-----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, E+LnrhDgDa3GiysvJ2xDeoXDaZhNRnCEyxpw2AOqMjoCAAdYPZT3bShh5pQg9j1q 37Sos+3K4fxpcZtjAAxnMg== 0000950152-05-005232.txt : 20050617 0000950152-05-005232.hdr.sgml : 20050616 20050617084251 ACCESSION NUMBER: 0000950152-05-005232 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20050427 FILED AS OF DATE: 20050617 DATE AS OF CHANGE: 20050617 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03385 FILM NUMBER: 05901483 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-K 1 j1304601e10vk.txt H.J. HEINZ COMPANY 10-K/FISCAL YEAR END 4-27-05 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 27, 2005 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-3385 H. J. HEINZ COMPANY (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0542520 (State of Incorporation) (I.R.S. Employer Identification No.) 600 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219 (Address of principal executive offices) (Zip Code)
412-456-5700 (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $.25 per share The New York Stock Exchange; Pacific Exchange Third Cumulative Preferred Stock, $1.70 First Series, par value $10 per share The New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None. 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 filing requirements for the past 90 days. Yes X No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No _ As of October 27, 2004 the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $12,361,465,110. The number of shares of the Registrant's Common Stock, par value $.25 per share, outstanding as of May 31, 2005, was 347,553,381 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on August 23, 2005, which will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year ended April 27, 2005, are incorporated into Part III, Items 10, 11, 12, 13, and 14. PART I ITEM 1. BUSINESS. H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In 1905, it succeeded to the business of a partnership operating under the same name which had developed from a food business founded in 1869 in Sharpsburg, Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its subsidiaries (collectively, the "Company") manufacture and market an extensive line of processed food products throughout the world. The Company's principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, tuna and other seafood products, infant food and other processed food products. The Company's products are manufactured and packaged to provide safe, wholesome foods for consumers, foodservice and institutional customers. Many products are prepared from recipes developed in the Company's research laboratories and experimental kitchens. Ingredients are carefully selected, washed, trimmed, inspected and passed on to modern factory kitchens where they are processed, after which the intermediate product is filled automatically into containers of glass, metal, plastic, paper or fiberboard, which are then closed. Products are processed by sterilization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking or extruding, then labeled and cased for market. The Company manufactures and contracts for the manufacture of its products from a wide variety of raw foods. Pre-season contracts are made with farmers for a portion of raw materials such as tomatoes, cucumbers, potatoes, onions and some other fruits and vegetables. Dairy products, meat, sugar, spices, flour and certain other fruits and vegetables are generally purchased on the open market. Tuna is obtained through spot and term contracts directly with tuna vessel owners or their cooperatives and by brokered transactions. The following table lists the number of the Company's principal food processing factories and major trademarks by region:
Factories -------------- Owned Leased Major Trademarks ----- ------ ---------------- North America 24 4 Heinz, Classico, Quality Chef, Yoshida, Jack Daniels*, Catelli, Wyler's, Diana Sauce, Bell 'Orto, Bella Rossa, Chef Francisco, Dianne's, Ore-Ida, Tater Tots, Bagel Bites, Weight Watchers*, Boston Market*, Smart Ones, Hot Bites, Poppers, TGI Friday's*, Delimex, Truesoups, Alden Merrell, Escalon, PPI, Todd's Europe 31 1 Heinz, Petit Navire, John West, Mare D'Oro, Mareblu, Marie Elisabeth, Orlando, Guloso, Linda McCartney*, Weight Watchers*, Farley's, Farex, Sonnen Basserman, Plasmon, Nipiol, Dieterba, Ortobuono, Pudliszki, Ross, HAK, Honig, De Ruijter, Aunt Bessie*, Mum's Own, Moya Sem'ya, Picador, Derevenskoe, Mechta Hoziayki Asia/Pacific 24 2 Heinz, Tom Piper, Wattie's, ABC, Tegel, Chef, Champ, Craig's, Bruno, Winna, Hellaby, Hamper, Farley's, Greenseas, Gourmet, Nurture Other Operating Entities 10 5 Heinz, Olivine, Wellington's, Ganave, Champs, Royal Pacific, John West, Complan -- -- 89 12 * Used under license -- --
2 The Company also owns or leases office space, warehouses, distribution centers and research and other facilities throughout the world. The Company's food processing plants and principal properties are in good condition and are satisfactory for the purposes for which they are being utilized. The Company has participated in the development of certain of its food processing equipment, some of which is patented. The Company regards these patents as important but does not consider any one or group of them to be materially important to its business as a whole. Although crops constituting some of the Company's raw food ingredients are harvested on a seasonal basis, most of the Company's products are produced throughout the year. Seasonal factors inherent in the business have always influenced the quarterly sales and net income of the Company. Consequently, comparisons between quarters have always been more meaningful when made between the same quarters of prior years. The products of the Company are sold under highly competitive conditions, with many large and small competitors. The Company regards its principal competition to be other manufacturers of processed foods, including branded retail products, foodservice products and private label products, that compete with the Company for consumer preference, distribution, shelf space and merchandising support. Product quality and consumer value are important areas of competition. The Company's products are sold through its own sales force and through independent brokers, agents and distributors to chain, wholesale, cooperative and independent grocery accounts, convenience stores, bakeries, pharmacies, mass merchants, club stores, foodservice distributors and institutions, including hotels, restaurants, hospitals, health-care facilities, and certain government agencies. For Fiscal Year 2005, no single customer represented more than 10% of the Company's sales. Compliance with the provisions of national, state and local environmental laws and regulations has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company's estimated capital expenditures for environmental control facilities for the remainder of Fiscal Year 2006 and the succeeding fiscal year are not material and are not expected to materially affect either the earnings or competitive position of the Company. The Company's factories are subject to inspections by various governmental agencies, including the United States Department of Agriculture, and the Occupational Health and Safety Administration, and its products must comply with the applicable laws, including food and drug laws, such as the Federal Food and Cosmetic Act of 1938, as amended, and the Federal Fair Packaging or Labeling Act of 1966, as amended, of the jurisdictions in which they are manufactured and marketed. The Company employed, on a full-time basis as of April 27, 2005, approximately 41,000 persons around the world. Segment information is set forth in this report on pages 61 through 63 in Note 15, "Segment Information" in Item 8--"Financial Statements and Supplementary Data." Income from international operations is subject to fluctuation in currency values, export and import restrictions, foreign ownership restrictions, economic controls and other factors. From time to time, exchange restrictions imposed by various countries have restricted the transfer of funds between countries and between the Company and its subsidiaries. To date, such exchange restrictions have not had a material adverse effect on the Company's operations. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its represent- 3 atives may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to shareholders. These forward-looking statements are based on management's views and assumptions of future events and financial performance. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "should," "estimate," "project," "target," "goal", "outlook" or similar expressions identify "forward-looking statements" within the meaning of the Act. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. These forward-looking statements are uncertain. The risks and uncertainties that may affect operations and financial performance and other activities, some of which may be beyond the control of the Company, include the following: - Changes in laws and regulations, including changes in food and drug laws, accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions; - Competitive product and pricing pressures and the Company's ability to gain or maintain share of sales as a result of actions by competitors and others; - Fluctuations in the cost and availability of raw materials and the Company's ability to maintain favorable supplier arrangements and relationships; - The impact of higher energy costs and other factors affecting the cost of producing, transporting and distributing the Company's products; - The Company's ability to generate sufficient cash flows to support capital expenditures, share repurchase programs, interest and debt principal repayment and general operating activities; - The inherent risks in the marketplace associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance, as well as changes in consumer preference and the ability to anticipate and respond to consumer trends; - The Company's ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume, product mix and other items; - The Company's ability to integrate acquisitions and joint ventures into its existing operations, the availability of new acquisition and joint venture opportunities and the success of acquisitions, joint ventures, divestitures and other business combinations; - The Company's ability to achieve its cost savings objectives, including any restructuring programs, strategic initiatives, working capital initiatives or other programs; - The impact of unforeseen economic and political changes in markets where the Company competes, such as export and import restrictions, currency exchange rates and restrictions, inflation rates, recession, foreign ownership restrictions, nationalization and other external factors over which the Company has no control; - The possibility of increased pension expense and contributions resulting from declines in stock market returns and cost increases for medical benefits; - The performance of businesses in hyperinflationary environments; - The effect of any recalls of products; - Changes in estimates in critical accounting judgments; - Interest rate fluctuations and other capital market conditions; 4 - The effectiveness of the Company's advertising, marketing and promotional programs; - Weather conditions, which could impact demand for Company products and the supply and cost of raw materials; - The impact of supply chain efficiency and cash flow initiatives; - Potential impairment of investments; - Risks inherent in litigation; - The Company's ability to maintain its profit margin in the face of a consolidating retail environment and large global customers; - The impact of global industry conditions, including the effect of the economic downturn in the food industry; and - The Company's ability to offset the reduction in volume and revenue resulting from participation in categories experiencing declining consumption rates. The foregoing list of important factors is not exclusive. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performance and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the securities laws. ITEM 2. PROPERTIES. See table in Item 1. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company has not submitted any matters to a vote of security holders since the last annual meeting of shareholders on September 8, 2004. 5 EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list of the names and ages of all of the executive officers of H. J. Heinz Company indicating all positions and offices held by each such person and each such person's principal occupations or employment during the past five years. All the executive officers have been elected to serve until the next annual election of officers, until their successors are elected, or until their earlier resignation or removal. The annual election of officers is scheduled to occur on August 23, 2005.
Positions and Offices Held with the Company and Age (as of Principal Occupations or Name August 23, 2005) Employment During Past Five Years ---- ---------------- -------------------------------------------------- William R. Johnson 56 Chairman, President, and Chief Executive Officer since September 2000; President and Chief Executive Officer from April 1998 to September 2000. Jeffrey P. Berger 55 Executive Vice President--Global Foodservice and President and CEO-Heinz North America Foodservice since May 2005; President Foodservice from January 2003 to May 2005; President Heinz US Foodservice from 1994 to January 2003. David C. Moran 47 Senior Vice President--President Heinz Consumer Products since May 2005; President Consumer Products from January 2003 to May 2005; President Heinz Retail Sales Company from October 1999 to January 2003. Joseph Jimenez 45 Executive Vice President--President and Chief Executive Officer Heinz Europe since July 2002; Senior Vice President and President--Heinz North America from September 2001 to July 2002; President and Chief Executive Officer--Heinz North America from November 1998 to September 2001. Arthur B. Winkleblack 48 Executive Vice President and Chief Financial Officer since January 2002; Acting Chief Operating Officer--Perform.com and Chief Executive Officer-- Freeride.com at Indigo Capital (1999-2001). Michael J. Bertasso* 55 Senior Vice President--President Heinz Asia/Pacific from September 2002 to June 2005; Senior Vice President--Strategy, Process and Business Development from May 1998 to September 2002. Theodore N. Bobby 54 Senior Vice President and General Counsel since April 2005; Acting General Counsel from January 2005 to April 2005; Vice President--Legal Affairs from September 1999 to January 2005. Edward J. McMenamin 48 Senior Vice President--Finance and Corporate Controller since August 2004; Vice President Finance from June 2001 to August 2004; Vice President Finance and Chief Financial Officer of Heinz North America from May 2000 to June 2001.
6
Positions and Offices Held with the Company and Age (as of Principal Occupations or Name August 23, 2005) Employment During Past Five Years ---- ---------------- -------------------------------------------------- Michael D. Milone 49 Senior Vice President--President Rest of World and Asia since May 2005; Senior Vice President-- President Rest of World from December 2003 to May 2005; Chief Executive Officer Star-Kist Foods, Inc. from June 2002 to December 2003; Vice President--Global Category Development from May 1998 to June 2002. D. Edward I. Smyth 55 Senior Vice President--Chief Administrative Officer and Corporate and Government Affairs since December 2002; Senior Vice President--Corporate and Government Affairs from May 1998 to December 2002.
* Mr. Bertasso retired from the Company in June 2005. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Information relating to the Company's common stock is set forth in this report on pages 27 through 28 under the caption "Stock Market Information" in Item 7--"Management's Discussion and Analysis of Financial Condition and Results of Operations", and on page 64 in Note 16, "Quarterly Results" in Item 8--"Financial Statements and Supplementary Data." In the fourth quarter of Fiscal 2005, the Company repurchased the following number of shares of its common stock:
Maximum Total Total Number of Number of Shares Number of Average Shares Purchased as that May Yet Be Shares Price Paid Part of Publicly Purchased Under Period Purchased per Share Announced Programs the Programs - ------ --------- ---------- ------------------- ---------------- January 27, 2005 - February 23, 2005................ -- -- -- -- February 24, 2005 - March 23, 2005................... 821,100 $36.77 -- -- March 24, 2005 April 27, 2005................... 2,528,900 $36.43 -- -- --------- ------ ---- ---- Total.............................. 3,350,000 $36.52 -- -- ========= ====== ==== ====
The shares repurchased were acquired under the share repurchase program authorized by the Board of Directors on January 14, 2004 for a maximum of 15 million shares. All repurchases were made in open market transactions. As of April 27, 2005, the maximum number of shares that may yet be purchased under the 2004 program is 6,996,392. In addition, on June 8, 2005, the Board of Directors authorized a share repurchase program of up to 30 million shares, all of which may yet be purchased under the program. 8 ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected consolidated financial data for the Company and its subsidiaries for each of the five fiscal years 2001 through 2005. All amounts are in thousands except per share data.
Fiscal Year Ended -------------------------------------------------------------- April 27, April 28, April 30, May 1, May 2, 2005 2004 2003 2002 2001 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ---------- ---------- ---------- ---------- ---------- Sales....................... $8,912,297 $8,414,538 $8,236,836 $7,614,036 $6,987,698 Interest expense............ 232,431 211,826 223,532 230,611 262,488 Income from continuing operations before cumulative effect of change in accounting principle................. 735,822 778,933 555,359 675,181 563,931 Income from continuing operations before cumulative effect of change in accounting principle per share-- diluted................... 2.08 2.20 1.57 1.91 1.61 Income from continuing operations before cumulative effect of change in accounting principle per share--basic.............. 2.10 2.21 1.58 1.93 1.62 Short-term debt and current portion of long-term debt...................... 573,269 436,450 154,786 702,645 1,870,834 Long-term debt, exclusive of current portion(1)........ 4,121,984 4,537,980 4,776,143 4,642,968 3,014,853 Total assets................ 10,577,718 9,877,189 9,224,751 10,278,354 9,035,150 Cash dividends per common share..................... 1.14 1.08 1.485 1.6075 1.545
(1) Long-term debt, exclusive of current portion, includes $186.1 million, $125.3 million, $294.8 million and $23.6 million of hedge accounting adjustments associated with interest rate swaps at April 27, 2005, April 28, 2004, April 30, 2003 and May 1, 2002, respectively. There were no interest rate swaps at May 2, 2001. Long-term debt reflects the prospective classification of Heinz Finance Company's $325 million of mandatorily redeemable preferred shares from minority interest to long-term debt beginning in the second quarter of Fiscal 2004 as a result of the adoption of Statement of Financial Accounting Standards ("SFAS") No. 150. Fiscal 2005 results from continuing operations include a $64.5 million non-cash impairment charge for the Company's equity investment in The Hain Celestial Group, Inc. ("Hain") and a $9.3 million non-cash charge to recognize the impairment of a cost-basis investment in a grocery industry sponsored e-commerce business venture. There was no tax benefit associated with these impairment charges. Fiscal 2005 also includes a $27.0 million pre-tax ($18.0 million after-tax) non-cash asset impairment charge related to the anticipated disposition of the HAK vegetable product line in Northern Europe early in Fiscal 2006. Fiscal 2004 results from continuing operations include a gain of $26.3 million ($13.3 million after-tax) related to the disposal of the bakery business in Northern Europe, costs of $17.1 million pretax ($11.0 million after-tax), primarily due to employee termination and severance costs related 9 to on-going efforts to reduce overhead costs, and $4.0 million pretax ($2.8 million after-tax) due to the write down of pizza crust assets in the United Kingdom. Fiscal 2003 results from continuing operations include costs related to the Del Monte transaction and costs to reduce overhead of the remaining businesses totaling $164.6 million pretax ($113.1 million after-tax). These include employee termination and severance costs, legal and other professional service costs and costs related to the early extinguishment of debt. In addition, Fiscal 2003 includes losses on the exit of non-strategic businesses of $62.4 million pretax ($49.3 million after-tax). Fiscal 2002 results from continuing operations include net restructuring and implementation costs of $12.4 million pretax ($8.9 million after-tax) for the Streamline initiative. Fiscal 2001 results from continuing operations include restructuring and implementation costs of $101.4 million pretax ($69.0 million after-tax) for the Streamline initiative, net restructuring and implementation costs of $146.5 million pretax ($91.2 million after-tax) for Operation Excel, a benefit of $93.2 million from tax planning and new tax legislation in Italy, a loss of $94.6 million pretax ($66.2 million after-tax) on the sale of The All American Gourmet business, company acquisition costs of $18.5 million pretax ($11.7 million after-tax), the after-tax impact of adopting Staff Accounting Bulletin ("SAB") No. 101 and Statement of Financial Accounting Standards ("SFAS") No. 133 of $15.3 million and a loss of $5.6 million pretax ($3.5 million after-tax) which represents the Company's equity loss associated with The Hain Celestial Group's fourth quarter results which included charges for its merger with Celestial Seasonings. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SPECIAL ITEMS ASSET IMPAIRMENTS In the fourth quarter of Fiscal 2005, the Company recognized a non-cash asset impairment charge of $27.0 million pre-tax ($18.0 million after-tax) on the HAK vegetable product line in Northern Europe. The charge, which is recorded as a component of cost of products sold, relates to the anticipated sale of the product line in early Fiscal 2006. The Company holds an equity investment in The Hain Celestial Group, Inc. ("Hain"), a natural, specialty and snack food company. Hain shares traded at less than 80% of Heinz's carrying value since late January 2004. Due to the length of time and the amount that Hain stock had traded below the Company's basis, the Company determined that the decline was other-than-temporary as defined by Accounting Principles Board Opinion No. 18 and as a result, recognized a $64.5 million non-cash impairment charge during the third quarter of Fiscal 2005. The charge reduced Heinz's carrying value in Hain to fair market value as of January 26, 2005, with no resulting impact on cash flows. Heinz currently owns approximately six million shares of Hain stock, with a book value of approximately $20.00 per share as of April 27, 2005. In the future, should the market value of Hain common stock decline and remain below current market value for a substantial time, the Company could be required to record additional writedowns of its investment in Hain. The Company also recorded a $9.3 million non-cash charge in the third quarter of Fiscal 2005 to recognize the impairment of a cost-basis investment in a grocery industry-sponsored e-commerce business venture. There was no tax benefit associated with these impairment charges. 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. In accordance with accounting principles generally accepted in the United States of America, the operating results related to these businesses spun off to Del Monte have been treated as discontinued operations in the Company's consolidated statements of income. Net income from discontinued operations for the years ended April 27, 2005 and April 28, 2004 was $16.9 million and $25.3 million, respectively, and reflects the favorable settlement of tax liabilities related to the businesses spun-off to Del Monte on December 20, 2002. The discontinued operations generated sales of $1,091.3 million and net income of $88.7 million (net of $35.4 million in tax) for Fiscal 2003. DIVESTITURES AND OTHER REORGANIZATION COSTS During the first quarter of Fiscal 2004, the Company sold its bakery business in Northern Europe for $57.9 million. The transaction resulted in a pretax gain of $26.3 million ($13.3 million after tax), which was recorded as a component of selling, general and administrative expenses ("SG&A"). This sale impacted approximately 70 employees. During Fiscal 2004, the Company recognized $17.1 million pretax ($11.0 million after tax) of reorganization costs. These costs were recorded as a component of SG&A and were primarily due to employee termination and severance costs. Also, during Fiscal 2004, the Company wrote down pizza crust assets in the United Kingdom totaling $4.0 million pretax ($2.8 million after-tax) which 11 have been included as a component of cost of products sold. Management estimates that these actions impacted approximately 100 employees. In Fiscal 2003, Del Monte transaction costs and costs to reduce overhead of the remaining business totaled $164.6 million pretax ($113.1 million after-tax) and were comprised of $61.8 million for legal, professional and other related costs, $51.3 million in employee termination and severance costs, $39.6 million related to the early retirement of debt, and $12.0 million in non-cash asset write-downs. Of this amount, $6.1 million was included in cost of products sold, $118.9 million in SG&A, and $39.6 million in other expense, net. Management estimates that these actions impacted approximately 400 employees excluding those who were transferred to Del Monte. In Fiscal 2003, losses on the exit of non-strategic businesses, primarily the UK frozen pizza business and a North American fish and frozen vegetable business, totaled $62.4 million pretax ($49.3 million after-tax), and were comprised of $39.7 million in non-cash asset write-downs, $12.1 million in losses on the sale of businesses and $10.6 million in employee termination, severance and other exit costs. Of these amounts, $47.3 million was included in cost of products sold and $15.1 million in SG&A. Management estimates that these actions impacted approximately 600 employees. During Fiscal 2005, the Company utilized $9.9 million of severance and exit cost accruals related to reorganization costs. RESULTS OF CONTINUING OPERATIONS FISCAL YEARS ENDED APRIL 27, 2005 AND APRIL 28, 2004 Sales for Fiscal 2005 increased $497.8 million, or 5.9%, to $8.91 billion. Sales were favorably impacted by volume growth of 1.9% and exchange translation rates of 3.9%. The favorable volume was primarily a result of strong increases in the North American Consumer Products and U.S. Foodservice segments. Lower pricing decreased sales by 0.2%, principally due to the restage of our Italian infant nutrition business, market price pressures impacting the Tegel poultry business in New Zealand and the trade in Northern Europe, and a $34.1 million charge for trade spending for the Italian infant nutrition business. The trade spending charge in the Italian infant nutrition business related to prior years and reflected an under-accrual quantified as the Company was upgrading trade management processes and systems in Italy. These price decreases were partially offset by the North American Consumer Products and U.S. Foodservice segments and U.K. convenience meals. Acquisitions, net of divestitures, increased sales by 0.3%. Domestic operations contributed approximately 38% of consolidated sales in Fiscal 2005 and Fiscal 2004. Gross profit increased $118.1 million, or 3.8%, to $3.21 billion; the gross profit margin decreased to 36.0% from 36.7%. The decrease in the gross profit margin is mainly due to increased commodity and fuel costs, lower pricing as discussed above, increased production costs in the European seafood business and a $27.0 million non-cash asset impairment charge related to the anticipated disposition of the HAK vegetable product line in Northern Europe in early Fiscal 2006. The 3.8% increase in gross profit is primarily a result of higher volume and favorable exchange translation rates. Last year's gross profit was unfavorably impacted by the write down of U.K. pizza crust assets totaling $4.0 million. SG&A increased $142.5 million, or 8.3%, to $1.85 billion, and increased as a percentage of sales to 20.8% from 20.3%. The increase as a percentage of sales is primarily due to the $26.3 million gain recorded on the sale of the Northern European bakery business in the prior year and increased Selling and Distribution costs ("S&D") and General and Administrative expenses ("G&A") in the current year. The increase in S&D is largely a result of higher fuel and transportation costs, and the increase in G&A is chiefly due to employee-related and litigation costs, and professional fees related to various projects across the Company, including increased administrative costs associated with Section 404 of Sarbanes-Oxley. These increases were partially offset by 12 decreased marketing expense, primarily in Europe. Last year's SG&A was unfavorably impacted by reorganization costs totaling $17.1 million. Operating income decreased $24.4 million, or 1.8%, to $1.35 billion. Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $82.0 million, or 3.4%, to $2.52 billion on a sales increase of 5.9%. Marketing support recorded as a reduction of revenue, typically deals and allowances, increased $98.9 million, or 4.6%, to $2.23 billion, which is largely a result of foreign exchange translation rates, the Italian infant nutrition business, and increased promotional spending in European seafood and Tegel poultry in New Zealand, partially offset by reduced trade promotion spending in the U.S. Consumer Products and the U.K. businesses. Marketing support recorded as a component of SG&A decreased $16.9 million, or 5.7%, to $282.8 million, primarily in the Europe segment. Net interest expense increased $16.1 million, to $204.7 million. Net interest expense was unfavorably impacted by higher interest rates during Fiscal 2005, partially offset by the benefits of lower average net debt. Fiscal 2005 income from continuing operations was also unfavorably impacted by the $73.8 million non-cash impairment charges discussed previously. Other expenses, net, decreased $4.5 million, resulting primarily from the impact of the adoption of Statement of Financial Accounting Standard ("SFAS") No. 150 (see below for further discussion) beginning in the second quarter of Fiscal 2004. The effective tax rate for the current year was 30.5% compared to 33.3% last year. The reduction in the effective tax rate is attributable to changes to the capital structure in several foreign subsidiaries, tax credits resulting from tax planning associated with a change in certain foreign tax legislation, reduction of the charge associated with remittance of foreign dividends and the settlement of tax audits, partially offset by the impairment charges and other operating losses for which no tax benefit can currently be recorded. In addition, the prior year effective tax rate was unfavorably impacted by 0.4 percentage points due to the sale of the Northern European bakery business. Income from continuing operations for Fiscal 2005 was $735.8 million compared to $778.9 million in the prior year, a decrease of 5.5%. Diluted earnings per share was $2.08 in the current year compared to $2.20 in the prior year, down 5.5%. The impact of fluctuating exchange rates for Fiscal 2005 remained relatively consistent on a line-by-line basis throughout the consolidated statement of income. FISCAL YEAR 2005 OPERATING RESULTS BY BUSINESS SEGMENT NORTH AMERICAN CONSUMER PRODUCTS Sales of the North American Consumer Products segment increased $191.9 million, or 9.3%, to $2.26 billion. Sales volume increased 5.7% due to significant growth in Ore-Ida frozen potatoes and SmartOnes frozen entrees, aided by the introduction of Ore-Ida Extra Crispy Potatoes, new microwavable Easy Fries, and several new SmartOnes frozen entrees. Strong performance in Boston Market HomeStyle meals and in the frozen snack brands of Delimex, Bagel Bites and TGI Friday's, as well as new distribution related to a co-packing agreement also contributed to the volume increase. Pricing increased sales 2.7% largely due to reduced trade spending and decreased product placement fees on SmartOnes frozen entrees and Ore-Ida potatoes as well as increased price related to Classico pasta sauces and Heinz ketchup. Sales increased 1.6% due to the prior year acquisition of the Canadian business of Unifine Richardson B.V., which manufactures and sells salad dressings, sauces and dessert toppings. Divestitures reduced sales 1.6% due to the sale of Ethnic Gourmet Food and Rosetto pasta to Hain in the first quarter. Exchange translation rates increased sales 0.9%. 13 Gross profit increased $70.0 million, or 8.0%, to $942.8 million driven by the increase in sales. The gross profit margin decreased to 41.8% from 42.3% due primarily to higher commodity and fuel costs, partially offset by higher net pricing. Operating income increased $56.3 million, or 11.9%, to $530.4 million, due to the increase in gross profit, which was partially offset by higher selling and distribution costs, related to higher volume and higher fuel costs. Operating income for Fiscal 2004 was unfavorably impacted by reorganization costs totaling $5.3 million. U.S. FOODSERVICE Sales of the U.S. Foodservice segment increased $75.2 million, or 5.3%, to $1.50 billion. Sales volume increased sales 2.9% due to growth in Heinz ketchup, strong performance on Truesoups frozen soup and growth in custom recipe tomato products. Higher pricing increased sales by 1.5%, as price increases were initiated to offset fuel and commodity cost pressures. Acquisitions increased sales 0.9%, due to the prior year acquisition of Truesoups LLC, a manufacturer and marketer of premium frozen soups. Gross profit increased $48.1 million, or 11.8%, to $457.4 million, and the gross profit margin increased to 30.4% from 28.6%. The gross profit margin increase was primarily due to favorable pricing, partly offset by increases in commodity costs. Operating income increased $13.7 million, or 6.5%, to $224.8 million, related to the growth in gross profit, which was partially offset by increased selling and distribution costs, related to a substantial increase in fuel and trucking costs. Operating income for Fiscal 2004 was unfavorably impacted by reorganization costs totaling $3.9 million. EUROPE Heinz Europe's sales increased $159.6 million, or 4.9%, to $3.45 billion. Favorable exchange translation rates increased sales by 7.5%. Volume decreased 0.3% as increases in Heinz ketchup resulting from the successful introduction of the Top Down bottle, increases in frozen desserts in the U.K., share gains from the successful restage of the Italian infant nutrition business, new products in U.K. frozen potatoes and increases in Heinz ready-to-serve soups were offset by declines in European seafood, frozen entrees in the U.K. and jarred vegetables in Northern Europe. Lower pricing decreased sales 1.8%, primarily due to the restage of the Italian infant nutrition business, the trade spending charge in the Italian infant nutrition business and increased promotional activity in The Netherlands. The $34.1 million trade spending charge in the Italian infant nutrition business related to prior years and reflected an under-accrual quantified as the Company was upgrading trade management processes and systems in Italy. These decreases were partially offset by price increases in Heinz beans and ready-to-serve soups in the U.K. Divestitures reduced sales 0.6%. Gross profit decreased $21.2 million, or 1.7%, to $1.24 billion, and the gross profit margin decreased to 36.1% from 38.5%. The decrease in gross profit margin is primarily related to lower pricing as discussed above, increased commodity and production costs, particularly in the European seafood and the UK businesses and a $27.0 million asset impairment charge related to the HAK vegetable product line in Northern Europe. These decreases were partially offset by supply chain improvements in The Netherlands. Gross profit in Fiscal 2004 was unfavorably impacted by the write-down of the U.K. pizza crust assets totaling $4.0 million. Operating income decreased $88.6 million, or 13.9%, to $550.6 million, largely due to the decrease in gross profit, the gain recognized in the prior year on the sale of the Northern European bakery business, and increased G&A. The increase in G&A is largely due to increased pension costs, litigation costs and professional fees from various projects across Europe. ASIA/PACIFIC Sales in Asia/Pacific increased $49.1 million, or 3.9%, to $1.31 billion. Favorable exchange translation rates increased sales by 4.4%. Volume increased sales 0.5%, chiefly due to new product introductions in the frozen foods and convenience meals categories in the Australia and New 14 Zealand businesses. These were partially offset by the discontinuation of an Indonesian energy drink and volume declines in Tegel poultry and China. The volume decline in China was due primarily to an industry-related recall issue pertaining to the colorant Sudan I. Lower pricing reduced sales 2.0% primarily due to market price pressures on Tegel poultry. The acquisition of Shanghai LongFong Foods, a maker of popular frozen Chinese snacks and desserts, increased sales 2.3%. The divestiture of a Korean oils and fats product line reduced sales 1.3%. Gross profit increased $5.6 million, or 1.4%, to $416.1 million. The gross profit margin decreased to 31.8% from 32.6%. The decrease in gross profit margin is primarily due to lower pricing and increased commodity costs, partially offset by cost improvements in Australia and New Zealand. Operating income decreased $10.6 million, or 7.3%, to $135.6 million, primarily due to increased SG&A, resulting primarily from exchange translation rates and increased volume. OTHER OPERATING ENTITIES Sales for Other Operating Entities increased $22.0 million, or 5.9%, to $396.6 million. Volume increased 1.2% due primarily to strong sales of ketchup and beverages in India and new product launches in Latin America, partially offset by lower sales in Israel, following a product recall in the third quarter of Fiscal 2004. Lower pricing reduced sales by 2.2%, mainly due to decreases in Latin America as a result of market price pressures and price declines in Israel resulting from the effects of the recall. The prior year acquisition of a frozen food business in South Africa increased sales by 5.8%. Exchange translation rates increased sales 1.0%. Gross profit increased $7.7 million, or 6.4%, to $127.9 million. Operating income increased $4.8 million, primarily due to the acquisition in South Africa. Zimbabwe remains in a period of economic uncertainty. Should the current situation continue, the Company could experience disruptions and delays in its Zimbabwean operations. 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 consolidated balance sheets. Although the Company's business continues to operate profitably and is able to source raw materials, the country's economic situation remains uncertain and there are government restrictions on the repatriation of earnings. The Company's ability to recover its investment could become impaired if the economic and political uncertainties continue to deteriorate. FISCAL YEARS ENDED APRIL 28, 2004 AND APRIL 30, 2003 Sales for Fiscal 2004 increased $177.7 million, or 2.2%, to $8.41 billion. Sales were favorably impacted by volume of 0.4% and exchange translation rates of 7.3%. The favorable volume impact is primarily due to strong increases in the U.S. Foodservice and Asia/Pacific segments. These increases were partially offset by the impact of Stock Keeping Unit ("SKU") rationalization and declines in Europe, relating primarily to a reduction in promotional support and trade inventories in advance of a major restage of the Italian infant feeding business in Fiscal 2005. Lower pricing decreased sales by 0.3%, primarily reflecting the Company's goal to achieve more competitive net pricing under the Every Day Low Pricing strategy in the U.S. retail businesses as well as market price pressure in the Tegel poultry business in New Zealand. Divestitures, net of acquisitions, reduced sales 5.3% due primarily to the deconsolidation of Zimbabwe in the third quarter of Fiscal 2003. Domestic operations contributed approximately 38% of consolidated sales in Fiscal 2004 and Fiscal 2003. Gross profit increased $155.8 million, or 5.3%, to $3.09 billion, and the gross profit margin increased to 36.7% from 35.6%. The gross profit margin increase was primarily driven by the Company's continuing focus on process and system improvements, productivity initiatives and elimination of less profitable SKU's. These gains were partially offset by lower overall net pricing for the Company and increased supply chain costs in the European seafood business. The aggre- 15 gate increase in gross profit also benefited from favorable exchange translation rates, partially offset by the impact of higher pension costs, divestitures and the write down of U.K. pizza crust assets in the U.K. For Fiscal 2003, gross profit was also impacted by Del Monte transaction-related costs and costs to reduce overhead of the remaining businesses of $6.1 million, and losses on the exit of non-strategic businesses of $47.3 million. SG&A decreased $49.7 million, or 2.8%, to $1.71 billion, and, as a percentage of sales, was reduced to 20.3% from 21.4%. The decrease was primarily due to the gain recorded on the sale of the Northern European Bakery business in Fiscal 2004, and decreased marketing expense primarily in the North American Consumer Products segment reflecting the Company's goal to achieve more competitive net pricing as discussed above. Additionally, SG&A was impacted in Fiscal 2004 by reorganization costs of $17.1 million, and in Fiscal 2003 by Del Monte transaction-related costs and costs to reduce overhead of the remaining businesses of $118.9 million, and losses on the exit of non-strategic businesses of $15.1 million. The favorable impact of these items was offset by increases in pension and personnel costs. Total marketing support (recorded either as a reduction of revenue or as a component of SG&A) increased $179.4 million, or 8.0%, to $2.44 billion on a sales increase of 2.2%. Marketing support recorded as a reduction of revenue increased $179.0 million, or 9.1%, to $2.14 billion, which is primarily a result of the Company's goal to achieve more competitive net pricing under the Every Day Low Pricing strategy. Marketing support recorded as a component of SG&A increased by $0.4 million, or 0.1%, to $299.7 million, as most marketing resources were focused on sharpening retail price points. Operating income increased $205.4 million, or 17.5%, to $1.38 billion, and increased as a percentage of sales to 16.4% from 14.3% as a result of the changes noted above. Net interest expense decreased $3.9 million, to $188.5 million, due to lower debt balances and lower interest rates. This decrease was partially offset by the prospective classification of the Heinz Finance Company's dividend on its mandatorily redeemable preferred shares to interest expense from other expense. This treatment is in accordance with the adoption of SFAS No. 150 (see below for further discussion) beginning in the second quarter of Fiscal 2004. Other expense, net, decreased $90.4 million, to $22.2 million, attributable to a $39.6 million pretax charge related to early retirement of debt in Fiscal 2003, decreased minority interest expense as a result of the Zimbabwe deconsolidation, the SFAS No. 150 reclassification previously discussed and increased equity income. The effective tax rate for Fiscal 2004 was 33.3% compared to 36.1% for Fiscal 2003 due primarily to improved country mix and effective tax planning. The Fiscal 2004 effective tax rate was unfavorably impacted by 0.4 percentage points due to the sale of the Northern European bakery business and the Fiscal 2003 effective tax rate was unfavorably impacted by 1.6 percentage points due in part to the loss on the disposal of a North American fish and vegetable business. Income from continuing operations for Fiscal 2004 was $778.9 million compared to $555.4 million in Fiscal 2003 (before the cumulative effect of change in accounting principle related to the adoption of SFAS No. 142). Diluted earnings per share was $2.20 in Fiscal 2004 compared to $1.57 in Fiscal 2003 (before the cumulative effect of change in accounting principle related to the adoption of SFAS No. 142). The impact of fluctuating exchange rates for Fiscal 2004 remained relatively consistent on a line-by-line basis throughout the consolidated statement of income. FISCAL YEAR 2004 OPERATING RESULTS BY BUSINESS SEGMENT NORTH AMERICAN CONSUMER PRODUCTS Sales of the North American Consumer Products segment decreased $49.1 million, or 2.3%. Sales volume decreased 0.2% as strong increases in Heinz ketchup and frozen potatoes were more 16 than offset by declines in SmartOnes frozen entrees, related to the increased popularity of low-carb dieting, which drove declines in the nutritional frozen entree category in the U.S., as well as the effects of the rationalization of Boston Market side dishes and Hot Bites snacks. Lower pricing decreased sales 1.6% consistent with our strategy to obtain more competitive consumer price points on Boston Market HomeStyle meals, Heinz gravy, Classico pasta sauces, SmartOnes frozen entrees and Delimex frozen snacks. Sales increased 0.4% due to the Canadian acquisition of Unifine Richardson B.V., which manufactures and sells salad dressings, sauces, and dessert toppings. Divestitures in Fiscal 2003 reduced sales 2.9% and favorable exchange translation rates increased sales 1.9%. Gross profit decreased $2.9 million, or 0.3%, to $872.8 million; the gross profit margin increased to 42.3% from 41.4% as manufacturing cost savings, reflecting significant productivity initiatives and more effective and efficient new product launches, offset unfavorable pricing and higher commodity costs. In addition, reorganization costs unfavorably impacted gross profit by $4.9 million in Fiscal 2003. Operating income increased $82.5 million, or 21.1%, to $474.1 million, primarily due to decreased consumer marketing expenses related to the Fiscal 2003 launch of Easy Squeeze!, Boston Market frozen entrees and Hot Bites snacks, and Ore-Ida Funky Fries. In addition, Fiscal 2004 operating income was unfavorably impacted by reorganization costs of $5.3 million and Fiscal 2003 operating income was unfavorably impacted by Del Monte transaction-related costs and costs to reduce overhead of the remaining businesses and losses on the exit of non-strategic businesses of $60.9 million. U.S. FOODSERVICE U.S. Foodservice's sales increased $113.2 million, or 8.6%. Sales volume increased sales 2.4% primarily due to increases in Heinz ketchup, Escalon processed tomato products, Dianne's frozen desserts and single serve condiments as a result of new customers, successful product innovation and a strengthening trend in the U.S. restaurant industry. Higher pricing increased sales by 2.7% chiefly due to Heinz ketchup and single serve condiments. Acquisitions, net of divestitures, increased sales 3.6%, primarily due to the acquisition of Truesoups LLC, a manufacturer and marketer of premium frozen soups. Gross profit increased $34.8 million, or 9.3%, to $409.3 million, and the gross profit margin increased slightly to 28.6% from 28.5%. These increases were primarily due to favorable pricing and sales mix, partially offset by higher commodity costs. In addition, reorganization costs unfavorably impacted gross profit by $1.1 million for Fiscal 2003. Operating income increased $19.4 million, or 10.1%, to $211.1 million, primarily due to the growth in gross profit, partially offset by the impact of higher sales volume on S&D and increased G&A attributable to increased personnel and systems costs. In addition, reorganization costs unfavorably impacted operating income by $3.9 million in Fiscal 2004 and Del Monte transaction-related costs and costs to reduce overhead of the remaining businesses and losses on the exit of non-strategic businesses unfavorably impacted operating income by $5.9 million for Fiscal 2003. EUROPE Heinz Europe's sales increased $251.2 million, or 8.3%. Favorable exchange translation rates increased sales by 12.2%. Volumes declined 1.4% due to decreases in Italian infant feeding, in advance of a restaging in early Fiscal 2005, and in convenience meals, due to promotional timing and the impact of our previously announced program to reduce low-margin SKU's. These decreases were partially offset by increases in Heinz ketchup from the successful introduction of the top-down bottle, Heinz salad cream, Petite Navire seafood due to the rebound from the prior year recall and frozen food products. Pricing decreased 0.3% as price increases on Heinz beans, ready-to-serve soups, and pasta meals were offset by increased trade promotion spending related to seafood. Also, prices were lower in Northern Europe as a result of The Netherland's largest retailer rolling back prices in excess of 8% beginning in the second quarter of Fiscal 2004. Divestitures reduced sales 17 2.2%, primarily related to the sale of the U.K. frozen pizza business, the Northern European bakery business and a foodservice business in Italy. Gross profit increased $128.8 million, or 11.3%, to $1,264.8 million, and the gross profit margin increased to 38.5% from 37.4%. The increase in gross profit is primarily due to favorable exchange translation rates, partially offset by increased supply chain costs in our European seafood business, the volume-related impact of reduced promotions in Heinz's Italian baby food business, the impact of divestitures and the write down of the U.K. pizza assets. Additionally, gross profit was unfavorably impacted by $47.4 million for reorganization costs and losses on the exit of non-strategic businesses in Fiscal 2003. Operating income increased $97.4 million, or 18.0%, to $639.2 million, primarily attributable to the favorable change in gross profit and the gain on the sale of the Northern European bakery business, partially offset by increased G&A expense primarily related to increased pension expense in the U.K. Operating income was unfavorably impacted by $58.9 million for reorganization costs and losses on the exit of non-strategic businesses in Fiscal 2003. ASIA/PACIFIC Sales in Asia/Pacific increased $179.7 million, or 16.7%. Favorable exchange translation rates increased sales by 16.2%. Volume increased sales 2.6% primarily due to strong sales of Heinz ketchup, Tegel poultry in New Zealand, Heinz soups in Australia and ABC sauces in Indonesia. Lower pricing decreased sales 1.8% related to lower prices on Tegel poultry in New Zealand, partially offset by price increases in Indonesia on ABC sauces and juice concentrates. Divestitures, net of acquisitions, reduced sales 0.5%. Gross profit increased $67.9 million, or 19.8%, to $410.5 million, and the gross profit margin increased to 32.6% from 31.8%. These increases were primarily due to favorable exchange translation rates and supply chain improvements in our Australian and Wattie's businesses, partially offset by Tegel poultry's lower pricing and higher commodity costs. Operating income increased $45.7 million, or 45.5%, to $146.2 million, primarily due to the growth in gross profit and G&A reductions in our Australian and Wattie's businesses, partially offset by the impact of exchange translation rates on SG&A expenses. Additionally, operating income was unfavorably impacted by reorganization costs of $6.6 million in Fiscal 2003. OTHER OPERATING ENTITIES Sales for Other Operating Entities decreased $317.3 million, or 45.9%, primarily due to the deconsolidation of the Company's Zimbabwe operations in Fiscal 2003. The deconsolidation also impacted gross profit and operating income. Gross profit decreased $83.1 million, or 40.9%, to $120.2 million, and operating income decreased $81.3 million, or 73.1%, to $29.9 million. Excluding the Zimbabwe operations in Fiscal 2003, sales increased 14.3%, primarily due to volume increases of 6.2%, and operating income decreased 15.3%. Other than the impact of Zimbabwe, the other significant impact on operating income was the recall in the third quarter of Fiscal 2004 of a soy-based infant formula product sold under the Remedia brand in Israel. LIQUIDITY AND FINANCIAL POSITION The following discussion of liquidity and financial position references the business measures of operating free cash flow and net debt as defined below. These measures are utilized by senior management and the board of directors to gauge our business operating performance, and management believes these measures provide clarity in understanding the trends of the business. Management, and investors, can benefit from the use of the operating free cash flow measure as it provides cash flow derived from product sales and the short-term application of cash, including the effect of capital expenditures. 18 The limitation of operating free cash flow is that it adjusts the GAAP measure-cash flow from operations for cash used for capital expenditures that is no longer available to the Company for other purposes. Management compensates for this limitation by using the GAAP operating cash flow number as well. Operating free cash flow does not represent residual cash flow available for discretionary expenditures and does not provide insight into the entire scope of the historical cash inflows or outflows of our operations that are captured in the other cash flow measures reported in the statement of cash flows. The Company's primary measure of cash flow performance is operating free cash flow (cash provided by operating activities less capital expenditures). The following is the Company's calculation of operating free cash flow for the years ended April 27, 2005, April 28, 2004 and April 30, 2003 (amounts in millions):
Fiscal Year Ended --------------------------------------------------- April 27, 2005 April 28, 2004 April 30, 2003 FY 2005 FY 2004 FY 2003 -------------- ----------------- -------------- Cash provided by operating activities.......................... $1,160.8 $1,249.0 $ 906.0 Capital expenditures.................. $ (240.7) $ (232.0) $(154.0) -------- -------- ------- Operating Free Cash Flow............ $ 920.1 $1,017.0 $ 752.0 ======== ======== =======
Cash provided by continuing operating activities in Fiscal 2005 was $1.16 billion, a decrease of $88.2 million from the prior year. The decrease in Fiscal 2005 versus Fiscal 2004 is primarily due to a planned tax pre-payment of $125 million made in Europe during the third quarter and working capital movements, particularly inventories, partially offset by lower contributions to the Company's pension plans in Fiscal 2005. While we continue to make progress in reducing our cash conversion cycle (six days lower than a year ago), the rate of improvement has lessened when compared to last fiscal year, as expected. Cash used for investing activities totaled $264.1 million compared to $301.1 million last year. Proceeds from divestitures provided $51.2 million in Fiscal 2005 and related primarily to the sale of an oil and fats product line in Korea, which was completed during the third quarter. Acquisitions used $126.5 million in Fiscal 2005 primarily related to the Company's purchase in the fourth quarter of Appetizer's And, Inc., a manufacturer and marketer of high-quality, frozen hors d'oeuvres sold primarily to the U.S. foodservice industry, and in the third quarter of a controlling interest in Shanghai LongFong Foods, a maker of frozen Chinese snacks and desserts. In Fiscal 2004, acquisitions, net of divestitures, used $41.7 million in cash. Capital expenditures totaled $240.7 million (2.7% of sales) in Fiscal 2005 compared to $232.0 million (2.8% of sales) last year. Cash used for financing activities totaled $1.05 billion compared to $643.9 million last year. Payments on long-term debt were $480.5 million during Fiscal 2005, compared to $74.3 million last year. Proceeds from short-term borrowings were $26.5 million in Fiscal 2005, compared to payments of $144.7 million in the prior year. Cash used for the purchases of treasury stock, net of proceeds from option exercises, was $212.0 million in Fiscal 2005, compared to $57.4 million in the prior year, in line with the Company's strategy of flat or reduced fully diluted shares. Dividend payments totaled $398.9 million, compared to $379.9 million last year, reflecting a 5.5% increase in the annual dividend per share on common stock. On May 18, 2005, the Company announced that is Board of Directors approved a 5.3% increase in the annual dividend on common stock for Fiscal 2006 (from 28.5 cents to 30 cents per quarter), effective with the July 2005 dividend. Fiscal 2006 dividends are expected to approximate $410 million. Net debt is an additional measure that management utilizes to judge our liquidity and financial condition. Net debt is defined as total debt, net of the value of interest rate swaps, less cash and 19 cash equivalents and short-term investments. The following is the Company's calculation of net debt as of April 27, 2005 and April 28, 2004 (amounts in millions):
April 27, 2005 April 28, 2004 FY 2005 FY 2004 -------------- -------------- Short-term debt......................................... $ 28.5 $ 11.4 Long-term debt, including current portion............... 4,666.8 4,963.0 --------- --------- Total debt......................................... 4,695.3 4,974.4 Less: Value of interest rate swaps.......................... (186.1) (125.3) Cash and cash equivalents............................. (1,083.7) (1,140.0) Short-term investments................................ -- (40.0) --------- --------- Net Debt................................................ $ 3,425.5 $ 3,669.1 ========= =========
Overall, net debt decreased $243.6 million, or 6.6%, versus prior year. Long-term debt decreased $296.2 million from the prior year primarily due to the repayment of $480 million of debt in Fiscal 2005; offset by increases in debt as a result of higher foreign exchange rates and debt assumed through acquisitions. At April 27, 2005, the Company's net debt was $3.4 billion. Excluding the reclassification of H.J. Heinz Finance Company's $325 million of preferred stock and the impact of the changes in foreign exchange on net debt, the Company's net debt would have been $3.1 billion, a decrease of $2.3 billion since the beginning of Fiscal 2003. The Company anticipates that it will have additional long-term debt reductions in Fiscal 2006, principally the retirement of E417.9 million of bonds ($540.6 million) which mature in April 2006. Return on average shareholders' equity ("ROE") is calculated by taking net income divided by average shareholders' equity. Average shareholders' equity is a five-point quarterly average. ROE was 34.4% in Fiscal 2005, 51.6% in Fiscal 2004 and 34.7% in Fiscal 2003. ROE in Fiscal 2005 was unfavorably impacted by increased average equity reflecting fluctuations in foreign exchange. In addition, ROE was unfavorably impacted by 4.2% in Fiscal 2005 related to the asset impairment charges. ROE was unfavorably impacted by 9.9% in Fiscal 2003 related to Del Monte transaction related costs, costs to reduce overhead of the remaining business and losses on the exit of non-strategic businesses. Pretax return on average invested capital ("ROIC") is calculated by taking net operating profit before income taxes divided by average invested capital. Net operating profit before income taxes excludes net interest expense. Average invested capital is a five-point quarterly average of debt plus total equity less cash and cash equivalents and short-term investments. ROIC was 21.7% in Fiscal 2005, 24.5% in Fiscal 2004 and 19.0% in Fiscal 2003. ROIC was unfavorably impacted by 1.7% in Fiscal 2005 related to the asset impairment charges for the HAK vegetable product line, the equity investment in Hain and the cost-basis investment in a grocery industry-sponsored e-commerce business venture. ROIC was favorably impacted by 0.1% in Fiscal 2004 related to the gain on the disposal of a bakery business in Northern Europe offset by reorganization costs and the write down of pizza crust assets in the United Kingdom. ROIC was unfavorably impacted by 3.5% in Fiscal 2003 related to Del Monte transaction related costs, costs to reduce overhead of the remaining business and losses on the exit of non-strategic businesses. In August 2004, the Company and H.J. Heinz Finance Company amended their $600 million 364-Day Credit Agreement and their $1.5 billion Five-Year Credit Agreement by combining the agreements into a $2.0 billion Five-Year Credit Agreement, expiring August 2009. The Credit Agreement supports the Company's commercial paper borrowings and the remarketable securities. As a result, these borrowings are classified as long-term debt based upon the Company's intent and ability to refinance these borrowings on a long-term basis. In addition, the Company has $1.1 billion of foreign lines of credit available at April 27, 2005. These resources, the Company's year-end 20 cash balance of more than $1 billion, strong operating cash flow and access to the capital market, if required, should enable the Company to meet its cash requirements for operations, including capital expansion programs, debt maturities, stock repurchases and dividends to shareholders. At April 27, 2005, the Company's long-term debt ratings were A at Standard & Poor's and Fitch and A-3 at Moody's, and the Company's short-term debt ratings were A-1 at Standard & Poor's, F-1 at Fitch and P-2 at Moody's. In Fiscal 2005, cash required for reorganization costs was approximately $9.9 million. Fiscal 2006 cash requirements related to reorganization costs to streamline the Company's organization structure, primarily in Europe, are expected to approximate $75 to $100 million. Additionally, the Company is reexamining its portfolio strategy which could result in the disposition of several non-core businesses, the proceeds of which could approximate $1 billion. If implemented, these proceeds could be used for debt reduction, share repurchases, acquisitions and operations. CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS CONTRACTUAL OBLIGATIONS The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements and unconditional purchase obligations. In addition, the Company has purchase obligations for materials, supplies, services and property, plant and equipment as part of the ordinary conduct of business. A few of these obligations are long-term and are based on minimum purchase requirements. In the aggregate, such commitments are not at prices in excess of current markets. Due to the proprietary nature of some of the Company's materials and processes, certain supply contracts contain penalty provisions for early terminations. The Company does not believe that a material amount of penalties is reasonably likely to be incurred under these contracts based upon historical experience and current expectations. The following table represents the contractual obligations of the Company as of April 27, 2005.
Less than More than 1 year 1-3 years 3-5 years 5 years Total ----------- ---------- --------- ---------- ---------- Long Term Debt........... $ 543,868 $ 302,672 $327,394 $3,297,305 $4,471,239 Capital Lease Obligations............ 1,103 2,093 2,402 19,735 25,333 Operating Leases......... 79,836 249,363 62,813 189,107 581,119 Purchase Obligations..... 314,468 475,415 173,250 93,958 1,057,091 Other Long Term Liabilities Recorded on the Balance Sheet...... 85,465 166,119 151,565 170,303 573,452 ---------- ---------- -------- ---------- ---------- Total............... $1,024,740 $1,195,662 $717,424 $3,770,408 $6,708,234 ========== ========== ======== ========== ==========
Other long-term liabilities primarily consist of certain specific incentive compensation arrangements and pension and postretirement benefit commitments. The following long-term liabilities included on the consolidated balance sheet are excluded from the table above: interest payments, income taxes, minority interest and insurance accruals. The Company is unable to estimate the timing of the payments for these items. OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS The Company does not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity. In addition, the Company does not have any related party transactions that materially affect the results of operations, cash flow or financial condition. 21 MARKET RISK FACTORS The Company is exposed to market risks from adverse changes in foreign exchange rates, interest rates, commodity prices and production costs. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes. FOREIGN EXCHANGE RATE SENSITIVITY: The Company's cash flow and earnings are subject to fluctuations due to exchange rate variation. Foreign currency risk exists by nature of the Company's global operations. The Company manufactures and sells its products in a number of locations around the world, and hence foreign currency risk is diversified. The Company may attempt to limit its exposure to changing foreign exchange rates through both operational and financial market actions. These actions may include entering into forward or option contracts to hedge existing exposures, firm commitments and forecasted transactions. The instruments are used to reduce risk by essentially creating offsetting currency exposures. The following table presents information related to foreign currency contracts held by the Company:
Aggregate Notional Amount Net Unrealized Gains/(Losses) ------------------------------- ------------------------------- April 27, 2005 April 28, 2004 April 27, 2005 April 28, 2004 -------------- -------------- -------------- -------------- (Dollars in millions) Purpose of Hedge: Intercompany cash flows........ $ 737 $302 $(1.7) $(0.8) Forecasted purchases of raw materials and finished goods and foreign currency denominated obligations...... 417 466 (7.1) (5.8) Forecasted sales and foreign currency denominated assets.. 115 215 1.8 -- ------ ---- ----- ----- $1,269 $983 $(7.0) $(6.6) ====== ==== ===== =====
As of April 27, 2005, the Company's contracts to hedge forecasted transactions mature in one year. Contracts that meet qualifying criteria are accounted for as foreign currency cash flow hedges. Accordingly, the effective portion of gains and losses is deferred as a component of other comprehensive income/loss and is recognized in earnings at the time the hedged item affects earnings. Any gains and losses due to hedge ineffectiveness or related to contracts which do not qualify for hedge accounting are recorded in current period earnings in other income and expense. Substantially all of the Company's foreign affiliates' financial instruments are denominated in their respective functional currencies. Accordingly, exposure to exchange risk on foreign currency financial instruments is not material. (See Note 13 to the consolidated financial statements.) INTEREST RATE SENSITIVITY: The Company is exposed to changes in interest rates primarily as a result of its borrowing and investing activities used to maintain liquidity and fund business operations. The nature and amount of the Company's long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company's net debt obligations totaled $3.43 billion and $3.67 billion at April 27, 2005 and April 28, 2004, respectively. The Company's debt obligations are summarized in Note 7 to the consolidated financial statements. In order to manage interest rate exposure, the Company utilizes interest rate swaps in order to convert fixed-rate debt to floating. These derivatives are primarily accounted for as fair value hedges. Accordingly, changes in the fair value of these derivatives, along with changes in the fair value of the hedged debt obligations that are attributable to the hedged risk, are recognized in current period earnings. Based on the amount of fixed-rate debt converted to floating as of April 27, 2005, a variance of 1/8% in the related interest rate would cause annual interest expense related to 22 this debt to change by approximately $3.6 million. The following table presents additional information related to interest rate contracts designated as fair value hedges by the Company:
April 27, 2005 April 28, 2004 -------------- -------------- (Dollars in millions) Pay floating swaps--notional amount..................... $2,767.4 $2,767.4 Net unrealized gains.................................... $ 186.1 $ 125.3 Weighted average maturity (years)....................... 11.4 12.4 Weighted average receive rate........................... 6.37% 6.37% Weighted average pay rate............................... 2.95% 2.18%
The Company had interest rate contracts with total notional amounts of $107.6 million and $907.6 million at April 27, 2005 and April 28, 2004, respectively, that did not meet the criteria for hedge accounting but effectively mitigated interest rate exposures. These derivatives are accounted for on a full mark-to-market basis through current earnings and they mature approximately three years from the current fiscal year-end. Net unrealized gains/(losses), which are presented as a component of other noncurrent assets/liabilities, related to these interest rate contracts totaled $(2.5) million and $4.5 million at April 27, 2005 and April 28, 2004, respectively. EFFECT OF HYPOTHETICAL 10% FLUCTUATION IN MARKET PRICES: As of April 27, 2005, the potential gain or loss in the fair value of the Company's outstanding foreign currency contracts and interest rate contracts assuming a hypothetical 10% fluctuation in currency rates and swap rates, respectively, would be approximately:
Fair Value Effect ----------------- (Dollars in millions) Foreign currency contracts.................................. $130 Interest rate swap contracts................................ $110
However, it should be noted that any change in the fair value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. In relation to currency contracts, this hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. RECENTLY ISSUED ACCOUNTING STANDARDS In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment", which revises SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". This Statement focuses primarily on accounting for transactions in which an entity compensates employee services through share-based payments. This Statement requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the reward. On April 18, 2005, the Securities and Exchange Commission adopted a new rule that amended the compliance dates of SFAS No. 123(R) to require the implementation no later than the beginning of the first fiscal year beginning after June 15, 2005. Early adoption of the Statement is permissable. The Company plans on adopting this Statement in Fiscal 2007. In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004". The FSP provided guidance on the accounting and disclosures for the temporary repatriation provision of the American Jobs Creation Act. The Company has adopted the disclosure provisions of the FSP which apply to entities that have not yet completed their 23 evaluation of the repatriation provision, and will expand its disclosures in accordance with the FSP upon completion of the final evaluation. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4". This Statement is meant to eliminate any narrow differences existing between the FASB standards and the standards issued by the International Accounting Standards Board by clarifying that any abnormal idle facility expense, freight, handling costs and spoilage be recognized as current-period charges. This Statement is required to be adopted by the Company in the first quarter of Fiscal 2007; however, early application is permitted. The Company does not expect the adoption of this Statement to have a material impact on results of operations, financial position or cash flows. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act") was signed into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In January 2005, final Medicare prescription drug rules were issued. The adoption of the Act during Fiscal 2005 resulted in a reduction of the Company's benefit obligation of approximately $18.8 million and has been reflected as an actuarial gain. The total reduction in benefit cost for Fiscal 2005 is $2.3 million, comprised of $0.9 million of interest cost, $0.1 million of service cost, and $1.4 million reduction in unrecognized loss amortization, recognized on a pro-rata basis. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This statement affects the classification, measurement and disclosure requirements of certain freestanding financial instruments including mandatorily redeemable shares. SFAS No. 150 was effective for the Company for the second quarter of Fiscal 2004. The adoption of SFAS No. 150 required the prospective classification of H. J. Heinz Finance Company's $325 million of mandatorily redeemable preferred shares from minority interest to long-term debt and the $5.1 million quarterly preferred dividend from other expenses to interest expense beginning in the second quarter ended October 29, 2003, with no resulting effect on the Company's profitability. DISCUSSION OF SIGNIFICANT ACCOUNTING ESTIMATES In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Marketing Costs -- Trade promotions are an important component of the sales and marketing of the Company's products and are critical to the support of the business. Trade promotion costs include amounts paid to retailers to offer temporary price reductions for the sale of the Company's products to consumers, amounts paid to obtain favorable display positions in retailers' stores, and amounts paid to customers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product to the customer based on an estimate of the expected levels of performance of the trade promotion, which is dependent upon factors such as historical trends with similar promotions, expectations regarding customer participation, and sales and payment trends with similar previously offered programs. Our original estimated costs of trade promotions may change in the future as a result of changes in customer participation, particularly for new programs and for programs related to the introduction of new products. We 24 perform monthly and quarterly evaluations of our outstanding trade promotions; making adjustments, where appropriate, to reflect changes in our estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a customer from amounts otherwise due to the Company. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by the Company's customers for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time and could have a significant impact on the Company's results of operations depending on how actual results of the programs compare to original estimates. We offer coupons to consumers in the normal course of our business. Costs associated with this activity, which we refer to as coupon redemption costs, are accrued in the period in which the coupons are offered. The initial estimates made for each coupon offering are based upon historical redemption experience rates for similar products or coupon amounts. We perform subsequent estimates that compare our actual redemption rates to the original estimates. We review the assumptions used in the valuation of the estimates and determine an appropriate accrual amount. Adjustments to our initial accrual may be required if our actual redemption rates vary from our estimated redemption rates. Inventories -- Inventories are stated at the lower of cost or market value. Cost is principally determined by the average cost method. The Company records adjustments to the carrying value of inventory based upon its forecasted plans to sell its inventories. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. These adjustments are estimates, which could vary, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations. Investments and Long-lived Assets and Property, Plant and Equipment -- Investments and long-lived assets are recorded at their respective cost basis on the date of acquisition. Buildings, equipment and leasehold improvements are depreciated on a straight-line basis over the estimated useful life of such assets. The Company reviews investments and long-lived assets, including intangibles with finite useful lives, and property, plant and equipment, whenever circumstances change such that the indicated recorded value of an asset may not be recoverable or has suffered an other than temporary impairment. Factors that may affect recoverability include changes in planned use of equipment or software, the closing of facilities and changes in the underlying financial strength of investments. The estimate of current value requires significant management judgment and requires assumptions that can include: future volume trends, revenue and expense growth rates and foreign exchange rates developed in connection with the Company's internal projections and annual operating plans, and in addition, external factors such as market devaluation and inflation which are developed in connection with the Company's longer-term strategic planning. As each is management's best estimate on then available information, resulting estimates may differ from actual cash flows. Goodwill and Indefinite Lived Intangibles -- Carrying values of goodwill and intangible assets with indefinite lives are reviewed for impairment at least annually, or when circumstances indicate that a possible impairment may exist, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, loss of key personnel, and acts by governments and courts, may signal that an asset has become impaired. The Company's measure of impairment is based on a discounted cash flow model that requires significant judgment and requires assumptions about future volume trends, revenue and expense growth rates and foreign exchange rates developed in connection with the Company's internal projections and annual operating plans, and in addition, external factors such as changes in macroeconomic trends and cost of capital developed in connection with the Company's longer-term strategic planning. Inherent in estimating future performance, in particular assumptions regarding external factors such as capital markets, are 25 uncertainties beyond the Company's control. Management believes that because fair values of goodwill and intangible assets with indefinite lives significantly exceed carrying value, it is unlikely that a material impairment charge would be recognized. Retirement Benefits -- The Company sponsors pension and other retirement plans in various forms covering substantially all employees who meet eligibility requirements. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, turnover rates and rate of future compensation increases as determined by the Company, within certain guidelines. The discount rate assumptions used to value pension and postretirement benefit obligations reflect the rates available on high quality fixed income investments available (in each country that the Company operates a benefit plan) as of the measurement date. The weighted average discount rate used to measure the projected benefit obligation for the year ending April 27, 2005 was reduced to 5.5% from 5.8% as of April 28, 2004. Over time, the expected rate of return on pension plan assets should approximate the actual long-term returns. In developing the expected rate of return, the Company considers actual real historic returns on asset classes, the investment mix of plan assets, investment manager performance and projected future returns of asset classes developed by respected consultants. The weighted average expected rate of return on plan assets used to calculate annual expense was 8.2% for the years ended April 27, 2005 and April 28, 2004 and 8.9% for the year ended April 30, 2003. For purposes of calculating Fiscal 2006 expense, the weighted average rate of return will remain at approximately 8.2%. In addition, the Company's actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these elements. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension expense recorded by the Company. SENSITIVITY OF ASSUMPTIONS If we assumed a 100 basis point change in the following assumptions, our Fiscal 2005 projected benefit obligation and expense would increase (decrease) by the following amounts (in millions):
100 Basis Point ------------------- Increase Decrease -------- -------- PENSION BENEFITS Discount rate used in determining projected benefit obligation................................................ $(304.3) $365.1 Discount rate used in determining net pension expense....... $ (34.4) $ 38.2 Long-term rate of return on assets used in determining net pension expense........................................... $ (20.6) $ 20.6 OTHER BENEFITS Discount rate used in determining projected benefit obligation................................................ $ (25.4) $ 29.7
Income Taxes -- The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating its tax positions. The Company establishes reserves when it becomes probable that a tax return position that it considers supportable may be challenged and that the Company may not succeed in completely defending that challenge. The Company adjusts these reserves in light of changing facts and circumstances, such as the settlement of a tax audit. The Company's annual tax rate includes the impact of reserve provisions and changes to reserves. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that 26 its reserves reflect the probable outcome of known tax contingencies. Favorable resolution would be recognized as a reduction to the Company's annual tax rate in the year of resolution. The Company's tax reserves are presented in the balance sheet principally within accrued income taxes. The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. The American Jobs Creation Act ("the AJCA") provides a deduction of 85% on certain foreign earnings repatriation. The Company may elect to apply this provision in Fiscal 2006. The Company does not expect to be able to complete its evaluation of the effects of the repatriation provisions until after the Treasury Department provides additional guidance on key elements of the provision. The Company expects to complete its evaluation within a reasonable period of time after final guidance is issued. The range of amounts that the Company is currently considering for repatriation under this provision is between zero and $750 million. The related potential range of income tax (based upon our expectation of how certain technical issues will be resolved in the final guidance) is between zero and $20 million. The AJCA provides a deduction calculated as a percentage of qualified income from manufacturing in the United States. The percentage increases from 3% to 9% over a 6 year period beginning with the Company's 2006 fiscal year. In December 2004, the FASB issued a new staff position providing for this deduction to be treated as a special deduction, as opposed to a tax rate reduction, in accordance with SFAS No. 109. The benefit of this deduction is not expected to have a material impact on the Company's effective tax rate in Fiscal 2006. INFLATION In general, costs are affected by inflation and the effects of inflation may be experienced by the Company in future periods. Management believes, however, that such effects have not been material to the Company during the past three years in the United States or in foreign non-hyperinflationary countries. The Company operates in certain countries around the world, such as Argentina, Venezuela and Zimbabwe, that have experienced hyperinflation. In hyperinflationary foreign countries, the Company attempts to mitigate the effects of inflation by increasing prices in line with inflation, where possible, and efficiently managing its working capital levels. The impact of inflation on both the Company's financial position and results of operations is not expected to adversely affect Fiscal 2006 results. The Company's financial position continues to remain strong, enabling it to meet cash requirements for operations, including anticipated additional pension plan contributions, capital expansion programs and dividends to shareholders. STOCK MARKET INFORMATION H. J. Heinz Company common stock is traded principally on The New York Stock Exchange and the Pacific Exchange, under the symbol HNZ. The number of shareholders of record of the Company's common stock as of May 31, 2005 approximated 45,200. The closing price of the common stock on The New York Stock Exchange composite listing on April 27, 2005 was $36.87. 27 Stock price information for common stock by quarter follows:
Stock Price Range ----------------- High Low ------- ------- 2005 First....................................................... $39.41 $36.30 Second...................................................... 38.43 34.53 Third....................................................... 40.61 35.51 Fourth...................................................... 38.16 35.06 2004 First....................................................... $34.40 $29.71 Second...................................................... 35.67 31.98 Third....................................................... 36.62 34.89 Fourth...................................................... 38.95 35.37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This information is set forth in this report in Item 7--"Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 22 through 23. 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. TABLE OF CONTENTS Report of Management on Internal Control over Financial Reporting................................................. 30 Report of Independent Registered Public Accounting Firm..... 31 Consolidated Statements of Income........................... 33 Consolidated Balance Sheets................................. 34 Consolidated Statements of Shareholders' Equity............. 36 Consolidated Statements of Cash Flows....................... 38 Notes to Consolidated Financial Statements.................. 39
29 REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has used the framework set forth in the report entitled "Internal Control--Integrated Framework" published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company's internal control over financial reporting. Management has concluded that the Company's internal control over financial reporting was effective as of the end of the most recent fiscal year. Our management's assessment of the effectiveness of the Company's internal control over financial reporting as of April 27, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. /s/ William R. Johnson Chairman, President and Chief Executive Officer /s/ Arthur B. Winkleblack Executive Vice President and Chief Financial Officer June 16, 2005 30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of H. J. Heinz Company: We have completed an integrated audit of H. J. Heinz Company's fiscal year 2005 consolidated financial statements and of its internal control over financial reporting as of April 27, 2005 and audits of its fiscal year 2004 and fiscal year 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of H. J. Heinz Company and its subsidiaries at April 27, 2005 and April 28, 2004, and the results of their operations and their cash flows for each of the three years in the period ended April 27, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Internal control over financial reporting Also, in our opinion, management's assessment, included in Report of Management on Internal Control Over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of April 27, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 27, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 31 A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania June 16, 2005 32 H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended ------------------------------------------------ April 27, 2005 April 28, 2004 April 30, 2003 (52 Weeks) (52 Weeks) (52 Weeks) -------------- -------------- -------------- (In thousands, except per share amounts) Sales............................................... $8,912,297 $8,414,538 $8,236,836 Cost of products sold............................... 5,705,926 5,326,281 5,304,362 ---------- ---------- ---------- Gross profit........................................ 3,206,371 3,088,257 2,932,474 Selling, general and administrative expenses........ 1,851,529 1,709,000 1,758,658 ---------- ---------- ---------- Operating income.................................... 1,354,842 1,379,257 1,173,816 Interest income..................................... 27,776 23,312 31,083 Interest expense.................................... 232,431 211,826 223,532 Asset impairment charges for cost and equity investments....................................... 73,842 -- -- Other expense, net.................................. 17,731 22,192 112,636 ---------- ---------- ---------- Income from continuing operations before income taxes and cumulative effect of change in accounting principle.............................. 1,058,614 1,168,551 868,731 Provision for income taxes.......................... 322,792 389,618 313,372 ---------- ---------- ---------- Income from continuing operations before cumulative effect of change in accounting principle.......... 735,822 778,933 555,359 Income from discontinued operations, net of tax..... 16,877 25,340 88,738 ---------- ---------- ---------- Income before cumulative effect of change in accounting principle.............................. 752,699 804,273 644,097 Cumulative effect of change in accounting principle......................................... -- -- (77,812) ---------- ---------- ---------- Net income.......................................... $ 752,699 $ 804,273 $ 566,285 ========== ========== ========== Income Per Common Share: Diluted Continuing operations.......................... $ 2.08 $ 2.20 $ 1.57 Discontinued operations........................ 0.05 0.07 0.25 Cumulative effect of change in accounting principle.................................... -- -- (0.22) ---------- ---------- ---------- Net Income................................... $ 2.13 $ 2.27 $ 1.60 ========== ========== ========== Average common shares outstanding--Diluted..... 353,450 354,372 354,144 ========== ========== ========== Basic Continuing operations.......................... $ 2.10 $ 2.21 $ 1.58 Discontinued operations........................ 0.05 0.07 0.25 Cumulative effect of change in accounting principle.................................... -- -- (0.22) ---------- ---------- ---------- Net Income................................... $ 2.15 $ 2.29 $ 1.61 ========== ========== ========== Average common shares outstanding--Basic....... 350,042 351,810 351,250 ========== ========== ========== Cash dividends per share............................ $ 1.14 $ 1.08 $ 1.485 ========== ========== ==========
See Notes to Consolidated Financial Statements 33 H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
April 27, April 28, 2005 2004 ----------- ---------- (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents................................. $ 1,083,749 $1,140,039 Short-term investments.................................... -- 40,000 Receivables (net of allowances: 2005--$21,844 and 2004--$21,313)......................................... 1,092,394 1,093,155 Inventories: Finished goods and work-in-process..................... 974,974 897,778 Packing material and ingredients....................... 281,802 259,154 ----------- ---------- Total inventories.................................... 1,256,776 1,156,932 Prepaid expenses.......................................... 174,818 165,177 Other current assets...................................... 37,839 15,493 ----------- ---------- Total current assets................................. 3,645,576 3,610,796 ----------- ---------- Property, plant and equipment: Land................................................... 67,000 65,836 Buildings and leasehold improvements................... 844,056 796,966 Equipment, furniture and other......................... 3,111,663 2,864,422 ----------- ---------- 4,022,719 3,727,224 Less accumulated depreciation............................. 1,858,781 1,669,938 ----------- ---------- Total property, plant and equipment, net............. 2,163,938 2,057,286 ----------- ---------- Other non-current assets: Goodwill.................................................. 2,138,499 1,959,914 Trademarks, net........................................... 651,552 643,901 Other intangibles, net.................................... 171,675 149,920 Other non-current assets.................................. 1,806,478 1,455,372 ----------- ---------- Total other non-current assets....................... 4,768,204 4,209,107 ----------- ---------- Total assets......................................... $10,577,718 $9,877,189 =========== ==========
See Notes to Consolidated Financial Statements 34 H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
April 27, April 28, 2005 2004 ----------- ---------- (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt........................................... $ 28,471 $ 11,434 Portion of long-term debt due within one year............. 544,798 425,016 Accounts payable.......................................... 1,181,652 1,063,113 Salaries and wages........................................ 55,321 50,101 Accrued marketing......................................... 270,147 230,495 Other accrued liabilities................................. 376,124 361,596 Income taxes.............................................. 130,555 327,313 ----------- ---------- Total current liabilities............................ 2,587,068 2,469,068 ----------- ---------- Long-term debt and other liabilities: Long-term debt............................................ 4,121,984 4,537,980 Deferred income taxes..................................... 508,639 313,343 Non-pension postretirement benefits....................... 196,686 192,599 Minority interest......................................... 114,833 104,645 Other..................................................... 445,935 365,365 ----------- ---------- Total long-term debt and other liabilities........... 5,388,077 5,513,932 ----------- ---------- Shareholders' equity: Capital stock: Third cumulative preferred, $1.70 first series, $10 par value................................................. 83 94 Common stock, 431,096,486 shares issued, $0.25 par value................................................. 107,774 107,774 ----------- ---------- 107,857 107,868 Additional capital........................................ 430,073 403,043 Retained earnings......................................... 5,210,748 4,856,918 ----------- ---------- 5,748,678 5,367,829 Less: Treasury shares, at cost (83,419,356 shares at April 27, 2005 and 79,139,249 shares at April 28, 2004).......... 3,140,586 2,927,839 Unearned compensation..................................... 31,141 32,275 Accumulated other comprehensive (income)/loss............. (25,622) 513,526 ----------- ---------- Total shareholders' equity........................... 2,602,573 1,894,189 ----------- ---------- Total liabilities and shareholders' equity........... $10,577,718 $9,877,189 =========== ==========
See Notes to Consolidated Financial Statements 35 H.J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred Stock Common Stock Comprehensive ---------------- ------------------- Income Shares Dollars Shares Dollars ------------- ------ ------- -------- -------- (Amounts in thousands, except per share amounts) BALANCE AT MAY 1, 2002..................................... 11 $110 431,096 $107,774 Comprehensive income--2003: Net income--2003......................................... $ 566,285 Other comprehensive income (loss), net of tax: Minimum pension liability, net of $186,595 tax benefit.............................................. (414,900) Unrealized translation adjustments..................... 404,163 Net change in fair value of cash flow hedges........... 24,265 Net hedging gains reclassified into earnings/spun off.................................................. (17,683) ---------- Comprehensive income....................................... $ 562,130 ========== Cash dividends: Preferred @ $1.70 per share............................ Common @ $1.485 per share.............................. Conversion of preferred into common stock.................. (4) Stock options exercised, net of shares tendered for payment.................................................. Spin off of SKF Foods...................................... Restricted stock unit activity............................. Other, net*................................................ --- ---- -------- -------- BALANCE AT APRIL 30, 2003.................................. 11 106 431,096 107,774 Comprehensive income--2004: Net income--2004......................................... $ 804,273 Other comprehensive income (loss), net of tax: Minimum pension liability, net of $53,166 tax expense.............................................. 105,535 Unrealized translation adjustments..................... 210,017 Net change in fair value of cash flow hedges........... (15,196) Net hedging gains reclassified into earnings........... 3,253 ---------- Comprehensive income....................................... $1,107,882 ========== Cash dividends: Preferred @ $1.70 per share............................ Common @ $1.08 per share............................... Shares reacquired.......................................... Conversion of preferred into common stock.................. (1) (12) Stock options exercised, net of shares tendered for payment.................................................. Restricted stock unit activity............................. Other, net*................................................ --- ---- -------- -------- BALANCE AT APRIL 28, 2004.................................. 10 94 431,096 $107,774 Comprehensive income--2005: Net income--2005......................................... $ 752,699 Other comprehensive income (loss), net of tax: Minimum pension liability, net of $116,117 tax expense.............................................. 273,934 Unrealized translation adjustments..................... 263,585 Net change in fair value of cash flow hedges........... 23,754 Net hedging gains reclassified into earnings........... (22,125) ---------- Comprehensive income....................................... $1,291,847 ========== Cash dividends: Preferred @ $1.70 per share............................ Common @ $1.14 per share............................... Shares reacquired.......................................... Conversion of preferred into common stock.................. (1) (11) Stock options exercised, net of shares tendered for payment.................................................. Restricted stock unit activity............................. Other, net*................................................ --- ---- -------- -------- BALANCE AT APRIL 27, 2005.................................. 9 $ 83 431,096 $107,774 === ==== ======== ======== Authorized Shares--April 27, 2005.......................... 9 600,000 === ========
* Includes activity of the Global Stock Purchase Plan. See Notes to Consolidated Financial Statements. 36
Treasury Stock Other Total Additional Retained --------------------- Unearned Comprehensive Shareholders' Capital Earnings Shares Dollars Compensation Income/(Loss) Equity - ---------- ---------- ------- ----------- ------------ ------------- ------------- $348,605 $4,968,535 (80,192) $(2,893,198) $ (230) $(812,980) $1,718,616 566,285 566,285 (4,155) (4,155) (19) (19) (521,592) (521,592) (160) 6 164 -- 838+ 311 7,755 8,593 (580,638) (580,638) 26,117 (20,965) 5,152 1,142 227 5,773 6,915 -------- ---------- ------- ----------- -------- --------- ---------- 376,542 4,432,571 (79,648) (2,879,506) (21,195) (817,135) 1,199,157 804,273 804,273 303,609 303,609 (16) (16) (379,910) (379,910) (4,810) (170,129) (170,129) (421) 18 433 -- 2,792+ 4,774 109,389 112,181 21,256 (11,080) 10,176 2,874 527 11,974 14,848 -------- ---------- ------- ----------- -------- --------- ---------- 403,043 4,856,918 (79,139) (2,927,839) (32,275) (513,526) 1,894,189 752,699 752,699 539,148 539,148 (15) (15) (398,854) (398,854) (7,825) (291,348) (291,348) (350) 16 361 -- 27,030+ 2,845 62,669 89,699 (7,051) 251 5,724 2,123 796 7,401 433 9,847 (989) 16,259 -------- ---------- ------- ----------- -------- --------- ---------- $430,073 $5,210,748 (83,419) $(3,140,586) $(31,141) $ 25,622++ $2,602,573 ======== ========== ======= =========== ======== ========= ==========
+ Includes income tax benefit resulting from exercised stock options. ++ Comprised of unrealized translation adjustment of $102,209, minimum pension liability of $(71,641) and deferred net losses on derivative financial instruments $(4,946). 37 H. J. HEINZ COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended --------------------------------------- April 27, April 28, April 30, 2005 2004 2003 (52 Weeks) (52 Weeks) (52 Weeks) ----------- ----------- ----------- (Dollars in thousands) OPERATING ACTIVITIES: Net income................................................ $ 752,699 $ 804,273 $ 566,285 Income from discontinued operations, net of tax........... (16,877) (25,340) (88,738) ----------- ----------- ----------- Income from continuing operations......................... 735,822 778,933 477,547 Adjustments to reconcile net income to cash provided by operating activities: Depreciation............................................ 227,187 210,158 194,328 Amortization............................................ 25,265 23,785 20,434 Deferred tax provision.................................. 53,857 97,542 133,320 Gain on sale of the Northern Europe bakery business..... -- (26,338) -- Asset impairment charges................................ 100,818 -- -- Cumulative effect of change in accounting principle..... -- -- 77,812 Provision for transaction costs and restructuring....... -- -- 177,979 Other items, net........................................ 43,989 (105,559) (133,696) Changes in current assets and liabilities, excluding effects of acquisitions and divestitures: Receivables........................................... 45,851 97,228 53,177 Inventories........................................... (25,315) 77,636 66,351 Prepaid expenses and other current assets............. 2,633 (5,161) (13,337) Accounts payable...................................... 8,140 46,525 (1,665) Accrued liabilities................................... 25,077 (39,751) (171,793) Income taxes.......................................... (82,531) 94,009 25,581 ----------- ----------- ----------- Cash provided by operating activities.............. 1,160,793 1,249,007 906,038 ----------- ----------- ----------- INVESTING ACTIVITIES: Capital expenditures...................................... (240,671) (231,961) (153,969) Proceeds from disposals of property, plant and equipment............................................... 22,252 16,979 33,533 Acquisitions, net of cash acquired........................ (126,549) (112,847) (13,554) Proceeds from divestitures................................ 51,150 71,177 54,981 Proceeds from spin-off.................................... -- -- 1,063,557 Purchases of short-term investments....................... (293,475) (83,200) -- Sales of short-term investments........................... 333,475 43,200 -- Other items, net.......................................... (10,236) (4,450) (23,460) ----------- ----------- ----------- Cash (used for)/provided by investing activities... (264,054) (301,102) 961,088 ----------- ----------- ----------- FINANCING ACTIVITIES: Payments on long-term debt................................ (480,471) (74,317) (741,206) Proceeds from/(payments on) commercial paper and short-term debt, net.................................... 26,468 (144,721) (176,214) Dividends................................................. (398,869) (379,926) (521,611) Purchase of treasury stock................................ (291,348) (170,129) -- Exercise of stock options................................. 79,383 112,705 7,495 Other items, net.......................................... 13,952 12,466 14,994 ----------- ----------- ----------- Cash used for financing activities................. (1,050,885) (643,922) (1,416,542) ----------- ----------- ----------- Effect of exchange rate changes on cash and cash equivalents............................................... 69,660 34,324 46,517 Effect of discontinued operations........................... 28,196 -- 102,228 ----------- ----------- ----------- Net (decrease)/increase in cash and cash equivalents........ (56,290) 338,307 599,329 Cash and cash equivalents at beginning of year.............. 1,140,039 801,732 202,403 ----------- ----------- ----------- Cash and cash equivalents at end of year.................... $ 1,083,749 $ 1,140,039 $ 801,732 =========== =========== ===========
See Notes to Consolidated Financial Statements. 38 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR: H. J. Heinz Company (the "Company") operates on a 52-week or 53-week fiscal year ending the Wednesday nearest April 30. However, certain foreign subsidiaries have earlier closing dates to facilitate timely reporting. Fiscal years for the financial statements included herein ended April 27, 2005, April 28, 2004 and April 30, 2003. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company, and entities in which the Company maintains a controlling financial interest. Control is generally determined based on the majority ownership of an entity's voting interests. In certain situations, control is based on participation in the majority of an entity's economic risks and rewards. The Company has no material investments in variable interest entities. Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. All intercompany accounts and transactions are eliminated. Certain prior-year amounts have been reclassified in order to conform with the Fiscal 2005 presentation. 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 consolidated balance sheets. Although the Company's business continues to operate profitably and it is able to source raw materials, the country's economic situation remains uncertain and there are government restrictions on the repatriation of earnings. The Company's ability to recover its investment could become impaired if the economic and political uncertainties continue to deteriorate. USE OF ESTIMATES: The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. TRANSLATION OF FOREIGN CURRENCIES: For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of shareholders' equity. Gains and losses from foreign currency transactions are included in net income for the period. CASH EQUIVALENTS: Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less. 39 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method. PROPERTY, PLANT AND EQUIPMENT: Land, buildings and equipment are recorded at cost. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets, which generally have the following ranges: buildings--40 years or less, machinery and equipment--15 years or less, computer software--3-5 years, and leasehold improvements--over the life of the lease, not to exceed 15 years. Accelerated depreciation methods are generally used for income tax purposes. Expenditures for new facilities and improvements that substantially extend the capacity or useful life of an asset are capitalized. Ordinary repairs and maintenance are expensed as incurred. When property is retired or otherwise disposed, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income. Property, plant and equipment are reviewed for possible impairment when appropriate. The Company's impairment review is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset exceeds the future undiscounted cash flows. When an impairment is indicated, the asset is written down to its fair value. INTANGIBLES: Intangible assets with finite useful lives are amortized on a straight-line basis over the estimated periods benefited, and are reviewed when appropriate for possible impairment, similar to property, plant and equipment. Goodwill and intangible assets with indefinite useful lives are not amortized. The carrying values of goodwill and other intangible assets with indefinite useful lives are tested at least annually for impairment. REVENUE RECOGNITION: The Company recognizes revenue when title, ownership and risk of loss pass to the customer. This occurs upon delivery of the product to the customer. Customers do no have the right to return products unless damaged or defective. Revenue is recorded, net of sales incentives, and includes shipping and handling charges billed to customers. Shipping and handling costs are classified as part of cost of sales. MARKETING COSTS: The Company promotes its products with advertising, consumer incentives and trade promotions. Such programs include, but are not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. Advertising costs are expensed as incurred. Consumer incentive and trade promotion activities are recorded as a reduction of revenue based on amounts estimated as being due to customers and consumers at the end of a period, based principally on historical utilization and redemption rates. For interim reporting purposes, advertising, consumer incentive and product placement expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the full year. 40 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES: Deferred income taxes result primarily from temporary differences between financial and tax reporting. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The Company has not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable. STOCK-BASED EMPLOYEE COMPENSATION PLANS: Stock-based compensation is accounted for by using the intrinsic value-based method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Company's stock option plans. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, income and earnings per share from continuing operations before cumulative effect of change in accounting principle would have been as follows:
Fiscal Year Ended -------------------------------------- April 27, April 28, April 30, 2005 2004 2003 (52 Weeks) (52 Weeks) (52 Weeks) ---------- ---------- ---------- (Dollars in thousands, except per share amounts) Income from continuing operations before cumulative effect of change in accounting principle: As reported................................. $735,822 $778,933 $555,359 Fair value-based expense, net of tax........ 17,846 25,007 26,109 -------- -------- -------- Pro forma................................... $717,976 $753,926 $529,250 ======== ======== ======== Income per common share from continuing operations before cumulative effect of change in accounting principle: Diluted As reported............................... $ 2.08 $ 2.20 $ 1.57 Pro forma................................. $ 2.03 $ 2.13 $ 1.49 Basic As reported............................... $ 2.10 $ 2.21 $ 1.58 Pro forma................................. $ 2.05 $ 2.14 $ 1.51
The weighted-average fair value of options granted was $9.33 per share in Fiscal 2005, $5.90 per share in Fiscal 2004 and $6.86 per share in Fiscal 2003. 41 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
2005 2004 2003 ---- ---- ---- Dividend yield.................................... 3.0% 3.3% 4.3% Volatility........................................ 25.4% 20.1% 25.2% Risk-free interest rate........................... 4.4% 3.7% 4.0% Expected term (years)............................. 7.9 6.5 6.5
FINANCIAL INSTRUMENTS: The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, short-term and long-term debt, swaps, forward contracts, and option contracts. The carrying values for the Company's financial instruments approximate fair value. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes. The Company uses derivative financial instruments for the purpose of hedging currency and interest rate exposures, which exist as part of ongoing business operations. The Company carries derivative instruments on the balance sheet at fair value, determined by reference to quoted market data. Derivatives with scheduled maturities of less than one year are included in receivables or accounts payable, based on the instrument's fair value. Derivatives with scheduled maturities beyond one year are presented as a component of other non-current assets or other liabilities, based on the instrument's fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The cash flows related to derivative instruments are classified in the consolidated statements of cash flows within operating activities as a component of other items, net. The $40 million of auction rate securities that the Company held as of April 28, 2004 have been reclassified from cash and cash equivalents to short-term investments in the consolidated balance sheets. Corresponding adjustments have also been made to the consolidated statements of cash flows to reflect the gross purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. The Company no longer owns auction rate securities as of April 27, 2005. 2. RECENTLY ISSUED ACCOUNTING STANDARDS In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment", which revises SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". This Statement focuses primarily on accounting for transactions in which an entity compensates employee services through share-based payments. This Statement requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the reward. On April 18, 2005, the Securities and Exchange Commission adopted a new rule that amended the compliance dates of SFAS No. 123(R) to require the implementation no later than the beginning of the first fiscal year beginning after June 15, 2005. Early adoption of the Statement is permissable. The Company plans on adopting this Statement in Fiscal 2007. 42 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004." The FSP provides guidance on the accounting and disclosures for the temporary repatriation provision of the American Jobs Creation Act. The Company has adopted the disclosure provisions of the FSP which apply to entities that have not yet completed their evaluation of the repatriation provision, and will expand its disclosures in accordance with the FSP upon completion of the final evaluation. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." This Statement is meant to eliminate any narrow differences existing between the FASB standards and the standards issued by the International Accounting Standards Board by clarifying that any abnormal idle facility expense, freight, handling costs and spoilage be recognized as current-period charges. This Statement is required to be adopted by the Company in the first quarter of Fiscal 2007; however, early application is permitted. The Company does not expect the adoption of this Statement to have a material impact on results of operations, financial position or cash flows. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act") was signed into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In January 2005, final Medicare prescription drug rules were issued. The provisions of the Act resulted in a reduction of the Company's benefit obligation of approximately $18.8 million and has been reflected as an actuarial gain. The total reduction in benefit cost for Fiscal 2005 is $2.3 million, comprised of $0.9 million of interest cost, $0.1 million of service cost, and $1.4 million reduction in unrecognized loss amortization, recognized on a pro-rata basis. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This statement affects the classification, measurement and disclosure requirements of certain freestanding financial instruments including mandatorily redeemable shares. SFAS No. 150 was effective for the Company for the second quarter of Fiscal 2004. The adoption of SFAS No. 150 required the prospective classification of H.J. Heinz Finance Company's $325 million of mandatorily redeemable preferred shares from minority interest to long-term debt and the $5.1 million quarterly preferred dividend from other expenses to interest expense beginning in the second quarter ended October 29, 2003, with no resulting effect on the Company's profitability. 3. SPECIAL ITEMS ASSET IMPAIRMENTS In the fourth quarter of Fiscal 2005, the Company recognized a non-cash asset impairment charge of $27.0 million pre-tax ($18.0 million after-tax) on the HAK vegetable product line in Northern Europe. The charge, which is recorded as a component of cost of products sold, relates to the anticipated disposition of the product line in early Fiscal 2006. The net assets related to the HAK product line total approximately $82.7 million and are comprised primarily of inventory, property, plant and equipment and trademarks. The Company holds an equity investment in The Hain Celestial Group, Inc. ("Hain"), a natural, specialty and snack food company. Hain shares traded at less than 80% of Heinz's carrying value since late January 2004. Due to the length of time and the amount that Hain stock had traded below the Company's basis, the Company determined that the decline was other-than- 43 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) temporary as defined by Accounting Principles Board Opinion No. 18 and as a result, recognized a $64.5 million non-cash impairment charge during the third quarter of Fiscal 2005. The charge reduced Heinz's carrying value in Hain to fair market value as of January 26, 2005, with no resulting impact on cash flows. Heinz currently owns approximately six million shares of Hain stock, with a book value of approximately $20.00 per share as of April 27, 2005. In the future, should the market value of Hain common stock decline and remain below current market value for a substantial time, the Company could be required to record additional writedowns of its investment in Hain. The Company also recorded a $9.3 million non-cash charge in the third quarter of Fiscal 2005 to recognize the impairment of a cost-basis investment in a grocery industry-sponsored e-commerce business venture. There was no tax benefit associated with these impairment charges. 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. In accordance with accounting principles generally accepted in the United States of America, the operating results related to these businesses spun off to Del Monte have been treated as discontinued operations in the Company's consolidated statements of income. Net income from discontinued operations for the years ended April 27, 2005 and April 28, 2004 was $16.9 million and $25.3 million, respectively, and reflects the favorable settlement of tax liabilities related to the businesses spun-off to Del Monte. The discontinued operations generated sales of $1,091.3 million and net income of $88.7 million (net of $35.4 million in tax) for Fiscal 2003. DIVESTITURES AND OTHER REORGANIZATION COSTS During the first quarter of Fiscal 2004, the Company sold its bakery business in Northern Europe for $57.9 million. The transaction resulted in a pretax gain of $26.3 million ($13.3 million after tax), which was recorded as a component of selling, general and administrative expenses ("SG&A"). Additionally, the Company made several other small divestitures in Fiscal 2005 and Fiscal 2004, none of which are material. In Fiscal 2004, the Company recognized $17.1 million pretax ($11.0 million after tax) of reorganization costs. These costs were recorded as a component of SG&A and were primarily due to employee termination and severance costs. Also, during Fiscal 2004, the Company wrote down pizza crust assets in the United Kingdom totaling $4.0 million pretax ($2.8 million after tax) which has been included as a component of cost of products sold. In Fiscal 2003, Del Monte transaction costs and costs to reduce overhead of the remaining business totaled $164.6 million pretax ($113.1 million after-tax) and were comprised of $61.8 million for legal, professional and other related costs, $51.3 million in employee termination and severance costs, $39.6 million related to the early retirement of debt, and $12.0 million in non-cash asset write-downs. Of this amount, $6.1 million was included in cost of products sold, $118.9 million in SG&A, and $39.6 million in other expense, net. In Fiscal 2003, losses on the exit of non-strategic businesses, primarily the UK frozen pizza business and a North American fish and frozen vegetable business, totaled $62.4 million pretax 44 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($49.3 million after-tax), and were comprised of $39.7 million in non-cash asset write-downs, $12.1 million in losses on the sale of businesses and $10.6 million in employee termination, severance and other exit costs. Of these amounts, $47.3 million was included in cost of products sold and $15.1 million in SG&A. During Fiscal 2005, the Company utilized $9.9 million of severance and exit cost accruals related to reorganization costs. Amounts included in accrued expenses related to these initiatives totaled $10.0 million at April 28, 2004. 4. ACQUISITIONS The Company made several acquisitions in Fiscal 2005, 2004 and 2003 for a total purchase price of $132.1 million, $117.4 million and $13.6 million, respectively, none of which were significant. The Fiscal 2005 acquisitions include Shanghai LongFong Foods, a maker of frozen Chinese snacks and desserts, Appetizers And, Inc., a manufacturer and marketer of high quality, frozen hors d'oeuvres sold primarily to the U.S. foodservice industry, and certain assets from ABAL, S.A. de C.V., a Mexican foodservice company. The Fiscal 2004 acquisitions include Unifine Richardson B.V., a Canadian manufacturer of salad dressings, sauces, and dessert toppings, and Truesoups LLC, a manufacturer and marketer of premium frozen soups designed primarily for the foodservice trade. All of the acquisitions have been accounted for as purchases and, accordingly, the respective purchase prices have been allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. Operating results of businesses acquired have been included in the consolidated statements of income from the respective acquisition dates forward. There are no significant contingent payments, options or commitments associated with any of the acquisitions. Pro forma results of the Company, assuming all of the acquisitions had occurred at the beginning of each period presented, would not be materially different from the results reported. 5. GOODWILL AND OTHER INTANGIBLE ASSETS 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 that was calculated as of May 2, 2002, and recorded as an effect of a change in accounting principle for Fiscal 2003, of $77.8 million. 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. The annual impairment tests are performed in the fourth quarter of each fiscal year unless events suggest an impairment may have occurred in the interim. 45 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Changes in the carrying amount of goodwill for the fiscal year ended April 27, 2005, by reportable segment, are as follows:
North American Other Consumer U.S. Asia/ Operating Products Foodservice Europe Pacific Entities Total -------- ----------- -------- -------- --------- ---------- (Thousands of dollars) Balance at April 28, 2004..................... $923,939 $179,544 $670,935 $165,646 $19,850 $1,959,914 Acquisitions............... -- 52,008 1,541 21,662 4,735 79,946 Purchase accounting adjustments.............. (11,099) (1,185) 35,895 (298) 586 23,899 Disposal................... (2,548) -- (474) -- (483) (3,505) Translation adjustments.... 7,414 -- 55,861 20,915 903 85,093 Impairment................. -- -- -- -- (6,848) (6,848) -------- -------- -------- -------- ------- ---------- Balance at April 27, 2005..................... $917,706 $230,367 $763,758 $207,925 $18,743 $2,138,499 ======== ======== ======== ======== ======= ==========
During Fiscal 2005, the Company acquired a controlling interest in Shanghai LongFong Foods, Appetizers And, Inc., and certain assets from ABAL, S.A. de C.V. Preliminary purchase price allocations have been recorded for each of these acquisitions. The Company expects to finalize the purchase price allocations related to these acquisitions during Fiscal 2006 upon completion of third-party valuation procedures. During the fourth quarter of Fiscal 2005, the Company finalized the purchase price allocation related to the Fiscal 2004 acquisition of Unifine Richardson B.V., within the North American Consumer Products segment. The purchase accounting adjustment in the Europe segment primarily represents a correction to the deferred income tax liabilities related to the Fiscal 2001 acquisition of CSM Nederland NV. The impairment in the above table, which was classified within cost of products sold, was recognized due to a deterioration of current and expected operating results of a consolidated joint venture following a recall in Fiscal 2004. The Company reached an agreement with third parties, the proceeds of which were offset by the impairment and other damages incurred to date. No other goodwill impairment charges were recognized in Fiscal 2005. Trademarks and other intangible assets at April 27, 2005 and April 28, 2004, subject to amortization expense, are as follows:
April 27, 2005 April 28, 2004 ----------------------------------- ----------------------------------- Gross Accum Amort Net Gross Accum Amort Net -------- ----------- -------- -------- ----------- -------- (Thousands of dollars) Trademarks.............. $221,019 $ (61,616) $159,403 $188,927 $ (50,505) $138,422 Licenses................ 208,186 (123,911) 84,275 208,186 (118,504) 89,682 Other................... 155,481 (68,081) 87,400 123,394 (63,156) 60,238 -------- --------- -------- -------- --------- -------- $584,686 $(253,608) $331,078 $520,507 $(232,165) $288,342 ======== ========= ======== ======== ========= ========
Amortization expense for trademarks and other intangible assets subject to amortization was $18.4 million, $17.1 million, and $20.4 million for the fiscal years ended April 27, 2005, April 28, 2004, and April 30, 2003, respectively. Based upon the amortizable intangible assets recorded on the balance sheet as of April 27, 2005, amortization expense for each of the next five fiscal years is estimated to be approximately $18 million. Intangible assets not subject to amortization at April 27, 2005 and April 28, 2004, were $492.2 million and $505.5 million, respectively, and consisted solely of trademarks. 46 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAXES The following table summarizes the provision/(benefit) for U.S. federal, state and foreign taxes on income from continuing operations.
2005 2004 2003 -------- -------- -------- (Dollars in thousands) Current: U.S. federal..................................... $ 66,679 $ 72,766 $ (1,701) State............................................ 9,128 7,119 9,218 Foreign.......................................... 193,128 212,191 172,535 -------- -------- -------- 268,935 292,076 180,052 -------- -------- -------- Deferred: U.S. federal..................................... 45,020 59,394 89,111 State............................................ 3,144 3,606 3,721 Foreign.......................................... 5,693 34,542 40,488 -------- -------- -------- 53,857 97,542 133,320 -------- -------- -------- Provision for income taxes....................... $322,792 $389,618 $313,372 ======== ======== ========
Tax expense resulting from allocating certain net tax benefits directly to additional capital was $10.5 million in Fiscal 2005, $4.4 million in Fiscal 2004 and $1.1 million in Fiscal 2003. The components of income from continuing operations before income taxes consist of the following:
2005 2004 2003 ---------- ---------- -------- (Dollars in thousands) Domestic....................................... $ 385,926 $ 332,010 $139,669 Foreign........................................ 672,688 836,541 729,062 ---------- ---------- -------- From continuing operations..................... $1,058,614 $1,168,551 $868,731 ========== ========== ========
The differences between the U.S. federal statutory tax rate and the Company's consolidated effective tax rate on continuing operations are as follows:
2005 2004 2003 ---- ---- ---- U.S. federal statutory tax rate............................. 35.0% 35.0% 35.0% Tax on income of foreign subsidiaries....................... (7.3) (3.7) (4.2) State income taxes (net of federal benefit)................. 0.8 0.7 1.2 Earnings repatriation....................................... (0.7) 1.9 0.8 Losses (recognized)/not recognized for tax.................. 3.5 (1.0) 0.7 Tax law changes............................................. 0.1 0.1 (0.5) Other....................................................... (0.9) 0.3 3.1 ---- ---- ---- Effective tax rate.......................................... 30.5% 33.3% 36.1% ==== ==== ====
The reduction in the effective tax rate in Fiscal 2005 is attributable to changes to the capital structure in certain foreign subsidiaries, tax credits resulting from tax planning associated with a change in certain foreign tax legislation, reduction of the charge associated with remittance of foreign dividends and the settlement of tax audits, partially offset by impairment charges for 47 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Hain, an e-commerce business venture, and other operating losses for which no tax benefit can currently be recorded. The Fiscal 2004 and 2003 effective tax rates were unfavorably impacted by reorganization and related costs expected to be realized in lower tax rate jurisdictions and by nondeductible expenses related to the restructurings. The American Jobs Creation Act ("the AJCA") provides a deduction of 85% on certain foreign earnings repatriation. The Company may elect to apply this provision in Fiscal 2006. The Company does not expect to be able to complete its evaluation of the effects of the repatriation provisions until after the Treasury Department provides additional guidance on key elements of the provision. The Company expects to complete its evaluation within a reasonable period of time after final guidance is issued. The range of amounts that the Company is currently considering for repatriation under this provision is between zero and $750 million. The related potential range of income tax (based upon our expectation of how certain technical issues will be resolved in the final guidance) is between zero and $20 million. The AJCA provides a deduction calculated as a percentage of qualified income from manufacturing in the United States. The percentage increases from 3% to 9% over a 6 year period beginning with the Company's 2006 fiscal year. In December 2004, the FASB issued a new staff position providing for this deduction to be treated as a special deduction, as opposed to a tax rate reduction, in accordance with SFAS No. 109. The benefit of this deduction is not expected to have a material impact on the Company's effective tax rate in Fiscal 2006. The following table and note summarize deferred tax (assets) and deferred tax liabilities as of April 27, 2005 and April 28, 2004.
2005 2004 ---------- ---------- (Dollars in thousands) Depreciation/amortization................................... $ 470,758 $ 408,839 Benefit plans............................................... 141,888 42,313 Other....................................................... 106,409 82,251 --------- --------- Deferred tax liabilities.................................... 719,055 533,403 --------- --------- Hedging losses--net......................................... -- (32,768) Operating loss carryforwards................................ (56,044) (37,339) Benefit plans............................................... (105,467) (127,198) Investments................................................. (27,434) -- Tax credit carryforwards.................................... (36,243) -- Other....................................................... (90,834) (106,471) --------- --------- Deferred tax assets......................................... (316,022) (303,776) --------- --------- Valuation allowance......................................... 70,248 19,599 --------- --------- Net deferred tax liabilities................................ $ 473,281 $ 249,226 ========= =========
The Company also has foreign deferred tax assets and valuation allowances of $129.1 million each, related to statutory increases in the capital tax bases of certain internally generated intangible assets for which the probability of realization is remote. The net change in the Fiscal 2005 valuation allowance shown above is an increase of $50.6 million. The increase was primarily due to increases in the valuation allowance related to additional deferred tax assets for loss carryforwards of $43.8 million. The net change in the Fiscal 2004 and 2003 valuation allowances was a decrease of $43.2 million and $37.6 million, respectively. These 48 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) decreases were primarily due to decreases in deferred tax assets for foreign tax credit and loss carryforwards. At the end of Fiscal 2005, foreign operating loss carryforwards totaled $162.0 million. Of that amount, $92.4 million expire between 2006 and 2023; the other $69.6 million do not expire. Deferred tax assets of $9.3 million have been recorded for state operating loss carryforwards. These losses expire between 2006 and 2025 and have been fully reserved. Foreign tax credit carryforwards total $35.4 million and expire in 2015. Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to $3.1 billion at April 27, 2005. During the third quarter of Fiscal 2004, the Company reorganized certain of its foreign operations and as a result incurred a foreign income tax liability. This tax liability was settled during the third quarter of Fiscal 2005 due to a cash payment of $124.9 million. Because the Company increased the tax basis in amortizable assets, cash flow is expected to be positive in each of the eight years following Fiscal 2006. Also during the third quarter of Fiscal 2004, the Company filed suit seeking a refund of federal income tax related to a transaction completed in Fiscal 1995. Receipt of the refund would have a positive effect on the Company's cash flow with no earnings impact as the offset would be a credit to additional paid-in capital. 7. DEBT Short-term debt consisted of bank debt and other borrowings of $28.5 million and $11.4 million as of April 27, 2005 and April 28, 2004, respectively. The weighted average interest rate was 4.7% and 4.3% for Fiscal 2005 and Fiscal 2004, respectively. In August 2004, the Company and H.J. Heinz Finance Company amended their $600 million 364-Day Credit Agreement and their $1.5 billion Five-Year Credit Agreement by combining the agreements into a $2.0 billion Five-Year Credit Agreement, expiring August 2009. The Credit Agreement supports the Company's commercial paper borrowings and the remarketable securities. As a result, these borrowings are classified as long-term debt based upon the Company's intent and ability to refinance these borrowings on a long-term basis. In addition, the Company had $1.1 billion of foreign lines of credit available at April 27, 2005. 49 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-term debt was comprised of the following as of April 27, 2005 and April 28, 2004:
2005 2004 ---------- ---------- (Dollars in thousands) 5.00% Euro Notes due January 2005.......................... $ -- $ 355,303 6.85% New Zealand Dollar Notes due February 2005........... -- 55,971 5.125% Euro Notes due April 2006........................... 540,208 493,539 6.00% U.S. Dollar Notes due March 2008..................... 299,420 299,221 6.226% Heinz Finance Preferred Stock due July 2008......... 325,000 325,000 6.625% U.S. Dollar Notes due July 2011..................... 749,353 749,248 6.00% U.S. Dollar Notes due March 2012..................... 696,462 695,944 U.S. Dollar Remarketable Securities due November 2020...... 800,000 800,000 6.375% U.S. Dollar Debentures due July 2028................ 243,625 243,350 6.25% British Pound Notes due February 2030................ 236,230 219,700 6.75% U.S. Dollar Notes due March 2032..................... 547,502 547,409 Other U.S. Dollar due December 2005--November 2034 (3.00--8.02%)............................................ 9,963 10,193 Other Non-U.S. Dollar due June 2005--March 2022 (3.71--11.00%)........................................... 32,933 42,793 ---------- ---------- 4,480,696 4,837,671 SFAS 133 Hedge Accounting Adjustments (See Note 13)........ 186,086 125,325 Less portion due within one year........................... (544,798) (425,016) ---------- ---------- Total long-term debt....................................... $4,121,984 $4,537,980 ========== ========== Weighted-average interest rate on long-term debt, including the impact of applicable interest rate swaps............. 4.06% 3.69% ========== ==========
In the third quarter of Fiscal 2005, the Company paid off E300 million of bonds ($404.7 million) which matured on January 5, 2005. In the fourth quarter of Fiscal 2005, the Company paid off NZ$90 million of bonds ($61.3 million) which matured on February 15, 2005. The fair value of the debt obligations approximated the recorded value as of April 27, 2005 and April 28, 2004. Annual maturities of long-term debt during the next five fiscal years are $544.8 million in 2006, $2.3 million in 2007, $301.8 million in 2008, $327.4 million in 2009 and $2.2 million in 2010. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This statement affects the classification, measurement and disclosure requirements of certain financial instruments, including mandatorily redeemable shares. SFAS No. 150 was effective for the Company in the second quarter of Fiscal 2004. The adoption of SFAS No. 150 required the prospective classification of Heinz Finance's $325 million of mandatorily redeemable preferred shares from minority interest to long-term debt. As of April 27, 2005, the Company had $800 million of remarketable securities due December 2020. These securities are subject to an annual remarketing on each December 1, and the interest rate is reset on such dates. If the securities are not remarketed, then the Company is required to repurchase all of the securities at 100% of the principal amount plus accrued interest. On December 1, 2004, the securities were remarketed at a coupon of 6.189%. 50 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. SHAREHOLDERS' EQUITY CAPITAL STOCK: The preferred stock outstanding is convertible at a rate of one share of preferred stock into 15 shares of common stock. The Company can redeem the stock at $28.50 per share. As of April 27, 2005, there were authorized, but unissued, 2,200,000 shares of third cumulative preferred stock for which the series had not been designated. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"): The Company established an ESOP in 1990 to replace in full or in part the Company's cash-matching contributions to the H. J. Heinz Company Employees Retirement and Savings Plan, a 401(k) plan for salaried employees. Matching contributions to the 401(k) plan are based on a percentage of the participants' contributions, subject to certain limitations. GLOBAL STOCK PURCHASE PLAN ("GSPP"): On September 8, 1999, the shareholders authorized the GSPP that provides for the purchase by employees of up to 3,000,000 shares of the Company's stock through payroll deductions. Employees who choose to participate in the plan receive an option to acquire common stock at a discount. The purchase price per share is the lower of 85% of the fair market value of the Company's stock on the first or last day of a purchase period. During Fiscal 2005, employees purchased 353,156 shares under this plan. PENSION OBLIGATION: The Company made cash contributions to its pension plans totaling $40 million in Fiscal 2005 compared to $202 million in Fiscal 2004. In addition, the Company recorded an additional minimum liability of $71.6 million and $345.6 million as of April 27, 2005 and April 28, 2004, respectively. 9. SUPPLEMENTAL CASH FLOWS INFORMATION
2005 2004 2003 -------- -------- ---------- (Dollars in thousands) Cash Paid During the Year For: Interest......................................... $209,888 $169,671 $ 282,366 ======== ======== ========== Income taxes..................................... $381,443 $221,043 $ 155,843 ======== ======== ========== Details of Acquisitions: Fair value of assets............................. $187,108 $126,082 $ 30,391 Liabilities*..................................... 48,179 13,235 11,489 -------- -------- ---------- Cash paid........................................ 138,929 112,847 18,902 Less cash acquired............................... 12,380 -- 5,348 -------- -------- ---------- Net cash paid for acquisitions................... $126,549 $112,847 $ 13,554 Non-cash activities: Net assets spun-off............................ $ -- $ -- $1,644,195 ======== ======== ==========
- --------------- * Includes obligations to sellers of $5.5 million and $4.6 million in 2005 and 2004, respectively. 51 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. EMPLOYEES' STOCK INCENTIVE PLANS AND MANAGEMENT INCENTIVE PLANS STOCK OPTIONS: Under the Company's stock option plans, officers and other key employees may be granted options to purchase shares of the Company's common stock. Generally, the option price on outstanding options is equal to the fair market value of the stock at the date of grant. Options are generally exercisable beginning from one to four years after date of grant and have a maximum term of ten years. In Fiscal 1998, in order to place greater emphasis on creation of shareholder value, performance-accelerated stock options were granted to certain key executives. These options vest eight years after the grant date, subject to acceleration if predetermined share price goals are achieved. Data regarding the Company's stock option plans follows:
Weighted-Average Shares Exercise Price ---------- ---------------- SHARES UNDER OPTION MAY 1, 2002......................... 31,309,096 $40.39 Options granted......................................... 3,711,410 35.43 Options exercised....................................... (311,376) 33.03 Options surrendered..................................... (402,306) 42.75 Spin off of SKF Foods................................... 3,594,203 -- ---------- ------ SHARES UNDER OPTION APRIL 30, 2003...................... 37,901,027 36.02 Options granted......................................... 4,770,584 34.08 Options exercised....................................... (4,774,004) 22.30 Options surrendered..................................... (412,843) 35.57 ---------- ------ SHARES UNDER OPTION APRIL 28, 2004...................... 37,484,764 $37.49 Options granted......................................... 1,587,038 37.04 Options exercised....................................... (2,845,408) 27.77 Options surrendered..................................... (762,477) 36.54 ---------- ------ SHARES UNDER OPTION APRIL 27, 2005...................... 35,463,917 $38.27 ========== ====== Options exercisable at: April 30, 2003........................................ 21,234,857 34.87 April 28, 2004........................................ 21,294,299 37.29 April 27, 2005........................................ 24,161,285 38.56
The following summarizes information about shares under option in the respective exercise price ranges at April 27, 2005:
Options Outstanding Options Exercisable ---------------------------------------- ---------------------------- Weighted- Weighted- Average Average Remaining Remaining Weighted- Range of Exercise Number Life Exercise Price Number Average Price Per Share Outstanding (Years) Per Share Exercisable Exercise Price - ----------------- ----------- --------- -------------- ----------- -------------- $26.20-$35.61 17,716,959 5.36 $32.52 10,590,822 $32.24 $35.62-$39.98 7,302,022 6.55 38.44 5,666,527 38.83 $39.99-$54.00 10,444,936 3.32 47.90 7,903,936 46.84 ---------- ---- ------ ---------- ------ 35,463,917 5.00 $38.27 24,161,285 $38.56 ========== ==== ====== ========== ======
52 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The shares authorized but not granted under the Company's stock incentive plans were 16,526,868 at April 27, 2005 and 17,785,026 at April 28, 2004. Common stock reserved for stock incentive plans totaled 53,478,569 at April 27, 2005 and 56,793,480 at April 28, 2004. ANNUAL INCENTIVE BONUS: The Company's management incentive plan covers officers and other key employees. Participants may elect to be paid on a current or deferred basis. The aggregate amount of all awards may not exceed certain limits in any year. Compensation under the management incentive plans was approximately $26 million in Fiscal 2005, $26 million in Fiscal 2004 and $19 million in Fiscal 2003. OTHER LONG-TERM INCENTIVE PROGRAMS RESTRICTED STOCK UNITS: On September 12, 2002, the shareholders of the Company approved the "Fiscal Year 2003 Stock Incentive Plan", which permits the issuance of Restricted Stock Units ("RSUs") to employees with vesting periods between one and five years depending on the achievement of pre-defined goals. Upon vesting, the RSUs are converted into shares of the Company's common stock on a one-for-one basis and issued to the employees. The following table presents a summary of RSU activity:
Units --------- Unit balance May 1, 2002.................................... -- Units granted............................................... 882,071 Units fully vested.......................................... -- Units surrendered........................................... (7,731) Spin off of SKF Foods....................................... (91,909) --------- Unit balance April 30, 2003................................. 782,431 Units granted............................................... 928,066 Units fully vested.......................................... (172,462) Units surrendered........................................... (14,345) --------- Unit balance April 28, 2004................................. 1,523,690 Units granted............................................... 391,968 Units fully vested.......................................... (392,303) Units surrendered........................................... (35,571) --------- Unit balance April 27, 2005................................. 1,487,784 =========
The number of RSUs awarded to employees is determined by the fair market value of the Company's stock on the grant date. The fair value of the awards granted has been recorded as unearned compensation and is shown as a separate component of shareholders' equity. Unearned compensation is amortized over the vesting period for the particular grant, and is recognized as a component of general and administrative expenses. The RSU liability is classified as a component of additional paid in capital in the consolidated balance sheets. The Company recognized amortization related to the unearned compensation of $15.5 million in Fiscal 2005, $18.1 million in Fiscal 2004 and $5.8 million in Fiscal 2003. PERFORMANCE UNIT AWARDS PROGRAM: In Fiscal 2005, the Company granted performance awards as permitted in the Fiscal Year 2003 Stock Incentive Plan, subject to the achievement of certain performance goals. These performance awards are tied to the Company's financial measures of net income and sales growth over a 53 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) two year period. Awards are payable at the end of the two year performance period based upon the Company achieving these targets. Once the minimum net income target is met, the amount of any award is dependent upon the level of sales growth of the Company for the performance period. Expense is recognized based upon management's estimate of the likelihood of meeting the performance targets based on current and future expectations of the Company's performance. In Fiscal 2005, there was no expense recognized under this plan. 11. RETIREMENT PLANS The Company maintains retirement plans for the majority of its employees. Current defined benefit plans are provided primarily for domestic union and foreign employees. Defined contribution plans are provided for the majority of its domestic non-union hourly and salaried employees as well as certain employees in foreign locations. The Company uses an April 30 measurement date for its domestic plans and a March 31 measurement date for foreign plans. The following table sets forth the funded status of the Company's principal defined benefit plans at April 27, 2005 and April 28, 2004.
2005 2004 ---------- ---------- (Dollars in thousands) Change in Benefit Obligation: Benefit obligation at the beginning of the year.......... $2,106,788 $1,922,554 Service cost............................................. 46,102 42,250 Interest cost............................................ 122,981 114,822 Participants' contributions.............................. 11,082 10,355 Amendments............................................... (34,173) 1,052 Actuarial loss........................................... 74,464 15,370 Settlement............................................... (7,151) (9,887) Benefits paid............................................ (108,185) (113,499) Exchange/other........................................... 130,793 123,771 ---------- ---------- Benefit obligation at the end of the year............. 2,342,701 2,106,788 ---------- ---------- Change in Plan Assets: Fair value of plan assets at the beginning of the year... $1,984,407 $1,511,880 Actual return on plan assets............................. 173,108 282,740 Settlement............................................... (7,151) (9,450) Employer contribution.................................... 39,878 201,512 Participants' contributions.............................. 11,082 10,355 Benefits paid............................................ (108,185) (113,499) Exchange................................................. 120,004 100,869 ---------- ---------- Fair value of plan assets at the end of the year...... 2,213,143 1,984,407 ---------- ---------- Funded status.............................................. (129,558) (122,381) Unamortized prior service cost............................. 15,918 57,359 Unamortized net actuarial loss............................. 849,937 789,804 Unamortized net initial asset.............................. (23) (845) ---------- ---------- Net amount recognized................................. $ 736,274 $ 723,937 ========== ==========
54 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2005 2004 ---------- ---------- (Dollars in thousands) Amount recognized in the consolidated balance sheet consists of: Prepaid benefit cost..................................... $ 758,822 $ 282,913 Other miscellaneous assets............................... -- 47,295 Accrued benefit liability................................ (132,765) (106,539) Accumulated other comprehensive (income)/loss............ 110,217 500,268 ---------- ---------- Net amount recognized................................. $ 736,274 $ 723,937 ========== ==========
The accumulated benefit obligation for all defined benefit pension plans was $2,166.6 million at April 27, 2005 and $1,954.7 million at April 28, 2004. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were $525.6 million, $461.7 million and $360.7 million, respectively, as of April 27, 2005 and $1,304.0 million, $1,197.2 million and $1,139.8 million, respectively, as of April 28, 2004. The change in minimum liability included in other comprehensive (income)/loss was a decrease of $390.1 million at April 27, 2005 and a decrease of $158.7 million at April 28, 2004. The prepaid benefit cost is included in other non-current assets in the consolidated balance sheets. The weighted-average rates used for the years ended April 27, 2005 and April 28, 2004 in determining the projected benefit obligations for defined benefit plans were as follows:
2005 2004 ---- ---- Discount rate............................................... 5.5% 5.8% Compensation increase rate.................................. 4.0% 3.9%
Total pension cost of the Company's principal pension plans consisted of the following:
2005 2004 2003 --------- --------- --------- (Dollars in thousands) Components of defined benefit net periodic benefit cost: Service cost................................... $ 46,102 $ 42,250 $ 35,980 Interest cost.................................. 122,981 114,822 106,115 Expected return on assets...................... (168,371) (151,130) (152,237) Amortization of: Net initial asset........................... (862) (798) (1,325) Prior service cost.......................... 9,251 8,697 8,815 Net actuarial loss.......................... 56,506 41,177 10,472 Loss/(gain) due to curtailment, settlement and special termination benefits................ -- (2,348) 13,356 --------- --------- --------- Net periodic benefit cost........................ 65,607 52,670 21,176 Defined contribution plans....................... 25,118 22,493 24,786 --------- --------- --------- Total pension cost............................... 90,725 75,163 45,962 Less pension cost associated with discontinued operations..................................... -- -- (5,901) --------- --------- --------- Pension cost associated with continuing operations..................................... $ 90,725 $ 75,163 $ 40,061 ========= ========= =========
55 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The weighted-average rates used for the years ended April 27, 2005, April 28, 2004 and April 30, 2003 in determining the defined benefit plans' net pension costs were as follows:
2005 2004 2003 ---- ---- ---- Expected rate of return..................................... 8.2% 8.2% 8.9% Discount rate............................................... 5.8% 5.9% 6.6% Compensation increase rate.................................. 3.9% 4.0% 4.2%
The Company's expected rate of return is determined based on a methodology that considers investment real returns for certain asset classes over historic periods of various durations, in conjunction with the long-term outlook for inflation (i.e. "building block" approach). This methodology is applied to the actual asset allocation, which is in line with the investment policy guidelines for each plan. The Company also considers long-term rates of return for each asset class based on projections from consultants and investment advisers regarding the expectations of future investment performance of capital markets. PLAN ASSETS: The Company's defined benefit pension plans' weighted average asset allocation at April 27, 2005 and April 28, 2004 and weighted average target allocation were as follows:
Plan Assets at -------------- Target Asset Category 2005 2004 Allocation - -------------- ----- ----- ---------- Equity securities........................................ 64% 63% 64% Debt securities.......................................... 33% 33% 34% Real estate.............................................. 1% 1% 1% Other................................................. 2% 3% 1% --- --- --- 100% 100% 100%
The underlying basis of the investment strategy of the Company's defined benefit plans is to ensure that pension funds are available to meet the plans' benefit obligations when they are due. The Company's investment objectives include: prudently investing plan assets in a high-quality, diversified manner in order to maintain the security of the funds; achieving an optimal return on plan assets within specified risk tolerances; and investing according to local regulations and requirements specific to each country in which a defined benefit plan operates. The investment strategy expects equity investments to yield a higher return over the long term than fixed income securities, while fixed income securities are expected to provide certain matching characteristics to the plans' benefit payment cash flow requirements. Company common stock held as part of the Equity Securities amounted to less than one percent of Plan assets at April 27, 2005 and April 28, 2004. CASH FLOWS: The Company contributed approximately $40 million to the defined benefit plans in Fiscal 2005. The Company funds its U.S. defined benefit plans in accordance with IRS regulations, while foreign defined benefit plans are funded in accordance with local laws and regulations in each respective country. Discretionary contributions to the pension funds may also be made by the Company from time to time. Defined benefit plan contributions for the next fiscal year are expected to be approximately $45 million, however actual contributions may be affected by pension asset and liability valuations during the year. 56 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Benefit payments expected in future years are as follows (dollars in thousands): 2006........................................................ $121,000 2007........................................................ $122,000 2008........................................................ $125,000 2009........................................................ $130,000 2010........................................................ $133,000 Years 2011-2015............................................. $766,175
12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POST EMPLOYMENT BENEFITS The Company and certain of its subsidiaries provide health care and life insurance benefits for retired employees and their eligible dependents. Certain of the Company's U.S. and Canadian employees may become eligible for such benefits. The Company currently does not fund these benefit arrangements and may modify plan provisions or terminate plans at its discretion. The Company uses an April 30 measurement date for its domestic plans and a March 31 measurement date for the Canadian plan. The following table sets forth the combined status of the Company's postretirement benefit plans at April 27, 2005 and April 28, 2004.
2005 2004 ---------- ---------- (Dollars in thousands) Change in benefit obligation: Benefit obligation at the beginning of the year............. $ 279,349 $ 248,486 Service cost.............................................. 5,769 4,802 Interest cost............................................. 16,057 15,277 Participants' contributions............................... 1,202 1,552 Actuarial loss............................................ 6,485 28,913 Benefits paid............................................. (21,319) (21,551) Exchange/other............................................ 3,244 1,870 --------- --------- Benefit obligation at the end of the year................... 290,787 279,349 --------- --------- Funded status............................................... (290,787) (279,349) Unamortized prior service cost.............................. (8,059) (11,071) Unamortized net actuarial loss.............................. 84,003 82,997 --------- --------- Net accrued benefit liability............................... $(214,843) $(207,423) ========= =========
The weighted-average discount rate used in the calculation of the accumulated post-retirement benefit obligation at April 27, 2005 and April 28, 2004 was 5.5% and 6.2%, respectively. 57 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net postretirement costs consisted of the following:
2005 2004 2003 ------- ------- ------- (Dollars in thousands) Components of defined benefit net periodic benefit cost: Service cost........................................ $ 5,769 $ 4,802 $ 5,089 Interest cost....................................... 16,057 15,277 15,559 Amortization of: Prior service cost............................... (3,026) (2,292) (1,241) Net actuarial loss............................... 5,634 3,801 732 Loss due to curtailment and special termination benefits......................................... -- 749 3,054 ------- ------- ------- Net periodic benefit cost............................. 24,434 22,337 23,193 Less periodic benefit cost associated with discontinued operations............................. -- -- (2,291) ------- ------- ------- Periodic benefit cost associated with continuing operations.......................................... $24,434 $22,337 $20,902 ======= ======= =======
The weighted-average discount rate used in the calculation of the net postretirement benefit cost was 6.2% in 2005, 6.3% in 2004 and 7.2% in 2003. The weighted-average assumed annual composite rate of increase in the per capita cost of company-provided health care benefits begins at 10.4% for 2006, gradually decreases to 4.6% by 2011 and remains at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical benefits. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1% Increase 1% Decrease ----------- ----------- (Dollars in thousands) Effect on total service and interest cost components........ $ 2,380 $ (2,089) Effect on postretirement benefit obligation................. $24,824 $(22,130)
CASH FLOWS: The Company paid $21 million for benefits in the postretirement medical plans in Fiscal 2005. The Company funds its postretirement medical plans in order to make payment on claims as they occur during the fiscal year. Payments for the next fiscal year are expected to be approximately $21 million. Benefit payments expected in future years are as follows (dollars in thousands): 2006........................................................ $ 21,000 2007........................................................ $ 22,000 2008........................................................ $ 22,000 2009........................................................ $ 23,000 2010........................................................ $ 23,000 Years 2011-2015............................................. $120,000
58 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and utilizes certain derivative financial instruments to manage its foreign currency and interest rate exposures. FOREIGN CURRENCY HEDGING: The Company uses forward contracts and to a lesser extent, option contracts to mitigate its foreign currency exchange rate exposure due to forecasted purchases of raw materials and sales of finished goods, and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. Consequently, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive (income)/loss and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The Company has used certain foreign currency debt instruments as net investment hedges of foreign operations. Losses of $32.2 million (net of income taxes of $18.9 million), $13.4 million (net of income taxes of $7.8 million) and $41.9 million (net of income taxes of $23.5 million), which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive (income)/loss within unrealized translation adjustment for the years ended April 27, 2005, April 28, 2004 and April 30, 2003, respectively. INTEREST RATE HEDGING: The Company uses interest rate swaps to manage interest rate exposure. These derivatives may be designated as cash flow hedges or fair value hedges depending on the nature of the risk being hedged. Derivatives used to hedge risk associated with changes in the fair value of certain fixed rate debt obligations are primarily designated as fair value hedges. Consequently, changes in the fair value of these derivatives, along with changes in the fair value of the hedged debt obligations that are attributable to the hedged risk, are recognized in current period earnings. HEDGE INEFFECTIVENESS: Hedge ineffectiveness related to cash flow hedges, which is reported in current period earnings as other income and expense, was not significant for the year ended April 27, 2005, was a net gain of $0.4 million for the year ended April 28, 2004 and was a net loss of $0.8 million for the year ended April 30, 2003. The Company excludes the time value component of option contracts from the assessment of hedge effectiveness. DEFERRED HEDGING GAINS AND LOSSES: As of April 27, 2005, the Company is hedging forecasted transactions for periods not exceeding one year. During the next 12 months, the Company expects $4.3 million of net deferred loss reported in accumulated other comprehensive (income)/loss to be reclassified to earnings. Net deferred losses reclassified to earnings because the hedged transaction was no longer expected to occur were not significant for the years ended April 27, 2005 and April 28, 2004, and totaled $0.6 million for the year ended April 30, 2003. 59 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER ACTIVITIES: The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting. Although these derivatives do not qualify as hedges, they have the economic impact of largely mitigating foreign currency or interest rate exposures. These derivative financial instruments are accounted for on a full mark to market basis through current earnings even though they were not acquired for trading purposes. At April 27, 2005, the Company had outstanding currency exchange and interest rate derivative contracts with notional amounts of $1.27 billion and $2.88 billion, respectively. At April 28, 2004, the Company had outstanding currency exchange and interest rate derivative contracts with notional amounts of $983 million and $3.68 billion, respectively. The fair value of derivative financial instruments was a net asset of $177 million and $123 million at April 27, 2005 and April 28, 2004, respectively. CONCENTRATION OF CREDIT RISK: Counterparties to currency exchange and interest rate derivatives consist of major international financial institutions. The Company continually monitors its positions and the credit ratings of the counterparties involved and, by policy, limits the amount of credit exposure to any one party. While the Company may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. During Fiscal 2005, no single customer represented more than 10% of the Company's sales. 14. NET INCOME PER COMMON 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.
Fiscal Year Ended ------------------------------------------------ April 27, 2005 April 28, 2004 April 30, 2003 (52 Weeks) (52 Weeks) (52 Weeks) -------------- -------------- -------------- (Amounts in thousands) Income from continuing operations before cumulative effect of change in accounting principle.................................. $735,822 $778,933 $555,359 Preferred dividends.......................... 15 16 19 -------- -------- -------- Income from continuing operations applicable to common stock before cumulative effect of change in accounting principle............. 735,807 778,917 555,340 Cumulative effect of change in accounting principle.................................. -- -- (77,812) -------- -------- -------- Income from continuing operations applicable to common stock............................ $735,807 $778,917 $477,528 ======== ======== ======== Average common shares outstanding--basic..... 350,042 351,810 351,250 Effect of dilutive securities: Convertible preferred stock................ 137 145 147 Stock options and restricted stock......... 3,271 2,417 2,747 -------- -------- -------- Average common shares outstanding--diluted... 353,450 354,372 354,144 ======== ======== ========
60 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock options outstanding of 15.9 million, 16.6 million and 18.4 million as of April 27, 2005, April 28, 2004 and April 30, 2003, respectively, were not included in the above net income per diluted share calculations because to do so would have been antidilutive for the periods presented. 15. SEGMENT INFORMATION The Company's segments are primarily organized by geographical area. The composition of segments and measure of segment profitability are consistent with that used by the Company's management. Descriptions of the Company's segments are as follows: - NORTH AMERICAN CONSUMER PRODUCTS--This segment primarily manufactures, markets and sells ketchup, condiments, sauces, pasta meals and frozen potatoes, entrees, snacks and appetizers to the grocery channels in the United States of America and includes our Canadian business. - U.S. FOODSERVICE--This segment primarily manufactures, markets and sells branded and customized products to commercial and non-commercial food outlets and distributors in the United States of America including ketchup, condiments, sauces and frozen soups, desserts and appetizers. - EUROPE--This segment includes the Company's operations in Europe and sells products in all of the Company's categories. - ASIA/PACIFIC--This segment includes the Company's operations in New Zealand, Australia, Japan, China, South Korea, Indonesia, Singapore and Thailand. This segment's operations include products in all of the Company's categories. - OTHER OPERATING ENTITIES--This segment includes the Company's operations in Africa, India, Latin America, the Middle East and other areas that sell products in all of the Company's categories. During Fiscal 2003, the Company deconsolidated its Zimbabwe operations that have historically been reported in this segment. The Company's management evaluates performance based on several factors including net sales, operating income excluding special items, and the use of capital resources. Intersegment revenues are accounted for at current market values. Items below the operating income line of the consolidated statements of income are not presented by segment, since they are excluded from the measure of segment profitability reviewed by the Company's management. 61 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents information about the Company's reportable segments:
Fiscal Year Ended ---------------------------------------------------------------------------- April 27, April 28, April 30, April 27, April 28, April 30, 2005 2004 2003 2005 2004 2003 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ----------- ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Net External Sales Intersegment Sales ------------------------------------- ------------------------------------ North American Consumer Products.............. $ 2,256,862 $2,064,937 $2,114,020 $ 51,742 $ 55,379 $ 55,763 U.S. Foodservice........ 1,503,818 1,428,641 1,315,465 22,550 15,310 16,124 Europe.................. 3,447,299 3,287,737 3,036,581 17,328 13,644 17,018 Asia/Pacific............ 1,307,675 1,258,556 1,078,849 3,420 2,911 3,281 Other Operating Entities.............. 396,643 374,667 691,921 1,571 2,188 2,174 Non-Operating (a)....... -- -- -- (96,611) (89,432) (94,360) ----------- ---------- ---------- ---------- ---------- ---------- Consolidated Totals..... $ 8,912,297 $8,414,538 $8,236,836 $ -- $ -- $ -- =========== ========== ========== ========== ========== ==========
Operating Income (Loss) Excluding (b) Operating Income (Loss) Special Items ------------------------------------- --------------------------------------- North American Consumer Products.............. $ 530,444 $ 474,129 $ 391,656 $ 530,444 $ 479,453 $ 452,543 U.S. Foodservice........ 224,784 211,129 191,681 224,784 215,029 197,584 Europe.................. 550,585 639,157 541,724 577,561 615,403 600,659 Asia/Pacific............ 135,588 146,190 100,460 135,588 146,190 107,109 Other Operating Entities.............. 34,739 29,934 111,190 34,739 30,934 111,190 Non-Operating (a)....... (121,298) (121,282) (162,895) (121,298) (115,424) (107,878) ----------- ---------- ---------- ---------- ---------- ---------- Consolidated Totals..... $ 1,354,842 $1,379,257 $1,173,816 $1,381,818 $1,371,585 $1,361,207 =========== ========== ========== ========== ========== ==========
Depreciation and Amortization Expenses Capital Expenditures (c) ---------------------------------------- ------------------------------------ Total North America..... $ 96,649 $ 88,110 $ 81,702 $ 95,194 $ 110,946 $ 60,289 Europe.................. 105,978 97,924 93,988 98,729 73,212 59,010 Asia/Pacific............ 33,059 32,522 22,167 28,961 36,870 24,688 Other Operating Entities.............. 7,664 7,403 8,035 8,997 9,202 5,635 Non-Operating (a)....... 9,102 7,984 8,870 8,790 1,731 4,347 ----------- ---------- ---------- ---------- ---------- ---------- Consolidated Totals..... $ 252,452 $ 233,943 $ 214,762 $ 240,671 $ 231,961 $ 153,969 =========== ========== ========== ========== ========== ==========
Identifiable Assets ------------------------------------- Total North America..... $ 3,606,034 $3,356,878 $3,468,639 Europe.................. 4,437,891 3,788,378 3,331,420 Asia/Pacific............ 1,364,882 1,242,953 1,088,462 Other Operating Entities.............. 280,952 276,130 255,991 Non-Operating (d)....... 887,959 1,212,850 1,080,239 ----------- ---------- ---------- Consolidated Totals..... $10,577,718 $9,877,189 $9,224,751 =========== ========== ==========
(a) Includes corporate overhead, intercompany eliminations and charges not directly attributable to operating segments. (b) FISCAL YEAR ENDED APRIL 27, 2005: Excludes the $27.0 million non-cash asset impairment charge on the HAK vegetable product line in Northern Europe. 62 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FISCAL YEAR ENDED APRIL 28, 2004: Excludes the gain on disposal of the bakery business in Northern Europe, reorganization costs and the write down of pizza crust assets in the United Kingdom as follows: North American Consumer Products $5.3 million, U.S. Foodservice $3.9 million, Europe $(23.8) million, Other Operating Entities $1.0 million, and Non-Operating $5.9 million. FISCAL YEAR ENDED APRIL 30, 2003: Excludes Del Monte transaction related costs, costs to reduce overhead of the remaining businesses and losses on the exit of non-strategic businesses as follows: North American Consumer Products $60.9 million, U.S. Foodservice $5.9 million, Europe $58.9 million, Asia/Pacific $6.6 million and Non-Operating $55.0 million. (c) Excludes property, plant and equipment obtained through acquisitions. (d) Includes identifiable assets not directly attributable to operating segments. The results for the year ended April 27, 2005 were impacted by a $34.1 million charge for trade promotion spending for the Italian infant nutrition business of which $21.1 million was recorded in the second quarter and $13.0 million in the fourth quarter. The charge relates to an under-accrual in fiscal years 2001, 2002 and 2003. The amount of the charge that corresponds to each of the fiscal years 2001, 2002 and 2003 is less than 2% of net income for each of those years. The Company's revenues are generated via the sale of products in the following categories:
Fiscal Year Ended ------------------------------------ April 27, April 28, April 30, 2005 2004 2003 (52 Weeks) (52 Weeks) (52 Weeks) ---------- ---------- ---------- (Unaudited) (Dollars in thousands) Ketchup, condiments and sauces.............................. $3,234,229 $3,047,662 $2,766,134 Frozen foods................................................ 2,209,586 1,947,777 1,972,200 Convenience meals........................................... 2,005,468 1,874,272 1,696,977 Infant foods................................................ 855,558 908,469 871,801 Other....................................................... 607,456 636,358 929,724 ---------- ---------- ---------- Total....................................................... $8,912,297 $8,414,538 $8,236,836 ========== ========== ==========
The Company has significant sales and long-lived assets in the following geographic areas. Sales are based on the location in which the sale originated. Long-lived assets include property, plant and equipment, goodwill, trademarks and other intangibles, net of related depreciation and amortization.
Fiscal Year Ended --------------------------------------------------------------------------- Net External Sales Long-Lived Assets ------------------------------------ ------------------------------------ April 27, April 28, April 30, 2005 2004 2003 April 27, April 28, April 30, (52 Weeks) (52 Weeks) (52 Weeks) 2005 2004 2003 ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) United States............ $3,379,961 $3,167,424 $3,114,105 $1,894,964 $1,857,041 $1,830,059 United Kingdom........... 1,874,424 1,703,748 1,574,258 751,496 707,763 660,752 Other.................... 3,657,912 3,543,366 3,548,473 2,479,204 2,246,217 2,061,404 ---------- ---------- ---------- ---------- ---------- ---------- Total.................... $8,912,297 $8,414,538 $8,236,836 $5,125,664 $4,811,021 $4,552,215 ========== ========== ========== ========== ========== ==========
63 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. QUARTERLY RESULTS
2005 -------------------------------------------------------------- First Second Third Fourth Total (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (52 Weeks) ---------- ---------- ---------- ---------- ---------- (Unaudited) (Dollars in thousands, except per share amounts) Sales................................. $2,003,026 $2,199,560 $2,261,219 $2,448,492 $8,912,297 Gross profit.......................... 738,753 800,014 819,913 847,691 3,206,371 Income from continuing operations..... 194,836 197,279 138,520 205,187 735,822 Net income............................ 194,836 198,965 152,411 206,487 752,699 Per Share Amounts: Income from continuing operations--diluted................. $ 0.55 $ 0.56 $ 0.39 $ 0.58 $ 2.08 Income from continuing operations--basic................... 0.56 0.56 0.40 0.59 2.10 Cash dividends........................ 0.285 0.285 0.285 0.285 1.14
2004 -------------------------------------------------------------- First Second Third Fourth Total (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (52 Weeks) ---------- ---------- ---------- ---------- ---------- (Unaudited) (Dollars in thousands, except per share amounts) Sales................................. $1,895,524 $2,090,461 $2,097,181 $2,331,372 $8,414,538 Gross profit.......................... 707,076 781,218 779,247 820,716 3,088,257 Income from continuing operations..... 186,825 191,487 202,237 198,384 778,933 Net income............................ 214,025 191,487 202,237 196,524 804,273 Per Share Amounts: Income from continuing operations--diluted................. $ 0.53 $ 0.54 $ 0.57 $ 0.56 $ 2.20 Income from continuing operations--basic................... 0.53 0.54 0.58 0.56 2.21 Cash dividends........................ 0.27 0.27 0.27 0.27 1.08
The third quarter of Fiscal 2005 includes a $64.5 million non-cash impairment charge for the Company's equity investment in The Hain Celestial Group, Inc. ("Hain") and a $9.3 million non-cash charge to recognize the impairment of a cost-basis investment in a grocery industry sponsored e-commerce business venture. There was no tax benefit associated with these impairment charges. The fourth quarter of Fiscal 2005 includes a $27.0 million pre-tax ($18.0 million after-tax) non-cash asset impairment charge related to the anticipated sale of the HAK vegetable product line in Northern Europe in early Fiscal 2006. The first quarter of Fiscal 2004 includes the gain on sale of the bakery business in Northern Europe of $13.3 million after-tax, reorganization costs of $3.4 million after-tax and the write down of pizza crust assets in the United Kingdom of $2.8 million after-tax. The fourth quarter of Fiscal 2004 includes reorganization costs of $7.6 million after-tax. 17. COMMITMENTS AND CONTINGENCIES LEGAL MATTERS: Certain suits and claims have been filed against the Company and have not been finally adjudicated. These suits and claims when finally concluded and determined, in the opinion of management, based upon the information that it presently possesses, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 64 H. J. HEINZ COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LEASE COMMITMENTS: Operating lease rentals for warehouse, production and office facilities and equipment amounted to approximately $111.3 million in 2005, $113.0 million in 2004 and $95.2 million in 2003. Future lease payments for non-cancelable operating leases as of April 27, 2005 totaled $581.1 million (2006-$79.8 million, 2007-$206.3 million, 2008-$43.1 million, 2009-$34.4 million, 2010-$28.4 million and thereafter-$189.1 million). No significant credit guarantees existed between the Company and third parties as of April 27, 2005. 18. ADVERTISING COSTS Advertising expenses (including production and communication costs) for fiscal 2005, 2004 and 2003 were $289.4 million, $307.9 million and $328.8 million, respectively. For fiscal years 2005, 2004 and 2003, $144.8 million, $147.0 million and $143.5 million, respectively, were recorded as a reduction of revenue and $144.6 million, $160.9 million and $185.3 million, respectively, were recorded as a component of SG&A. 19. SUBSEQUENT EVENT On April 28, 2005, the Company completed the formation of a joint venture that resulted in Heinz becoming the majority owner of Petrosoyuz, a leading Russian maker of ketchup, condiments and sauces. Petrosoyuz's business includes brands such as Picador, Derevenskoe, Mechta Hoziayki and Moya Semya. 65 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There is nothing to be reported under this item. ITEM 9A. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures, as of the end of the period covered by this report, were 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 (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. See also "Report of Management on Internal Control over Financial Reporting". (b) Management's Report on Internal Control Over Financial Reporting Our management's report on Internal Control Over Financial Reporting is set forth in Item 8 and incorporated herein by reference. Our management's assessment of the effectiveness of our internal control over financial reporting as of April 27, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. (c) Changes in Internal Controls over Financial Reporting No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. ITEM 9B. OTHER INFORMATION. There is nothing to be reported under this item. 66 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information relating to the Directors of the Company is set forth under the captions "Election of Directors" and "Additional Information--Section 16 Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held August 23, 2005. The information regarding the audit committee financial expert is set forth under the captions "Report of the Audit Committee" and "Relationship with Registered Public Accounting Firm" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 23, 2005. The Company's Code of Conduct which is applicable to all employees, including the principal executive officer, the principal financial officer, and the principal accounting officer, as well as the charters for the Company's Audit, Management Development & Compensation, Corporate Governance, and Public Issues Committees, as well as periodic and current reports filed with the SEC are available on the Company's website, www.heinz.com, and are available in print to any shareholder upon request. Such information is incorporated herein by reference. Information relating to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I above. ITEM 11. EXECUTIVE COMPENSATION. Information relating to executive compensation is set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 23, 2005. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information relating to the ownership of equity securities of the Company by certain beneficial owners and management is set forth under the caption "Security Ownership of Management" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held August 23, 2005. Such information is incorporated herein by reference. The number of shares to be issued upon exercise and the number of shares remaining available for future issuance under the Company's equity compensation plans at April 27, 2005 were as follows: EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c) ----------------------- -------------------- ------------------------ Number of securities remaining available for future issuance Number of securities to Weighted-average under equity be issued upon exercise exercise price of compensation Plans of outstanding options, outstanding options, (excluding securities warrants and rights warrants and rights reflected in column (a)) ----------------------- -------------------- ------------------------ Equity Compensation plans approved by stockholders........................ 36,951,701 $37.86 16,526,868 Equity Compensation plans not approved by stockholders(1)(2)............... 174,222 N/A(3) N/A(1)(4) ---------- ------ ---------- Total................................. 37,125,923 $37.86 16,526,868 ========== ====== ==========
(1) The H. J. Heinz Company Restricted Stock Recognition Plan for Salaried Employees (the "Restricted Stock Plan") is designed to provide recognition and reward in the form of awards of restricted stock to employees who have a history of outstanding accomplishment and who, because of their experience and skills, are expected to continue to contribute significantly to the 67 success of the Company. Eligible employees are those full-time salaried employees not participating in the shareholder-approved H. J. Heinz Company Incentive Compensation Plan in effect as of May 1, 2002, and who have not been awarded an option to purchase Company Common Stock. The Company has ceased issuing shares from this Restricted Stock Plan, and it is the Company's intention to terminate the Restricted Stock Plan once all restrictions on previously issued shares are lifted. All awards of this type are now made under the Fiscal Year 2003 Stock Incentive Plan. (2) The Executive Deferred Compensation Plan, as amended and restated on December 27, 2001 and the Deferred Compensation Plan for Non-Employee Directors as amended and restated on January 1, 2004, permit full-time salaried personnel based in the U.S. who have been identified as key employees and non-employee directors, to defer all or part of his or her cash compensation into either a cash account that accrues interest, or into a Heinz stock account. The election to defer is irrevocable. The Management Development & Compensation Committee of the Board of Directors administers the Plan. All amounts are payable at the times and in the amounts elected by the executives at the time of the deferral. The deferral period shall be at least one year and shall be no greater than the date of retirement or other termination, whichever is earlier. Amounts deferred into cash accounts are payable in cash, and all amounts deferred into the Heinz stock account are payable in Heinz Common Stock. Compensation deferred into the Heinz stock account appreciates or depreciates according to the fair market value of Heinz Common Stock. (3) The grants made under the Restricted Stock Plan, the Executive Deferred Compensation Plan and the Deferred Compensation Plan for Non-Employee Directors are restricted or reserved shares of Common Stock, and therefore there is no exercise price. (4) The maximum number of shares of Common Stock that the Chief Executive Officer may grant under the Restricted Stock Plan has been established annually by the Executive Committee of the Board of Directors; provided, however, that such number of shares shall not exceed in any plan year 1% of all then outstanding shares of Common Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to certain relationships with a beneficial shareholder and certain related transactions is set forth under the caption "Security Ownership of Certain Principal Shareholders" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 23, 2005. Such information is incorporated herein by reference. ITEM 14. PRINCIPAL AUDITOR FEES AND SERVICES. Information relating to the principal auditor's fees and services is set forth under the caption "Relationship With Registered Public Accounting Firm" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 23, 2005. Such information is incorporated herein by reference. 68 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) The following financial statements and reports are filed as part of this report under Item 8--"Financial Statements and Supplementary Data": Consolidated Balance Sheets as of April 27, 2005 and April 28, 2004 Consolidated Statements of Income for the fiscal years ended April 27, 2005, April 28, 2004 and April 30, 2003 Consolidated Statements of Shareholders' Equity for the fiscal years ended April 27, 2005, April 28, 2004 and April 30, 2003 Consolidated Statements of Cash Flows for the fiscal years ended April 27, 2005, April 28, 2004 and April 30, 2003 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm of PricewaterhouseCoopers LLP dated June 16, 2005, on the Company's consolidated financial statements and financial statement schedule filed as a part hereof for the fiscal years ended April 27, 2005, April 28, 2004 and April 30, 2003 (2) The following report and schedule is filed herewith as a part hereof: Consent of Independent Registered Public Accounting Firm of PricewaterhouseCoopers LLP dated June 16, 2005 filed as a part hereof Schedule II (Valuation and Qualifying Accounts and Reserves) for the three fiscal years ended April 27, 2005, April 28, 2004 and April 30, 2003 All other schedules are omitted because they are not applicable or the required information is included herein or is shown in the consolidated financial statements or notes thereto filed as part of this report incorporated herein by reference. (3) Exhibits required to be filed by Item 601 of Regulation S-K are listed below. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K. 3(i) The Company's Articles of Amendment dated July 13, 1994, amending and restating the Company's amended and restated Articles of Incorporation in their entirety, are incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994. 3(ii) The Company's By-Laws, as amended effective June 12, 2002 are incorporated herein by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the three months ended July 31, 2002. 4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the Company on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission. (a) The Indenture among the Company, H. J. Heinz Finance Company, and Bank One, National Association dated as of July 6, 2001 relating to the H. J. Heinz Finance Company's $750,000,000 6.625% Guaranteed Notes due 2011, $700,000,000 6.00% Guaranteed Notes due 2012 and $550,000,000 6.75% Guaranteed Notes due 2032 is incorporated herein by reference to Exhibit 4 of the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (b) The Certificate of Designations, Preferences and Rights of Voting Cumulative Preferred Stock, Series A of H. J. Heinz Finance Company is incorporated herein by reference to Exhibit 4 of the Company's Quarterly Report on Form 10-Q for the three months ended August 1, 2001.
69 10(a) Management contracts and compensatory plans: (i) 1986 Deferred Compensation Program for H. J. Heinz Company and affiliated companies, as amended and restated in its entirety effective December 6, 1995, is incorporated herein by reference to Exhibit 10(c)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 1995. (ii) H. J. Heinz Company 1990 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1990. (iii) H. J. Heinz Company 1994 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 5, 1994. (iv) H. J. Heinz Company Supplemental Executive Retirement Plan, as amended, is incorporated herein by reference to Exhibit 10(c)(ix) to the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 1993. (v) H. J. Heinz Company Executive Deferred Compensation Plan (as amended and restated on December 27, 2001) is incorporated by reference to Exhibit 10(a)(vii) of the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (vi) H. J. Heinz Company Incentive Compensation Plan is incorporated herein by reference to Appendix B to the Company's Proxy Statement dated August 5, 1994. (vii) H. J. Heinz Company Stock Compensation Plan for Non-Employee Directors is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1995. (viii) H. J. Heinz Company 1996 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 2, 1996. (ix) H. J. Heinz Company Deferred Compensation Plan for Directors is incorporated herein by reference to Exhibit 10(a)(xiii) to the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 1998. (x) H. J. Heinz Company Global Stock Purchase Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1999. (xi) Form of Severance Protection Agreement is incorporated herein by reference to Exhibit 10(a)(xiv) to the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 2000. (xii) H. J. Heinz Company 2000 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 4, 2000. (xiii) H. J. Heinz Company Executive Estate Life Insurance Program is incorporated herein by reference to Exhibit 10(a)(xv) to the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (xiv) H. J. Heinz Company Restricted Stock Recognition Plan for Salaried Employees is incorporated herein by reference to Exhibit 10(a)(xvi) to the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (xv) H. J. Heinz Company Fiscal Year 2003 Stock Incentive Plan is incorporated by reference to the Company's Proxy Statement dated August 2, 2002.
70 (xvi) H. J. Heinz Company Senior Executive Incentive Compensation Plan is incorporated by reference to the Company's Proxy Statement dated August 2, 2002. (xvii) Form of First Amendment to Severance Protection Agreement incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2003. (xviii) Deferred Compensation Plan for Non-Employee Directors of H. J. Heinz Company (as amended and restated effective January 1, 2004), is incorporated herein by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 28, 2004. (xix) Form of Stock Option Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xx) Form of Stock Option Award and Agreement for U.S. Employees Based in the U.K. on International Assignment is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxi) Form of Restricted Stock Unit Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxii) Form of Restricted Stock Unit Award and Agreement for Non-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxiii) Form of Five-Year Restricted Stock Unit Retention Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxiv) Form of Five-Year Restricted Stock Unit Retention Award and Agreement for Non-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxv) Form of Three-Year Restricted Stock Unit Retention Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxvi) Form of Three-Year Restricted Stock Unit Retention Award and Agreement for Non-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxvii) Form of Performance Unit Award Agreement is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxviii) Director and Named Executive Officer Compensation (xxix) Jeffrey P. Berger Restricted Stock Unit Award and Agreement dated November 9, 2004. (xxx) Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement for U.S. Employees. (xxxi) Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement for non-U.S. Based Employees.
71 (xxxii) Amendment Number One to the H.J. Heinz Company Fiscal Year 2003 Incentive Plan. (xxxiii) Amendment Number One to the H.J. Heinz Company 2000 Stock Option Plan. (xxxiv) Amendment Number One to the H.J. Heinz Company 1996 Stock Option Plan. (xxxv) Form of Fiscal Year 2006 Severance Protection Agreement. 12. Computation of Ratios of Earnings to Fixed Charges. 21. Subsidiaries of the Registrant. 23. The following Exhibit is filed by incorporation by reference to Item 15(a)(2) of this Report: (a) Consent of PricewaterhouseCoopers LLP. 24. Powers-of-attorney of the Company's directors. 31(a) Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. 31(b) Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. 32(a) Certification by the Chief Executive Officer Relating to the Annual Report Containing Financial Statements. 32(b) Certification by the Chief Financial Officer Relating to the Annual Report Containing Financial Statements.
Copies of the exhibits listed above will be furnished upon request to holders or beneficial holders of any class of the Company's stock, subject to payment in advance of the cost of reproducing the exhibits requested. 72 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on June 16, 2005. H. J. HEINZ COMPANY (Registrant) By: /s/ ARTHUR B. WINKLEBLACK ................................................ ARTHUR B. WINKLEBLACK Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on June 16, 2005.
Signature Capacity --------- -------- /s/ WILLIAM R. JOHNSON Chairman, President and ............................................ Chief Executive Officer WILLIAM R. JOHNSON (Principal Executive Officer) /s/ ARTHUR B. WINKLEBLACK Executive Vice President and ............................................ Chief Financial Officer ARTHUR B. WINKLEBLACK (Principal Financial Officer) /s/ EDWARD J. MCMENAMIN Senior Vice President-Finance and ............................................ Corporate Controller EDWARD J. MCMENAMIN (Principal Accounting Officer)
William R. Johnson Director Charles E. Bunch Director Mary C. Choksi Director Leonard S. Coleman, Jr. Director By /s/ ARTHUR B. WINKLEBLACK Peter H. Coors Director ........................................ Edith E. Holiday Director ARTHUR B. WINKLEBLACK Candace Kendle Director Attorney-in-Fact Dean R. O'Hare Director Lynn C. Swann Director Thomas J. Usher Director
73 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-51719, 33-32563, 33-42015, 33-55777, 33-62623, 333-13849, 333-87419, 333-49728, 333-100820 and 333-116534) of H. J. Heinz Company and Subsidiaries of our report dated June 16, 2005 relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania June 16, 2005 SCHEDULE II H. J. HEINZ COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FISCAL YEARS ENDED APRIL 27, 2005, APRIL 28, 2004 AND APRIL 30, 2003 (THOUSANDS OF DOLLARS)
Additions --------------------- Balance at Charged to Charged Balance at beginning costs and to other end of Description of period expenses accounts Deductions period - ----------- ---------- ---------- -------- ---------- ---------- Fiscal year ended April 27, 2005: Reserves deducted in the balance sheet from the assets to which they apply: Receivables.......................... $ 21,313 $ 9,267 $2,390 $11,126 $ 21,844 ======== ======== ====== ======= ======== Fiscal year ended April 28, 2004: Reserves deducted in the balance sheet from the assets to which they apply: Receivables.......................... $ 22,199 $ 12,457 $ -- $13,343(1) $ 21,313 ======== ======== ====== ======= ======== Fiscal year ended April 30, 2003: Reserves deducted in the balance sheet from the assets to which they apply: Receivables.......................... $ 15,654 $ 7,301 $ -- $ 756 $ 22,199 ======== ======== ====== ======= ========
NOTES: (1) Principally reserves on assets sold, written-off, reclassified or spun off. EXHIBIT INDEX
DESCRIPTION OF EXHIBIT ------------------------------------------------------------------------------------------ Exhibits required to be filed by Item 601 of Regulation S-K are listed below. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K. 3(i) The Company's Articles of Amendment dated July 13, 1994, amending and restating the Company's amended and restated Articles of Incorporation in their entirety, are incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994. 3(ii) The Company's By-Laws, as amended effective June 12, 2002 are incorporated herein by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the three months ended July 31, 2002. 4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the Company on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission. (a) The Indenture among the Company, H. J. Heinz Finance Company, and Bank One, National Association dated as of July 6, 2001 relating to the H. J. Heinz Finance Company's $750,000,000 6.625% Guaranteed Notes due 2011, $700,000,000 6.00% Guaranteed Notes due 2012 and $550,000,000 6.75% Guaranteed Notes due 2032 is incorporated herein by reference to Exhibit 4 of the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (b) The Certificate of Designations, Preferences and Rights of Voting Cumulative Preferred Stock, Series A of H. J. Heinz Finance Company is incorporated herein by reference to Exhibit 4 of the Company's Quarterly Report on Form 10-Q for the three months ended August 1, 2001. 10(a) Management contracts and compensatory plans: (i) 1986 Deferred Compensation Program for H. J. Heinz Company and affiliated companies, as amended and restated in its entirety effective December 6, 1995, is incorporated herein by reference to Exhibit 10(c)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 1995. (ii) H. J. Heinz Company 1990 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1990. (iii) H. J. Heinz Company 1994 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 5, 1994. (iv) H. J. Heinz Company Supplemental Executive Retirement Plan, as amended, is incorporated herein by reference to Exhibit 10(c)(ix) to the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 1993.
DESCRIPTION OF EXHIBIT ------------------------------------------------------------------------------------------ (v) H. J. Heinz Company Executive Deferred Compensation Plan (as amended and restated on December 27, 2001) is incorporated by reference to Exhibit 10(a)(vii) of the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (vi) H. J. Heinz Company Incentive Compensation Plan is incorporated herein by reference to Appendix B to the Company's Proxy Statement dated August 5, 1994. (vii) H. J. Heinz Company Stock Compensation Plan for Non-Employee Directors is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1995. (viii) H. J. Heinz Company 1996 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 2, 1996. (ix) H. J. Heinz Company Deferred Compensation Plan for Directors is incorporated herein by reference to Exhibit 10(a)(xiii) to the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 1998. (x) H. J. Heinz Company Global Stock Purchase Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1999. (xi) Form of Severance Protection Agreement is incorporated herein by reference to Exhibit 10(a)(xiv) to the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 2000. (xii) H. J. Heinz Company 2000 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 4, 2000. (xiii) H. J. Heinz Company Executive Estate Life Insurance Program is incorporated herein by reference to Exhibit 10(a)(xv) to the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (xiv) H. J. Heinz Company Restricted Stock Recognition Plan for Salaried Employees is incorporated herein by reference to Exhibit 10(a)(xvi) to the Company's Annual Report on Form 10-K for the fiscal year ended May 1, 2002. (xv) H. J. Heinz Company Fiscal Year 2003 Stock Incentive Plan is incorporated by reference to the Company's Proxy Statement dated August 2, 2002. (xvi) H. J. Heinz Company Senior Executive Incentive Compensation Plan is incorporated by reference to the Company's Proxy Statement dated August 2, 2002. (xvii) Form of First Amendment to Severance Protection Agreement incorpo- rated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2003. (xviii) Deferred Compensation Plan for Non-Employee Directors of H. J. Heinz Company (as amended and restated effective January 1, 2004), is incorporated herein by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 28, 2004.
DESCRIPTION OF EXHIBIT ------------------------------------------------------------------------------------------ (xix) Form of Stock Option Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xx) Form of Stock Option Award and Agreement for U.S. Employees Based in the U.K. on International Assignment is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxi) Form of Restricted Stock Unit Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxii) Form of Restricted Stock Unit Award and Agreement for Non-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxiii) Form of Five-Year Restricted Stock Unit Retention Award and Agreement for U.S. Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxiv) Form of Five-Year Restricted Stock Unit Retention Award and Agreement for Non-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxv) Form of Three-Year Restricted Stock Unit Retention Award and Agree- ment for U.S. Employees is incorporated herein by reference to Ex- hibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxvi) Form of Three-Year Restricted Stock Unit Retention Award and Agree- ment for Non-U.S. Based Employees is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxvii) Form of Performance Unit Award Agreement is incorporated herein by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2005. (xxviii) Director and Named Executive Officer Compensation (xxix) Jeffrey P. Berger Restricted Stock Unit Award and Agreement dated November 9, 2004. (xxx) Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement for U.S. Employees. (xxxi) Form of Fiscal Year 2006 Restricted Stock Unit Award and Agreement for non-U.S. Based Employees. (xxxii) Amendment Number One to the H.J. Heinz Company Fiscal Year 2003 Incentive Plan. (xxxiii) Amendment Number One to the H.J. Heinz Company 2000 Stock Option Plan.
DESCRIPTION OF EXHIBIT ------------------------------------------------------------------------------------------ (xxxiv) Amendment Number One to the H.J. Heinz Company 1996 Stock Option Plan. (xxxv) Form of Fiscal Year 2006 Severance Protection Agreement. 12. Computation of Ratios of Earnings to Fixed Charges. 21. Subsidiaries of the Registrant. 23. The following Exhibit is filed by incorporation by reference to Item 15(a)(2) of this Report: (a) Consent of PricewaterhouseCoopers LLP. 24. Powers-of-attorney of the Company's directors. 31(a) Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. 31(b) Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. 32(a) Certification by the Chief Executive Officer Relating to the Annual Report Containing Financial Statements. 32(b) Certification by the Chief Financial Officer Relating to the Annual Report Containing Financial Statements.
EX-10.01.28 2 j1304601exv10w01w28.txt EXHIBIT 10(A)(XXVIII) Exhibit 10 (a)(xxviii) Director and Named Executive Officer Compensation DIRECTORS - --------- During calendar year 2005, each non-employee director will receive a $60,000 annual retainer fee. The Chair of each of the Audit and Management Development and Compensation Committees will receive a $15,000 retainer, and the Chair of each of the Corporate Governance and Public Issues Committees will receive a $10,000 retainer. Each non-employee director will receive a fee equal to $1,500 for each meeting day attended. In addition to cash compensation, each non-employee director will receive a grant of 2,500 restricted shares of Company Common Stock on the date of the Company's Annual Meeting of Shareholders. On January 14, 2004, the Board approved a guideline that each non-employee director should own 10,000 shares of Company stock; each director is asked to comply with this guideline by the fifth anniversary of his or her election to the Board. NAMED EXECUTIVE OFFICERS - ------------------------
NAME AND PRINCIPAL ANNUAL FY05 POSITION SALARY BONUS - ---------------------- ---------- --------- W. R. Johnson 1,050,000 1,900,000 Chairman, President and CEO J. P. Berger 525,000 224,625(1) EVP - Global Foodservice D. C. Moran SVP-President Heinz Consumer 475,000 469,488 Products J. Jimenez EVP-Europe 550,000 298,314 A. B. Winkleblack 525,000 332,688 EVO and CFO
(1) In Fiscal year 2005, Mr. Berger also received a grant of $1,000,000 in restricted stock units in lieu of a portion of his cash bonus. This award vested on June 3, 2005, upon achieving specific predetermined financial objectives.
LONG-TERM INCENTIVE PROGRAM PERFORMANCE UNIT AWARDS(1) --------------------------------------------------------------------- PERFORMANCE ESTIMATED FUTURE PAYOUTS AT END OF NO. OF SHARES OR OTHER 2-YEAR PERFORMANCE PERIOD UNITS, OR PERIOD UNTIL ------------------------------------- NAME AND PRINCIPAL OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM POSITION (#) OR PAYOUT ($) ($) ($) - ---------------------- ----------- ------------ --------- ------ ------- W. R. Johnson 1 2 years -0- 5,760,000 12,960,000 Chairman, President and CEO J. P. Berger 1 2 years -0- 925,000 2,081,250 EVP - Global Foodservice D. C. Moran 1 2 years -0- 750,000 1,687,500 SVP-President Heinz Consumer Products J. Jimenez 1 2 years -0- 1,150,000 2,587,500 EVP-Europe A. B. Winkleblack 1 2 years -0- 1,075,000 2,418,750 EVO and CFO
(1) Performance Unit Awards Under Long-Term Incentive Program. In order to further link the compensation of executives with the interests of shareholders, in fiscal year 2005, the Company granted performance awards as permitted in the Fiscal Year 2003 Stock Incentive Plan, subject to achievement of performance goals, restrictions and conditions specified in advance by the Management Development and Compensation Committee (the "Committee"). These new performance awards are tied to Company financial measures and are expected to replace a large portion of stock options and restricted stock units beginning in Fiscal Year 2005. For the performance period from April 29, 2004 through May 3, 2006, the measures are established by the Committee based on the compound annual growth rate of net income ("NI") and sales growth amounts. Awards are payable at the end of the 2-year performance period based upon the Company's achieving the NI and sales growth targets. Once the minimum NI goal is met, the amount of any award is dependent upon the level of sales growth of the Company for the performance period. If the Company meets or exceeds the peer group median in NI over the performance period and generates at least flat sales, the Committee may, in its discretion, authorize payment up to 50% of any target award to participants excluding the Chief Executive Officer. In addition, if the Company does not remain in or above the third quartile when comparing its performance to that of its peer group companies on a relative total shareholder return basis, the Committee will exercise its discretion to reduce payouts for named executive officers. If earned, 50% of the payout on the performance award will be made in cash and 50% will be made in stock valued at the fair market value of Heinz common stock as of the date of the payout. However, if the executive has met applicable stock ownership guidelines, the performance award may be paid in cash. Mr. Johnson has met the applicable stock ownership guideline as published by the Committee. Nevertheless, the Committee determined on the grant date of the award that Mr. Johnson's performance award, if earned, will be paid half in cash and half in stock. For the executive officers named in the Summary Compensation Table, including Mr. Johnson, any stock received as partial payout on the performance award will be deferred until retirement or termination of employment or until the executive is no longer a named executive officer. EX-10.01.29 3 j1304601exv10w01w29.txt EXHIBIT 10(A)(XXIX) Exhibit 10(a)(xxix) JEFF BERGER RESTRICTED STOCK UNIT AWARD AND AGREEMENT November 9, 2004 Dear Jeff: H. J. Heinz Company is pleased to confirm that, effective as of the above date, you have been granted a supplemental award of Restricted Stock Units ("RSUs") for Fiscal Year 2005 in accordance with the terms and conditions of the H.J. Heinz Company Fiscal Year 2003 Stock Incentive Plan (the "Plan"). This award replaces and is in lieu of the "Special Supplementary Incentive" made available to you by letter agreement dated June 18, 2003 which is hereby terminated and shall be considered null and void upon execution of this letter agreement ("Agreement"). This Award is also made under and governed by the terms and conditions of this Agreement, which shall control in the event of a conflict with the terms and conditions of the Plan. For purposes of this Agreement, the "Company" shall refer to H. J. Heinz Company and its Subsidiaries. Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the same defined meanings as in the Plan. 1. RSU Award. You have been awarded a total of 26,364 RSUs subject to the vesting conditions set forth in Paragraph 3 below. 2. RSU Account. RSUs entitle you to receive a corresponding number of shares of H. J. Heinz Company Common Stock ("Common Stock") in the future, subject to the conditions and restrictions set forth in this Agreement, including, without limitation, the vesting conditions set forth in Paragraph 3 below. Your RSUs will be credited to a separate account established and maintained by the Company on your behalf. Until the Distribution Date (as defined herein), your RSUs are treated as deferred compensation amounts, the value of which is subject to change based on increases or decreases in the market price of the Common Stock. Because the RSUs are not actual shares of Common Stock, you cannot exercise voting rights on them until the Distribution Date. 3. Vesting. If your business performance for Heinz North America (U.S.) Foodservice ("HFS") achieves or exceeds the target performance goals for FY05 Operating Income (OI) established by the Company's Chief Executive Officer ("CEO),* and if you achieve these earnings in a "quality" manner, as defined below, 100% of the RSUs granted hereunder will vest on June 3, 2005. If the OI target is not met in a "quality" manner, the RSUs granted under this Agreement shall not vest and shall be forfeited. *Acquisitions, such as TrueSoups, will be additive to this goal. For clarification purposes: - Your personal SSP financial goals target remains based on HFS performance. - Your personal goals component remains against HFS. - The vesting of this RSU award is not dependent on the overall results of HNA. The "quality" of earnings determination will be at the sole discretion of the CEO with consideration of the following criteria: (i) budgeted marketing expenditures made, (ii) good volume with shipments to consumption, (iii) sound fixed expense controls, (iv) improved cash conversion cycles, and (v) no benefit from exclusion of non-recurring items. 4. Termination of Employment, Transfer and Change in Control. (a) Retirement, Death, Disability or Involuntary Termination without Cause. If termination of your employment with the Company occurs prior to the close of FY05 as a result of Retirement, Death, Disability, or involuntary termination without Cause, the RSUs granted hereunder shall be reduced to a number determined by multiplying the number of RSUs granted by a fraction, the numerator of which shall be the number of days you are employed with the Company beginning with May 1, 2003, divided by the total number of days in FY04 and FY05, subject to the requirements of Paragraph 5. These remaining RSUs shall remain eligible for vesting under Paragraph 3. (b) Transfer. If you agree to a transfer to another assignment within the Company prior to the close of FY05, the RSUs granted hereunder shall be reduced to a number determined by multiplying the number of RSUs granted by a fraction, the numerator of which shall be the number of days you perform services in your current position beginning with May 1, 2003 divided by the total number of days in FY04 and FY05, subject to the requirements of Paragraph 5. These remaining RSUs shall remain eligible for vesting under Paragraph 3. (c) Change in Control. In case of a change in control (as defined in the Plan), this RSU award shall vest if in the sole discretion of the CEO, considering the criteria noted above, you have made good progress toward achieving the OI Target at the time of the change in control in a "quality" manner. (d) Other Termination. If your employment with the Company terminates prior to the close of FY05 for any reason other than as set forth in subparagraphs (a) and (b) above, including without limitation any voluntary termination of employment or an involuntary termination for Cause, no vesting will occur and you will immediately forfeit all of your rights in all RSUs granted hereunder. 5. Non-Solicitation/Confidential Information. In partial consideration for the RSUs granted to you hereunder, you agree that you shall not, during the term of your employment by the Company and for 12 months after termination of your employment, regardless of the reason for the termination, either directly or indirectly, solicit, take away or attempt to solicit or take away any other employee of the Company, either for your own purpose or for any other person or entity. You further agree that you shall not, during the term of your employment by the Company or at any time thereafter, use or disclose the Confidential Information (as defined below) except as directed by, and in furtherance of the business purposes of, the Company. You acknowledge that the breach or threatened breach of this Paragraph 5 will result in irreparable injury to the Company for which there is no adequate remedy at law because, among other things, it is not readily susceptible of proof as to the monetary damages that would result to the Company. You consent to the issuance of any restraining order or preliminary restraining order or injunction with respect to any conduct by you that is directly or indirectly a breach or threatened breach of this Paragraph 5. Any breach by you of the provisions of this Paragraph 5 will, at the option of the Company and in addition to all other rights and remedies available to the Company at law, in equity or under this Agreement, result in the immediate forfeiture of all of your rights in any RSUs that remain unvested as of the date of such breach. "Confidential Information" as used herein shall mean technical or business information not readily available to the public or generally known in the trade, including but not limited to inventions; ideas; improvements; discoveries; developments; formulations; ingredients; recipes; specifications; designs; standards; financial data; sales, marketing and distribution plans, techniques and strategies; customer and supplier information; equipment; mechanisms; manufacturing plans; processing and packaging techniques; trade secrets and other confidential information, knowledge, data and know-how of the Company, whether or not they originated with you, or information which the Company received from third parties under an obligation of confidentiality. 6. Dividends. Beginning with the date of this Agreement, an amount equal to the dividends payable on the shares of Common Stock represented by the RSUs will be paid directly to you as soon as practicable following the date on which a dividend is declared by the Company. These payments will be calculated based upon the number of RSUs credited to your account as of the date that a dividend is declared. These payments will be reported as income to the applicable taxing authorities, and federal, state, local and/or foreign income and/or employment taxes will be withheld from such payments as and to the extent required by applicable law. 7. Distribution. All RSU distributions will be made in the form of actual shares of Common Stock and will be distributed to you on one of the following dates (each, a "Distribution Date"): (a) Default Distribution Date. Shares of Common Stock representing your RSUs will be distributed to you when the RSUs vest, unless you make an election to defer receipt to a later date, as provided in subparagraph (b) below. (b) Deferred Distribution Date. You may elect to defer distribution of your RSUs to a date subsequent to the Default Distribution Date by providing a written election form to the Company by no later than December 31, 2004. A copy of the election form is attached. No deferral elections will be honored, and no distributions will be permitted, to the extent that they would cause taxation under Internal Revenue Code Section 409A. (c) Executive Officer/Management Committee Member Exception. If you are a named executive officer of the Company on the Distribution Date (as listed in the proxy statement filed by the Company most recent to the Distribution Date) or are a member of the Company's Management Committee on the Distribution Date, the Distribution Date will automatically be deferred to the close of business on the last day of your employment with the Company. (d) If you are a "specified employee", as defined in Internal Revenue Code section 409A(a)(2)(B)(i) on your deferred distribution date, your distribution will be automatically deferred until the date that is six (6) months after your "separation from service", regardless of your deferred distribution election. Certificates representing the distributed shares of Common Stock will be delivered to the firm maintaining your account as soon as practicable after a Distribution Date occurs. Notwithstanding the foregoing, all vested RSUs will be immediately distributed to you at the close of business on the last day of your employment with the Company, or as soon as practicable thereafter, if you terminate employment with the Company for any reason including death, disability, retirement or Change of Control of the Company. 8. Impact on Benefits. None of the RSUs being credited to your account are deemed to be a replacement for award opportunity under the Company's Shareholder Success Plan (SSP). No portion of the RSU award will be included as compensation for purposes of the H.J. Heinz Company Supplemental Executive Retirement Plan and the H.J. Heinz Company Employees Retirement and Savings Excess Plan, regardless of whether or not the RSUs subsequently vest. 9. Tax Withholding. On the Distribution Date, the Company will withhold a number of shares of Common Stock that is equal, based on the Fair Market Value of the Common Stock on the Distribution Date, to the amount of the federal, state, local, and/or foreign income and/or employment taxes required to be collected or withheld with respect to the distribution. 10. Non-Transferability. Your RSUs may not be sold, transferred, pledged, assigned or otherwise encumbered except by will or the laws of descent and distribution. You may also designate a beneficiary(ies) in the event that you die before a Distribution Date occurs, who shall succeed to all your rights and obligations under this Agreement and the Plan. A beneficiary election form is attached. If you do not designate a beneficiary, your RSUs will pass to the person or persons entitled to receive them under your will. If you shall have failed to make a testamentary disposition of your RSUs in your will or shall have died intestate, your RSUs will pass to the legal representative or representatives of your estate. 11. Employment At-Will. You acknowledge and agree that nothing in this Agreement or the Plan shall confer upon you any right with respect to future awards or continuation of your employment, nor shall it constitute an employment agreement or interfere in any way with your right or the right of the Company to terminate your employment at any time, with or without cause, and with or without notice. 12. Collection and Use of Personal Data. You consent to the collection, use, and processing of personal data (including name, home address and telephone number, identification number and number of RSUs held) by the Company or a third party engaged by the Company for the purpose of implementing, administering and managing the Plan and any other stock option or stock incentive plans of the Company (the "Plans"). You further consent to the release of personal data to such a third party administrator, which, at the option of the Company, may be designated as the exclusive broker in connection with the Plans. You hereby waive any data privacy rights with respect to such data to the extent that receipt, possession, use, retention, or transfer of the data is authorized hereunder. 13. Future Awards. The Plan is discretionary in nature and the Company may modify, cancel or terminate it at any time without prior notice in accordance with the terms of the Plan. While RSUs or other awards may be granted under the Plan on one or more occasions or even on a regular schedule, each grant is a one time event, is not an entitlement to an award of RSUs in the future, and does not create any contractual or other right to receive an award of RSUs, compensation or benefits in lieu of RSUs or any other compensation or benefits in the future. 14. Compliance with Stock Ownership Guidelines. All RSUs granted to you under this Agreement shall be counted as shares of Common Stock that are owned by you for purposes of satisfying the minimum share requirements under the Company's Simplified Stock Ownership Guidelines ("SOG"). Notwithstanding the foregoing, you acknowledge and agree that, with the exception of the number of shares of Common Stock withheld to satisfy income tax withholding requirements pursuant to Paragraph 9 above, the shares of Common Stock represented by the RSUs granted to you hereunder cannot be sold or otherwise transferred, even after the Distribution Date, unless and until you have met SOG's minimum share ownership requirements. The Management Development & Compensation Committee will not approve additional RSU awards to you unless you are in compliance with the terms of this Paragraph 14 and the SOG requirements. 15. Confidentiality. You agree that this RSU award is HIGHLY CONFIDENTIAL. Any disclosure by you of this award or its terms and conditions may result in forfeiture of the award at the discretion of the CEO. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its choice of law provisions. THIS RSU AWARD IS SUBJECT TO YOUR ON-LINE ACCEPTANCE OF THE TERMS AND CONDITIONS OF HEINZ AGREEMENT THROUGH THE FIDELITY WEBSITE. H. J. HEINZ COMPANY By: ______________________________ William R. Johnson Chairman of the Board, President and Chief Executive Officer Accepted: ________________________ Date: ________________________ BENEFICIARY DESIGNATION Upon my death, the vested Restricted Stock Units earned by me under all Restricted Stock Unit Agreements shall be paid to the beneficiary(ies) I designate below. This designation supercedes any prior beneficiary designation I have made regarding my Restricted Stock Unit account balance, and shall remain in effect unless and until I file a subsequent Beneficiary Designation Form with the Company. Primary Beneficiary Designation The vested Restricted Stock Units distributable to me shall be paid, in equal portions unless otherwise indicated, to the following Primary Beneficiary(ies) then surviving:
Name Relationship Date of Birth Social Security Number ____________________ ____________________ ______________________ _______________________ ____________________ ____________________ ______________________ _______________________ ____________________ ____________________ ______________________ _______________________ ____________________ ____________________ ______________________ _______________________
Contingent Beneficiary Designation If none of the above-named Primary Beneficiaries survives me, the vested Restricted Stock Units distributable to me shall be paid, in equal portions unless otherwise indicated, to the following Contingent Beneficiary(ies) then surviving:
Name Relationship Date of Birth Social Security Number ____________________ ____________________ ______________________ _______________________ ____________________ ____________________ ______________________ _______________________ ____________________ ____________________ ______________________ _______________________ ____________________ ____________________ ______________________ _______________________
_______________________________________ ___________________________ Signature Date EX-10.01.30 4 j1304601exv10w01w30.txt EXHIBIT 10(A)(XXX) EXHIBIT 10(a)(xxx) RESTRICTED STOCK UNIT AWARD AND AGREEMENT [DATE] Dear _____________________: H. J. Heinz Company is pleased to confirm that, effective as of ______, you have been granted an award of Restricted Stock Units ("RSUs") for Fiscal Year ___ in accordance with the terms and conditions of the H.J. Heinz Company Fiscal Year 2003 Stock Incentive Plan (the "Plan"). This Award is also made under and governed by the terms and conditions of this letter agreement ("Agreement"), which shall control in the event of a conflict with the terms and conditions of the Plan. For purposes of this Agreement, the "Company" shall refer to H. J. Heinz Company and its Subsidiaries. Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the same defined meanings as in the Plan. 1. RSU Award. You have been awarded a total of ____________ RSUs for Fiscal Year ____. 2. RSU Account. RSUs entitle you to receive a corresponding number of shares of H. J. Heinz Company Common Stock ("Common Stock") in the future, subject to the conditions and restrictions set forth in this Agreement, including, without limitation, the vesting conditions set forth in Paragraph 3 below. Your RSUs will be credited to a separate account established and maintained by the Company on your behalf. Until the Distribution Date (as defined herein), your RSUs are treated as deferred compensation amounts, the value of which is subject to change based on increases or decreases in the market price of the Common Stock. Because the RSUs are not actual shares of Common Stock, you cannot exercise voting rights on them until the Distribution Date. 3. Vesting. You will become vested in the RSUs credited to your account according to the following schedule: ________. 4. Termination of Employment. The termination of your employment with the Company will have the following effect on your RSUs: (a) Retirement, Disability or Involuntary Termination without Cause. If the termination of your employment with the Company is the result of Retirement, Disability, or involuntary termination without Cause, any RSUs granted hereunder that remain unvested as of your Date of Termination shall continue to vest in accordance with the vesting schedule set forth in Paragraphs 3(a) and 3(b) above, subject to the requirements of Paragraph 5 of this Agreement. (b) Death. In the event that you should die while you are continuing to perform services for the Company or following Retirement, any RSUs that remain unvested as of the date of your death shall continue to vest in accordance with the vesting schedule set forth in Paragraphs 3(a) and 3(b) above. (c) Other Termination. If your employment with the Company terminates for any reason other than as set forth in subparagraphs (a), (b) and (c) above, including without limitation any voluntary termination of employment or an involuntary termination for Cause, no further vesting will occur and you will immediately forfeit all of your rights in any RSUs that remain unvested as of your Date of Termination. 5. Non-Solicitation/Confidential Information. In partial consideration for the RSUs granted to you hereunder, you agree that you shall not, during the term of your employment by the Company and for 12 months after termination of your employment, regardless of the reason for the termination, either directly or indirectly, solicit, take away or attempt to solicit or take away any other employee of the Company, either for your own purpose or for any other person or entity. You further agree that you shall not, during the term of your employment by the Company or at any time thereafter, use or disclose the Confidential Information (as defined below) except as directed by, and in furtherance of the business purposes of, the Company. You acknowledge that the breach or threatened breach of this Paragraph 5 will result in irreparable injury to the Company for which there is no adequate remedy at law because, among other things, it is not readily susceptible of proof as to the monetary damages that would result to the Company. You consent to the issuance of any restraining order or preliminary restraining order or injunction with respect to any conduct by you that is directly or indirectly a breach or threatened breach of this Paragraph 5. Any breach by you of the provisions of this Paragraph 5 will, at the option of the Company and in addition to all other rights and remedies available to the Company at law, in equity or under this Agreement, result in the immediate forfeiture of all of your rights in any RSUs that remain unvested as of the date of such breach. "Confidential Information" as used herein shall mean technical or business information not readily available to the public or generally known in the trade, including but not limited to inventions; ideas; improvements; discoveries; developments; formulations; ingredients; recipes; specifications; designs; standards; financial data; sales, marketing and distribution plans, techniques and strategies; customer and supplier information; equipment; mechanisms; manufacturing plans; processing and packaging techniques; trade secrets and other confidential information, knowledge, data and know-how of the Company, whether or not they originated with you, or information which the Company received from third parties under an obligation of confidentiality. 6. Dividends. An amount equal to the dividends payable on the shares of Common Stock represented by the RSUs will be paid directly to you as soon as practicable following the date on which a dividend is declared by the Company. These payments will be calculated based upon the number of RSUs credited to your account as of the date that a dividend is declared. These payments will be reported as income to the applicable taxing authorities, and federal, state, local and/or foreign income and/or employment taxes will be withheld from such payments as and to the extent required by applicable law. 7. Distribution. All RSU distributions will be made in the form of actual shares of Common Stock and will be distributed to you on one of the following dates (each, a "Distribution Date"): (a) Default Distribution Date. Shares of Common Stock representing your RSUs will be distributed to you when the RSUs vest, unless you make an election to defer receipt to a later date, as provided in subparagraph (b) below. (b) Deferred Distribution Date. You may elect to defer distribution of your RSUs to a date subsequent to the Default Distribution Date by providing a written election form to the Company by no later than __________. An election form will be provided to you in the near future. (c) Executive Officer/Management Committee Member Exception. If you are a named executive officer of the Company on the Distribution Date (as listed in the proxy statement filed by the Company most recent to the Distribution Date) or are a member of the Company's Management Committee on the Distribution Date, the Distribution Date will automatically be deferred to the close of business on the last day of your employment with the Company. (d) If you are a "specified employee", as defined in Internal Revenue Code section 409A(a)(2)(B)(i) on your deferred distribution date, your distribution will be automatically deferred until the date that is six (6) months after your "separation from service", regardless of your deferred distribution election. Certificates representing the distributed shares of Common Stock will be delivered to the firm maintaining your account as soon as practicable after a Distribution Date occurs. Notwithstanding the foregoing, all vested RSUs will be immediately distributed to you at the close of business on the last day of your employment with the Company, or as soon as practicable thereafter, if you terminate employment with the Company for any reason including death, disability, retirement or Change of Control of the Company. 8. Impact on Benefits. To the extent that your RSU Award replaces a cash Annual Incentive Plan (AIP) award opportunity, the face value of the award on the date of the grant (the number of RSUs multiplied by the closing price, as listed on the New York Stock Exchange, of the shares of Common Stock represented by the RSUs on the date of the grant) will be included as compensation for the year of the grant for purposes of the H.J. Heinz Company Supplemental Executive Retirement Plan and the H.J. Heinz Company Employees Retirement and Savings Excess Plan, regardless of whether or not the RSUs subsequently vest. 9. Tax Withholding. On the Distribution Date, the Company will withhold a number of shares of Common Stock that is equal, based on the Fair Market Value of the Common Stock on the Distribution Date, to the amount of the federal, state, local, and/or foreign income and/or employment taxes required to be collected or withheld with respect to the distribution. 10. Non-Transferability. Your RSUs may not be sold, transferred, pledged, assigned or otherwise encumbered except by will or the laws of descent and distribution. You may also designate a beneficiary(ies) in the event that you die before a Distribution Date occurs, who shall succeed to all your rights and obligations under this Agreement and the Plan. A beneficiary election form is attached. If you do not designate a beneficiary, your RSUs will pass to the person or persons entitled to receive them under your will. If you shall have failed to make a testamentary disposition of your RSUs in your will or shall have died intestate, your RSUs will pass to the legal representative or representatives of your estate. 11. Employment At-Will. You acknowledge and agree that nothing in this Agreement or the Plan shall confer upon you any right with respect to future awards or continuation of your employment, nor shall it constitute an employment agreement or interfere in any way with your right or the right of Company to terminate your employment at any time, with or without cause, and with or without notice. 12. Collection and Use of Personal Data. You consent to the collection, use, and processing of personal data (including name, home address and telephone number, identification number and number of RSUs held) by the Company or a third party engaged by the Company for the purpose of implementing, administering and managing the Plan and any other stock option or stock incentive plans of the Company (the "Plans"). You further consent to the release of personal data to such a third party administrator, which, at the option of the Company, may be designated as the exclusive broker in connection with the Plans. You hereby waive any data privacy rights with respect to such data to the extent that receipt, possession, use, retention, or transfer of the data is authorized hereunder. 13. Future Awards. The Plan is discretionary in nature and the Company may modify, cancel or terminate it at any time without prior notice in accordance with the terms of the Plan. While RSUs or other awards may be granted under the Plan on one or more occasions or even on a regular schedule, each grant is a one time event, is not an entitlement to an award of RSUs in the future, and does not create any contractual or other right to receive an award of RSUs, compensation or benefits in lieu of RSUs or any other compensation or benefits in the future. 14. Compliance with Stock Ownership Guidelines. All RSUs granted to you under this Agreement shall be counted as shares of Common Stock that are owned by you for purposes of satisfying the minimum share requirements under the Company's Simplified Stock Ownership Guidelines ("SOG"). Notwithstanding the foregoing, you acknowledge and agree that, with the exception of the number of shares of Common Stock withheld to satisfy income tax withholding requirements pursuant to Paragraph 10 above, the shares of Common Stock represented by the RSUs granted to you hereunder cannot be sold or otherwise transferred, even after the Distribution Date, unless and until you have met SOG's minimum share ownership requirements. The Management Development & Compensation Committee will not approve additional RSU awards to you unless you are in compliance with the terms of this Paragraph 15 and the SOG requirements. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its choice of law provisions. THIS RSU AWARD IS SUBJECT TO YOUR ON-LINE ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AGREEMENT THROUGH THE FIDELITY WEBSITE. H. J. HEINZ COMPANY By: ________________________________ William R. Johnson Chairman of the Board,President and Chief Executive Officer Accepted: __________________________ Date: _____________________________ EX-10.01.31 5 j1304601exv10w01w31.txt EXHIBIT 10(A)(XXXI) EXHIBIT 10(a)(xxxi) RESTRICTED STOCK UNIT AWARD AND AGREEMENT [DATE] Dear _____________________: H. J. Heinz Company is pleased to confirm that, effective as of ______, you have been granted an award of Restricted Stock Units ("RSUs") for Fiscal Year ____ in accordance with the terms and conditions of the H.J. Heinz Company Fiscal Year 2003 Stock Incentive Plan (the "Plan"). This Award is also made under and governed by the terms and conditions of this letter agreement ("Agreement"), which shall control in the event of a conflict with the terms and conditions of the Plan. For purposes of this Agreement, the "Company" shall refer to H. J. Heinz Company and its Subsidiaries. Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the same defined meanings as in the Plan. 1. RSU Award. You have been awarded a total of ____________ RSUs for Fiscal Year ____. 2. RSU Account. RSUs entitle you to receive a corresponding number of shares of H. J. Heinz Company Common Stock ("Common Stock") in the future, subject to the conditions and restrictions set forth in this Agreement, including, without limitation, the vesting conditions set forth in Paragraph 3 below. Your RSUs will be credited to a separate account established and maintained by the Company on your behalf. Until the Distribution Date (as defined herein), your RSUs are treated as deferred compensation amounts, the value of which is subject to change based on increases or decreases in the market price of the Common Stock. Because the RSUs are not actual shares of Common Stock, you cannot exercise voting rights on them until the Distribution Date. 3. Vesting. You will become vested in the RSUs credited to your account according to the following schedule: _________. 4. Termination of Employment. The termination of your employment with the Company will have the following effect on your RSUs: (a) Retirement, Disability or Involuntary Termination without Cause. If the termination of your employment with the Company is the result of Retirement, Disability, or involuntary termination without Cause, any RSUs granted hereunder that remain unvested as of your Date of Termination shall continue to vest in accordance with the vesting schedule set forth in Paragraphs 3(a) and 3(b) above, subject to the requirements of Paragraph 5 of this Agreement. (b) Death. In the event that you should die while you are continuing to perform services for the Company or following Retirement, any RSUs that remain unvested as of the date of your death shall continue to vest in accordance with the vesting schedule set forth in Paragraphs 3(a) and 3(b) above. (c) Other Termination. If your employment with the Company terminates for any reason other than as set forth in subparagraphs (a), (b) and (c) above, including without limitation any voluntary termination of employment or an involuntary termination for Cause, no further vesting will occur and you will immediately forfeit all of your rights in any RSUs that remain unvested as of your Date of Termination. 5. Non-Solicitation/Confidential Information. In partial consideration for the RSUs granted to you hereunder, you agree that you shall not, during the term of your employment by the Company and for 12 months after termination of your employment, regardless of the reason for the termination, either directly or indirectly, solicit, take away or attempt to solicit or take away any other employee of the Company, either for your own purpose or for any other person or entity. You further agree that you shall not, during the term of your employment by the Company or at any time thereafter, use or disclose the Confidential Information (as defined below) except as directed by, and in furtherance of the business purposes of, the Company. You acknowledge that the breach or threatened breach of this Paragraph 5 will result in irreparable injury to the Company for which there is no adequate remedy at law because, among other things, it is not readily susceptible of proof as to the monetary damages that would result to the Company. You consent to the issuance of any restraining order or preliminary restraining order or injunction with respect to any conduct by you that is directly or indirectly a breach or threatened breach of this Paragraph 5. Any breach by you of the provisions of this Paragraph 5 will, at the option of the Company and in addition to all other rights and remedies available to the Company at law, in equity or under this Agreement, result in the immediate forfeiture of all of your rights in any RSUs that remain unvested as of the date of such breach. "Confidential Information" as used herein shall mean technical or business information not readily available to the public or generally known in the trade, including but not limited to inventions; ideas; improvements; discoveries; developments; formulations; ingredients; recipes; specifications; designs; standards; financial data; sales, marketing and distribution plans, techniques and strategies; customer and supplier information; equipment; mechanisms; manufacturing plans; processing and packaging techniques; trade secrets and other confidential information, knowledge, data and know-how of the Company, whether or not they originated with you, or information which the Company received from third parties under an obligation of confidentiality. 6. Dividends. An amount equal to the dividends payable on the shares of Common Stock represented by the RSUs will be paid directly to you as soon as practicable following the date on which a dividend is declared by the Company. These payments will be calculated based upon the number of RSUs credited to your account as of the date that a dividend is declared. These payments will be reported as income to the applicable taxing authorities, and federal, state, local and/or foreign income and/or employment taxes will be withheld from such payments as and to the extent required by applicable law. 7. Distribution. All RSU distributions will be made in the form of actual shares of Common Stock and will be distributed to you on one of the following dates (each, a "Distribution Date"): (a) Default Distribution Date. Shares of Common Stock representing your RSUs will be distributed to you when the RSUs vest, unless the Distribution Date is automatically deferred as provided in subparagraph (b) below. (b) Executive Officer/Management Committee Member Exception. If you are a named executive officer of the Company on the Distribution Date (as listed in the proxy statement filed by the Company most recent to the Distribution Date) or are a member of the Company's Management Committee on the Distribution Date, the Distribution Date will automatically be deferred to the close of business on the last day of your employment with the Company. Certificates representing the distributed shares of Common Stock will be delivered to the firm maintaining your account as soon as practicable after a Distribution Date occurs. Notwithstanding the foregoing, all vested RSUs will be immediately distributed to you at the close of business on the last day of your employment with the Company, or as soon as practicable thereafter, if you terminate employment with the Company for any reason including death, disability, retirement or Change of Control of the Company. 8. Tax Withholding. On the Distribution Date, the Company will withhold a number of shares of Common Stock that is equal, based on the Fair Market Value of the Common Stock on the Distribution Date, to the amount of the federal, state, local, and/or foreign income and/or employment taxes required to be collected or withheld with respect to the distribution. 9. Non-Transferability. Your RSUs may not be sold, transferred, pledged, assigned or otherwise encumbered except by will or the laws of descent and distribution. You may also designate a beneficiary(ies) in the event that you die before a Distribution Date occurs, who shall succeed to all your rights and obligations under this Agreement and the Plan. A beneficiary election form is attached. If you do not designate a beneficiary, your RSUs will pass to the person or persons entitled to receive them under your will. If you shall have failed to make a testamentary disposition of your RSUs in your will or shall have died intestate, your RSUs will pass to the legal representative or representatives of your estate. 10. Employment Rights. You acknowledge and agree that nothing in this Agreement or the Plan shall confer upon you any right with respect to future awards or continuation of your employment, nor shall it constitute an employment agreement or interfere in any way with your right or the right of Company to terminate your employment at any time, with or without cause, and with or without notice, subject to the terms of any written employment contract that you may have with the Company that is signed by both you and an authorized representative of the Company. 11. Collection and Use of Personal Data. You consent to the collection, use, and processing of personal data (including name, home address and telephone number, identification number and number of RSUs held) by the Company or a third party engaged by the Company for the purpose of implementing, administering and managing the Plan and any other stock option or stock incentive plans of the Company (the "Plans"). You further consent to the release of personal data (a) to such a third party administrator, which, at the option of the Company, may be designated as the exclusive broker in connection with the Plans, or (b) to any affiliated company within the definition of the Company, wherever located. You hereby waive any data privacy rights with respect to such data to the extent that receipt, possession, use, retention, or transfer of the data is authorized hereunder. 12. Future Awards. The Plan is discretionary in nature and the Company may modify, cancel or terminate it at any time without prior notice in accordance with the terms of the Plan. While RSUs or other awards may be granted under the Plan on one or more occasions or even on a regular schedule, each grant is a one time event, is not an entitlement to an award of RSUs in the future, and does not create any contractual or other right to receive an award of RSUs, compensation or benefits in lieu of RSUs or any other compensation or benefits in the future. 13. Compliance with Stock Ownership Guidelines. All RSUs granted to you under this Agreement shall be counted as shares of Common Stock that are owned by you for purposes of satisfying the minimum share requirements under the Company's Simplified Stock Ownership Guidelines ("SOG"). Notwithstanding the foregoing, you acknowledge and agree that, with the exception of the number of shares of Common Stock withheld to satisfy income tax withholding requirements pursuant to Paragraph 10 above, the shares of Common Stock represented by the RSUs granted to you hereunder cannot be sold or otherwise transferred, even after the Distribution Date, unless and until you have met SOG's minimum share ownership requirements. The Management Development & Compensation Committee will not approve additional RSU awards to you unless you are in compliance with the terms of this Paragraph 15 and the SOG requirements. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its choice of law provisions. THIS RSU AWARD IS SUBJECT TO YOUR ON-LINE ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AGREEMENT THROUGH THE FIDELITY WEBSITE. H. J. HEINZ COMPANY By: ________________________________ William R. Johnson Chairman of the Board,President and Chief Executive Officer Accepted: __________________________ Date: ______________________________ EX-10.01.32 6 j1304601exv10w01w32.txt EXHIBIT 10.01.32 EXHIBIT 10(a)(xxxii) AMENDMENT NUMBER ONE TO THE H. J. HEINZ COMPANY FISCAL YEAR 2003 STOCK INCENTIVE PLAN THIS AMENDMENT Number One to the H. J. Heinz Company Fiscal Year 2003 Stock Incentive Plan (the "Plan") is made by H. J. Heinz Company, a Pennsylvania corporation (the "Company"), effective as of May 17, 2005. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. WHEREAS, Section 15 of the Plan provides that the Board of Directors of the Company (the "Board of Directors") may amend the Plan as it shall deem advisable, subject to certain limited exceptions which require shareholder approval; and WHEREAS, the Board of Directors has determined that it is in the best interests of the Company to amend those provisions of the Plan that address the treatment of Awards in connection with a Change in Control, effective for Awards granted under the Plan on or after the effective date of this Amendment, and that this Amendment shall not require the approval of the shareholders of the Company. NOW, THEREFORE, the Plan is hereby amended as follows: I. Section 3 of the Plan shall be amended as follows: A. by adding the following phrase in the definition of "Cause" after the phrase "as determined by the Committee": "; provided, that, if a Participant is a party to a Severance Protection Agreement with the Company, and such Participant's employment with the Company is terminated in a manner such that the Participant is entitled to any payments or benefits (including accrued payments or benefits) under the terms of the Severance Protection Agreement, then "Cause" for purposes of this Plan shall have the meaning set forth in such Severance Protection Agreement"; B. by adding the following sentence to the end of the definition of "Disability": "Notwithstanding the foregoing, if a Participant is a party to a Severance Protection Agreement with the Company, and such Participant's employment with the Company is terminated in a manner such that the Participant is entitled to any payments or benefits (including accrued payments or benefits) under the terms of the Severance Protection Agreement, then "Disability" for purposes of this Plan shall have the meaning set forth in such Severance Protection Agreement."; and C. by adding the following as a definition for "Good Reason": "Good Reason" means the occurrence after a Change in Control of any of the events or conditions described in the following subsections (l) through (5): (1) a change in the Participant's title, position, duties or responsibilities (including reporting responsibilities) which represents an adverse change from the Participant's title, position, duties or responsibilities as in effect at any time within 90 days preceding the date of the Change in Control or at any time thereafter; or any removal of the Participant from or failure to reappoint or reelect him or her to any one of such offices or positions, except in connection with the termination of the Participant's employment for Disability, Cause, as a result of the Participant's death or by the Participant other than for Good Reason; (2) a reduction in the Participant's base salary or any failure to pay the Participant any compensation or benefits to which the Participant is entitled within five days after the date due; (3) the Participant being required by the Company to perform the Participant's regular duties at any place outside a 30-mile radius from the place where the Participant's regular duties were performed immediately before the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements in effect immediately before the Change in Control; (4) the failure by the Company to provide the Participant with compensation and benefits, in the aggregate, at least equal (in opportunities) to those provided for under the compensation and employee benefit plans, programs and practices in which the Participant was participating at any time within 90 days preceding the date of a Change in Control or at any time thereafter; or (5) for any Participant who is a party to a Severance Protection Agreement with the Company, any additional event or condition that constitutes "Good Reason" under such Severance Protection Agreement. Any event or condition described in subsections 1 through 5, above, which occurs before a Change in Control but which the Participant reasonably demonstrates (a) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (b) otherwise arose in connection with, or in anticipation of, a Change in Control which actually occurs, shall constitute Good Reason for purposes of this Plan notwithstanding that it occurred before the Change in Control. II. Section 8(B)(2) of the Plan shall be amended by: A. adding the following language at the beginning of such section, and 2 deleting the word "Each" from the existing language: "With respect to any Option or Stock Appreciation Right granted on or prior to May 16, 2005, each"; and B. adding the following sentence at the end of Section 8(B)(2): With respect to any Option or Stock Appreciation Right granted on or after May 17, 2005, such Option or Stock Appreciation Right shall become immediately vested and exercisable as to 100% of the shares of Common Stock subject to the Option or Stock Appreciation Right upon (i) the occurrence of a Change in Control if such Option or Stock Appreciation Right is not assumed, substituted or replaced by a Surviving Corporation or other successor to the business of the Company with an award of equivalent value, or (ii) if clause (i) does not apply, the termination of the Participant's employment with or services for the Company within 24 months following a Change in Control if such termination is (a) by the Company for reasons other than Cause or (b) by the Participant for Good Reason, but, in either case of clause (i) or (ii), only to the extent the Option or Stock Appreciation Right has not otherwise been terminated and canceled or become exercisable as of such date. III. Section 9(B) of the Plan shall be amended by: A. Adding the following language before the existing language in such section: "with respect to Awards granted on or prior to May 16, 2005,"; and B. deleting the "." at the end of Section 9(B) and inserting the following in lieu thereof: "; and". IV. A new Section 9(C) shall be added to the Plan and shall provide as follows: with respect to any Award granted on or after May 17, 2005, unless otherwise provided by the Committee in any individual Award Agreement at the time of grant, upon (i) the occurrence of a Change in Control if such Award is not assumed, substituted or replaced by a Surviving Corporation or other successor to the business of the Company with an award of equivalent value, or (ii) if clause (i) does not apply, the termination of the Participant's employment with or services for the Company within 24 months following a Change in Control if such termination is (a) by the Company for reasons other than Cause or (b) by the Participant for Good Reason, but, in either case of clause (i) or (ii), only to the extent the Award has not otherwise been terminated and canceled as of such date. V. Except for the foregoing amendments set forth in Sections I through IV above, all of the terms and conditions of the Plan shall remain in full force and effect. 3 EX-10.01.33 7 j1304601exv10w01w33.txt EXHIBIT 10.01.33 EXHIBIT 10(a)(xxxiii) AMENDMENT NUMBER ONE TO THE H. J. HEINZ COMPANY 2000 STOCK OPTION PLAN THIS AMENDMENT Number One to the H. J. Heinz Company 2000 Stock Option Plan (the "Plan") is made by H. J. Heinz Company, a Pennsylvania corporation (the "Company"), effective as of May 17, 2005. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. WHEREAS, Section 12 of the Plan provides that the Board of Directors of the Company (the "Board of Directors") may amend the Plan as it shall deem advisable, in accordance with the recommendation of the Management Development and Compensation Committee of the Board of Directors (the "Committee"), and subject to certain limited exceptions which require shareholder approval; and WHEREAS, the Committee has recommended to the Board of Directors, and the Board of Directors has determined that it is in the best interests of the Company to amend those provisions of the Plan that address the treatment of Options in connection with a Change in Control, effective for Options granted under the Plan on or after the effective date of this Amendment, and that this Amendment shall not require the approval of the shareholders of the Company. NOW, THEREFORE, the Plan is hereby amended as follows: I. Section 1 of the Plan shall be amended as follows: A. by adding the following definition for "Cause" as a new Section 1(b): "Cause" shall mean an act of dishonesty, moral turpitude or an intentional or gross negligent act detrimental to the best interests of the Company or a Subsidiary; provided, that, if an Optionee is a party to a Severance Protection Agreement with the Company, and such Optionee's employment with the Company is terminated in a manner such that the Optionee is entitled to any payments or benefits (including accrued payments or benefits) under the terms of the Severance Protection Agreement, then "Cause" for purposes of this Plan shall have the meaning set forth in such Severance Protection Agreement. B. by adding the following definition for "Good Reason" as a new Section 1(l): "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in the following subsections (l) through (5): (1) a change in the Optionee's title, position, duties or responsibilities (including reporting responsibilities) which represents an adverse change from the Optionee's title, position, duties or responsibilities as in effect at any time within 90 days preceding the date of the Change in Control or at any time thereafter; or any removal of the Optionee from or failure to reappoint or reelect him or her to any one of such offices or positions, except in connection with a disability termination (as described in Section 8(D)(2) of the Plan) or a termination of the Optionee's employment for Cause, as a result of the Optionee's death or by the Optionee other than for Good Reason; (2) a reduction in the Optionee's base salary or any failure to pay the Optionee any compensation or benefits to which the Optionee is entitled within five days after the date due; (3) the Optionee being required by the Company to perform the Optionee's regular duties at any place outside a 30-mile radius from the place where the Optionee's regular duties were performed immediately before the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements in effect immediately before the Change in Control; (4) the failure by the Company to provide the Optionee with compensation and benefits, in the aggregate, at least equal (in opportunities) to those provided for under the compensation and employee benefit plans, programs and practices in which the Optionee was participating at any time within 90 days preceding the date of a Change in Control or at any time thereafter; or (5) for any Optionee who is a party to a Severance Protection Agreement with the Company, any additional event or condition that constitutes "Good Reason" under such Severance Protection Agreement. Any event or condition described in subsections 1 through 5, above, which occurs before a Change in Control but which the Participant reasonably demonstrates (a) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (b) otherwise arose in connection with, or in anticipation of, a Change in Control which actually occurs, shall constitute Good Reason for purposes of this Plan notwithstanding that it occurred before the Change in Control. 2 C. by re-lettering Sections 1(b) through 1(j) as Sections 1(c) through 1(k), and Sections 1(k) through 1(t) as Sections 1(m) through 1(v), respectively. II. Section 8(C)(2) of the Plan shall be amended as follows: A. by adding the following language at the beginning of such section, and deleting the word "All" from the existing language: "With respect to any Option granted on or prior to May 16, 2005, all"; and B. adding the following sentence at the end of Section 8(C)(2): With respect to any Option granted on or after May 17, 2005, unless otherwise provided in any Stock Option Agreement, each Option shall become immediately vested and exercisable as to 100% of the shares of Common Stock subject to the Option upon (i) the occurrence of a Change in Control if such Option is not assumed, substituted or replaced by a Surviving Corporation or other successor to the business of the Company with an award of equivalent value, or (ii) if clause (i) does not apply, the termination of an Optionee's employment with or services for the Company within 24 months following a Change in Control if such termination is (a) by the Company for reasons other than Cause or (b) by the Optionee for Good Reason, but, in either case of clause (i) or (ii), only to the extent the Option has not otherwise been terminated and canceled or become exercisable as of such date. III. Section 8(D) of the Plan shall be amended as follows: A. Section 8(D)(1) of the Plan shall be amended by (a) capitalizing the initial "C" in "cause" the first time it is used in the subsection, (b) deleting the parenthetical beginning with "(for the purpose of this Plan. . .)" in its entirety, and (c) inserting the words "the Plan and" before "applicable agreements" and "such agreements" in the proviso at the end of such subsection; and B. Section 8(D)(2) of the Plan shall be amended by inserting the following phrase after the "If" that appears immediately after the Section Heading "Disability Termination": "(i) an Optionee is a party to a Severance Protection Agreement with the Company, and such Participant's employment with the Company is terminated in a manner such that the Participant is entitled to payments or benefits under the Severance Protection Agreement due to a termination due to "Disability" within the meaning of such Severance Protection Agreement or (ii) in all other cases, ". IV. Except for the foregoing amendments set forth in Sections I through III above, all of the terms and conditions of the Plan shall remain in full force and effect. 3 EX-10.01.34 8 j1304601exv10w01w34.txt EXHIBIT 10.01.34 EXHIBIT 10(a)(xxxiv) AMENDMENT NUMBER ONE TO THE H. J. HEINZ COMPANY 1996 STOCK OPTION PLAN THIS AMENDMENT Number One to the H. J. Heinz Company 1996 Stock Option Plan (the "Plan") is made by H. J. Heinz Company, a Pennsylvania corporation (the "Company"), effective as of May 17, 2005. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. WHEREAS, Section 13 of the Plan provides that the Board of Directors of the Company (the "Board of Directors") may amend the Plan as it shall deem advisable, in accordance with the recommendation of the Management Development and Compensation Committee of the Board of Directors (the "Committee"), and subject to certain limited exceptions which require shareholder approval; and WHEREAS, the Committee has recommended to the Board of Directors, and the Board of Directors has determined that it is in the best interests of the Company to amend those provisions of the Plan that address the treatment of Options in connection with a Change in Control, effective for Options granted under the Plan on or after the effective date of this Amendment, and that such Amendment shall not require the approval of the shareholders of the Company. NOW, THEREFORE, the Plan is hereby amended as follows: I. Section 1 of the Plan shall be amended by: A. adding the following definition for "Cause" as a new Section 1(b): "Cause" shall mean an act of dishonesty, moral turpitude or an intentional or gross negligent act detrimental to the best interests of the Company or a Subsidiary; provided, that, if an Optionee is a party to a Severance Protection Agreement with the Company, and such Optionee's employment with the Company is terminated in a manner such that the Optionee is entitled to any payments or benefits (including accrued payments or benefits) under the terms of the Severance Protection Agreement, then "Cause" for purposes of this Plan shall have the meaning set forth in such Severance Protection Agreement B. by adding the following definition for "Good Reason" as a new Section 1(j): "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in the following subsections (l) through (5): (1) a change in the Optionee's title, position, duties or responsibilities (including reporting responsibilities) which represents an adverse change from the Optionee's title, position, duties or responsibilities as in effect at any time within 90 days preceding the date of the Change in Control or at any time thereafter; or any removal of the Optionee from or failure to reappoint or reelect him or her to any one of such offices or positions, except in connection with a disability termination (as described in Section 9(D)(2) of the Plan) or a termination of the Optionee's employment for Cause, as a result of the Optionee's death or by the Optionee other than for Good Reason; (2) a reduction in the Optionee's base salary or any failure to pay the Optionee any compensation or benefits to which the Optionee is entitled within five days after the date due; (3) the Optionee being required by the Company to perform the Optionee's regular duties at any place outside a 30-mile radius from the place where the Optionee's regular duties were performed immediately before the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements in effect immediately before the Change in Control; (4) the failure by the Company to provide the Optionee with compensation and benefits, in the aggregate, at least equal (in opportunities) to those provided for under the compensation and employee benefit plans, programs and practices in which the Optionee was participating at any time within 90 days preceding the date of a Change in Control or at any time thereafter; or (5) for any Optionee who is a party to a Severance Protection Agreement with the Company, any additional event or condition that constitutes "Good Reason" under such Severance Protection Agreement. Any event or condition described in subsections 1 through 5, above, which occurs before a Change in Control but which the Participant reasonably demonstrates (a) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (b) otherwise arose in connection with, or in anticipation of, a Change in Control which actually occurs, shall constitute Good Reason for purposes of this Plan notwithstanding that it occurred before the Change in Control 2 C. by re-lettering Sections 1(b) through 1(h) as Sections 1(c) through 1(i), and Sections 1(i) through 1(t) as Sections 1(k) through 1(v), respectively; and D. by deleting from the definition of "Change in Control" in re-lettered Section 1(c) the phrase "the events described in Section 8(C)(1) hereof" and inserting in lieu thereof "the occurrence of any of the events set forth in clauses (1), (2) and (3) of this subparagraph 1(c)" and adding as clauses (1), (2) and (3) the text that is currently in clauses (a), (b) and (c) of Section 8(C)(1), respectively. II. Section 8(C)(1) of the Plan shall be deleted in its entirety and the subsequent Sections 8(C)(2) and 8(C)(3) shall be re-numbered as Sections 8(C)(1) and 8(C)(2), respectively. III. Section 8(D) of the Plan shall be amended as follows: A. by adding the following language at the beginning of such section, and deleting the word "All" from the existing language: "With respect to any Option granted on or prior to May 16, 2005, all"; and B. adding the following sentence at the end of Section 8(D): With respect to any Option granted on or after May 17, 2005, unless otherwise provided in any Stock Option Agreement, each Option shall become immediately vested and exercisable as to 100% of the shares of Common Stock subject to the Option upon (i) the occurrence of a Change in Control if such Option is not assumed, substituted or replaced by a Surviving Corporation or other successor to the business of the Company with an award of equivalent value, or (ii) if clause (i) does not apply, the termination of an Optionee's employment with or services for the Company within 24 months following a Change in Control if such termination is (a) by the Company for reasons other than Cause or (b) by the Optionee for Good Reason, but, in either case of clause (i) or (ii), only to the extent the Option has not otherwise been terminated and canceled or become exercisable as of such date. IV. Section 9 of the Plan shall be amended as follows: A. Section 9(D)(1) of the Plan shall be amended by (a) capitalizing the initial "C" in "cause" the first time it is used in the subsection, (b) deleting the parenthetical beginning with "(for the purpose of this Plan. . .)" in its entirety, and (c) inserting the words "the Plan and" before "applicable agreements" and "such agreements" in the proviso at the end of such subsection; and B. Section 9(D)(2) of the Plan shall be amended by inserting the following phrase after the "If" that appears immediately after the Section Heading "Disability Termination": "(i) an Optionee is a party to a Severance Protection Agreement with the Company, and such Participant's employment with the Company is terminated in a manner such that the Participant is entitled to payments or benefits under the Severance Protection Agreement due to a termination due to "Disability" within the meaning of such Severance Protection Agreement or (ii) in all other cases, ". V. Except for the foregoing amendments set forth in Sections I through IV above, all of the terms and conditions of the Plan shall remain in full force and effect. 3 EX-10.01.35 9 j1304601exv10w01w35.txt EXHIBIT 10.01.35 EXHIBIT 10(a)(xxxv) SEVERANCE PROTECTION AGREEMENT THIS AGREEMENT made as of the __ day of ____ 2005 by and between the "Company" (as hereinafter defined) and ___________ (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive's employment is terminated as a result of, or in connection with, a Change in Control. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. Subject to the remaining provisions of this Section 1, this Agreement shall commence as of the date of this Agreement and shall continue in effect until the first anniversary of such date; provided, however, that commencing on such anniversary and on each anniversary thereafter, the term of this Agreement shall automatically be extended for one (1) year unless either the Company or the Executive shall have given written notice to the other at least ninety (90) days prior thereto that the term of this Agreement shall not be so extended; and provided, further, however, that notwithstanding any such notice by the Company not to extend, if a Change in Control occurs during the term of this Agreement, the term of this Agreement shall not expire before the expiration of 24 months after the occurrence of a Change in Control. Notwithstanding the foregoing, this Agreement shall expire and be of no further force and effect in the event of any termination of employment that occurs prior to a Change in Control; provided, that, in the event that a Change in Control actually occurs following such termination of employment, nothing in this Section 1 shall prohibit the Executive from asserting that his or her termination of employment was for Good Reason, consistent with the terms of this Agreement. 2. Definitions. 2.1. Accrued Compensation. For purposes of this Agreement, "Accrued Compensation" shall mean an amount which shall include all amounts earned or accrued through the "Termination Date" (as hereinafter defined) but not paid as of the Termination Date including (i) base salary, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, (iii) vacation pay, and (iv) bonuses and incentive compensation (other than the "Pro Rata Bonus" (as hereinafter defined)). 2.2. Base Amount. For purposes of this Agreement, "Base Amount" shall mean the greater of the Executive's annual base salary (a) at the rate in effect on the Termination Date or (b) at the highest rate in effect at any time during the ninety (90) day period before the Change in Control, and shall include all amounts of the Executive's base salary that are deferred under the qualified and non-qualified employee benefit plans of the Company or any other agreement or arrangement. 2.3. Bonus Amount. For purposes of this Agreement, "Bonus Amount" shall mean the average of the annual [cash] bonuses [(including both cash bonus and any cash bonus foregone by the Executive in exchange for restricted stock units of the Company)] paid or payable during the three full fiscal years ended before the Termination Date or, if greater, the three full fiscal years ended before the Change in Control (or, in each case, such lesser period for which [cash] annual bonuses [(including both cash bonus and any cash bonus foregone by the Executive in exchange for restricted stock units of the Company)] were paid or payable to the 2 Executive); provided, that, in the event the Executive has not been employed by the Company for a full fiscal year, the "Bonus Amount" shall equal the Executive's target annual [cash] bonus during the year of termination of employment. 2.4. Cause. For purposes of this Agreement, a termination of employment is for "Cause" if (a) the Executive has been convicted of, or has entered a plea of no lo contendere to, (i) a crime constituting a felony under the laws of the United States or any state thereof or (ii) a misdemeanor involving moral turpitude, or (b) the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board that the Executive (i) intentionally and continually failed substantially to perform the Executive's reasonably assigned duties with the Company (other than a failure resulting from the Executive's incapacity due to physical or mental illness or from the Executive's assignment of duties that would constitute "Good Reason" as hereinafter defined) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Executive by the Company specifying the manner in which the Executive has failed substantially to perform, or (ii) intentionally engaged in conduct which is demonstrably and materially injurious to the Company; provided, however, that no termination of the Executive's employment shall be for Cause as set forth in clause (ii) above until (x) there shall have been delivered to the Executive a copy of a written notice setting forth that the Executive was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (y) the Executive shall have been provided an opportunity to be heard in person by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, nor failure to act, on the Executive's part, shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Company. 2.5. Change in Control. For purposes of this Agreement: (a) A "Change in Control" shall mean any of the following events: (1) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act 3 of 1934, as amended (the "1934 Act")) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary"), (ii) the Company or any Subsidiary, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined). (2) The individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Consent" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; (3) A merger, consolidation or reorganization involving the Company or a subsidiary of the Company, unless (i) the Voting Securities of the Company, immediately before such merger, consolidation or reorganization, continue immediately following such merger, consolidation or reorganization to represent, either 4 by remaining outstanding or by being converted into voting securities of the surviving corporation resulting from such merger, consolidation or reorganization or its parent (the "Surviving Corporation"), at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the Surviving Corporation; (ii) the individuals who were members of the Incumbent Board immediately before the execution of the agreement providing for such merger, consolidation or reorganization constitute more than one-half of the members of the board of directors of the Surviving Corporation; and (iii) no person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately before such merger, consolidation or reorganization had Beneficial Ownership of fifteen percent (15%) or more of the then outstanding Voting Securities) has Beneficial Ownership of fifteen percent (15%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities. (a transaction described in clauses (i) through (iii) shall herein be referred to as a "Non-Control Transaction"); (4) A complete liquidation or dissolution of the Company; or (5) The consummation of a sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). (b) Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned 5 by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (c) Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment is terminated before a Change in Control and the Executive reasonably demonstrates that such termination (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control (a "Third Party") or (2) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes of this Agreement, the date of a Change in Control with respect to the Executive shall mean the date immediately before the date of such termination of the Executive's employment. 2.6. Company. For purposes of this Agreement, the "Company" shall mean H. J. Heinz Company, a Pennsylvania corporation with its principal offices at Pittsburgh, Pennsylvania, and shall include its "Successors and Assigns" (as hereinafter defined). 2.7. Disability. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to substantially perform the Executive's duties with the Company for a period of one hundred eighty (180) consecutive days and the Executive has not returned to the Executive's full time employment before the Termination Date as stated in the "Notice of Termination" (as hereinafter defined). 2.8. Good Reason. For purposes of this Agreement: (a) "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in subsections (l) through (7) hereof: (1) a change in the Executive's title, position, duties or responsibilities (including reporting responsibilities) which represents an adverse change from the Executive's title, position, duties or responsibilities as in effect at any time within ninety (90) 6 days preceding the date of a Change in Control or at any time thereafter; or any removal of the Executive from or failure to reappoint or reelect him to any one of such offices or positions, except in connection with the termination of the Executive's employment for Disability, Cause, as a result of the Executive's death or by the Executive other than for Good Reason; (2) a reduction in the Executive's base salary or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within five (5) days of the date due; (3) the Executive being required by the Company to perform the Executive's regular duties at any place outside a 30-mile radius from the place where the Executive's regular duties were performed immediately before the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements in effect immediately before the Change in Control; (4) the failure by the Company to provide the Executive with compensation and benefits, in the aggregate, at least equal (in opportunities) to those provided for under the compensation and employee benefit plans, programs and practices in which the Executive was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, which may include, but not be limited to, the plans listed on Appendix A; (5) any material breach by the Company of any provision of this Agreement; (6) any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 2.4; or (7) the failure of the Company to obtain an agreement, satisfactory to the Executive, from any Successors and Assigns to assume and agree to perform this Agreement, as contemplated in Section 7 hereof. 7 (b) Any event or condition described in this Section 2.8(a)(1) through (7) which occurs before a Change in Control but which the Executive reasonably demonstrates (1) was at the request of a Third Party, or (2) otherwise arose in connection with, or in anticipation of, a Change in Control which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred before the Change in Control. (c) The Executive's right to terminate the Executive's employment pursuant to this Section 2.8 shall not be affected by the Executive's incapacity due to physical or mental illness. 2.9. Notice of Termination. For purposes of this Agreement, following a Change in Control, "Notice of Termination" shall mean a written notice of termination from the Company of the Executive's employment which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 2.10. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied by a fraction, the numerator of which is the number of days in the fiscal year through the Termination Date and the denominator of which is 365. 2.11. Successors and Assigns. For purposes of this Agreement, "Successor and Assigns" shall mean a corporation or other entity which has acquired or succeeded to all or substantially all or the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. 2.12. Termination Date. For purposes of this Agreement, "Termination Date" shall mean in the case of the Executive's death, the Executive's date of death, in the case of Good Reason, the last day of the Executive's employment, and in all other cases, the date specified in the Notice of Termination; provided, however, that if the Executive's employment is terminated by the Company for Cause or due to Disability, the date specified in the Notice of Termination shall be at least 30 days from the date the Notice of Termination is given to the Executive, provided that in the case of Disability the Executive shall not have returned to the full-time performance of the Executive's duties during such period of at least 30 days. 3. Termination of Employment. 8 3.1. Amount of Compensation and Benefits. If, during the term of this Agreement, the Executive's employment with the Company shall be terminated within twenty-four (24) months following a Change in Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company shall be terminated (1) by the Company for Cause or Disability, (2) by reason of the Executive's death, or (3) by the Executive for other than Good Reason, the Company shall pay to the Executive the Accrued Compensation and, if such termination is by the Company due to the Executive's Disability or by reason of the Executive's death, a Pro Rata Bonus. (b) If the Executive's employment with the Company shall be terminated for any reason other than as specified in Section 3.1(a), the Executive shall be entitled to the following: (i) the Company shall pay the Executive all Accrued Compensation and a Pro-Rata Bonus; and (ii) the Company shall pay the Executive as severance pay in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount in cash equal to [three (3)/two (2)] times the sum of (A) the Base Amount and (B) the Bonus Amount; and (iii) for a number of months equal to [thirty-six (36)/twenty four (24)] (the "Continuation Period"), the Company shall at its expense continue on behalf of the Executive and the Executive's dependents and beneficiaries the life insurance, short-term disability, medical, dental and hospitalization benefits provided (x) to the Executive immediately prior to the Change in Control or at any time thereafter or (y) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 3.1(b)(iii) during the Continuation Period shall be no less favorable to the Executive and the Executive's dependents and beneficiaries, than the most favorable of such coverages and 9 benefits during any of the periods referred to in clauses (x) and (y) above. The Company's obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive becomes eligible for any such benefits pursuant to a subsequent employer's benefit plans (whether or not the Executive actually elects coverage), in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverages and benefits of the combined benefit plans (computed assuming that the Executive elected to participate in the subsequent employer's benefit plans to the maximum extent allowable) is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This subsection (iii) shall not be interpreted so as to limit any benefits to which the Executive, the Executive's dependents or beneficiaries may be entitled under any of the Company's employee benefit plans, programs or practices following the Executive's termination of employment, including without limitation, retiree medical and life insurance benefits; and (iv) the Company shall pay in a single payment an amount in cash equal to the excess of (A) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company's supplemental and other retirement plans including, but not limited to, the retirement plans listed in Appendix A, had (w) the Executive remained employed by the Company for an additional [two/three] complete years of credited service, (x) the Executive's annual compensation during such period been equal to the Executive's Base Salary and the Bonus Amount, (y) the Company made employer contributions to each defined contribution plan in which the Executive was a participant at the Termination Date (in the amount that would have been contributed based on the assumptions in (w) and (x) above) and (z) the Executive been fully (100%) vested in the Executive's benefit under each retirement plan in which the Executive was a participant, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such retirement plans. 10 For purposes of this subsection (iv), the "lump sum actuarial equivalent" shall be determined in accordance with the "Lump Sum Factors" as prescribed under the terms of the Employees' Retirement System of H. J. Heinz Company Plan "A" - For Salaried Employees immediately before the Executive's termination of employment. (c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i), (ii) and (iv) shall be paid in a single lump sum cash payment as soon as reasonably practicable following the Executive's Termination Date (or earlier, if required by applicable law). (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 3.1(b)(iii). (e) Notwithstanding the foregoing, the payments otherwise due hereunder may be limited to the extent provided in Section 5 and Section 12(b) hereof. 3.2. Coordination with other Compensation and Benefits. (a) The severance pay and benefits provided for in this Section 3 shall be in lieu of any other severance or termination pay to which the Executive may be entitled under any other Company plan, program, practice or arrangement providing severance benefits. (b) The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans (including, the plans listed on Appendix A) and other applicable programs, policies and practices then in effect. 4. Notice of Termination. Following a Change in Control, any purported termination of the Executive's employment by the Company and/or the Employer shall be communicated by Notice of Termination to the Executive. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. 5. Excise Tax Limitation. 11 (a) Notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and benefits provided under this Agreement and benefits provided to, or for the benefit of, the Executive under any other Company plan or agreement (such payments or benefits are collectively referred to as the "Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of l986, as amended (the "Code"), the Payments shall be reduced (but not below zero) if and to the extent necessary so that no Payment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax (such reduced amount is hereinafter referred to as the "Limited Payment Amount"). The reduction provided for in the preceding sentence shall not apply, and Section 6 below shall apply, if the Payments, prior to any reduction in accordance with the preceding sentence, exceed one hundred and ten percent (110%) of the maximum amount which could be received without incurring the Excise Tax. (b) If a reduction is required pursuant to Section 5(a), unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the Limited Payment Amount, the Company shall reduce or eliminate the Payments by first reducing or eliminating those payments or benefits which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time for the Determination (as hereinafter defined). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (c) An initial determination as to whether the Payments shall be reduced to the Limited Payment Amount pursuant to the Plan and the calculation of such Limited Payment Amount shall be made at the Company's expense by an accounting firm selected by the Company which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination") together with detailed supporting calculations and documentation to the Company and the Executive within five (5) days of the Termination Date if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and, if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to 12 a Payment or Payments, it shall furnish to the Executive an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten (10) days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute"). If there is no Dispute, the Determination shall be binding, final and conclusive upon the Company and the Executive subject to the application of Section 5(d) below. (d) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that the Payments to be made to, or provided for the benefit of, the Executive either have been made or will not be made by the Company which, in either case, will be inconsistent with the limitations provided in Section 5(a) (hereinafter referred to as an "Excess Payment" or "Underpayment" respectively). If it is established, pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that an Excess Payment has been made, such Excess Payment shall be deemed for all purposes to be a loan to the Executive made on the date the Executive received the Excess Payment and the Executive shall repay the Excess Payment to the Company on demand (but not less than ten (10) days after written notice is received by the Executive) together with interest on the Excess Payment at the applicable "federal short term rate" prescribed pursuant to Code section 1274(d)(1)(C)(i) (hereinafter the "Applicable Federal Rate") from the date of the Executive's receipt of such Excess Payment until the date of such repayment. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS, (ii) pursuant to a determination by a court, or (iii) upon the resolution to the Executive's satisfaction of the Dispute, that an Underpayment has occurred, the Company shall pay an amount equal to the Underpayment to the Executive within ten (10) days of such determination or resolution together with interest on such amount at the Applicable Federal Rate from the date such amount would have been paid to the Executive until the date of payment. 6. Excise Tax Indemnification. If the payments and benefits provided under this Agreement and benefits provided to, or for the benefit of, the Executive under any other Company plan or agreement are subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of l986, as amended (the "Code"), or under any other similar provision of the laws of any state or local jurisdiction within the United States (the "Excise Tax"), the Company shall indemnify and hold harmless the Executive and the Executive's 13 heirs, executors, administrators and permitted assigns (all such aforesaid parties shall be referred to as "Indemnified Parties") from and against any loss ("the Loss") incurred by imposition on the Executive of the Excise Tax, such indemnification to be implemented by paying to the Indemnified Parties an amount ("Indemnification Payment") as hereinafter provided. The intent of this Section 6 is to provide for payments or reimbursements on a grossed-up basis which are sufficient, but not more than sufficient, to make the Indemnified Parties economically whole with respect to any Excise Tax imposed on the Executive's Share, any costs of contesting any such Excise Tax and any other taxes imposed by reason of a loan to the Indemnified Parties pending resolution of any such contest, and the foregoing provisions are to be interpreted accordingly. 6.1. Amount of Indemnification Payment. The Indemnification Payment shall be the amount which, after deduction of all income taxes and additional federal, state and local taxes (including, without limitation, any additional Excise Tax) required to be paid by the Executive in respect of receipt of the Indemnification Payment (assuming, for this purpose, that the Executive is subject to the highest marginal rate of federal income taxation in effect during the calendar year in which the Indemnification Payment is to be made and that state and local income taxes are due for such year at the highest marginal rates of taxation in effect in the state and locality of the Executive's residence on the date of payment, and applying the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes, but assuming that the Executive has no other deductions or credits available to reduce such taxes), shall be equal to the sum of (i) the Excise Tax resulting in the Loss and (ii) the net amount of any interest, penalties or additions to tax payable to any taxing authority (after allowing for the deduction of such amounts, to the extent properly deductible, for federal, state or local income tax purposes) as a result of the Loss. The amount determined above shall be adjusted to take into account on a grossed-up basis any expenses described in Section 6.3(a) and any additional taxes incurred by reason of the inclusion in income of, or imputation of, interest on any advance pursuant to Section 6.3(b). 6.2. Time of Indemnification Payment. The Indemnification Payment (or each applicable portion thereof) shall be made within thirty (30) days after the compensation or benefits (or each applicable portion thereof) to which the Excise Tax (as determined by the Company) relates is received by the Executive. Additional Indemnification Payments shall be made within thirty (30) days after receipt by the Company of written notice from the 14 Executive of any claim by a taxing authority that any additional Excise Tax is due, which notice by the Executive shall include a copy of the written statement from the taxing authority setting forth the amount of additional tax, interest, penalties or additions to tax claimed to be due in respect thereof; provided that, if a contest is being conducted pursuant to Section 6.3 below, any additional Indemnification Payments (or applicable portion thereof) shall not be required to be made shall until 30 days after the completion or termination of such contest except as provided in Section 6.3(b) below. Any Indemnification Payment required hereunder and not timely made shall accrue interest until paid at the Applicable Federal Rate. 6.3. Management of Tax Contests. The Company shall have the sole and exclusive right to initiate and to conduct on behalf of the Indemnified Parties all aspects of any contest or appeal of any tax controversy relating to the Excise Tax. The Indemnified Parties shall cooperate with the Company in the conduct of any such contest or appeal (at the expense of the Company). The indemnifications provided for in this Section 6 are conditional on the Company receiving from the Indemnified Parties timely notice of any actual or threatened tax controversy relating to the Excise Tax (including, without limitation, an inquiry or notice of audit by a taxing authority with respect to the years involved or any request for extension of the period for assessment or collection of taxes for such years) and upon the continuing cooperation of the Indemnified Parties during the course of any such contest or appeal. (a) During the course of any such contest or appeal the Company shall promptly defray any and all expenses that the Indemnified Parties may incur as a result of contesting such proposed Excise Tax, including, without limitation, indemnification and prompt payment of all costs, legal and accounting fees and disbursements, bonding fees, or other litigation related expenses so incurred. (b) If the Company shall elect to contest a proposed Excise Tax by causing the Indemnified Parties to make payment and then seek a refund, then the Company shall advance to the Indemnified Parties, on an interest-free basis, the aggregate amount of the required payment. If as a result of such contest a refund becomes payable to the Indemnified Parties, upon receipt of such refund the Indemnified Parties shall promptly pay over to the Company the amount of such refund (and included interest) received by the Indemnified Parties (which amount shall be deemed to be in repayment of the loan advanced by the Company to the extent fairly attributable thereto), subject to offset of any Indemnification Payment then due and owing by the Company to the 15 Indemnified Parties pursuant to this Section 6. Upon final denial of any such refund or a portion thereof, the Company shall forgive the amount of such advance fairly attributable to the amount not refunded (which forgiveness shall be applied against the Indemnification Payment determined under Section 6.1. 7. Successors; Nonalienation. 7.1. Successors. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its Successors and Assigns and the Company shall require any Successor and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 7.2. Nonalienation. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, the Executive's beneficiaries or legal representatives, except by will or by the laws of descent and distribution. 8. Settlement of Claims and Resolution of Disputes. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. Any disputes arising under or in connection with this Agreement shall, at the discretion of the Executive or the Company, be resolved by binding arbitration, to be held in Pittsburgh, Pennsylvania, in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. If arbitration is not requested by either party, any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in Pittsburgh, Pennsylvania. 16 9. Fees and Expenses. (a) Subject to Section 9(b) below, the Company shall pay all reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by the Executive as they become due as a result of (1) the Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (2) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits, and (3) the Executive's hearing before the Board as contemplated in Section 2.4 of this Agreement; provided, however, that the circumstances set forth in clauses (1) and (2) (other than as a result of the Executive's termination of employment under circumstances described in Sections 2.5(c) and 2.8(b)) occurred on or after a Change in Control. (b) Section 9(a) shall not apply, and all legal fees and related expenses incurred by the Executive shall remain the responsibility of the Executive, if the Executive does not prevail on at least one material issue in dispute in such contest or dispute. 10. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company (except for any severance or termination policies, plans, programs or practices) and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company (except for any severance or termination agreement). Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in 17 accordance with such plan or program, except as explicitly modified by this Agreement. 12. Miscellaneous. (a) No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. (b) Notwithstanding Section 12(a) or any other provision of this Agreement to the contrary, if consummation of a transaction may be contingent on the parties' ability to use pooling of interests accounting and the Company reasonably determines (after consultation with its independent auditors) that a provision of this Agreement would preclude the use of pooling of interests accounting with respect to such transaction, the Company may, with or without the acquiescence of the Executive, eliminate or modify that provision to the extent required to allow pooling of interests accounting. 13. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws principles thereof. 14. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 15. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.] 18 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. H. J. HEINZ COMPANY ATTEST: By: --------------------------------- Name: D.E.I. Smyth Title: Senior Vice President - - ------------------------------ Name: Rene Biedzinski Corporate and Government Title: Secretary Affairs and Chief Administrative Officer By: --------------------------------- [Insert Name of the Executive] 19 APPENDIX A COMPENSATION AND BENEFIT PLANS Retirement Plans H. J. Heinz Company Employees Retirement and Savings Plan Employees' Retirement System of H. J. Heinz Company Plan "A" - For Salaried Employees H. J. Heinz Company Supplemental Executive Retirement Plan H. J. Heinz Company Employees Retirement and Savings Excess Plan Welfare Plans H. J. Heinz Company Non-bargaining Employees Welfare Benefit Program Components of Welfare Benefits Program - Medical and Prescription Drug Coverage - Dental Coverage - Vision Coverage - Short-Term Disability Plan - Medical and Dependent Care Flexible Spending Accounts - Tuition Reimbursement Plan H. J. Heinz Company Voluntary Employees' Beneficiary Association Long Term Disability Plan* H. J. Heinz Company Severance Pay Plan Executive Life Insurance Plan Executive Group Umbrella Liability Plan Long Term Care Plan * Executives are eligible for Supplemental Disability coverage on preferred terms with UNUM Provident. This is a voluntary program, at the executive's own expense. 20 APPENDIX A (CONT'D) COMPENSATION AND BENEFIT PLANS Other Compensation and Benefit Plans H. J. Heinz Company Incentive Compensation Plan ("SSP") H. J. Heinz Company Senior Executive Incentive Compensation Plan Global Stock Purchase Plan 1986 Deferred Compensation Program for Executives of H. J. Heinz Company and Affiliated Companies H. J. Heinz Company Executive Deferred Compensation Plan Stock Option Plans - H. J. Heinz Company 1990 Stock Option Plan - H. J. Heinz Company 1994 Stock Option Plan - H. J. Heinz Company 1996 Stock Option Plan - H. J. Heinz Company 2000 Stock Option Plan - H. J. Heinz Company FY2003 Stock Incentive Plan Plus any employee benefit plans, programs and practices that would be specific to an Executive who does not participate in U.S. benefit plans, programs and practices. 21 EX-12 10 j1304601exv12.txt EXHIBIT 12 EXHIBIT 12 H. J. HEINZ COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Fiscal Years Ended -------------------------------------------------------------- April 27, April 28, April 30, May 1, May 2, 2005 2004 2003 2002 2001 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ---------- ---------- ---------- ---------- ---------- Fixed Charges: Interest expense(a)......... $ 238,412 $ 215,563 $ 226,152 $ 233,657 $ 265,062 Capitalized interest........ -- -- -- 48 8,239 Interest component of rental expense.................. 31,790 33,276 27,666 28,217 26,344 ---------- ---------- ---------- ---------- ---------- Total fixed charges...... $ 270,202 $ 248,839 $ 253,818 $ 261,922 $ 299,645 ---------- ---------- ---------- ---------- ---------- Earnings: Income from continuing operations before income taxes and cumulative effect of change in accounting principle..... $1,058,614 $1,168,551 $ 868,731 $1,050,520 $ 754,426 Add: Interest expense(a).... 238,412 215,563 226,152 233,657 265,062 Add: Interest component of rental expense........... 31,790 33,276 27,666 28,217 26,344 Add: Amortization of capitalized interest..... 2,012 1,924 1,666 1,862 2,129 ---------- ---------- ---------- ---------- ---------- Earnings as adjusted..... $1,330,828 $1,419,314 $1,124,215 $1,314,256 $1,047,961 ---------- ---------- ---------- ---------- ---------- Ratio of earnings to fixed charges..................... 4.93 5.70 4.43 5.02 3.50 ========== ========== ========== ========== ==========
(a) Interest expense includes amortization of debt expense and any discount or premium relating to indebtedness. EX-21 11 j1304601exv21.txt EXHIBIT 21 EXHIBIT 21 H. J. HEINZ COMPANY AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Following are the subsidiaries of H. J. Heinz Company (the "Company"), other than those which if considered in the aggregate as a single subsidiary would not constitute a significant subsidiary, and the state or country in which each subsidiary was incorporated or organized. The accounts of each of the listed subsidiaries are a part of the Company's consolidated financial statements.
SUBSIDIARY STATE OR COUNTRY ---------- ---------------- Alimentos Heinz, C.A. ...................................... Venezuela Alimentos Pilar S.A. ....................................... Argentina AIAL S.r.l. (Arimpex Industrie Alimentari S.r.l.)........... Italy Ets. Paul Paulet............................................ France Heinz Europe Ltd. .......................................... England Heinz Iberica S.A. ......................................... Spain Heinz India Private Ltd. ................................... India Heinz Italia S.r.l. ........................................ Italy Heinz Japan Ltd. ........................................... Japan Heinz Korea Ltd. ........................................... Republic of Korea Heinz South Africa (Pty) Limited............................ South Africa Heinz-UFE Ltd. ............................................. People's Republic of China Heinz Wattie's Limited...................................... New Zealand Heinz Win Chance Ltd. ...................................... Thailand H. J. Heinz B.V. ........................................... Netherlands H. J. Heinz (Botswana Proprietary) Ltd. .................... Botswana H. J. Heinz Belgium S.A. ................................... Belgium H. J. Heinz Company Australia Limited....................... Australia H. J. Heinz Company of Canada Ltd. ......................... Canada H. J. Heinz Company, L.P. .................................. Delaware H. J. Heinz Company Limited................................. England H. J. Heinz Credit Company.................................. Delaware H. J. Heinz European Frozen & Chilled Foods, Ltd. .......... Ireland H. J. Heinz Finance Company................................. Delaware Heinz Management L.L.C. .................................... Delaware Indian Ocean Tuna Ltd. ..................................... Seychelles Industrias de Alimentacao, Lda. ............................ Portugal Olivine Industries (Private) Limited........................ Zimbabwe ProMark Brands, Inc. ....................................... Idaho Pudliszki S.A. ............................................. Poland PT Heinz ABC Indonesia...................................... Indonesia
EX-24 12 j1304601exv24.txt EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William R. Johnson, Arthur Winkleblack and Theodore N. Bobby, and each of them, such person's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign H. J. Heinz Company's Annual Report on Form 10-K for the fiscal year ended April 27, 2005 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or such persons' or person's substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney has been signed below as of the 8th day of June, 2005 by the following persons in the capacities indicated.
Signature Title --------- ----- /s/ WILLIAM R. JOHNSON Chairman of the Board of Directors, ............................................ President and Chief Executive Officer WILLIAM R. JOHNSON (Principal Executive Officer) /s/ CHARLES E. BUNCH Director ............................................ CHARLES E. BUNCH /s/ MARY C. CHOKSI Director ............................................ MARY C. CHOKSI /s/ LEONARD S. COLEMAN, JR. Director ............................................ LEONARD S. COLEMAN, JR. /s/ PETER H. COORS Director ............................................ PETER H. COORS /s/ EDITH E. HOLIDAY Director ............................................ EDITH E. HOLIDAY /s/ CANDACE KENDLE Director ............................................ CANDACE KENDLE /s/ DEAN R. O'HARE Director ............................................ DEAN R. O'HARE /s/ LYNN C. SWANN Director ............................................ LYNN C. SWANN /s/ THOMAS J. USHER Director ............................................ THOMAS J. USHER
Signature Title --------- ----- /s/ ARTHUR WINKLEBLACK Executive Vice President and ............................................ Chief Financial Officer ARTHUR WINKLEBLACK /s/ EDWARD J. MCMENAMIN Senior Vice President--Finance, Corporate ............................................ Controller (Principal Accounting Officer) EDWARD J. MCMENAMIN
EX-31.01 13 j1304601exv31w01.txt EXHIBIT 31(A) EXHIBIT 31(A) I, William R. Johnson, Chairman, President and Chief Executive Officer of H. J. Heinz Company certify that: 1. I have reviewed this annual report on Form 10-K of H. J. Heinz Company; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; d) Disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 16, 2005 By: /s/ WILLIAM R. JOHNSON ------------------------------------ Name: William R. Johnson Title: Chairman, President and Chief Executive Officer EX-31.02 14 j1304601exv31w02.txt EXHIBIT 31(B) EXHIBIT 31(B) I, Arthur B. Winkleblack, Executive Vice President and Chief Financial Officer of H. J. Heinz Company certify that: 1. I have reviewed this annual report on Form 10-K of H. J. Heinz Company; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; d) Disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of such internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 16, 2005 By: /s/ ARTHUR B. WINKLEBLACK ------------------------------------ Name: Arthur B. Winkleblack Title: Executive Vice President and Chief Financial Officer EX-32.01 15 j1304601exv32w01.txt EXHIBIT 32(A) EXHIBIT 32(A) CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER RELATING TO THE ANNUAL 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, to my knowledge: 1. The Company's annual report on Form 10-K for the fiscal year ended April 27, 2005 (the "Form 10-K") 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-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 16, 2005 By: /s/ WILLIAM R. JOHNSON ------------------------------------ Name: William R. Johnson Title: Chairman, President and Chief Executive Officer EX-32.02 16 j1304601exv32w02.txt EXHIBIT 32(B) EXHIBIT 32(B) CERTIFICATION BY THE CHIEF FINANCIAL OFFICER RELATING TO THE ANNUAL REPORT CONTAINING FINANCIAL STATEMENTS I, Arthur B. Winkleblack, Executive Vice President and Chief Financial Officer of H. J. Heinz Company, a Pennsylvania corporation (the "Company"), hereby certify that, to my knowledge: 1. The Company's annual report on Form 10-K for the fiscal year ended April 27, 2005 (the "Form 10-K") 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-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 16, 2005 By: /s/ ARTHUR B. WINKLEBLACK ------------------------------------ Name: Arthur B. Winkleblack Title: Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----