventories was not used, total
inventories would have been $3.6 million higher than reported at June 30,
1994.
COMMODITY FUTURES AND OPTIONS CONTRACTS--A variety of futures and options
are used in the management of commodity price exposures. Realized and
unrealized gains and losses on commodity options and futures contracts that
hedge commodity price exposure are deferred in inventory and subsequently
included in cost of goods sold as the inventory is sold.
PROPERTY AND DEPRECIATION--Property, plant and equipment are carried at cost
and depreciated on a straight-line basis over their estimated useful lives.
Useful lives range from 5 to 50 years for building and improvements and from 3
to 17 years for machinery and equipment. Depreciation expense for the year
ending June 30, 1994 was $11.3 million.
INTANGIBLE ASSETS--Intangible assets consist principally of excess purchase
price over net tangible assets of businesses acquired. Goodwill is amortized
on a straight-line basis over 40 years. The Business continually evaluates
whether events or circumstances have occurred indicating that the remaining
useful life of goodwill may not be appropriate. When factors indicate that
goodwill should be evaluated for possible impairment, the
11
<PAGE>
Business uses an estimate of the acquired business' undiscounted future
operating income compared to the carrying value of goodwill to determine if a
write-off is necessary. Gross goodwill as of June 30, 1994 was $120.0 million.
Accumulated goodwill amortization as of June 30, 1994 was $23.4 million.
FOREIGN CURRENCY TRANSLATION--Assets and liabilities of the Business'
operations in Canada and Mexico are translated at current exchange rates,
while income and expenses are translated at average rates for the period.
Translation gains and losses are not material.
OTHER ASSETS--Other assets at June 30, 1994 consist principally of prepaid
pension assets.
NOTE 5 SUPPLEMENTARY EXPENSE INFORMATION
The Business primarily conducts its operations as an integrated component of
Quaker's U.S. and Canadian Grocery Products Division. Certain expenses are
shared and are charged or allocated to the Business from Quaker. Except for
advertising and marketing expenses and cost of goods sold, the majority of the
remaining operating, general and administrative expenses of the business are
allocated from Quaker to the Business. Management believes that the method of
allocating these expenses is reasonable.
Selling, general and administrative expenses consist of the following:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- ------------------- -------------
<S> <C>
Advertising and marketing......................................... $155.7
Shared operating expenses (A) (B)................................. 61.1
Bonus and profit sharing (B)...................................... 6.7
Research and development (A) (B).................................. 6.5
Amortization of intangibles....................................... 3.1
Corporate overhead allocations (B) (C)............................ 2.7
------
Total selling, general and administrative expense............... $235.8
======
</TABLE>
(A) SHARED OPERATING EXPENSES--Quaker allocates to the Business a ratable
portion of shared operating expenses including sales force and brokers,
certain other marketing expenses, product research and general and
administrative services. These expenses are allocated to the Business on a
basis that approximates actual services provided as determined by various
measures. The Business also participates in Quaker's consolidated risk
management programs for property and casualty insurance. The Business is
charged for annual premiums, reported losses and an estimate of incurred but
not reported losses.
(B) EMPLOYEES--Employees whose services benefit the Business are employees
of Quaker and their compensation is paid by Quaker. The Business is charged
for the employee cost based on actual salary and fringe benefit costs of the
assigned employees. These employees also participate in a number of Quaker
insurance and employee benefit programs. The Business shares in the cost of
these programs through annual charges of each program's cost. Current
employees who are primarily employed in the Business, including the employees
of Gaines, other than those identified in the purchase agreement, were offered
employment by Heinz on or before the date of sale.
(C) CORPORATE OVERHEAD ALLOCATIONS--Quaker provides certain corporate
general and administrative services to the Business including personnel,
legal, finance, facility management and utilities. These expenses are
allocated to the Business on a basis that approximately reflects actual
services provided.
NOTE 6 EQUITY--NET ADVANCES FROM THE QUAKER OATS COMPANY
The Business participates in a centralized cash management program
administered by Quaker. Cash collected from operations is remitted to Quaker
and advances are made by Quaker, as needed, to cover the
12
<PAGE>
Business' operating expenses and capital requirements. Cash remitted to Quaker
decreases the advances from Quaker; conversely, expenses paid by Quaker
increases the advances from Quaker.
The authorized capital stock of Gaines consists of 1000 shares of common
stock, $1.00 par value. Gaines had 100 shares issued and outstanding at June
30, 1994. The book basis in the capital stock was $203.3 million and retained
earnings was $6.2 million. These amounts are included in Equity--Net Advances
from The Quaker Oats Company.
Gaines also had an investing and borrowing arrangement under which it
borrowed and loaned funds to and from Quaker and its affiliated entities. This
arrangement provided for an interest rate based on the yield of U.S. Treasury
Bonds. The loans and receivables outstanding as of June 30, 1994, were
included in the Equity--Net Advances from The Quaker Oats Company. The net
interest income from this arrangement was not material. This arrangement was
settled prior to the sale to Heinz.
Quaker incurs interest expense relating to debt for total company
operations. The portion of interest expense allocated to the Business is based
on the ratio of the Business' net assets to Quaker's net assets plus debt. The
following represents that allocation:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- ------------------- -------------
<S> <C>
Allocated interest expense........................................ $ 7.0
Interest expense capitalized...................................... (0.5)
-----
Allocated net interest expense.................................... $ 6.5
=====
</TABLE>
NOTE 7 RESTRUCTURING CHARGES
In May 1994, the Board of Directors of Quaker approved plans that resulted
in a restructuring charge of $11.1 million for the Canadian operations of the
Business. The approved plans included the closing of a pet foods facility and
refocusing the Canadian business. The cost of providing severance and
termination benefits for the elimination of approximately 230 positions was
$6.1 million of the restructuring charge and was a cash expense. Non-cash
asset write-offs amounted to $4.3 million. The remaining $0.7 million was for
cash expenses for loss on leases. The reengineering efforts are expected to
save between $1.5 million and $2.5 million annually beginning in fiscal 1995.
Approximately half of the savings will be in cash. Severance and termination
benefits and other cash outlays have occurred predominately in fiscal 1995.
In fiscal 1993, the Business recorded a restructuring charge of $38.6
million to consolidate production facilities at a U.S. pet foods plant. The
charge included $20.7 million for non-cash asset write-offs and $17.9 million
in cash for severance and termination benefits and other related plant
consolidation costs. The consolidation was completed in fiscal 1994 and $2.7
million of excess reserves was taken back into income. This amount is included
in cost of goods sold. The Business realized approximately $14 million in
combined savings from these actions in fiscal 1994.
NOTE 8 PENSION PLANS
All employees in the United States and Canada assigned to the Business are
employees of Quaker or Gaines and are covered by Quaker's or Gaines' various
pension plans. Heinz is not assuming any obligations related to these plans.
Plan benefits are based on compensation paid to employees and their years of
service. The net pension costs of these plans are not directly recorded by the
Business. However, the Business shares in the overall cost of these plans
through the fringe benefit cost of the assigned employees. Quaker's policy is
to make contributions to its U.S. plans within the maximum amount deductible
for Federal income tax purposes. Plan assets consist primarily of equity
securities and government, corporate and other fixed income obligations.
13
<PAGE>
Reconciliations of the funded status of Quaker's defined benefit plans
related to transferred U.S. employees of the Business to the prepaid (accrued)
pension costs were as follows:
<TABLE>
<CAPTION>
OVERFUNDED UNDERFUNDED
DOLLARS IN MILLIONS 6/30/94 6/30/94
- ------------------- ---------- -----------
<S> <C> <C>
Vested benefits......................................... $ 71.4 $27.7
Non-vested benefits..................................... 0.2 0.1
------ -----
Accumulated benefit obligation.......................... 71.6 27.8
Effect of projected future salary increases............. 4.0 0.0
------ -----
Projected benefit obligation............................ 75.6 27.8
Plan assets at market value............................. 92.6 22.0
------ -----
Projected benefit obligation less (greater) than plan
assets.................................................. 17.0 (5.8)
Unrecognized net loss................................... 8.3 1.7
Unrecognized net (asset) liability at transition........ (10.2) 2.3
------ -----
Prepaid (accrued) pension costs......................... $ 15.1 $(1.8)
====== =====
</TABLE>
Assumptions (reflecting averages across all plans):
Weighted average discount rate: 8%
Rate of future compensation increases: 5%
Long-term rate of return on plan assets: 8.5%
Reconciliation of the funded status of Quaker's defined benefit plans
related to transferred Canadian employees of the Business to the (accrued)
pension costs was as follows:
<TABLE>
<CAPTION>
OVERFUNDED
DOLLARS IN MILLIONS JUNE 30, 1994
- ------------------- -------------
<S> <C>
Vested benefits................................................... $ 5.1
Non-vested benefits............................................... 0.0
-----
Accumulated benefit obligation.................................... 5.1
Effect of projected future salary increases....................... 1.0
-----
Projected benefit obligation...................................... 6.1
Plan assets at market value....................................... 6.2
-----
Projected benefit obligation less than plan assets................ 0.1
Unrecognized net gain............................................. (0.1)
Unrecognized prior service cost................................... 0.5
Unrecognized net asset at transition.............................. (0.8)
-----
(Accrued) pension costs........................................... $(0.3)
=====
</TABLE>
Assumptions (reflecting averages across all plans):
Weighted average discount rate: 8%
Rate of future compensation increases: 5.5%
Long-term rate of return on plan assets: 8.0%
NOTE 9 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYMENT
BENEFITS
Employees in the United States and Canada assigned to the Business are
employees of Quaker or Gaines and are covered by Quaker's various
postretirement health care plans. Heinz is not assuming any obligations
related to these plans. The plans provide for the payment of certain health
care and life insurance benefits for retired employees who meet certain
service-related eligibility requirements. The net postretirement benefit costs
of these plans are not directly recorded by the Business. However, the
Business shares in the overall cost of these plans through the fringe benefit
cost of the assigned employees. Quaker funds only the plans' annual cash
requirements.
14
<PAGE>
Quaker's unfunded accumulated postretirement benefit obligations for the
Business' transferred employees participating in Quaker's postretirement plans
were as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- ------------------- -------------
<S> <C>
Current retirees.................................................. $23.4
Current active employees--fully eligible.......................... 2.0
Current active employees--not fully eligible...................... 16.8
-----
Accumulated postretirement benefit obligation..................... 42.2
Unrecognized net loss............................................. (2.3)
-----
Accrued postretirement benefit costs.............................. $39.9
Less amount included in other current liabilities................. (2.1)
-----
Long-term accrued postretirement benefit costs.................... 37.8
=====
</TABLE>
<TABLE>
<CAPTION>
Assumptions:
Weighted average discount rate: 8%
Health care trend rates (varies by plan) 1995 2005 and Beyond
- ---------------------------------------- ------ ---------------
<S> <C> <C>
Pre-age 65:.............................................. 10-14% 4-6%
Age 65 and over.......................................... 10-14% 5-6%
</TABLE>
If the health care trend rates were increased one percentage point, the
current-year postretirement benefit costs would have been $1.0 million higher
and the accumulated postretirement benefit obligation at June 30, 1994 would
have been $8.1 million higher.
Effective July 1, 1994, the Business adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect of
adoption is a $0.5 million after-tax charge in the first quarter of fiscal
1995.
NOTE 10 INCOME TAXES
The U.S. and Mexican operations of the Business are included in the
consolidated Federal income tax return of Quaker. The Canadian operations of
the Business are included in the consolidated tax return of Quaker's Canadian
Subsidiary. The Business calculated the current and deferred taxes, for
purposes of these financial statements, as if it filed a separate combined tax
return; except that if any items were subject to limitations in the Business'
tax calculations, such limitations were determined on the basis of the Quaker
consolidated group. Deferred income taxes were provided when tax laws and
financial accounting standards differ with respect to the amount of income
calculated for a given year and the bases of assets and liabilities. Income
taxes are ultimately paid by and are the responsibility of Quaker. There is no
tax sharing agreement between the Business and Quaker. Quaker will retain
liability for all taxes of the Business for operating activity up through the
date of sale.
15
<PAGE>
Provision for income taxes on income was as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- ------------------- -------------
<S> <C>
Currently payable--
Federal........................................................... $ 0.4
Non-U.S........................................................... (0.8)
State............................................................. 3.0
-----
Total currently payable........................................... $2.6
-----
Deferred--net
Federal........................................................... $11.3
Non-U.S........................................................... (3.8)
State............................................................. (0.5)
-----
Total deferred--net............................................... $ 7.0
-----
Provision for income taxes........................................ $ 9.6
-----
</TABLE>
The components of the deferred income tax provision were as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- ------------------- -------------
<S> <C>
Accelerated tax depreciation...................................... $(4.5)
Postretirement benefits........................................... (1.4)
Accrued expenses including restructuring charges.................. 11.2
Other............................................................. 1.7
-----
Provision for deferred income taxes............................... $ 7.0
-----
</TABLE>
The sources of pretax income were as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- -------------------- -------------
<S> <C>
U.S. sources...................................................... $33.0
Non-U.S. sources.................................................. (11.8)
-----
Income before income taxes........................................ $21.2
-----
</TABLE>
Reconciliation of the statutory Federal income tax rate to the effective
income tax rate was as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1994
- -------------------- -------------------------
AMOUNT %OF PRETAX INCOME
------- -----------------
<S> <C> <C>
Tax provision based on the U.S. Federal statutory
rate................................................. $7.4 35.0%
State and local income taxes--net of
Federal income tax benefit.......................... 1.7 8.0
Amortization of intangible assets.................... 1.0 4.7
Non-U.S. tax rate differential....................... (0.5) (2.4)
---- ----
Provision for income taxes........................... $9.6 45.3%
---- ----
</TABLE>
16
<PAGE>
The combined statement of certain assets and liabilities included the
following deferred tax assets and deferred tax liabilities:
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------------------------------
DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES
------------------- ----------------------------
DOLLARS IN MILLIONS CURRENT NON-CURRENT CURRENT NON-CURRENT
- ------------------- ------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Depreciation and
amortization................. $0.5 $1.4 $0.0 $(24.0)
Postretirement benefits...... 0.8 14.9 0.0 0.0
Other benefit plans.......... 1.4 1.4 (0.6) (6.0)
Accrued expenses including
restructuring changes........ 8.9 0.0 (1.2) 0.0
Other........................ 0.1 0.0 0.0 (0.1)
----- ----- ----------- ------------
Total........................ $11.7 $17.7 $(1.8) $(30.1)
===== ===== =========== ============
</TABLE>
NOTE 11 FINANCIAL INSTRUMENTS
Financial instruments are primarily used to reduce the impact of commodity
price fluctuations. The main financial instruments used are commodity options
and futures contracts.
The commodity hedge instruments are used to reduce the risk that raw
material purchases will be adversely affected as commodity prices change.
While the hedge instruments are subject to the risk of loss from changing
commodity prices, the losses would generally be offset by lowered costs of the
purchases being hedged. Quaker, acting on behalf of the Business, does not
trade these instruments with the objective of earning financial gains on the
commodity price fluctuations alone, nor does it trade in commodities for which
there are no underlying exposures. Quaker's management believes that its use
of financial instruments to reduce commodity price fluctuation effects is in
the Business' best interest.
Primarily purchases of corn and soybeans are hedged. Of the $295.9 million
in cost of goods sold, approximately $35 million to $45 million is in
commodities that may be hedged. Quaker's strategy is to typically hedge most
of the production requirements for the following twelve-month period. As of
June 30, 1994, over 90% of fiscal 1995 hedgeable production requirements were
hedged. Deferred unrecognized losses related to commodity options and futures
contracts as of June 30, 1994 were $1.0 million. Realized losses charged to
cost of goods sold in fiscal 1994 were $0.1 million. The fair value of these
commodity instruments as of June 30, 1994, based on quotes from brokers, was
$0.8 million.
The counterparties to Quaker's financial instruments are major financial
institutions. Quaker continually evaluates the creditworthiness of the
counterparties and has never experienced, nor does it anticipate,
nonperformance by any of its counterparties.
NOTE 12 LITIGATION
The Business is not a party to any pending legal proceedings or
environmental clean-up actions that it believes will have a material adverse
effect on its financial position or results of operations.
17
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
UNAUDITED INTERIM FINANCIAL STATEMENTS
18
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN NOTE 1)
COMBINED STATEMENT OF CERTAIN ASSETS AND LIABILITIES
MARCH 13, 1995
(NOT COVERED BY AUDITORS' REPORT)
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS
- -------------------
<S> <C>
ASSETS
Current Assets:
Trade accounts receivable--net of allowances ($1.5).................... $ 33.6
Inventories:
Finished goods........................................................ 20.5
Raw materials......................................................... 2.7
Packaging materials and supplies...................................... 2.6
------
Total inventories................................................... 25.8
Deferred income taxes.................................................. 11.1
Other current assets................................................... 2.6
------
Total Current Assets................................................ 73.1
------
Property:
Land................................................................... 3.3
Buildings and improvements............................................. 47.7
Machinery and equipment................................................ 130.6
------
Gross Property...................................................... 181.6
Less accumulated depreciation.......................................... 72.0
------
Property--Net....................................................... 109.6
Intangible Assets--Net of Amortization.................................. 94.5
Other Assets............................................................ 19.1
------
Total Assets...................................................... $296.3
======
LIABILITIES AND EQUITY
Current Liabilities:
Trade accounts payable................................................. $ 12.1
Accrued payroll, pension and bonus..................................... 5.4
Accrued advertising and merchandising.................................. 14.6
Other current liabilities.............................................. 6.5
------
Total Current Liabilities........................................... 38.6
Postretirement Benefit Accrual.......................................... 37.7
Deferred Income Taxes................................................... 16.0
Other Liabilities....................................................... 8.0
Equity--Net Advances from The Quaker Oats Company....................... 196.0
------
Total Liabilities and Equity...................................... $296.3
======
</TABLE>
The accompanying notes to the combined financial statements are an integral
part of this statement.
19
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN NOTE 1)
COMBINED STATEMENTS OF REVENUES AND EXPENSES
(NOT COVERED BY AUDITORS' REPORT)
<TABLE>
<CAPTION>
EIGHT MONTH AND
THIRTEEN
DAY PERIOD
ENDED MARCH 13,
---------------
DOLLARS IN MILLIONS 1995 1994
- ------------------- ------- -------
<S> <C> <C>
Net sales...................................................... $ 391.8 $401.1
Cost of goods sold............................................. 204.4 211.4
------- -------
Gross profit................................................... 187.4 189.7
Selling, general and administrative expenses................... 161.8 170.1
Interest expense--net.......................................... 6.2 10.6
------- -------
Income before income taxes and
cumulative effect of accounting change........................ 19.4 9.0
Provision for income taxes..................................... 8.6 4.1
------- -------
Income before cumulative effect of accounting change........... 10.8 4.9
Cumulative effect of accounting change--net of tax............. 0.5 --
------- -------
Net income..................................................... $ 10.3 $ 4.9
======= =======
</TABLE>
The accompanying notes to the combined financial statements are an integral
part of this statement.
20
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(NOT COVERED BY AUDITORS' REPORT)
<TABLE>
<CAPTION>
EIGHT MONTH AND
THIRTEEN DAY PERIOD
ENDED MARCH 13,
--------------------
DOLLARS IN MILLIONS 1995 1994
- ------------------- --------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 10.3 $ 4.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 9.1 10.4
Deferred income taxes................................... 3.6 (1.1)
Loss on disposition of property, plant and equipment.... 1.5 0.7
(Increase) decrease in trade accounts receivable........ (1.5) 0.8
Decrease (increase) in inventories...................... 3.6 (3.0)
Decrease in other current assets........................ 0.8 6.6
(Decrease) in trade accounts payable.................... (7.9) (3.2)
(Decrease) in other current liabilities................. (6.5) (13.1)
Other items, net........................................ 5.3 4.6
--------- ---------
Net Cash Provided by Operating Activities............. 18.3 7.6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (9.4) (12.6)
--------- ---------
Net Cash (Used in) Investing Activities............... (9.4) (12.6)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Remittances (to) from The Quaker Oats Company........ (8.9) 5.0
--------- ---------
Net Cash (Used in) Provided by Financing Activities... (8.9) 5.0
Net Change in Cash........................................ $ -- $ --
========= =========
</TABLE>
The accompanying notes to the combined financial statements are an integral
part of this statement.
21
<PAGE>
THE QUAKER OATS COMPANY
NORTH AMERICAN PET FOOD BUSINESS
(AS DESCRIBED IN NOTE 1)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(NOT COVERED BY AUDITORS' REPORT)
NOTE 1
PRINCIPLES OF COMBINATION
The financial statements include the operations and certain assets and
liabilities of the North American Pet Food Business (the "Business") of The
Quaker Oats Company ("Quaker"). The Business, which includes Quaker's indirect
wholly owned subsidiary Gaines Pet Foods Corp. ("Gaines"), a Delaware
corporation, has operations in the United States, Canada and Mexico. All
significant intercompany transactions have been eliminated.
On March 14, 1995, Quaker completed the sale of the Business to H.J. Heinz
Company, a Pennsylvania corporation, and its wholly owned subsidiary Star-Kist
Foods Inc., a California corporation ("Heinz"). Refer to Note 3, Subsequent
Events, for further discussion.
NOTE 2
BASIS OF PRESENTATION
In the opinion of management, these financial statements include all
adjustments necessary to present fairly the financial position as of March 13,
1995 and results of operations and cash flows for all periods presented. All
adjustments made have been of a normal and recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Business believes that the disclosures included are
adequate and provide a fair presentation of interim period results. As a
result of the Business' relationship with Quaker, the financial position and
results of operations are not necessarily indicative of what actually would
have occurred had the Business been a stand-alone entity. Additionally, these
financial statements are not necessarily indicative of future financial
position or results of operations. It is suggested that these financial
statements be read in conjunction with the Business' audited financial
statements and notes thereto for the fiscal year ended June 30, 1994.
Combined Statement of Certain Assets and Liabilities
The Combined Statement of Certain Assets and Liabilities consists of the
items being sold to or assumed by Heinz and other assets and liabilities
specifically identifiable or allocable to the Business, but that are not being
sold to Heinz.
The assets and liabilities sold to or assumed by Heinz include: a) real
property at the Lawrence, Kansas, Topeka, Kansas, and Kankakee, Illinois,
manufacturing facilities and the Barrington, Illinois, Pet Nutrition Center
and buildings, structures and fixtures and other improvements located thereon;
b) certain tangible property located at these and other facilities; c)
inventory of the Business; d) promotional inventory; e) certain purchased
intellectual and intangible property; f) the goodwill of the Gaines
subsidiary; g) certain advertising and merchandising liabilities; and h)
certain vacation liabilities.
Other specifically identifiable assets and liabilities related to the
Business but not being sold to Heinz include: accounts receivable, current and
deferred income taxes, certain employee benefit liabilities and other
miscellaneous assets and liabilities. Allocated items include trade accounts
payable. Management believes that the methods used for allocating these items
are reasonable.
22
<PAGE>
Combined Statements of Revenues and Expenses
The Combined Statements of Revenues and Expenses reflect substantially all
of the Business' costs associated with the normal course of business. These
costs include direct expenses and certain expenses incurred by Quaker on the
Business' behalf. Expenses that are not incurred on behalf of the Business are
not allocated.
NOTE 3
RECENT DEVELOPMENT
On February 6, 1995, Quaker entered into an agreement (the "Agreement") to
sell certain assets, liabilities and obligations of the Business to Heinz,
including all of the issued and outstanding stock of Gaines. The sale was
completed on March 14, 1995. The assets sold included, among other things,
various machinery, equipment, inventory, books and records, intellectual and
intangible property, manufacturing facilities in Lawrence, Kansas, Topeka,
Kansas, and Kankakee, Illinois and a pet nutrition center in Barrington,
Illinois. Major brands sold included Kibbles'n Bits, Cycle, Gravy Train and
Ken-L Ration dog food and Snausages, Pup-Peroni and Pounce pet treats. The
liabilities assumed included, among other things, certain coupon and trade
deal liabilities and vacation liabilities.
Quaker has no financial interest in the Business after the date of sale to
Heinz except to settle outstanding liabilities and collect outstanding
receivables that were not sold to Heinz. In addition, Quaker may remain liable
after the sale to Heinz for certain known and unknown existing obligations and
liabilities that are not transferred to and assumed by Heinz.
NOTE 4
CHANGE IN ACCOUNTING
Effective July 1, 1994, the Business adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect of
adoption is a $0.5 million after-tax charge in the first quarter of fiscal
1995.
NOTE 5
LITIGATION
The Business is not a party to any pending legal proceedings or
environmental clean-up actions that it believes will have a material adverse
effect on its financial position or results of operations.
23
<PAGE>
ITEM 7B. PRO FORMA FINANCIAL INFORMATION.
- -----------------------------------------
H. J. HEINZ COMPANY PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed financial information
of H. J. Heinz Company (the "Company") adjusts the historical financial
statements of the Company to give pro forma effect to the Company's purchase
of all of the North American pet food businesses of The Quaker Oats Company
(the "Business") on March 14, 1995, for $725 million in cash, subject to
adjustment as provided in the Agreement. The acquisition has been accounted
for as a purchase and, accordingly, the purchase price has been allocated on a
preliminary basis to the respective assets acquired and liabilities assumed
based upon their estimated fair values as of the acquisition date.
The Unaudited Pro Forma Combined Condensed Balance Sheet has been prepared
as if the transaction occurred as of January 25, 1995. The Unaudited Pro Forma
Combined Statements of Income have been prepared as if the transaction
occurred as of the beginning of the periods presented.
The unaudited pro forma combined statements for the periods presented do not
purport to represent what the Company's results of operations or financial
position would actually have been had the transaction occurred on the
aforementioned dates, or to project the Company's results of operations for
any future periods. The unaudited pro forma combined results do not include
any synergies that may be realized as a result of the combining of the
entities. The Company does, however, expect significant cost synergies to
result in various areas of the combined businesses. The pro forma adjustments
are based upon available information and upon certain assumptions that the
Company's management believes are reasonable under the circumstances. The
adjustments are directly attributable to the transaction and are expected to
have a continuing impact on the financial position and results of operations
of the Company.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the historical financial statements and related notes
included elsewhere in this Form 8-K/A and the Company's Form 10-K for the year
ended April 27, 1994, Form 10-Q for the period ended January 25, 1995 and Form
8-K filed March 29, 1995.
24
<PAGE>
H. J. HEINZ COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JANUARY 25, 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
H. J. HEINZ NORTH AMERICAN
COMPANY PETFOOD PRO FORMA PRO FORMA
AS REPORTED BUSINESS ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 116,120 $ -- $(25,000)(c) $ 91,120
Short-term investments,
at cost which
approximates market.. 68,549 -- -- 68,549
Receivables, net....... 875,925 33,600 (33,170)(a),(b) 876,355
Inventories............ 1,400,081 25,800 2,550 (b) 1,428,431
Prepaid expenses and
other current assets. 234,268 13,700 12,200 (a),(b) 260,168
---------- -------- -------- ----------
Total current assets. 2,694,943 73,100 (43,420) 2,724,623
---------- -------- -------- ----------
Property, plant and
equipment............. 3,886,149 181,600 (97,607)(b) 3,970,142
Less accumulated
depreciation.......... 1,494,556 72,000 (72,000)(b) 1,494,556
---------- -------- -------- ----------
Total property, plant
and equipment, net. 2,391,593 109,600 (25,607) 2,475,586
---------- -------- -------- ----------
Investments, advances
and other assets...... 567,896 19,100 2,080 (a),(b) 589,076
Goodwill, net........... 1,149,514 94,500 430,970 (a),(b) 1,674,984
Other intangibles, net.. 525,720 -- 153,800 (b) 679,520
---------- -------- -------- ----------
Total other
noncurrent assets.. 2,243,130 113,600 586,850 2,943,580
---------- -------- -------- ----------
Total assets......... $7,329,666 $296,300 $517,823 $8,143,789
========== ======== ======== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
25
<PAGE>
H. J. HEINZ COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JANUARY 25, 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
H. J. HEINZ NORTH AMERICAN
COMPANY PETFOOD PRO FORMA PRO FORMA
AS REPORTED BUSINESS ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt......... $ 855,817 $ -- $450,000 (c) $1,305,817
Portion of long-term
debt due within one
year................... 34,635 -- -- 34,635
Other current
liabilities............ 1,199,641 38,600 41,559 (a),(b) 1,279,800
---------- -------- -------- ----------
Total current
liabilities.......... 2,090,093 38,600 491,559 2,620,252
---------- -------- -------- ----------
Long-term debt.......... 2,094,567 -- 250,000 (c) 2,344,567
Other liabilities....... 780,274 61,700 (27,736)(a),(b) 814,238
---------- -------- -------- ----------
Total long-term
debt and other
liabilities.......... 2,874,841 61,700 222,264 3,158,805
---------- -------- -------- ----------
Shareholders' Equity:
Capital stock........... 72,215 -- -- 72,215
Additional capital...... 166,332 -- -- 166,332
Retained earnings....... 3,808,140 -- -- 3,808,140
Cumulative translation
adjustments............ (191,649) -- -- (191,649)
Net Advances from The
Quaker Oats Company.... -- 196,000 (196,000)(a) --
---------- -------- -------- ----------
3,855,038 196,000 (196,000) 3,855,038
LESS:
Treasury stock at cost. 1,461,191 -- -- 1,461,191
Unearned compensation
relating to the ESOP.. 29,115 -- -- 29,115
---------- -------- -------- ----------
Total shareholders'
equity............... 2,364,732 196,000 (196,000) 2,364,732
---------- -------- -------- ----------
Total liabilities and
shareholders' equity. $7,329,666 $296,300 $517,823 $8,143,789
========== ======== ======== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
26
<PAGE>
H. J. HEINZ COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JANUARY 25, 1995
The unaudited pro forma combined condensed balance sheet as of January 25,
1995 includes the historical balance sheet of the Business as of March 13,
1995 and gives effect to the following Pro Forma Adjustments:
(a) To eliminate assets not acquired and liabilities not assumed by the
Company, as follows:
<TABLE>
<S> <C>
Receivables, net................................................ $ 33,600
Prepaid expenses and other current assets....................... 13,300
Investments, advances and other assets.......................... 19,100
Goodwill, net................................................... 94,500
Other current liabilities....................................... 22,500
Other liabilities............................................... 61,700
Net advances from The Quaker Oats Company....................... 196,000
</TABLE>
(b) To reflect the Company's purchase of the remaining net assets of the
Business and the allocation of the $725 million purchase price as follows:
<TABLE>
<S> <C>
Receivables..................................................... $ 430
Inventories..................................................... 28,350
Prepaid expenses and other current assets....................... 25,900
Property, plant and equipment................................... 83,993
Investments, advances and other assets.......................... 21,180
Goodwill........................................................ 525,470
Other intangibles............................................... 153,800
Other current liabilities....................................... (80,159)
Other liabilities............................................... (33,964)
--------
$725,000
========
</TABLE>
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated on a preliminary basis to the respective
assets acquired and liabilities assumed based upon their estimated fair values
as of the date of the acquisition.
Other current liabilities include preliminary estimates for provisions for
closure, exit and employee termination costs related to the acquired Business.
The Company is still studying the specific closures and terminations to be
made and, when finally determined, the provisions will be adjusted to reflect
the Company's specific plans.
(c) The acquisition was initially funded through the private placement of
$700 million of commercial paper borrowings, with the balance obtained from
the working capital of the Company. Subsequently, the Company issued $250
million of five-year 7.5% Notes, the proceeds of which were used to repay a
portion of the privately placed commercial paper borrowings.
27
<PAGE>
H. J. HEINZ COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
H. J. HEINZ NORTH AMERICAN
COMPANY PETFOOD PRO FORMA PRO FORMA
AS REPORTED BUSINESS ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
Sales................... $5,665,334 $391,800 $ 27,000 (e) $6,027,234
(56,900)(f)
Cost of products sold... 3,603,479 204,400 (4,060)(b) 3,830,918
12,999 (c)
14,100 (e)
---------- -------- -------- ----------
Gross profit............ 2,061,855 187,400 (52,939) 2,196,316
Selling, general and
administrative
expenses............... 1,228,604 161,800 (2,245)(c) 1,340,535
(1,924)(d)
11,200 (e)
(56,900)(f)
---------- -------- -------- ----------
Operating income........ 833,251 25,600 (3,070) 855,781
Interest income......... 25,655 -- -- 25,655
Interest expense........ 141,576 6,200 24,086 (a) 172,262
400 (e)
Other expense, net...... 30,395 -- -- 30,395
---------- -------- -------- ----------
Income before income
taxes.................. 686,935 19,400 (27,556) 678,779
Provision for income
taxes.................. 254,360 8,600 (11,022)(g) 251,938
---------- -------- -------- ----------
Net income.............. $ 432,575 $ 10,800 $(16,534) $ 426,841
========== ======== ======== ==========
Net income per share.... $ 1.74 $ 1.71
========== ==========
Average common shares
outstanding............ 248,933 248,933
========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statement of Income.
28
<PAGE>
H. J. HEINZ COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1995
The Unaudited Pro Forma Combined Statement of Income for the nine months
ended January 25, 1995 includes the historical results of the Business for the
eight month and thirteen day period ended March 13, 1995 and gives effect to
the following pro forma adjustments as if the acquisition had occurred on
April 28, 1994. The following pro forma adjustments do not include the effects
of synergies that are expected to occur due to the integration of the Business
into the Company.
(a) Interest expense has been adjusted to reflect the additional cost
associated with $450 million of privately placed commercial paper borrowings
and the issuance of $250 million of five-year 7.5% Notes. Interest expense on
the short-term commercial paper borrowings has been reflected using the
Company's average historical domestic commercial paper interest rate for the
nine-month period of approximately 4.9%. A variance of 1/8% in the domestic
commercial paper interest rate would cause interest expense for the period to
change by approximately $0.4 million. As of May 25, 1995, the Company's
current average domestic commercial paper interest rate was approximately 6%.
(b) Depreciation expense has been adjusted to reflect the restated value of
property, plant and equipment.
(c) Amortization expense has been adjusted to reflect the amortization of
goodwill and other intangible assets acquired by the Company. In addition,
goodwill amortization recorded by the Business has been reclassified to Cost
of products sold from Selling, general and administrative expenses in order to
conform with the Company's presentation. Amortization of intangibles has been
provided for over periods ranging from 12 to 40 years.
(d) Certain overhead charges from the former parent company have been
eliminated to reflect the fact that the Company does not anticipate
incremental corporate overhead charges related to the acquisition of the
Business.
(e) The results of operations of the Business for the period from March 14,
1995 to March 31, 1995 have been recorded to include results comparable to the
Company's nine month period.
(f) Certain trade marketing expenses recorded by the Business have been
reclassified as sales deductions to conform with the Company's presentation.
(g) Taxes on the above adjustments have been provided for at a rate of 40%,
which represents the Company's estimated combined federal and state statutory
tax rate.
29
<PAGE>
H. J. HEINZ COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 27, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
H. J. HEINZ NORTH AMERICAN PRO FORMA PRO FORMA
COMPANY PETFOOD ADJUSTMENTS COMBINED
AS REPORTED* BUSINESS* (UNAUDITED) (UNAUDITED)
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
Sales................... $7,046,738 $570,500 $(77,736)(e) $7,539,502
Cost of products sold... 4,381,745 295,900(g) (6,736)(b) 4,688,241
17,332 (c)
---------- -------- -------- ----------
Gross profit............ 2,664,993 274,600 (88,332) 2,851,261
Selling, general and
administrative
expenses............... 1,723,651 235,800 (3,100)(c) 1,875,915
(2,700)(d)
(77,736)(e)
Gain on sale of
confectionery and
specialty rice
businesses............. 127,001 -- -- 127,001
Restructuring Charge--
North American
Petfood Business....... -- 11,100(g) -- 11,100
---------- -------- -------- ----------
Operating income........ 1,068,343 27,700 (4,796) 1,091,247
Interest income......... 36,771 -- -- 36,771
Interest expense........ 149,243 6,500 27,129(a) 182,872
Other expense, net...... 33,485 -- -- 33,485
---------- -------- -------- ----------
Income before income
taxes.................. 922,386 21,200 (31,925) 911,661
Provision for income
taxes.................. 319,442 9,600 (12,770)(f) 316,272
---------- -------- -------- ----------
Net income.............. $ 602,944 $ 11,600 $(19,155) $ 595,389
========== ======== ======== ==========
Net income per share.... $ 2.35 $ 2.32
========== ==========
Average common shares
outstanding............ 256,812 256,812
========== ==========
</TABLE>
*Summarized from audited fiscal year 1994 Financial Statements.
See accompanying notes to Unaudited Pro Forma Combined Statement of Income.
30
<PAGE>
H. J. HEINZ COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 27, 1994
The Unaudited Pro Forma Combined Statement of Income for the fiscal year
ended April 27, 1994 includes the historical results of the Business for the
twelve months ended June 30, 1994 and gives effect to the following pro forma
adjustments as if the acquisition had occurred on April 29, 1993. The
following pro forma adjustments do not include the effects of synergies that
are expected to occur due to the integration of the Business into the Company.
(a) Interest expense has been adjusted to reflect the additional cost
associated with $450 million of privately placed commercial paper borrowings and
the issuance of $250 million of five-year 7.5% Notes. Interest expense on the
short-term commercial paper borrowings has been reflected using the Company's
fiscal 1994 average historical domestic commercial paper interest rate of
approximately 3.3%. A variance of 1/8% in the domestic commercial paper interest
rate would cause annual interest expense to change by approximately $0.6
million. As of May 25, 1995, the Company's current average domestic commercial
paper interest rate was approximately 6%.
(b) Depreciation expense has been adjusted to reflect the restated value of
property, plant and equipment.
(c) Amortization expense has been adjusted to reflect the amortization of
goodwill and other intangible assets acquired by the Company. In addition,
goodwill amortization recorded by the Business has been reclassified to Cost
of products sold from Selling, general and administrative expenses in order to
conform with the Company's presentation. Amortization of intangibles has been
provided for over periods ranging from 12 to 40 years.
(d) Certain overhead charges from the former parent company have been
eliminated to reflect the fact that the Company does not anticipate
incremental corporate overhead charges related to the acquisition of the
Business.
(e) Certain trade marketing expenses recorded by the Business have been
reclassified as sales deductions to conform with the Company's presentation.
(f) Taxes on the above adjustments have been provided for at a rate of 40%,
which represents the Company's estimated combined federal and state statutory
tax rate.
(g) The historical results of the Business include a net non-recurring
restructuring charge of $8.4 million (pretax) or approximately $0.02 per
share. See Note 7 to the North American Petfood Business Audited Financial
Statements for additional information regarding the nature of the net charge.
31
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated April 11, 1995, included in this Form 8-K/A into the
Company's previously filed Registration Statements (Registration Statement
File Nos. 2-51719, 2-45120, 2-79306, 33-00390, 33-19639, 33-32563, 33-42015,
33-44540, and 33-55777).
/s/ Arthur Andersen LLP
Chicago, Illinois
May 26, 1995
