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