H.J. HEINZ CO. DEFA14A

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The H. J. Heinz Company Annual Report 2006 was posted to H. J. Heinz Company’s Internet website at www.heinz.com.

* * *

Financial Highlights
H.J. Heinz Company and Subsidiaries


	2006			2005			2004
(Dollars in thousands, except per share amounts)	(53 Weeks)			(52 Weeks)			(52 Weeks)
Sales	$	8,643,438		$	8,103,456		$	7,625,831
Operating income⁽¹⁾		1,113,612			1,281,472			1,276,089
Income from continuing operations⁽²⁾		442,761			688,004			715,451
Net income⁽³⁾		645,603			752,699			804,273
Per common share amounts:
Income from continuing operations — diluted	$	1.29		$	1.95		$	2.02
Net income — diluted		1.89			2.13			2.27
Cash dividends		1.20			1.14			1.08

Cash from operations	$	1,074,961		$	1,160,793		$	1,249,007
Capital expenditures		230,577			240,671			231,961
Depreciation and amortization		247,433			235,571			217,677
Property, plant and equipment, net		1,900,557			2,163,938			2,057,286

Cash, cash equivalents and short-term investments	$	445,427		$	1,083,749		$	1,180,039
Cash conversion cycle (days)		56			58			64
Total debt		4,411,982			4,695,253			4,974,430
Shareholders’ equity		2,048,823			2,602,573			1,894,189

Average common shares outstanding — diluted		342,121			353,450			354,372
Debt/invested capital		68.3	%		64.3	%		72.4	%
Dividend/share		1.20			1.14			1.08
Share repurchases	$	823,370		$	291,348		$	170,129


(1)		Operating income in fiscal years 2006, 2005 and 2004 was impacted by special charges/(benefits) of $236.4 million, $27.0 million and $(8.2) million, respectively.

(2)		Income from continuing operations in fiscal years 2006, 2005 and 2004 was impacted by special charges of $274.9 million, $91.8 million and $0.2 million, respectively.

(3)		Net income in fiscal years 2006, 2005 and 2004 includes income from discontinued operations of $202.8 million, $64.7 million and $88.8 million, respectively.

See Management’s Discussion and Analysis for details.

ABOUT THE COVER The Heinz Global Innovation and Quality Center opened in September 2005 north of Pittsburgh. The Center is home to more than 100 chefs, food technologists, nutritionists, microbiologists, packaging engineers and quality assurance specialists. It also houses Heinz’s International Center of Excellence for Ketchup & Sauces. Here resides Heinz’s unparalleled tomato knowledge, which contributes to producing better-tasting tomatoes for our famous Heinz^{^®}Ketchup, Classico^{^®}premium sauces, and a host of other tomato-based varieties for our global retail and foodservice businesses. Pictured in the upper right window are Vice President of Innovation and Quality Jim Matthews, and Research and Development Manager Beth Ritchey.

WILLIAM R. JOHNSON
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

Dear fellow shareholders:

I am pleased to report that your Company achieved nearly every goal set by your Board of Directors for Fiscal 2006, while also completing the most significant renovation in Heinz’s history. As a result, we enter Fiscal 2007 with strong momentum and a favorable outlook.

Importantly, the Company’s proven ability to generate excellent cash flow continued into Fiscal 2006, and we took the opportunity to share much of it with our shareholders. From Fiscal 2003 to Fiscal 2006, we have returned $4.2 billion in dividends and share repurchases to you, our shareholders. In fact, Heinz’s total shareholder return over the past three years from the time of the spin-off of our non-core U.S. businesses on December 20, 2002, through February 3, 2006 (prior to the recent run-up in the share price) was 18.9 percent, compared to 16.0 percent for the Standard & Poor’s food group.

In Fiscal 2007, we will continue to return cash to you with a substantial 16.7 percent increase in the dividend. We also plan to return yet another $1 billion to shareholders in share repurchases over the next two years.

HNZ 2006 1

Heinz’s plans for accelerated growth in Fiscal 2007 build on the significant progress your Company has made over the past four years, during which we have:

•		Greatly simplified and improved the Company;

•		Refocused on 10 core brands, which have grown at a three-year compound average rate of nearly 6 percent;

•		Reduced stock keeping units (SKUs) from 35,000 to 16,500;

•		Concentrated on 11 key markets;

•		Substantially improved the capabilities of our people and processes; and

•		Eliminated layers of bureaucracy across our North American, European and Pacific headquarters.

Heinz, as a result, is now structurally the Company the Board and I envisioned four years ago, with a sharp focus on three value-added categories generating more than 90 percent of the Company’s sales and 95 percent of its economic profit.

Progress can be measured by the following:

•

The Heinz North American Consumer Products division, the first to benefit from our simplification efforts and portfolio repositioning against core brands, has averaged nearly double-digit profit growth since Fiscal 2003. Fiscal 2006 was the strongest year yet for the Consumer Products team, with sales up 13 percent.

•

Heinz’s businesses in Australia and New Zealand have performed even better following a similar initiative to simplify and refocus their businesses. Since Fiscal 2003, these two divisions have delivered a combined sales growth of approximately 15 percent.

•

Our top brands are performing better than ever with our flagship Heinz^{^®}brand growing sales at a three-year compound annual rate of 6 percent across the globe.

•

In the U.S., Heinz^{^®}Ketchup has grown sales at a three-year compound rate of more than 7 percent, boosted by new packaging innovations and line extensions. We are aiming to build on this success with the launch of the new Fridge Door Fit™ bottle this summer.

•

In our five emerging markets of Russia, Indonesia, China, India and Poland, which account for 40 percent of the world’s population, we have profitable businesses, with costs among the lowest in the Company. Heinz expects to generate approximately one-quarter of its sales growth in Fiscal 2007 from these promising markets.

•

Heinz Europe, which has been the exception to this growth trend up to now, has firm plans to grow our iconic Heinz^{^®}, Plasmon^{^®}, HP^{^®}and Lea & Perrins^{^®}brands, following the simplification initiatives and divestitures of non-core businesses completed last year. Our European teams have been strengthened with the promotion of proven performers and experienced leaders from other Heinz units and top-tier packaged goods companies.

The H.J. Heinz Company Board of Directors (from left): Thomas J. Usher, Edith E. Holiday, Leonard S. Coleman, Jr., Dennis H. Reilley, Dean R. O’Hare, William R. Johnson, Peter H. Coors, Dr. Candace Kendle, Charles E. Bunch, Mary C. Choksi, Lynn C. Swann, John G. Drosdick

2 HNZ 2006

A realistic plan for superior value and growth

On June 1, we announced the Heinz Superior Value and Growth Plan for Fiscal 2007 and 2008. The Plan, which builds on our progress of the last four years, was widely welcomed by investment analysts as both aggressive and realistic. It has three goals:
1)   Reduce costs to improve profit margins;
2)   Grow the core portfolio through innovation; and
3)   Generate cash to deliver superior shareholder returns.

1) Reduce costs

Heinz is using improved processes to drive out costs that add no value for consumers or customers. New information systems are driving savings in purchasing, inventory management and waste reduction. Our trade promotion management systems are boosting the efficiency and effectiveness of our trade spending programs. For example, the U.S. Consumer Products team has improved its trade spend efficiency to where it is now considered best-in-class by Cannondale Associates, while still growing sales and volume for Heinz and its customers. We are expanding these systems across the Company to drive out inefficient spending and optimize our returns. We successfully executed the rollout of a new SAP enterprise management system in the U.K. and Ireland this spring, without a hitch.

Further integration of our $6 billion global supply chain is underway to focus on leveraging our scale in global procurement, continuous improvement and plant rationalizations. We plan a further $60 million savings in selling, general and administrative costs (SG&A) in Fiscal 2007. Overall, we expect these productivity initiatives to combine with pricing and mix to improve gross margin in Fiscal 2007.

In total, we identified $355 million in savings that we expect to generate over the next two years. These numbers, while appearing aggressive, are based on the continued benefits from the initiatives we successfully executed in Fiscal 2006, and are being implemented with the long-term health of the Company in mind.

2) Grow the core portfolio through innovation

The goal of the Heinz Plan is to accelerate growth. This year’s Annual Report is dedicated to “Growth Through Innovation,” personified by the creative professionals in the Heinz Global Innovation and Quality Center in Pittsburgh, and our other global facilities.

Housed in a state-of-the-art complex, the new Innovation Center has greatly improved our ability to develop differentiated, great-tasting, convenient and nutritious foods that enrich the lives of families everywhere.

Heinz has well over 100 new product initiatives planned for Fiscal 2007, supported by our planned 19 percent increase in marketing and advertising. These include Fridge Door Fit™ Ketchup; Ore-Ida^{^®}Easy Breakfast Potatoes; new varieties of Classico^{^®}sauce, including new organic varieties; Mean Beanz^{^®}and international soups in Australia; and new recipe meals for toddlers and HP^{^®}Sauce in the popular upside down bottle in the U.K., to name just a few.

(H. J. HEINZ COMPANY BOARD OF DIRECTORS)

HNZ 2006 3

Heinz is dedicated to helping consumers live healthier lives, without sacrificing the joy of great-tasting foods. Heinz’s heritage is closely associated with healthy, lycopene-rich tomatoes, and we offer a wide range of natural and organic foods, as well as foods containing reduced sodium and sugar. These include Heinz^{^®}Organic Ketchup and Reduced Sugar Ketchup, the Weight Watchers^{^®}Smart Ones^{^®}nutritional meals range, all natural Classico^{^®}, Heinz^{^®}Spaghetti Plus™ with calcium and Omega 3 in Australia and healthier multigrain pasta in the U.K.

Confident in our ability to provide delicious foods eagerly sought by consumers, Heinz plans double-digit increases in research and development spending in each of the next two years.

3) Generate cash to deliver superior shareholder returns

The third pillar of the Plan is to deliver superior shareholder returns with a keen focus on improved performance, share repurchases and a planned dividend payout ratio of approximately 60 percent. As you can see from the charts below, this dedication to shareholder value is not new.

Your Board is committed to superior shareholder value and is ranked by Institutional Shareholder Services, a preeminent corporate governance rating agency, as the best in the S&P Food, Beverage and Tobacco group; and among the top 10 in the entire S&P 500. Good corporate governance and strict director independence are critical to protect shareholders against special interest groups. Your Board is a diverse, independent and intensely engaged collection of men and women who represent all shareholders. They set stretching, but realistic, goals for management, and then hold us accountable for our performance. We debate many issues, but ultimately we are united in support of the Company’s shareholders and our other important constituents, including consumers, customers and employees.

Today’s Heinz is moving forward with a growing confidence in our outstanding people, world-class brands and our plan for building sustainable growth and superior value. We appreciate the support received from hundreds of shareholders over recent months, and want you to know that we always will put the interests of all shareholders first and foremost.

Sincerely,

WILLIAM R. JOHNSON
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

For more information on Heinz’s Superior Value and Growth plan, visit www.heinzsuperiorvalue.com.

4 HNZ 2006

Growth Through Innovation at Heinz

Innovation is the way forward for Heinz. It has been for 137 years.

This year, more than 100 new food varieties will flow through our pipeline.

Today’s Heinz is committed to growing the focused portfolio of leading brands we already own. We plan to spend at least 10 percent more on research and development in each of the next two years. And in Fiscal 2007, we are raising consumer marketing and advertising spending by nearly 19 percent.

Heinz’s talented people are at the heart of our data-driven development processes. Their goal is to delight customers and consumers with the best-tasting, most nutritious foods that Heinz can offer. With strengthened market research capabilities and the new resources of our Global Innovation and Quality Center, we consult consumers at each stage of development, from “ideation” to launch. Every day scores of consumers, customers and Heinz marketing and sales executives join the innovation teams to create new “Heinz^{^®}Varieties” in an environment that’s rich in excitement and “anticipation.”

On the following pages you will see how Heinz’s innovation initiatives now focus on new varieties and unique packaging for Heinz^{^®}Ketchup, Ore-Ida^{^®}potatoes, Classico^{^®}sauces, Weight Watchers^{^®}Smart Ones^{^®}nutritional meals and Plasmon^{^®}infant foods, to name just a few. It’s with this discipline that today’s Heinz builds value for consumers, customers and shareholders with powerful ideas in three value-added categories.

HNZ 2006 5

Listening to our consumers

The most frequent visitors to the Heinz Global Innovation and Quality Center are consumers. Although we learn a lot through market research, we want to know even more about how our varieties fit into consumers’ everyday lives, and how Heinz can better anticipate their wishes for Good Food, Every Day^™.

Heinz marketing and research experts do this by visiting people in their homes, an approach that sparked the idea for our successful Top Down^™ketchup bottles. We discovered consumers often store their ketchup upside down so they can squeeze out every last drop. Similar insights sparked the creation of our next generation easy-to-store and use Fridge Door Fit^™bottle (inset and opposite page, upper right).

When we invite consumers inside our IQ Center kitchens, we want to learn how they use our brands. Director of Market Research for North American Consumer Products Soledad Miguel (far right) partners with Research & Development in a consumer session on Classico^{^®}sauce. Our Classico^{^®}team needs to know the many ways, for example, consumers cook with a basic sauce, like Tomato & Basil. Do they add a little cheese? Garlic or olive oil? With such insight, we’re creating new recipes for Classico^{^®}beyond its use on pasta, such as for chicken. And the team is watching closely how consumers will pour on these new sauces.

More people than ever top their favorite food with Heinz^{^®}Ketchup.


	1995		2005		%
	%		%
French Fries		30		37		(+24	%)
Hot Dogs		29		34		(+17	%)
Hamburgers		30		33		(+10	%)

NPD Group

6 HNZ 2006

THE WORLD’S FAVORITE KETCHUP™

Heinz’s U.S. business will advertise many of its brands in print and on radio and television this year. This will include one of the largest TV campaigns behind the flagship Heinz^{^®}Ketchup brand since the “Anticipation” spots of the 1970s.

An aggressive in-store initiative also will feature displays in meat departments and frozen potato cases, plus cross-promotion for Fridge Door Fit^™and Top Down^™bottles on food-service ketchup packets, generating a billion consumer impressions.

POUR IT ON Extensive research reveals that consumers love pouring Heinz^{^®}Ketchup on everything. But when the contents run low in the traditional sizes, they ration the ketchup. The new Fridge Door Fit^™bottle, in 46- and 64-ounce sizes, gives consumers more of the thick, rich taste they want. Heinz is rewarding their loyalty with the best value on larger sizes. Interestingly, research shows consumers repurchase the bigger bottles as often as the traditional sizes, meaning the more ketchup they have, the more they use. Consumers prefer the new bottles by a 70/30 margin.

11.2%

CLASSICO^{^®}NORTH AMERICAN COMPOUND ANNUAL GROWTH FY03—FY06: % 11.2%

HNZ 2006 7

Thinking outside the bottle

Heinz has expanded both the overall ketchup category and its U.S. market share since 1998, reversing several years of decline. We have launched more than 25 new ketchup varieties over the past five years. These newest products today represent 43 percent of Heinz’s U.S. ketchup sales. Heinz grew its U.S. ketchup business at a compound annual rate of more than 7 percent in the past three years, and is ready with more ideas to grow The World’s Favorite Ketchup^™.

Concurrent with the launch of the Fridge Door Fit^™bottle, we led the effort to restage the store shelf to give consumers a better shopping experience. Larger bottles now anchor the shelf in the eye-level “sweet spot” and better highlight our Top Down^™varieties located just above. Lifestyle varieties — such as Organic, One Carb, Hot & Spicy Ketchup Kick’rs^{^®}and the new Reduced Sugar — crown the very top. All promotions are now geared to these new varieties.

More efficient use of trade promotion dollars with our customers has helped our entire U.S. Consumer Products business reduce the amount of trade spending as a percentage of sales by 4.3% over the past four years. We have achieved this while at the same time increasing sales, volume and profit.

This blueprint delivers value to consumers, growth to our customers and improved profits and cash flow to Heinz. This in turn fuels our new product engine.

8 HNZ 2006

HIGHLY TARGETED ACQUISITIONS

Last year, Heinz strategically acquired the internationally beloved Lea & Perrins^{^®}and HP^{^®}sauce brands. We have added equally powerful brands in our emerging markets, including ABC^{^®}soy and chili sauces in Indonesia, Picador^{^®}in Russia, and Pudliszki^{^®}in Poland. The global Heinz^{^®}brand resonates in all of these markets where, over time, we will seed our other strong brands. Heinz^{^®}Ketchup is growing in both retail and food-service channels in Russia, the world’s second-largest ketchup market, where we recently reached a partnership agreement with McDonald’s, adding to similar agreements with restaurants worldwide.

OWNING THE TABLE The Lea & Perrins^{^®}and HP^{^®}brands have proven to be popular additions to both retail and foodservice channels. Research shows that Heinz^{^®}is the preferred table sauce brand for 70 percent* of consumers, more than four times that of our nearest competitor.

*NPD Group consumer study 2005

DISCERNING TASTE Few tongues in the world are more finely tuned than those of the Heinz Sensory and Insight Panel. Their palates must discern minute differences in food attributes ranging from saltiness to sweetness, to texture to mouth heat, and many more, on a 15-note scale. The panel provides Heinz product developers with an objective flavor portrait for any given recipe.

HNZ 2006 9

Sales of Ore-Ida^{^®}have increased $90 million in the past three years.

BEANZ MEANZ HEINZ^{^®}

Following the successful launch of flavored Heinz^{^®}Mean Beanz^{^®}in Britain, the concept is being introduced in Australia. Just as exciting as the spicy kick is the can itself. With the help of a U.K. government grant, Heinz developed a can that uses 13% less steel, saving nearly $750,000 per year. Heinz Vice President of European Technical Services Andy Keatings (right) is responsible for transferring such entrepreneurial advances to all Heinz business units.

ORE-IDA^{^®}FY03—FY06 COMPOUND ANNUAL GROWTH

Sales: +8%
Volume: +10%

Chemical technician Lindsey Wingard (right) measures the sugar content in ketchup.

10 HNZ 2006

(PHOTO OF MARKETING AND PRODUCT PROFESSIONALS)

Weight Watchers^{^®}Smart Ones^{^®}FY06 Volume: +21%

Heinz marketing and product development professionals led by Nelly Yoveva, research manager (middle), listen to what a consumer panel has to say about proposed new Weight Watchers^{^®}Smart Ones +^{^®}21% varieties.

Live Smart 24/7™

A core tenet of “growing what we own” is expanding the reach of our brands. We long ago established the versatility of the international Heinz^{^®}brand across categories, from ketchup and sauces to soups, spaghetti, beans and baby foods.

This year, with trends in health and wellness exploding, we are taking Weight Watchers^{^®}Smart Ones^{^®}nutritional meals into more eating occasions to help consumers Live Smart 24/7™. We are strengthening the range with nine new or taste-improved breakfast, lunch and snack varieties, and more desserts than ever. Weight Watchers^{^®}Smart Ones^{^®}also is expanding into Canada this year, with six varieties.

Ore-Ida^{^®}, our largest U.S. retail brand, jumpstarted Heinz’s innovation engine by first focusing on taste, which it did with Ore-Ida^{^®}Extra Crispy Fries. It then expanded to microwavable varieties with Ore-Ida^{^®}Easy Fries^{^®}. The team is now looking beyond fries with a range of Ore-Ida^{^®}Roasted Potatoes and Hash Browns.

One of the biggest opportunities for Heinz lies in the fast-growing chilled section of the grocery store. Here again, Ore-Ida^{^®}leads the way for Heinz. Last year we piloted chilled mashed and au gratin potatoes and macaroni & cheese in several markets, and are evaluating a wider rollout this year. Cora Towle, (left) senior manager of research and development, prepares a test batch of mashed potatoes.

HNZ 2006 11

HOT SNACKS™ FY06 VOLUME:
⁺16%

“TO GO” PACKAGING

Consumers want convenience and Heinz provides it with inventive new “To Go” packaging for the Bagel Bites^{^®}and Delimex^{^®}brands. Also featured in the Heinz^{^®}Hot Snacks^™family of brands are the TGI Friday’s^{^®}, Poppers^{^®}, and Nancy’s^{^®}brands. Dan Jackson (right), packaging project manager, tests one of the packs.

GROWTH DOWN UNDER Heinz used to trail its top competitor in the Australian soup category by 15 points. But thanks to radical changes, the company closed the gap last year. The improvements included better taste, evocative graphics and the launch of two entirely new ranges — International and Asian. Displaying the latest variety is Heinz Australia General Manager of Marketing Suzanne Douglas (right).

12 HNZ 2006

Recipes for growth away from home

Ketchup and sauces have been on a roll for many years in our U.S. Foodservice business. Another rising star is soup, led by the Truesoups^{^®}and Chef Francisco^{^®}, Todd’s^{^®}and Quality Chef^{^®}brands. Sales of the Truesoups^{^®}range have nearly doubled since its acquisition in June 2003, and its varieties are served up at the most rapidly growing fast-casual restaurants in the nation. Truesoups^{^®}products are premium heat-and-serve varieties. They emphasize the freshest ingredients and contain no added preservatives, no MSG and no artificial flavors. Heinz’s overall soup business has increased at a three-year compound annual rate of 18 percent. Heinz’s share outpaces our closest two competitors combined.

The foodservice soup category is on pace to be a half-billion-dollar business within the next five years. What’s more, it meets healthier away-from-home eating trends. Heinz food technologists (opposite page, from left) Charles Streaker, Brenda Dropp, Marjory Renita and Lindsey Murtaugh, prepare test batches around “Kettle Row” at the IQ Center.

HNZ 2006 13

Growing up with Heinz

Heinz has remained a leader in infant foods since the 1930s, when Howard Heinz boldly expanded the company during the Great Depression. Today, it is one of the most trusted names in infant nutrition. At the heart of this category is the much-beloved, 100-year-old Plasmon^{^®}brand in Italy, the fourth-largest brand in the Heinz portfolio.

Plasmon^{^®}enters Fiscal 2007 with a carriage full of ideas designed for optimum development of babies and their discerning parents, who purchase infant foods at pharmacies one-third of the time.

The brand expanded into unique segments last year, when it rolled out a line of yogurts and fresh cheeses designed to aid a baby’s digestion. A range of hypoallergenic formulas was introduced to help little ones with allergy, digestive, sleeping or growth problems. Coming this summer is an upgraded sub-brand, Crescero^{^®}, which provides specific nutrients for muscle, bone and brain development.

Plasmon^{^®}shares its nutritional expertise with its sibling Heinz^{^®}brands around the globe where we are number one in Australia, New Zealand, Britain and Canada. In our emerging markets of Russia and China, Heinz nutritionally fortified infant cereals provide an entrée for the Heinz^{^®}brand with aspiring young families who will buy other Heinz^{^®}products as their children grow.

HNZ 2006 15

HEINZ AND THE 1906 PURE FOOD AND DRUG ACT CENTENNIAL

Heinz was instrumental in convincing President Theodore Roosevelt to support the Pure Food and Drug Act, which helped spawn the modern food industry. Henry Heinz dispatched his son, Howard, and top lieutenant and brother-in-law, Sebastian Mueller, to lobby for the legislation.

Henry Heinz believed federal regulation was necessary to build consumer trust and to ensure a level playing field for all.

The champion for the law within the Department of Agriculture, Dr. Harvey Wiley, credited Henry Heinz with providing crucial support for the law’s passage, which is celebrating its centennial this year.

The pure foods company

Quality and purity were bedrock ideas of Founder Henry J. Heinz. His legacy is carried on today by people such as Parks Brame (left), director of quality assurance for Heinz North America, and Idamarie Laquatra, Ph.D., director of global nutrition.

Heinz has long funded nutrition research. Joining the roster last year was the Istituto Scotti Bassani in Italy, which leads Heinz’s research into infant food safety and nutrition.

The cancer-fighting properties of processed tomatoes are increasingly recognized. Last year Heinz joined with other organizations to successfully petition for a qualified health claim from the U.S. Food and Drug Administration. The claim affirms research indicating that eating tomato-based products, such as Classico^{^®}sauces, may help reduce the risk of prostate and certain other cancers.

Today’s Heinz is focused on continuous improvement in its quality assurance programs. A global strategy now puts quality assurance professionals in a direct reporting role to the head of each Heinz affiliate, as well as World Headquarters. Dual reporting promotes shared quality and best-practice initiatives.

The H.J. Heinz Company Foundation recently committed to expand support of a unique micronutrient supplement program in China, India, Indonesia and other emerging markets. The Foundation has committed $5 million to help combat malnutrition and prevent the scourge of anemia with a flavorless powder packaged in individual sachets. When sprinkled on food staples such as rice, the powdered nutrients have been proven more effective than liquid drops, which have undesirable side effects.

More about Heinz’s dedication to its strong values can be found in our inaugural Corporate Social Responsibility Report (pictured at left), accessible at www.heinz.com.

16 HNZ 2006

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 operates in the highly competitive food industry across its product lines competing with other companies that have varying abilities to withstand changing market conditions. Any significant change in relationship with a major customer, including as a result of changes in product prices, sales volume, or contractual terms may impact financial results. Such changes may result because the Company’s competitors may have substantial financial, marketing, and other resources that may change the competitive environment. Such competition could cause the Company to reduce prices and/or increase capital, marketing, and other expenditures, or result in the loss of category share. Such changes could have a material adverse impact on the Company’s net income. As the retail grocery trade continues to consolidate, the larger retail customers of the Company could seek to use their positions to improve their profitability through lower pricing and increased promotional programs. If the Company is unable to use its scale, marketing expertise, product innovation, and category leadership positions to respond to these changes, its profitability and volume growth could be negatively impacted.

The Company’s performance has been in the past and may continue in the future to be impacted by economic and political conditions in the United States and in other nations. Such conditions and factors include changes in applicable laws and regulations, including changes in food and drug laws, accounting standards, taxation requirements and environmental laws. Other factors impacting our operations include export and import restrictions, currency exchange rates, recession, foreign ownership restrictions, nationalization, the performance of businesses in hyperinflationary environments, and political unrest and terrorist acts in the U.S. and other international locations where the Company does business. Such changes in either domestic or foreign jurisdictions could adversely affect our financial results.

The Company sources raw materials including agricultural commodities such as tomatoes, cucumbers, potatoes, onions, other fruits and vegetables, dairy products, meat, sugar and other sweeteners, including high fructose corn syrup, spices, and flour, as well as packaging materials such as glass, plastic, metal, paper, fiberboard, and other materials in order to manufacture products. The cost of such commodities may fluctuate widely due to government policy and regulation, weather conditions, or other unforeseen circumstances. To the extent that any of the foregoing factors increase the prices of such commodities and the Company is unable to increase its prices or adequately hedge against such changes in a manner that offsets such changes, the results of its operations could be materially and adversely affected. Similarly, if supplier arrangements and relationships result in increased and unforeseen expenses, the Company’s financial results could be adversely impacted.

Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material adverse effect on the Company’s consolidated operating results or financial condition. The Company’s labor costs include the cost of providing employee benefits in the U.S. and foreign jurisdictions, including pension, health and welfare, and severance benefits. Any declines in stock market returns could adversely impact the funding of health and welfare plans, the assets of which are invested in a diversified portfolio of equity securities and other investments. Additionally, the annual costs of benefits vary with increased costs of health care and the outcome of collectively-bargained wage and benefit agreements.

The Company is subject to numerous food safety and other laws and regulations regarding the manufacturing, marketing, and distribution of food products. These regulations govern matters such as ingredients, advertising, taxation, relations with distributors and retailers, health and safety matters, and environmental concerns. The ineffectiveness of the Company’s planning and policies with respect to these matters, and the need to comply with new or revised laws or regulations with regard to licensing requirements, trade and pricing practices, environmental permitting, or other food or safety matters, or new interpretations or enforcement of existing laws and regulations, may have a material adverse effect on the Company’s sales and profitability. Avian flu or other pandemics could disrupt production of the Company’s products, reduce demand for certain of the Company’s products, or disrupt the marketplace in the foodservice or retail environment with consequent material adverse effect on the Company’s results of operations.

If any of the Company’s products become misbranded or adulterated, the Company may need to conduct a product recall. The scope of such a recall could result in significant costs incurred as a result of the recall, potential destruction of inventory, and lost sales. Should consumption of any product cause injury, the Company may be liable for monetary damages as a result of a judgment against it. A significant product recall or product liability case could cause a loss of consumer confidence in the Company’s food products and could have a material adverse effect on the value of its brands and results of operations.

The success of the Company is dependent upon anticipating and reacting to changes in consumer preferences, including health and wellness. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. Moreover, success is dependent upon the Company’s ability to identify and respond to consumer trends through innovation. The Company may be required to increase expenditures for new product development. The Company may not be successful in developing new products or improving existing products, or its new products may not achieve consumer acceptance, each of which could negatively impact sales.

The Company’s ability to efficiently integrate acquisitions and joint ventures into its existing operations also affects the financial success of such transactions. The Company may seek to expand its business through acquisitions and joint ventures, and may divest underperforming or non-core businesses. The Company’s success depends, in part, upon its ability to identify such acquisition and divestiture opportunities and to negotiate favorable contractual terms. Activities in such areas are regulated by numerous antitrust and competition laws in the U. S., the European Union, and other jurisdictions, and the Company may be required to obtain the approval of such transactions by competition authorities, as well as satisfy other legal requirements. The failure to obtain such approvals could adversely affect our results.

The Company holds assets and incurs liabilities, earns revenue, and pays expenses in a variety of currencies other than the U. S. dollar, primarily the British Pound, Euro, Australian dollar, Canadian dollar, and New Zealand dollar. The Company’s consolidated financial statements are presented in U. S. dollars, and therefore the Company must translate its assets, liabilities, revenue, and expenses into U. S. dollars. Increases or decreases in the value of the U. S. dollar may negatively affect the value of these items in the Company’s consolidated financial statements, even if their value has not changed in their original currency. To the extent the Company fails to manage its foreign currency exposure adequately, the Company’s consolidated results of operations may be negatively impacted.

As publicly announced, the Company has been implementing a strategic transformation initiative to simplify its business, further prune and realign its portfolio, sell underutilized assets, reduce cost and increase efficiency, and sharpen its focus on three core categories of Ketchup & Sauces, Meals & Snacks, and Infant Food. The success of the Company could be impacted by its inability to continue to execute on its plans through product innovation, implementing cost-cutting measures, enhancing processes and systems on a global basis, and growing market share and volume. Additionally, the Company’s inability to limit disruptions to the business resulting from the emphasis on the three core categories and potential non-core divestitures could adversely affect our financial results. The failure to fully implement the plans could adversely affect the Company’s ability to increase net income.

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders. These forward-looking statements are based on management’s views and assumptions of future events and financial performance, including future revenue growth, earnings, capital expenditures, and other spending, as well as anticipated reduction in spending. The words or phrases “will,” “will likely result,” “are expected to,” “will continue,” “anticipates,” “is

The shares repurchased were acquired under the share repurchase program authorized by the Board of Directors on June 8, 2005 for a maximum of 30 million shares. Of the 7,355,100 shares repurchased during the fourth quarter, 1,080,000 shares were repurchased in the open market and 6,275,100 shares were repurchased in a private transaction. As of May 3, 2006, the maximum number of shares that may yet be purchased under the 2005 program is 15,071,092. In addition, on May 31, 2006, the Board of Directors authorized a share repurchase program of up to 25 million shares, all of which may yet be purchased under the program.

The H.J. Heinz Company has been a pioneer in the food industry for 137 years and possesses one of the world’s best and most recognizable brands— Heinz^®. While the Company has prospered for a long time, we are constantly finding new ways to capitalize on emerging consumer trends and better methods of doing business. Over the past several years, we have been making great progress in simplifying and focusing the Company on our core businesses. This strategic transformation has been a long journey that began with the spin-off of our non-core U.S. businesses in December 2002, and has continued throughout Fiscal 2006, culminating with the recently completed sales of our European Seafood and New Zealand Poultry businesses.

We are very pleased that the portfolio realignment portion of the transformation strategy is now virtually finished. We have a few, non-core, geographically-isolated divestitures to complete, but with the majority of divestitures behind us, we can now sharpen our focus on growing our three core categories of Ketchup & Sauces, Meals & Snacks and Infant Food, where we have competitive advantages and leadership positions. The portfolio realignment has resulted in the divesture of approximately 20 non-core product lines/businesses and has generated proceeds of approximately $1 billion. More than 90% of sales are in our three core categories and approximately 60% of sales are generated by our top 10 brands, making Heinz one of the most focused companies in the packaged food industry.

In August 2005, the Company acquired HP Foods Limited, HP Foods Holdings Limited, and HP Foods International Limited (collectively referred to as “HPF”) for a purchase price of approximately $877 million. HPF is a manufacturer and marketer of sauces which are primarily sold in the United Kingdom, the United States, and Canada. The Company acquired HPF’s brands including HP^® and Lea & Perrin^® and a perpetual license to market Amoy^® brand Asian sauces and products in Europe. In March 2006, the British Competition Commission formally cleared this acquisition, concluding that the acquisition may not be expected to result in a substantial lessening of competition within the markets for tomato ketchup, brown sauce, barbeque sauce, canned baked beans and canned pasta in the United Kingdom.

Housed at the Heinz Global Innovation and Quality Center is its International Center for Excellence in Ketchup & Sauces, a repository of technology and a knowledge base for tomatoes. A multi-national team operates out of key growing and processing regions worldwide and studies all facets of the tomato. They are seeking an understanding of the anti-oxidant lycopene and its means to enhance health and well-being. Botanists and agronomists are constantly developing proprietary tomato hybrids to bolster field yields, enhance color and flavor and to better withstand cooking and packing operations. Heinz technologists are reviewing every production phase from paste to packaging.

In the fourth quarter of Fiscal 2006, the Company completed the sale of the European seafood business, which included the brands of John West^®, Petit Navire^®, Marie Elisabeth^® and Mareblu^®. The Company received net proceeds of $469.3 million for this disposal and recognized a $199.8 million pretax ($122.9 million after tax) gain which has been recorded in discontinued operations. Also in the fourth quarter of Fiscal 2006, the Company completed the sale of the Tegel^® poultry business in New Zealand and received net proceeds of $150.4 million, and recognized a $10.4 million non-taxable gain, which is also recorded in discontinued operations.

In accordance with accounting principles generally accepted in the United States of America, the operating results related to these businesses have been included in discontinued operations in the Company’s consolidated statements of income for all periods presented. These discontinued operations generated sales of $688.0 million (partial year), $808.8 million and $788.7 million and net income of $169.1 million (net of $90.2 million in tax expense), $47.8 million (net of $23.3 million in tax expense), and $63.5 million (net of $37.5 million in tax expense) for the years ended May 3, 2006, April 27, 2005 and April 28, 2004, respectively.

recognize the impairment of a cost-basis investment in a grocery industry sponsored e-commerce business venture. Due to the uncertainty of realizability and executing possible tax planning strategies, the Company recorded a valuation allowance of $27.3 million against the potential tax benefits primarily related to the Hain impairment. This valuation allowance was subsequently released in Fiscal 2006 based upon tax planning strategies that are expected to generate sufficient capital gains that will occur during the capital loss carryforward period. See further discussion in Note 7, “Income Taxes” in Item 8—“Financial Statements and Supplementary Data.”

The American Jobs Creation Act (“AJCA”) provides a deduction of 85% of qualified foreign dividends in excess of a “Base Period” dividend amount. During Fiscal 2006, in order to utilize the beneficial provisions of the AJCA, the Company repatriated amounts incremental to its original business plan in the amount of $253.5 million to satisfy the Base Period dividend requirement and $425.4 million that qualified under the AJCA (the “Qualified Dividends”). In addition, $162.5 million of $174.6 million of previously planned dividends also qualified under the AJCA. The Company incurred a tax charge of $28.9 million on total Base Period dividends, $7.6 million of which is incremental to the tax already accrued on the $162.5 million of qualifying previously planned dividends. The Fiscal 2006 net tax cost related to the $587.9 million of Qualified Dividends is $9.7 million. The $7.6 million of incremental tax related to the Base Period dividends and the $9.7 million of tax related to the Qualified Dividends were recorded as part of tax expense related to special items. The total impact of the AJCA on tax expense for Fiscal 2006 was $17.3 million, of which $24.4 million of expense was recorded in continuing operations and $7.1 million was a benefit in discontinued operations.

Sales for Fiscal 2006 increased $540.0 million, or 6.7%, to $8.6 billion. Sales were favorably impacted by a volume increase of 3.8% driven primarily by the North American Consumer Products segment, as well as the Australian, Indonesian and Italian businesses. These volume increases were partially offset by declines in the European frozen food business. Pricing decreased sales slightly, by 0.1%, as improvements in Latin America, Indonesia and North America were offset by declines in Australia, U.K and Northern Europe. Acquisitions, net of divestitures, increased sales by 4.4%. Foreign exchange translation rates decreased sales by 1.5%.

Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $108.8 million, or 5.3%, to $2.2 billion on a gross sales increase of 6.5%. Marketing support recorded as a reduction of revenue, typically deals and allowances, increased $107.0 million, or 5.9%, to $1.9 billion. This increase is largely a result of increased trade promotion spending in the U.K. and Australia and the impact of acquisitions. These increases were partially offset by decreases in the Italian infant nutrition business and foreign exchange translation rates. Marketing support recorded as a component of SG&A increased $1.8 million, or 0.7%, to $269.4 million, as increases from acquisitions were largely offset by declines in the U.K.

Gross profit increased $106.6 million, or 11.3%, to $1.0 billion, driven primarily by volume growth and acquisitions. The gross profit margin declined to 41.1% from 41.8%, primarily due to increased commodity costs and a benefit in the prior year from the favorable termination of a long-term co-packing arrangement with a customer. Operating income increased $52.9 million, or 10.0%, to $583.4 million, due to the increase in gross profit, partially offset by increased Selling and Distribution costs (“S&D”), primarily due to acquisitions and increased volume, $6.6 million of transformation costs, and increased Research and Development costs (“R&D”) associated with the new Heinz Global Innovation and Quality Center.

Gross profit decreased $21.2 million, or 4.6%, to $436.3 million, as the favorable benefit of the AAI acquisition was partially offset by $7.5 million of reorganization costs discussed above and a $21.5 million impairment charge for the planned sale of the Portion Pac Bulk product line. The gross profit margin decreased to 27.8% from 30.4% primarily due to the reorganization costs and the asset impairment charge, as well as increased commodity and fuel costs. Operating income decreased $47.5 million, or 21.1%, to $177.3 million, chiefly due to $34.8 million of reorganization and asset impairment charges and increased SG&A, largely due to higher fuel and distribution costs and marketing support.

Gross profit decreased $10.9 million, or 1.0%, to $1.1 billion, and the gross profit margin decreased to 37.6% from 39.0%. These decreases are primarily due to $36.3 million of transformation costs previously discussed, unfavorable exchange translation rates, decreased pricing in the U.K and higher manufacturing costs in Northern Europe. Operating income decreased $85.8 million, or 17.2%, to $414.2 million, due largely to the gross profit decrease, unfavorable exchange translation rates and the $112.2 million of transformation costs discussed above, partially offset by the favorable impact of acquisitions, reduced G&A and decreased marketing expense in the U.K.

Gross profit decreased $16.1 million, or 4.6%, to $335.3 million, and the gross profit margin declined to 30.0% from 33.9%. These declines were primarily a result of an $18.8 million asset impairment charge on an Indonesian noodle product line to be divested and increased commodity and manufacturing costs in Indonesia and China, partially offset by the favorable impact of acquisitions and sales volume. Operating income decreased $27.9 million, or 24.7%, to $85.2 million, primarily due to the decline in gross profit margin, increased S&D and $10.2 million of reorganization costs related to targeted workforce reductions discussed above.

As a result of general economic uncertainty, coupled with restrictions on the repatriation of earnings, as of the end of November 2002 the Company deconsolidated its Zimbabwean operations and classified its remaining net investment of approximately $111 million as a cost investment. This investment is included in other non-current assets on the consolidated balance sheet as of April 27, 2005. In the fourth quarter of Fiscal 2006, the Company wrote off its net investment in Zimbabwe. The decision to write down the Zimbabwe investment relates to management’s determination that this investment is not a core business and, as a consequence, the Company will explore strategic options to exit this business. Management’s determination is based on a current evaluation of political and economic conditions existing in Zimbabwe and the ability for the Company to recover its cost in this investment. This evaluation considered the continued economic turmoil, further instability in the local currency and the uncertainty regarding the ability to source raw material in the future.

Sales for Fiscal 2005 increased $477.6 million, or 6.3%, to $8.10 billion. Sales were favorably impacted by volume growth of 2.4% and exchange translation rates of 3.5%. The favorable volume was primarily a result of strong increases in the North American Consumer Products and U.S. Foodservice segments. Net pricing remained consistent as increases in the North American Consumer Products and U.S. Foodservice segments and U.K. convenience meals were offset by the restage of our Italian infant nutrition business, market price pressures impacting 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. Acquisitions, net of divestitures, increased sales by 0.4%. Domestic operations contributed approximately 42% of consolidated sales in Fiscal 2005 and Fiscal 2004.

Gross profit increased $141.0 million, or 4.9%, to $3.03 billion; the gross profit margin decreased to 37.4% from 37.9%. The decrease in the gross profit margin is mainly due to increased commodity and fuel costs, the trade spending charge for the Italian infant nutrition business discussed above and a $27.0 million non-cash asset impairment charge related to the disposition of the HAK^® vegetable product line in Northern Europe in early Fiscal 2006. The 4.9% increase in gross profit is primarily a result of higher volume and favorable exchange translation rates. Fiscal 2004’s gross profit was unfavorably impacted by the write-down of U.K. pizza crust assets totaling $4.0 million.

SG&A increased $135.6 million, or 8.4%, to $1.75 billion, and increased as a percentage of sales to 21.6% from 21.2%. 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 Fiscal 2004 and increased S&D and General and Administrative expenses (“G&A”) in Fiscal 2005. 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 expenses, 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 decreased marketing expense, primarily in Europe. Fiscal 2004’s SG&A was unfavorably impacted by reorganization costs totaling $12.2 million. Operating income increased $5.4 million, or 0.4%, to $1.28 billion.

Total marketing support (recorded as a reduction of revenue or as a component of SG&A) increased $50.0 million, or 2.5%, to $2.07 billion on a sales increase of 6.3%. Marketing support recorded as a reduction of revenue, typically deals and allowances, increased $63.0 million, or 3.6%, to $1.80 billion, which is largely a result of foreign exchange translation rates and the Italian infant nutrition business, 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 $13.1 million, or 4.7%, to $267.5 million, primarily in the Europe segment.

Net interest expense increased $18.3 million, to $205.1 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 $6.7 million, resulting primarily from the impact of the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 150, which required the prospective classification of the quarterly preferred dividend on Heinz Finance Company’s $325 million of mandatorily redeemable preferred shares from other expenses to interest expense beginning in the second quarter of Fiscal 2004.

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 Fiscal 2004 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%.

Heinz Europe’s sales increased $137.9 million, or 5.0%, to $2.91 billion. Favorable exchange translation rates increased sales by 7.6%. Volume increased 0.2% 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 partially offset by declines in frozen entrees in the U.K. and jarred vegetables in Northern Europe. Lower pricing decreased sales 2.1%, 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 0.7%.

Gross profit decreased $9.7 million, or 0.8%, to $1.14 billion, and the gross profit margin decreased to 39.0% from 41.3%. The decrease in gross profit margin is primarily related to lower pricing as discussed above, increased commodity and production costs, particularly in the UK business, 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 $74.7 million, or 13.0%, to $500.0 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.

Sales in Asia/ Pacific increased $50.6 million, or 5.1%, to $1.04 billion. Favorable exchange translation rates increased sales by 3.2%. Volume increased sales 1.4%, chiefly due to new product introductions in the frozen foods and convenience meals categories in the Australia and New Zealand businesses. These were partially offset by the discontinuation of an Indonesian energy drink and volume declines in 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 0.8%. The acquisition of Shanghai LongFong Foods, a maker of popular frozen Chinese snacks and desserts, increased sales 2.9%. The divestiture of a Korean oils and fats product line reduced sales 1.6%.

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 Fiscal 2004 acquisition of a frozen food business in South Africa increased sales by 5.8%. Exchange translation rates increased sales 1.0%.

Cash used for investing activities totaled $451.8 million compared to $264.1 million last year. Capital expenditures were $230.6 million (2.7% of sales) compared to $240.7 million (2.7% of sales) last year. Acquisitions required $1.1 billion in Fiscal 2006 primarily related to the Company’s purchase of HPF, Nancy’s Specialty Foods, Inc., Kabobs, Inc., and Petrosoyuz, compared to $126.5 million in the prior year, which related to the purchase of Appetizer’s And, Inc. and to the purchase of a controlling interest in Shanghai LongFong Foods. Proceeds from divestitures provided $856.7 million in the current year, related primarily to the sales of the European seafood and Tegel^® poultry businesses, the sale of the Company’s equity investment in Hain and the sale of the HAK^® vegetable product line in Northern Europe. In Fiscal 2005, proceeds from divestitures provided $51.2 million related primarily to the sale of an oil and fats product line in Korea.

Cash used for financing activities totaled $1.3 billion compared to using $1.05 billion last year. Proceeds from short-term debt and commercial paper were $298.5 million this year compared to $26.5 million in the prior year. Payments on (net of proceeds from) long-term debt were $497.0 million compared to $480.5 million in the prior year, as the Company retired Euro-denominated long-term debt of €418 million and €300 million in Fiscals 2006 and 2005, respectively. Cash used for the purchases of treasury stock, net of proceeds from option exercises, was $681.3 million this year compared to $212.0 million in the prior year, in line with the Company’s plans of reducing shares outstanding. Dividend payments totaled $408.2 million, compared to $398.9 million for the same period last year, reflecting the increase in the annual dividend on common stock.

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 29.1% in Fiscal 2006, 34.4% in Fiscal 2005 and 51.6% in Fiscal 2004. Fiscal 2006 ROE was unfavorably impacted by 6.5% due to the previously discussed strategic transformation costs. ROE in Fiscal 2005 was unfavorably impacted by increased average equity reflecting fluctuations in foreign exchange translation rates. In addition, ROE was unfavorably impacted by 4.2% in Fiscal 2005 related to the asset impairment charges.

Pretax return on average invested capital (“ROIC”) is calculated by taking income before income taxes, less net interest expense, divided by average invested capital. Average invested capital is a five-point quarterly average of debt plus total equity less cash and cash equivalents, short-term investments and the value of interest rate swaps. ROIC was 19.3% in Fiscal 2006, 21.7% in Fiscal 2005 and 24.7% in Fiscal 2004. Fiscal 2006 ROIC was unfavorably impacted by higher average debt and by 5.5% related to the previously discussed strategic transformation costs. 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.

The Company and H.J. Heinz Finance Company maintain a $2 billion credit agreement that expires in 2009. The credit agreement supports the Company’s commercial paper borrowings. As a result, the commercial paper borrowings are classified as long-term debt based upon the Company’s intent and ability to refinance these borrowings on a long-term basis. The Company maintains in excess of $1 billion of other credit facilities used primarily by the Company’s foreign subsidiaries. These resources, the Company’s existing cash balance, strong operating cash flow, and access to the capital markets, if required, should enable the Company to meet its cash requirements for operations, including capital expansion programs, debt maturities, share repurchases and dividends to shareholders.

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.

In order to manage interest rate exposure, the Company utilizes interest rate swaps 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 May 3, 2006, a variance of 1/8% in the related interest rate would cause annual interest expense related to this debt to change by approximately $3.4 million. The following table presents additional information related to interest rate contracts designated as fair value hedges by the Company:

In December 2004, the 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 employees for 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. The impact of adoption in Fiscal 2007 is anticipated to be approximately $13 million before the impact of income taxes.

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 initially recorded 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 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 monthly and quarterly evaluations of our outstanding coupon accruals 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.

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 uncertainties beyond the Company’s control.

and other factors that attempt to anticipate future events are used in calculating the expense and obligations 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. In addition, the Company’s actuarial consultants use best estimate assumptions for withdrawal and mortality rates to estimate benefit expense. The financial and actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditionals, 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.

One of the significant assumptions for pension plan accounting is the expected rate of return on pension plan assets. Over time, the expected rate of return on assets should approximate the actual long-term returns. In developing the expected rate of return, the Company considers average 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. When calculating the expected return on plan assets, the Company primarily uses a market-related-value of assets that spreads asset gains and losses (difference between actual return and expected return) uniformly over 3 years. The weighted average expected rate of return on plan assets used to calculate annual expense was 8.2% for the years ended May 3, 2006, April 27, 2005 and April 28, 2004. For purposes of calculating Fiscal 2007 expense, the weighted average rate of return will remain at approximately 8.2%.

Another significant assumption used to value benefit plans is the discount rate. 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 Company uses bond yields of appropriate duration for each country by matching to the duration of plan liabilities. The weighted average discount rate used to measure the projected benefit obligation for the year ending May 3, 2006 was reduced to 5.3% from 5.5% as of April 27, 2005.

Deferred gains and losses result from actual experience different from expected financial and actuarial assumptions. The pension plans currently have a deferred loss amount of $645.8 million at May 3, 2006. During 2006, the deferred loss amount was positively impacted by actual asset returns greater than expected in the amount of $261.5 million offset partially by the reduction in the average discount rate at May 3, 2006 and other plan experience. Deferred gains and losses are amortized through the actuarial calculation into annual expense over the estimated average remaining service period of plan participants, which is currently 11 years.

The Company also provides certain postretirement health care benefits. The postretirement health benefit expense and obligation are determined using the Company’s assumptions regarding health care cost trend rates. The health care trend rates are developed based on historical cost data, the near-term outlook on health care trends and the likely long-term trends. The postretirement health care benefit obligation at May 3, 2006 was determined using an average initial health care trend rate of 9.2% which gradually decreases to an average ultimate rate of 4.9% in 2014. A one percentage point increase in the assumed health care cost trend rate would increase the service and interest cost components of annual expense by $2.0 million and increase the benefit obligation by $18.5 million. A one percentage point decrease in the assumed health care cost trend rates

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 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.

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 Venezuela, 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.

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:

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 May 3, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

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 May 3, 2006 and April 27, 2005, and the results of their operations and their cash flows for each of the three years in the period ended May 3, 2006 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.

Also, in our opinion, management’s assessment, included in the 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 May 3, 2006 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 May 3, 2006, 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.

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.

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 2006 presentation.

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—3-7 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.

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 generally classified in the consolidated statements of cash flows within operating activities as a component of other items, net. Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities as a component of other items, net.

Also during the third quarter of Fiscal 2006, the Company sold its equity investment in The Hain Celestial Group, Inc. (“Hain”) and recognized a $6.9 million ($4.5 million after-tax) loss which is recorded within other expense, net. Net proceeds from the sale of this investment were $116.1 million. During the third quarter of Fiscal 2005, the Company recognized a $64.5 million impairment charge on its equity investment in Hain. 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. 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. Due to the uncertainty of realizability and executing possible tax planning strategies, the Company recorded a valuation allowance of $27.3 million against the potential tax benefits primarily related to the Hain impairment. This valuation allowance was subsequently released in Fiscal 2006 based upon tax planning strategies that are expected to generate sufficient capital gains that will occur during the capital loss carryforward period. See further discussion in Note 7.

The Company made several acquisitions in Fiscal 2005 and 2004 for a total purchase price of $132.1 million and $117.4 million, respectively, none of which were individually 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 above-mentioned 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 the businesses acquired have been included in the consolidated statements of income from the respective acquisition dates forward. Pro forma results of the Company, assuming all of the acquisitions had occurred at the beginning of each period presented, would not be materially different from the results reported. There are no significant contingent payments, options or commitments associated with any of the acquisitions.

During Fiscal 2006, the Company acquired HPF, Nancy’s Specialty Foods, Inc., Kabobs, Inc., and a controlling interest in Petrosoyuz. Preliminary purchase price allocations have been recorded for the HPF, Nancy’s Specialty Foods, Inc., and Kabobs, Inc. acquisitions, and the Company expects to finalize these purchase price allocations during Fiscal 2007 upon completion of third party valuation procedures. During Fiscal 2006, the Company finalized the purchase price allocations for the acquisitions of Petrosoyuz, Appetizers And, Inc., Shanghai LongFong Foods and for certain assets from ABAL, S.A. de C.V.

lowances, the benefit of increased profits in lower tax rate jurisdictions and a reduction in tax reserves. The Fiscal 2005 effective tax rate was favorably impacted by 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 Hain, an e-commerce business venture, and other operating losses for which no tax benefit can currently be recorded. The Fiscal 2004 effective tax rate was unfavorably impacted by 0.4 percentage points due to the sale of the Northern Europe bakery business.

The net change in the Fiscal 2006 valuation allowance shown above is a decrease of $39.3 million. The decrease was primarily due to the reversal of valuation allowances of $27.3 million in continuing operations related to the non-cash asset impairment charges recorded in Fiscal 2005 on the cost and equity investments discussed above. 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 valuation allowance was a decrease of $43.2 mil-

During the third quarter of Fiscal 2004, the Company reorganized certain of its foreign operations, resulting in a step-up in the tax basis of certain assets. As a consequence, the Company incurred a foreign income tax liability of $125 million, which was offset by an equal amount of a prepaid tax asset. The tax liability was paid in the third quarter of Fiscal 2005. The prepaid tax asset is being amortized to tax expense to match the amortization of the stepped up tax basis in the assets. As a result of the step-up, the Company expects to realize a tax benefit in excess of the tax liability paid. Accordingly, cash flow and tax expense are expected to improve by $120 million over the amortization period. 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. The tax effect of the refund would be credited to additional paid-in capital, except for any interest allowed which would be credited to tax expense.

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 seven or 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.

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 $21.0 million in Fiscal 2006, $15.5 million in Fiscal 2005 and $18.1 million in Fiscal 2004.

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 were tied to the Company’s financial measures of net income and sales growth over a two-year period. Awards were payable at the end of the two-year performance period based upon the Company achieving these targets. Once the minimum net income target was met, the amount of any award was dependent upon the level of sales growth of the Company for the performance period. Expense was 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 years 2006 and 2005, there was no expense recognized under this plan.

The accumulated benefit obligation for all defined benefit pension plans was $2,398.7 million at May 3, 2006 and $2,166.6 million at April 27, 2005. 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 $670.7 million, $614.6 million and $487.3 million, respectively, as of May 3, 2006 and $525.6 million, $461.7 million and $360.7 million, respectively, as of April 27, 2005. The change in minimum liability included in other comprehensive loss/(income) was an increase of $11.9 million at May 3, 2006 and a decrease of $390.1 million at April 27, 2005. The prepaid benefit cost is included in other non-current assets in the consolidated balance sheets.

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 May 3, 2006 and April 27, 2005.

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 loss/(income) and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item.

In Fiscal 2006, the Company entered into cross currency swaps with a total notional amount of $1.9 billion as of May 3, 2006, which were designated as net investment hedges of foreign operations. These contracts mature within two years. The Company assesses hedge effectiveness for these contracts based on changes in fair value attributable to changes in spot prices. Losses of $16.3 million (net of income taxes of $10.3 million) which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive loss/(income) within unrealized translation adjustment for Fiscal 2006. Gains of $5.5 million, which represented the changes in fair value excluded from the assessment of hedge effectiveness, were included in current period earnings as a component of interest expense for Fiscal 2006.

Continuing operations for the first quarter of Fiscal 2006 includes charges of $32.4 million pretax ($23.5 million after tax) associated with targeted workforce reductions and costs incurred in connection with strategic reviews for several non-core businesses. Continuing operations for the second quarter of Fiscal 2006 includes charges of $46.5 million pretax ($37.1 million after tax) associated with targeted workforce reductions, costs incurred in connection with strategic reviews for several non-core businesses and net losses/impairment charges on divestitures. Continuing operations for the third quarter of Fiscal 2006 includes charges of $41.5 million pretax ($34.8 million after tax) associated with targeted workforce reductions, costs incurred in connection with strategic reviews for several non-core businesses and net losses/impairment charges on divestitures. Continuing operations for the fourth quarter of Fiscal 2006 includes charges of $232.8 million pretax ($179.5 million after tax) associated with targeted workforce reductions, costs incurred in connection with strategic reviews for several non-core businesses, net losses/impairment charges on divestitures and the impact of the American Jobs Creation Act.

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 required disclosure. See also “Report of Management on Internal Control over Financial Reporting”.

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 16, 2006. The information regarding the audit committee financial expert is set forth under the captions “Report of the Audit Committee” and “Relationship with Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held on August 16, 2006. The Company’s Global 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.


	because of their experience and skills, are expected to continue to contribute significantly to the 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.

The 2006 results include $124.7 million pre-tax ($80.3 million after tax) for targeted workforce reductions consistent with the Company’s goals to streamline its businesses and $22.0 million pre-tax ($16.3 million after tax) for strategic review costs related to the potential divestiture of several businesses. Also, $206.5 million pre-tax ($153.9 million after tax) was recorded for net losses on non-core businesses and product lines which were sold and asset impairment charges on non-core businesses and product lines anticipated to be sold in Fiscal 2007. Also during 2006, the Company reversed valuation allowances of $27.3 million primarily related to the Hain Celestial Group, Inc. (“Hain”). In addition, results include $24.4 million of tax expense relating to the impact of the American Jobs Creation Act.

Passing Innovation Through the Generations At H.J. Heinz Company, the power of innovation begins with our people.

From the very beginning, Heinz has been a thought leader in every step of food processing, from the field to the fork. Over the past four years, we have worked to put in place improved technologies, systems, processes and facilities such as our new Global Innovation and Quality Center. These resources enable our talented employees to more effectively continue our tradition of creating great-tasting, convenient and nutritious foods for all eating occasions. Rick Schnupp (right), manager of the center’s pilot plant, discusses the day ahead with Roy Ludwick, associate food engineer.

On June 15, 2006, Heinz filed a preliminary proxy statement in connection with its 2006 annual meeting of shareholders. Prior to the annual meeting, Heinz will furnish a definitive proxy statement to its shareholders, together with a WHITE proxy card. Heinz shareholders are strongly advised to read Heinz’s proxy statement as it contains important information. Shareholders may obtain Heinz’s preliminary proxy statement, any amendments or supplements to the proxy statement and other documents filed by Heinz with the Securities and Exchange Commission for free at the Internet website maintained by the Securities and Exchange Commission at www.sec.gov. Copies of the definitive proxy statement and any amendments and supplements to the definitive proxy statement will also be available for free at Heinz’s Internet website at www.heinz.com or by writing to H. J. Heinz Company, World Headquarters, 600 Grant Street, Pittsburgh, Pennsylvania 15219. In addition, copies of Heinz’s proxy materials may be requested by contacting our proxy solicitor, MacKenzie Partners, Inc. at (800) 322-2885 toll-free or by email at proxy@mackenziepartners.com. Detailed information regarding the names, affiliations and interests of individuals who are participants in the solicitation of proxies of Heinz’s shareholders is available in Heinz’s preliminary proxy statement filed with the Securities and Exchange Commission on June 15, 2006.


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)


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


	Factories

	Owned		Leased		Major Trademarks

North America		27		4	Heinz, Classico, Quality Chef Foods, Yoshida’s, Jack Daniels, Catelli, Wyler’s, Heinz Bell ‘Orto, Bella Rossa, Chef Francisco, Dianne’s, Ore-Ida, Tater Tots, Bagel Bites, Weight Watchers, Boston Market, Smart Ones, Poppers, TGI Friday’s, Delimex, Truesoups, Alden Merrell, Escalon, PPI, Todd’s, Appetizers And, Inc., Nancy’s, Lea & Perrins
Europe		27		—	Heinz, Orlando, Karvan Cevitam, Brinta, Roosvicee, Venz, Weight Watchers, Farley’s, Farex, Sonnen Bassermann, Plasmon, Nipiol, Dieterba, Pudliszki, Ross, Honig, De Ruijter, Aunt Bessie, Mum’s Own, Moya Sem’ya, Picador, Derevenskoe, Mechta Hoziayki, Lea & Perrins, HP, Amoy*
Asia/Pacific		18		2	Heinz, Tom Piper, Wattie’s, ABC, Chef, Craig’s, Bruno, Winna, Hellaby, Hamper, Farley’s, Greenseas, Gourmet, Nurture, LongFong
Rest of World		11		3	Heinz, Wellington’s, Ganave, Complan, Glucon D, Nycil

		83		9	* Used under license


			Positions and Offices Held with the Company and
	Age (as of		Principal Occupations or
Name	August 16, 2006)		Employment During Past Five Years

William R. Johnson		57	Chairman, President, and Chief Executive Officer since September 2000; President and Chief Executive Officer from April 1998 to September 2000.

Jeffrey P. Berger		56	Executive Vice President—Global Foodservice and President and Chief Executive Officer-Heinz North America Foodservice since May 2006; President Foodservice from January 2003 to May 2005; President Heinz US Foodservice from 1994 to January 2003.

David C. Moran		48	Executive Vice President & Chief Executive Officer and President of Heinz North America Consumer Products since November 2005; Senior Vice President—President Heinz North America Consumer Products from May 2005 to November 2005; President North America Consumer Products from January 2003 to May 2005; President Heinz Retail Sales Company from October 1999 to January 2003.

Arthur B. Winkleblack		49	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).

Theodore N. Bobby		55	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		49	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.


			Positions and Offices Held with the Company and
	Age (as of		Principal Occupations or
Name	August 16, 2006)		Employment During Past Five Years

Michael D. Milone		50	Senior Vice President-Heinz Australia, New Zealand and Rest of World since May 2006; Senior Vice President—President Rest of World and Asia from May 2005 to May 2006; 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		56	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.

Chris Warmoth		47	Senior Vice President—Heinz Asia since May 2006; Deputy President Heinz Europe from December 2003 to April 2006; Director Business Development and Marketing, Central and Eastern Europe, Eurasia and Middle East Group, the Coca-Cola Company from December 2001 to April 2003; Vice President Fabric Care, Western Europe—Procter and Gamble from July 1999 to November 2001.

Scott O’Hara		45	Executive Vice President—President and Chief Executive Officer Heinz Europe since May 2006; Executive Vice President—Asia Pacific/Rest of World from January 2006 to May 2006; Senior Vice President Europe—The Gillette Company from October 2004 to January 2006; General Manager U.K. and NL—The Gillette Company from June 2001 to October 2004.

David Ciesinski		40	Vice President—Office of the Chairman & Strategy since February 2006; Vice President Strategic Planning from August 2004 to February 2006; General Manager and Director Strategy Support from June 2003 to August 2004; Manager Business Planning and Investment Analysis from May 2001 to June 2003.


þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	*Competitive product and pricing pressures in the food industry could adversely affect the Company’s ability to gain or maintain market share.*


	*The Company’s performance is affected by economic and political conditions in the U.S. and in various other nations where it does business.*


	*Increases in the cost and restrictions on the availability of raw materials could adversely affect our financial results.*


	*Higher energy costs and other factors affecting the cost of producing, transporting, and distributing the Company’s products could adversely affect our financial results.*


	*The results of the Company could be adversely impacted as a result of increased pension, labor, and people-related expenses.*


	*The impact of various food safety issues, environmental, legal, tax, and other regulations and related developments could adversely affect the Company’s sales and profitability.*


	*The need for and effect of product recalls could have an adverse impact on the Company’s business.*


	*The failure of new product or packaging introductions to gain trade and consumer acceptance and changes in consumer preferences could adversely affect our sales.*


Item 1.	Business.


Item 1B.	Unresolved Staff Comments


Item 2.	Properties.


Item 3.	Legal Proceedings.


	The failure to successfully integrate acquisitions and joint ventures into our existing operations or the failure to gain applicable regulatory approval for such transactions could adversely affect our financial results.


	*The Company’s operations face significant foreign currency exchange rate exposure, which could negatively impact its operating results.*


	*The failure to complete the strategic transformation through further simplification and cost savings could adversely affect the Company’s ability to increase net income.*


	•	Any significant change in the Company’s business with any of its major customers;

	•	The Company’s ability to generate sufficient cash flows to support capital expenditures, share repurchase programs, interest and debt principal payments, and general operating activities;

	•	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 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, cost increases for medical benefits, and other people-related costs and accounting changes;

	•	The performance of businesses in hyperinflationary environments;

	•	The need for and effect of any recalls of products;

	•	Changes in estimates in critical accounting judgments;

	•	Currency valuations, interest rate fluctuations, and other capital market conditions;

	•	Changes in credit ratings;

	•	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, including tax litigation;

	•	The success of tax planning strategies;

	•	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;

	•	The voting result for shareholder proposals; and


	•	The Company’s ability to offset the reduction in volume and revenue resulting from participation in categories experiencing declining consumption rates.


Item 4.	Submission of Matters to a Vote of Security Holders.


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


							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 26, 2006 - February 22, 2006		—		—		—		—
February 23, 2006 - March 22, 2006		—		—		—		—
March 23, 2006 May 3, 2006		7,355,100		39.92		—		—

Total		7,355,100		39.92		—		—


	Fiscal Year Ended

	May 3,		April 27,		April 28,		April 30,		May 1,
	2006		2005		2004		2003		2002
	(53 Weeks)		(52 Weeks)		(52 Weeks)		(52 Weeks)		(52 Weeks)

Sales(1)	$	8,643,438	$	8,103,456	$	7,625,831	$	7,566,800	$	7,040,934
Interest expense(1)		316,296		232,088		211,382		222,729		230,027
Income from continuing operations before cumulative effect of change in accounting principle(1)		442,761		688,004		715,451		478,303		593,042
Income from continuing operations before cumulative effect of change in accounting principle per share — diluted(1)		1.29		1.95		2.02		1.35		1.68
Income from continuing operations before cumulative effect of change in accounting principle per share — basic(1)		1.31		1.97		2.03		1.36		1.69
Short-term debt and current
portion of long-term debt		54,969		573,269		436,450		154,786		702,645
Long-term debt, exclusive of current portion(2)		4,357,013		4,121,984		4,537,980		4,776,143		4,642,968
Total assets		9,737,767		10,577,718		9,877,189		9,224,751		10,278,354
Cash dividends per common share		1.20		1.14		1.08		1.485		1.6075


(1)	Amounts exclude the operating results related to the Company’s European seafood business and Tegel^® poultry businesses in New Zealand which were divested in Fiscal 2006 and have been presented as discontinued operations.

(2)	Long-term debt, exclusive of current portion, includes ($1.4) million, $186.1 million, $125.3 million, $294.8 million and $23.6 million of hedge accounting adjustments associated with interest rate swaps at May 3, 2006, April 27, 2005, April 28, 2004, April 30, 2003 and May 1, 2002, respectively. 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. Each share of preferred stock is entitled to annual cash dividends at a rate of 6.226% or $6,226 per share. On July 15, 2008, each share will be redeemed for $100,000 in cash for a total redemption price of $325 million.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	•	Successfully divested non-core U.S. businesses in a $2.3 billion, tax-free spin-off in Fiscal 2003. This simplified our U.S. business and enabled us to upgrade talent, processes and systems. We have driven growth through innovation in the iconic Heinz^® Ketchup brand, Smart Ones^® nutritional meals, Ore-Ida^® frozen potatoes and Classico^® pasta sauces.

	•	Implemented a similar transformational plan in our Pacific operations of Australia and New Zealand. In these two business units, the Company simplified the structure, upgraded talent, streamlined processes and accelerated innovation. As a consequence, sales have grown at double-digit rates and operating profits in the Pacific operations have more than doubled from Fiscal 2003 through 2006.

	•	From Fiscal 2002 through 2006, we have significantly outpaced the industry in working capital efficiency improvements, by lowering our cash conversion cycle by 36 days to 56 days for Fiscal 2006. We also maintained capital spending at an average rate of 2.4% of sales, one of the lowest in the industry.

	•	Acquired highly-targeted businesses to further strengthen our leadership position in the three core categories, including the Petrosoyuz (condiments and sauces) business in Russia and the iconic HP^® and Lea & Perrins^® sauces brands.

	•	Returned over $4 billion to shareholders over the last four years through the dividend derived from the spin-off to Del Monte, the annual dividend program and share repurchases.


	With a more focused portfolio, Heinz will devote its energy and resources primarily to the six major developed markets of the U.S., Canada, U.K., Italy, Western Europe and Australia/New Zealand. In these markets, Heinz will increase consumer insights to improve value to customers and consumers.

	We will also focus on the key emerging markets of Russia, India, China, Indonesia and Poland. These markets represent over 40% of the world’s population and 15% of the world’s GDP growth. Heinz has good, profitable businesses in each of these markets and will be looking to drive strong growth with products designed for local tastes and cultures.


	Heinz will continue to improve its effectiveness and reduce complexity by:


	•	Pruning those few remaining businesses that do not fit with our long-term strategy;

	•	Eliminating non-value-added facilities and SKU’s;

	•	Continued de-layering of the organization; and

	•	Establishing best-in-class processes and systems around the globe.


Business or Product Line	Segment	Pre-Tax			After-Tax

		(in millions)

Loss on sale of Seafood business in Israel	Other Operating	$	(15.9	)	$	(15.9	)
Impairment charge on Portion Pac Bulk product line	U.S. Foodservice		(21.5	)		(13.3	)
Impairment charge on U.K. Frozen and Chilled product lines	Europe		(15.2	)		(15.2	)
Impairment charge on European production assets	Europe		(18.7	)		(18.7	)
Impairment charge on Noodle product line in Indonesia	Asia/Pacific		(15.8	)		(8.5	)
Impairment charge on investment in Zimbabwe business	Other Operating		(111.0	)		(105.6	)
Other	Various		(1.5	)		0.5

Total		$	(199.6	)	$	(176.7	)


			In millions

Non-taxable repatriations			$	472.7
Taxable repatriations:
	Planned at beginning of Fiscal 2006:
		Eligible for AJCA		162.5
		Not eligible for AJCA		12.1
	Incremental dividends:
		Eligible for AJCA		425.4
		Not eligible for AJCA		253.5

Total cash repatriations			$	1,326.2


		Less than						More than
		1 year		1-3 years		3-5 years		5 years		Total

Long Term Debt		$	333	$	625,314	$	589,361	$	3,136,114	$	4,351,122
Capital Lease Obligations			8,190		19,305		18,277		64,404		110,176
Operating Leases			73,097		115,459		81,198		211,425		481,179
Purchase Obligations			770,202		771,553		300,245		56,699		1,898,699
Other Long Term Liabilities Recorded on the Balance Sheet			98,951		198,494		196,468		164,658		658,571

	Total	$	950,773	$	1,730,125	$	1,185,549	$	3,633,300	$	7,499,747


	Aggregate Notional Amount				Net Unrealized Gains/(Losses)

	May 3, 2006		April 27, 2005		May 3, 2006			April 27, 2005

	(Dollars in millions)
Purpose of Hedge:
Intercompany cash flows	$	652	$	737	$	5.4		$	(1.7	)
Forecasted purchases of raw materials and finished goods and foreign currency denominated obligations		346		417		(1.3	)		(7.1	)
Forecasted sales and foreign currency denominated assets		153		115		(4.3	)		1.8
Net investments in foreign operations		1,855		—		(42.2	)		—

	$	3,006	$	1,269	$	(42.4	)	$	(7.0	)


	Fair Value Effect

	(Dollars in
	millions)
Foreign currency contracts	$	298
Interest rate swap contracts	$	95