-----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, BbsVZqASxbjssdUX97yy5re+GkFy5f7O5qeKLtbxA9fty6cRIUAJ5LGYYGvR5kq0 Hpindhv4u8K9XorcRcm/pQ== 0000950128-03-000349.txt : 20030313 0000950128-03-000349.hdr.sgml : 20030313 20030313164115 ACCESSION NUMBER: 0000950128-03-000349 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030129 FILED AS OF DATE: 20030313 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: 03602717 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 j9855701e10vq.txt H.J. HEINZ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 29, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ FOR THE NINE MONTHS ENDED JANUARY 29, 2003 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 March 7, 2003 was 351,405,149 shares. PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS H.J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Third Quarter Ended ------------------------------------ January 29, 2003 January 30, 2002 FY 2003 FY 2002 ---------------- ---------------- (Unaudited) (In Thousands, Except per Share Amounts) Sales...................................................... $2,105,003 $1,928,746 Cost of products sold...................................... 1,342,958 1,259,481 ---------- ---------- Gross profit............................................... 762,045 669,265 Selling, general and administrative expenses............... 440,405 350,635 ---------- ---------- Operating income........................................... 321,640 318,630 Interest income............................................ 9,149 4,620 Interest expense........................................... 58,870 54,468 Other expense, net......................................... 66,470 18,044 ---------- ---------- Income from continuing operations before income taxes...... 205,449 250,738 Provision for income taxes................................. 75,600 89,503 ---------- ---------- Income from continuing operations.......................... 129,849 161,235 Income from discontinued operations, net of tax............ 21,770 40,425 ---------- ---------- Net income................................................. $ 151,619 $ 201,660 ========== ========== Income per common share Diluted Continuing operations................................. $ 0.37 $ 0.46 Discontinued operations............................... 0.06 0.11 ---------- ---------- Net income.......................................... $ 0.43 $ 0.57 ========== ========== Average common shares outstanding--diluted............... 353,973 352,745 ========== ========== Basic Continuing operations................................. $ 0.37 $ 0.46 Discontinued operations............................... 0.06 0.12 ---------- ---------- Net income.......................................... $ 0.43 $ 0.58 ========== ========== Average common shares outstanding--basic................. 351,198 349,704 ========== ========== Cash dividends per share................................... $ 0.4050 $ 0.4050 ========== ==========
See Notes to Condensed Consolidated Financial Statements. ------------------ 2 H.J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended ------------------------------------ January 29, 2003 January 30, 2002 FY 2003 FY 2002 ---------------- ---------------- (Unaudited) (In Thousands, Except per Share Amounts) Sales...................................................... $6,043,487 $5,543,869 Cost of products sold...................................... 3,857,784 3,528,550 ---------- ---------- Gross profit............................................... 2,185,703 2,015,319 Selling, general and administrative expenses............... 1,237,142 1,052,841 ---------- ---------- Operating income........................................... 948,561 962,478 Interest income............................................ 21,764 13,333 Interest expense........................................... 165,325 174,260 Other expenses, net........................................ 101,452 30,271 ---------- ---------- Income from continuing operations before income taxes and effect of change in accounting principle................. 703,548 771,280 Provision for income taxes................................. 250,790 275,970 ---------- ---------- Income from continuing operations before effect of change in accounting principle.................................. 452,758 495,310 Income from discontinued operations, net of tax............ 88,738 115,065 ---------- ---------- Income before effect of change in accounting principle..... 541,496 610,375 Effect of change in accounting principle................... (77,812) -- ---------- ---------- Net income................................................. $ 463,684 $ 610,375 ========== ========== Income per common share Diluted Continuing operations................................. $ 1.28 $ 1.40 Discontinued operations............................... 0.25 0.33 Effect of change in accounting principle.............. (0.22) -- ---------- ---------- Net income.......................................... $ 1.31 $ 1.73 ========== ========== Average common shares outstanding--diluted............... 353,973 352,745 ========== ========== Basic Continuing operations................................. $ 1.29 $ 1.42 Discontinued operations............................... 0.25 0.33 Effect of change in accounting principle.............. (0.22) -- ---------- ---------- Net income.......................................... $ 1.32 $ 1.75 ========== ========== Average common shares outstanding--basic................. 351,198 349,704 ========== ========== Cash dividends per share................................... $ 1.2150 $ 1.2025 ========== ==========
See Notes to Condensed Consolidated Financial Statements. ------------------ 3 H.J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
January 29, 2003 May 1, 2002* FY 2003 FY 2002 ---------------- ------------ (Unaudited) (Thousands of Dollars) ASSETS Current Assets: Cash and cash equivalents................................... $ 824,117 $ 202,403 Receivables, net............................................ 1,106,499 1,232,388 Inventories................................................. 1,287,209 1,196,922 Prepaid expenses and other current assets................... 245,513 156,061 Current assets of discontinued operations................... -- 585,792 ---------- ----------- Total current assets................................... 3,463,338 3,373,566 ---------- ----------- Property, plant and equipment............................... 3,453,554 3,201,520 Less accumulated depreciation............................... 1,476,356 1,292,408 ---------- ----------- Total property, plant and equipment, net............... 1,977,198 1,909,112 ---------- ----------- Goodwill, net............................................... 1,848,922 1,826,504 Trademarks, net............................................. 612,325 549,635 Other intangibles, net...................................... 136,869 142,076 Other non-current assets.................................... 1,580,394 1,116,338 Non-current assets of discontinued operations............... -- 1,361,123 ---------- ----------- Total other non-current assets......................... 4,178,510 4,995,676 ---------- ----------- Total assets........................................... $9,619,046 $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 BALANCE SHEETS
January 29, 2003 May 1, 2002* FY 2003 FY 2002 ---------------- ------------ (Unaudited) (Thousands of Dollars) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt............................................. $ 142,840 $ 178,358 Portion of long-term debt due within one year............... 257,569 524,287 Accounts payable............................................ 847,743 882,826 Salaries and wages.......................................... 47,084 34,355 Accrued marketing........................................... 189,268 155,094 Other accrued liabilities................................... 398,485 431,000 Income taxes................................................ 242,996 191,091 Current liabilities of discontinued operations.............. -- 112,158 ---------- ----------- Total current liabilities.............................. 2,125,985 2,509,169 ---------- ----------- Long-term debt.............................................. 4,690,557 4,642,968 Deferred income taxes....................................... 301,213 268,307 Non-pension postretirement benefits......................... 188,830 187,275 Other liabilities and minority interest..................... 741,422 777,283 Non-current liabilities of discontinued operations.......... -- 174,736 ---------- ----------- Total long-term debt, other liabilities and minority interest............................................. 5,922,022 6,050,569 Shareholders' Equity: Capital stock............................................... 107,882 107,884 Additional capital.......................................... 376,879 348,605 Retained earnings........................................... 4,424,855 4,968,535 ---------- ----------- 4,909,616 5,425,024 Less: Treasury stock at cost (79,698,311 shares at January 29, 2003 and 80,192,280 shares at May 1, 2002)............. 2,880,791 2,893,198 Unearned compensation..................................... 23,364 230 Accumulated other comprehensive loss...................... 434,422 812,980 ---------- ----------- Total shareholders' equity............................. 1,571,039 1,718,616 ---------- ----------- Total liabilities and shareholders' equity............. $9,619,046 $10,278,354 ========== ===========
*Summarized from audited fiscal year 2002 balance sheet. See Notes to Condensed Consolidated Financial Statements. ------------------ 5 H.J. HEINZ COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended ------------------------------------ January 29, 2003 January 30, 2002 FY 2003 FY 2002 ---------------- ---------------- (Unaudited) (Thousands of Dollars) Cash Flows from Operating Activities Net income................................................ $ 463,684 $ 610,375 Net income from discontinued operations................... (88,738) (115,065) ----------- --------- Net income from continuing operations..................... 374,946 495,310 Adjustments to reconcile net income to cash provided by operating activities: Depreciation............................................ 147,828 119,731 Amortization............................................ 9,972 43,256 Deferred tax provision.................................. 37,758 38,799 Effect of change in accounting principle................ 77,812 -- Provision for transaction costs and restructuring....... 61,050 8,280 Other items, net........................................ (51,784) (54,942) Changes in current assets and liabilities, excluding effects of acquisitions and divestitures: Receivables........................................... 158,922 17,993 Inventories........................................... (75,500) (221,439) Prepaid expenses and other current assets............. (89,403) (125,823) Accounts payable...................................... (74,289) (64,710) Accrued liabilities................................... (95,943) (91,893) Income taxes.......................................... 79,816 77,711 ----------- --------- Cash provided by operating activities.............. 561,185 242,273 ----------- --------- Cash Flows from Investing Activities: Capital expenditures.................................... (92,249) (108,172) Acquisitions, net of cash acquired...................... (13,554) (802,668) Proceeds from divestitures.............................. 54,981 31,889 Proceeds from spin-off.................................. 1,063,557 -- Purchases of short-term investments..................... (8,235) (2,049) Sales and maturities of short-term investments.......... -- 7,378 Other items, net........................................ (7,628) (29,419) ----------- --------- Cash provided by/(used for) investing activities... 996,872 (903,041) ----------- --------- Cash Flows from Financing Activities: Proceeds from long-term debt............................ -- 770,772 Payments on long-term debt.............................. (487,980) (37,526) (Payments on) proceeds from commercial paper and short-term borrowings, net............................ (177,333) 2,219 Proceeds from preferred stock of subsidiary............. -- 325,000 Dividends............................................... (430,991) (420,568) Exercise of stock options............................... 6,523 53,186 Purchase of treasury stock.............................. -- (45,363) Other items, net........................................ 14,215 11,637 ----------- --------- Cash (used for)/provided by financing activities... (1,075,566) 659,357 ----------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... 36,995 (5,871) Effect of discontinued operations........................... 102,228 70,749 ----------- --------- Net increase in cash and cash equivalents................... 621,714 63,467 Cash and cash equivalents at beginning of year.............. 202,403 138,849 ----------- --------- Cash and cash equivalents at end of period.................. $ 824,117 $ 202,316 =========== ========= Supplemental cash flow information: Noncash activities: Net assets spun-off..................................... $ 1,644,195 $ -- =========== =========
See Notes to Condensed Consolidated Financial Statements. ------------------ 6 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) DISCONTINUED OPERATIONS AND SPIN-OFF On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF Foods") certain assets and liabilities, including 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 its U.S. infant feeding businesses and distributed all of the shares of SKF Foods common stock on a pro rata basis to its shareholders. Immediately thereafter, SKF Foods merged with a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte") resulting in SKF Foods becoming a wholly-owned subsidiary of Del Monte ("the Merger"). In accordance with generally accepted accounting principles, the operating results and net assets related to these businesses spun off to Del Monte have been treated as discontinued operations in the Company's consolidated statements of income and condensed consolidated balance sheets. Discontinued operations for the three and nine months ended January 29, 2003, include operating results for two and eight months, respectively. The net assets distributed to Heinz shareholders have been treated as a dividend and charged to retained earnings. The discontinued operations generated sales of $257.4 million and $436.4 million and net income of $21.8 million (net of $5.5 million in tax) and $40.4 million (net of $19.1 million in tax) for the three months ended January 29, 2003 and January 30, 2002, respectively. The discontinued operations generated sales of $1,091.3 million and $1,312.8 million and net income of $88.7 million (net of $35.4 million in tax) and $115.1 million (net of $56.5 million) for the nine months ended January 29, 2003 and January 30, 2002, respectively. 7 Net assets related to discontinued operations of $1,660.0 million are reported on the May 1, 2002 condensed consolidated balance sheet. These assets consist of the following:
(Thousands of Dollars) May 1, 2002 - ---------------------- ------------ Receivables................................................. $ 216,759 Inventories................................................. 330,632 Property, plant and equipment, net.......................... 340,962 Intangibles................................................. 971,860 Other assets................................................ 86,702 ---------- Total assets........................................... 1,946,915 ---------- Accounts payable............................................ 55,657 Other accrued liabilities................................... 56,501 Other long-term liabilities................................. 174,736 ---------- Total liabilities...................................... 286,894 ---------- Net assets............................................. $1,660,021 ==========
During the three and nine months ended January 29, 2003, the Company recognized transaction related costs and costs to reduce overhead of the remaining businesses totaling $72.1 million pretax and $100.7 million pretax, respectively. (3) INVENTORIES The composition of inventories at the balance sheet dates was as follows:
January 29, 2003 May 1, 2002 ---------------- ----------- (Thousands of Dollars) Finished goods and work-in-process.................. $ 986,073 $ 922,823 Packaging material and ingredients.................. 301,136 274,099 ---------- ---------- $1,287,209 $1,196,922 ========== ==========
(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 January 29, 2003 were as follows:
Employee Termination and Accrued (Dollars in Millions) Severance Costs Exit Costs Total --------------------- --------------- ---------- ------- Accrued restructuring costs-- May 1, 2002................... $ 13.5 $ 10.6 $ 24.1 Amounts utilized/spun off in Fiscal 2003.................... (10.6) (10.5) (21.1) ------ ------ ------- Accrued restructuring costs-- January 29, 2003.............. $ 2.9 $ 0.1 $ 3.0 ====== ====== =======
During the first nine months of Fiscal 2003, the Company utilized $17.7 million of severance and exit cost accruals, principally related to its global overhead reduction plan, primarily in Europe and North America. In addition, as a result of the Merger, a $3.4 million restructuring liability related to ceasing canned pet food production at the Company's Terminal Island, California facility was transferred to Del Monte in the third quarter of Fiscal 2003. 8 (5) RECENTLY ADOPTED ACCOUNTING STANDARDS 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 impairment assessment of the carrying value of goodwill and intangibles with indefinite useful lives. 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 Company completed its transitional goodwill impairment tests during the second quarter of Fiscal 2003 and, as a result, recorded a transitional impairment charge which is calculated as of May 2, 2002, and recorded as an effect of a change in accounting principle in the nine- month period ended January 29, 2003, of $77.8 million ($0.22 per share). There was no tax effect associated with this charge. The charge, which relates to certain of the Company's reporting units, has been reflected in its segments as follows: Europe $54.6 million, Asia/ Pacific $2.7 million, and Other Operating Entities $20.5 million. The transitional impairment charge resulted from application of the new impairment methodology introduced by SFAS No. 142. Previous accounting rules incorporated a comparison of carrying value to undiscounted cash flows, whereas new rules require a comparison of carrying value to discounted cash flows, which are lower. Under previous requirements, no goodwill impairment would have been recorded on May 2, 2002. Based upon current and forecasted operating results, the Company does not anticipate any further goodwill impairment charges in the near term. The effects of adopting the new standards on net income and diluted earnings per share are as follows:
Third Quarter Ended Nine Months Ended ----------------------------------- ------------------------------------ Net Income Diluted EPS Net Income Diluted EPS ------------------- ------------- ------------------- -------------- (Thousands of Dollars) 2003 2002 2003 2002 2003 2002 2003 2002 - ---------------------- -------- -------- ----- ----- -------- -------- ------ ----- Net income before effect of change in accounting principle............... $151,619 $201,660 $0.43 $0.57 $541,496 $610,375 $ 1.53 $1.73 Add: Goodwill amortization............ -- 14,262 -- 0.04 -- 40,850 -- 0.11 Trademark amortization.. -- 2,132 -- 0.01 -- 6,392 -- 0.02 -------- -------- ----- ----- -------- -------- ------ ----- Adjusted net income before effect of change in accounting principle.... 151,619 218,054 0.43 0.62 541,496 657,617 1.53 1.86 Effect of change in accounting principle.... -- -- -- -- (77,812) -- (0.22) -- -------- -------- ----- ----- -------- -------- ------ ----- Adjusted net income....... $151,619 $218,054 $0.43 $0.62 $463,684 $657,617 $ 1.31 $1.86 ======== ======== ===== ===== ======== ======== ====== =====
Income from continuing operations for the three and nine month periods ended January 30, 2002 would have been $169.2 million and $528.8 million or $0.02 and $0.09 per share higher, respectively, and net income for Fiscal 2002 would have been $699.1 million or $0.13 per share higher had the provisions of the new standards been applied as of May 3, 2001. 9 Changes in the carrying amount of goodwill for the nine months ended January 29, 2003, by reportable segment, are as follows:
Heinz Other North U.S. Asia/ Operating (Thousands of Dollars) America Frozen Europe Pacific Entities Total ---------------------- -------- -------- -------- -------- --------- ---------- Balance at May 1, 2002............. $581,261 $471,351 $639,465 $109,613 $ 24,814 $1,826,504 Acquisition/(disposal)............. (5,564) -- -- 10,232 (3,453) 1,215 Effect of change in accounting principle........................ -- -- (54,533) (2,737) (20,542) (77,812) Purchase accounting reclassifications................ 1,737 5,287 (21,875) -- -- (14,851) Translation adjustments............ 1,140 -- 91,080 21,262 701 114,183 Other.............................. (141) (1,291) (1,244) 2,427 (68) (317) -------- -------- -------- -------- -------- ---------- Balance at January 29, 2003........ $578,433 $475,347 $652,893 $140,797 $ 1,452 $1,848,922 ======== ======== ======== ======== ======== ==========
Trademarks and other intangible assets at January 29, 2003 and May 1, 2002, subject to amortization expense, are as follows:
January 29, 2003 May 1, 2002 ------------------------------- ------------------------------- Accum Accum (Thousands of Dollars) Gross Amort Net Gross Amort Net - ---------------------- -------- --------- -------- -------- --------- -------- Trademarks............... $192,138 $ (45,050) $147,088 $179,496 $ (28,238) $151,258 Licenses................. 208,186 (111,145) 97,041 208,186 (106,730) 101,456 Other.................... 94,636 (54,808) 39,828 87,941 (47,321) 40,620 -------- --------- -------- -------- --------- -------- $494,960 $(211,003) $283,957 $475,623 $(182,289) $293,334 ======== ========= ======== ======== ========= ========
Amortization expense for trademarks and other intangible assets subject to amortization was $10.0 million for the nine months ended January 29, 2003. Based upon the amortizable intangible assets recorded on the balance sheet at January 29, 2003, amortization expense for each of the next five years is estimated to be approximately $13.3 million. Intangible assets not subject to amortization at January 29, 2003 and May 1, 2002, were $465.2 million and $398.4 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 nine months ended January 29, 2003. 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 Company will apply the provisions of SFAS No. 146 to all exit or disposal activities that are initiated after December 31, 2002. (6) RECENTLY ISSUED ACCOUNTING STANDARDS During the third quarter of fiscal 2003, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued, and it requires the recognition of a liability at fair value by a 10 guarantor at the inception of a guarantee. The disclosure requirements of FIN 45 are effective as of January 29, 2003. The initial recognition and measurement provisions of FIN 45 are effective on a prospective basis for all guarantees issued or modified after December 31, 2002. The Company has not issued or modified any material guarantees since December 31, 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for entities that voluntarily change to the fair value method of accounting for stock-based employee compensation, and it also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of an entity's accounting policy decisions with respect to stock-based employee compensation in both annual and interim financial reporting. The provisions of SFAS No. 148 are effective for the Company beginning in Fiscal Year 2004. (7) SEGMENTS The Company's reportable 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. The Heinz North America segment now includes only those businesses that were retained by Heinz following the Del Monte transaction. Prior periods have been reclassified to conform with the current presentation. Descriptions of the Company's reportable segments are as follows: Heinz North America--This segment manufactures, markets and sells ketchup, condiments, sauces and pasta meals to the grocery and foodservice channels in North America. 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 that sell products in all of the Company's core categories. During the third quarter, the Company deconsolidated its Zimbabwe operations which have historically been consolidated in this segment. 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 operating income excluding unusual costs and gains. Intersegment sales are accounted for at current market values. Items below the operating income line of the consolidated statements of income are not presented by segment, since they are not the primary measure of segment profitability reviewed by the Company's management. 11 The following table presents information about the Company's reportable segments:
Third Quarter Ended Nine Months Ended ----------------------------------- ----------------------------------- January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002 FY 2003 FY 2002 FY 2003 FY 2002 ---------------- ---------------- ---------------- ---------------- (Thousands of Dollars) Net external sales: Heinz North America.............. $ 563,739 $ 563,043 $1,657,607 $1,613,455 U.S. Frozen...................... 293,146 311,667 855,379 820,053 Europe........................... 797,843 695,882 2,236,745 2,064,681 Asia/Pacific..................... 289,907 252,975 827,977 737,025 Other Operating Entities......... 160,368 105,179 465,779 308,655 ---------- ---------- ---------- ---------- Consolidated Totals.............. $2,105,003 $1,928,746 $6,043,487 $5,543,869 ========== ========== ========== ========== Intersegment sales: Heinz North America.............. $ 11,930 $ 10,028 $ 28,262 $ 21,573 U.S. Frozen...................... 2,967 2,423 6,785 7,575 Europe........................... 1,415 1,944 4,474 4,360 Asia/Pacific..................... 742 713 2,435 1,942 Other Operating Entities......... 617 632 1,625 649 Non-Operating (a)................ (17,671) (15,740) (43,581) (36,099) ---------- ---------- ---------- ---------- Consolidated Totals.............. $ -- $ -- $ -- $ -- ========== ========== ========== ========== Operating income (loss): Heinz North America.............. $ 104,072 $ 110,435 $ 308,686 $ 355,765 U.S. Frozen...................... 51,101 60,265 167,745 165,593 Europe........................... 144,565 136,785 424,746 406,787 Asia/Pacific..................... 36,023 20,411 85,027 71,362 Other Operating Entities......... 36,824 12,580 81,437 39,490 Non-Operating (a)................ (50,945) (21,846) (119,080) (76,519) ---------- ---------- ---------- ---------- Consolidated Totals.............. $ 321,640 $ 318,630 $ 948,561 $ 962,478 ========== ========== ========== ========== Operating income (loss) excluding special items (b): Heinz North America.............. $ 123,584 $ 110,435 $ 340,447 $ 360,539 U.S. Frozen...................... 51,101 60,265 167,745 165,593 Europe........................... 144,565 136,785 424,746 408,502 Asia/Pacific..................... 36,023 20,411 85,027 71,960 Other Operating Entities......... 36,824 12,580 81,437 39,490 Non-Operating (a)................ (28,544) (21,846) (80,379) (75,326) ---------- ---------- ---------- ---------- Consolidated Totals.............. $ 363,553 $ 318,630 $1,019,023 $ 970,758 ========== ========== ========== ==========
- --------------- (a) Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments. (b) Third Quarter ended January 29, 2003 - Excludes Del Monte transaction related costs and cost to reduce overhead of the remaining core businesses as follows: Heinz North America $19.5 million and Non-Operating $22.4 million. Nine Months ended January 29, 2003 - Excludes Del Monte transaction related costs and cost to reduce overhead of the remaining core businesses as follows: Heinz North America $31.8 million and Non-Operating $38.7 million. Nine Months ended January 30, 2002 - Excludes implementation and restructuring costs of Streamline as follows: Heinz North America $4.8 million, Europe $1.7 million, Asia/Pacific $0.6 million and Non-Operating $1.2 million. 12 The Company's revenues are generated via the sale of products in the following categories:
Third Quarter Ended Nine Months Ended ----------------------------------- ----------------------------------- January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002 FY 2003 FY 2002 FY 2003 FY 2002 ---------------- ---------------- ---------------- ---------------- (Thousands of Dollars) Ketchup, Condiments and Sauces....... $ 667,635 $ 717,061 $1,998,956 $1,946,069 Frozen Foods......................... 506,938 551,310 1,469,338 1,427,052 Tuna................................. 123,361 101,905 367,859 331,731 Soups, Beans and Pasta Meals......... 329,010 187,700 867,360 749,973 Infant Foods......................... 199,759 189,176 577,846 552,630 Other................................ 278,300 181,594 762,128 536,414 ---------- ---------- ---------- ---------- Total............................ $2,105,003 $1,928,746 $6,043,487 $5,543,869 ========== ========== ========== ==========
(8) EARNINGS PER SHARE The following are reconciliations of income to income applicable to common stock and the number of common shares outstanding used to calculate basic EPS to those shares used to calculate diluted EPS:
Third Quarter Ended Nine Months Ended ----------------------------------- ----------------------------------- January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002 FY 2003 FY 2002 FY 2003 FY 2002 ---------------- ---------------- ---------------- ---------------- (In Thousands, Except per Share Amounts) Income from continuing operations before effect of change in accounting principle............... $129,849 $161,235 $452,758 $495,310 Preferred dividends.................. 5 5 14 15 -------- -------- -------- -------- Income from continuing operations applicable to common stock before effect of change in accounting principle.......................... 129,854 161,240 452,772 495,325 Effect of change in accounting principle.......................... -- -- (77,812) -- -------- -------- -------- -------- Income from continuing operations applicable to common stock......... $129,854 $161,240 $374,960 $495,325 ======== ======== ======== ======== Average common shares outstanding--basic............... 351,198 349,704 351,198 349,704 Effect of dilutive securities: Convertible preferred stock...... 147 164 147 164 Stock options.................... 2,628 2,877 2,628 2,877 -------- -------- -------- -------- Average common shares outstanding--diluted............. 353,973 352,745 353,973 352,745 ======== ======== ======== ========
(9) COMPREHENSIVE INCOME
Third Quarter Ended Nine Months Ended ----------------------------------- ----------------------------------- January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002 FY 2003 FY 2002 FY 2003 FY 2002 ---------------- ---------------- ---------------- ---------------- (Thousands of Dollars) Net income........................... $151,619 $201,660 $463,684 $610,375 Other comprehensive income: Foreign currency translation adjustment..................... 252,135 (51,197) 376,057 (51,571) Minimum pension liability adjustment..................... (799) (51) (443) 1,107 Net deferred gains/(losses) on derivatives from periodic revaluations................... 15,341 (900) 26,932 (1,637) Net deferred (gains)/losses on derivatives reclassified to earnings/spun off.............. (10,777) 2,084 (23,988) 2,325 -------- -------- -------- -------- Comprehensive income................. $407,519 $151,596 $842,242 $560,599 ======== ======== ======== ========
13 (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 nine months ended January 29, 2003, losses of $33.5 million, net of income taxes of $19.7 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, swaps 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. 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 nine months ended January 29, 2003, hedge ineffectiveness related to cash flow hedges was a net loss of $0.5 million, which is reported in the consolidated statements of income as other expenses, net. DEFERRED HEDGING GAINS AND LOSSES: As of January 29, 2003, the Company is hedging forecasted transactions for periods not exceeding 15 months. During the next 12 months, the Company expects $1.7 million of net deferred gain reported in accumulated other comprehensive loss to be reclassified to earnings. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCONTINUED OPERATIONS On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF Foods") certain assets and liabilities, including 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 its U.S. infant feeding businesses and distributed all of the shares of SKF Foods common stock on a pro rata basis to its shareholders. Immediately thereafter, SKF Foods merged with a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte") resulting in SKF Foods becoming a wholly-owned subsidiary of Del Monte ("the Merger"). In connection with the Del Monte transaction, the Company received $1.06 billion in cash. The cash was used to fund: - The retirement of maturing long-term debt ($200 million); - The early retirement of long-term debt ($240 million, which includes the cost of early retirement); 14 - The retirement of long-term debt maturing shortly after the end of the Company's fiscal third quarter ($250 million); - The termination of operating lease obligations on assets transferred to Del Monte ($104 million); and - The retirement of short-term debt incurred in connection with the Del Monte transaction ($53 million). The balance of the cash was invested pending further debt reduction activities and the payment of additional transaction related expenses. In accordance with generally accepted accounting principles, the operating results and net assets related to these businesses spun off to Del Monte have been included in discontinued operations in the Company's consolidated statements of income and condensed consolidated balance sheets. Discontinued operations for the three and nine months ended January 29, 2003, represent operating results for two and eight months, respectively. The net assets distributed to Heinz shareholders have been treated as a dividend and charged to retained earnings. The discontinued operations generated sales of $257.4 million and $436.4 million and net income of $21.8 million (net of $5.5 million in tax) and $40.4 million (net of $19.1 million in tax) for the three months ended January 29, 2003 and January 30, 2002, respectively. The discontinued operations generated sales of $1,091.3 million and $1,312.8 million and net income of $88.7 million (net of $35.4 million in tax) and $115.1 million (net of $56.5 million) for the nine months ended January 29, 2003 and January 30, 2002, respectively. STREAMLINE In the fourth quarter of Fiscal 2001, the Company announced a restructuring initiative named "Streamline." This initiative included 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. For more information regarding Streamline, please refer to the Company's Annual Report to Shareholders for the fiscal year ended May 1, 2002. RECENTLY ADOPTED ACCOUNTING STANDARDS 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 reassessment of intangible assets, including the ongoing impact of amortization, was completed during the first quarter of Fiscal 2003. Net income from continuing operations for the quarter and nine months ended January 30, 2002 would have been $169.2 million or $0.02 per share higher and $528.8 million or $0.09 per share higher, respectively, had the provisions of the new standards been applied as of May 3, 2001. During the first half of Fiscal 2003, the Company completed its transitional impairment review and recognized a transition adjustment of $77.8 million ($0.22 per share) to write down goodwill associated with its businesses in Eastern Europe, Argentina, Spain, South Korea and South Africa. This adjustment is recorded as an effect of change in accounting principle as of May 2, 2002. 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 15 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. 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 Company will apply the provisions of SFAS No. 146 to all disposal activities that are initiated after December 31, 2002. THREE MONTHS ENDED JANUARY 29, 2003 AND JANUARY 30, 2002 RESULTS OF CONTINUING OPERATIONS For the three months ended January 29, 2003, sales increased $176.3 million, or 9.1%, to $2.11 billion. Sales were favorably impacted by pricing (5.4%), foreign exchange translation rates (6.1%) and acquisitions (0.9%.) The favorable impact of acquisitions is primarily related to prior year acquisitions in the Heinz North America segment. The favorable pricing was realized primarily in certain highly inflationary countries, Europe and Asia/Pacific. Sales were negatively impacted by unfavorable volumes (1.9%), primarily in the Heinz North America segment and certain highly inflationary countries and by divestitures (1.4%.) The current year's third quarter was negatively impacted by costs related to the Del Monte transaction and costs to reduce overhead of the remaining core businesses totaling $72.1 million pretax ($0.15 per share) which are classified primarily as selling, general and administrative ("SG&A") expenses. The costs related to the Del Monte transaction include employee termination and severance costs, legal and other professional service costs and cost related to the early retirement of debt. In addition, the third quarter was negatively impacted by a loss on the disposal of a North American fish and vegetable business of $9.4 million pretax ($0.03 per share). Gross profit increased $92.8 million, or 13.9%, to $762.0 million. Excluding the special items noted above, gross profit increased $94.4 million, or 14.1%, to $763.6 million and the gross profit margin increased to 36.3% from 34.7%. The increase in gross profit margin occurred across all segments except U.S. Frozen. This increase is primarily related to favorable pricing and foreign exchange as well as the benefit of reduced amortization of intangible assets of approximately $13.0 million. As reported, SG&A expenses increased $89.8 million, or 25.6%, to $440.4 million. Excluding the special items noted above, SG&A increased $49.4 million, or 14.1%, to $400.1 million and it increased as a percentage of sales to 19.0% from 18.2%. The increase is primarily driven by increases in Selling and Distribution (S&D) expenses in the European and Asia/Pacific segments and increased General and Administrative (G&A) expenses in the European and Non-operating segments. Marketing spend increased 25.5% reflecting increased spending in the Europe and Asia/ Pacific segment, offset by reductions in the North America segment. Operating income increased $3.0 million, or 0.9%, to $321.6 million. Excluding the special items noted above, operating income increased $44.9 million, or 14.1%, to $363.6 million and increased as a percentage of sales to 17.3% from 16.5%. Net interest expense was consistent with the prior year. Other expense increased $48.4 million to $66.5 million from $18.0 million last year. The increase is primarily attributable to the $39.6 million pretax charge related to early retirement of debt and increases in minority interest expense, largely related to increased profitability in joint ventures in certain highly inflationary 16 countries. The effective tax rate for the current quarter was 36.8% compared to 35.7% last year. Excluding the special items noted above, the effective rate was 33.3% in the current quarter compared to 35.7% last year. Net income from continuing operations in the current quarter was $129.8 million compared to $161.2 million last year and diluted earnings per share was $0.37 in the current quarter versus $0.46 in the same period last year. Excluding special items, net income from continuing operations increased $30.3 million to $191.5 million, and diluted earnings per share from continuing operations increased 17.4%, to $0.54 from $0.46 last year. OPERATING RESULTS BY BUSINESS SEGMENT HEINZ NORTH AMERICA Sales of the Heinz North America segment increased $0.7 million, or 0.1%. Acquisitions, net of divestitures, increased sales by 1.9%, due primarily to the prior year acquisition of Royal American Foods frozen desserts. Lower pricing decreased sales 0.7% primarily related to portion control. Sales volume decreased 1.4% mainly related to decreases in foodservice ketchup, partially offset by a 3.3% increase in U.S. retail ketchup. The stronger Canadian dollar increased sales 0.3%. Gross profit increased $5.7 million, or 2.7%, to $213.4 million. Excluding special items, gross profit increased $7.3 million, or 3.5%, due primarily to decreased manufacturing costs and reduced amortization expense on intangible assets. Operating income decreased $6.4 million, or 5.8%, to $104.1 million. Excluding special items, operating income increased $13.1 million, or 11.9%, to $123.6 million, due primarily to the change in gross profit and reduced marketing expense. U.S. FROZEN U.S. Frozen's sales decreased $18.5 million, or 5.9%. Sales volume decreased 0.7% as the significant increase in SmartOnes frozen entrees was offset by a reduction in appetizers and Boston Market HomeStyle side dishes and meals. Lower pricing decreased sales 3.4%, primarily due to increased trade promotions related to appetizers and Boston Market HomeStyle meals. Divestitures reduced sales by 1.8%. Gross profit decreased $10.5 million, or 9.3%, and the gross profit margin decreased to 35.2% from 36.5%, primarily due to price decreases. Operating income decreased $9.2 million, or 15.2%, to $51.1 million primarily due to the change in gross profit and increased marketing expenses, partially offset by a significant reduction in G&A expenses due to realized synergies related to prior year acquisitions. EUROPE Heinz Europe's sales increased $102.0 million, or 14.7%. Favorable foreign exchange translation rates increased sales by 12.0%. Higher pricing increased sales 2.3%, primarily due to beans, soup and infant feeding. Higher volume increased sales 0.7%, driven primarily by seafood and ketchup, partially offset by planned SKU rationalizations and volume decreases in frozen entrees. Divestitures reduced sales 0.3%. Gross profit increased $48.9 million, or 19.7%, due primarily to favorable foreign exchange rates, pricing and reduced amortization expense related to intangible assets. Operating income increased $7.8 million, or 5.7%, to $144.6 million primarily attributable to the increase in gross profit and the favorable impact of foreign exchange, offset partially by increased marketing and G&A expenses. 17 ASIA/PACIFIC Sales in Asia/Pacific increased $36.9 million, or 14.6%. Favorable foreign exchange translation rates increased sales by 12.8%. Higher pricing increased sales 2.5%, primarily due to poultry and juices/drinks, partially offset by decreases in frozen vegetables. Volume decreased 2.5%, driven primarily by juices/drinks and cooking oils, partially offset by frozen vegetables. Acquisitions, net of divestitures, increased sales by 1.8%. Gross profit increased $24.0 million, or 33.3%, due primarily to favorable foreign exchange rates, increased pricing and reduced manufacturing costs. Operating income increased $15.6 million, or 76.5%, to $36.0 million from $20.4 million primarily due to the change in gross profit, partially offset by increased S&D and marketing expenses. OTHER OPERATING ENTITIES Sales for Other Operating Entities increased $55.2 million, or 52.5% primarily due to favorable pricing in certain highly inflationary countries. Gross profit increased $22.5 million, or 78.7%, due primarily to favorable pricing. Operating income increased $24.2 million, or 192.7%, due primarily to the increase in gross profit. NINE MONTHS ENDED JANUARY 29, 2003 AND JANUARY 30, 2002 RESULTS OF CONTINUING OPERATIONS For the nine months ended January 29, 2003, sales increased $499.6 million, or 9.0%, to $6.04 billion from $5.54 billion last year. Sales were favorably impacted by pricing (5.2%), foreign exchange translation rates (4.5%) and acquisitions (2.7%). 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, Europe and Asia/Pacific. Sales were negatively impacted by unfavorable volumes of 2.5%. Divestitures reduced sales by 0.9%. The current year's results were negatively impacted by costs related to the Del Monte transaction and costs to reduce overhead of the remaining core businesses totaling $110.1 million pretax ($0.23 per share) which are classified primarily as selling, general and administrative ("SG&A") and other expenses. These include employee termination and severance costs, legal and other professional service costs and cost related to the early extinguishment of debt. Last year's results were negatively impacted by Streamline restructuring charges and implementation costs totaling $8.3 million pretax ($0.02 per share.) Gross profit increased $170.4 million, or 8.5%, to $2,185.7 million. Excluding the special items, gross profit increased $172.5 million, or 8.6%, to $2,189.2 million however the gross profit margin decreased slightly to 36.2% from 36.4%. This decrease was partially offset by the favorable pricing discussed above and the benefit of reduced amortization of intangible assets of approximately $36.5 million. SG&A increased $184.3 million, or 17.5%, to $1,237.1 million. Excluding the special items noted above, SG&A increased $124.2 million, or 11.9%, to $1,170.2 million and increased as a percentage of sales to 19.4% from 18.9%. The increase is primarily driven by increased S&D and marketing spend across all segments and increased G&A expenses in the Europe, Heinz North America and Asia/Pacific segments. Operating income decreased $13.9 million, or 1.4%, to $948.6 million. Excluding the special items noted above, operating income increased $48.3 million, or 5.0%, to $1,019.0 million and decreased as a percentage of sales to 16.9% from 17.5%. 18 Net interest expense decreased $17.4 million to $143.6 million, driven primarily by lower interest rates over the past year and interest earned on cash received from the Del Monte transaction. Other expense increased $71.2 million to $101.5 million. The increase is primarily attributable to the $39.6 million pretax charge related to early retirement of debt as a result of the Merger discussed above and increases in minority interest expense, largely related to increased profitability in joint ventures in certain highly inflationary countries. The effective tax rate for the nine months ended January 29, 2003 was 35.6% compared to 35.8% last year. Excluding the special items noted above, the effective rate was 34.5% in the current period compared to 35.7% last year. Net income for the current nine months (before effect of change in accounting principle related to the adoption of SFAS No. 142) was $452.8 million compared to $495.3 million last year and diluted earnings per share (before cumulative effect of change in accounting related to the adoption of SFAS No. 142) was $1.28 in the current nine months versus $1.40 in the same period last year. Excluding the special items noted above, net income increased $31.6 million to $532.9 million from $501.4 million last year, and diluted earnings per share increased 6.3%, to $1.51. HEINZ NORTH AMERICA Sales of the Heinz North America segment increased $44.2 million, or 2.7%. Acquisitions, net of divestitures, increased sales 2.9%, due primarily to the prior year acquisitions of Classico and Aunt Millie's pasta sauce, Mrs. Grass Recipe soups, Wyler's bouillons and soups and Royal American Foods frozen desserts. Higher pricing increased sales 0.3% due mainly to ketchup, portion control and frozen soup. Sales volume decreased 0.5% as increases in foodservice ketchup and specialty sauces were offset by decreases primarily in frozen soup. Gross profit decreased $4.2 million, or 0.7%, to $608.6 million. Excluding special items, gross profit was consistent with prior year and the gross profit margin decreased to 36.9% from 38.0% due primarily to unfavorable sales mix and increased manufacturing costs, partially offset by reduced amortization expense on intangible assets with indefinite lives and acquisitions. Operating income decreased $47.1 million, or 13.2%, to $308.7 million. Excluding special items, operating income decreased $20.1 million, or 5.6%, to $340.4 million from $360.5 million, due primarily to increased marketing and higher S&D and G&A expenses. U.S. FROZEN U.S. Frozen's sales increased $35.3 million, or 4.3%. Acquisitions, net of divestures, increased sales 8.4%, 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. Lower pricing decreased sales 1.2%, primarily due to Boston Market HomeStyle meals and appetizers, partially offset by a reduction in trade promotions primarily related to the launch of Hot Bites in the prior year. Sales volume decreased 2.9% driven by declines in frozen potatoes, Boston Market HomeStyle side dishes and the rationalization of Hot Bites partially offset by SmartOnes frozen entrees. Gross profit increased $16.4 million, or 5.3%, and the gross profit margin increased to 37.8% from 37.4%. The increase in gross profit is primarily due to acquisitions and reduced manufacturing costs, partially offset by lower pricing. Operating income increased $2.2 million, or 1.3%, to $167.7 million due primarily to the change in gross profit and reduced G&A expenses, partially offset by increased marketing and S&D. EUROPE Heinz Europe's sales increased $172.1 million, or 8.3%. Favorable foreign exchange translation rates increased sales by 8.7%. Higher pricing increased sales 1.7%, primarily due to seafood, beans, ketchup and soups. Lower volume decreased sales 1.3%, driven primarily by planned SKU ratio- 19 nalizations and frozen pizza, partially offset by volume increases in frozen entrees and ketchup. Divestitures reduced sales by 0.8%. Gross profit increased $78.9 million, or 10.0%, to $864.8 million. Excluding special items, gross profit increased $77.5 million, or 9.8%, due primarily to favorable foreign exchange rates, pricing and reduced amortization expense related to intangible assets. Operating income increased $18.0 million, or 4.4%, to $424.7 million. Excluding special items, operating income increased $16.2 million, or 4.0%, to $424.7 million primarily attributable to the favorable change in gross profit, offset partially by increased S&D, G&A and marketing expenses. ASIA/PACIFIC Sales in Asia/Pacific increased $91.0 million, or 12.3%. Favorable foreign exchange translation rates increased sales by 10.0%. Higher pricing increased sales 3.1%, primarily due to poultry, juices/drinks and sauces. Volume decreased sales 2.0%, driven primarily by cooking oils and pet food, partially offset by increases in sauces. Acquisitions, net of divestitures, increased sales by 1.2%. Gross profit increased $34.5 million, or 15.3%, due primarily to favorable foreign exchange rates, increased pricing and favorable manufacturing costs. Operating income increased $13.7 million, or 19.1%, to $85.0 million. Excluding special items, operating income increased $13.1 million, or 18.2%, to $85.0 million primarily due to the change in gross profit, offset partially by increased marketing and G&A expenses. OTHER OPERATING ENTITIES Sales for Other Operating Entities increased $157.1 million, or 50.9%, primarily due to favorable pricing in certain highly inflationary countries. Gross profit increased $42.8 million, or 51.4%, due primarily to favorable pricing. Operating income increased $41.9 million due primarily to the increase in gross profit; however, this increase is significantly offset by increased minority interest expense recorded below operating income. LIQUIDITY AND FINANCIAL POSITION Cash provided by continuing operating activities was $561.2 million compared to $242.3 million last year. The increase in Fiscal 2003 versus Fiscal 2002 is primarily due to improved working capital performance. Cash provided by investing activities totaled $996.9 million compared to cash used by investing activities of $903.0 million last year. Cash provided by the spin off was $1,063.6 million in the current year. Acquisitions in the current period required $13.6 million. Acquisitions in the prior period required $802.7 million, due primarily to the purchase of Borden Food Corporation's pasta and dry bouillon and soup business, Delimex Holdings, Inc. and Anchor Food Products branded retail business which includes the retail licensing rights to the T.G.I. Friday's brand of frozen snacks and appetizers. Capital expenditures in the current nine months required $92.2 million compared to $108.2 million last year. Cash used for financing activities totaled $1,075.6 million compared to cash provided by financing activities of $659.4 million last year. There were no proceeds from long-term debt in the current period compared to $770.8 million last year. Payments on long-term debt required $488.0 million in the current nine months compared to $37.5 million last year. Payments on commercial paper and short-term borrowings required $177.3 million compared to providing $2.2 million last year. In addition, $325.0 million was provided during the prior year via the issuance of Preferred Stock. Cash provided from stock options exercised totaled $6.5 million versus $53.2 million last year. Dividend payments totaled $431.0 million compared to $420.6 million for the same 20 period last year. There were no share repurchases in the current nine months and share repurchases required $45.4 million in the prior year. The Company's net debt obligations on January 29, 2003 (total debt less cash ($824.1 million) and the fair value of interest rate swaps ($227.0 million)) was $4,039.9 million as compared to $5,119.6 million (total debt less cash ($202.4 million) and the fair value of interest rate swaps ($23.6 million)) at May 1, 2002. In the first nine months of Fiscal 2003, the cash requirements of Streamline were $17.7 million, relating to severance and exit costs. On September 5, 2002, the Company, Heinz Finance Company and a group of domestic and international banks renewed an $800 million 364-day credit 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 January 29, 2003 there was no commercial paper outstanding. As of May 1, 2002, the Company had $119.1 million of commercial paper outstanding and classified as long-term debt. Zimbabwe remains in a period of economic uncertainty. Should the current situation continue, the Company could experience disruptions and delays associated with its Zimbabwe operations. Therefore, as of the end of November 2002, the Company deconsolidated its Zimbabwean operations and classified its remaining net investment of approximately $110 million as a cost investment included in other non-current assets on the condensed consolidated balance sheet as at January 29, 2003. If this situation continues to deteriorate, the Company's ability to recover its investment could be impaired. 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, including anticipated additional pension plan contributions in an amount at least equal to that of last fiscal year, 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 Effective January 29, 2003, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued, and it requires the recognition of a liability at fair value by a guarantor at the inception of a guarantee. The disclosure requirements of FIN 45 are effective as of January 29, 2003. The initial recognition and measurement provisions of FIN 45 are effective on a prospective basis for all guarantees issued or modified after December 31, 2002. The Company has not issued or modified any material guarantees since December 31, 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for entities that voluntarily change to the fair value method of accounting for stock-based employee compensation, and it also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of an entity's accounting policy decisions with respect to stock-based employee compensation in both annual and interim financial reporting. The provisions of SFAS No. 148 are effective for the Company beginning in fiscal year 2004. 21 CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION Except for historical information, matters discussed in this report, including the management's discussion and analysis, the financial statements and footnotes, and the statements about future growth, profitability, costs, expectations, plans, or objectives, are forward-looking statements based on management's estimates, assumptions, and projections. These forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results to differ materially from those expressed or implied in this report and the financial statements and footnotes. These include, but are not limited to, sales, earnings, and volume growth, general economic, political, and industry conditions, competitive conditions, production costs, energy costs, achieving cost savings programs, currency valuations (notably the euro and the pound sterling) and interest rate fluctuations, success of acquisitions, joint ventures, and divestitures, new product and packaging innovations, the effectiveness of advertising, marketing, and promotional programs, supply chain efficiency and cash flow initiatives, risks inherent in international operations, particularly the performance of business in hyperinflationary environments and litigation, the Company's ability to achieve its goal for a simpler, more focused business following the spin-off of certain businesses to Del Monte Foods Company, and other factors described in "Cautionary Statement Relevant to Forward-Looking Information" in the Company's Form 10-K for the fiscal year ended May 1, 2002, and the Company's subsequent filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or review 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 nine months ended January 29, 2003. For additional information, refer to pages 43-45 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 2002. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Within 90 days before filing this report, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was carried out by the Company under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the date of their evaluation, the Company's disclosure controls and procedures have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Changes in Internal Controls Subsequent to the date of the most recent evaluation of the Company's internal controls, there were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 22 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. 4. The Second Supplement dated as of November 15, 2002, to the Indenture between the Company and Bank One, National Association dated as of November 6, 2000. 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. (b) Reports on Form 8-K Reports on Form 8-K were filed with the Securities and Exchange Commission on (i) December 6, 2002, in connection with the announcement by the Company of second quarter results for the businesses being spun off to Del Monte Foods Company; (ii) January 6, 2003, in connection with the spinoff of certain businesses to Del Monte Foods Company, providing unaudited pro forma consolidated financial statements of income for the six months ended October 30, 2002 and October 31, 2001, unaudited pro forma consolidated statements of income for the fiscal years ended May 1, 2002, May 2, 2001, and May 3, 2000, and an unaudited pro forma consolidated balance sheet as of October 30, 2002; and (iii) January 17, 2003, furnishing details as to the impact on the Company's prior results of the disposition of certain assets to Del Monte Foods Company and providing unaudited pro forma consolidated statements of income for the three months ended July 31, 2002, October 30, 2002, August 1, 2001, October 31, 2001, January 30, 2002, and May 1, 2002. 23 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. H.J. HEINZ COMPANY (Registrant) Date: March 13, 2003 By: /s/ ARTHUR WINKLEBLACK .......................................... Arthur Winkleblack Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 13, 2003 By: /s/ EDWARD MCMENAMIN .......................................... Edward McMenamin Vice President -- Finance (Principal Accounting Officer) 24 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; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons fulfilling the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 13, 2003 By: /s/ WILLIAM R. JOHNSON ------------------------------------ Name: William R. Johnson Title: Chairman, President and Chief Executive Officer 25 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; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons fulfilling the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 13, 2003 By: /s/ ARTHUR WINKLEBLACK ------------------------------------ Name: Arthur Winkleblack Title: Executive Vice President and Chief Financial Officer 26 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; 1. The Company's periodic report on Form 10-Q for the period ended January 29, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date March 13, 2003 /s/ William R. Johnson -------------------------------------- Name: William R. Johnson Title: Chairman, President and Chief Executive Officer 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: 1. The Company's periodic report on Form 10-Q for the period ended January 29, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 13, 2003 /s/ ARTHUR WINKLEBLACK -------------------------------------- Name: Arthur Winkleblack Title: Executive Vice President and Chief Financial Officer EX-4 3 j9855701exv4.txt SECOND SUPPLEMENTAL INDENTURE Exhibit 4 H. J. HEINZ COMPANY, H. J. HEINZ FINANCE COMPANY, AS CO-OBLIGOR, AND BANK ONE, NATIONAL ASSOCIATION, AS TRUSTEE ---------- SECOND SUPPLEMENTAL INDENTURE, DATED AS OF NOVEMBER 15, 2002, TO THE INDENTURE, DATED AS OF NOVEMBER 6, 2000, AS SUPPLEMENTED BY THE SUPPLEMENTAL INDENTURE, DATED AS OF MAY 3, 2001 ----------- SECOND SUPPLEMENTAL INDENTURE, dated as of November 15, 2002 (the "Second Supplemental Indenture"), among H. J. HEINZ COMPANY, a Pennsylvania corporation (the "Company"), H. J. HEINZ FINANCE COMPANY, a Delaware corporation (the "Co-Obligor"), and BANK ONE, NATIONAL ASSOCIATION, a national banking association existing under the laws of the United States of America (the "Trustee"), to the Original Indenture, dated as of November 6, 2000, between the Company and the Trustee, as supplemented by the Supplemental Indenture, dated as of May 3, 2001, between the Company, the Co-Obligor and the Trustee. W I T N E S S E T H: WHEREAS, the Company and the Trustee executed and delivered an Original Indenture, dated as of November 6, 2000 (the "Original Indenture"); WHEREAS, the Company established and issued a series of Dealer Remarketable Securities ("Drs.") due November 15, 2020 in an aggregate principal amount of $1,000,000,000 (the "Securities") under the Original Indenture; WHEREAS, the Company, the Co-Obligor and the Trustee executed and delivered a Supplemental Indenture, dated as of May 3, 2001, providing for the addition of the Co-Obligor as a party to the Original Indenture and effecting certain other amendments and modifications to the Original Indenture (the "Supplemental Indenture", and together with the Original Indenture, the "Indenture"); WHEREAS, the parties hereto desire to amend the Indenture as set forth herein in order to provide for, among other things, an alternate method of resetting the interest rate on the Securities in connection with each remarketing of the Securities, to allow the Company and the Co-Obligor to redeem the Securities on a remarketing date in part as well as in whole and to provide that any securities repurchased from holders thereof from time to time by the Company or the Co-obligor will be delivered to the Trustee for cancellation, and the outstanding principal amount of the Drs. reduced accordingly; WHEREAS, J.P. Morgan Securities Inc. and Lehman Brothers Inc., who, as of the date of the written consent, dated as of November 15, 2002 (the "Consent"), collectively hold 100% in aggregate principal amount of the Outstanding Securities, has each delivered to the parties hereto a signed copy of the Consent, in which they consent to the substance of the amendments to the Indenture contemplated by this Second Supplemental Indenture and to the entry into this Second Supplemental Indenture by the parties hereto; WHEREAS, the entry into this Second Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Indenture; -2- WHEREAS, all things necessary to make this Supplemental Indenture a valid agreement of the parties hereto, in accordance with the terms of the Indenture, have been done; NOW THEREFORE, in consideration of the above premises, each party hereto agrees as follows: ARTICLE I DEFINITIONS Section 1.01 Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Indenture has the meaning assigned to such term in the Indenture. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Indenture" and each other similar reference contained in the Indenture shall, after this Second Supplemental Indenture becomes effective, refer to the Indenture as supplemented hereby. ARTICLE II AMENDMENTS Section 2.01 Amendment to Section 202. The Indenture is hereby amended by removing the language under "SECTION 202. Form of Face of Security" in its entirety, and by inserting the following language in its place: "[Insert any legend required by Section 204.] H. J. HEINZ COMPANY 6.82% Dealer Remarketable Security(SM) ("Drs.(SM)") due November 15, 2020 No. ___ CUSIP: H. J. Heinz Company, a Pennsylvania corporation (the "Company"), which term includes any successor corporation under the Indenture hereinafter referred to, for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of dollars ($ ) on November 15, 2020, at the office or agency of the Company maintained for this purpose in the City of Chicago, Illinois, which shall initially be the corporate trust office of Bank One, National Association, the Trustee under the Indenture hereinafter referred to, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay to the registered holder hereof, as hereinafter provided, interest thereon, in like coin or currency, on November 15 of each -3- year (until and including November 15, 2020, which is the "Stated Maturity Date"), or, if such date is not a Business Day (as defined below), on the next Business Day, commencing November 15, 2001, at the rate per annum specified below. Interest shall be paid to the persons in whose name this Security is registered on the November 1 (whether or not a Business Day) immediately preceding such November 15 (the "Record Date"). "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. This Security will bear interest at an annual rate of 6.82% from November 6, 2000 to but excluding November 15, 2001. "Remarketing Date" means, in respect of each year from and including 2001 to and including 2019, November 15 in such year; provided, however, if in such year November 15 falls on a date that is not a Business Day, then the Remarketing Date shall be the next Business Day following November 15 in such year. If the Remarketing Dealer (as defined below) elects to call the Securities for purchase and remarketing pursuant to the Second Amended and Restated Remarketing Agreement, dated as of November 15, 2002 (the "Remarketing Agreement"), among the Company, H. J. Heinz Finance Company, a Delaware corporation (the "Co-Obligor"), J.P. Morgan Ventures Corporation (the "Remarketing Dealer") and J.P. Morgan Securities Inc., as agent for the Remarketing Dealer ("JPMSI"), as may from time to time be amended and restated, then (i) this Security shall be subject to mandatory tender to the Remarketing Dealer (or any other securities dealer that may be participating in the remarketing) for remarketing on the relevant Remarketing Date, on the terms and subject to the conditions set forth on the reverse hereof, and (ii) on and after the relevant Remarketing Date (or the November 15 immediately preceding such Remarketing Date if such Remarketing Date is not a November 15), this Security shall bear interest at the rate determined by the Remarketing Dealer in accordance with the procedures set forth in paragraph 5 on the reverse hereof until but excluding the immediately following Remarketing Date (or the November 15 immediately preceding such Remarketing Date if such Remarketing Date is not a November 15) or, as applicable, the Stated Maturity Date. If the Remarketing Dealer does not elect to repurchase the Securities pursuant to the Remarketing Agreement on any Remarketing Date, or if, for any reason, this Security is not repurchased by the Remarketing Dealer (or any other securities dealer that may be participating in the remarketing) on any Remarketing Date, then this Security shall be subject to mandatory tender to the Company or the Co-Obligor for repurchase on the Remarketing Date, on the terms and subject to the conditions set forth on the reverse hereof. This Security has initially been issued in the form of a global security, and the Company has initially designated The Depository Trust Company ("DTC," which term shall include any successor) as the Depositary for this Security. For as long as this Security or any portion hereof is issued in such form, and notwithstanding the foregoing, all payments of interest, principal and other amounts in respect of this Security or such portion (including payments upon mandatory repurchase or redemption referred to on the reverse hereof) shall be made to the Depositary or its nominee in accordance with its -4- applicable procedures, in the coin or currency specified above and as further provided on the reverse hereof. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been executed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Security to be signed by its duly authorized officer and has caused its corporate seal to be affixed hereunto. H. J. HEINZ COMPANY By: --------------------------- Title: Attest: - ---------------------- Assistant Secretary [Insert Trustee's Certificate of Authentication in substantially the form set forth in Section 205] [Insert Co-Obligation as set forth in Section 206]" Section 2.02 Amendment to Section 203. The Indenture is hereby amended by removing the language under "SECTION 203. Form of Reverse of Security" in its entirety, and by inserting the following language in its place: -5- "H. J. HEINZ COMPANY 6.82% Dealer Remarketable Security(SM) ("Drs.(SM)") due November 15, 2020 1. Indenture. (a) This Security is one of a duly authorized issue of debt securities of the Company (herein referred to as the "Securities") of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture, dated as of November 6, 2000, as amended and supplemented from time to time in accordance with the provisions thereof (the "Indenture"), among the Company, the Co-Obligor and Bank One, National Association, as trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Co-Obligor and the holders (the words "holders", "holder", "Securityholders" or "Securityholder" mean the registered holder(s) of the Securities). (b) This Security is one of the series designated as the 6.82% Dealer Remarketable Securities(SM) due November 15, 2020 of the Company, and such series is initially issued in an aggregate principal amount of $ . The Company may at any time issue additional securities under the Indenture in unlimited amounts having the same terms as the Securities. (c) All capitalized terms used in this Security that are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Mandatory Tender and Repurchase on Remarketing Date. On a Business Day not later than five Business Days prior to each Remarketing Date (each, a "Notification Date"), the Remarketing Dealer will notify the Company, the Co-Obligor and the Trustee as to whether it elects to purchase all of the outstanding Securities on such Remarketing Date. If, and only if, the Remarketing Dealer so elects with respect to such Remarketing Date, this Security shall be subject to mandatory tender by the holder hereof to the Remarketing Dealer (or any other securities dealer that may be participating in the remarketing) for purchase and remarketing on such Remarketing Date, upon the terms and subject to the conditions described herein and in the Remarketing Agreement. The purchase price of this Security pursuant to such mandatory tender shall be equal to 100% of its principal amount. Interest accrued to but excluding such Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such remarketing date is not a November 15), will be paid by the Company or the Co-Obligor to persons in whose names the Securities are registered on the Record Date. No holder or beneficial owner of any Security shall have any rights or claims under the Remarketing Agreement or against the Company, the Co-Obligor or the Remarketing Dealer (or any other securities dealer that may be participating in the remarketing) as a result of the Remarketing Dealer (or any other securities dealer that may be participating in the remarketing) not purchasing such Security. 3. Repurchase by the Company. (a) Mandatory Repurchase. If (i) the Remarketing Dealer does not elect to purchase all of the outstanding Securities on any Remarketing Date pursuant to paragraph -6- 2 of this reverse of Security, (ii)(A) the Remarketing Dealer shall not have received in writing by the required time on the relevant Determination Date any firm, committed bids to purchase all of the Securities as described in subparagraph (a) of paragraph 5 of this reverse of Security or (B) no Pricing Agreement shall have been executed, in the event that the Company and the Co-Obligor have given notice to the Remarketing Dealer as provided in subparagraph (b) of paragraph 5 of this reverse of Security, or (iii) for any reason, all of the Securities are not purchased from tendering holders on any Remarketing Date by the Remarketing Dealer (or any other securities dealer or dealers that may be participating in the remarketing), then holders will be required to tender, and the Company and the Co-Obligor will be required to repurchase, on such Remarketing Date, at a price equal to 100% of their principal amount plus any accrued interest, all Securities that have not been purchased by the Remarketing Dealer (or any other securities dealer participating in such remarketing) on such Remarketing Date. Upon payment and delivery of any Securities so repurchased, the outstanding principal amount of the Securities shall be reduced accordingly. (b) Optional Repurchase. The Company and the Co-Obligor may, from time to time and in accordance with, and to the extent permitted by, applicable laws, purchase or otherwise acquire, or enter into any agreement to purchase or otherwise acquire, any of the Securities from holders thereof. Upon payment and delivery of any Securities so repurchased, the Company or the Co-Obligor shall deliver such Securities to the Trustee who shall cancel them pursuant to Section 309 of the Indenture, and the outstanding principal amount of the Securities shall be reduced accordingly. 4. Redemption. If the Remarketing Dealer has elected to purchase all of the outstanding Securities on any Remarketing Date pursuant to paragraph 2 of this reverse of Security, the Company and the Co-Obligor shall have the right to redeem the Securities, in whole or in part, from the Remarketing Dealer on such Remarketing Date, at a price equal to the sum of (x) the applicable Dollar Price (as defined below) and (y) the Call Price (as specified in the Remarketing Agreement) (the sum of (x) and (y) equaling the "Redemption Price") and by giving written notice of such election, including the amount of Securities to be so redeemed, to the Remarketing Dealer no later than the later of: (i) the Business Day immediately prior to the relevant Determination Date, or (ii) if fewer than three Reference Corporate Dealers timely submit firm, committed bids in writing in accordance with subparagraph (a) of paragraph 5 of this reverse of Security, immediately after the deadline set by the Remarketing Dealer for receiving such bids has passed; provided that this clause (ii) shall not apply if the Company and the Co-Obligor have given notice to the Remarketing Dealer that such bids should not be solicited as provided in subparagraph (b) of paragraph 5 of this reverse of Security. -7- In either such case, the Company and the Co-Obligor shall pay such Redemption Price for the specified amount of Securities in same-day funds by wire transfer on such Remarketing Date to an account designated by the Remarketing Dealer. For purposes of calculating the Call Price, the Remarketing Dealer shall be deemed to have made the request for the Call Price on the date the Company and the Co-Obligor make their election to redeem the specified amount of Securities. Unless the Company and the Co-Obligor default in payment of the Redemption Price, on and after the applicable Remarketing Date, interest will cease to accrue on the Securities or portions thereof called for redemption. Upon such payment of the Redemption Price, the outstanding principal amount of the Securities shall be reduced accordingly. 5. Reset of Interest Rate; Notification Thereof. On any Remarketing Date that the Securities are remarketed, the stated interest rate that the Securities will bear from and including the Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such Remarketing Date is not a November 15) until but excluding the immediately following Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such Remarketing Date is not a November 15) or, in the case of the final Remarketing Date, to but excluding the Stated Maturity Date (the "Reset Interest Rate"), will be established by one of the following two methods: (a) By 3:30 p.m., New York City time, on each Determination Date (defined below), the Remarketing Dealer shall solicit the Reference Corporate Dealers (defined below) for firm, committed bids, in writing, to purchase all outstanding Securities at the Dollar Price (defined below), and shall select the lowest such firm, committed bid (regardless of whether each of the Reference Corporate Dealers actually submits a bid). Each bid from a Reference Corporate Dealer shall be expressed in terms of the relevant Reset Interest Rate that the Securities would bear, quoted as a spread over the Base Rate (defined below), based on the following assumptions: i. the Securities would be sold to such Reference Corporate Dealer on the relevant Remarketing Date for settlement on the same day; ii. the Securities would mature on the following Remarketing Date or, in the case of the final Remarketing Date, on the Stated Maturity Date; and iii. the Securities would bear interest at the rate bid by such Reference Corporate Dealer, payable annually, from the applicable Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such Remarketing Date is not a November 15) until but excluding the immediately following Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such Remarketing Date is not a November 15) or, in the case of the final Remarketing Date, to but excluding the Stated Maturity Date. The relevant Reset Interest Rate announced by the Remarketing Dealer as a result of such process will be quoted to the nearest one hundred-thousandth (0.00001) of one percent per annum and, absent manifest error, will be binding and conclusive upon -8- holders of the Securities, the Company, the Co-Obligor and the Trustee. Subject only to subparagraph (c) of this paragraph 5, the Remarketing Dealer shall have the discretion to select the time at which each Reset Interest Rate is determined on the relevant Determination Date. The Remarketing Dealer shall have the right in its sole discretion either to (i) remarket the Securities for its own account or (ii) sell the Securities to the Reference Corporate Dealer submitting in writing the lowest firm, committed bid. If two or more Reference Corporate Dealers submit equivalent bids that constitute the lowest firm, committed bid, the Remarketing Dealer may in its sole discretion elect to sell the Securities to any such Reference Corporate Dealer. "Base Rate" means 5.69% per annum. "Determination Date" means the third Business Day immediately preceding the relevant Remarketing Date. For purposes of this definition, "Business Day" means a day that is a Business Day in both The City of New York and London. "Dollar Price" means, with respect to each Remarketing Date, the discounted present value to such Remarketing Date of the cash flows on a bond (x) with a principal amount equal to the aggregate principal amount of the Securities, (y) maturing on the immediately following Remarketing Date or, in the case of the last Remarketing Date, the Stated Maturity Date and (z) bearing interest at a rate equal to the Base Rate, using a discount rate equal to the Swap Rate (defined below), payable annually (assuming the actual number of days in the calculation period in respect of which payment is being made divided by 360) on the interest payment dates of the Securities from and including the applicable Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such Remarketing Date is not a November 15) until but excluding the immediately following Remarketing Date (or the November 15 immediately preceding such Remarketing Date, if such Remarketing Date is not a November 15) or, in the case of the final Remarketing Date, to but excluding the Stated Maturity Date; provided that in the event that the Dollar Price is to be calculated in connection with a partial redemption of the Securities by the Company and the Co-Obligor pursuant to paragraph 4 of this reverse of Security, clause (x) shall instead be read to say "with a principal amount equal to the aggregate principal amount of the Securities elected to be redeemed by the Company and the Co-Obligor"; provided further that in the event that the Dollar Price is to be calculated in connection with a partial sale of the Securities by the Remarketing Dealer to any other securities dealer or dealers that may be participating in the remarketing of the Securities pursuant to subparagraph (b) of this paragraph 5, then, with respect to any such securities dealer, clause (x) shall instead be read to say "with a principal amount equal to the aggregate principal amount of the Securities to be sold to the applicable securities dealer participating in the remarketing of the Securities pursuant to subparagraph (b) of this paragraph 5". -9- "Reference Corporate Dealers" means JPMSI and four other leading dealers of publicly-traded debt securities of the Company to be mutually agreed upon by the Company and the Remarketing Dealer prior to each Determination Date. "Reference Swap Dealer" means JPMorgan Chase Bank and a group of four leading U.S. Dollar interest rate swap dealers to be mutually agreed upon by the Company and the Remarketing Dealer prior to each Determination Date. "Swap Rate" means the average bid side rate quoted by the Reference Swap Dealers by 3:30 p.m., New York City time, on the relevant Determination Date for the fixed leg of a fixed-for-floating U.S. Dollar interest rate swap transaction with a notional principal amount equal to the aggregate principal amount of the Securities and a one-year term beginning on the applicable Remarketing Date where one fixed rate payment is to be made at maturity of the swap transaction and the floating leg is equivalent to three-month LIBOR payable quarterly to maturity of the swap transaction in accordance with standard market conventions in the U.S. Dollar interest rate swap market. The Swap Rate shall be quoted assuming that the interest of the fixed leg is calculated on the basis of the actual number of days in the calculation period in respect of which payment is being made divided by 360. (b) If the Company and the Co-Obligor provide notice to the Remarketing Dealer in the manner specified in the Remarketing Agreement, the Reset Interest Rate shall be determined by the agreement of the Company, the Co-Obligor, the Remarketing Dealer and any other securities dealer or dealers that may be participating in the remarketing, as set forth in an agreement to be dated as of the Determination Date (each such agreement, a "Pricing Agreement"). The relevant Reset Interest Rate set forth in the applicable Pricing Agreement will be quoted to the nearest one hundred-thousandth (0.00001) of one percent per annum and, absent manifest error, will be binding and conclusive upon holders of the Securities, the Company, the Co-Obligor and the Trustee. If the Reset Interest Rate is determined as described in this subparagraph (b), the Remarketing Dealer shall, as the Remarketing Dealer, the Company and the Co-Obligor shall agree, either (i) remarket all of the Securities for its own account, (ii) remarket the Securities with one or more other securities dealers or (iii) sell all of the Securities to one or more other securities dealers. If the Remarketing Dealer elects to remarket the Securities with one or more other securities dealers as described in subclause (ii) of this subparagraph (b), then (i) the Remarketing Dealer may sell to any such other securities dealer that portion of the Securities as such other securities dealer has agreed to purchase or (ii) any such other securities dealer may purchase tendered Securities directly from holders as described in paragraph 2 of this reverse of Security in such proportions as such other securities dealer has agreed to purchase or remarket pursuant to the Pricing Agreement. (c) If the Remarketing Dealer has elected to remarket the Securities as provided herein, then it shall notify the Company, the Co-Obligor, the Trustee and DTC by telephone, confirmed in writing (which may include facsimile or other electronic -10- transmission), by 5:00 p.m., New York City time, on the Determination Date for such remarketing, of the relevant Reset Interest Rate. 6. Maintenance of Book-Entry System. The tender and settlement procedures with respect to the Securities set forth in the Remarketing Agreement shall be subject to modification without the consent of the holders of the Securities, to the extent required by DTC or, if the book-entry system is no longer available for the Securities at the time of the remarketing, to the extent required to facilitate the tendering and remarketing of the Security in certificated form. In addition, the Remarketing Dealer may modify the settlement procedures without the consent of the holders of the Securities in order to facilitate the settlement process. The Company hereby agrees with the Trustee and the holders of Securities that (i) at all times, it will use its best efforts to maintain the Securities in book-entry form with DTC or any successor thereto and to appoint a successor depositary to the extent necessary to maintain the Securities in book-entry form and (ii) it waives any discretionary right that it otherwise may have under the Indenture to cause the Securities to be issued in certificated form. 7. Effect of Event of Default. If an Event of Default shall occur and be continuing with respect to the Securities of any series, either the Trustee or the holders of at least 25% in principal amount of the Securities then outstanding of that series may declare the principal (or such portion thereof as may be specified in the terms relating to such series) of the Securities of such series to be due and payable, with the effect and subject to the conditions provided in the Indenture. 8. Agreement to Tender. Each holder of this Security (and each holder of a beneficial interest herein) irrevocably agrees that this Security shall automatically be tendered on any Remarketing Date (a) to the Remarketing Dealer (or any other securities dealer that may be participating in the remarketing), upon the occurrence of the events specified in paragraph 2 of this reverse of Security or (b) to the Company or the Co-Obligor, upon the occurrence of the events specified in subparagraph (a) of paragraph 3 of this reverse of Security. 9. Amendments and Waivers. With certain exceptions, the Indenture and the Securities issued pursuant thereto may be modified or amended with the consent of the holders of not less than a majority in principal amount of the outstanding Securities of each series affected by the modification; provided, however, that no such modification or amendment may be made, without the consent of the holder of each Security affected, that would (i) reduce the principal amount of or the interest on any Security, change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or the other terms of payment or tender for purchase thereof, or (ii) reduce the above-stated percentage of Securities, the consent of the holders of which is required to modify or amend the Indenture, or the percentage of Securities of any series, the consent -11- of the holders of which is required to waive compliance with certain provisions of the Indenture or to waive certain past defaults. Modifications and amendments of the Indenture will be permitted to be made by the Company, the Co-Obligor and the Trustee without the consent of any holder of Securities for any of the following purposes: (a) to evidence the succession of another person to the Company as obligor under the Indenture; (b) to add to the covenants, agreements and obligations of the Company for the benefit of the holders of all Securities or to surrender any right or power conferred upon the Company in the Indenture; (c) to add any additional Events of Default for the benefit of the holders of all or any series of Securities; (d) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under the Indenture by more than one Trustee; (e) to cure any ambiguity, defect or inconsistency in the Indenture; (f) to secure the Securities; or (g) to make any other change that does not adversely affect the rights of any holder of the Securities. 10. Book-Entry. The Securities will be represented by one or more certificates in global form representing Securities sold pursuant to Rule 144A, in each case without interest coupons, which will be deposited with the Trustee as custodian for, and registered in the name of, DTC or its nominee. 11. No Liability of Certain Persons. No past, present or future stockholder, employee, officer or director of the Company or the Co-Obligor, or any successor thereof, shall have any liability for any obligation, covenant or agreement of the Company or the Co-Obligor contained under this Security or the Indenture. Each holder by accepting this Security waives and releases all such liability. This waiver and release are part of the consideration for the issue of this Security. 12. Provisions Relating to the Remarketing Dealer. Insofar as the provisions of this Security purport to provide rights to the Remarketing Dealer against any holder of this Security, such rights (including rights to purchase this Security on any Remarketing Date) also shall be rights of the Company and shall be enforceable by the Company against such holder. Each holder of this Security shall hold this Security (and by holding the same shall be deemed to have agreed to do so) subject to the foregoing. Without limiting the foregoing, the Remarketing Dealer may take any action under this Security that the provisions of this Security contemplate may be taken by the Remarketing Dealer. Pursuant to the Remarketing Agreement, the Remarketing Dealer has agreed with the Company and the Co-Obligor, for the benefit of the applicable holders of this Security from time to time, that, if it so elects on any Remarketing Date, it (or any other securities dealer participating in the remarketing) will purchase this Security from the registered holder hereof on such Remarketing Date, upon the terms and subject to the conditions set forth herein. Except as may be expressly provided in such agreement, no holder of this Security shall have any right, remedy or claim against the Remarketing -12- Dealer (or any other securities dealer or dealers participating in the remarketing) under this Security, the Indenture or the Remarketing Agreement. No provision of this Security shall be invalid or unenforceable by reason of any reference herein to the Remarketing Dealer. In addition, no provision of this Section shall be construed to impair or otherwise affect any rights that the Remarketing Dealer (or any other securities dealer participating in a remarketing) may have at any time as a holder of any Securities. 13. Governing Law. The Indenture and the Securities are governed by, and will be construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles therein to the extent that such principles would permit or require the application of the laws of any other jurisdiction." Section 2.03 Form of Co-obligation. The Indenture is hereby amended by inserting the following new Section 206: "SECTION 206. Form of Co-obligation CO-OBLIGATION OF H. J. HEINZ FINANCE COMPANY For value received, H. J. HEINZ FINANCE COMPANY, a corporation duly organized under the laws of the State of Delaware (the "Co-Obligor"), to and for the benefit of the Holder of the Security upon which this Co-Obligation is endorsed, being one of the 6.82% Dealer Remarketable Securities due November 15, 2020 issued in aggregate principal amount of dollars ($ ) (the "Securities") of H. J. Heinz Company (the "Company"), hereby fully, unconditionally and irrevocably assumes and agrees to perform and discharge, jointly and severally with the Company, the due and punctual payment of the principal (including the Redemption Price, if applicable) of and interest (and additional amounts, if any, pursuant to Section 1008 of the Indenture) on this Security, when and as the same shall become due and payable whether at maturity or upon redemption or upon declaration of acceleration or otherwise according to the terms of this Security and of the Indenture. The obligations of the Co-Obligor as a co-obligor hereunder are primary and not merely those of a surety. The Co-Obligor hereby waives diligence, presentment, demand of payment, any right to require a proceeding first against the Company, protest or notice and all demands whatsoever with respect to this Security or the indebtedness evidenced hereby, and covenants that the co-obligations listed herein will not be discharged as to the Indenture or this Security except by payment in full of the principal and interest thereon, additional amounts, Redemption Price and other sums that may be payable under the Indenture or this Security. The Co-Obligor agrees to be bound by, and observe and perform, the terms of Article 8 and Article 10 (other than Sections 1004, 1005 and 1007) of the Indenture as if all references therein to the "Company" were to the Co-Obligor. -13- IN WITNESS WHEREOF, the Co-Obligor has caused this Co-Obligation to be signed by its duly authorized officer and has caused its corporate seal to be affixed hereunto. H. J. HEINZ FINANCE COMPANY By: ---------------------------------- Title: Attest: - ---------------------- Assistant Secretary" [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -14- Section 2.04 Form of Schedule Indicating Redemptions. The Indenture is hereby amended by inserting the following new Section 207: "SECTION 207. Form of Schedule Indicating Redemptions. As the Trustee may be directed by a Company Order, the Trustee shall indicate cancellations (as required in Section 309 of the Indenture) resulting from redemptions of the Securities by the Company or the Co-Obligor in a schedule in substantially the following form: SCHEDULE A REDEMPTIONS PRINCIPAL AMOUNT OF REMAINING PRINCIPAL AMOUNT OF THIS GLOBAL SECURITY THIS GLOBAL SECURITY FOLLOWING DATE REDEEMED AND CANCELLED REDEMPTION AND CANCELLATION* - ---- ----------------------- ------------------------------ - ---------------------- *Also see most recent entry in Schedule B in order to determine this amount." -15- Section 2.05 Form of Schedule Indicating Repurchases and Cancellations. The Indenture is hereby amended by inserting the following new Section 208: "SECTION 208. Form of Schedule Indicating Repurchases and Cancellations. As the Trustee may be directed by a Company Order, the Trustee shall indicate cancellations (as required in Section 309 of the Indenture) resulting from purchases of the Securities by the Company or the Co-Obligor in a schedule in substantially the following form: SCHEDULE B PURCHASES AND CANCELLATIONS PRINCIPAL AMOUNT OF THIS REMAINING PRINCIPAL AMOUNT GLOBAL SECURITY OF THIS GLOBAL SECURITY FOLLOWING DATE PURCHASED AND CANCELLED PURCHASE AND CANCELLATION* - ---- ----------------------- --------------------------------- - ----------------- *Also see most recent entry in Schedule A in order to determine this amount." -16- ARTICLE III MISCELLANEOUS Section 3.01 Other Terms of the Indenture. Except as insofar as herein otherwise provided, all the provisions, terms and conditions of the Indenture are in all respects ratified and confirmed and shall remain in full force and effect. Section 3.02 Effectiveness. This Second Supplemental Indenture shall be effective as of the date hereof. Section 3.03 Governing Law. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof to the extent that such rules would require or permit the application of the laws of any other jurisdiction. Section 3.04 Counterparts. This Second Supplemental Indenture may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same instrument. Section 3.05 Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 3.06 Trustee Not Responsible for Recitals. The recitals contained herein shall be taken as the statements of the Company and the Co-Obligor, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture. -17- IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first written above. H. J. HEINZ COMPANY By: /s/ Leonard A. Cullo, Jr ------------------------------------ Name: Leonard A. Cullo, Jr. Title: Treasurer H. J. HEINZ FINANCE COMPANY By: /s/ Leonard A. Cullo, Jr. ------------------------------------ Name: Leonard A. Cullo, Jr Title: President BANK ONE, NATIONAL ASSOCIATION, as Trustee By: /s/ Jeffery L. Eubank ------------------------------------ Name: Jeffery L. Eubank Title: Authorized Officer -18- EX-12 4 j9855701exv12.txt RATIOS OF EARNINGS TO FIXED CHARGES . . . EXHIBIT 12 H. J. HEINZ COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Nine Months Ended January 29, 2003 (Thousands of Dollars) ------------- Fixed Charges: Interest expense*......................................... $169,817 Capitalized interest...................................... -- Interest component of rental expense...................... 21,870 -------- Total fixed charges.................................... $191,687 -------- Earnings: Income from continuing operations before income taxes and effect of change in accounting principle............... $703,548 Add: Interest expense*.................................... 169,817 Add: Interest component of rental expense................. 21,870 Add: Amortization of capitalized interest................. 1,213 -------- Earnings as adjusted................................... $896,448 -------- Ratio of earnings to fixed charges........................ 4.68 ========
- --------------- * Interest expense includes amortization of debt expense and any discount or premium relating to indebtedness. -----END PRIVACY-ENHANCED MESSAGE-----