-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BU6GK5R/jEzD2oddCvyrWVSedzQ2pE7JRED1k3biBVZsrlXm5npI57BONrCCglLn QtfbVhamgZ12Oucs8By3nw== /in/edgar/work/20000915/0000950128-00-001152/0000950128-00-001152.txt : 20000923 0000950128-00-001152.hdr.sgml : 20000923 ACCESSION NUMBER: 0000950128-00-001152 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000802 FILED AS OF DATE: 20000915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEINZ H J CO CENTRAL INDEX KEY: 0000046640 STANDARD INDUSTRIAL CLASSIFICATION: [2030 ] IRS NUMBER: 250542520 STATE OF INCORPORATION: PA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03385 FILM NUMBER: 723356 BUSINESS ADDRESS: STREET 1: 600 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4124565700 MAIL ADDRESS: STREET 2: P O BOX 57 CITY: PITTSBURGH STATE: PA ZIP: 15230 10-Q 1 j8385601e10-q.txt QUARTERLY PERIOD ENDED AUGUST 2, 2000 1 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 AUGUST 2, 2000 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 THREE MONTHS ENDED AUGUST 2, 2000 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, PENNSYLVANIA 15219 (Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 456-5700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No __ The number of shares of the Registrant's Common Stock, par value $.25 per share, outstanding as of September 7, 2000 was 346,829,322 shares. 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
First Quarter Ended ------------------------------- August 2, 2000 July 28, 1999 FY 2001 FY 2000 -------------- ------------- (Unaudited) (In Thousands, Except per Share Amounts) Sales....................................................... $2,153,492 $2,181,007 Cost of products sold....................................... 1,261,338 1,324,257 ---------- ---------- Gross profit................................................ 892,154 856,750 Selling, general and administrative expenses................ 509,496 475,777 ---------- ---------- Operating income............................................ 382,658 380,973 Interest income............................................. 5,641 5,285 Interest expense............................................ 81,059 62,592 Other income, net........................................... 2,165 4,373 ---------- ---------- Income before income taxes.................................. 309,405 328,039 Provision for income taxes.................................. 108,778 121,371 ---------- ---------- Net income.................................................. $ 200,627 $ 206,668 ========== ========== Net income per share--diluted............................... $ 0.57 $ 0.57 ========== ========== Average common shares outstanding--diluted.................. 351,128 364,176 ========== ========== Net income per share--basic................................. $ 0.58 $ 0.58 ========== ========== Average common shares outstanding--basic.................... 347,732 358,685 ========== ========== Cash dividends per share.................................... $ 0.3675 $ 0.3425 ========== ==========
See Notes to Condensed Consolidated Financial Statements. ------------------ 2 3 H. J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
August 2, 2000 May 3, 2000* FY 2001 FY 2000 -------------- ------------ (Unaudited) (Thousands of Dollars) ASSETS Current Assets: Cash and cash equivalents................................... $ 128,130 $ 137,617 Short-term investments, at cost which approximates market... 14,652 16,512 Receivables, net............................................ 1,217,886 1,237,804 Inventories................................................. 1,667,990 1,599,906 Prepaid expenses and other current assets................... 214,561 178,110 ---------- ---------- Total current assets................................... 3,243,219 3,169,949 ---------- ---------- Property, plant and equipment............................... 4,347,487 4,347,747 Less accumulated depreciation............................... 1,980,698 1,988,994 ---------- ---------- Total property, plant and equipment, net............... 2,366,789 2,358,753 ---------- ---------- Goodwill, net............................................... 1,677,962 1,609,672 Trademarks, net............................................. 664,584 674,279 Other intangibles, net...................................... 125,018 127,779 Other non-current assets.................................... 1,004,965 910,225 ---------- ---------- Total other non-current assets......................... 3,472,529 3,321,955 ---------- ---------- Total assets........................................... $9,082,537 $8,850,657 ========== ==========
*Summarized from audited fiscal year 2000 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------------ 3 4 H. J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
August 2, 2000 May 3, 2000* FY 2001 FY 2000 -------------- ------------ (Unaudited) (Thousands of Dollars) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt............................................. $ 362,634 $ 151,168 Portion of long-term debt due within one year............... 22,508 25,407 Accounts payable............................................ 904,615 1,026,960 Salaries and wages.......................................... 46,760 48,646 Accrued marketing........................................... 204,804 200,775 Accrued restructuring costs................................. 93,536 125,704 Other accrued liabilities................................... 297,493 358,738 Income taxes................................................ 190,835 188,672 ---------- ---------- Total current liabilities.............................. 2,123,185 2,126,070 ---------- ---------- Long-term debt.............................................. 4,125,885 3,935,826 Deferred income taxes....................................... 286,410 271,831 Non-pension postretirement benefits......................... 209,040 208,958 Other liabilities........................................... 714,309 712,116 ---------- ---------- Total long-term debt and other liabilities............. 5,335,644 5,128,731 ---------- ---------- Shareholders' Equity: Capital stock............................................... 107,905 107,913 Additional capital.......................................... 307,885 304,318 Retained earnings........................................... 4,829,365 4,756,513 ---------- ---------- 5,245,155 5,168,744 Less: Treasury stock at cost (82,913,644 shares at August 2, 2000 and 83,653,233 shares at May 3, 2000)............. 2,904,180 2,920,471 Unearned compensation relating to the ESOP................ 6,058 7,652 Accumulated other comprehensive loss...................... 711,209 644,765 ---------- ---------- Total shareholders' equity............................. 1,623,708 1,595,856 ---------- ---------- Total liabilities and shareholders' equity............. $9,082,537 $8,850,657 ========== ==========
*Summarized from audited fiscal year 2000 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------------ 4 5 H. J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Quarter Ended ------------------------------- August 2, 2000 July 28, 1999 FY 2001 FY 2000 -------------- ------------- (Unaudited) (Thousands of Dollars) Cash (used for) provided by Operating Activities............ $(13,228) $ 48,971 -------- -------- Cash Flows from Investing Activities: Capital expenditures................................... (79,414) (69,475) Acquisitions, net of cash acquired..................... (130,463) (13,580) Purchases of short-term investments.................... (515,392) (438,969) Sales and maturities of short-term investments......... 522,482 441,647 Investment in The Hain Celestial Group, Inc............ (79,743) -- Other items, net....................................... (21,460) 18,307 -------- -------- Cash used for investing activities................ (303,990) (62,070) -------- -------- Cash Flows from Financing Activities: Payments on long-term debt............................. (11,397) (2,437) Proceeds from commercial paper and short-term borrowings, net...................................... 413,782 191,039 Proceeds from long-term debt........................... -- 1,168 Dividends.............................................. (127,775) (122,793) Purchases of treasury stock............................ (2,828) (44,204) Exercise of stock options.............................. 21,235 7,317 Other items, net....................................... 9,595 9,588 -------- -------- Cash provided by financing activities............. 302,612 39,678 -------- -------- Effect of exchange rate changes on cash and cash equivalents............................................... 5,119 4,486 -------- -------- Net (decrease) increase in cash and cash equivalents........ (9,487) 31,065 Cash and cash equivalents at beginning of year.............. 137,617 115,982 -------- -------- Cash and cash equivalents at end of period.................. $128,130 $147,047 ======== ========
See Notes to Condensed Consolidated Financial Statements. ------------------ 5 6 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) The Management's Discussion and Analysis of Financial Condition and Results of Operations which follows these notes contains additional information on the results of operations and the financial position of the company. Those comments should be read in conjunction with these notes. The company's Annual Report to Shareholders for the fiscal year ended May 3, 2000 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 2001 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:
August 2, 2000 May 3, 2000 -------------- ----------- (Thousands of Dollars) Finished goods and work-in-process................. $1,315,743 $1,270,329 Packaging material and ingredients................. 352,247 329,577 ---------- ---------- $1,667,990 $1,599,906 ========== ==========
(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 U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable tax rates. During the first quarter of Fiscal 2000, the company reorganized certain of its foreign operations, and, as a result, expects to pay approximately $320 million in foreign income taxes through Fiscal 2005. Because the company increased tax basis in amortizable assets at the same time, cash flow related to the reorganization is expected to be neutral over the payment period. (6) In Fiscal 1999, the company announced a growth and restructuring initiative named "Operation Excel." This initiative is a multi-year, multi-faceted program creating manufacturing centers of excellence, focusing the product portfolio, realigning the company's management teams and investing in growth initiatives. For more information regarding Operation Excel, please refer to the company's Annual Report to Shareholders for the fiscal year ended May 3, 2000. In the first quarter of Fiscal 2001, the company recognized costs related to the implementation of Operation Excel of $56.4 million pretax ($0.11 per share). [Note: All earnings per share amounts included in the Notes to Condensed Consolidated Financial Statements are presented on an after-tax diluted basis, unless otherwise noted.] These costs were primarily consulting fees, employee training and relocation costs, unaccruable severance costs associated with terminated employees, equipment relocation costs and commissioning costs. 6 7 During the first quarter of Fiscal 2001, the company utilized $31.7 million of severance and exit cost accruals, principally for the closure of the Harlesden factory in London, England; the relocation of the company's domestic seafood and pet food headquarters from Newport, Kentucky to Pittsburgh, Pennsylvania; and consolidating manufacturing capacity in the Asia/ Pacific region. The major components of the restructuring charges and implementation costs and the remaining accrual balances as of August 2, 2000 were as follows:
Non-Cash Employee Asset Termination and Accrued Implementation (Dollars in millions) Write-Downs Severance Costs Exit Costs Costs Total --------------------- ----------- --------------- ---------- -------------- ------- Restructuring and implementation costs--Fiscal 1999................... $ 294.9 $159.4 $ 45.3 $ 53.2 $ 552.8 Amounts utilized--Fiscal 1999.......... (294.9) (67.3) (9.8) (53.2) (425.2) ------- ------ ------ ------- ------- Accrued restructuring costs--April 28, 1999................................. -- 92.1 35.5 -- 127.6 Net restructuring and implementation costs--Fiscal 2000................... 61.6 84.5 30.1 216.5 392.7 Amounts utilized--Fiscal 2000.......... (61.6) (86.3) (30.7) (216.5) (395.1) ------- ------ ------ ------- ------- Accrued restructuring costs--May 3, 2000................................. -- 90.3 34.9 -- 125.2 Implementation costs--Fiscal 2001...... -- -- -- 56.4 56.4 Amounts utilized--Fiscal 2001.......... -- (27.0) (4.7) (56.4) (88.1) ------- ------ ------ ------- ------- Accrued restructuring costs--August 2, 2000................................. $ -- $ 63.3 $ 30.2 $ -- $ 93.5 ======= ====== ====== ======= =======
The initiatives will result in the closure or exit of 21 factories or businesses. To date, 15 of these factories or businesses have been sold or closed. Management estimates that these actions will impact approximately 6,000 employees with a net reduction in the workforce of approximately 4,600, after expansion of certain facilities. During Fiscal 1999 and Fiscal 2000, the company's workforce was reduced by approximately 3,200 employees. During the first quarter of Fiscal 2001, the company's workforce was reduced by 300 employees. (7) In the first quarter of Fiscal 2001, the company completed the acquisition of IDF Holdings, Inc., the parent of International DiverseFoods Inc. (IDF), a leading manufacturer of customized dressings, sauces, mixes and condiments for restaurant chains and foodservice distributors. The company also made a smaller acquisition. The above acquisitions have been accounted for as purchases and, accordingly, the respective purchase prices have been allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition dates. Final allocations of the purchase prices are not expected to differ significantly from the preliminary allocations. Operating results of the businesses acquired have been included in the Consolidated Statements of Income from the respective acquisition dates forward. Pro forma results of the company, assuming all of the acquisitions had been made at the beginning of each period presented, would not be materially different from the results reported. (8) On June 19, 2000, the company exercised its preemptive right to purchase an additional 2,582,774 shares of Hain for $79.7 million, or $30.88 per share. This transaction restored the company's ownership interest in Hain to 19.5%. The company's ownership had been diluted as a result of Hain's stock-for-stock merger with Celestial Seasonings on May 30, 2000. 7 8 (9) The company's segments are primarily organized by geographical area. The composition of segments and measure of segment profitability is consistent with that used by the company's management. Descriptions of the company's reportable segments are as follows: North American Grocery & Foodservice--This segment consists of Heinz U.S.A., Heinz Pet Products, Star-Kist Seafood and Heinz Canada. This segment's operations include products in all of the company's core categories. North American Frozen--This segment consists of Heinz Frozen Food Company, which markets frozen potatoes, entrees and appetizers. Europe--This segment includes the company's operations in Europe and sells products in all of the company's core categories. Asia/Pacific--This segment includes the company's operations in New Zealand, Australia, Japan, China, South Korea, Indonesia, Thailand and India. This segment's operations include products in all of the company's core categories. Other Operating Entities--This segment includes the company's Weight Watchers classroom business for the three months ended July 28, 1999, prior to divestiture, as well as the company's operations in Africa, Venezuela and other areas which sell products in all of the company's core categories. The company's management evaluates performance based on several factors; however, the primary measurement focus is operating income excluding unusual costs and gains. Intersegment sales are accounted for at current market values. Items below the operating income line of the Consolidated Statements of Income are not presented by segment, since they are not the primary measure of segment profitability reviewed by the company's management. 8 9 The following table presents information about the company's reportable segments:
First Quarter Ended ------------------------------- August 2, 2000 July 28, 1999 FY 2001 FY 2000 -------------- ------------- (Thousands of Dollars) Net external sales: North American Grocery & Foodservice...................... $ 932,577 $ 966,123 North American Frozen..................................... 227,190 212,412 Europe.................................................... 638,927 551,509 Asia/Pacific.............................................. 272,573 285,829 Other Operating Entities.................................. 82,225 165,134 ---------- ---------- Consolidated Totals....................................... $2,153,492 $2,181,007 ========== ========== Intersegment sales: North American Grocery & Foodservice...................... $ 9,580 $ 6,914 North American Frozen..................................... 2,850 2,964 Europe.................................................... 756 1,363 Asia/Pacific.............................................. 413 455 Other Operating Entities.................................. 1,008 1,454 Non-Operating (a)......................................... (14,607) (13,150) ---------- ---------- Consolidated Totals....................................... $ -- $ -- ========== ========== Operating income (loss): North American Grocery & Foodservice...................... $ 203,276 $ 186,890 North American Frozen..................................... 37,348 33,385 Europe.................................................... 117,905 107,341 Asia/Pacific.............................................. 36,337 35,931 Other Operating Entities.................................. 11,064 36,939 Non-Operating (a)......................................... (23,272) (19,513) ---------- ---------- Consolidated Totals....................................... $ 382,658 $ 380,973 ========== ========== Operating income (loss) excluding special items (b): North American Grocery & Foodservice...................... $ 226,275 $ 216,792 North American Frozen..................................... 42,822 42,684 Europe.................................................... 138,751 119,094 Asia/Pacific.............................................. 42,401 39,624 Other Operating Entities.................................. 11,064 36,939 Non-Operating (a)......................................... (22,297) (19,513) ---------- ---------- Consolidated Totals....................................... $ 439,016 $ 435,620 ========== ==========
- --------------- (a) Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments. (b) First Quarter ended August 2, 2000 - Excludes implementation costs of Operation Excel as follows: North American Grocery & Foodservice $23.0 million, North American Frozen $5.5 million, Europe $20.8 million, Asia/Pacific $6.1 million and Non-Operating $1.0 million. First Quarter ended July 28, 1999 - Excludes restructuring and implementation costs of Operation Excel as follows: North American Grocery & Foodservice $9.9 million, North American Frozen $9.3 million, Europe $11.7 million and Asia/Pacific $3.7 million. Excludes costs related to Ecuador in North American Grocery & Foodservice $20.0 million. 9 10 The company's revenues are generated via the sale of products in the following categories:
First Quarter Ended ------------------------------- August 2, 2000 July 28, 1999 FY 2001 FY 2000 -------------- ------------- (Thousands of Dollars) Ketchup, Condiments and Sauces.............................. $ 592,915 $ 611,612 Frozen Foods................................................ 419,745 301,080 Tuna........................................................ 257,809 271,618 Soups, Beans and Pasta Meals................................ 243,460 233,767 Infant Foods................................................ 223,084 231,401 Pet Products................................................ 276,616 294,337 Other....................................................... 139,863 237,192 ---------- ---------- Total................................................... $2,153,492 $2,181,007 ========== ==========
(10) The company's $2.30 billion credit agreement, which expires September 6, 2001, supports its commercial paper program. As of August 2, 2000, $2.29 billion of domestic commercial paper is classified as long-term debt due to the long-term nature of the supporting credit agreement. As of May 3, 2000, the company had $2.08 billion of domestic commercial paper outstanding and classified as long-term debt. (11) On September 12, 2000, the company's Board of Directors raised the quarterly dividend on the company's common stock to $0.39 1/4 per share from $0.36 3/4 per share, for an indicated annual rate of $1.57 per share. The dividend will be paid on October 10, 2000, to shareholders of record at the close of business on September 22, 2000. (12) The following table sets forth the computation of basic and diluted earnings per share in accordance with the provisions of SFAS No. 128.
First Quarter Ended ------------------------------ August 2, 2000 July 28, 1999 FY 2001 FY 2000 -------------- ------------- (In Thousands, Except per Share Amounts) Net income per share--basic: Net income................................................ $200,627 $206,668 Preferred dividends....................................... 6 7 -------- -------- Net income applicable to common stock..................... $200,621 $206,661 ======== ======== Average common shares outstanding--basic.................. 347,732 358,685 ======== ======== Net income per share--basic............................... $ 0.58 $ 0.58 ======== ======== Net income per share--diluted: Net income................................................ $200,627 $206,668 ======== ======== Average common shares outstanding......................... 347,732 358,685 Effect of dilutive securities: Convertible preferred stock............................. 184 234 Stock options........................................... 3,212 5,257 -------- -------- Average common shares outstanding--diluted................ 351,128 364,176 ======== ======== Net income per share--diluted............................. $ 0.57 $ 0.57 ======== ========
10 11 (13) Comprehensive income for all periods presented consisted of net income, foreign currency translation adjustments and the adjustment to the minimum pension liability. The components of comprehensive income, net of related tax, for the periods presented are as follows:
First Quarter Ended ------------------------------- August 2, 2000 July 28, 1999 FY 2001 FY 2000 -------------- ------------- (Thousands of Dollars) Net income.................................................. $200,627 $206,668 Other comprehensive income (loss): Foreign currency translation adjustment................. (63,408) (29,320) Minimum pension liability adjustment.................... (3,036) 1,984 -------- -------- Comprehensive income........................................ $134,183 $179,332 ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATION EXCEL In Fiscal 1999, the company announced a growth and restructuring initiative named "Operation Excel." This initiative is a multi-year, multi-faceted program that will result in restructuring charges and implementation costs of approximately $1.1 billion. The major components of Operation Excel include creating manufacturing centers of excellence, focusing the product portfolio, realigning the company's management teams and investing in growth initiatives. The company anticipates that substantially all restructuring charges and implementation costs will be recognized by the end of Fiscal 2001. For more information regarding Operation Excel, please refer to the company's Annual Report to Shareholders for the fiscal year ended May 3, 2000. In the first quarter of Fiscal 2001, the company recognized costs related to the implementation of Operation Excel of $56.4 million pretax ($0.11 per share). [Note: All earnings per share amounts included in Management's Discussion and Analysis are presented on an after-tax diluted basis.] These costs were primarily consulting fees, employee training and relocation costs, unaccruable severance costs associated with terminated employees, equipment relocation costs and commissioning costs. See footnote 9 for a breakdown of Operation Excel restructuring and implementation costs by segment. During the first quarter of Fiscal 2001, the company utilized $31.7 million of severance and exit cost accruals, principally for the closure of the Harlesden factory in London, England; the relocation of the company's domestic seafood and pet food headquarters from Newport, Kentucky to Pittsburgh, Pennsylvania; and consolidating manufacturing capacity in the Asia/Pacific region. See footnote 6 for further information. The initiatives will result in the closure or exit of 21 factories or businesses. To date, 15 of these factories or businesses have been sold or closed. Management estimates that these actions will impact approximately 6,000 employees with a net reduction in the workforce of approximately 4,600, after expansion of certain facilities. During Fiscal 1999 and Fiscal 2000, the company's workforce was reduced by approximately 3,200 employees. During the first quarter of Fiscal 2001, the company's workforce was reduced by 300 employees. The remaining factory closures and employee terminations are expected to be substantially completed within 12 months. The pretax savings generated from all Operation Excel initiatives was $70 million in Fiscal 2000 and are projected to grow to $145 million in Fiscal 2001, $215 million in Fiscal 2002, with non-cash savings of $15 million or less in any year. Fiscal 2001 savings are expected to be realized predominantly in the latter half of the year as the remaining factories or businesses are sold or closed. 11 12 Successful execution of Operation Excel will help the company achieve the following targets over the next three years: - $240 million in annual ongoing pretax savings upon full implementation - Earnings per share growth of 10 to 12 percent per year on average - Sales growth of 4 to 5 percent per year on average - Gross margins of 42% - Return on invested capital of 40% - $2.5 billion of free cash flow. THREE MONTHS ENDED AUGUST 2, 2000 AND JULY 28, 1999 RESULTS OF OPERATIONS For the three months ended August 2, 2000, sales decreased $27.5 million, or 1.3%, to $2,153.5 million from $2,181.0 million last year. Sales were unfavorably impacted by divestitures (5.5%), primarily the Weight Watchers classroom business, unfavorable foreign exchange translation rates (3.0%) and lower pricing (1.2%). Sales were favorably impacted by acquisitions (6.4%), primarily United Biscuit's European Frozen and Chilled Division, and increased volume (2.0%). Heinz's U.S. soups, ketchup and foodservice businesses had an excellent first quarter, but overall sales for the North American Grocery & Foodservice segment decreased $33.5 million, or 3.5%, due primarily to lower sales for StarKist tuna (reflecting tuna fish prices at a 34-year low) and canned pet food. Lower pricing reduced sales 1.9%, due mainly to StarKist tuna, and sales volume decreased 0.9%, reflecting reduced consumption of StarKist tuna in the quarter. Divestitures, net of acquisitions, reduced sales 0.5% and the impact of foreign exchange was negligible. North American Frozen's sales increased $14.8 million, or 7.0%. Sales volume increased 4.9% driven by Boston Market HomeStyle Frozen Meals and the continued momentum of Bagel Bites snacks. This increase was partially offset by a volume decline in frozen potatoes, related to the transition to the new Stand Up Resealable Packaging ("SURP"), which will be rolled out nationally in September 2000. Higher pricing increased sales 2.1%. Heinz Europe's sales increased $87.4 million, or 15.9%. Acquisitions, net of divestitures, increased sales 20.6%, due primarily to the acquisition of United Biscuit's European Frozen and Chilled Division. Sales volume increased 5.4%, driven primarily by the strength of seafood and convenience meals (soups, beans and pasta meals). Unfavorable foreign exchange translation rates reduced sales by 8.2% and lower pricing reduced sales by 1.9%. Sales in Asia/Pacific decreased $13.3 million, or 4.6%, primarily due to unfavorable exchange rates and, to a lesser extent, a weak quarter in the New Zealand Wattie's business. Acquisitions increased sales by 0.9% and sales volume increased 0.6%. Sales were reduced by 5.3% due to foreign exchange rates and by 0.8% due to lower pricing. Sales for Other Operating Entities decreased $82.9 million, or 50.2%. Divestitures, primarily the Fiscal 2000 disposal of the Weight Watchers classroom business, reduced sales 55.1%. Unfavorable foreign exchange reduced sales 2.9%. Sales volume increased 6.8% and favorable pricing increased sales 1.0%. The current year's first quarter was negatively impacted by additional Operation Excel implementation costs of $56.4 million pretax or $0.11 per share. Last year's first quarter was negatively impacted by a number of special items which net to $36.4 million pretax and $0.08 per share, and are summarized in the table below. These items include implementation costs of $24.7 million pretax ($0.05 per share) related to Operation Excel and an additional restructuring charge for Operation Excel of $9.9 million pretax ($0.02 per share). In April of 1999, the company became 12 13 aware of operational and accounting irregularities in its Ecuador tuna processing facility and expensed $10.0 million as an estimate of the losses. In the first quarter of Fiscal 2000, the company recognized an additional $20.0 million pretax ($0.05 per share) of expenses related to this facility and does not anticipate significant further losses. In addition, the company recognized, in Other Income, a pretax gain of $18.2 million ($0.03 per share) for the sale of an office building in the United Kingdom. The following tables provide a comparison of the company's reported results and the results excluding special items for the first quarters of Fiscal 2001 and Fiscal 2000.
First Quarter Ended August 2, 2000 (Dollars in millions except per share amounts) ------------------------------------------ Gross Operating Net Profit Income Income Per Share ------ --------- ------ --------- Reported results............................ $892.2 $382.7 $200.6 $0.57 Operation Excel implementation costs...... 17.3 56.4 37.1 0.11 ------ ------ ------ ----- Results excluding special items............. $909.5 $439.0 $237.7 $0.68 ====== ====== ====== =====
First Quarter Ended July 28, 1999 ------------------------------------------ Gross Operating Net Profit Income Income Per Share ------ --------- ------ --------- Reported results.......................... $856.8 $381.0 $206.7 $ 0.57 Operation Excel restructuring costs..... 3.4 9.9 5.6 0.02 Operation Excel implementation costs.... 6.9 24.7 16.5 0.05 Ecuador expenses........................ 20.0 20.0 20.0 0.05 Gain on U.K. building sale.............. -- -- (11.8) (0.03) ------ ------ ------ ------ Results excluding special items........... $887.1 $435.6 $236.9 $ 0.65 ====== ====== ====== ======
(Note: Totals may not add due to rounding.) Gross profit increased $35.4 million, or 4.1%, to $892.2 million from $856.8 million and the gross profit margin increased to 41.4% from 39.3%. Excluding the special items noted above and the impact of the Weight Watchers classroom business, gross profit increased $75.2 million, or 9.0%, to $909.5 million from $834.3 million and the gross profit margin increased to 42.2% from 40.0%. Excluding only the special items noted above, gross profit increased $22.3 million, or 2.5%, to $909.5 million from $887.1 million and the gross profit margin increased to 42.2% from 40.7%. Gross profit in the North American Grocery & Foodservice segment increased $18.8 million or 5.0% due primarily to sales mix and savings from Operation Excel. North American Frozen's gross profit increased $6.5 million or 6.6%, due to increased sales and savings from Operation Excel. Europe's gross profit increased $44.2 million, or 18.8%, due primarily to increased sales volume and the acquisition of United Biscuit's European Frozen and Chilled Division, offset partially by unfavorable foreign exchange rates and lower pricing. The Asia/Pacific segment's gross profit increased $1.5 million, or 1.4%. Gross profit in the Other Operating Entities segment decreased $48.2 million, or 65.0%, due primarily to the divestiture of the Weight Watchers classroom business. Selling, general and administrative expenses ("SG&A") increased $33.7 million, or 7.1%, to $509.5 million from $475.8 million, and increased as a percentage of sales to 23.7% from 21.8%. Excluding the special items noted above and the impact of the Weight Watchers classroom business, SG&A increased $42.6 million, or 10.0%, to $470.4 million from $427.8 million and increased as a percentage of sales to 21.8% from 20.5%. Excluding only the special items noted above, SG&A increased $19.0 million, or 4.2%, to $470.4 million from $451.5 million and increased as a percentage of sales to 21.8% from 20.7%, primarily due to increased marketing and selling and distribution expenses. Operating income increased $1.7 million, or 0.4%, to $382.7 million from $381.0 million, and increased as a percentage of sales to 17.8% from 17.5%. Excluding the special items noted above 13 14 and the impact of the Weight Watchers classroom business, operating income increased $32.5 million, or 8.0%, to $439.0 million from $406.5 million and increased as a percentage of sales to 20.4% from 19.5%. Excluding only the special items noted above, operating income increased $3.4 million, or 0.8%, to $439.0 million from $435.6 million and increased as a percentage of sales to 20.4% from 20.0%. The North American Grocery & Foodservice segment's operating income increased $16.4 million, or 8.8%, to $203.3 million from $186.9 million. Excluding the special items noted above, operating income increased $9.5 million, or 4.4%, to $226.3 million from $216.8 million, due primarily to sales mix and Operation Excel savings. Additionally, excluding Star-Kist Seafood, operating income increased by 8.8%. The North American Frozen segment's operating income increased $4.0 million, or 11.9%, to $37.3 million from $33.4 million. Excluding the special items noted above, operating income increased $0.1 million, or 0.3%, to $42.8 million from $42.7 million, reflecting increased marketing spending behind Boston Market products and the national rollout of the SURP for Ore-Ida frozen potatoes. Europe's operating income increased $10.6 million, or 9.8%, to $117.9 million from $107.3 million. Excluding the special items noted above, operating income increased $19.7 million, or 16.5%, to $138.8 million from $119.1 million, and increased 25.1% on a constant currency basis. Europe's increase is primarily attributable to the acquisition of United Biscuit's European Frozen and Chilled Division, increased sales volume and savings from Operation Excel, offset partially by unfavorable foreign exchange rates, increased marketing expenses and lower pricing. Asia/Pacific's operating income increased $0.4 million, or 1.1%, to $36.3 million from $35.9 million. Excluding the special items noted above, operating income increased $2.8 million, or 7.0%, to $42.4 million from $39.6 million, and increased 15.3% on a constant currency basis. Heinz affiliates in Australia, China and Indonesia performed well, as sales volumes and operating income were strong, offset by unfavorable foreign exchange rates and a weak quarter in the New Zealand Wattie's business. Other Operating Entities' operating income decreased $25.9 million, or 70.0%, due primarily to the divestiture of the Weight Watchers classroom business in the second quarter of last year. Net interest expense increased $18.1 million to $75.4 million from $57.3 million last year, driven primarily by increased borrowings resulting from share repurchases and acquisitions over the past year. Other income decreased $2.2 million to $2.2 million from $4.4 million last year. Last year's first quarter included a gain of $18.2 million on the sale of an office building in the U.K., partially offset by favorable currency gains in the current year. The effective tax rate for the current quarter was 35.2% compared to 37.0% last year. Excluding the special items noted above, the effective rate was 35.0% for both periods. Net income in the current quarter was $200.6 million compared to $206.7 million last year and diluted earnings per share was $0.57 in both periods. Excluding the special items noted above and the impact of the Weight Watchers classroom business, net income increased $14.0 million, or 6.2%, to $237.7 million from $223.8 million, and diluted earnings per share increased 11.5%, to $0.68 from $0.61 last year. Excluding only the special items noted above, net income increased to $237.7 million from $236.9 million last year, and diluted earnings per share increased 4.6%, to $0.68 from $0.65 last year. LIQUIDITY AND FINANCIAL POSITION Cash used for operating activities was $13.2 million compared to cash provided by operating activities of $49.0 million last year. The decrease in Fiscal 2001 versus Fiscal 2000 is primarily due 14 15 to expenditures on Operation Excel and increased inventory levels. In order to facilitate the anticipated plant shutdowns and reconfigurations for Operation Excel, the company has increased inventory levels at certain locations. Cash used for investing activities totaled $304.0 million compared to $62.1 million last year. Acquisitions in the current period required $130.5 million, due primarily to the purchase of International DiverseFoods Inc. Acquisitions in the prior period required $13.6 million, due primarily to the purchase of Thermo Pac, Inc. During the current period, the company invested $79.7 million in The Hain Celestial Group, Inc. Capital expenditures in the current quarter required $79.4 million compared to $69.5 million last year. Cash provided by financing activities increased to $302.6 million from $39.7 million last year. Proceeds from commercial paper and short-term borrowings provided $413.8 million compared to $191.0 million last year. Cash provided from stock options exercised totaled $21.2 million versus $7.3 million last year. Dividend payments totaled $127.8 million compared to $122.8 million for the same period last year. Share repurchases required $2.8 million (0.1 million shares) versus $44.2 million (0.9 million shares) in last year's first quarter. Payments on long-term debt required $11.4 million this quarter compared to $2.4 million last year. In the first quarter of Fiscal 2001, the cash requirements of Operation Excel were $127.8 million, consisting of spending for severance and exit costs ($31.7 million), capital expenditures ($39.7 million) and implementation costs ($56.4 million). The company's $2.30 billion credit agreement, which expires September 6, 2001, supports its commercial paper program. As of August 2, 2000, $2.29 billion of domestic commercial paper is classified as long-term debt due to the long-term nature of the supporting credit agreement. As of May 3, 2000, the company had $2.08 billion of domestic commercial paper outstanding and classified as long-term debt. On September 12, 2000, the company's Board of Directors raised the quarterly dividend on the company's common stock to $0.39 1/4 per share from $0.36 3/4 per share, for an indicated annual rate of $1.57 per share. The dividend will be paid on October 10, 2000, to shareholders of record at the close of business on September 22, 2000. In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FAS Statement 133," which postponed the adoption date of SFAS No. 133. As such, the company is not required to adopt the statement until Fiscal 2002. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No. 133." This statement amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. The company is currently evaluating the effect that implementation of the new standard will have on its results of operations and financial position. In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued new guidelines entitled "Accounting for Certain Sales Incentives" which address the recognition, measurement and income statement classification for certain sales incentives (e.g., coupons). These guidelines will be effective for the company beginning in the fourth quarter of Fiscal 2001. The implementation of these guidelines will require the company to make reclassifications between SG&A and sales. In December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 pro- 15 16 vides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. Management believes that the impact of SAB No. 101, which will be effective in the fourth quarter of Fiscal 2001, will not have a material effect on its financial position or results of operations. The company's financial position remains strong, enabling it to meet cash requirements for operations, capital expansion programs and dividends to shareholders. The company's goal remains the achievement of 10% EPS growth for Fiscal 2001 with stronger performance expected in the second half of the year resulting from the contribution of new brands and Operation Excel savings. OTHER MATTERS On September 12, 2000 the company's Board of Directors elected William R. Johnson as Chairman, effective immediately. Mr. Johnson succeeds Anthony J.F. O'Reilly, who retired on September 12, 2000, following the annual shareholders meeting held in Pittsburgh, PA. In addition to his new responsibilities as Chairman, Mr. Johnson will continue to serve as President and Chief Executive Officer of the H.J. Heinz Company. He was named President and Chief Operating Officer in June 1996 and CEO on April 30, 1998. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the company's market risk during the three months ended August 2, 2000. For additional information, refer to pages 42-44 of the company's Annual Report to Shareholders for the fiscal year ended May 3, 2000. 16 17 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 Note 7 to the Condensed Consolidated Financial Statements in Part I--Item 1 of this Quarterly Report on Form 10-Q and "Other Matters" in Part I--Item 2 of this Quarterly Report on Form 10-Q. This report contains forward-looking statements regarding the company's future performance. These forward-looking statements are based on management's views and assumptions, and involve risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These include, but are not limited to, sales, earnings and volume growth, competitive conditions, production costs, currency valuations (notably the euro and the pound sterling), global economic and industry conditions, achieving cost savings programs, success of acquisitions and new product and packaging innovations and other factors described in "Cautionary Statement Relevant to Forward-Looking Information" in the company's Form 10-K for the fiscal year ended May 3, 2000, as updated from time to time by the company in its subsequent filings with the Securities and Exchange Commission. 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. 10(a)(vii) H.J. Heinz Company Executive Deferred Compensation Plan. 12. Computation of Ratios of Earnings to Fixed Charges. 27. Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended August 2, 2000. 17 18 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: September 14, 2000 By: /s/ PAUL F. RENNE .......................................... Paul F. Renne Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: September 14, 2000 By: /s/ WILLIAM J. SHOWALTER .......................................... William J. Showalter Vice President and Corporate Controller (Principal Accounting Officer) 18 EX-10.A.VII 2 j8385601ex10-a_vii.txt EXECUTIVE DEFERRED COMPENSATION PLAN 1 Exhibit 10(a)(vii) H. J. HEINZ COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN (AS AMENDED AND RESTATED) 2 CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE 1 EFFECTIVE DATE AND PURPOSE 1 ARTICLE 2 ADMINISTRATION 1 ARTICLE 3 ELIGIBILITY AND PARTICIPATION 2 ARTICLE 4 ELECTIVE DEFERRALS 3 ARTICLE 5 NONELECTIVE DEFERRALS 6 ARTICLE 6 DEFERRED COMPENSATION ACCOUNTS 8 ARTICLE 7 RIGHTS OF PARTICIPANTS 11 ARTICLE 8 WITHHOLDING OF TAXES 11 ARTICLE 9 AMENDMENT AND TERMINATION 11 ARTICLE 10 MISCELLANEOUS 12 3 H. J. HEINZ COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN ARTICLE 1. EFFECTIVE DATE AND PURPOSE 1.1 Effective Date. H. J. Heinz Company (the "Company") established the "H. J. Heinz Company Executive Deferred Compensation Plan" (the "Plan") effective as of June 8, 1994. The Plan was amended and restated effective as of January 1, 1998. On September 12, 2000, the Plan was again amended and restated as described herein. 1.2 Purpose. The Plan is a deferred compensation plan for key employees the primary purpose of which is to provide certain key employees of the Company, its subsidiaries, and affiliates with deferred cash awards and the opportunity to voluntarily defer a portion of their compensation, in each case subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain employees of outstanding competence. ARTICLE 2. ADMINISTRATION 2.1 The Committee. The Plan shall be administered by the Management Development and Compensation Committee of the Board of Directors of the Company or any other successor Committee appointed by the Board (the "Committee"). The members of the Committee shall be appointed by, and shall serve at the discretion of, the Board. 2.2 Authority of the Committee. Except as limited by law or by the Company's Articles of Incorporation or Bylaws, and subject to the provisions herein, the Committee shall have authority to select eligible employees of the Company for participation in the Plan; determine the terms and conditions of each employee's participation in the Plan; select the recipients of deferred cash awards and determine the amounts and terms of such awards; interpret the Plan; establish, amend, or waive rules and regulations for the Plan's administration; and, subject to Article 8 herein, amend the terms and conditions of the Plan and any agreement entered into under the Plan. Further, the Committee shall make all other determination which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate any of its authority granted under the Plan to such other person or entity it deems appropriate, including but not limited to, senior management of the Company. 2.3 Guidelines. Subject to the provisions herein, the Committee may adopt written guidelines for the implementation and administration of the Plan. 2.4 Decisions Binding. All determinations and decisions of the Committee arising under the Plan shall be final, binding, and conclusive upon all parties. 1 4 ARTICLE 3. ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. Subject to Section 3.2, Employees eligible to be selected to participate in the Plan in any fiscal year of the Company (hereinafter, a "Year") including full-time, salaried employees of the Company, its subsidiaries, and affiliates who are key employees, as determined by the Committee in its sole discretion. 3.2 Limitation on Eligibility. It is the intent of the Company that the Plan qualify for treatment as a "top hat" plan under the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor Act thereto ("ERISA"). Accordingly, to the extent required by ERISA to obtain such "top hat" treatment, eligibility shall be extended only to those executives who comprise a select group of management or highly compensated employees. Further, the Committee may place such additional limitations on eligibility as it deems necessary and appropriate under the circumstances. 3.3 Participation. Participation in the Plan shall be determined annually by the Committee based upon the criteria set forth in Sections 3.1 and 3.2 herein. An employee who is chosen to participate in the Plan in any Year (a "Participant") shall be so notified in writing. In the event a Participant selected to participate in the Plan on an elective basis no longer meets the criteria for participation, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to make any further deferrals, until such time that the Participant again becomes an active Participant. 3.4 Partial Year Eligibility. In the event that an employee first becomes eligible to participate in the Plan on an elective basis during a Year, such employee shall, within thirty (30) calendar days of becoming eligible, be notified by the Company of his or her eligibility to participate, and the Company shall provide each such employee with an Election Form, which must be completed by the employee as provided in Section 4.2 herein. 3.5 No Right to Participate. No employee shall have the right to be selected as a Participant, or having been so selected for any given Year, to be selected again as a Participant for any other Year. 2 5 ARTICLE 4. ELECTIVE DEFERRALS 4.1 Amount Which May Be Deferred. A Participant may elect to defer, in any Year, up to one hundred percent (100%) of eligible components of Compensation, including, but not limited to, Salary, Bonus, Long-Term Awards and Discretionary Awards, all as defined herein; provided, however, that the Committee shall have sole discretion to designate which components of Compensation are eligible for deferral elections under the Plan in any given Year. In addition, the Committee may, in its sole discretion, designate the minimum amount or increments of any single eligible component of Compensation which may be deferred in any Year or establish any other limitations as it deems appropriate in any Year. The following definitions shall apply for purposes of this Plan: (a) "Salary" means all regular, basic wages, before reduction for amounts deferred pursuant to the Plan or any other plan of the Company, payable in cash to a Participant for services to be rendered, exclusive of any Bonus, Long-Term Awards, other special fees, awards, or incentive compensation, allowances, or amounts designated by the Company as payment toward or reimbursement of expenses. (b) "Bonus" means any incentive award based on an assessment of performance, payable by the Company to a Participant with respect to the Participant's services during a Year, including, but not limited to, amounts awarded under the Company's Incentive Compensation Plan; provided, however, that for purposes of the Plan, "Bonus" shall not include incentive awards which relate to a period exceeding one (1) Year. (c) "Long-Term Award" means any cash award payable to a Participant pursuant to a Company program which establishes incentive award opportunities which are contingent upon performance which is measured over periods greater than one (1) Year. (d) "Discretionary Award" means any cash award payable to a Participant not described above. (e) "Compensation" means the gross Salary, Bonus, Long-Term Awards, Discretionary Awards, and any other payments eligible for deferral under the Plan, which are payable to a Participant with respect to services performed during a Year. 4.2 Time of Deferral Election. An election to defer a component of Compensation permitted by the Committee to be deferred by a Participant under the Plan shall be given effect in accordance with the following timing rules: 3 6 (a) An election to defer Salary shall apply only to Salary which is earned for payroll periods beginning after a properly executed Election Form has been filed with the Committee. (b) An election to defer Bonus for any Year shall apply only if a properly executed Election Form has been filed with the Committee before the end of the calendar year ending within such Year. (c) An election to defer "Long-Term Award" must be made on or before the end of the Year preceding the final Year of the applicable multi-year award period. 4.3 Content of Deferral Election. All deferral elections shall be irrevocable, and shall be made on an Election Form, as described herein. Participants shall make following irrevocable elections on each Election Form: (a) The amount to be deferred with respect to each eligible component of Compensation for the Year, (b) The length of the deferral period with respect to each eligible component of Compensation, pursuant to the terms of Section 4.4 herein; and (c) The form of payment to be made to the Participant at the end of the deferral period(s), pursuant to the terms of Section 4.5 herein. Notwithstanding the amounts requested to be deferred pursuant to Subparagraph (a) above, the limits on deferrals determined under Section 4.1 herein shall apply to the requested deferrals each Year. 4.4 Length of Deferral. The deferral periods elected by each Participant with respect to deferrals of Compensation for any Year shall be at least equal to one (1) year following the end of the Year in which the Compensation is earned, and shall be no greater than the date of retirement or other termination of employment, whichever is earlier. However, notwithstanding the deferral periods elected by a Participant pursuant to Section 4.3(b) or the form of payment in effect under Section 4.3(c), payment of deferred amounts and accumulated interest thereon may be made to the Participant in a single lump sum in the event the Participant's employment with the Company is terminated by reason of death or, at the election of the Participant, total disability, as defined in the Company's Long-Term Disability Plan, at any time prior to full payment of deferred amounts and interest thereon. Such payment shall be made immediately following termination of the Participant's employment, or as soon thereafter as practicable. 4.5 Payment of Deferred Amounts. Participants shall be entitled to elect to receive payment of deferred amounts, together with interest earned thereon, at the end of the 4 7 deferral period in a single lump sum cash payment, by means of installments, or in such other format approved by the Committee. (a) Lump Sum Payment. Such payment shall be made in cash within thirty (30) calendar days of the date specified by the Participant as the date for payment of deferred Compensation as described in Section 4.3 and 4.4 hereof, or as soon thereafter as practicable. (b) Installment Payments. Participants may elect payout in installments, with a minimum number of installments of two (2) and a maximum of ten (10). The initial payment shall be made in cash within thirty (30) calendar days after the commencement date selected by the Participant pursuant to Sections 4.3 and 4.4 hereof, or as soon thereafter as practicable. The remaining installment payments shall be made in cash each year thereafter, until the Participant's entire deferred compensation account has been paid. Earnings shall accrue on the deferred amounts in the Participant's deferred compensation account, as provided in Section 6.2 of this Plan. The amount of each installment payment shall be equal to the balance remaining in the Participant's deferred compensation account immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining. (c) Alternative Payment Schedule. A Participant may submit an alternate payment schedule to the Committee for approval; provided, however, that no such alternate payment schedule shall be permitted unless approved by the Committee. 4.6 Financial Hardship. The Committee shall have the authority to alter the timing or manner of payment of deferred amounts in the event that the Participant establishes, to the satisfaction of the Committee, severe financial hardship. In such event, the Committee may, in its sole discretion: (a) Authorize the cessation of deferrals by such Participant under the Plan, or (b) Provide that all or a portion of the amount previously deferred by the Participant shall immediately be paid in a lump-sum cash payment; or (c) Provide that all or a portion of the installments payable over a period of time shall immediately be paid in a lump-sum cash payment; or (d) Provide for such other installment payment schedule as deemed appropriate by the Committee under the circumstances. 5 8 For purposes of this Section 4.6, "severe financial hardship" shall be determined by the Committee, in its sole discretion, in accordance with all applicable laws. The Committee's decision with respect to the severity of financial hardship and the manner in which, if at all, the Participant's future deferral opportunities shall be ceased, and/or the manner in which, if at all, the payment of deferred amounts of the Participant shall be altered or modified shall be final, conclusive, and not subject to appeal. Earnings will be credited in accordance with Article 6 up to the date of distribution. ARTICLE 5. NONELECTIVE DEFERRALS 5.1 Deferred Cash Awards. The Committee may, at its discretion during any Year, make deferred cash awards on behalf of designated Participants, subject to the vesting as provided under Section 5.3, in amounts in the aggregate not to exceed 50% of the total amounts awarded under the Company's Incentive Compensation Plan during the prior Year. 5.2 Deferred Period. The period of time during which each such award shall be deferred shall be as specified by the Committee. 5.3 Vesting Requirements. The Committee at the time of granting a deferred cash award under this Article 5 may, at its discretion, impose vesting requirements with respect to such award pursuant to which all or a portion of such award may be forfeited under conditions specified by the Committee. Notwithstanding the imposition of vesting requirements with respect to any award, the entire amount of such award and any additions thereto pursuant to Section 6.5 shall become 100% vested and nonforfeitable upon the occurrence of a Change in Control as defined in Section 5.4. 5.4 Change in Control. The term "Change in Control" shall mean any of the following events: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or by any Subsidiary (as hereinafter defined) (ii) the Company or any Subsidiary, or (iii) any Person in connection with a transaction described in paragraph (c) below. 6 9 "Subsidiary" shall mean any corporation with respect to which the Company owns, directly or indirectly through a Subsidiary, at least 50% of the total combined voting power of all classes of stock. (b) The individuals who, as of May 1, 2000, are members of the Board of Directors of the Company (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board of Directors; provided, however, that if the election, or nomination for election by the Company's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Consent" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; (c) A merger, consolidation or reorganization involving the Company or a Subsidiary, unless (1) the Voting Securities of the Company, immediately before such merger, consolidation or reorganization, continue immediately following such merger, consolidation or reorganization to represent, either by remaining outstanding or by being converted into voting securities of the surviving corporation resulting from such merger, consolidation or reorganization or its parent (the "Surviving Corporation"), at least 60% of the combined voting power of the outstanding voting securities of the Surviving Corporation; (2) the individuals who were members of the Incumbent Board immediately before the execution of the agreement providing for such merger, consolidation or reorganization constitute more than one-half of the members of the board of directors of the Surviving Corporation; and (3) no person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately before such merger, consolidation or reorganization had Beneficial Ownership of 15% or more of the then outstanding Voting Securities) has Beneficial Ownership of 15% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities. (4) A complete liquidation or dissolution of the Company; or 7 10 (5) Approval by stockholders of the Company of an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company the Subject Person becomes the Beneficial Owner of any additional voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. ARTICLE 6. DEFERRED COMPENSATION ACCOUNTS 6.1 Participant Accounts. The Company shall establish and maintain an individual bookkeeping account ("Participant Account") in the name of each Participant by or on behalf of whom deferrals have been made under Article 4 or Article 5 hereof. Each Participant Account shall have a subaccount (the "Elective Account") for elective deferrals under Article 4 which shall be credited with each amount deferred under Article 4 as of the date that such amount otherwise would have become due and payable to the Participant. Each Participant Account established for a Participant on whose behalf an award has been made under Article 5 shall have a separate subaccount ("Nonelective Account") which shall be credited with each such award as of the effective date of such award as determined by the Committee. 6.2 Earnings. The Participant's Elective Account shall be credited with earnings commencing on the date the Elective Account first has a positive balance. The earnings credit shall be based on the performance of the hypothetical investments described in Section 6.3 made available by the Committee from time to time, as selected by the Participant in accordance with the rules of Section 6.4. The value of the deferred compensation benefits paid under this Plan shall depend on the earnings credited to the Elective Account, based on the Participant's selections from among the investment alternatives. There shall be no guaranteed rate of return on the Elective Account under this Plan. Nothing contained herein shall require the Company to invest the deferred amounts in any actual investments. Earnings credited on deferred amounts shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts. 6.3 Hypothetical Investment Choices. The Committee from time to time may make available any or all of the following hypothetical investments: 8 11 (a) Interest-Bearing Cash Account. A Participant's Elective Account shall be credited on the last day of each calendar quarter, with interest computed on the average balance in the Account during such quarter at the rate selected by the Committee and announced to Participants from time to time. (b) H.J. Heinz Capital Stock Account. Amounts credited to the Participant's Elective Account shall be restated in the form of "stock units" and adjusted from time to time in accordance with the following rules: (1) The number of units initially credited shall be determined by dividing the dollar amount to be credited to the Account by a unit value equal to the average of the high and the low trading price of one share of the Company's common stock on the day that the Compensation would have been paid but for the deferral, except that in the case of a deferral of any "Bonus" or "Long-Term Award" as defined in Section 4.1(b) and (c) respectively, such day shall be the day the Committee approves the amount of the award. (2) The Participant's Elective Account will also be credited with additional units equal to the dollar amount of dividends paid from time to time during the deferral period on a number of shares of the Company's common stock equal to the number of units then credited to the Participant's Elective Account divided by a unit value equal to the average of the high and the low trading price of one share of the Company's common stock on the day the dividend is paid. (3) In the event of any change in the outstanding shares of the Company's common stock by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change, then an equitable equivalent adjustment shall be made in the stock units credited to the Elective Accounts under the Plan. (4) When payment of a Participant's Elective Account occurs, the portion thereof which is represented by stock units shall be payable, unless the recipient elects payment in cash, by transferring to the Participant or beneficiary a number of shares of the Company's common stock equal to the number of whole units then distributable from the Participant's Elective Account, with cash in lieu of fractional units. (c) Phantom Investment Alternatives. Each Phantom Investment Alternative is a phantom investment opportunity based on a publicly traded mutual fund or quoted benchmark such as the NASDAQ Combined Composite Index or the S&P 500 Index. The Committee will name the investment choices available under the 9 12 Phantom Investment Alternatives from time to time. The portion of a Participant's Elective Account allocated to the Phantom Investment Alternatives will be credited with earnings based on the investment performance as periodically reported by the proxy mutual funds or quoted benchmarks using unit accounting as if the Participant's deferred amounts had been invested in those portfolios. The accounting for additions to Phantom Investment Alternatives or redemptions therefrom shall be similarly based on unit accounting as of the date of the transaction. 6.4 Selection and Reallocation of Hypothetical Investment Choices. Investment choices may be made or changed in accordance with the following rules: (a) A Participant shall designate on his Election Form the percentage of each deferred amount which shall be allocated to each available investment choice. In default of a complete designation, the Participant's Elective Account (or the undesignated portion thereof) shall be credited with earnings in accordance with Section 6.2. (b) The Participant may request a change in the allocation of previously deferred portions of his Elective Account among the various investment alternatives. Such changes may be made not more frequently than once during any calendar month and, to the extent administratively practical, will become effective as of the first day of the next calendar month following the Participant's request provided the request is filed at least 5 business days before the end of the month. The Participant may also change the allocation which shall apply to any new deferral amounts and matching additions under the same rules. 6.5 Additions to Nonelective Accounts. The Participant's Nonelective Account shall be credited with earnings, commencing on the date the Nonelective Account first has a positive balance, at the interest rate specified in accordance with Section 6.3(a). 6.6 Charges Against Accounts. There shall be charged against each Participant's deferred compensation account any payments made to the Participant or to his or her beneficiary. 10 13 ARTICLE 7. RIGHTS OF PARTICIPANTS 7.1 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participant Accounts when due. Payment of account balances shall be made out of the general funds of the Company. 7.2 Unsecured Interest. No Participant or party claiming an interest in amounts deferred by or on behalf of a Participant, including any earnings thereon, shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. 7.3 Authorization for Trust. The Company may, but shall not be required to, establish one or more trusts, with such trustee as the Committee may approve, for the purpose of providing for the payment of deferred amounts. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's creditors. To the extent any amounts deferred under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such deferred amounts shall remain the obligation of, and shall be paid by, the Company. 7.4 Employment. Nothing in the Plan shall interfere with nor limit, in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. ARTICLE 8. WITHHOLDING OF TAXES The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy any withholding tax requirements or to deduct from all payments made pursuant to the Plan amounts sufficient to satisfy withholding tax requirements. ARTICLE 9. AMENDMENT AND TERMINATION The Company hereby reserves the right to amend, modify, or terminate the Plan at any time by action of the Committee. Except as described below in Section 10.5, no such amendment or termination shall in any material manner adversely affect any Participant's rights to amounts previously deferred hereunder, or earnings thereon, without the consent of the Participant. 11 14 ARTICLE 10. MISCELLANEOUS 10.1 Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Senior Vice President and Chief Administrative Officer of the Company. Such notice if mailed shall be addressed to the principal executive offices of the Company. Notice mailed to a Participant shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 10.2 Nontransferability. Participant's rights to deferred amounts, contributions, and earnings credited thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant. 10.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 10.4 Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company. 10.5 Status under ERISA. The Plan is intended to be an unfunded plan which is maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and to therefore be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan and commence termination payout for all or certain Participants, or remove certain employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension plan within the meaning of Section 3(2) of ERISA which is not so exempt. Payout of Elective Accounts shall be made in the manner selected by each Participant under Section 4.5 herein as applicable, and payout of Nonelective Accounts shall be made as specified by the Committee. 10.6 Applicable Law. The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 10.7 Successors. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 12 EX-12 3 j8385601ex12.txt COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 H. J. HEINZ COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
First Quarter Ended Fiscal Years Ended ------------- -------------------------------------------------------------- May 3, April 28, April 29, April 30, May 1, August 2, 2000 1999 1998 1997 1996 2000 (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ------------- ---------- ---------- ---------- ---------- ---------- Fixed Charges: Interest expense*.......................... $ 81,474 $ 271,597 $ 260,743 $ 260,401 $ 277,818 $ 279,368 Capitalized interest....................... -- -- -- 1,542 2,688 1,007 Interest component of rental expense....... 7,080 32,274 29,926 30,828 27,382 26,728 -------- ---------- ---------- ---------- ---------- ---------- Total fixed charges...................... $ 88,554 $ 303,871 $ 290,669 $ 292,771 $ 307,888 $ 307,103 -------- ---------- ---------- ---------- ---------- ---------- Earnings: Income before income taxes................. $309,405 $1,463,676 $ 835,131 $1,254,981 $ 479,064 $1,023,661 Add: Interest expense*..................... 81,474 271,597 260,743 260,401 277,818 279,368 Add: Interest component of rental expense.................................. 7,080 32,274 29,926 30,828 27,382 26,728 Add: Amortization of capitalized interest................................. 668 2,799 3,050 3,525 3,454 3,399 -------- ---------- ---------- ---------- ---------- ---------- Earnings as adjusted..................... $398,627 $1,770,346 $1,128,850 $1,549,735 $ 787,718 $1,333,156 -------- ---------- ---------- ---------- ---------- ---------- Ratio of earnings to fixed charges......... 4.50 5.83 3.88 5.29 2.56 4.34 ======== ========== ========== ========== ========== ==========
- --------------- * Interest expense includes amortization of debt expense and any discount or premium relating to indebtedness. EX-27 4 j8385601ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR THE PERIOD ENDED AUGUST 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAY-02-2001 MAY-04-2000 AUG-02-2000 128,130 14,652 1,217,886 0 1,667,990 3,243,219 4,347,487 1,980,698 9,082,537 2,123,185 4,125,885 0 131 107,774 1,515,803 9,082,537 2,153,492 2,153,492 1,261,338 1,261,338 0 0 81,059 309,405 108,778 200,627 0 0 0 200,627 0.58 0.57
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