-----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, VJuZdLlxhrK34v+34vhxcJeSW/1/fTCpbQ6H78PxTQTA29wXwkDnv4MxFdbEpkHd M9tzrEjNMnbgRnHBFv7mNw== 0000950128-02-000657.txt : 20020911 0000950128-02-000657.hdr.sgml : 20020911 20020911150310 ACCESSION NUMBER: 0000950128-02-000657 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20020911 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEINZ H J CO CENTRAL INDEX KEY: 0000046640 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 250542520 STATE OF INCORPORATION: PA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03385 FILM NUMBER: 02761625 BUSINESS ADDRESS: STREET 1: 600 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4124565700 MAIL ADDRESS: STREET 1: P O BOX 57 STREET 2: P O BOX 57 CITY: PITTSBURGH STATE: PA ZIP: 15230 10-Q 1 j9600301e10vq.txt 3RD QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002 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 JULY 31, 2002 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 6, 2002 was 351,080,144 shares. PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. H.J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
First Quarter Ended -------------------------------- July 31, 2002 August 1, 2001* FY 2003 FY 2002 ------------- --------------- (Unaudited) (In Thousands, Except per Share Amounts) Sales....................................................... $2,203,645 $2,077,295 Cost of products sold....................................... 1,416,732 1,315,016 ---------- ---------- Gross profit................................................ 786,913 762,279 Selling, general and administrative expenses................ 441,781 378,125 ---------- ---------- Operating income............................................ 345,132 384,154 Interest income............................................. 6,405 5,358 Interest expense............................................ 69,090 75,547 Other expense, net.......................................... 11,701 1,758 ---------- ---------- Income before income taxes.................................. 270,746 312,207 Provision for income taxes.................................. 92,951 111,733 ---------- ---------- Net income.................................................. $ 177,795 $ 200,474 ========== ========== Net income per share--diluted............................... $ 0.50 $ 0.57 ========== ========== Average common shares outstanding--diluted.................. 353,529 352,380 ========== ========== Net income per share--basic................................. $ 0.51 $ 0.57 ========== ========== Average common shares outstanding--basic.................... 351,026 349,202 ========== ========== Cash dividends per share.................................... $ 0.4050 $ 0.3925 ========== ==========
*Reclassified, see Note 5 See Notes to Condensed Consolidated Financial Statements. ------------------ 2 H.J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2002 May 1, 2002* FY 2003 FY 2002 ------------- ------------ (Unaudited) (Thousands of Dollars) ASSETS Current Assets: Cash and cash equivalents................................... $ 197,919 $ 206,921 Short-term investments, at cost which approximates market... 2,461 -- Receivables, net............................................ 1,132,782 1,449,147 Inventories................................................. 1,633,440 1,527,554 Prepaid expenses and other current assets................... 339,582 189,944 ----------- ----------- Total current assets................................... 3,306,184 3,373,566 ----------- ----------- Property, plant and equipment............................... 3,979,124 3,872,647 Less accumulated depreciation............................... 1,703,834 1,622,573 ----------- ----------- Total property, plant and equipment, net............... 2,275,290 2,250,074 ----------- ----------- Goodwill, net............................................... 2,557,924 2,528,942 Trademarks, net............................................. 852,732 808,884 Other intangibles, net...................................... 152,170 152,249 Other non-current assets.................................... 1,287,316 1,164,639 ----------- ----------- Total other non-current assets......................... 4,850,142 4,654,714 ----------- ----------- Total assets........................................... $10,431,616 $10,278,354 =========== ===========
*Summarized from audited fiscal year 2002 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------------ 3 H.J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2002 May 1, 2002* FY 2003 FY 2002 ------------- ------------ (Unaudited) (Thousands of Dollars) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt............................................. $ 265,243 $ 178,358 Portion of long-term debt due within one year............... 457,885 524,287 Accounts payable............................................ 872,069 938,483 Salaries and wages.......................................... 45,810 39,376 Accrued marketing........................................... 177,659 164,650 Other accrued liabilities................................... 437,293 471,910 Income taxes................................................ 216,403 192,105 ----------- ----------- Total current liabilities.............................. 2,472,362 2,509,169 ----------- ----------- Long-term debt.............................................. 4,695,433 4,642,968 Deferred income taxes....................................... 385,696 394,935 Non-pension postretirement benefits......................... 209,636 208,509 Other liabilities and minority interest..................... 797,374 804,157 ----------- ----------- Total long-term debt, other liabilities and minority interest............................................. 6,088,139 6,050,569 Shareholders' Equity: Capital stock............................................... 107,883 107,884 Additional capital.......................................... 348,627 348,605 Retained earnings........................................... 5,004,196 4,968,535 ----------- ----------- 5,460,706 5,425,024 Less: Treasury stock at cost (80,031,268 shares at July 31, 2002 and 80,192,280 shares at May 1, 2002).................. 2,889,275 2,893,198 Unearned compensation relating to the ESOP................ -- 230 Accumulated other comprehensive loss...................... 700,316 812,980 ----------- ----------- Total shareholders' equity............................. 1,871,115 1,718,616 ----------- ----------- Total liabilities and shareholders' equity............. $10,431,616 $10,278,354 =========== ===========
*Summarized from audited fiscal year 2002 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------------ 4 H.J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Quarter Ended ------------------------------- July 31, 2002 August 1, 2001 FY 2003 FY 2002 ------------- -------------- (Unaudited) (Thousands of Dollars) Cash Flows from Operating Activities Net Income................................................ $ 177,795 $ 200,474 Adjustments to reconcile net income to cash provided by operating activities: Depreciation........................................... 57,400 58,038 Amortization........................................... 6,255 16,757 Deferred tax provision................................. 7,500 15,521 Other items, net....................................... 867 21,953 Changes in current assets and liabilities, excluding effects of acquisitions and divestitures: Receivables.......................................... 300,182 123,592 Inventories.......................................... (61,683) (79,072) Prepaid expenses and other current assets............ (134,177) (69,249) Accounts payable..................................... (108,435) (181,602) Accrued liabilities.................................. (65,675) (122,638) Income taxes......................................... 47,141 76,127 --------- --------- Cash provided by operating activities............. 227,170 59,901 --------- --------- Cash Flows from Investing Activities: Capital expenditures................................... (32,538) (60,101) Acquisitions, net of cash acquired..................... (17,278) (310,807) Purchases of short-term investments.................... (2,411) (1,093) Other items, net....................................... 8,466 10,836 --------- --------- Cash used for investing activities................ (43,761) (361,165) --------- --------- Cash Flows from Financing Activities: Payments on long-term debt............................. (4,246) (26,571) Payments on commercial paper and short-term borrowings, net........................... (89,525) (656,841) Proceeds from long-term debt........................... -- 764,622 Proceeds from preferred stock of subsidiary............ -- 325,000 Dividends.............................................. (142,134) (137,099) Exercise of stock options.............................. 3,981 13,301 Other items, net....................................... 12,443 17,135 --------- --------- Cash (used for) provided by financing activities...................................... (219,481) 299,547 --------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... 27,070 4,682 --------- --------- Net (decrease) increase in cash and cash equivalents........ (9,002) 2,965 Cash and cash equivalents at beginning of year.............. 206,921 138,849 --------- --------- Cash and cash equivalents at end of period.................. $ 197,919 $ 141,814 ========= =========
See Notes to Condensed Consolidated Financial Statements. ------------------ 5 H.J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION The interim condensed consolidated financial statements of H.J. Heinz Company, together with its subsidiaries (collectively referred to as the "Company") are unaudited. In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results of operations of these interim periods have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full fiscal year due to the seasonal nature of the Company's business. Certain prior year amounts have been reclassified in order to conform with the Fiscal 2003 presentation. These statements should be read in conjunction with the Company's consolidated financial statements and related notes, and management's discussion and analysis of financial condition and results of operations which appear in the Company's Annual Report to Shareholders and which are incorporated by reference into the Company's Annual Report on Form 10-K for the year ended May 1, 2002. (2) AGREEMENT BETWEEN H.J. HEINZ COMPANY AND DEL MONTE FOODS COMPANY On June 13, 2002, Heinz announced that it will transfer to a wholly-owned subsidiary ("Spinco") assets and liabilities of its U.S. and Canadian pet food and pet snacks, U.S. tuna, U.S. retail private label soup and private label gravy, College Inn broth and U.S. infant feeding businesses and distribute all of the shares of Spinco common stock on a pro rata basis to its shareholders. Immediately thereafter, Spinco will merge with a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte") resulting in Spinco becoming a wholly-owned subsidiary of Del Monte (the "Merger"). In connection with the Merger, each share of Spinco common stock will be automatically converted into shares of Del Monte common stock that will result in the fully diluted Del Monte common stock at the effective time of the Merger being held approximately 74.5% by the former Spinco stockholders and approximately 25.5% by the Del Monte stockholders. As a result of the transaction, Heinz will receive $1.1 billion in cash that will be used to retire debt. Included in the transaction will be the following brands: StarKist(R), 9-Lives(R), Kibbles 'n Bits(R), Pup-Peroni(R), Snausages(R), Nawsomes(R), Heinz Nature's Goodness(R) baby food and College Inn(R) broths. The following is a summary of the operating results of the businesses to be spun off:
First Quarter Ended ------------------------------ July 31, 2002 August 1, 2001 ------------- -------------- Revenues........................................ $364,331 $401,754 Operating income/(loss)......................... 49,709 69,948 Operating income excluding special items........ 49,709 77,786
The Merger, which has been approved by the Boards of Directors of Heinz and Del Monte, is subject to the approval by the shareholders of Del Monte and receipt of a ruling from the Internal Revenue Service that the contribution of the assets and liabilities to Spinco and the distribution of the shares of common stock of Spinco to Heinz shareholders will be tax-free to Heinz, Spinco and the shareholders of Heinz. The Merger is also subject to receipt of applicable governmental approvals and the satisfaction of other customary closing conditions. The Company expects that the transaction will close late in calendar year 2002 or early in calendar year 2003. 6 During the first quarter of Fiscal 2003, the Company recognized transaction related costs and costs to reduce overhead of the remaining core businesses totaling $18.4 million pretax ($0.03 per share). (3) INVENTORIES The composition of inventories at the balance sheet dates was as follows:
July 31, 2002 May 1, 2002 ------------- ----------- (Thousands of Dollars) Finished goods and work-in-process..................... $1,261,308 $1,193,989 Packaging material and ingredients..................... 372,132 333,565 ---------- ---------- $1,633,440 $1,527,554 ========== ==========
(4) RESTRUCTURING In the fourth quarter of Fiscal 2001, the Company announced a restructuring initiative named "Streamline". This initiative includes a worldwide organizational restructuring aimed at reducing overhead costs, the closure of the Company's tuna operations in Puerto Rico, the consolidation of the Company's North American canned pet food production to Bloomsburg, Pennsylvania (which resulted in ceasing canned pet food production at the Company's Terminal Island, California facility), and the divestiture of the Company's U.S. fleet of fishing boats and related equipment. The major components of the restructuring charges and implementation costs and the remaining accrual balances as of July 31, 2002 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 2001................... $ 110.5 $110.3 $ 55.4 $ 22.6 $ 298.8 Amounts utilized--Fiscal 2001.......... (110.5) (39.5) (4.7) (22.6) (177.3) ------- ------ ------ ------ ------- Accrued restructuring costs-- May 2, 2001................................. -- 70.8 50.7 -- 121.5 Restructuring and implementation costs--Fiscal 2002................... -- 5.7 -- 10.4 16.1 Revision to accruals and asset write-downs--Fiscal 2002............. 5.8 3.6 (7.7) -- 1.7 Amounts utilized--Fiscal 2002.......... (5.8) (66.6) (32.4) (10.4) (115.2) ------- ------ ------ ------ ------- Accrued restructuring costs-- May 1, 2002................................. -- 13.5 10.6 -- 24.1 Amounts utilized--Fiscal 2003.......... -- (4.0) (1.4) -- (5.4) ------- ------ ------ ------ ------- Accrued restructuring costs-- July 31, 2002................................. $ -- $ 9.5 $ 9.2 $ -- $ 18.7 ======= ====== ====== ====== =======
During the first quarter of Fiscal 2003, the Company utilized $5.4 million of severance and exit cost accruals, principally related to its global overhead reduction plan, primarily in Europe and North America. (5) RECENTLY ADOPTED ACCOUNTING STANDARDS During the fourth quarter of Fiscal 2002, the Company adopted Emerging Issues Task Force ("EITF") statements relating to the classification of vendor consideration and certain sales incentives. The adoption of these EITF statements has no impact on operating income, net earnings, or basic or diluted earnings per share; however, revenues and gross profit were reduced by approximately $108.2 million in the first quarter of Fiscal 2002. Prior period data has been reclassified to conform to the current year presentation. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" which requires that the purchase method of accounting be applied to all business combinations after June 30, 2001. SFAS No. 141 also established criteria for recogni- 7 tion of intangible assets and goodwill. Effective May 2, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets." Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized, but are tested at least annually for impairment. The Company is currently completing its evaluation of the impact of adopting SFAS No. 142 on the consolidated financial statements. The reassessment of intangible assets, including the ongoing impact of amortization, and the assignment of goodwill to reporting units was completed during the first quarter of Fiscal 2003. The transitional goodwill impairment tests will be completed during the second quarter of Fiscal 2003. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. A discounted cash flow model is being used to determine the fair value of the Company's businesses for purposes of testing goodwill for impairment. The discount rate being used is based on a risk-adjusted weighted average cost of capital for the business. The effects of adopting the new standards on net income and diluted earnings per share for the three-month periods ended July 31, 2002 and August 1, 2001 are as follows:
Net Income Diluted EPS ------------------- ------------- 2002 2001 2002 2001 -------- -------- ----- ----- Net income............................ $177,795 $200,474 $0.50 $0.57 Add: Goodwill amortization............ -- 12,771 -- 0.03 Trademark amortization.............. -- 2,131 -- 0.01 -------- -------- ----- ----- Net income excluding goodwill and trademark amortization.............. $177,795 $215,376 $0.50 $0.61 ======== ======== ===== =====
Net income for the quarter ended August 1, 2001 would have been $215,376 or $0.04 per share higher and net income for Fiscal 2002 would have been $896,184 or $0.18 per share higher had the provisions of the new standards been applied as of May 3, 2001. Changes in the carrying amount of goodwill for the three months ended July 31, 2002, by operating segment, are as follows:
Heinz U.S. Pet Other North Products and U.S. Asia/ Operating America Seafood Frozen Europe Pacific Entities Total -------- ------------ -------- -------- -------- --------- ---------- Balance at May 1, 2002............... $719,364 $564,335 $471,351 $639,465 $109,613 $24,814 $2,528,942 Acquisition.......... -- -- -- -- 7,000 -- 7,000 Purchase accounting adjustments........ 1,737 -- 14 (21,875) -- -- (20,124) Translation adjustments........ (1,724) -- -- 42,797 4,097 448 45,618 Other adjustments.... (983) 16 -- (2,697) 152 -- (3,512) -------- -------- -------- -------- -------- ------- ---------- Balance at July 31, 2002............... $718,394 $564,351 $471,365 $657,690 $120,862 $25,262 $2,557,924 ======== ======== ======== ======== ======== ======= ==========
Trademarks and other intangible assets at July 31, 2002 and May 1, 2002, subject to amortization expense, are as follows:
July 31, 2002 May 1, 2002 ------------------------------- ------------------------------- Accum Accum Gross Amort Net Gross Amort Net -------- --------- -------- -------- --------- -------- Trademarks............... $259,268 $ (47,027) $212,241 $252,977 $ (45,153) $207,824 Licenses................. 209,187 (108,515) 100,672 209,204 (107,044) 102,160 Other.................... 107,955 (56,457) 51,498 103,275 (53,186) 50,089 -------- --------- -------- -------- --------- -------- $576,410 $(211,999) $364,411 $565,456 $(205,383) $360,073 ======== ========= ======== ======== ========= ========
8 Amortization expense for trademarks and other intangible assets subject to amortization was $6.3 million for the three months ended July 31, 2002. Based upon the amortizable intangible assets recorded on the balance sheet at July 31, 2002, amortization expense for each of the next five years is estimated to be approximately $25.0 million. Intangible assets not subject to amortization at July 31, 2002 and May 1, 2002, were $640.5 million and $601.1 million respectively, and consisted solely of trademarks. Effective May 2, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, expands the scope of a discontinued operation to include a component of an entity and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The adoption of this new standard did not have a material impact on the Company's financial position, results of operations or cash flows for the three months ended July 31, 2002. (6) RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB approved SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143, addresses accounting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. This standard is effective for the Company in Fiscal 2004. The Company does not expect that the adoption of this standard will have a significant impact on the consolidated financial statements. In June 2002, the FASB approved SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Management is currently assessing the details of this Standard. (7) SEGMENTS 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 segment are as follows: Heinz North America--This segment manufactures, markets and sells ketchup, condiments, sauces, soups, pasta meals and infant foods to the grocery and foodservice channels and includes the Canadian business. U.S. Pet Products & Seafood--This segment manufactures, markets and sells dry and canned pet food, pet snacks, tuna and other seafood. U.S. Frozen--This segment manufactures, markets and sells frozen potatoes, entrees, snacks 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 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 including net sales and the use of capital resources; however, the primary measurement focus is operat- 9 ing 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. The following table presents information about the Company's reportable segments:
First Quarter Ended ------------------------------- July 31, 2002 August 1, 2001 FY 2003 FY 2002* ------------- -------------- (Thousands of Dollars) Net external sales: Heinz North America...................................... $ 586,114 $ 554,927 U.S. Pet Products and Seafood............................ 294,302 328,216 U.S. Frozen.............................................. 245,789 208,976 ---------- ---------- North America Totals..................................... 1,126,205 1,092,119 Europe................................................... 696,341 657,817 Asia/Pacific............................................. 254,424 233,655 Other Operating Entities................................. 126,675 93,704 ---------- ---------- Consolidated Totals...................................... $2,203,645 $2,077,295 ========== ========== Intersegment sales: Heinz North America...................................... $ 9,662 $ 7,331 U.S. Pet Products and Seafood............................ 2,844 4,813 U.S. Frozen.............................................. 1,928 2,201 Europe................................................... 1,564 1,374 Asia/Pacific............................................. 873 292 Other Operating Entities................................. 462 -- Non-Operating (a)........................................ (17,333) (16,011) ---------- ---------- Consolidated Totals...................................... $ -- $ -- ========== ========== Operating income (loss): Heinz North America...................................... $ 105,878 $ 118,471 U.S. Pet Products and Seafood............................ 34,355 57,541 U.S. Frozen.............................................. 51,703 44,236 ---------- ---------- North America Totals..................................... 191,936 220,248 Europe................................................... 142,499 150,571 Asia/Pacific............................................. 21,203 26,136 Other Operating Entities................................. 17,070 11,933 Non-Operating (a)........................................ (27,576) (24,734) ---------- ---------- Consolidated Totals...................................... $ 345,132 $ 384,154 ========== ========== Operating income (loss) excluding special items (b): Heinz North America...................................... $ 112,772 $ 123,345 U.S. Pet Products and Seafood............................ 34,355 65,336 U.S. Frozen.............................................. 51,703 44,236 ---------- ---------- North America Totals..................................... 198,830 232,917 Europe................................................... 142,499 152,286 Asia/Pacific............................................. 21,203 26,734 Other Operating Entities................................. 17,070 11,933 Non-Operating (a)........................................ (16,065) (23,541) ---------- ---------- Consolidated Totals...................................... $ 363,537 $ 400,329 ========== ==========
10 -------------------- (a) Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments. (b) First Quarter ended July 31, 2002 - Excludes Del Monte transaction related costs and cost to reduce overhead of the remaining core businesses as follows: Heinz North America $6.9 million and Non-Operating $11.5 million. First Quarter ended August 1, 2001 - Excludes implementation and restructuring costs of Streamline as follows: Heinz North America $4.9 million, U.S. Pet Products and Seafood $7.8 million, Europe $1.7 million, Asia/Pacific $0.6 million and Non-Operating $1.2 million. The Company's revenues are generated via the sale of products in the following categories:
First Quarter Ended ------------------------------- July 31, 2002 August 1, 2001 FY 2003 FY 2002* ------------- -------------- (Thousands of Dollars) Ketchup, Condiments and Sauces.............................. $ 640,780 $ 598,341 Frozen Foods................................................ 437,754 377,775 Tuna........................................................ 251,069 247,855 Soups, Beans and Pasta Meals................................ 285,914 268,395 Infant Foods................................................ 195,414 196,916 Pet Products................................................ 197,178 237,583 Other....................................................... 195,536 150,430 ---------- ---------- Total................................................... $2,203,645 $2,077,295 ========== ==========
*Reclassified, see Note 5 (8) EARNINGS PER SHARE 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 ------------------------------ July 31, 2002 August 1, 2001 FY 2003 FY 2002 ------------- -------------- (In Thousands, Except per Share Amounts) Net income.................................................. $177,795 $200,474 Preferred dividends......................................... 5 5 -------- -------- Net income applicable to common stock....................... $177,790 $200,469 ======== ======== Average common shares outstanding--basic.................. 351,026 349,202 Effect of dilutive securities: Convertible preferred stock............................. 148 169 Stock options........................................... 2,355 3,009 -------- -------- Average common shares outstanding--diluted................ 353,529 352,380 ======== ======== Net income per share--basic................................. $ 0.51 $ 0.57 ======== ======== Net income per share--diluted............................... $ 0.50 $ 0.57 ======== ========
11 (9) COMPREHENSIVE INCOME
First Quarter Ended ------------------------------- July 31, 2002 August 1, 2001 FY 2003 FY 2002 ------------- -------------- (Thousands of Dollars) Net income.................................................. $177,795 $200,474 Other comprehensive income: Foreign currency translation adjustment................. 117,388 (9,031) Minimum pension liability adjustment.................... 906 140 Deferred gains/(losses) on derivatives: Net change from periodic revaluations.............. 8,165 319 Net amount reclassified to earnings................ (13,795) 243 -------- -------- Comprehensive income........................................ $290,459 $192,145 ======== ========
(10) FINANCIAL INSTRUMENTS The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and utilizes certain financial instruments to manage its foreign currency, commodity price and interest rate exposures. FOREIGN CURRENCY HEDGING: The Company uses forward contracts and currency swaps to mitigate its foreign currency exchange rate exposure due to anticipated purchases of raw materials and sales of finished goods, and future settlement of foreign currency denominated assets and liabilities. Hedges of anticipated transactions and hedges of specific cash flows associated with foreign currency denominated financial assets and liabilities are designated as cash flow hedges, and consequently, the effective portion of unrealized gains and losses is deferred as a component of accumulated other comprehensive loss and is recognized in earnings at the time the hedged item affects earnings. The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. During the quarter ended July 31, 2002, losses of $13.5 million, net of income taxes of $7.9 million, which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive loss within unrealized translation adjustment. COMMODITY PRICE HEDGING: The Company uses commodity futures and options in order to reduce price risk associated with anticipated purchases of raw materials such as corn, soybean oil and soybean meal. Commodity price risk arises due to factors such as weather conditions, government regulations, economic climate and other unforeseen circumstances. Hedges of anticipated commodity purchases which meet the criteria for hedge accounting are designated as cash flow hedges. When using a commodity option as a hedging instrument, the Company excludes the time value of the option from the assessment of hedge effectiveness. INTEREST RATE HEDGING: The Company uses interest rate swaps to manage interest rate exposure. These derivatives are designated as cash flow hedges or fair value hedges depending on the nature of the particular risk being hedged. HEDGE INEFFECTIVENESS: During the quarter ended July 31, 2002, hedge ineffectiveness related to cash flow hedges was a net loss of $0.1 million, which is reported in the consolidated statements of income as other expenses. DEFERRED HEDGING GAINS AND LOSSES: As of July 31, 2002, the Company is hedging forecasted transactions for periods not exceeding 12 months, and expects $6.2 million of net deferred loss reported in accumulated other comprehensive loss to be reclassified to earnings within that time frame. 12 (11) SUBSEQUENT EVENT On September 5, 2002, the Company, H.J. Heinz Finance Company ("HFC") and a group of domestic and international banks renewed an $800 million credit 364-day agreement. That credit agreement and the $1.5 billion credit agreement that expires in September 2006 support the Company's commercial paper programs. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AGREEMENT BETWEEN H.J. HEINZ COMPANY AND DEL MONTE FOODS COMPANY On June 13, 2002, Heinz announced that it will transfer to a wholly-owned subsidiary ("Spinco") assets and liabilities of its U.S. and Canadian pet food and pet snacks, U.S. tuna, U.S. retail private label soup and private label gravy, College Inn broths and U.S. infant feeding businesses and distribute all of the shares of Spinco common stock on a pro rata basis to its shareholders. Immediately thereafter, Spinco will merge with a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte") resulting in Spinco becoming a wholly-owned subsidiary of Del Monte (the "Merger"). In connection with the Merger, each share of Spinco common stock will be automatically converted into shares of Del Monte common stock that will result in the fully diluted Del Monte common stock at the effective time of the Merger being held approximately 74.5% by Heinz shareholders and approximately 25.5% by the Del Monte shareholders. As a result of the transaction, Heinz will receive approximately $1.1 billion in cash that will be used to retire debt. Included in the transaction will be the following brands: StarKist(R), 9-Lives(R), Kibbles 'n Bits(R), Pup-Peroni(R), Snausages(R), Nawsomes(R), Heinz Nature's Goodness(R) baby food and College Inn(R) broths. The following is a summary of the Fiscal 2003 and Fiscal 2002 first quarter operating results of the businesses to be spun off:
First Quarter Ended ------------------------------ July 31, 2002 August 1, 2001 ------------- -------------- Revenues......................................... $ 364,331 $401,754 Operating income................................. 49,709 69,948 Operating income excluding special items......... 49,709 77,786
Pending completion of the transaction, Heinz expects it will adjust its common stock dividend beginning April 2003. The expected indicated dividend will be $1.08 per share, a 33% reduction from the present rate of $1.62 per share which is consistent with its peer group and above the S&P 500 average. [Note: All earnings per share amounts included in Management's Discussion and Analysis are presented on an after-tax diluted basis]. Upon completion of the transaction, Heinz intends to accelerate its focus on cash flow with improvements in working capital and a limit on capital expenditures. In addition to the approximate $1.1 billion debt reduction as a result of the transaction, Heinz is targeting an additional $1.0 billion of debt reduction by the end of Fiscal 2005. The Merger, which has been approved by the Boards of Directors of Heinz and Del Monte, is subject to the approval by the shareholders of Del Monte and receipt of a ruling from the Internal Revenue Service that the contribution of the assets and liabilities to Spinco and the distribution of the shares of common stock of Spinco to Heinz shareholders will be tax-free to Heinz, Spinco and the shareholders of Heinz. The Merger is also subject to receipt of applicable governmental approvals and the satisfaction of other customary closing conditions. The transaction is not expected to close until late in calendar year 2002 or early in calendar year 2003. During the first quarter of Fiscal 2003, the Company recognized transaction related costs and costs to reduce overhead of the remaining core businesses totaling $18.4 million pretax ($0.03 per share). Heinz anticipates transaction related and restructuring costs of approximately $160 million 13 after-tax to be incurred in Fiscal 2003. For more information regarding this transaction, please refer to the Company's Annual Report to Shareholders for the fiscal year ended May 1, 2002. STREAMLINE In the fourth quarter of Fiscal 2001, the Company announced a restructuring initiative named "Streamline". This initiative includes a worldwide organizational restructuring aimed at reducing overhead costs, the closure of the Company's tuna operations in Puerto Rico, the consolidation of the Company's North American canned pet food production to Bloomsburg, Pennsylvania (which resulted in ceasing canned pet food production at the Company's Terminal Island, California facility), and the divestiture of the Company's U.S. fleet of fishing boats and related equipment. The accrued restructuring costs at July 31, 2002 were approximately $18.7 million and relate to employee termination and exit costs. For more information regarding Streamline, please refer to the Company's Annual Report to Shareholders for the fiscal year ended May 1, 2002. THREE MONTHS ENDED JULY 31, 2002 AND AUGUST 1, 2001 RECENTLY ADOPTED ACCOUNTING STANDARDS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", which requires that the purchase method of accounting be applied to all business combinations after June 30, 2001. SFAS No. 141 also established criteria for recognition of intangible assets and goodwill. Effective May 2, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. This standard also requires, at a minimum, an annual assessment of the carrying value of goodwill and intangibles with indefinite useful lives. The Company is currently completing its evaluation of the impact of adopting SFAS No. 142 on the consolidated financial statements. The reassessment of intangible assets, including the ongoing impact of amortization, was completed during the first quarter of Fiscal 2003. The assignment of goodwill to reporting units, along with transitional goodwill impairment tests, must be completed during the second quarter of Fiscal 2003. Net income for the quarter ended August 1, 2001 would have been $215.4 or $0.04 per share higher had the provisions of the new standards been applied as of May 3, 2001. Effective May 2, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." This statement provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, expands the scope of a discontinued operation to include a component of an entity and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The adoption of this new standard did not have a material impact on the Company's financial position, results of operations or cash flows for the three months ended July 31, 2002. During the fourth quarter of Fiscal 2002, the company adopted Emerging Issues Task Force ("EITF") statements relating to the classification of vendor consideration and certain sales incentives. The adoption of these EITF statements has no impact on operating income, net earnings, or basic or diluted earnings per share; however, revenues and gross profit were reduced by approximately $108.2 million in the first quarter of Fiscal 2002. Prior period data has been reclassified to conform to the current year presentation. RESULTS OF OPERATIONS For the three months ended July 31, 2002, sales increased $126.4 million, or 6.1%, to $2.20 billion from $2.08 billion last year. Sales were favorably impacted by acquisitions (4.1%), pricing (4.0%) and foreign exchange translation rates (3.4%). The favorable impact of acquisitions is primarily related to the prior year acquisitions in the Heinz North America and U.S. Frozen segments. The favorable pricing was realized primarily in certain highly inflationary countries. 14 Sales were negatively impacted by unfavorable volumes of 4.6% driven by the current year strategic shift from trade promotional spending to consumer focused promotional and marketing programs. This strategic shift has caused a realignment of promotional timing, particularly in the United States. Additionally, the Company is increasing its focus on trade spending efficiency and effectiveness. Divestitures reduced sales by 0.8%. The current year's first quarter was negatively impacted by costs related to the Del Monte transaction and costs to reduce overhead of the remaining core businesses totaling $18.4 million pretax ($0.03 per share), which are included in selling, general and administrative expenses ("SG&A".) These include employee termination and severance costs, legal and other professional service costs. Last year's first quarter was negatively impacted by Streamline restructuring charges and implementation costs totaling $16.1 million pretax ($0.04 per share.) The following tables provide a comparison of the Company's reported results and the results excluding special items for the first quarter of Fiscal 2003 and Fiscal 2002:
First Quarter Ended July 31, 2002 ---------------------------------------------- Net Gross Operating Net Per Sales Profit Income Income Share (Dollars in millions except per share amounts) -------- ------ --------- ------ ----- Reported results............................. $2,203.6 $786.9 $345.1 $177.8 $0.50 Special items.............................. -- -- 18.4 11.6 0.03 -------- ------ ------ ------ ----- Results excluding special items.............. $2,203.6 $786.9 $363.5 $189.4 $0.54 ======== ====== ====== ====== =====
First Quarter Ended August 1, 2001 ---------------------------------------------- Net Gross Operating Net Per Sales Profit Income Income Share -------- ------ --------- ------ ----- Reported results............................. $2,077.3 $762.3 $384.2 $200.5 $0.57 Streamline implementation costs............ -- 8.7 10.4 9.4 0.03 Streamline restructuring costs............. -- -- 5.7 3.6 0.01 -------- ------ ------ ------ ----- Results excluding special items.............. $2,077.3 $771.0 $400.3 $213.4 $0.61 ======== ====== ====== ====== =====
- --------------- (Note: Totals may not add due to rounding.) Gross profit increased $24.6 million, or 3.2%, to $786.9 million from $762.3 million. Excluding the special items noted above, gross profit increased $15.9 million, or 2.1%, to $786.9 million from $771.0 million and the gross profit margin decreased to 35.7% from 37.1%, primarily related to the U.S. Pet Products and Seafood segment, partially offset by the current year benefit of approximately $16.6 million related to the non-amortization of intangible assets with indefinite lives. SG&A increased $63.7 million, or 16.8%, to $441.8 million from $378.1 million. Excluding the special items noted above, SG&A increased $52.7 million, or 14.2%, to $423.4 million from $370.7 million and increased as a percentage of sales to 19.2% from 17.8%. The increase is primarily driven by increased marketing spend across all segments and increased general and administrative expenses ("G&A") in the Heinz North America and Europe segments. Operating income decreased $39.0 million, or 10.2%, to $345.1 million from $384.2 million. Excluding the special items noted above, operating income decreased $36.8 million, or 9.2%, to $363.5 million from $400.3 million and decreased as a percentage of sales to 16.5% from 19.3% primarily related to the change in gross profit and SG&A discussed above. Net interest expense decreased $7.5 million to $62.7 million from $70.2 million last year, driven primarily by lower interest rates over the past year. Other expense increased $9.9 million to $11.7 million from $1.8 million last year. The increase is primarily attributable to increases in minority interest expense. The effective tax rate for the current quarter was 34.3% compared to 35.8% last year. Excluding the special items noted above, the effective rate was 34.5% in the current quarter compared to 35.0% last year. 15 Net income in the current quarter was $177.8 million compared to $200.5 million last year and diluted earnings per share was $0.50 in the current quarter versus $0.57 in the same period last year. Excluding the special items in the table noted above, net income decreased $24.1 million to $189.4 million from $213.4 million last year, and diluted earnings per share decreased 12.2%, to $0.54 from $0.61 last year. OPERATING RESULTS BY BUSINESS SEGMENT
First Quarter Ended ------------------------------ July 31, 2002 August 1, 2001 ------------- -------------- SALES: Heinz North America......................................... $ 586,114 $ 554,927 U.S. Pet Products and Seafood............................... 294,302 328,216 U.S. Frozen................................................. 245,789 208,976 ---------- ---------- Total North America......................................... 1,126,205 1,092,119 Europe...................................................... 696,341 657,817 Asia/Pacific................................................ 254,424 233,655 Other Operating Entities.................................... 126,675 93,704 ---------- ---------- Consolidated Totals......................................... $2,203,645 $2,077,295 ========== ========== OPERATING INCOME: Heinz North America......................................... $ 105,878 $ 118,471 U.S. Pet Products and Seafood............................... 34,355 57,541 U.S. Frozen................................................. 51,703 44,236 ---------- ---------- Total North America......................................... 191,936 220,248 Europe...................................................... 142,499 150,571 Asia/Pacific................................................ 21,203 26,136 Other Operating Entities.................................... 17,070 11,933 Non-operating............................................... (27,576) (24,734) ---------- ---------- Consolidated Totals......................................... $ 345,132 $ 384,154 ========== ========== OPERATING INCOME EXCLUDING SPECIAL ITEMS: Heinz North America......................................... $ 112,772 $ 123,345 U.S. Pet Products and Seafood............................... 34,355 65,336 U.S. Frozen................................................. 51,703 44,236 ---------- ---------- Total North America......................................... 198,830 232,917 Europe...................................................... 142,499 152,286 Asia/Pacific................................................ 21,203 26,734 Other Operating Entities.................................... 17,070 11,933 Non-Operating............................................... (16,065) (23,541) ---------- ---------- Consolidated Totals......................................... $ 363,537 $ 400,329 ========== ==========
The following discussion of segment operating results excludes the special items discussed above. 16 HEINZ NORTH AMERICA Sales of the Heinz North America segment increased $31.2 million, or 5.6%. Acquisitions, net of divestitures, increased sales 4.6%, due primarily to the prior year acquisitions of Classico and Aunt Millie's pasta sauce, Mrs. Grass Recipe soups and Wyler's bouillons and soups. Higher pricing increased sales 2.5% due mainly to foodservice, private label soup and reduced trade promotions on retail ketchup and baby food. Sales volume decreased 1.3%, due to decreases in retail ketchup and infant feeding, partially offset by specialty sauces and private label soup. Shipments of retail ketchup are down due to the ongoing trade initiatives to reduce inventory levels. The weaker Canadian dollar decreased sales 0.2%. Gross profit increased $12.7 million, or 6.3% due primarily to acquisitions, pricing and the benefit of reduced amortization expense of intangible assets, partially offset by unfavorable sales mix. Operating income decreased $10.5 million, or 8.6%, to $112.8 million from $123.3 million, due primarily to increased marketing and higher G&A partially offset by acquisitions and the change in gross profit. U.S. PET PRODUCTS AND SEAFOOD Sales of the U.S. Pet Products and Seafood segment decreased $33.9 million, or 10.3%. Sales volume decreased 7.7% primarily in pet snacks, canned cat food and dry dog food, partially offset by volume increases in tuna. Lower pricing decreased sales 2.6%, primarily in tuna partially offset by lower trade promotions and higher pricing of pet food. Pet food volume and pricing were impacted by the current year strategic shift from trade promotional spending to consumer focused promotional and marketing programs and the timing of these promotional programs. Gross profit decreased $32.0 million, or 27.4%, primarily due to lower pricing and higher tuna costs and lower volume of pet snacks, partially offset by reduced trade promotion spending in tuna and the benefit of reduced amortization expense of intangible assets. Operating income decreased $31.0 million, or 47.4%, to $34.4 million from $65.3 million, due primarily to the change in gross profit. U.S. FROZEN U.S. Frozen's sales increased $36.8 million, or 17.6%. Acquisitions, net of divestitures, increased sales 24.9%, due primarily to the prior year acquisitions of Delimex frozen Mexican foods, Anchor's Poppers retail frozen appetizers and licensing rights to the T.G.I. Friday's brand of frozen snacks and appetizers. Higher pricing increased sales 5.1%, primarily due to SmartOnes frozen entrees and a reduction in trade promotions related to the launch of Hot Bites in the prior year. Sales volume decreased 12.4% driven by Bagel Bites/Hot Bites, Boston Market HomeStyle Meals and frozen potatoes. The volume decrease is partially attributed to the rationalization of the Hot Bites product lines with renewed focus on the base Bagel Bites business and the timing of promotional and marketing programs across the segment. Gross profit increased $17.4 million or 21.4%, primarily due to acquisitions, partially offset by volume decreases. Operating income increased $7.5 million, or 16.9%, to $51.7 million from $44.2 million reflecting increased marketing and S&D expenses. EUROPE Heinz Europe's sales increased $38.5 million, or 5.9%. Higher pricing increased sales 0.7%, primarily due to seafood, infant feeding and beans, partially offset by lower pricing in frozen foods. Lower volume decreased sales 2.0%, driven primarily by seafood, infant feeding and frozen pizza, partially offset by beans and frozen entrees. Favorable foreign exchange translation rates increased sales by 7.5%. Divestitures reduced sales by 0.3%. 17 Gross profit increased $11.0 million, or 4.1%, due primarily to increased pricing, favorable foreign exchange rates and the benefit of reduced amortization expense of intangible assets. Operating income decreased $9.8 million, or 6.4%, to $142.5 million from $152.3 million primarily attributable to increased marketing and G&A expense offset partially by the favorable change in gross profit. ASIA/PACIFIC Sales in Asia/Pacific increased $20.8 million, or 8.9%. Higher pricing increased sales 3.8%, primarily due to poultry, frozen foods and sauces. Volume decreased sales 4.2%, driven primarily by juices/drinks and cooking oils. Favorable foreign exchange translation rates increased sales by 9.7%. Divestitures reduced sales by 0.4%. Gross profit increased $0.9 million, or 1.2%, due primarily to increased pricing, favorable foreign exchange rates and the current year benefit of approximately $2.0 million related to the non-amortization of intangible assets with indefinite lives, partially offset by the ongoing poor factory operations in connection with the movement of manufacturing offshore for Australia and Japan. Operating income decreased $5.5 million, or 20.7%, to $21.2 million from $26.7 million primarily due to increased marketing and G&A expenses. OTHER OPERATING ENTITIES Sales for Other Operating Entities increased $33.0 million, or 35.2% primarily due to favorable pricing in certain highly inflationary countries. Gross profit increased $3.9 million, or 14.2%, due primarily to favorable pricing. Operating income increased $5.1 million or 43.0% due primarily to the increase in gross profit. LIQUIDITY AND FINANCIAL POSITION Cash provided by operating activities was $227.2 million compared to $59.9 million last year. The increase in Fiscal 2003 versus Fiscal 2002 is primarily due to improved working capital performance and a reduction in payments related to restructuring activities. Cash used for investing activities totaled $43.8 million compared to $361.2 million last year. Acquisitions in the current period required $17.3 million compared to $310.8 million last year. Acquisitions in the prior period related primarily to the purchase of Borden Food Corporation's pasta and dry bouillon and soup business. Capital expenditures in the current quarter required $32.6 million compared to $60.1 million last year. The current year reduction is primarily related to restructuring initiatives in the prior year. Cash used by financing activities was $219.5 million compared to cash provided by financing activities of $299.5 million last year. There were no proceeds from long-term debt in the current year compared to $764.6 last year. Payments on long-term debt required $4.2 million this quarter compared to $26.6 million last year. Commercial paper and short-term borrowings required $89.5 million compared to $656.8 million last year. In addition, $325.0 million was provided during the prior year quarter through the issuance of Preferred Stock by H.J. Heinz Finance Company ("HFC"). Cash provided from stock options exercised totaled $4.0 million versus $13.3 million last year. Dividend payments totaled $142.1 million compared to $137.1 million for the same period last year. In the first quarter of Fiscal 2003, the cash requirements of Streamline were $5.4 million, relating to severance costs. On August 16, 2002, Fitch Ratings initiated coverage of the Company assigning an 'A' rating to the Company's senior unsecured debt and a 'F1' rating to the Company's commercial paper. Fitch indicated that the ratings outlook was stable. In connection with the announcement of the Del 18 Monte transaction, Moody's Investors Service changed the Company's 'A3' senior unsecured debt ratings outlook from negative to stable. On September 5, 2002, the Company, HFC and a group of domestic and international banks renewed an $800 million credit 364-day agreement. That credit agreement and the $1.5 billion credit agreement that expires in September 2006 support the Company's commercial paper programs. As of July 31, 2002 $22.3 million of commercial paper was outstanding and classified as long-term debt due to the long-term nature of the supporting credit agreement. As of May 1, 2002, the Company had $119.1 million of commercial paper outstanding and classified as long-term debt. The impact of inflation on both the Company's financial position and results of operations is not expected to adversely affect Fiscal 2003 results. The Company's financial position continues to remain strong, enabling it to meet cash requirements for operations, capital expansion programs and dividends to shareholders. The Company's goal remains the achievement of previously communicated earnings per share for the full year. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB approved SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143, addresses accounting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. This standard is effective for the Company in Fiscal 2004. The Company does not expect that the adoption of this standard will have a significant impact on the consolidated financial statements. In June 2002, the FASB approved SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Management is currently assessing the details of this Standard and is preparing a plan of implementation. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to shareholders. These forward-looking statements are based on management's views and assumptions of future events and financial performance. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "should," "estimate," "project," "target," "goal" or similar expressions identify "forward-looking statements" within the meaning of the Act. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. These forward-looking statements are uncertain. The risks and uncertainties that may affect operations and financial performance and other activities, some of which may be beyond the control of the Company, include the following: - Changes in laws and regulations, including changes in food and drug laws, accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions; 19 - Competitive product and pricing pressures and the Company's ability to gain or maintain share of sales in the global market as a result of actions by competitors and others; - Fluctuations in the cost and availability of raw materials, including tuna, and the ability to maintain favorable supplier arrangements and relationships; - The impact of higher energy costs and other factors on the cost of producing, transporting and distributing the Company's products; - The Company's ability to generate sufficient cash flows to support capital expenditures, share repurchase programs, debt repayment and general operating activities; - The inherent risks in the marketplace associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance; - The Company's ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume, product mix and other items; - The Company's ability to integrate acquisitions and joint ventures into its existing operations and the availability of new acquisition and joint venture opportunities and the success of divestitures and other business combinations; - The Company's ability to achieve its cost savings objectives, including any restructuring programs and its working capital initiative; - The impact of unforeseen economic and political changes in international markets where the Company competes, such as currency exchange rates, (notably with respect to the euro and the pound sterling) inflation rates, recession, foreign ownership restrictions and other external factors over which the Company has no control; - Interest rate fluctuations and other capital market conditions; - The effectiveness of the Company's advertising, marketing and promotional programs; - Weather conditions, which could impact demand for Company products and the supply and cost of raw materials; - The impact of e-commerce and e-procurement, supply chain efficiency and cash flow initiatives; - The Company's ability to maintain its profit margin in the face of a consolidating retail environment; - The impact of global industry conditions, including the effect of the economic downturn in the food industry and the foodservice business in particular; - The Company's ability to offset the reduction in volume and revenue resulting from participation in categories experiencing declining consumption rates; - With respect to the proposed spin-off and merger between the Company's U.S. and Canadian pet food and pet snacks, U.S. tuna, U.S. retail private label soup and private label gravy, College Inn broth and U.S. infant feeding businesses, and a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte,") the ability to obtain required third party consents, regulatory and Del Monte shareholders' approval, including a private letter ruling from the Internal Revenue Service, and the success of business integration in a timely and cost effective manner; and - With respect to future dividends on Company stock, meeting certain legal requirements at the time of declaration. The foregoing list of important factors is not exclusive. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events 20 and operating performance and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 July 31, 2002. For additional information, refer to pages 43-45 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 2002. 21 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. 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 Company has omitted certain exhibits in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. The Company agrees to furnish such documents to the Commission upon request. 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. 3. The Company's By-Laws, as amended. 12. Computation of Ratios of Earnings to Fixed Charges. 99(a). Certification by the Chief Executive Officer Relating to a Periodic Report Containing Financial Statements. 99(b). Certification by the Chief Financial Officer Relating to a Periodic Report Containing Financial Statements. 99(c). Condensed consolidated financial statements of HFC filed in accordance with rule 3-10 of Regulation S-X. H.J. Heinz Company is a guarantor of all of HFC's outstanding debt. (b) Reports on Form 8-K A report on Form 8-K was filed with the Securities and Exchange Commission on June 18, 2002 in connection with the Agreement and Plan of Merger by and among H.J. Heinz Company, SKF Foods Inc., Del Monte Foods Company and Del Monte Corporation and certain related agreements. 22 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 11, 2002 By: /s/ ARTHUR WINKLEBLACK .......................................... Arthur Winkleblack Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: September 11, 2002 By: /s/ BRUNA GAMBINO .......................................... Bruna Gambino Corporate Controller (Principal Accounting Officer) 23 I, William R. Johnson, Chairman, President and Chief Executive Officer of H.J. Heinz Company certify that: 1. I have reviewed this quarterly report on Form 10-Q of H.J. Heinz Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 11, 2002 By: /s/ WILLIAM R. JOHNSON ------------------------------------ Name: William R. Johnson Title: Chairman, President and Chief Executive Officer 24 I, Arthur Winkleblack, Executive Vice President and Chief Financial Officer of H.J. Heinz Company certify that: 1. I have reviewed this quarterly report on Form 10-Q of H. J. Heinz Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 11, 2002 By: /s/ ARTHUR WINKLEBLACK ------------------------------------ Name: Arthur Winkleblack Title: Executive Vice President and Chief Financial Officer 25 EX-3 3 j9600301exv3.txt BYLAWS Exhibit 3 BY-LAWS OF H. J. HEINZ COMPANY (INCORPORATED UNDER THE LAWS OF PENNSYLVANIA) [HEINZ LOGO] Approved by the Board of Directors: June 10, 1970 Adopted by the Shareholders: September 9, 1970 Amended by the Board of Directors: June 13, 1973, November 9, 1977, June 13, 1979, July 11, 1979, September 9, 1987, July 6, 1990, October 12, 1994, July 10, 1996, April 8, 1998 (effective April 30, 1998), September 8, 1999 and June 12, 2002 Amended by the Shareholders: September 9, 1987 BY-LAWS OF H. J. HEINZ COMPANY ARTICLE I - IDENTIFICATION SECTION 1. PRINCIPAL OFFICE. The principal office of the Company shall be at such place in the Commonwealth of Pennsylvania as the Board of Directors shall by resolution from time to time designate. SECTION 2. SEAL. The Company shall have a corporate seal in such form as the Board of Directors shall by resolution from time to time prescribe. SECTION 3. FISCAL YEAR. The fiscal year shall end on the Wednesday nearest to April 30 of each year and begin on the following day. ARTICLE II - SHAREHOLDERS' MEETING SECTION 1. PLACE OF MEETINGS. Meetings of the shareholders of the Company shall be held at the principal office of the Company or at such other place within or without the Commonwealth of Pennsylvania as may be fixed by the Board of Directors. SECTION 2. ANNUAL MEETING. The annual meeting of the shareholders shall be held on the second Wednesday in September each year at two o'clock p.m., or on such other day or at such other time as may be fixed by the Board of Directors. The shareholders at the annual meeting shall: (i) elect a Board of Directors; (ii) elect independent certified public accountants to examine the annual financial statements of the Company and to report on such examination to the shareholders; and (iii) transact such other business as may properly be brought before such meeting. SECTION 3. CHAIRMAN OF MEETING. All meetings of shareholders shall be called to order and presided over by the Chairman of the Board or in his absence, by the President, or in the absence of both, by the person designated in writing by the Chairman or President.(1) SECTION 4. DETERMINATION OF RECORD DATES. The Board of Directors shall fix a time, not less than ten or more than seventy days, prior to the date of any meeting of shareholders, as a record date for the determination of the shareholders entitled to notice of and to vote on such meeting. SECTION 5. NOTICE TO SHAREHOLDERS. Written notice of every meeting of the shareholders shall be given by, or at the direction of, the person or persons authorized to call the meeting, to each shareholder of record entitled to vote at the meeting: (i) at least thirty days prior to the date fixed for the annual meeting; (ii) at least ten days prior to the date fixed for any special meeting, unless, in either case, a greater period of notice is required by law to be given in advance of such particular meeting. Written notice shall be deemed to be sufficient if given to the shareholder personally, or by sending a copy thereof through the mail to his address appearing on the books of the Company, or supplied by him to the Company for the purpose of notice. The notice required by this By-Law shall specify the place, date and hour of the meeting, and in case of a special meeting, the general nature of the business to be transacted. SECTION 6. NOMINATIONS AND BUSINESS AT MEETINGS. At any annual meeting of shareholders, only persons who are nominated or business that is proposed in accordance with the procedures set forth in this Section 6 shall be eligible for election as Directors or considered for action by shareholders. Nominations of persons for election to the Board of Directors of the Company may be made or business proposed at a meeting of shareholders (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Company entitled to vote at the meeting who complies with the notice and other procedures set forth in this Section 6. Such nominations or business proposals, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Company and such proposals must, under applicable law, be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal office of the Company not less than 120 days nor more than 210 days in advance of the date which is the anniversary of the date the Company's proxy statement was released to shareholders in connection with the previous year's annual meeting or if the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, not less than 90 days before the date of the applicable annual meeting; provided, however, that in the event that less than 90 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 15th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such shareholder's notice shall set forth (i) as to each person who such shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of such person on whose behalf such proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (a) the name and address of such shareholder and beneficial owner, if any, (b) the class and number of shares of the Company which are beneficially owned, (c) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) with respect to any such nomination(s) or proposal(s) and (d) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the person(s) named, or move the proposal identified, in its 2 notice. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a director of the Company. No person shall be eligible for election as a Director of the Company and no business shall be conducted at the annual meeting of shareholders, other than those made by or at the direction of the Board of Directors, unless nominated or proposed in accordance with the procedures set forth in this Section 6. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination or proposal was not made in accordance with the provisions this Section 6 and, if he should so determine, he shall so declare to the meeting and the defective nomination or proposal shall be disregarded.(2) ARTICLE III - DIRECTORS SECTION 1. GENERAL POWERS OF BOARD OF DIRECTORS. The business and affairs of the Company shall be managed by its Board of Directors which is hereby authorized and empowered to exercise all corporate powers of the Company. SECTION 2. QUALIFICATION AND NUMBER. The Board of Directors shall have the power to fix the number of directors and from time to time by proper resolution to increase or decrease the number thereof without a vote of the shareholders provided that the number so determined shall not be less than three. SECTION 3. ELECTION AND TERM. Except as provided in the Company's Restated Articles of Incorporation as amended, the shareholders shall at each annual meeting elect directors each of whom shall serve until the annual meeting of shareholders next following his election and until his successor is elected and shall qualify. SECTION 4. VACANCIES. Vacancies on the Board of Directors, including vacancies from any increase in the number of directors, shall be filled by a majority of the remaining members of the Board though less than a quorum, and each person so elected shall be a director until his successor is elected by the shareholders who may make such election at the next annual meeting of the shareholders or at any special meeting to be called for that purpose and held prior thereto. SECTION 5. NOMINATION OF DIRECTORS. Candidates for election to the Board of Directors at an annual meeting of the shareholders shall be nominated at a regular or special meeting of the Board. Candidates for such election also may be nominated by any shareholder entitled to vote at the meeting in accordance with Article II-Section 6. If any nominee chosen by the Board shall be unwilling or unable to serve as a director if elected, a substitute nominee shall be designated by the Board, and announcement of such designation shall be made at the meeting of the shareholders prior to the voting upon election of directors.(3) SECTION 6. ORGANIZATION MEETING OF BOARD OF DIRECTORS. The Board of Directors shall without notice meet each year upon adjournment of the annual meeting of the 3 shareholders at the principal office of the Company, or at such other time or place as shall be designated in a notice given to all nominees for director, for the purposes of organization, fixing of times and places for regular meetings of the Board for the ensuing year, election of officers and consideration of any other business that may properly be brought before the meeting. SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as shall be fixed at the organization meeting of the Board or as may be otherwise determined by the Board. SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or the Secretary and shall be called by the Secretary at the written request of any two directors.(1) SECTION 9. NOTICE OF REGULAR AND SPECIAL MEETINGS. No notice of a regular meeting of the Board of Directors shall be necessary if the meeting is held at the time and place fixed by the Board at its organization meeting or at the immediately preceding Board meeting. Notice of any regular meeting to be held at another time or place and of all special meetings of the Board, setting forth the time and place of the meeting, and in the case of a special meeting the purpose or purposes thereof, shall be given by letter or other writing deposited in the United States mail not later than during the third day immediately preceding the day for such meeting, or by telephone, telex, facsimile or other oral, written or electronic means, received not later than during the day immediately preceding the day for such meeting or such shorter period as the person or persons calling such meeting may deem necessary or appropriate under the circumstances.(4) SECTION 10. QUORUM. A majority of the directors in office shall be necessary to constitute a quorum for the transaction of business, and the acts of the majority of the directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors. If at any meeting a quorum shall not be present, the meeting may adjourn from time to time until a quorum shall be present. SECTION 11. WRITTEN CONSENT. Any action which may be taken at a meeting of the Board of Directors or at a meeting of the executive or other committee as hereinafter provided may be taken without a meeting, if a consent or consents in writing setting forth the action so taken shall be signed by all the directors or the members of the committee, as the case may be, and shall be filed with the Secretary of the Company. SECTION 12. PARTICIPATION BY CONFERENCE TELEPHONE. One or more directors may participate in a meeting of the Board of Directors or of a committee of the Board as hereinafter provided for by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. SECTION 13. EXECUTIVE COMMITTEE. The Board of Directors may, by resolution adopted by a majority of the whole Board, constitute, abolish or reconstitute an Executive 4 the Board as the Board may determine, but in no event less than three, and shall include the President. The other members of the Executive Committee shall be appointed and may be removed by the Board. The President shall act as Chairman of such Committee, and in his absence, the Committee shall select one of its members to act as Chairman.(5) The Chairman of the Committee shall have power to vote on all questions. The members of the Committee shall hold office until the first meeting of the Board of Directors after the next succeeding annual meeting of the shareholders and until their successors are appointed. The Board of Directors shall fill any vacancy in the Executive Committee, and it shall be its duty to keep the membership of such Committee full. The Executive Committee shall keep proper minutes and records of its proceedings, and all actions of the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such actions, and when the Board is not in session the Executive Committee shall have all powers and rights of the Board unless limited by a resolution of the Board. A quorum of the Executive Committee shall consist of three of its members. All questions shall be decided by the vote of the majority of the members of such Committee present. SECTION 14. OTHER COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, each committee to consist of three or more directors. SECTION 15. COMPENSATION OF OFFICERS AND ASSISTANT OFFICERS. Unless otherwise determined by resolution adopted by the majority of the entire Board of Directors, the Chief Executive Officer of the Company or such officer as he may designate shall have the authority to determine, fix and change the compensation of all officers and assistant officers of the Company elected or appointed by the Board. ARTICLE IV - OFFICERS SECTION 1. NUMBER AND ELECTION. The Board of Directors shall elect a Chairman of the Board, a President, a Secretary and a Treasurer, and may elect such other officers and assistant officers as the Board may deem appropriate.(1) SECTION 2. TERM OF OFFICE. The term of office for all officers shall be until the organization meeting of the Board of Directors following the next annual meeting of shareholders or until their respective successors are elected and shall qualify, but any officer may be removed from office, either with or without cause, at any time by the affirmative vote 5 of the majority of the members of the Board then in office. A vacancy in any office arising from any cause may be filled for the unexpired term by the Board. SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors at which he is present. He may be a member of any of the committees of the Board.(6) SECTION 4. PRESIDENT. The President shall be the Chief Executive Officer and shall have general supervision over the business and affairs of the Company. He shall be a member of the Executive Committee and may be a member of the other committees of the Board. In the absence of the Chairman, he shall have the powers of the Chairman of the Board. In addition, he shall perform all duties as may be assigned to him by the Board of Directors.(5) SECTION 5. SECRETARY. The Secretary shall attend meetings of the shareholders, the Board of Directors and the Executive Committee, shall keep minutes thereof in suitable books, and shall send out all notices of meetings as required by law or by these By-Laws. He shall, in general, perform all duties incident to the office of the Secretary and perform such other duties as may be assigned to him by the Board, the Chairman of the Board or the President.(1) SECTION 6. TREASURER. The Treasurer shall have charge and custody of and be responsible for all funds and deposit all sums in the name of the Company in banks, trust companies or other depositories; he shall receive and give receipts for money due and payable to the Company from any source whatsoever, and in general shall perform all the duties incident to the office of the Treasurer and such other duties as may be assigned to him by the Board of Directors, the President or by any officer to whom the President has directed him to report.(5) SECTION 7. OTHER OFFICERS. The powers and duties of other officers shall be such as may, from time to time, be prescribed by the Board of Directors, the Chairman of the Board or the President.(1) SECTION 8. DELEGATION OF DUTIES OF OFFICERS. In case of the absence of any officer of the Company or for any other reason that the Board of Directors may deem sufficient, the Board, or in the absence of action by the Board, the President, or in his absence, the Chairman of the Board, may delegate for the time being the powers and duties of any officer to any other officer or to any director.(5) ARTICLE V - EXECUTION OF WRITTEN INSTRUMENTS The Board of Directors shall, from time to time, designate the officers, employees or agents of the Company who shall have power in its name to sign and endorse checks and other negotiable instruments, and to borrow money for the Company and in its name to make notes or other evidence of indebtedness. Any officer so designated by the Board may further 6 delegate his powers to the extent provided in any resolution of the Board. Unless otherwise authorized by the Board, all contracts, leases, deeds and deeds of trust, mortgages, powers of attorney to transfer stock and all other documents requiring the seal of the Company shall be executed for and on behalf of the Company by the Chairman of the Board, the President or any Vice President, and shall be attested by the Secretary or an Assistant Secretary.(1) ARTICLE VI - CERTIFICATES OF STOCK AND TRANSFERS OF STOCK SECTION 1. FORM OF SHARE CERTIFICATES AND TRANSFER. Share certificates representing the capital stock of the Company shall be in such form as the Board of Directors may from time to time determine. Each certificate shall be signed by the Chairman of the Board, the President or one of the Vice Presidents or other officer designated by the Board and shall be countersigned by the Treasurer or an Assistant Treasurer and sealed with the seal of the Company. If such certificates of stock are signed or countersigned by a corporate transfer agent and a corporate registrar of the Company, such signature of the Chairman of the Board, the President or other officer, and the countersignature of the Treasurer or Assistant Treasurer, and such seal, or any of them, may be a facsimile, engraved or printed.(1) SECTION 2. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint an incorporated bank or trust company in the City of Pittsburgh and a similar institution in the City of New York to act as transfer agents for the Company's capital stock with such duties and powers as may be prescribed by the Board in the resolutions appointing them; and an incorporated bank or trust company in the City of Pittsburgh and a similar institution in the City of New York to act as registrars of the Company's capital stock. A share certificate of the Company shall not be valid or binding unless countersigned by a transfer agent and registered before issue by a registrar. SECTION 3. REGISTERED SHAREHOLDERS. The Company shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Pennsylvania. SECTION 4. LOST CERTIFICATE. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and shall, if the directors so require, give the Company a bond of indemnity, in form and with one or more sureties satisfactory to the Board, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed.(7) SECTION 5. DETERMINATION OF SHAREHOLDERS ENTITLED TO DIVIDENDS, DISTRIBUTIONS OR RIGHTS. The Board of Directors may fix a time not more than fifty days prior to the date fixed for the payment of any dividend or distribution or the date for the allotment of rights or the date when any change or conversion or exchange of shares will be made or go into effect as a record date for the determination of the shareholders entitled to receive payment of any 7 such dividend or distribution or to receive any such allotment or rights or to exercise the rights in respect to any such change, conversion or exchange of shares.(8) ARTICLE VII - LIMITATION OF DIRECTOR LIABILITY(9) To the fullest extent that the laws of the Commonwealth of Pennsylvania, as in effect on January 27, 1987 or as thereafter amended, permit elimination or limitation of the liability of directors, no director of the Company shall be personally liable for monetary damages as such for any action taken, or any failure to take any action, as a director. This Article shall not apply to any action filed prior to January 27, 1987, nor to any breach of performance of duty or any failure of performance of duty by any director occurring prior to January 27, 1987. The provisions of this Article shall be deemed to be a contract with each director of the Company who serves as such at any time while such provisions are in effect, and each such director shall be deemed to be serving as such in reliance on the provisions of this Article. This Article shall not be amended, altered or repealed without the affirmative vote of the holders of at least 80% of the voting power (without consideration of the rights of any class of stock to elect directors by a separate class) of the then outstanding shares of Capital stock of the Company entitled to vote in an annual election of directors, voting together and not as separate classes, unless such amendment, alteration or repeal is first recommended and approved by a majority of the entire Board of Directors in which case only a majority shareholder vote shall be required. Such affirmative vote shall be required notwithstanding the fact that no vote is required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. Any amendment to, alternation, or repeal or adoption of this Article which has the effect of increasing director liability shall operate prospectively only and shall not have any effect with respect to any action taken, or any failure to act, by a director prior thereto. ARTICLE VIII - ADDITIONAL INDEMNIFICATION PROVISIONS APPLICABLE TO PROCEEDINGS BASED ON ACTS OR OMISSIONS ON OR AFTER JANUARY 27, 1987(9) SECTION 1. RIGHT OF INDEMNIFICATION. Except as prohibited by law, every director and officer of the Company shall be entitled as of right to be indemnified by the Company against reasonable expenses and any liability paid or incurred by such person in connection with any actual, threatened or completed claim, action, suit or proceeding, civil, criminal, administrative, investigative or other, whether brought by or in the right of the Company or otherwise, in which he or she may be involved, as a party or otherwise, by reason of such person being or having been a director or officer of the Company or by reason of the fact that such person is or was serving at the request of the Company as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (such claim, action, suit or proceeding hereinafter being referred to as an "action"); provided, however, that no such right of indemnification shall exist with respect to an action brought by a director or officer against the Company other than a suit for indemnification as provided in Section 3. Persons or classes of persons who are not directors or officers of the Company may be similarly indemnified in respect of service to the Company or to another such enterprise at the request of the Company to the 8 extent the Board of Directors at any time denominates such person or such class of persons as entitled to the benefits of this Article. As used herein, "expenses" shall include fees and expenses of counsel selected by such person; and "liability" shall include amounts of judgments, excise taxes, fines, penalties, and amounts paid in settlement. SECTION 2. RIGHT TO ADVANCEMENT OF EXPENSES. Indemnification under Section 1 shall include the right to have expenses incurred by such person in connection with an action (other than an action brought by such person against the Company) paid in advance by the Company prior to final disposition of such action, subject to such conditions as may be prescribed by law or by a provision in the Company's Related Articles of Incorporation, these By-Laws, agreement or otherwise to reimburse the Company in certain events. SECTION 3. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1 or Section 2 of this Article is not paid in full by the Company within thirty days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action that the conduct of the claimant was such that under Pennsylvania law the Company would be prohibited from indemnifying the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the conduct of the claimant was not such that indemnification would be prohibited by law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that the conduct of the claimant was such that indemnification would be prohibited by law, shall be a defense to the action or create a presumption that the conduct of the claimant was such that indemnification would be prohibited by law. The only defense to any such action to receive payment of expenses in advance under Section 2 of this Article shall be failure to make an undertaking to reimburse if such undertaking is required by law or by a provision in the Company's Restated Articles of Incorporation, these By-Laws, agreement or otherwise. SECTION 4. INSURANCE AND FUNDING. The Company may purchase and maintain insurance to protect itself and any person eligible to be indemnified hereunder against any liability or expense asserted or incurred by such person in connection with any action, whether or not the Company would have the power to indemnify such person against such liability or expense by law or under the provisions of this Article. The Company may create a trust fund, grant a security interest, cause a letter of credit to be issued or use other means (whether or not similar to the foregoing) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. SECTION 5. NON-EXCLUSIVITY, NATURE AND EXTENT OF RIGHTS. The rights of indemnification and advancement of expenses provided for herein (i) shall not be deemed exclusive of any other rights, whether now existing or hereafter created, to which those 9 seeking indemnification hereunder may be entitled under any agreement, by-law or charter provision, vote of shareholders or directors or otherwise, (ii) shall be deemed to create contractual rights in favor of persons entitled to indemnification hereunder, (iii) shall continue as to persons who have ceased to have the status pursuant to which they were entitled or were denominated as entitled to indemnification hereunder and shall inure to the benefit of the heirs and legal representatives of persons entitled to indemnification and (iv) shall be applicable to actions, suits or proceedings commenced after the adoption hereof, whether arising from acts or omissions occurring before or after the adoption hereof. SECTION 6. EFFECTIVE DATE. This Article shall apply to every action other than an action filed prior to January 27, 1987, except that it shall not apply to the extent that Pennsylvania law prohibits its application to any breach of performance of duty or any failure of performance of duty by a claimant occurring prior to January 27, 1987. SECTION 7. INDEMNIFICATION Agreement. The Company may enter into agreements with any director, officer or employee of the Company, which agreements may grant rights to any person eligible to be indemnified hereunder or create obligations of the Company in furtherance of, different from, or in addition to, but not in limitation of, those provided in this Article, without shareholder approval of any such agreement. Without limitation of the foregoing, the Company may obligate itself (i) to maintain insurance on behalf of any person eligible to be indemnified hereunder against certain expenses and liabilities and (ii) to contribute to expenses and liabilities incurred by such person in accordance with the application of relevant equitable considerations to the relative benefits to, and the relative fault of, the Company. SECTION 8. PARTIAL Indemnification. If any person is entitled under any provision of this Article to indemnification by the Company of a portion, but not all, of the expenses or liability resulting from an action, the Company shall nevertheless indemnify such person for the portion thereof to which he is entitled. SECTION 9. SEVERABILITY. If any provision of this Article shall be held to be invalid, illegal or unenforceable for any reason (i) such provision shall be invalid, illegal or unenforceable only to the extent of such prohibition and the validity, legality and enforceability of the remaining provisions of this Article shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the remaining provisions of this Article shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. SECTION 10. AMENDMENT, ALTERATION OR REPEAL. This Article may be amended, altered or repealed at any time in the future by vote of the majority of the entire Board of Directors without shareholder approval; provided that any amendment, alteration or repeal, or adoption of any Article of the Restated Articles of Incorporation or any By-Law of the Company, which has the effect of limiting the rights granted under this Article, shall require the affirmative vote of the holders of at least 80% of the voting power (without consideration 10 of the rights of any class of stock to elect directors by a separate class) of the then outstanding shares of capital stock of the Company entitled to vote in an annual election of directors, voting together and not as separate classes, unless such amendment, alteration or repeal is first recommended and approved by a majority of the entire Board of Directors in which case only a majority shareholder vote shall be required. Such affirmative vote shall be required notwithstanding the fact that no vote is required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. Any amendment to, alteration or repeal of this Article, or such other Article or other By-Law, which has the effect of limiting the rights granted under this Article shall operate prospectively only, and shall not limit in any way the indemnification provided for herein with respect to any action taken, or failure to act, occurring prior thereto. ARTICLE IX - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS SECTION 1. INDEMNIFICATION FOR ACTIONS, ETC., OTHER THAN BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify any person who was or is a party or is threatened with being made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action, suit or proceeding by or in the right of the Company) by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. INDEMNIFICATION FOR ACTIONS, ETC., BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify any person who was or is a party or is threatened with being made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless and only to the extent that the court or body in or before which such action, suit or proceeding was finally brought shall 11 determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court of competent jurisdiction shall deem proper. SECTION 3. DETERMINATION OF RIGHT TO INDEMNIFICATION. To the extent that a director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section (1) and (2) of this Article or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Any indemnification under Sections (1) or (2) of this Article (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of a director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in this Article. Such determination shall be made: (a) By the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) If such a quorum is not obtainable, or, even if obtainable a majority vote of a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) By the shareholders. SECTION 4. PAYMENT OF EXPENSES. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Section 3 of this Article upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Article. SECTION 5. INDEMNIFICATION OF MANAGERIAL AND RETIRED EMPLOYEES. Each employee of the Company acting in a managerial capacity (and each retired employee who is or was, after retirement, a party to an agreement under which he is or was obligated to render services to the Company or such other entity) shall be reimbursed and indemnified in the same manner and to the same extent as provided in this Article for a director or officer in connection with any proceeding in which he may be involved or to which he may be a party by reason of his being or having been such employee or a party to any such agreement or by reason of any action alleged to have been taken or omitted by him in any such capacity. SECTION 6. OTHER RIGHTS AND REMEDIES. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action 12 in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. To the extent permitted by law, the Board of Directors may at its discretion from time to time purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have power to indemnify him against such liability under the provisions of this Article. SECTION 8. APPLICABILITY. The indemnification and reimbursement provided under this Article shall continue to be provided to all persons described herein unless such persons have received the benefits of indemnification under Article VIII of these By-Laws.(10) ARTICLE X - NON-APPLICABILITY OF PROVISIONS OF PENNSYLVANIA ACT NO. 36 OF 1990(11) The following provisions of Pennsylvania Act No. 36 of 1990 shall not be applicable to the Company: A. Subchapter G of Chapter 25 of Title 15 of the Pennsylvania Consolidated Statutes. B. Subchapter H of Chapter 25 of Title 15 of the Pennsylvania Consolidated Statutes. ARTICLE XI - BY-LAWS SUBJECT TO PROVISIONS OF ARTICLES OF INCORPORATION In case of any conflict between the provisions of these By-Laws and the Company's Restated Articles of Incorporation as amended from time to time, the provisions of the Articles of Incorporation shall control, and with respect to any provisions required to be set forth in the By-Laws, the applicable provisions of the Articles of Incorporation are and shall be incorporated herein by reference and shall be deemed a part of these By-Laws. 13 ARTICLE XII - AMENDMENTS(12) Except as otherwise provided in Articles VII and VIII, these By-Laws may be altered, amended, added to or repealed by the Board of Directors at any meeting of the Board duly convened with or without notice of that purpose, subject to the power of the shareholders to change such action. - -------- (1) Section amended by the Board of Directors on June 13, 1973 and June 13, 1979. (2) Section added by the Board of Directors on September 8, 1999. (3) Section amended by the Board of Directors on September 8, 1999. (4) Section amended by the Board of Directors on October 12, 1994. (5) Section amended by the Board of Directors on June 13, 1973, June 13, 1979, July 10, 1996 and April 8, 1998 (effective April 30, 1998). (6) Section amended by the Board of Directors on June 13, 1979, July 10, 1996 and April 8, 1998 (effective April 30, 1998). (7) Section amended by the Board of Directors on July 11, 1979. (8) Section amended by the Board of Directors on November 9, 1977. (9) Article added by the Shareholders on September 9, 1987. (10) Section added by the Board of Directors on September 9, 1987. (11) Article added by the Board of Directors on July 6, 1990 and amended by the Board of Directors on June 12, 2002. (12) Article amended by the Board of Directors on September 9, 1987. 14 EX-12 4 j9600301exv12.txt COMPUTATION OF RATIOS EXHIBIT 12 H.J. HEINZ COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
First Quarter Ended Fiscal Years Ended ------------- -------------------------------------------------------------- May 1, May 2, May 3, April 28, April 29, July 31, 2002 2001 2000 1999 1998 2002 (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) ------------- ---------- ---------- ---------- ---------- ---------- Fixed Charges: Interest expense*.......................... $ 70,438 $ 297,315 $ 335,531 $ 271,597 $ 260,743 $ 260,401 Capitalized interest....................... -- 48 8,396 -- -- 1,542 Interest component of rental expense....... 7,473 32,315 28,096 32,274 29,926 30,828 -------- ---------- ---------- ---------- ---------- ---------- Total fixed charges...................... $ 77,911 $ 329,678 $ 372,023 $ 303,871 $ 290,669 $ 292,771 -------- ---------- ---------- ---------- ---------- ---------- Earnings: Income before income taxes................. $270,746 $1,278,590 $ 673,058 $1,463,676 $ 835,131 $1,254,981 Add: Interest expense*..................... 70,438 297,315 335,531 271,597 260,743 260,401 Add: Interest component of rental expense.................................. 7,473 32,315 28,096 32,274 29,926 30,828 Add: Amortization of capitalized interest................................. 432 1,862 2,129 2,799 3,050 3,525 -------- ---------- ---------- ---------- ---------- ---------- Earnings as adjusted..................... $349,089 $1,610,082 $1,038,814 $1,770,346 $1,128,850 $1,549,735 -------- ---------- ---------- ---------- ---------- ---------- Ratio of earnings to fixed charges......... 4.48 4.88 2.79 5.83 3.88 5.29 ======== ========== ========== ========== ========== ==========
- --------------- * Interest expense includes amortization of debt expense and any discount or premium relating to indebtedness. EX-99.A 5 j9600301exv99wa.txt CERTIFICATION - JOHNSON EXHIBIT 99(A) CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER RELATING TO A PERIODIC REPORT CONTAINING FINANCIAL STATEMENTS I, William R. Johnson, Chairman, President and Chief Executive Officer of H. J. Heinz Company, a Pennsylvania corporation (the "Company"), hereby certify that: (a) The Company's periodic report on Form 10-Q for the quarterly period ended July 31, 2002 (the "Form 10-Q"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * CHIEF EXECUTIVE OFFICER /s/ WILLIAM R. JOHNSON -------------------------------------- William R. Johnson Chairman, President and Chief Executive Officer Date: September 11, 2002 EX-99.B 6 j9600301exv99wb.txt CERTIFICATION - WINKLEBLACK EXHIBIT 99(B) CERTIFICATION BY THE CHIEF FINANCIAL OFFICER RELATING TO A PERIODIC REPORT CONTAINING FINANCIAL STATEMENTS I, Arthur Winkleblack, Executive Vice President and Chief Financial Officer, of H. J. Heinz Company, a Pennsylvania corporation (the "Company"), hereby certify that: (a) The Company's periodic report on Form 10-Q for the quarterly period ended July 31, 2002 (the "Form 10-Q"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * CHIEF FINANCIAL OFFICER /s/ ARTHUR WINKLEBLACK -------------------------------------- Arthur Winkleblack Executive Vice President and Chief Financial Officer Date: September 11, 2002 EX-99.C 7 j9600301exv99wc.txt CONDENSED CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99(c) H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002 H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
First Quarter Ended ------------------------------- July 31, 2002 August 1, 2001* FY 2003 FY 2002 ------------- --------------- (Unaudited) (in thousands) Sales....................................................... $1,038,374 $492,261 Cost of products sold....................................... 687,643 320,320 ---------- -------- Gross profit................................................ 350,731 171,941 Selling, general and administrative expenses................ 190,674 69,600 Royalty expense to related parties.......................... 44,936 23,098 ---------- -------- Operating income............................................ 115,121 79,243 Interest income............................................. 6,592 11,763 Interest expense............................................ 50,542 52,173 Dividends from related parties.............................. 30,798 38,519 Currency (loss)/gain........................................ (22,105) 2,431 Other expense............................................... 3,008 2,229 ---------- -------- Income before income taxes and minority interest............ 76,856 77,554 Provision for income taxes.................................. 2,389 9,342 ---------- -------- Income before minority interest............................. 74,467 68,212 Minority interest........................................... (70,213) (52,305) ---------- -------- Net income.................................................. $ 4,254 $ 15,907 ========== ========
*Reclassified, see Note 7 See Notes to Condensed Consolidated Financial Statements. 1 H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2002 May 1, 2002* FY 2003 FY 2002 ------------- ------------ (Unaudited) (in thousands) ASSETS Current assets: Cash and cash equivalents................................. $ 11,347 $ 6,924 Receivables, net.......................................... 484,711 732,714 Due from related parties.................................. 57,529 72,762 Short-term notes receivable from related parties.......... 1,337,703 921,014 Inventories............................................... 747,699 710,267 Prepaid expenses and other current assets................. 140,448 61,439 ---------- ---------- Total current assets................................... 2,779,437 2,505,120 Property, plant and equipment............................... 1,490,244 1,516,365 Less accumulated depreciation............................... 677,167 661,429 ---------- ---------- Total property, plant and equipment, net............... 813,077 854,936 Long-term notes receivable from related parties............. 35,000 35,000 Investments in related parties.............................. 1,895,245 1,895,245 Intangible assets, net...................................... 1,925,675 1,926,590 Other noncurrent assets..................................... 344,120 267,558 ---------- ---------- Total other noncurrent assets.......................... 4,200,040 4,124,393 ---------- ---------- Total assets........................................... $7,792,554 $7,484,449 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt with related parties...................... $ 365,660 $ 132,164 Portion of long-term debt due within one year............. 451,885 451,375 Accounts payable.......................................... 245,493 256,372 Accounts payable to related parties....................... 177,129 153,968 Accrued interest.......................................... 107,647 79,442 Other accrued liabilities................................. 144,813 146,210 ---------- ---------- Total current liabilities.............................. 1,492,627 1,219,531 Long-term debt.............................................. 3,973,334 3,936,025 Deferred income taxes....................................... 20,488 23,059 Other liabilities........................................... 29,401 36,431 ---------- ---------- Total long-term debt and other liabilities............. 4,023,223 3,995,515 Minority interest........................................... 1,763,845 1,758,476 Mandatorily Redeemable Series A Preferred shares............ 325,000 325,000 Shareholders' equity: Common stock.............................................. 11 11 Additional capital........................................ 128,050 128,050 Retained earnings......................................... 57,231 58,035 Accumulated other comprehensive gain/(loss)............... 2,567 (169) ---------- ---------- Total shareholders' equity............................. 187,859 185,927 ---------- ---------- Total liabilities and shareholders' equity............. $7,792,554 $7,484,449 ========== ==========
- --------------- * Summarized from audited Fiscal Year 2002 balance sheet See Notes to Condensed Consolidated Financial Statements. 2 H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Quarter Ended ------------------------------- July 31, 2002 August 1, 2001 FY 2003 FY 2002 ------------- -------------- (Unaudited) (in thousands) Cash provided by (used for) Operating Activities............ $ 340,776 $(128,005) --------- --------- Cash Flows from Investing Activities: Capital expenditures...................................... (16,559) (2,556) Acquisitions, net of cash acquired........................ -- (290,200) Other items, net.......................................... 10,136 (20,978) --------- --------- Cash used for investing activities..................... (6,423) (313,734) --------- --------- Cash Flows from Financing Activities: Payments on long-term debt................................ -- (7,167) Proceeds from long-term debt.............................. -- 748,959 Payments on commercial paper and short-term borrowings, net.................................................... (260,933) (617,998) Distributions to Class A partners......................... (64,844) -- Dividends on preferred shares............................. (5,058) -- Proceeds from mandatorily redeemable Series A preferred shares................................................. -- 325,000 Other items, net.......................................... 905 500 --------- --------- Cash (used for) provided by financing activities....... (329,930) 449,294 --------- --------- Net increase in cash and cash equivalents................... 4,423 7,555 Cash and cash equivalents, beginning of period.............. 6,924 10,127 --------- --------- Cash and cash equivalents, end of period.................... $ 11,347 $ 17,682 ========= =========
See Notes to Condensed Consolidated Financial Statements. 3 H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) On May 3, 2001, H.J. Heinz Company ("Heinz") reorganized its U.S. corporate structure and established centers of excellence for the management of U.S. trademarks and for U.S. treasury functions. As a result, all of the U.S. treasury and business operations of Heinz's domestic operations ("the U.S. Group") are now being conducted by H.J. Heinz Finance Company and its wholly-owned subsidiaries, and H.J. Heinz Company, L.P. ("Heinz LP") collectively referred to as "Heinz Finance" in the accompanying notes. H.J. Heinz Finance Company has limited partnership interests in Heinz LP. As part of the reorganization, substantially all assets and liabilities of the U.S. Group, except for finished goods inventories, which were retained by Heinz, were contributed to Heinz LP by Heinz. In addition, certain assets and liabilities that related to the U.S. Group were assumed by Heinz Finance during Fiscal 2002. H.J. Heinz Finance Company assumed primary liability for approximately $2.9 billion of Heinz's outstanding senior unsecured debt and accrued interest by becoming co-obligor with Heinz. Heinz LP owns or leases the operating assets involved in manufacturing throughout the United States which were contributed by Heinz and its subsidiaries, together with other assets and liabilities, to Heinz LP and manages the business. Heinz LP has two classes of limited partnership interests, Class A and Class B, that are allocated varying income and cash distributions in accordance with the Heinz LP agreement. H.J. Heinz Finance Company, directly and through wholly-owned subsidiaries, owns the Class B interests. Heinz, directly and through wholly-owned subsidiaries, owns the Class A interests. Heinz Management Company, a wholly-owned subsidiary of Heinz, is the managing General Partner of Heinz LP and employs the salaried personnel of the U.S. Group. Under the partnership agreement, Heinz Finance has the power to control the general partner through majority membership on Heinz LP's management board. The minority interest amounts on the July 31, 2002 and May 1, 2002 balance sheets represent the Class A and General Partner limited partnership interest in Heinz LP, and have been adjusted for the minority partners' share of income and cash distributions. (2) The interim condensed consolidated financial statements of Heinz Finance are unaudited. 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. 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 business of Heinz Finance. Certain prior year amounts have been reclassified in order to conform with the Fiscal 2003 presentation. These statements should be read in conjunction with Heinz Finance's consolidated and combined financial statements and related notes which appear in Heinz's Form 10-K for the year ended May 1, 2002. (3) AGREEMENT BETWEEN H.J. HEINZ COMPANY AND DEL MONTE FOODS COMPANY On June 13, 2002, Heinz announced that it will transfer to a wholly-owned subsidiary ("Spinco") certain assets and liabilities of its U.S. pet food and pet snacks, U.S. tuna, U.S. retail private label soup and private label gravy, College Inn(R) broths and U.S. infant feeding businesses, all of which are owned by Heinz Finance, and distribute all of the shares of Spinco common stock on a pro rata basis to its shareholders. Immediately thereafter, Spinco will merge with a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte") resulting 4 in Spinco becoming a wholly-owned subsidiary of Del Monte ("the Merger"). In connection with the Merger, each share of Spinco common stock will be automatically converted into shares of Del Monte common stock that will result in the fully diluted Del Monte common stock at the effective time of the Merger being held approximately 74.5% by Heinz shareholders and approximately 25.5% by the Del Monte shareholders. As a result of the transaction, Heinz Finance will receive approximately $1.1 billion in cash that will be primarily used to retire debt. Included in the transaction will be the following brands: StarKist(R), 9-Lives(R), Kibbles 'n Bits(R), Pup-Peroni(R), Snausages(R), Nawsomes(R), Heinz Nature's Goodness(R) baby food and College Inn(R) broths. The following is a summary of the operating results of the businesses to be spun off:
First Quarter Ended ------------------------------ July 31, 2002 August 1, 2001 ------------- -------------- Revenues........................................ $349,095 $90,955 Operating income................................ 23,659 17,216
The Merger, which has been approved by the Boards of Directors of Heinz and Del Monte, is subject to the approval by the shareholders of Del Monte and receipt of a ruling from the Internal Revenue Service that the contribution of the assets and liabilities to Spinco and the distribution of the shares of common stock of Spinco to Heinz shareholders will be tax-free to Heinz, Spinco and the shareholders of Heinz. The Merger is also subject to receipt of applicable governmental approvals and the satisfaction of other customary closing conditions. Heinz expects that the transaction will close late in calendar year 2002 or early in calendar year 2003. (4) INVENTORIES The composition of inventories at the balance sheet dates was as follows:
July 31, May 1, 2002 2002 (in thousands) -------- -------- Finished goods and work-in-process................... $600,318 $567,482 Packaging material and ingredients................... 147,381 142,785 -------- -------- $747,699 $710,267 ======== ========
(5) TAXES The provision for income taxes consists of provisions for federal and state income taxes. The low effective tax rate for Heinz Finance for the first quarters of Fiscal 2003 and 2002 is a result of Heinz Finance's nontaxable minority interest in Heinz LP. (6) RESTRUCTURING In the fourth quarter of Fiscal 2001, Heinz announced a restructuring initiative named "Streamline" which includes an organizational restructuring aimed at reducing overhead costs and the consolidation of Heinz Finance's canned pet food production to Bloomsburg, Pennsylvania (which resulted in ceasing canned pet food production at Heinz Finance's Terminal Island, California facility). 5 The major components of the restructuring charge and implementation costs and the remaining accrual balances as of July 31, 2002 were as follows:
Employee Termination Non-Cash and Accrued Asset Severance Exit Implementation (in millions) Write-Downs Costs Costs Costs Total ------------- ----------- ----------- ------- -------------- ----- Restructuring and implementation costs--Fiscal 2001.................. $34.7 $15.4 $22.8 $11.8 $84.7 Amounts utilized--Fiscal 2001......... (34.7) (5.8) (1.7) (11.8) (54.0) ----- ----- ----- ----- ----- Accrued restructuring costs--May 2, 2001................................ -- $ 9.6 $21.1 -- $30.7 Implementation costs--Fiscal 2002..... -- -- -- 1.2 1.2 Revisions to accruals and asset write- downs--Fiscal 2002.................. 4.3 (3.1) (5.9) -- (4.7) Amounts utilized--Fiscal 2002......... (4.3) (2.5) (10.4) (1.2) (18.4) Liability assumed by related party--Fiscal 2002.................. -- (3.8) (0.6) -- (4.4) ----- ----- ----- ----- ----- Accrued restructuring costs--May 1, 2002................................ -- 0.2 4.2 -- 4.4 Amounts utilized--Fiscal 2003......... -- (0.1) (0.9) -- (1.0) ----- ----- ----- ----- ----- Accrued restructuring costs--July 31, 2002................................ $ -- $ 0.1 $ 3.3 $ -- $ 3.4 ===== ===== ===== ===== =====
During the first quarter of Fiscal 2003, Heinz Finance utilized $1.0 million of severance and exit cost accruals, principally related to its overhead reduction plan. (7) RECENTLY ADOPTED ACCOUNTING STANDARDS During the fourth quarter of Fiscal 2002, Heinz Finance adopted Emerging Issues Task Force ("EITF") statements relating to the classification of vendor consideration and certain sales incentives. The adoption of these EITF statements has no impact on operating income or net earnings; however, revenues and gross profit were reduced by approximately $64.5 million in the first quarter of Fiscal 2002. Prior period data has been reclassified to conform to the current year presentation. Heinz Finance adopted Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" which requires that the purchase method of accounting be applied to all business combinations after June 30, 2001. SFAS No. 141 also established criteria for recognition of intangible assets and goodwill. Effective May 2, 2002, Heinz Finance adopted SFAS No. 142 "Goodwill and Other Intangible Assets." Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized, but are tested at least annually for impairment. Heinz Finance is currently completing its evaluation of the impact of adopting SFAS No. 142 on the consolidated financial statements. The reassessment of intangible assets, including the ongoing impact of amortization, was completed during the first quarter of Fiscal 2003. The assignment of goodwill to reporting units, along with transitional goodwill impairment tests, must be completed during the second quarter of Fiscal 2003. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. A discounted cash flow model is being used to determine the fair value of Heinz Finance's businesses for purposes of testing goodwill for impairment. The discount rate being used is based on a risk-adjusted weighted average cost of capital for the business. 6 The effects of adopting the new standards on net income for the three-month periods ended July 31, 2002 and August 1, 2001 follow.
Net Income ---------------- 2002 2001 ------ ------- Net income............................................... $4,254 $15,907 Add: Goodwill amortization, net of tax and minority interest............................................... -- 268 Trademark amortization, net of tax and minority interest........................................... -- 40 ------ ------- Net income excluding goodwill and trademark amortization........................................... $4,254 $16,215 ====== =======
Net income for the quarter ended August 1, 2001 would have been $16,215 and net income for Fiscal 2002 would have been $83,742 had the provisions of the new standards been applied as of May 3, 2001. Changes in the carrying amount of goodwill for the three months ended July 31, 2002, by operating segment are as follows:
Heinz U.S. Pet North Products U.S. America and Seafood Frozen Total -------- ----------- -------- ---------- Balance at May 1, 2002...... $615,772 $564,335 $470,381 $1,650,488 Adjustments................. 597 16 15 628 -------- -------- -------- ---------- Balance at July 31, 2002.... $616,369 $564,351 $470,396 $1,651,116 ======== ======== ======== ==========
Trademarks and other intangible assets at July 31, 2002 and May 1, 2002, subject to amortization expense, are as follows:
July 31, 2002 May 1, 2002 ---------------------------------- ---------------------------------- Accumulated Accumulated Gross Amortization Net Gross Amortization Net -------- ------------ -------- -------- ------------ -------- Trademarks........... $ 39,103 $ (1,129) $ 37,974 $ 39,103 $ (835) $ 38,268 Licenses............. 208,186 (112,617) 95,569 208,186 (106,730) 101,456 Other................ 92,120 (42,204) 49,916 91,138 (45,860) 45,278 -------- --------- -------- -------- --------- -------- $339,409 $(155,950) $183,459 $338,427 $(153,425) $185,002 ======== ========= ======== ======== ========= ========
Amortization expense for trademarks and other intangible assets subject to amortization was $2.5 million for the three months ended July 31, 2002. Based upon the amortizable intangible assets recorded on the balance sheet at July 31, 2002, amortization expense for each of the next five years is estimated to be approximately $10.0 million. Intangible assets not subject to amortization at July 31, 2002 and May 1, 2002, were $91.1 million and consisted solely of trademarks. Effective May 2, 2002, Heinz Finance adopted SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." This statement provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, expands the scope of a discontinued operation to include a component of an entity and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The adoption of this new standard did not have a material impact on Heinz Finance's financial position, results of operations or cash flows for the three months ended July 31, 2002. 7 (8) RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB approved SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143, addresses accounting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. This standard is effective for Heinz Finance in Fiscal 2004. Heinz Finance does not expect that the adoption of this standard will have a significant impact on the consolidated financial statements. In June 2002, the FASB approved SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Management is currently assessing the details of this Standard. (9) RELATED PARTY TRANSACTIONS Employee Costs Certain of Heinz's general and administrative expenses are charged to Heinz Finance. These costs primarily include a management charge of all salaried employee costs from the Heinz Management Company. Total costs charged to Heinz Finance for these services were $86.9 million and $82.0 million for the three months ended July 31, 2002 and August 1, 2001, respectively. These costs are recorded as cost of products sold and SG&A expense in the accompanying consolidated statements of income. Heinz charges Heinz Finance for its share of group health insurance costs for eligible company employees based upon location-specific costs, overall insurance costs and loss experience incurred during a calendar year. In addition, various other insurance coverages are also provided to Heinz Finance through Heinz's consolidated programs. Workers compensation, auto, property, product liability and other insurance coverages are charged directly based on Heinz Finance's loss experience. Amounts charged to Heinz Finance for insurance costs were $18.3 million and $15.4 million for the three months ended July 31, 2002 and August 1, 2001, respectively, and are recorded in SG&A expense in the accompanying consolidated statements of income. Pension costs and postretirement costs are also charged to Heinz Finance based upon eligible employees participating in the plans. Cash Management Beginning in Fiscal 2002, Heinz Finance became the treasury center for cash management and debt financing for all of Heinz's domestic operations. In addition, in the first quarter of Fiscal 2003, Heinz Finance entered into a short-term note payable with Heinz Europe Limited, a wholly-owned subsidiary of Heinz, for $213.4 million. These two events resulted in the $972.0 million and $788.9 million of net short-term notes receivable with related parties on the July 31, 2002 and May 1, 2002, respectively, condensed consolidated balance sheets. An average interest rate of 1.95% and 3.93% was charged on these notes resulting in $6.2 million and $11.0 million of interest income recorded on the July 31, 2002 and August 1, 2001, respectively, consolidated statements of income. Product Sales and Purchases Heinz Finance sells and purchases products and services to and from other Heinz affiliates. The result of related party transactions is the $57.5 million and $72.8 million balances due from related parties as of July 31, 2002 and May 1, 2002, respectively, and the $177.1 million 8 and $154.0 million balances for accounts payable to related parties as of July 31, 2002 and May 1, 2002, respectively. Product sales to related parties were $12.5 million and $12.3 million in the three months ended July 31, 2002 and August 1, 2001, respectively, and purchases from related parties were $120.1 million and $70.8 million in the three months ended July 31, 2002 and August 1, 2001, respectively. Other Related Party Items Heinz Finance sold undivided interests in certain accounts receivable to a Heinz affiliate, Receivables Servicing Company ("RSC"). Heinz Finance sold $619.2 million of receivables net of discount expense of $2.8 million for the year ended May 1, 2002, to RSC. These sales were reflected as reductions of trade accounts receivable. Heinz Finance's contract with RSC terminated in December 2001. Heinz Finance holds $1.9 billion of non-voting, 6.5% cumulative non-participating preferred stock of PM Holding, Inc. ("PM Holding"), a subsidiary of Heinz. This dividend amounted to $30.8 million and $38.5 million for the three months ended July 31, 2002 and August 1, 2001, respectively. This preferred stock investment is recorded in the Investments in related parties balance on the condensed consolidated balance sheets as of July 31, 2002 and May 1, 2002. Heinz Finance paid royalties of $44.9 million and $23.1 million as of July 31, 2002 and August 1, 2001, respectively, to Promark International, Inc., an indirect subsidiary of Heinz, for the use of certain trademarks. The $35.0 million long-term note receivable from related parties recorded on the accompanying condensed consolidated balance sheets as of July 31, 2002 and May 1, 2002, relates to a receivable from Heinz that was contributed to Heinz Finance in exchange for common stock of Heinz Finance. Heinz Finance received an administrative fee from Heinz for acting as the agent in the sale of the retained inventory discussed in Note (1). This fee was $8.4 million for the three months ended August 1, 2001, which is recorded as income in SG&A expense in the accompanying consolidated statement of income. (10) Descriptions of Heinz Finance's reportable segments are as follows: - Heinz North America -- This segment manufactures, markets and sells ketchup, condiments, sauces, soups, pasta meals and infant foods to the grocery and foodservice channels. - U.S. Pet Products and Seafood -- This segment manufactures, markets and sells dry and canned pet food, pet snacks, tuna and other seafood. - U.S. Frozen -- This segment manufactures, markets and sells frozen potatoes, entrees, snacks and appetizers. Heinz Finance's management evaluates performance based on several factors including net sales and the use of capital resources; 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 excluded from the measure of segment profitability reviewed by Heinz Finance's management. 9 The following table presents information about Heinz Finance's reportable segments:
Net External Sales Intersegment Sales ------------------------------ ------------------------------ First Quarter Ended --------------------------------------------------------------- July 31, 2002 August 1, 2001 July 31, 2002 August 1, 2001 (in thousands) FY 2003 FY 2002 FY 2003 FY 2002 - -------------- ------------- -------------- ------------- -------------- Heinz North America........... $ 495,132 $290,553 $18 $ 90 U.S. Pet Products and Seafood..................... 295,531 89,186 -- -- U.S. Frozen................... 247,711 112,522 9 17 ---------- -------- --- ---- Consolidated totals......... $1,038,374 $492,261 $27 $107 ========== ======== === ====
Operating Income ------------------------------ First Quarter Ended ------------------------------ July 31, 2002 August 1, 2001 (in thousands) FY 2003 FY 2002 - -------------- ------------- -------------- Heinz North America..................................... $ 62,870 $44,695 U.S. Pet Products and Seafood........................... 13,573 14,062 U.S. Frozen............................................. 39,145 21,390 Non-Operating(a)........................................ (467) (904) -------- ------- Consolidated totals................................... $115,121 $79,243 ======== =======
-------------------- (a) Includes charges not directly attributable to operating segments. (11) COMPREHENSIVE INCOME
First Quarter Ended ------------------------------ July 31, 2002 August 1, 2001 (in thousands) FY 2003 FY 2002 - -------------- ------------- -------------- Net income.............................................. $ 4,254 $15,907 Deferred gains/(losses) on derivatives: Net change from periodic revaluations................. 15,773 1,643 Net amount reclassified to earnings................... (13,206) 138 ------- ------- Comprehensive income.................................... $ 6,821 $17,688 ======= =======
(12) FINANCIAL INSTRUMENTS Heinz Finance utilizes certain financial instruments to manage its foreign currency, commodity price and interest rate exposures. FOREIGN CURRENCY HEDGING: Heinz Finance may hedge specific foreign currency cash flows associated with foreign-currency-denominated financial assets and liabilities. These hedges are accounted for as cash flow hedges. COMMODITY PRICE HEDGING: Heinz Finance uses commodity futures and options in order to reduce price risk associated with anticipated purchases of raw materials such as corn, soybean oil and soybean meal. Commodity price risk arises due to factors such as weather conditions, government regulations, economic climate and other unforeseen circumstances. Hedges of anticipated commodity purchases which meet the criteria for hedge accounting are designated as cash flow hedges. When using a commodity option as a hedging instrument, Heinz Finance excludes the time value of the option from the assessment of hedge effectiveness. INTEREST RATE HEDGING: Heinz Finance uses interest rate swaps to manage interest rate exposure. These derivatives are designated as cash flow hedges or fair value hedges depending on the nature of the particular risk being hedged. 10 HEDGE INEFFECTIVENESS: During the quarter ended July 31, 2002, hedge ineffectiveness related to cash flow hedges was a net loss of $0.3 million which is reported in the consolidated statements of income as other expenses. DEFERRED HEDGING GAINS AND LOSSES: As of July 31, 2002, Heinz Finance is hedging forecasted transactions for periods not exceeding 12 months, and expects $2.6 million of net deferred gain reported in accumulated other comprehensive income to be reclassified to earnings within that time frame. (13) SUBSEQUENT EVENT On September 5, 2002, Heinz Finance, Heinz and a group of domestic and international banks renewed an $800 million credit 364-day agreement. That credit agreement and the $1.5 billion credit agreement that expires in September 2006 supports Heinz Finance's and Heinz's commercial paper programs. 11 -----END PRIVACY-ENHANCED MESSAGE-----