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<SEC-DOCUMENT>0000950128-01-500347.txt : 20010730
<SEC-HEADER>0000950128-01-500347.hdr.sgml : 20010730
ACCESSION NUMBER: 0000950128-01-500347
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20010502
FILED AS OF DATE: 20010727
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HEINZ H J CO
CENTRAL INDEX KEY: 0000046640
STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030]
IRS NUMBER: 250542520
STATE OF INCORPORATION: PA
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-03385
FILM NUMBER: 1691400
BUSINESS ADDRESS:
STREET 1: 600 GRANT ST
CITY: PITTSBURGH
STATE: PA
ZIP: 15219
BUSINESS PHONE: 4124565700
MAIL ADDRESS:
STREET 2: P O BOX 57
CITY: PITTSBURGH
STATE: PA
ZIP: 15230
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>j8930801e10-k405.txt
<DESCRIPTION>H.J. HEINZ COMPANY FORM 10-K405
<TEXT>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 2, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
412-456-5700
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $.25 per share New York Stock Exchange;
Pacific Exchange
Third Cumulative Preferred Stock, $1.70 First
Series, par value $10 per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 30, 2001 the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately
$14,210,198,991.
The number of shares of the Registrant's Common Stock, par value $.25 per
share, outstanding as of June 30, 2001, was 349,285,014 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal year
ended May 2, 2001 are incorporated into Part I, Item 1; Part II, Items 5, 7, 7A
and 8; and Part IV, Item 14.
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on September 11, 2001, which will be filed with the
Securities and Exchange Commission within 120 days after the end of the
Registrant's fiscal year ended May 2, 2001, are incorporated into Part III,
Items 10, 11, 12 and 13.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In
1905, it succeeded to the business of a partnership operating under the same
name which had developed from a food business founded in 1869 at Sharpsburg,
Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its subsidiaries
(collectively, the "Company") manufacture and market an extensive line of
processed food products throughout the world. The Company's principal products
include ketchup, condiments and sauces, frozen food, pet food, soups, beans and
pasta meals, tuna and other seafood products, infant food and other processed
food products.
The Company's products are manufactured and packaged to provide safe,
wholesome foods for consumers, foodservice and institutional customers. Many
products are prepared from recipes developed in the Company's research
laboratories and experimental kitchens. Ingredients are carefully selected,
washed, trimmed, inspected and passed on to modern factory kitchens where they
are processed, after which the finished product is filled automatically into
containers of glass, metal, plastic, paper or fiberboard which are then closed,
processed, labeled and cased for market. Finished products are processed by
sterilization, homogenization, chilling, freezing, pickling, drying, freeze
drying, baking or extruding. Certain finished products and seasonal raw
materials are aseptically packed into sterile containers after in-line
sterilization.
The Company manufactures its products from a wide variety of raw foods.
Pre-season contracts are made with farmers for a portion of raw materials such
as tomatoes, cucumbers, potatoes, onions and some other fruits and vegetables.
Dairy products, meat, sugar, spices, flour and certain other fruits and
vegetables are generally purchased on the open market.
Tuna is obtained through spot and term contracts directly with tuna vessel
owners or their cooperatives and by brokered transactions. In some instances, in
order to ensure the continued availability of adequate supplies of tuna, the
Company assists, directly or indirectly, in financing the acquisition and
operation of fishing vessels. The provision of such assistance is not expected
to affect materially the operations of the Company.
The Marine Mammal Protection Act of 1972, as amended (the "Act"), and
regulations thereunder (the "Regulations") regulate the incidental taking of
dolphin in the course of fishing for yellowfin tuna in the eastern tropical
Pacific Ocean, where a portion of the Company's light-meat tuna is caught. In
1990, the Company voluntarily adopted a worldwide policy of refusal to purchase
tuna caught in the eastern tropical Pacific Ocean through the intentional
encirclement of dolphin by purse seine nets and reaffirmed its policy of not
purchasing tuna caught anywhere using gill nets or drift nets. Also in 1990, the
Dolphin Protection Consumer Information Act (the "Dolphin Information Act") was
enacted which regulates the labeling of tuna products as "dolphin safe" and bans
the importation of tuna caught using high seas drift nets. The Act was amended
in 1992 to further regulate tuna fishing methods which involve marine mammals.
Compliance with the Act, the Regulations, the Dolphin Information Act, and the
Company's voluntary policy and the 1992 amendments has not had, and is not
expected to have, a material adverse effect on the Company's operations.
Congress passed the International Dolphin Conservation Program Act ("IDCPA") on
August 15, 1997. It modified the regulation of the incidental taking of dolphins
in the course of fishing for yellowfin tuna in the eastern tropical Pacific
Ocean and revised the definition of "dolphin safe". Revision of the definition
of "dolphin safe" and modification of the regulation of the incidental taking of
dolphins in the course of fishing for yellowfin tuna in the eastern tropical
Pacific Ocean have not had and are not expected to have a material adverse
effect on the Company's operations.
In recent years, the supply of raw tuna has been variable causing a
fluctuation in raw fish prices; however, such variation in supply has not
affected materially, nor is it expected to affect materially, the Company's
operations.
2
<PAGE> 3
The following table lists the number of the Company's principal food
processing factories and major trademarks by business segment:
<TABLE>
<CAPTION>
Factories
--------------
Owned Leased Major Trademarks
----- ------ ----------------
<S> <C> <C> <C>
North American Grocery & Foodservice 20 7 Heinz, College Inn, StarKist,
Classico, Quality Chef, Yoshida,
Jack Daniels*, Diana Sauce, Bell
'Orto, Bella Rosa, Pablum, Chef
Francisco, Domani, Omstead, 9-Lives,
Kibbles n' Bits, Ken-L-Ration,
Reward, Gravy Train, Skippy,
Nature's Recipe, Pounce, Snausages,
Jerky Treats, Pup-Peroni, Wagwells,
Technical, Meaty Bone
North American Frozen 5 0 Ore-Ida, Bagel Bites, Moore's,
Rosetto, Weight Watchers*, Boston
Market*, Smart Ones
Europe 33 5 Heinz, Petit Navire, John West, Mare
D'Oro, Mareblu, Marie Elisabeth,
Orlando, Guloso, San Marco, Linda
McCartney*, Weight Watchers*,
Farley's, Farex, Sonnen Basserman,
Plasmon, Nipiol, Dieterba,
Ortobuono, Frank Coopers, Pudliszki,
Go Ahead!*, American Dream, Hak,
Honig, De Ruijter
Asia/Pacific 16 5 Heinz, Tom Piper, Wattie's, ABC,
Tegel, Chef, Champ, Craig's, Bruno,
Winna, Hellaby, Hamper, Farley's,
Greenseas, Gourmet, Nurture,
Complan, Farex
Other Operating Entities 6 2 Heinz, StarKist, Olivine,
Wellington's, Ganave, Champs, Royal
Pacific, 9-Lives, Pounce, Kibbles n'
Bits, Super Can
-- --
80 19 * Used under license
</TABLE>
The Company also owns or leases office space, warehouses, distribution
centers and research and other facilities throughout the world. The Company's
food processing plants and principal properties are in good condition and are
satisfactory for the purposes for which they are being utilized.
The Company has participated in the development of certain of its food
processing equipment, some of which is patented. The Company regards these
patents as important but does not consider any one or group of them to be
materially important to its business as a whole.
Although crops constituting some of the Company's raw food ingredients are
harvested on a seasonal basis, most of the Company's products are produced
throughout the year. Seasonal factors inherent in the business have always
influenced the quarterly sales and net income of the Company. Consequently,
comparisons between quarters have always been more meaningful when made between
the same quarters of different years.
3
<PAGE> 4
The products of the Company are sold under highly competitive conditions,
with many large and small competitors. The Company regards its principal
competition to be other manufacturers of processed foods, including branded,
retail products, foodservice products and private label products, that compete
with the Company for consumer preference, distribution, shelf space and
merchandising support. Product quality and consumer value are important areas of
competition.
The Company's products are sold through its own sales force and through
independent brokers, agents and distributors to chain, wholesale, cooperative
and independent grocery accounts, pharmacies, mass merchants, club stores, pet
stores, foodservice distributors and institutions, including hotels, restaurants
and certain government agencies. The Company is not dependent on any single
customer or a few customers for a material part of its sales.
Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material effect upon the capital
expenditures, earnings or competitive position of the Company. The Company's
estimated capital expenditures for environmental control facilities for the
remainder of fiscal year 2002 and the succeeding fiscal year are not material
and will not materially affect either the earnings or competitive position of
the Company.
The Company's factories are subject to inspections by various governmental
agencies, and its products must comply with the applicable laws, including food
and drug laws, of the jurisdictions in which they are manufactured and marketed.
The Company employed, on a full-time basis as of May 2, 2001, approximately
45,800 persons around the world.
Segment information is set forth on pages 66 through 68 in Note 14 to the
Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001.
Such information is incorporated herein by reference.
Income from international operations is subject to fluctuation in currency
values, export and import restrictions, foreign ownership restrictions, economic
controls and other factors. From time to time exchange restrictions imposed by
various countries have restricted the transfer of funds between countries and
between the Company and its subsidiaries. To date, such exchange restrictions
have not had a material adverse effect on the Company's operations.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its 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. The words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "target," "goal" or
similar expressions identify "forward-looking statements" within the meaning of
the Act.
In order to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. These
forward-looking statements are uncertain. The risks and uncertainties that may
affect operations and financial performance, some of which may be beyond the
control of the Company, include the following:
- Changes in laws and regulations, including changes in food and drug laws,
accounting standards, taxation requirements (including tax rate changes,
new tax laws and revised tax law interpretations) and environmental laws
in domestic or foreign jurisdictions;
4
<PAGE> 5
- Competitive product and pricing pressures and the Company's ability to
gain or maintain share of sales in the global market as a result of
actions by competitors and others;
- Fluctuations in the cost and availability of raw materials and the
ability to maintain favorable supplier arrangements and relationships;
- The impact of higher energy costs on the cost of producing, transporting
and distributing the Company's products;
- The Company's ability to generate sufficient cash flows to support
capital expenditures, share repurchase programs and general operating
activities;
- The inherent risks in the marketplace associated with new product or
packaging introductions, including uncertainties about trade and consumer
acceptance;
- The Company's ability to achieve sales and earnings forecasts, which are
based on assumptions about sales volume, product mix and other items;
- The Company's ability to integrate acquisitions and joint ventures into
its existing operations and the availability of new acquisition and joint
venture opportunities;
- The Company's ability to achieve its cost savings objectives, including
any restructuring programs and its working capital initiative;
- The impact of unforeseen economic and political changes in international
markets where the Company competes, such as currency exchange rates,
inflation rates, recession, foreign ownership restrictions and other
external factors over which the Company has no control;
- Interest rate fluctuations and other capital market conditions;
- The effectiveness of the Company's advertising, marketing and promotional
programs;
- Weather conditions, which could impact demand for Company products and
the supply and cost of raw materials;
- The Company's ability to maintain its profit margin in the face of a
consolidating retail environment; and
- The Company's ability to offset the reduction in volume and revenue
resulting from participation in categories experiencing declining
consumption rates.
The foregoing list of important factors is not exclusive. The
forward-looking statements are and will be based on management's then current
views and assumptions regarding future events and operating performance and
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 2. PROPERTIES.
See table in Item 1.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to a vote of security holders
since the last annual meeting of shareholders on September 12, 2000.
5
<PAGE> 6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive
officers of H. J. Heinz Company indicating all positions and offices held by
each such person and each such person's principal occupations or employment
during the past five years. All the executive officers have been elected to
serve until the next annual election of officers or until their successors are
elected, or until their earlier resignation or removal. The annual election of
officers is scheduled to occur on September 11, 2001.
<TABLE>
<CAPTION>
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 11, 2001) Employment During Past Five Years
---- ------------------- -----------------------------------------------
<S> <C> <C>
William R. Johnson 52 Chairman, President, and Chief Executive
Officer since September 2000; President and
Chief Executive Officer from April 1998 to
September 2000; President and Chief Operating
Officer from June 1996 to April 1998.
Paul F. Renne 58 Executive Vice President and Chief Financial
Officer since June 1997; Senior Vice
President--Finance and Chief Financial Officer
from September 1996 to June 1997.
Richard H. Wamhoff 55 Executive Vice President--Asia/Pacific and
Global Manufacturing/Supply Chain since August
2000; Executive Vice President--Global
Manufacturing/Supply Chain and Frozen Foods
from May 1998 to August 2000; President and
Chief Executive Officer--Ore-Ida Foods, Inc.
from May 1993 to May 1998.
David R. Williams 58 Executive Vice President, President, and Chief
Operating Officer--Europe, Middle East, Africa
and India since August 2000; Executive Vice
President from June 1996 to August 2000.
Michael J. Bertasso 51 Senior Vice President--Strategy, Process and
Business Development since May 1998; Executive
Vice President--Star-Kist Foods, Inc. from July
1996 to May 1998; Chief Cost Officer--Star-Kist
Foods, Inc. from May 1995 to July 1996.
William C. Goode 60 Senior Vice President and Chief Administrative
Officer since May 2000; Vice President and
Chief Administrative Officer from May 1998 to
April 2000; Vice President--Operations of Heinz
Pet Products from October 1996 to May 1998;
Vice President--Human Resources & Quality
Systems of Star-Kist Foods, Inc. from May 1993
to October 1996.
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 11, 2001) Employment During Past Five Years
---- ------------------- -----------------------------------------------
<S> <C> <C>
Michael D. Milone 45 Chief Executive Officer Star-Kist Foods, Inc.
since May 2001; Senior Vice President--Global
Category Development since May 2000; Vice
President--Global Category Development from
August 1998 to May 2000; President and Chief
Operating Officer of Heinz Pet Products from
July 1996 to August 1998.
D. Edward I. Smyth 51 Senior Vice President--Corporate and Government
Affairs since May 1998; Vice
President--Corporate Affairs from March 1990 to
May 1998.
Laura Stein 39 Senior Vice President and General Counsel since
January 2000; attorney at The Clorox Company
from 1992-1999, last serving as Assistant
General Counsel--Regulatory Affairs.
</TABLE>
7
<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information relating to the Company's common stock is set forth beginning
on page 42 under the caption "Stock Market Information" and on page 68 in Note
15, "Quarterly Results (Unaudited)," of the Company's Annual Report to
Shareholders for the fiscal year ended May 2, 2001. Such information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected consolidated financial data for the
Company and its subsidiaries for each of the five fiscal years 1997 through
2001. All amounts are in thousands except per share data.
<TABLE>
Fiscal year ended
--------------------------------------------------------------
May 2, May 3, April 28, April 29, April 30,
2001 2000 1999 1998 1997
(52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales....................... $9,430,422 $9,407,949 $9,299,610 $9,209,284 $9,357,007
Interest expense............ 332,957 269,748 258,813 258,616 274,746
Net income.................. 478,012 890,553 474,341 801,566 301,871
Net income per share--
diluted................... 1.36 2.47 1.29 2.15 0.81
Net income per share--
basic..................... 1.37 2.51 1.31 2.19 0.82
Short-term debt and current
portion of long-term
debt...................... 1,870,834 176,575 904,207 339,626 1,163,442
Long-term debt, exclusive of
current portion........... 3,014,853 3,935,826 2,472,206 2,768,277 2,283,993
Total assets................ 9,035,150 8,850,657 8,053,634 8,023,421 8,437,787
Cash dividends per common
share..................... 1.545 1.4450 1.3425 1.2350 1.1350
</TABLE>
The 2001 results include restructuring and implementation costs of $298.8
million pretax ($0.66 per share) for the Streamline initiative, net
restructuring and implementation costs of $288.5 million pretax ($0.52 per
share) for Operation Excel, a benefit of $93.2 million ($0.27 per share) from
tax planning and new tax legislation in Italy, a loss of $94.6 million pretax
($0.19 per share) on the sale of The All American Gourmet business, company
acquisition costs of $18.5 million pretax ($0.03 per share), a loss of $5.6
million pretax ($0.01 per share) which represents the company's equity loss
associated with The Hain Celestial Group's fourth quarter results which included
charges for its merger with Celestial Seasonings and the after-tax impact of
adopting SAB No. 101 and SFAS No. 133 of $16.9 million ($0.05 per share). See
Notes 3 and 4 to the Consolidated Financial Statements beginning on page 52 of
the Company's Annual Report to Shareholders for the fiscal year ended May 2,
2001.
The 2000 results include net restructuring and implementation costs of
$392.7 million pretax ($0.74 per share) for Operation Excel, a pretax
contribution of $30.0 million ($0.05 per share) to the H. J. Heinz Company
Foundation, costs related to Ecuador of $20.0 million pretax ($0.05 per share),
a gain of $464.6 million pretax ($0.72 per share) on the sale of the Weight
Watchers classroom business and a gain of $18.2 million pretax ($0.03 per share)
on the sale of an office building in the U.K. See Notes 3 and 4 to the
Consolidated Financial Statements beginning on page 52 of the Company's Annual
Report to Shareholders for the fiscal year ended May 2, 2001.
The 1999 results include restructuring and implementation costs of $552.8
million pretax ($1.11 per share) for Operation Excel and costs of $22.3 million
pretax ($0.04 per share) related to
8
<PAGE> 9
the implementation of Project Millennia, offset by the reversal of unutilized
Project Millennia accruals for severance and exit costs of $25.7 million pretax
($0.04 per share) and a gain of $5.7 million pretax on the sale of the bakery
products unit. See Notes 3 and 4 to the Consolidated Financial Statements
beginning on page 53 of the Company's Annual Report to Shareholders for the
fiscal year ended May 2, 2001.
The 1998 results include costs of $84.1 million pretax ($0.14 per share)
related to the implementation of Project Millennia, offset by the gain on the
sale of the Ore-Ida frozen foodservice business, $96.6 million pretax ($0.14 per
share).
The 1997 results include a pretax charge for Project Millennia
restructuring and implementation costs of $647.2 million ($1.09 per share).
These charges were partially offset by gains recognized on the sale of the New
Zealand ice cream business, $72.1 million pretax ($0.12 per share) and real
estate in the United Kingdom, $13.2 million pretax ($0.02 per share).
Note: All earnings per share amounts are presented on an after-tax diluted basis
unless otherwise noted.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is set forth in the Management's Discussion and Analysis
section on pages 28 through 42 of the Company's Annual Report to Shareholders
for the fiscal year ended May 2, 2001. Such information is incorporated herein
by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This information is set forth in the Management's Discussion and Analysis
section on pages 41 through 42 of the Company's Annual Report to Shareholders
for the fiscal year ended May 2, 2001. Such information is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Company and its subsidiaries as of
May 2, 2001 and May 3, 2000 and the related Consolidated Statements of Income,
Shareholders' Equity and Cash Flows for the fiscal years ended May 2, 2001, May
3, 2000 and April 28, 1999 together with the related Notes to Consolidated
Financial Statements, on pages 43 through 70 of the Company's Annual Report to
Shareholders for the fiscal year ended May 2, 2001, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to be reported under this item.
9
<PAGE> 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Directors of the Company is set forth under the
captions "Election of Directors" and "Additional Information--Section 16
Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy
Statement in connection with its Annual Meeting of Shareholders to be held
September 11, 2001. Such information is incorporated herein by reference.
Information relating to the executive officers of the Company is set forth under
the caption "Executive Officers of the Registrant" in Part I above.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
caption "Executive Compensation" in the Company's definitive Proxy Statement in
connection with its Annual Meeting of Shareholders to be held September 11,
2001. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the Company
by certain beneficial owners and management is set forth under the caption
"Security Ownership of Management" in the Company's definitive Proxy Statement
in connection with its Annual Meeting of Shareholders to be held September 11,
2001. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships with a beneficial shareholder
and certain related transactions is set forth under the caption "Certain
Business Relationships" in the Company's definitive Proxy Statement in
connection with its Annual Meeting of Shareholders to be held September 11,
2001. Such information is incorporated herein by reference.
10
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<C> <S>
(a)(1) The following financial statements and report included in
the Company's Annual Report to Shareholders for the fiscal
year ended May 2, 2001 are incorporated herein by reference:
Consolidated Balance Sheets as of May 2, 2001 and May 3,
2000
Consolidated Statements of Income for the fiscal years
ended May 2, 2001, May 3, 2000 and April 28, 1999
Consolidated Statements of Shareholders' Equity for the
fiscal years ended May 2, 2001, May 3, 2000 and April
28, 1999
Consolidated Statements of Cash Flows for the fiscal years
ended May 2, 2001, May 3, 2000 and April 28, 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants of
PricewaterhouseCoopers LLP dated June 14, 2001, except
for footnote 18, for which the date is July 6, 2001 on
the Company's consolidated financial statements for the
fiscal years ended May 2, 2001, May 3, 2000 and April
28, 1999
(2) The following report and schedule is filed herewith as a
part hereof:
Report of Independent Accountants of PricewaterhouseCoopers
LLP dated June 14, 2001 on the Company's consolidated
financial statement schedule filed as a part hereof for
the fiscal years ended May 2, 2001, May 3, 2000 and
April 28, 1999
Consent of Independent Accountants of PricewaterhouseCoopers
LLP dated July 26, 2001 filed as a part hereof
Schedule II (Valuation and Qualifying Accounts and Reserves)
for the three fiscal years ended May 2, 2001, May 3, 2000
and April 28, 1999
All other schedules are omitted because they are not
applicable or the required information is included herein or
is shown in the consolidated financial statements or notes
thereto incorporated herein by reference.
(3) Exhibits required to be filed by Item 601 of Regulation S-K
are listed below and are filed as a part hereof. Documents
not designated as being incorporated herein by reference are
filed herewith. The paragraph numbers correspond to the
exhibit numbers designated in Item 601 of Regulation S-K.
3(i) The Company's Articles of Amendment dated July 13,
1994, amending and restating the Company's amended and
restated Articles of Incorporation in their entirety,
are incorporated herein by reference to Exhibit 3(i)
to the Company's Annual Report on Form 10-K for the
fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective
September 8, 1999 are incorporated herein by reference to
Exhibit 3 to the Company's Quarterly Report on Form
10-Q for the three months ended July 28, 1999.
4. Except as set forth below, there are no instruments
with respect to long-term debt of the Company that involve
indebtedness or securities authorized thereunder
exceeding 10 percent of the total assets of the
Company on a consolidated basis. The Company agrees
to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of
the Company upon request of the Securities and
Exchange Commission.
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
(a) The Indenture between the Company and The First
National Bank of Chicago dated as of July 15, 1992 is
incorporated herein by reference to Exhibit 4(a) to the
Company's Registration Statement on Form S-3 (Reg. No.
333-48017) and the supplements to such Indenture are
incorporated herein by reference to the Company's Form
8-Ks dated January 27, 1993, March 25, 1998 and July
16, 1998 relating to the Company's $200,000,000 6 7/8%
Notes due 2003, $300,000,000 6% Notes due 2008 and
$250,000,000 6.375% Debentures due 2028, respectively.
(i) Supplement dated May 3, 2001 to the Indenture between
the Company and The First National Bank of Chicago dated as
of July 15, 1992.
(b) The Indenture between the Company and Bank One,
National Association dated November 6, 2000, is incorporated
herein by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the nine months ended
January 31, 2001.
(i) Supplement dated May 3, 2001 to the Indenture between
the Company and Bank One, National Association dated as of
November 6, 2000.
10(a) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz
Company and affiliated companies, as amended and restated in
its entirety effective December 6, 1995, is
incorporated herein by reference to Exhibit 10(c)(i)
to the Company's Annual Report on Form 10-K for the
fiscal year ended May 1, 1995.
(ii) H. J. Heinz Company 1984 Stock Option Plan, as
amended, is incorporated herein by reference to Exhibit
10(n) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 2, 1990.
(iii) H. J. Heinz Company 1987 Stock Option Plan, as
amended, is incorporated herein by reference to Exhibit
10(o) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 2, 1990.
(iv) H. J. Heinz Company 1990 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 3, 1990.
(v) H. J. Heinz Company 1994 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 5, 1994.
(vi) H. J. Heinz Company Supplemental Executive Retirement
Plan, as amended, is incorporated herein by reference to
Exhibit 10(c)(ix) to the Company's Annual Report on
Form 10-K for the fiscal year ended April 28, 1993.
(vii) H. J. Heinz Company Executive Deferred Compensation
Plan.
(viii) H. J. Heinz Company Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the
Company's Proxy Statement dated August 5, 1994.
(ix) H. J. Heinz Company Stock Compensation Plan for
Non-Employee Directors is incorporated herein by reference
to Appendix A to the Company's Proxy Statement dated
August 3, 1995.
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
(x) H. J. Heinz Company 1996 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 2, 1996.
(xi) H. J. Heinz Company Deferred Compensation Plan for
Directors is incorporated herein by reference to Exhibit
10(xiii) to the Company's Annual Report on Form 10-K
for the fiscal year ended April 29, 1998.
(xii) H. J. Heinz Company Global Stock Purchase Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 3, 1999.
(xiii) Form of Severance Protection Agreement is
incorporated herein by reference to Exhibit 10(a)(xiv) to
the Company's Annual Report on Form 10-K for the
fiscal year ended May 3, 2000.
(xiv) H. J. Heinz Company 2000 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 4, 2000.
12. Computation of Ratios of Earnings to Fixed Charges.
13. Pages 28 through 71 of the H. J. Heinz Company Annual
Report to Shareholders for the fiscal year ended May 2,
2001, portions of which are incorporated herein by
reference. Those portions of the Annual Report to
Shareholders that are not incorporated herein by
reference shall not be deemed to be filed as a part of
this Report.
21. Subsidiaries of the Registrant.
23. The following Exhibit is filed by incorporation by
reference to Item 14(a)(2) of this Report:
(a) Consent of PricewaterhouseCoopers LLP.
24. Powers-of-attorney of the Company's directors.
Copies of the exhibits listed above will be furnished upon
request to holders or beneficial holders of any class of the
Company's stock, subject to payment in advance of the cost
of reproducing the exhibits requested.
</TABLE>
(b) During the last fiscal quarter of the period covered by this Report the
Company filed a Current Report on Form 8-K dated March 8, 2001 relating to its
financial results for the fourth quarter and year ended May 2, 2001.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on July 27, 2001.
H. J. HEINZ COMPANY
(Registrant)
By: /s/ PAUL F. RENNE
.........................................
PAUL F. RENNE
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on July 27, 2001.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ WILLIAM R. JOHNSON Chairman, President and
........................................... Chief Executive Officer
WILLIAM R. JOHNSON (Principal Executive Officer)
/s/ PAUL F. RENNE Executive Vice President and
........................................... Chief Financial Officer
PAUL F. RENNE (Principal Financial Officer)
/s/ WILLIAM J. SHOWALTER Vice President and Corporate Controller
........................................... (Principal Accounting Officer)
WILLIAM J. SHOWALTER
</TABLE>
William R. Johnson Director
Nicholas F. Brady Director
Mary C. Choksi Director
Leonard S. Coleman, Jr. Director
Edith E. Holiday Director
Samuel C. Johnson Director
Candace Kendle Director
Donald R. Keough Director
Dean R. O'Hare Director
Paul F. Renne Director
Thomas J. Usher Director
David R. Williams Director
James M. Zimmerman Director
By /s/ PAUL F. RENNE
....................................
PAUL F. RENNE
Director and Attorney-in-Fact
14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders of
H. J. Heinz Company:
Our audits of the consolidated financial statements referred to in our
report dated June 14, 2001, except for footnote 18, for which the date is July
6, 2001, appearing in the 2001 Annual Report to Shareholders of H. J. Heinz
Company and Subsidiaries (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 14, 2001
------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-51719, 33-32563, 33-42015, 33-55777, 33-62623,
333-13849, 333-87419 and 333-49728) of H. J. Heinz Company and Subsidiaries of
our report dated June 14, 2001, except for footnote 18, for which the date is
July 6, 2001, relating to the financial statements, which appears in the 2001
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
June 14, 2001 relating to the financial statement schedule, which appears in
this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
July 26, 2001
15
<PAGE> 16
SCHEDULE II
H. J. HEINZ COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED MAY 2, 2001, MAY 3, 2000 AND APRIL 28, 1999
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period
- ----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended May 2, 2001:
Reserves deducted in the balance sheet from
the assets to which they apply:
Receivables............................... $ 18,697 $ 9,162 $-- $12,784(1) $ 15,075
======== ======= === ======= ========
Investments, advances and other assets.... $ 1,597 $ -- $-- $ 483 $ 1,114
======== ======= === ======= ========
Deferred tax assets (2)................... $ 75,109 $ 8,121 $-- $22,932 $ 60,298
======== ======= === ======= ========
Fiscal year ended May 3, 2000:
Reserves deducted in the balance sheet from
the assets to which they apply:
Receivables............................... $ 21,633 $ 3,986 $-- $ 6,922(1) $ 18,697
======== ======= === ======= ========
Investments, advances and other assets.... $ 1,876 $ -- $-- $ 279 $ 1,597
======== ======= === ======= ========
Deferred tax assets (3)................... $ 40,811 $49,173 $-- $14,875 $ 75,109
======== ======= === ======= ========
Fiscal year ended April 28, 1999:
Reserves deducted in the balance sheet from
the assets to which they apply:
Receivables............................... $ 17,627 $ 8,427 $-- $ 4,421(1) $ 21,633
======== ======= === ======= ========
Investments, advances and other assets.... $ 2,392 $ -- $-- $ 516 $ 1,876
======== ======= === ======= ========
Deferred tax assets (4)................... $ 20,992 $25,949 $-- $ 6,130 $ 40,811
======== ======= === ======= ========
</TABLE>
NOTES:
(1) Principally reserves on assets sold, written-off or reclassified.
(2) The net change in the valuation allowance for deferred tax assets was a
decrease of $14.8 million. The decrease was due to reductions in the
valuation allowance related to deferred tax assets for foreign tax credit
carryforward ($11.0 million) and loss carryforwards ($11.9 million). The
decrease was partially offset by an increase in the valuation allowance
related to deferred tax assets for loss carryforwards ($8.1 million). See
Note 5 to the Consolidated Financial Statements on pages 56 and 57 of the
Company's Annual Report to Shareholders for the fiscal year ended May 2,
2001.
(3) The net change in the valuation allowance for deferred tax assets was an
increase of $34.3 million. The increase was due to increases in the
valuation allowance related to additional deferred tax assets for foreign
tax credit carryforward ($34.3 million) and loss carryforwards ($14.8
million). The increase was partially offset by decreases in the valuation
allowance related to reduction in deferred tax assets for loss carryforwards
($14.8 million). See Note 5 to the Consolidated Financial Statements on
pages 58 and 59 of the Company's Annual Report to Shareholders for the
fiscal year ended May 3, 2000.
(4) The net change in the valuation allowance for deferred tax assets was an
increase of $19.8 million. The increase was due to a change in judgment
about the realizability of deferred tax assets related to foreign tax credit
carryforwards ($4.1 million) and the addition of deferred tax assets for
loss carryforwards ($21.8 million). The increase was partially offset by
decreases in the valuation allowance related to a reduction in deferred tax
assets for loss carryforwards ($3.0 million) and foreign tax credit
carryforwards ($3.1 million). See Note 5 to the Consolidated Financial
Statements on pages 58 and 59 of the Company's Annual Report to Shareholders
for the fiscal year ended May 3, 2000.
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT
------------------------------------------------------------
<S> <C>
Exhibits required to be filed by Item 601 of Regulation S-K
are listed below and are filed as a part hereof. Documents
not designated as being incorporated herein by reference are
filed herewith. The paragraph numbers correspond to the
exhibit numbers designated in Item 601 of Regulation S-K.
3(i) The Company's Articles of Amendment dated July 13,
1994, amending and restating the Company's amended and
restated Articles of Incorporation in their entirety,
are incorporated herein by reference to Exhibit 3(i)
to the Company's Annual Report on Form 10-K for the
fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective
September 8, 1999, are incorporated herein by reference to
Exhibit 3 to the Company's Quarterly Report on Form
10-Q for the three months ended July 28, 1999.
4. Except as set forth below, there are no instruments
with respect to long-term debt of the Company that involve
indebtedness or securities authorized thereunder
exceeding 10 percent of the total assets of the
Company on a consolidated basis. The Company agrees
to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of
the Company upon request of the Securities and
Exchange Commission.
(a) The Indenture between the Company and The First
National Bank of Chicago dated as of July 15, 1992 is
incorporated herein by reference to Exhibit 4(a) to the
Company's Registration Statement on Form S-3 (Reg. No.
333-48017) and the supplements to such Indenture are
incorporated herein by reference to the Company's Form
8-Ks dated January 27, 1993, March 25, 1998 and July
16, 1998 relating to the Company's $200,000,000 6 7/8%
Notes due 2003, $300,000,000 6% Notes due 2008 and
$250,000,000 6.375% Debentures due 2028, respectively.
(i) Supplement dated May 3, 2001 to the Indenture
between the Company and The First National Bank
of Chicago dated as of July 15, 1992.
(b) The Indenture between the Company and Bank One,
National Association dated November 6, 2000, is
incorporated herein by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the nine
months ended January 31, 2001.
(i) Supplement dated May 3, 2001 to the Indenture
between the Company and Bank One, National
Association dated as of November 6, 2000.
10(a) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J.
Heinz Company and affiliated companies, as
amended and restated in its entirety effective
December 6, 1995, is incorporated herein by
reference to Exhibit 10(c)(i) to the Company's
Annual Report on Form 10-K for the fiscal year
ended May 1, 1995.
(ii) H. J. Heinz Company 1984 Stock Option Plan, as
amended, is incorporated herein by reference to
Exhibit 10(n) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 2, 1990.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT
------------------------------------------------------------
<S> <C>
(iii) H. J. Heinz Company 1987 Stock Option Plan, as
amended, is incorporated herein by reference to Exhibit
10(o) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 2, 1990.
(iv) H. J. Heinz Company 1990 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 3, 1990.
(v) H. J. Heinz Company 1994 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 5, 1994.
(vi) H. J. Heinz Company Supplemental Executive Retirement
Plan, as amended, is incorporated herein by reference to
Exhibit 10(c)(ix) to the Company's Annual Report on
Form 10-K for the fiscal year ended April 28, 1993.
(vii) H. J. Heinz Company Executive Deferred Compensation
Plan.
(viii) H. J. Heinz Company Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the
Company's Proxy Statement dated August 5, 1994.
(ix) H. J. Heinz Company Stock Compensation Plan for
Non-Employee Directors is incorporated herein by reference
to Appendix A to the Company's Proxy Statement dated
August 3, 1995.
(x) H. J. Heinz Company 1996 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 2, 1996.
(xi) H. J. Heinz Company Deferred Compensation Plan for
Directors is incorporated herein by reference to Exhibit
10(xiii) to the Company's Annual Report on Form 10-K
for the fiscal year ended April 29, 1998.
(xii) H. J. Heinz Company Global Stock Purchase Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 3, 1999.
(xiii) Form of Severance Protection Agreement is
incorporated herein by reference to Exhibit 10(a)(xiv) for
the fiscal year ended May 3, 2000.
(xiv) H. J. Heinz Company 2000 Stock Option Plan is
incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 4, 2000.
12. Computation of Ratios of Earnings to Fixed Charges.
13. Pages 28 through 71 of the H. J. Heinz Company Annual
Report to Shareholders for the fiscal year ended May 3,
2001, portions of which are incorporated herein by
reference. Those portions of the Annual Report to
Shareholders that are not incorporated herein by
reference shall not be deemed to be filed as a part of
this Report.
21. Subsidiaries of the Registrant.
23. The following Exhibit is filed by incorporation by
reference to Item 14(a)(2) of this Report:
(a) Consent of PricewaterhouseCoopers LLP.
24. Powers-of-attorney of the Company's directors.
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.A.I
<SEQUENCE>2
<FILENAME>j8930801ex4-a_i.txt
<DESCRIPTION>SUPPLEMENT TO INDENTURE
<TEXT>
<PAGE> 1
Exhibit 4(a)(i)
CONFORMED COPY
SUPPLEMENTAL INDENTURE, dated as of May 3, 2001 among H. J. HEINZ
COMPANY, a Pennsylvania corporation (the "Company"), H. J. HEINZ FINANCE
COMPANY, a Delaware corporation (the "CO-OBLIGOR") and BANK ONE, NATIONAL
ASSOCIATION, a national banking association existing under the laws of the
United States of America (the "TRUSTEE") to the Indenture, dated as of July 15,
1992 between the Company and the Trustee (as heretofore supplemented, the
"INDENTURE").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the Indenture as set forth
herein;
WHEREAS, the entry into this Supplemental Indenture by the parties
hereto is in all respects authorized by the provisions of the Indenture; and
WHEREAS, all things necessary to make this Supplemental Indenture a
valid agreement of the parties hereto, in accordance with the terms of the
Indenture, have been done;
NOW, THEREFORE, for and in consideration of the premises, the parties
hereto mutually covenant and agree for the equal and proportionate benefit of
the respective Holders of the Securities from time to time or of a series
thereof, as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Indenture has the
meaning assigned to such term in the Indenture. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Indenture" and each other similar reference contained in the
Indenture shall, after this Supplemental Indenture becomes effective, refer to
the Indenture as supplemented hereby.
ARTICLE 2
AMENDMENTS
Section 2.01. Amendment of Introductory Paragraph. The first paragraph
of the Indenture immediately preceding the first recital is hereby amended by
inserting the following phrase immediately after the phrase "Pennsylvania
<PAGE> 2
15219,": "and H. J. HEINZ FINANCE COMPANY, a Delaware corporation (hereinafter
called the "Co-Obligor") having its principal office at 600 Grant Street, 60th
Floor, Pittsburgh, Pennsylvania 15219,".
Section 2.02. Amendment of Certain Definitions. Section 101 of the
Indenture is hereby amended by inserting the following new definitions in
appropriate alphabetical order:
""Co-Obligor" means the Person named as the "Co-Obligor" in
the first paragraph of this instrument, or such Person, if any, that
shall have become the successor to such Person pursuant to the
applicable provisions of this Indenture, whereupon the "Co-Obligor"
shall mean such successor Person.";
""Co-Obligations" means the obligations of the Co-Obligor
pursuant to Section 311(a) hereunder."
Section 2.03. Co-Obligation. The Indenture is hereby amended by
inserting the following new Section 311:
"Section 311. Co-Obligation.
(a) Co-Obligor hereby fully, unconditionally and irrevocably assumes
and agrees to perform and discharge, jointly and severally with the Company, the
due and punctual payment of the principal (including the Redemption Price, if
applicable) of and interest (and additional amounts, if any, pursuant to Section
1008 hereof) on each Security of each series authenticated and delivered by the
Trustee pursuant to the terms of such Security, when and as the same shall
become due and payable whether at maturity or upon redemption or upon
declaration of acceleration or otherwise according to the terms of such Security
and of this Indenture. The obligations of Co-Obligor as a co-obligor hereunder
are primary and not merely those of a surety. Co-Obligor hereby waives
diligence, presentment, demand of payment, any right to require a proceeding
first against the Company, protest or notice and all demands whatsoever with
respect to any such Security or the indebtedness evidenced thereby, and
covenants that the Co-Obligations hereunder will not be discharged as to the
Indenture or the Securities except by payment in full of the principal of and
interest thereon, additional amounts, Redemption Price, and other sums payable
under the Indenture or Securities. In addition, the Co-Obligor agrees to be
bound by, and observe and perform, the terms of Article 8 and Article 10 (other
than Sections 1004 and 1005) of the Indenture as if all references therein to
the "Company" therein were to the Co-Obligor.
(b) The Co-Obligation shall be valid and obligatory with respect to any
Security that has been or will be duly authenticated by the Trustee hereunder.
2
<PAGE> 3
(c) The Co-Obligations constitute unsecured obligations of Co-Obligor
ranking equally with all its other existing and future unsecured and
unsubordinated obligations.
(d) Co-Obligor hereby agrees, if the Trustee shall so request, to
execute the Co-Obligations substantially to the effect above recited to be
endorsed on each Security of such Series authenticated and delivered by the
Trustee and the Company agrees, if requested by the Trustee, to execute and
deliver to the Trustee for authentication new Securities with such
Co-Obligations endorsed thereon (and otherwise identical to the old Securities)
for the surrender of any Securities Outstanding on the date of this Supplemental
Indenture. The Co-Obligations endorsed on any Securities shall be executed on
behalf of Co-Obligor by its Chairman of the Board of Directors, President or one
of its Vice Presidents and shall be attested by its Secretary or one of its
Assistant Secretaries and shall have affixed thereto or imprinted or otherwise
reproduced thereon a facsimile of its corporate seal prior to the authentication
of the Securities on which they are endorsed, and the delivery of such
Securities by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Co-Obligations on behalf of Co-Obligor. Such
signatures may be the manual or facsimile signatures of such officers and may be
imprinted or otherwise reproduced on the Co-Obligations. In case any officer of
Co-Obligor who shall have signed any of the Co-Obligations endorsed on any
Securities shall cease to be such officer before the Securities on which such
Co-Obligations are endorsed shall have been authenticated and delivered by the
Trustee or disposed of by the Company, such Securities nevertheless may be
authenticated and delivered or disposed of as though the person who signed such
Co-Obligations had not ceased to be such officer, and any Co-Obligations may be
signed on behalf of Co-Obligor by such persons as, at the actual date of the
execution of such Co-Obligations, shall be the proper officers of Co-Obligor,
although at the date of such Securities or of the execution of this Indenture
any such person was not such an officer.
ARTICLE 3
MISCELLANEOUS
Section 3.01. Other Terms Of The Indenture. Except as insofar as herein
otherwise provided, all the provisions, terms and conditions of the Indenture
are in all respects ratified and confirmed and shall remain in full force and
effect.
Section 3.02. Effectiveness. This Supplemental Indenture shall become
effective on the date hereof when the following conditions are met:
(a) The Trustee shall have received, in accordance with the terms of
the Indenture, an Officers' Certificate dated as of the date hereof and stating
that all conditions precedent, if any, provided for in the Indenture relating to
this Supplemental Indenture have been complied with;
3
<PAGE> 4
(b) The Trustee shall have received, in accordance with the terms of
the Indenture, an Opinion of Counsel (as defined in the Indenture) dated as of
the date hereof stating that in the opinion of such counsel (i) the execution of
this Supplemental Indenture is authorized or permitted by the Indenture, (ii)
the Supplemental Indenture, when executed and delivered by the Company and the
Co-Obligor, will constitute a valid and binding obligation of the Company and
the Co-Obligor in accordance with its terms and (iii) the conditions precedent,
if any, provided for in the Indenture relating to this Supplemental Indenture
have been complied with;
(c) The Trustee shall have received a certificate of the secretary of
the Company and of the Co-Obligor attaching, in each case, a resolution of the
board of directors (or an authorized committee thereof) authorizing this
Supplemental Indenture and the transactions contemplated hereby;
(d) The Trustee and the Company shall have received duly executed
counterparts hereof signed by the parties hereto; and
(e) all documents the Trustee may reasonably request relating to the
existence of the Company or the Co-Obligor, the corporate authority for and the
validity of this Supplemented Indenture, and any other matters relevant hereto.
Section 3.03. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the conflicts of laws provisions thereof.
Section 3.04. Counterparts. This Supplemental Indenture may be executed
in any number of counterparts, each of which shall be deemed to be an original
for all purposes, but such counterparts shall together be deemed to constitute
but one and the same instrument.
Section 3.05. Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Supplemental Indenture as of the date first written above.
H. J. HEINZ COMPANY
By: /s/ Paul F. Renne
-------------------------------------
Name: Paul F.Renne
Title: Executive Vice President and
Chief Financial Officer
H. J. HEINZ FINANCE COMPANY
By: /s/ Leonard A. Cullo
-------------------------------------
Name: Leonard A. Cullo
Title: Vice President
BANK ONE, NATIONAL ASSOCIATION, as Trustee
By: /s/ Steven M. Wagner
-------------------------------------
Name: Steven M. Wagner
Title: First Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.B.I
<SEQUENCE>3
<FILENAME>j8930801ex4-b_i.txt
<DESCRIPTION>SUPPLEMENT TO INDENTURE
<TEXT>
<PAGE> 1
Exhibit 4(b)(i)
CONFORMED COPY
SUPPLEMENTAL INDENTURE, dated as of May 3, 2001 among H. J. HEINZ
COMPANY, a Pennsylvania corporation (the "COMPANY"), H. J. HEINZ FINANCE
COMPANY, a Delaware corporation (the "CO-OBLIGOR") and BANK ONE, NATIONAL
ASSOCIATION, a national banking association existing under the laws of the
United States of America (the "TRUSTEE") to the Indenture, dated as of November
6, 2000 between the Company and the Trustee (as heretofore supplemented, the
"Indenture").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the Indenture as set forth
herein;
WHEREAS, the entry into this Supplemental Indenture by the parties
hereto is in all respects authorized by the provisions of the Indenture; and
WHEREAS, all things necessary to make this Supplemental Indenture a
valid agreement of the parties hereto, in accordance with the terms of the
Indenture, have been done;
NOW, THEREFORE, for and in consideration of the premises, the parties
hereto mutually covenant and agree for the equal and proportionate benefit of
the respective Holders of the Securities from time to time or of a series
thereof, as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Indenture has the
meaning assigned to such term in the Indenture. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Indenture" and each other similar reference contained in the
Indenture shall, after this Supplemental Indenture becomes effective, refer to
the Indenture as supplemented hereby.
ARTICLE 2
AMENDMENTS
Section 2.01. Amendment of Introductory Paragraph. The first paragraph
of the Indenture immediately preceding the first recital is hereby amended by
inserting the following phrase immediately after the phrase "Pennsylvania
2
<PAGE> 2
15219,": "and H. J. HEINZ FINANCE COMPANY, a Delaware corporation (hereinafter
called the "Co-Obligor") having its principal office at 600 Grant Street, 60th
Floor, Pittsburgh, Pennsylvania 15219,".
Section 2.02. Amendment of Certain Definitions. Section 101 of the
Indenture is hereby amended by inserting the following new definitions in
appropriate alphabetical order:
""Co-Obligor" means the Person named as the "Co-Obligor" in
the first paragraph of this instrument, or such Person, if any, that
shall have become the successor to such Person pursuant to the
applicable provisions of this Indenture, whereupon the "Co-Obligor"
shall mean such successor Person.";
""Co-Obligations" means the obligations of the Co-Obligor
pursuant to Section 311(a) hereunder."
Section 2.03. Co-Obligation. The Indenture is hereby amended by
inserting the following new Section 311:
"Section 311. Co-Obligation.
(a) Co-Obligor hereby fully, unconditionally and irrevocably assumes
and agrees to perform and discharge, jointly and severally with the Company, the
due and punctual payment of the principal (including the Redemption Price, if
applicable) of and interest (and additional amounts, if any, pursuant to Section
1008 hereof) on each Security of each series authenticated and delivered by the
Trustee pursuant to the terms of such Security, when and as the same shall
become due and payable whether at maturity or upon redemption or upon
declaration of acceleration or otherwise according to the terms of such Security
and of this Indenture. The obligations of Co-Obligor as a co-obligor hereunder
are primary and not merely those of a surety. Co-Obligor hereby waives
diligence, presentment, demand of payment, any right to require a proceeding
first against the Company, protest or notice and all demands whatsoever with
respect to any such Security or the indebtedness evidenced thereby, and
covenants that the Co-Obligations hereunder will not be discharged as to the
Indenture or the Securities except by payment in full of the principal of and
interest thereon, additional amounts, Redemption Price, and other sums payable
under the Indenture or Securities. In addition, the Co-Obligor agrees to be
bound by, and observe and perform, the terms of Article 8 and Article 10 (other
than Sections 1004, 1005 and 1007) of the Indenture as if all references therein
to the "Company" therein were to the Co-Obligor.
(b) The Co-Obligation shall be valid and obligatory with respect to any
Security that has been or will be duly authenticated by the Trustee hereunder.
2
<PAGE> 3
(c) The Co-Obligations constitute unsecured obligations of Co-Obligor
ranking equally with all its other existing and future unsecured and
unsubordinated obligations.
(d) Co-Obligor hereby agrees, if the Trustee shall so request, to
execute the Co-Obligations substantially to the effect above recited to be
endorsed on each Security of such Series authenticated and delivered by the
Trustee and the Company agrees, if requested by the Trustee, to execute and
deliver to the Trustee for authentication new Securities with such
Co-Obligations endorsed thereon (and otherwise identical to the old Securities)
for the surrender of any Securities Outstanding on the date of this Supplemental
Indenture. The Co-Obligations endorsed on any Securities shall be executed on
behalf of Co-Obligor by its Chairman of the Board of Directors, President or one
of its Vice Presidents and shall be attested by its Secretary or one of its
Assistant Secretaries and shall have affixed thereto or imprinted or otherwise
reproduced thereon a facsimile of its corporate seal prior to the authentication
of the Securities on which they are endorsed, and the delivery of such
Securities by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Co-Obligations on behalf of Co-Obligor. Such
signatures may be the manual or facsimile signatures of such officers and may be
imprinted or otherwise reproduced on the Co-Obligations. In case any officer of
Co-Obligor who shall have signed any of the Co-Obligations endorsed on any
Securities shall cease to be such officer before the Securities on which such
Co-Obligations are endorsed shall have been authenticated and delivered by the
Trustee or disposed of by the Company, such Securities nevertheless may be
authenticated and delivered or disposed of as though the person who signed such
Co-Obligations had not ceased to be such officer, and any Co-Obligations may be
signed on behalf of Co-Obligor by such persons as, at the actual date of the
execution of such Co-Obligations, shall be the proper officers of Co-Obligor,
although at the date of such Securities or of the execution of this Indenture
any such person was not such an officer.
ARTICLE 3
MISCELLANEOUS
Section 3.01. Other Terms Of The Indenture. Except as insofar as
herein otherwise provided, all the provisions, terms and conditions of the
Indenture are in all respects ratified and confirmed and shall remain in full
force and effect.
Section 3.02. Effectiveness. This Supplemental Indenture shall become
effective on the date hereof when the following conditions are met:
(a) The Trustee shall have received, in accordance with the terms of
the Indenture, an Officers' Certificate dated as of the date hereof and stating
that all conditions precedent, if any, provided for in the Indenture relating to
this Supplemental Indenture have been complied with;
3
<PAGE> 4
(b) The Trustee shall have received, in accordance with the terms of
the Indenture, an Opinion of Counsel (as defined in the Indenture) dated as of
the date hereof stating that in the opinion of such counsel (i) the execution of
this Supplemental Indenture is authorized or permitted by the Indenture, (ii)
the Supplemental Indenture, when executed and delivered by the Company and the
Co-Obligor, will constitute a valid and binding obligation of the Company and
the Co-Obligor in accordance with its terms and (iii) the conditions precedent,
if any, provided for in the Indenture relating to this Supplemental Indenture
have been complied with;
(c) The Trustee shall have received a certificate of the secretary of
the Company and of the Co-Obligor attaching, in each case, a resolution of the
board of directors (or an authorized committee thereof) authorizing this
Supplemental Indenture and the transactions contemplated hereby;
(d) The Trustee and the Company shall have received duly executed
counterparts hereof signed by the parties hereto; and
(e) all documents the Trustee may reasonably request relating to the
existence of the Company or the Co-Obligor, the corporate authority for and the
validity of this Supplemented Indenture, and any other matters relevant hereto.
Section 3.03. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the conflicts of laws provisions thereof.
Section 3.04. Counterparts. This Supplemental Indenture may be
executed in any number of counterparts, each of which shall be deemed to be an
original for all purposes, but such counterparts shall together be deemed to
constitute but one and the same instrument.
Section 3.05. Headings. The Article and Section headings herein are
for convenience only and shall not affect the construction hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Supplemental Indenture as of the date first written above.
H. J. HEINZ COMPANY
By: /s/ Paul F. Renne
---------------------------------
Name: Paul F. Renne
Title: Executive Vice President and
Chief Financial Officer
H. J. HEINZ FINANCE COMPANY
By: /s/ Leonard A. Cullo
---------------------------------
Name: Leonard A. Cullo
Title: Vice President
BANK ONE, NATIONAL ASSOCIATION, as
Trustee
By: /s/ Steven M. Wagner
---------------------------------
Name: Steven M. Wagner
Title: First Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.A.VII
<SEQUENCE>4
<FILENAME>j8930801ex10-a_vii.txt
<DESCRIPTION>EXECUTIVE DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE> 1
Exhibit 10(a)(vii)
H. J. HEINZ COMPANY
EXECUTIVE DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED ON JANUARY 11, 2001)
<PAGE> 2
CONTENTS
- ------------------------------------------------------------------
PAGE
ARTICLE 1 EFFECTIVE DATE AND PURPOSE 1
ARTICLE 2 ADMINISTRATION 1
ARTICLE 3 ELIGIBILITY AND PARTICIPATION 2
ARTICLE 4 ELECTIVE DEFERRALS 2
ARTICLE 5 NONELECTIVE DEFERRALS 6
ARTICLE 6 DEFERRED COMPENSATION ACCOUNTS 8
ARTICLE 7 RIGHTS OF PARTICIPANTS 11
ARTICLE 8 WITHHOLDING OF TAXES 11
ARTICLE 9 AMENDMENT AND TERMINATION 12
ARTICLE 10 MISCELLANEOUS 12
<PAGE> 3
H. J. HEINZ COMPANY
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE 1. EFFECTIVE DATE AND PURPOSE
1.1 Effective Date. H. J. Heinz Company (the "Company") established the "H. J.
Heinz Company Executive Deferred Compensation Plan" (the "Plan") effective as of
June 8, 1994. The Plan was amended and restated effective as of January 1, 1998.
On September 12, 2000, the Plan was again amended and restated effective as of
that date. Effective January 11, 2001, the Plan was again amended and restated
as described herein.
1.2 Purpose. The Plan is a deferred compensation plan for key employees the
primary purpose of which is to provide certain key employees of the Company, its
subsidiaries, and affiliates with deferred cash awards and the opportunity to
voluntarily defer a portion of their compensation, in each case subject to the
terms of the Plan. By adopting the Plan, the Company desires to enhance its
ability to attract and retain employees of outstanding competence.
ARTICLE 2. ADMINISTRATION
2.1 The Committee. The Plan shall be administered by the Management Development
& Compensation Committee of the Board of Directors of the Company or any other
successor Committee appointed by the Board (the "Committee"). The members of the
Committee shall be appointed by, and shall serve at the discretion of, the
Board.
2.2 Authority of the Committee. Except as limited by law or by the Company's
Articles of Incorporation or Bylaws, and subject to the provisions herein, the
Committee shall have authority to select eligible employees of the Company for
participation in the Plan; determine the terms and conditions of each employee's
participation in the Plan; select the recipients of deferred cash awards and
determine the amounts and terms of such awards; interpret the Plan; establish,
amend, or waive rules and regulations for the Plan's administration; determine
which Participants, if any, are eligible to make Estate Enhancement Program
Elections (as defined in Section 6.1); and, subject to Article 8 herein, amend
the terms and conditions of the Plan and any agreement entered into under the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate any of its authority granted under the Plan to such
other person or entity it deems appropriate, including but not limited to,
senior management of the Company.
2.3 Guidelines. Subject to the provisions herein, the Committee may adopt
written guidelines for the implementation and administration of the Plan.
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<PAGE> 4
2.4 Decisions Binding. All determinations and decisions of the Committee arising
under the Plan shall be final, binding, and conclusive upon all parties.
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. Subject to Section 3.2, Employees eligible to be selected to
participate in the Plan in any fiscal year of the Company (hereinafter, a
"Year") include full-time, salaried employees of the Company, its subsidiaries,
and affiliates who are key employees, as determined by the Committee in its sole
discretion.
3.2 Limitation on Eligibility. It is the intent of the Company that the Plan
qualify for treatment as a "top hat" plan under the Employee Retirement Income
Security Act of 1974, as amended from time to time, or any successor Act thereto
("ERISA"). Accordingly, to the extent required by ERISA to obtain such "top hat"
treatment, eligibility shall be extended only to those executives who comprise a
select group of management or highly compensated employees. Further, the
Committee may place such additional limitations on eligibility as it deems
necessary and appropriate under the circumstances.
3.3 Participation. Participation in the Plan shall be determined annually by the
Committee based upon the criteria set forth in Sections 3.1 and 3.2 herein. An
employee who is chosen to participate in the Plan in any Year (a "Participant")
shall be so notified in writing. In the event a Participant selected to
participate in the Plan on an elective basis no longer meets the criteria for
participation, such Participant shall become an inactive Participant, retaining
all the rights described under the Plan, except the right to make any further
deferrals, until such time that the Participant again becomes an active
Participant.
3.4 Partial Year Eligibility. In the event that an employee first becomes
eligible to participate in the Plan on an elective basis during a Year, within
thirty (30) calendar days of becoming eligible such employee shall be notified
by the Company of his or her eligibility to participate, and the Company shall
provide each such employee with an Election Form, which must be completed by the
employee as provided in Section 4.2 herein.
3.5 No Right to Participate. No employee shall have the right to be selected as
a Participant, or having been so selected for any given Year, to be selected
again as a Participant for any other Year.
ARTICLE 4. ELECTIVE DEFERRALS
4.1 Amount Which May Be Deferred. A Participant may elect to defer, in any Year,
up to one hundred percent (100%) of eligible components of Compensation,
including, but not limited to, Salary, Bonus, Long-Term Awards and Discretionary
Awards, all as defined herein; provided, however, that the Committee shall have
sole discretion to
- 2 -
<PAGE> 5
designate which components of Compensation are eligible for deferral elections
under the Plan in any given Year. In addition, the Committee may, in its sole
discretion, designate the minimum amount or increments of any single eligible
component of Compensation which may be deferred in any Year or establish any
other limitations as it deems appropriate in any Year. The following definitions
shall apply for purposes of this Plan:
(a) "Salary" means all regular, basic wages, before reduction for
amounts deferred pursuant to the Plan or any other plan of the Company,
payable in cash to a Participant for services to be rendered, exclusive
of any Bonus, Long-Term Awards, other special fees, awards, or
incentive compensation, allowances, or amounts designated by the
Company as payment toward or reimbursement of expenses.
(b) "Bonus" means any incentive award based on an assessment of
performance, payable by the Company to a Participant with respect to
the Participant's services during a Year, including, but not limited
to, amounts awarded under the Company's Incentive Compensation Plan;
provided, however, that for purposes of the Plan, "Bonus" shall not
include incentive awards which relate to a period exceeding one (1)
Year.
(c) "Long-Term Award" means any cash award payable to a Participant
pursuant to a Company program which establishes incentive award
opportunities which are contingent upon performance which is measured
over periods greater than one (1) Year.
(d) "Discretionary Award" means any cash award payable to a Participant
not described above.
(e) "Compensation" means the gross Salary, Bonus, Long-Term Awards,
Discretionary Awards, and any other payments eligible for deferral
under the Plan, which are payable to a Participant with respect to
services performed during a Year.
4.2 Time of Deferral Election. An election to defer a component of Compensation
permitted by the Committee to be deferred by a Participant under the Plan shall
be given effect in accordance with the following timing rules:
(a) An election to defer Salary shall apply only to Salary which is
earned for payroll periods beginning after a properly executed Election
Form has been filed with the Committee.
(b) An election to defer Bonus for any Year shall apply only if a
properly executed Election Form has been filed with the Committee
before the end of the calendar year ending within such Year.
- 3 -
<PAGE> 6
(c) An election to defer "Long-Term Award" must be made on or before
the end of the Year preceding the final Year of the applicable
multi-year award period.
4.3 Content of Deferral Election. All deferral elections shall be irrevocable,
and shall be made on an Election Form, as described herein. Participants shall
make the following irrevocable elections on each Election Form:
(a) The amount to be deferred with respect to each eligible component
of Compensation for the Year,
(b) The length of the deferral period with respect to each eligible
component of Compensation, pursuant to the terms of Section 4.4 herein;
and
(c) The form of payment to be made to the Participant at the end of the
deferral period(s), pursuant to the terms of Section 4.5 herein.
Notwithstanding the amounts requested to be deferred pursuant to Subparagraph
(a) above, the limits on deferrals determined under Section 4.1 herein shall
apply to the requested deferrals each Year.
4.4 Length of Deferral. The deferral periods elected by each Participant with
respect to deferrals of Compensation for any Year shall be at least equal to one
(1) year following the end of the Year in which the Compensation is earned, and
shall be no greater than the date of retirement or other termination of
employment, whichever is earlier. However, notwithstanding the deferral periods
elected by a Participant pursuant to Section 4.3(b) or the form of payment in
effect under Section 4.3(c), payment of deferred amounts and accumulated
interest thereon may be made to the Participant in a single lump sum in the
event the Participant's employment with the Company is terminated by reason of
death or, at the election of the Participant, total disability, as defined in
the Company's Long-Term Disability Plan, at any time prior to full payment of
deferred amounts and interest thereon. Such payment shall be made immediately
following termination of the Participant's employment, or as soon thereafter as
practicable. Notwithstanding any other provisions of this Section 4.4 to the
contrary, any amounts in a Participant's Estate Enhancement Program Account (as
defined in Section 6.1) shall be paid in a single sum within sixty (60) days
after the Participant's death (or the death of the survivor of the Participant
and the Participant's spouse, if the life insurance policy issued pursuant to
the Participant's Estate Enhancement Program Election is a survivorship policy
insuring the Participant and the Participant's spouse) to the beneficiary or
beneficiaries designated by the Participant pursuant to the H. J. Heinz Company
Estate Enhancement Program.
4.5 Payment of Deferred Amounts. Participants shall be entitled to elect to
receive payment of deferred amounts, together with earnings thereon, at the end
of the deferral period in a single lump sum cash payment, by means of
installments, or in such other format approved by the Committee.
- 4 -
<PAGE> 7
(a) Lump Sum Payment. Such payment shall be made in cash within thirty
(30) calendar days of the date specified by the Participant as the date
for payment of deferred Compensation as described in Section 4.3 and
4.4 hereof, or as soon thereafter as practicable.
(b) Installment Payments. Participants may elect payout in
installments, with a minimum number of installments of two (2) and a
maximum of ten (10). The initial payment shall be made in cash within
thirty (30) calendar days after the commencement date selected by the
Participant pursuant to Sections 4.3 and 4.4 hereof, or as soon
thereafter as practicable. The remaining installment payments shall be
made in cash each year thereafter, until the Participant's entire
deferred compensation account has been paid. Earnings shall accrue on
the deferred amounts in the Participant's deferred compensation
account, as provided in Section 6.2 of this Plan. The amount of each
installment payment shall be equal to the balance remaining in the
Participant's deferred compensation account immediately prior to each
such payment, multiplied by a fraction, the numerator of which is one
(1), and the denominator of which is the number of installment payments
remaining.
(c) Alternative Payment Schedule. A Participant may submit an alternate
payment schedule to the Committee for approval; provided, however, that
no such alternate payment schedule shall be permitted unless approved
by the Committee.
(d) Notwithstanding the other provisions of this Section 4.5 to the
contrary, any amounts in a Participant's Estate Enhancement Program
Account (as defined in Section 6.1) shall be paid in a single sum
within sixty (60) days after the Participant's death (or the death of
the survivor of the Participant and the Participant's spouse, if the
life insurance policy issued pursuant to the Participant's Estate
Enhancement Program Election is a survivorship policy insuring the
Participant and the Participant's spouse) to the beneficiary or
beneficiaries designated by the Participant pursuant to the H. J. Heinz
Company Estate Enhancement Program; and the determination of the
payments under the other provisions of this Section 4.5 shall be made
without regard to any amounts in a Participant's Estate Enhancement
Program Account.
4.6 Financial Hardship. The Committee shall have the authority to alter the
timing or manner of payment of deferred amounts in the event that the
Participant establishes, to the satisfaction of the Committee, severe financial
hardship. In such event, the Committee may, in its sole discretion:
(a) Authorize the cessation of deferrals by such Participant under the
Plan, or
- 5 -
<PAGE> 8
(b) Provide that all or a portion of the amount previously deferred by
the Participant shall immediately be paid in a lump-sum cash payment;
or
(c) Provide that all or a portion of the installments payable over a
period of time shall immediately be paid in a lump-sum cash payment; or
(d) Provide for such other installment payment schedule as deemed
appropriate by the Committee under the circumstances.
For purposes of this Section 4.6, "severe financial hardship" shall be
determined by the Committee, in its sole discretion, in accordance with all
applicable laws. The Committee's decision with respect to the severity of
financial hardship and the manner in which, if at all, the Participant's future
deferral opportunities shall be ceased, and/or the manner in which, if at all,
the payment of deferred amounts of the Participant shall be altered or modified
shall be final, conclusive, and not subject to appeal. Earnings will be credited
in accordance with Article 6 up to the date of distribution. Notwithstanding the
foregoing provisions of this Section 4.6 to the contrary, no portion of a
Participant's Estate Enhancement Program Account (as defined in Section 6.1) is
eligible to be distributed to a Participant on account of "severe financial
hardship."
ARTICLE 5. NONELECTIVE DEFERRALS
5.1 Deferred Cash Awards. The Committee may, at its discretion during any Year,
make deferred cash awards on behalf of designated Participants, subject to the
vesting as provided under Section 5.3, in amounts in the aggregate not to exceed
50% of the total amounts awarded under the Company's Incentive Compensation Plan
during the prior Year.
5.2 Deferred Period. The period of time during which each such award shall be
deferred shall be as specified by the Committee.
5.3 Vesting Requirements. The Committee at the time of granting a deferred cash
award under this Article 5 may, at its discretion, impose vesting requirements
with respect to such award pursuant to which all or a portion of such award may
be forfeited under conditions specified by the Committee. Notwithstanding the
imposition of vesting requirements with respect to any award, the entire amount
of such award and any additions thereto pursuant to Section 6.5 shall become
100% vested and nonforfeitable in the following circumstances: (a) upon the
occurrence of a Change in Control as defined in Section 5.4; (b) upon the
termination of employment of the Participant as a result of the Participant's
death; (c) upon the termination of employment of the Participant as a result of
the Participant's total disability; (d) upon the termination of employment of
the Participant as a result of the Participant's retirement under any retirement
plan of the Company or a subsidiary (as such term is defined in Section 1(s) of
the H. J. Heinz Company 2000 Stock Option Plan, as amended from time to time) of
the Company; or (e) upon the termination of employment of the Participant which
constitutes an involuntary
- 6 -
<PAGE> 9
termination of employment without cause. For purposes of subparagraph (c) above,
"total disability" shall be determined as defined in the Company's Long-Term
Disability Plan, and the determination of the existence of "total disability"
shall be made by the Committee and such determination by the Committee shall be
final. For purposes of subparagraph (d) above, the determination of the
existence of "retirement" shall be made by the Committee and such determination
by the Committee shall be final. For purposes of subparagraph (e) above, "cause"
shall mean an act of dishonesty, moral turpitude or an intentional or gross
negligent act detrimental to the best interests of the Company or a subsidiary
(as such term is defined in Section 1(s) of the H. J. Heinz Company 2000 Stock
Option Plan, as amended from time to time) of the Company. At the sole
discretion of the Committee, the deferral period specified in Section 5.2 may be
modified in the event of the acceleration of the vesting of Nonelective
Deferrals due to the death, disability or retirement of the Participant.
5.4 Change in Control. The term "Change in Control" shall mean any of the
following events:
(a) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the combined voting power of the Company's then outstanding
Voting Securities; provided, however, that in determining whether a
Change in Control has occurred, Voting Securities which are acquired in
a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by: (i) an employee
benefit plan (or a trust forming a part thereof) maintained by the
Company or by any Subsidiary (as hereinafter defined); (ii) the Company
or any Subsidiary; or (iii) any Person in connection with a transaction
described in paragraph (c) below. "Subsidiary" shall mean any
corporation with respect to which the Company owns, directly or
indirectly through a Subsidiary, at least 50% of the total combined
voting power of all classes of stock.
(b) The individuals who, as of May 1, 2000, are members of the Board of
Directors of the Company (the "Incumbent Board"), cease for any reason
to constitute at least two-thirds of the Board of Directors; provided,
however, that if the election, or nomination for election by the
Company's shareholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Plan, be considered as a member of the Incumbent
Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Consent" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or
- 7 -
<PAGE> 10
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest;
(c) A merger, consolidation or reorganization involving the Company or
a Subsidiary, unless
(1) the Voting Securities of the Company, immediately before
such merger, consolidation or reorganization, continue
immediately following such merger, consolidation or
reorganization to represent, either by remaining outstanding
or by being converted into voting securities of the surviving
corporation resulting from such merger, consolidation or
reorganization or its parent (the "Surviving Corporation"), at
least 60% of the combined voting power of the outstanding
voting securities of the Surviving Corporation;
(2) the individuals who were members of the Incumbent Board
immediately before the execution of the agreement providing
for such merger, consolidation or reorganization constitute
more than one-half of the members of the board of directors of
the Surviving Corporation; and
(3) no person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any
Subsidiary, or any Person who, immediately before such merger,
consolidation or reorganization had Beneficial Ownership of
15% or more of the then outstanding Voting Securities) has
Beneficial Ownership of 15% or more of the combined voting
power of the Surviving Corporation's then outstanding voting
securities.
(4) A complete liquidation or dissolution of the Company; or
(5) Approval by stockholders of the Company of an agreement
for the sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company the Subject Person becomes the Beneficial Owner of
any additional voting Securities which increases the percentage of the then
- 8 -
<PAGE> 11
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
ARTICLE 6. DEFERRED COMPENSATION ACCOUNTS
6.1 Participant Accounts. The Company shall establish and maintain an individual
bookkeeping account ("Participant Account") in the name of each Participant by
or on behalf of whom deferrals have been made under Article 4 or Article 5
hereof. Each Participant Account shall have a subaccount (the "Elective
Account") for elective deferrals under Article 4 which shall be credited with
each amount deferred under Article 4 as of the date that such amount otherwise
would have become due and payable to the Participant. Each Participant Account
established for a Participant on whose behalf an award has been made under
Article 5 shall have a separate subaccount ("Nonelective Account") which shall
be credited with each such award as of the effective date of such award as
determined by the Committee. Each Participant Account established for a
Participant who has made an "Estate Enhancement Program Election" shall have a
separate subaccount ("Estate Enhancement Program Account") which shall be
credited with the portion of the Participant's Account with respect to which the
Participant has made an Estate Enhancement Program Election. Since deferred
amounts to which an Estate Enhancement Program Election have been made will be
invested in insurance policies, the value of a Participant's Estate Enhancement
Program Account will be represented by the value of any such insurance policy
which is purchased at the Participant's request pursuant to such election. An
"Estate Enhancement Program Election" is an election made by a Participant to
participate in the H. J. Heinz Company Estate Enhancement Program under which
the Participant elects to have all or some portion of his or her Participant
Account converted to an "Estate Enhancement Program Account." The Committee
shall determine the extent to which a Participant may elect to direct investment
of his or her Elective Account and/or Nonelective Account in the H. J. Heinz
Company Estate Enhancement Program.
6.2 Earnings. The Participant's Elective Account shall be credited with earnings
commencing on the date the Elective Account first has a positive balance. The
earnings credit shall be based on the performance of the hypothetical
investments described in Section 6.3 made available by the Committee from time
to time, as selected by the Participant in accordance with the rules of Section
6.4. The value of the deferred compensation benefits paid under this Plan shall
depend on the earnings credited to the Elective Account, based on the
Participant's selections from among the investment alternatives. There shall be
no guaranteed rate of return on the Elective Account under this Plan. Nothing
contained herein shall require the Company to invest the deferred amounts in any
actual investments. Earnings credited on deferred amounts shall be paid out to
Participants at the same time and in the same manner as the underlying deferred
amounts. Notwithstanding any other provisions of Sections 6.2 through 6.5 to the
contrary, amounts in an Estate Enhancement Program Account (as defined in
Section 6.1) shall not be credited with any earnings after such amounts are
credited to a Participant's Estate Enhancement Program Account.
- 9 -
<PAGE> 12
6.3 Hypothetical Investment Choices. In addition to investment in the H. J.
Heinz Company Estate Enhancement Program, as permitted by the Committee, the
Committee from time to time may make available any or all of the following
hypothetical investments:
(a) Interest-Bearing Cash Account. A Participant's Elective Account
shall be credited on the last day of each calendar quarter, with
interest computed on the average balance in the Account during such
quarter at the rate selected by the Committee and announced to
Participants from time to time.
(b) H. J. Heinz Capital Stock Account. Amounts credited to the
Participant's Elective Account shall be restated in the form of "stock
units" and adjusted from time to time in accordance with the following
rules:
(1) The number of units initially credited shall be determined
by dividing the dollar amount to be credited to the Account by
a unit value equal to the average of the high and the low
trading price of one share of the Company's common stock on
the day that the Compensation would have been paid but for the
deferral, except that in the case of a deferral of any "Bonus"
or "Long-Term Award" as defined in Section 4.1(b) and (c)
respectively, such day shall be the day the Committee approves
the amount of the award.
(2) The Participant's Elective Account will also be credited
with additional units equal to the dollar amount of dividends
paid from time to time during the deferral period on a number
of shares of the Company's common stock equal to the number of
units then credited to the Participant's Elective Account
divided by a unit value equal to the average of the high and
the low trading price of one share of the Company's common
stock on the day the dividend is paid.
(3) In the event of any change in the outstanding shares of
the Company's common stock by reason of any stock dividend or
split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares or other
similar corporate change, then an equitable equivalent
adjustment shall be made in the stock units credited to the
Elective Accounts under the Plan.
(4) When payment of a Participant's Elective Account occurs,
the portion thereof which is represented by stock units shall
be payable, unless the recipient elects payment in cash, by
transferring to the Participant or beneficiary a number of
shares of the Company's common stock equal to the number of
whole units then distributable from the Participant's Elective
Account, with cash in lieu of fractional units.
- 10 -
<PAGE> 13
(c) Phantom Investment Alternatives. Each Phantom Investment
Alternative is a phantom investment opportunity based on a publicly
traded mutual fund or quoted benchmark such as the NASDAQ Combined
Composite Index or the S&P 500 Index. The Committee will name the
investment choices available under the Phantom Investment Alternatives
from time to time. The portion of a Participant's Elective Account
allocated to the Phantom Investment Alternatives will be credited with
earnings based on the investment performance as periodically reported
by the proxy mutual funds or quoted benchmarks using unit accounting as
if the Participant's deferred amounts had been invested in those
portfolios. The accounting for additions to Phantom Investment
Alternatives or redemptions therefrom shall be similarly based on unit
accounting as of the date of the transaction.
6.4 Selection and Reallocation of Hypothetical Investment Choices. Investment
choices may be made or changed in accordance with the following rules:
(a) A Participant shall designate on his Election Form the percentage
of each deferred amount which shall be allocated to each available
investment choice. In default of a complete designation, the
Participant's Elective Account (or the undesignated portion thereof)
shall be credited with earnings in accordance with Section 6.3(a).
(b) The Participant may request a change in the allocation of
previously deferred portions of his Elective Account among the various
investment alternatives. Such changes may be made not more frequently
than once during any calendar month and, to the extent administratively
practical, will become effective as of the first day of the next
calendar month following the Participant's request provided the request
is filed at least 5 business days before the end of the month. The
Participant may also change the allocation which shall apply to any new
deferral amounts and matching additions under the same rules.
6.5 Additions to Nonelective Accounts. The Participant's Nonelective Account
shall be credited with earnings, commencing on the date the Nonelective Account
first has a positive balance, at the interest rate specified in accordance with
Section 6.3(a).
6.6 Charges Against Accounts. There shall be charged against each Participant's
deferred compensation account any payments made to the Participant or to his or
her beneficiary.
ARTICLE 7. RIGHTS OF PARTICIPANTS
7.1 Contractual Obligation. The Plan shall create a contractual obligation on
the part of the Company to make payments from the Participant Accounts when due.
Payment of account balances shall be made out of the general funds of the
Company.
- 11 -
<PAGE> 14
7.2 Unsecured Interest. No Participant or party claiming an interest in amounts
deferred by or on behalf of a Participant, including any earnings thereon, shall
have any interest whatsoever in any specific asset of the Company. Except as
otherwise specified in the H. J. Heinz Company Estate Enhancement Program, any
and all investments remain the property of the Company. To the extent that any
party acquires a right to receive payments under the Plan, such right shall be
equivalent to that of an unsecured general creditor of the Company.
7.3 Authorization for Trust. The Company may, but shall not be required to,
establish one or more trusts, with such trustee as the Committee may approve,
for the purpose of providing for the payment of deferred amounts. Such trust or
trusts may be irrevocable, but the assets thereof shall be subject to the claims
of the Company's creditors. To the extent any amounts deferred under the Plan
are actually paid from any such trust, the Company shall have no further
obligation with respect thereto, but to the extent not so paid, such deferred
amounts shall remain the obligation of, and shall be paid by, the Company.
7.4 Employment. Nothing in the Plan shall interfere with nor limit in any way
the right of the Company to terminate any Participant's employment at any time,
nor confer upon any Participant any right to continue in the employ of the
Company.
ARTICLE 8. WITHHOLDING OF TAXES
The Company shall have the right to require Participants to remit to the Company
an amount sufficient to satisfy any withholding tax requirements or to deduct
from all payments made pursuant to the Plan amounts sufficient to satisfy
withholding tax requirements.
ARTICLE 9. AMENDMENT AND TERMINATION
The Company hereby reserves the right to amend, modify, or terminate the Plan at
any time by action of the Committee. Except as described below in Section 10.5,
no such amendment or termination shall in any material manner adversely affect
any Participant's rights to amounts previously deferred hereunder, or earnings
thereon, without the consent of the Participant.
ARTICLE 10. MISCELLANEOUS
10.1 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail to the Senior Vice President and Chief
Administrative Officer of the Company. Such notice if mailed shall be addressed
to the principal executive offices of the Company. Notice mailed to a
Participant shall be at such address as is given in the
- 12 -
<PAGE> 15
records of the Company. Notices shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
10.2 Nontransferability. Participant's rights to deferred amounts,
contributions, and earnings credited thereon under the Plan may not be sold,
transferred, assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution. In no event shall the Company
make any payment under the Plan to any assignee or creditor of a Participant.
10.3 Severability. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
10.4 Costs of the Plan. All costs of implementing and administering the Plan
shall be borne by the Company.
10.5 Status under ERISA. The Plan is intended to be an unfunded plan which is
maintained primarily to provide deferred compensation benefits for a select
group of "management or highly compensated employees" within the meaning of
Sections 201, 301, and 401 of ERISA, and to therefore be exempt from the
provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee
may terminate the Plan and commence termination payout for all or certain
Participants, or remove certain employees as Participants, if it is determined
by the United States Department of Labor or a court of competent jurisdiction
that the Plan constitutes an employee pension plan within the meaning of Section
3(2) of ERISA which is not so exempt. Payout of Elective Accounts shall be made
in the manner selected by each Participant under Section 4.5 herein as
applicable, and payout of Nonelective Accounts shall be made as specified by the
Committee. Notwithstanding the foregoing, any amounts in a Participant's Estate
Enhancement Program Account (as defined in Section 6.1) shall be paid in a
single sum within sixty (60) days after the Participant's death (or the death of
the survivor of the Participant and the Participant's spouse, if the life
insurance policy issued pursuant to the Participant's Estate Enhancement Program
Election is a survivorship policy insuring the Participant and the Participant's
spouse) to the beneficiary or beneficiaries designated by the Participant
pursuant to the H. J. Heinz Company Estate Enhancement Program.
10.6 Applicable Law. The Plan shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
10.7 Successors. All obligations of the Company under the Plan shall be binding
on any successor to the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation, or otherwise, of
all or substantially all of the business and/or assets of the Company.
- 13 -
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>5
<FILENAME>j8930801ex12.txt
<DESCRIPTION>COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE> 1
EXHIBIT 12
H. J. HEINZ COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------
May 2, May 3, April 28, April 29, April 30,
2001 2000 1999 1998 1997
(52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense*............ $ 335,531 $ 271,597 $ 260,743 $ 260,401 $277,818
Capitalized interest......... 8,396 -- -- 1,542 2,688
Interest component of rental
expense................... 28,096 32,274 29,926 30,828 27,382
---------- ---------- ---------- ---------- --------
Total fixed charges....... $ 372,023 $ 303,871 $ 290,669 $ 292,771 $307,888
---------- ---------- ---------- ---------- --------
Earnings:
Income before income taxes... $ 673,058 $1,463,676 $ 835,131 $1,254,981 $479,064
Add: Interest expense*....... 335,531 271,597 260,743 260,401 277,818
Add: Interest component of
rental expense............ 28,096 32,274 29,926 30,828 27,382
Add: Amortization of
capitalized interest...... 2,129 2,799 3,050 3,525 3,454
---------- ---------- ---------- ---------- --------
Earnings as adjusted...... $1,038,814 $1,770,346 $1,128,850 $1,549,735 $787,718
---------- ---------- ---------- ---------- --------
Ratio of earnings to fixed
charges................... 2.79 5.83 3.88 5.29 2.56
========== ========== ========== ========== ========
</TABLE>
* Interest expense includes amortization of debt expense and any discount or
premium relating to indebtedness.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>6
<FILENAME>j8930801ex13.txt
<DESCRIPTION>MANAGEMENT'S DISCUSSION & ANALYSIS
<TEXT>
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
H.J. Heinz Company and Subsidiaries
STREAMLINE BACKGROUND
In the fourth quarter of Fiscal 2001, the company announced a
restructuring initiative named "Streamline," which includes:
[ ] A worldwide organizational restructuring aimed at reducing
overhead costs;
[ ] The closure of the company's tuna operations in Puerto
Rico;
[ ] The consolidation of the company's North American canned
pet food production to Bloomsburg, Pennsylvania (which
results in ceasing canned pet food production at the
company's Terminal Island, California facility); and
[ ] The divestiture of the company's U.S. fleet of fishing
boats and related equipment.
Streamline is expected to save an estimated $25 million pretax
in Fiscal 2002 and an estimated $40 million a year beginning in
Fiscal 2003. Non-cash savings is expected to be less than $6
million per year. The total cost of this initiative is expected
to be approximately $315 million. Management estimates that
these actions will impact approximately 2,700 employees.
STREAMLINE STATUS
During Fiscal 2001, the company recognized restructuring
charges and implementation costs totaling $298.8 million pretax
($0.66 per share). [Note: All earnings per share amounts
included in Management's Discussion and Analysis are presented
on an after-tax diluted basis]. Pretax charges of $192.5
million were classified as cost of products sold and $106.2
million as selling, general and administrative expenses
("SG&A"). Implementation costs were recognized as incurred in
Fiscal 2001 ($22.6 million pretax) and consist of incremental
costs directly related to the implementation of the Streamline
initiative. These include idle facility costs, consulting fees
and asset relocation costs.
In Fiscal 2001, the company completed the closure of its tuna
operations in Puerto Rico, ceased production of canned pet food
in the company's Terminal Island, California facility and sold
its U.S. fleet of fishing boats and related equipment. In
addition, the company initiated its global overhead reduction
plan, primarily in North America. These actions resulted in a
net reduction of the company's workforce of approximately 1,700
employees.
OPERATION EXCEL BACKGROUND
In Fiscal 1999, the company announced a growth and
restructuring initiative named "Operation Excel." This
initiative was a multi-year, multi-faceted program which
established manufacturing centers of excellence, focused the
product portfolio, realigned the company's management teams and
invested in growth initiatives. The total cost of Operation
Excel was $1.2 billion, an increase from the original estimate
of $1.1 billion. This increase was attributable to additional
projects and implementation costs which included exiting the
company's domestic can making operations, exiting a tuna
processing facility in Ecuador and additional initiatives
throughout the globe. These additional projects are expected to
deliver business simplifications and improvements in the
company's capital structure.
(28)
<PAGE> 2
The company established manufacturing centers of excellence
which resulted in significant changes to its manufacturing
footprint. The company completed the following initiatives:
[ ] Closed the Harlesden factory in London, England and focused
the Kitt Green factory in Wigan, England on canned beans,
soups and pasta production and focused the Elst factory in
the Netherlands on tomato ketchup and sauces;
[ ] Downsized the Puerto Rico tuna processing facility and
focused this facility on lower volume/higher margin
products;
[ ] Focused the Pittsburgh, Pennsylvania factory on soup and
baby food production and shifted other production to
existing facilities;
[ ] Consolidated manufacturing capacity in the Asia/Pacific
region;
[ ] Closed the Zabreh, Czech Republic factory and disposed of
the Czech dairy business and transferred the infant formula
business to the Kendal, England factory;
[ ] Downsized the Pocatello, Idaho factory by shifting Bagel
Bites production to the Ft. Myers, Florida factory, and
shifted certain Smart Ones entree production to the
Massillon, Ohio factory;
[ ] Closed the Redditch, England factory and shifted production
to the Telford, England factory and the Turnhout factory in
Belgium;
[ ] Closed the El Paso, Texas pet treat facility and
transferred production to the Topeka, Kansas factory and
to co-packers; and
[ ] Disposed of the Bloomsburg, Pennsylvania frozen pasta
factory.
As part of Operation Excel, the company focused its portfolio
of product lines on six core food categories: ketchup,
condiments and sauces; frozen foods; tuna; soup, beans and
pasta meals; infant foods; and pet products. A consequence of
this focus was the sale of the Weight Watchers classroom
business in Fiscal 2000. Seven other smaller businesses, which
had combined annual revenues of approximately $80 million, also
have been disposed.
Realigning the company's management teams provided
processing and product expertise across the regions of North
America, Europe and Asia/Pacific. Specifically, Operation
Excel:
[ ] Established a single U.S. frozen food headquarters,
resulting in the closure of the company's Ore-Ida head
office in Boise, Idaho;
[ ] Consolidated many European administrative support
functions;
[ ] Established a single North American Grocery & Foodservice
headquarters in Pittsburgh, Pennsylvania, resulting in the
relocation of the company's domestic seafood and pet food
headquarters from Newport, Kentucky; and
[ ] Established two Asia/Pacific management teams with
headquarters in Melbourne and Singapore.
Growth initiatives included relaunching many of our core brands
and additional investments in marketing and pricing programs
for our core businesses, particularly in ketchup, condiments
and sauces, frozen foods, infant foods and tuna.
The pretax savings generated from Operation Excel initiatives
were approximately $70 million in Fiscal 2000 and $135 million
in Fiscal 2001 and are projected to grow to approximately $185
million in Fiscal 2002 and $200 million in Fiscal 2003 and
thereafter. The unfavorable trend in foreign exchange rates has
caused these savings to be lower than originally planned by
approximately $5 million in Fiscal 2001, $10 million in Fiscal
2002 and $15 million in Fiscal 2003 and thereafter. In
addition, savings projected for the consolidation of factories
in the Asia/Pacific region are not expected to meet original
estimates. Also, the cancellation of some projects, primarily
the decision not to transfer certain European baby food
production, will result in lower savings than originally
projected.
(29)
<PAGE> 3
The company expects to achieve gross margins of 42% in Fiscal
2002, in line with its original target. Several other targets
of Operation Excel will not be achieved primarily due to
acquisitions, the impact of unfavorable foreign exchange rates
and lower than expected cash flows from operations. Over the
past four years, unfavorable foreign exchange translation rates
have reduced sales by approximately $1.1 billion and operating
income by approximately $195 million.
OPERATION EXCEL STATUS UPDATE
During Fiscal 2001, the company recognized restructuring
charges of $55.7 million pretax, or $0.10 per share. These
charges were primarily associated with exiting the company's
domestic can making operations, exiting a tuna processing
facility in Ecuador, and higher than originally expected
severance costs associated with creating the single North
American Grocery & Foodservice headquarters in Pittsburgh,
Pennsylvania. This charge was recorded in cost of products sold
($44.8 million) and SG&A ($10.8 million). This charge was
offset by the reversals of unutilized Operation Excel accruals
and asset write-downs of $78.8 million pretax, or $0.17 per
share. These reversals were recorded in cost of products sold
($46.3 million) and SG&A ($32.5 million) and were primarily the
result of lower than expected lease termination costs related
to exiting the company's fitness business, revisions in
estimates of fair values of assets which were disposed of as
part of Operation Excel, the company's decision not to exit
certain U.S. warehouses due to higher than expected volume
growth, and the company's decision not to transfer certain
European baby food production. Implementation costs of $311.6
million pretax ($0.59 per share) were also recognized in Fiscal
2001. These costs were classified as cost of products sold
($146.4 million) and SG&A ($165.1 million).
During Fiscal 2000, the company recognized restructuring
charges of $194.5 million pretax, or $0.37 per share. Pretax
charges of $107.7 million were classified as cost of products
sold and $86.8 million as SG&A. Also during Fiscal 2000, the
company recorded a reversal of $18.2 million pretax ($0.04 per
share) of Fiscal 1999 restructuring accruals and asset
write-downs, primarily for the closure of the West Chester,
Pennsylvania facility, which remains in operation as a result
of the sale of the Bloomsburg frozen pasta facility in Fiscal
2000. Implementation costs of $216.5 million pretax ($0.41 per
share) were classified as cost of products sold ($79.2 million)
and SG&A ($137.3 million).
During Fiscal 1999, the company recognized restructuring
charges and implementation costs totaling $552.8 million pretax
($1.11 per share). Pretax charges of $396.4 million were
classified as cost of products sold and $156.4 million as SG&A.
Implementation costs were recognized as incurred and
consisted of incremental costs directly related to the
implementation of Operation Excel, including consulting fees,
employee training and relocation costs, unaccruable severance
costs associated with terminated employees, equipment
relocation costs and commissioning costs.
The company has closed or exited all of the 21 factories or
businesses that were originally scheduled for closure or
divestiture. In addition, the company also exited its domestic
can making operations and a tuna processing facility in
Ecuador. Management estimates that Operation Excel will impact
approximately 8,500 employees with a net reduction in the
workforce of approximately 7,100 after expansion of certain
facilities. The exit of the company's domestic can making
operations and its tuna processing facility in Ecuador resulted
in a reduction of the company's workforce of approximately
2,500 employees. During Fiscal 2001, Fiscal 2000 and Fiscal
1999, the company's workforce had a net reduction of
approximately 3,700 employees, 3,000 employees and 200
employees, respectively. The remaining employee reductions are
expected to take place within six months.
(30)
<PAGE> 4
RESULTS OF 2001 VERSUS 2000: Sales for Fiscal 2001 increased $22.5
OPERATIONS million, or 0.2%, to $9.43 billion from $9.41 billion in
Fiscal 2000. Volume increased sales by $215.1 million, or 2.3%,
and acquisitions increased sales by $519.4 million, or 5.5%.
Divestitures reduced sales by $284.5 million, or 3.0%, lower
pricing reduced sales by $25.2 million, or 0.3%, and the
unfavorable impact of foreign exchange translation rates
reduced sales by $402.3 million, or 4.3%. Domestic operations
contributed approximately 52% of consolidated sales in both
fiscal years.
Sales of the North American Grocery & Foodservice segment
increased $22.5 million, or 0.5%. Sales volume increased 1.0%,
due to increases in ketchup, condiments and sauces,
foodservice, gravy, canned soup and pet treats, partially
offset by a decrease in tuna and canned pet food. Acquisitions,
net of divestitures, increased sales 1.7%, and a weaker
Canadian dollar decreased sales 0.3%. Lower pricing reduced
sales by 1.9%, due mainly to decreases in tuna and pet food.
The North American Frozen segment's sales increased $101.5
million, or 9.9%. Sales volume increased 8.8%, driven by Smart
Ones frozen entrees, Boston Market frozen meals, Bagel Bites
snacks and frozen potatoes, partially offset by a decrease in
The Budget Gourmet line of frozen entrees and frozen pasta.
Higher pricing increased sales by 2.9% driven by Smart Ones
frozen entrees and frozen potatoes. Divestitures reduced sales
1.8% mainly due to the sale of The All American Gourmet
business and its Budget Gourmet and Budget Gourmet Value
Classics brands of frozen entrees.
Sales in Europe increased $163.2 million, or 6.3%.
Acquisitions, net of divestitures, increased sales 13.5%, due
primarily to the current year acquisition of CSM Food Division
of CSM Nederland NV ("CSM") and the full-year impact of the
United Biscuit's European Frozen and Chilled Division ("UB").
Sales volume increased 1.6%, due to increases in tuna, other
seafoods, and beans, partially offset by a decrease in infant
foods and frozen pizza. Higher pricing increased sales 0.8%,
driven by increases in beans, frozen foods and salad
cream/salad dressing, partially offset by decreases in tuna and
other seafood. The unfavorable impact of foreign exchange
translation rates reduced sales by $247.6 million, or 9.6%.
Sales in Asia/Pacific decreased $108.7 million, or 9.1%. The
unfavorable impact of foreign exchange translation rates
reduced sales by $135.1 million, or 11.3%. Volume increased
sales by 2.1% due to increases in poultry, tuna, and infant
foods partially offset by decreases in nutritional drinks and
pet foods. Other items, net, increased sales by 0.1%.
Sales of Other Operating Entities decreased $156.0 million,
or 32.5%. Divestitures, net of acquisitions, reduced sales
36.0%, primarily due to the divestiture of the Weight Watchers
classroom business in Fiscal 2000. Sales volume increased 3.5%
and higher pricing increased sales 1.8%. Unfavorable foreign
exchange translation rates reduced sales 1.8%.
The current year was impacted by a number of special items
which are summarized in the tables below. Fiscal 2001 results
include Operation Excel implementation costs of $311.6 million
pretax ($0.59 per share), additional Operation Excel
restructuring charges of $55.7 million pretax ($0.10 per share)
and reversals of $78.8 million pretax ($0.17 per share) of
restructuring accruals and assets write-downs. Fiscal 2001
results also include Streamline restructuring charges of $276.2
million pretax ($0.60 per share) and related implementation
costs of $22.6 million pretax ($0.05 per share). During the
fourth quarter of Fiscal 2001, the company completed the sale
of The All American Gourmet business that resulted in a pretax
loss of $94.6 million ($0.19 per share). The Fiscal 2001
results also include pretax costs of $18.5 million ($0.03 per
share) related to attempted acquisitions, a tax benefit of
$93.2 million ($0.27 per share) from tax planning and new tax
legislation in Italy and a loss of $5.6 million pretax ($0.01
per share) which represents the company's equity loss
associated with The Hain Celestial Group's fourth quarter
results which include charges for its merger with Celestial
Seasonings.
(31)
<PAGE> 5
Last year's results include Operation Excel restructuring
charges of $194.5 million pretax ($0.37 per share), Operation
Excel implementation costs of $216.5 million pretax ($0.41 per
share), reversals of $18.2 million pretax ($0.04 per share) of
Fiscal 1999 restructuring accruals and assets write-downs,
costs related to the company's Ecuador tuna processing facility
of $20.0 million pretax ($0.05 per share), a gain of $18.2
million pretax ($0.03 per share) on the sale of an office
building in the U.K., a pretax contribution of $30.0 million
($0.05 per share) to the H.J. Heinz Company Foundation, a gain
of $464.6 million pretax ($0.72 per share) on the sale of the
Weight Watchers classroom business and the impact of the Weight
Watchers classroom business of $32.8 million pretax ($0.05 per
share).
The following tables provide a comparison of the company's
reported results and the results excluding special items for
Fiscal 2001 and Fiscal 2000.
<TABLE>
<CAPTION>
Fiscal Year (52 Weeks) Ended May 2, 2001
-------------------------------------------------------------------------------------
(Dollars in millions, except per Gross Operating
share amounts) Net Sales Profit Income Net Income Per Share
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Reported results $9,430.4 $3,546.8 $ 982.4 $494.9* $ 1.41*
Operation Excel restructuring - 44.8 55.7 35.0 0.10
Operation Excel implementation
costs - 146.4 311.6 208.7 0.59
Operation Excel reversal - (46.3) (78.8) (60.9) (0.17)
Streamline restructuring - 176.6 276.2 211.6 0.60
Streamline implementation costs - 16.0 22.6 18.8 0.06
Loss on sale of The All
American Gourmet - - 94.6 66.2 0.19
Equity loss on investment in
The Hain Celestial Group - - - 3.5 0.01
Acquisition costs - - 18.5 11.7 0.03
Italian tax benefit - - - (93.2) (0.27)
- --------------------------------------------------------------------------------------------------------------------------
Results excluding special items $9,430.4 $3,884.3 $1,682.7 $896.4 $ 2.55
==========================================================================================================================
*Before cumulative effect of accounting changes
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year (53 Weeks) Ended May 3, 2000
-------------------------------------------------------------------------------------
(Dollars in millions, except per Gross Operating
share amounts) Net Sales Profit Income Net Income Per Share
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Reported results $9,407.9 $3,619.4 $1,733.1 $ 890.6 $ 2.47
Operation Excel restructuring - 107.7 194.5 134.4 0.37
Operation Excel implementation
costs - 79.2 216.5 145.9 0.41
Operation Excel reversal - (16.4) (18.2) (12.9) (0.04)
Ecuador expenses - 20.0 20.0 20.0 0.05
Gain on U.K. building sale - - - (11.8) (0.03)
Foundation contribution - - 30.0 18.9 0.05
Impact of Weight Watchers
classroom business (175.3) (93.0) (44.7) (19.6) (0.05)
Gain on sale of Weight Watchers
classroom business - - (464.6) (259.7) (0.72)
- --------------------------------------------------------------------------------------------------------------------------
Results excluding special items $9,232.7 $3,716.9 $1,666.5 $ 905.7 $ 2.52
==========================================================================================================================
</TABLE>
(Note: Totals may not add due to rounding.)
Gross profit decreased $72.6 million to $3.55 billion from
$3.62 billion in Fiscal 2000. The gross profit margin decreased
to 37.6% from 38.5%. Excluding the special items identified
above, gross profit increased $167.4 million, or 4.5%, to $3.88
billion from $3.72 billion, and the gross profit margin
increased to 41.2% from 40.3%. Gross profit, across all major
segments, was favorably impacted by savings from Operation
Excel. Gross profit for the North American Grocery &
Foodservice segment increased $67.7 million, or 4.2%, due
primarily to acquisitions, partially offset by lower pricing of
tuna and pet food and higher energy costs. North American
Frozen's gross profit increased $41.4 million, or 8.6%, due to
increased sales volume mainly attributable to Boston Market
HomeStyle Meals and
(32)
<PAGE> 6
higher selling prices, partially offset by higher energy
costs. Europe's gross profit increased $78.0 million, or 7.2%,
due primarily to a favorable profit mix and the acquisitions
of CSM, UB and Remedia Limited. The unfavorable impact of
foreign exchange translation rates reduced Europe's gross
profit by approximately $99 million. The Asia/Pacific
segment's gross profit decreased $34.3 million, or 7.7%,
driven by the unfavorable impact of foreign exchange
translation rates of approximately $48 million, partially
offset by higher selling prices in Indonesia. Other Operating
Entities' gross profit increased $6.3 million, or 6.5%, due
primarily to higher pricing.
SG&A increased $213.5 million to $2.56 billion from $2.35
billion and increased as a percentage of sales to 27.2% from
25.0%. Excluding the special items identified above, SG&A
increased $151.1 million to $2.20 billion from $2.05 billion
and increased as a percentage of sales to 23.3% from 22.2%.
Selling and distribution expenses increased $27.4 million to
$768.2 million from $740.8 million, or 3.7%, primarily due to
acquisitions and increased fuel costs in North America.
Marketing increased $133.6 million, or 16.7%, primarily due to
the UB acquisition and the national rollouts of StarKist Tuna
in a pouch, Boston Market products, and the Stand Up Resealable
Packaging for Ore-Ida frozen potatoes ("SURP").
Total marketing support (including trade and consumer
promotions and media) decreased 5.0% to $2.22 billion from
$2.34 billion on a sales increase of 2.1%. However, advertising
costs to support our key brands increased 8.1%. (See Note 17 to
the Consolidated Financial Statements.)
Operating income decreased $750.7 million, or 43.3%, to $0.98
billion from $1.73 billion last year. Excluding the special
items identified above, operating income increased $16.3
million, or 1.0%, to $1.68 billion from $1.67 billion last
year. Operating income, across all major segments, was
favorably impacted by savings from Operation Excel. Domestic
operations provided approximately 37% and 59% of operating
income in Fiscal 2001 and Fiscal 2000, respectively. Excluding
the special items in both years, domestic operations provided
approximately 50% and 54% of operating income in Fiscal 2001
and Fiscal 2000, respectively.
The North American Grocery & Foodservice segment's operating
income decreased $207.4 million, or 29.9%, to $487.0 million
from $694.4 million last year. Excluding the special items
noted above (see Note 14 to the Consolidated Financial
Statements), operating income increased $0.9 million, or 0.1%,
to $876.2 million from $875.3 million last year, due primarily
to the strong performance of ketchup, condiments and sauces and
the acquisitions of Quality Chef, Yoshida and IDF Holdings,
Inc. ("IDF") offset by lower seafood volumes, a significant
decrease in the selling price of tuna and higher energy costs.
The North American Frozen segment's operating income
decreased $68.1 million to $84.0 million from $152.0 million
last year. Excluding the special items noted above (see Note 14
to the Consolidated Financial Statements), operating income
increased $20.5 million, or 11.3%, to $202.0 million from
$181.5 million last year. This increase is mainly attributable
to increased sales of Smart Ones frozen entrees, Boston Market
frozen meals and Bagel Bites snacks, partially offset by
marketing spending behind the national rollouts of Boston
Market products, the SURP and higher energy costs.
Europe's operating income increased $24.4 million, or 6.7%,
to $388.6 million from $364.2 million. Excluding the special
items noted above (see Note 14 to the Consolidated Financial
Statements), operating income increased $15.7 million, or 3.1%,
to $518.0 million from $502.3 million last year, due primarily
to increased sales of seafood and beans and the UB acquisition,
partially offset by competitive pricing and trade destocking in
the company's European infant foods business. The unfavorable
impact of foreign exchange translation rates reduced Europe's
operating income by approximately $45 million.
(33)
<PAGE> 7
Asia/Pacific's operating income decreased $28.0 million, or
22.6%, to $96.1 million from $124.1 million last year.
Excluding the special items noted above (see Note 14 to the
Consolidated Financial Statements), operating income decreased
$29.9 million, or 16.8%, to $147.6 million from $177.5 million
last year. Solid performances from Indonesia, Greater China and
the poultry business were offset by reduced sales in New
Zealand, Japan and India. The unfavorable impact of foreign
exchange translation rates reduced Asia/Pacific's operating
income by approximately $17 million.
Other Operating Entities reported a decrease in operating
income of $490.9 million to $49.3 million from $540.2 million
last year. Excluding the special items noted above (see Note 14
to the Consolidated Financial Statements), operating income
increased $5.7 million, or 17.7%, to $38.0 million from $32.3
million last year.
Other expense, net totaled $309.3 million compared to $269.4
million last year. The increase is primarily due to an increase
in interest expense resulting from higher average borrowings
and higher interest rates partially offset by gains from
foreign currency contracts.
The effective tax rate for Fiscal 2001 was 26.5% compared to
39.2% last year. The current year's rate includes a benefit of
$93.2 million, or $0.27 per share, from tax planning and new
tax legislation in Italy, partially offset by restructuring
expenses in lower rate jurisdictions. The Fiscal 2000 rate was
negatively impacted by a higher rate on the sale of the Weight
Watchers classroom business, resulting from an excess of basis
in assets for financial reporting over the tax basis in assets,
and by higher state taxes related to the sale and more
restructuring expenses in lower rate jurisdictions. Excluding
the special items identified in the tables above, the effective
tax rate was 35.0% in both years.
Net income decreased $412.5 million to $478.0 million from
$890.6 million last year, and earnings per share decreased to
$1.36 from $2.47. In Fiscal 2001, the company changed its
method of accounting for revenue recognition in accordance with
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition
in Financial Statements" (see Note 1 to the Consolidated
Financial Statements). The cumulative effect of adopting SAB
No. 101 was $16.5 million ($0.05 per share). Excluding the
special items noted above and the prescribed accounting change,
net income decreased 1.0% to $896.4 million from $905.7
million, and earnings per share increased 1.2% to $2.55 from
$2.52 last year.
The impact of fluctuating exchange rates for Fiscal 2001
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
2000 VERSUS 1999: Sales for Fiscal 2000 increased $108.3
million, or 1.2%, to $9.41 billion from $9.30 billion in Fiscal
1999. Volume increased sales by $349.7 million, or 3.8%, and
acquisitions increased sales by $438.2 million, or 4.7%.
Divestitures reduced sales by $407.4 million, or 4.4%, lower
pricing reduced sales by $161.2 million, or 1.7%, and the
unfavorable impact of foreign exchange translation rates
reduced sales by $111.0 million, or 1.2%. Domestic operations
contributed approximately 52% of consolidated sales in Fiscal
2000 and 53% in Fiscal 1999.
Sales of the North American Grocery & Foodservice segment
increased $61.4 million, or 1.5%. Sales volume increased 3.1%,
due to increases in ketchup, condiments and sauces,
foodservice, tuna and canned soup, partially offset by a
decrease in canned pet food. Acquisitions, net of divestitures,
increased sales 0.4%, and a stronger Canadian dollar increased
sales 0.3%. Lower pricing reduced sales by 2.3%, due mainly to
decreases in tuna and retail ketchup.
(34)
<PAGE> 8
The North American Frozen segment's sales increased $9.5
million, or 0.9%. Sales volume increased 5.9%, driven by Smart
Ones frozen entrees, Boston Market frozen meals and Bagel Bites
snacks, partially offset by a decrease in The Budget Gourmet
line of frozen entrees. The divestiture of several non-core
product lines, net of acquisitions, reduced sales 3.4%. Lower
pricing reduced sales 1.6%, primarily due to frozen potatoes.
Sales in Europe increased $123.0 million, or 5.0%.
Acquisitions, net of divestitures, increased sales 8.6%, due
primarily to the acquisitions of United Biscuit's European
Frozen and Chilled Division, Remedia Limited (infant feeding),
Sonnen Bassermann (convenience meals) and Serv-A-Portion
(foodservice). Sales volume increased 3.4%, due to increases in
tuna, infant foods and ketchup, condiments and sauces. The
unfavorable impact of foreign exchange translation rates
reduced sales 5.8% and lower pricing, primarily in tuna,
reduced sales 1.2%.
Sales in Asia/Pacific increased $184.3 million, or 18.2%.
Acquisitions, primarily ABC Sauces in Indonesia, increased
sales 11.8%. Sales volume increased 4.5%, due to increases in
infant foods, poultry and convenience meals. The favorable
impact of foreign exchange translation rates increased sales
2.4%, primarily due to sales in Japan. Lower pricing reduced
sales 0.5%.
Sales of Other Operating Entities decreased $269.9 million,
or 36.0%. Divestitures reduced sales 38.0%, primarily due to
the second quarter divestiture of the Weight Watchers classroom
business and the Fiscal 1999 divestiture of the bakery products
unit. Lower pricing reduced sales 1.9%, and foreign exchange
translation rates reduced sales 0.6%. Sales volume increased
4.5%.
The following tables provide a comparison of the company's
reported results and the results excluding special items for
Fiscal 2000 and Fiscal 1999 as reported in the company's annual
report for the year ended May 3, 2000. The Fiscal 2000 results
have not been adjusted for the impact of the Weight Watchers
classroom business for comparative purposes.
<TABLE>
<CAPTION>
Fiscal Year (53 Weeks) Ended May 3, 2000
-------------------------------------------------------------------------------------
(Dollars in millions, except per Gross Operating
share amounts) Net Sales Profit Income Net Income Per Share
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Reported results $9,407.9 $3,619.4 $1,733.1 $ 890.6 $ 2.47
Operation Excel restructuring - 107.7 194.5 134.4 0.37
Operation Excel implementation
costs - 79.2 216.5 145.9 0.41
Operation Excel reversal - (16.4) (18.2) (12.9) (0.04)
Ecuador expenses - 20.0 20.0 20.0 0.05
Gain on U.K. building sale - - - (11.8) (0.03)
Foundation contribution - - 30.0 18.9 0.05
Gain on sale of Weight Watchers
classroom business - - (464.6) (259.7) (0.72)
- --------------------------------------------------------------------------------------------------------------------------
Results excluding special items $9,407.9 $3,809.9 $1,711.2 $ 925.3 $ 2.57
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year (52 Weeks) Ended April 28, 1999
-------------------------------------------------------------------------------------
(Dollars in millions, except per Gross Operating
share amounts) Net Sales Profit Income Net Income Per Share
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Reported results $9,299.6 $3,354.7 $1,109.3 $474.3 $ 1.29
Operation Excel restructuring
and implementation costs - 396.4 552.8 409.7 1.11
Project Millennia
implementation costs - 14.7 22.3 14.3 0.04
Project Millennia reversal - (20.7) (25.7) (16.4) (0.04)
(Gain)/loss on sale of bakery
products unit - - (5.7) 0.6 -
- --------------------------------------------------------------------------------------------------------------------------
Results excluding special items $9,299.6 $3,745.1 $1,653.0 $882.4 $ 2.40
==========================================================================================================================
</TABLE>
(Note: Totals may not add due to rounding.)
(35)
<PAGE> 9
Gross profit increased $264.7 million to $3.62 billion from
$3.35 billion in Fiscal 1999. The gross profit margin increased
to 38.5% from 36.1%. Excluding the special items identified
above, gross profit increased $64.7 million, or 1.7%, to $3.81
billion from $3.75 billion and the gross profit margin
increased to 40.5% from 40.3%. Gross profit for the North
American Grocery & Foodservice segment increased $52.5 million,
or 3.4%, due to increases at Heinz U.S.A. and Heinz Canada,
partially offset by a significant decrease in the selling price
of tuna at Star-Kist. North American Frozen's gross profit
decreased slightly by $2.0 million, or 0.4%, as increased sales
volume was offset by lower pricing and the elimination of
several non-core product lines. Europe's gross profit increased
$62.0 million, or 6.1%, due primarily to a favorable profit
mix, and the acquisitions of United Biscuit's European Frozen
and Chilled Division, Remedia Limited, Sonnen Bassermann and
Serv-A-Portion. The unfavorable impact of foreign exchange
translation rates reduced Europe's gross profit by
approximately $65 million. The Asia/Pacific segment's gross
profit increased $84.4 million, or 23.4%, driven by the
acquisition of ABC Sauces in Indonesia, improved performances
throughout the segment, and the favorable impact of foreign
exchange translation rates in Japan. Other Operating Entities'
gross profit decreased $130.4 million, or 40.6%, due primarily
to the second quarter divestiture of the Weight Watchers
classroom business and the Fiscal 1999 divestiture of the
bakery products unit.
SG&A increased $105.5 million to $2.35 billion from $2.25
billion and increased as a percentage of sales to 25.0% from
24.1%. Excluding the special items identified above, SG&A
increased $6.5 million to $2.10 billion from $2.09 billion and
decreased as a percentage of sales to 22.3% from 22.5%.
Increased selling and distribution expenses, primarily in
Asia/Pacific and Europe, resulting from acquisitions, were
offset by decreases in marketing and general and administrative
expenses. Marketing decreased $11.2 million, or 1.3%, primarily
due to the second quarter divestiture of the Weight Watchers
classroom business. Excluding the Weight Watchers classroom
business, marketing expense increased 6.5%. Marketing increases
were noted in all major segments.
Total marketing support (including trade and consumer
promotions and media) increased 6.6% to $2.37 billion from
$2.22 billion on a sales increase of 1.2%. Excluding the Weight
Watchers classroom business, total marketing support increased
9.6%. Advertising costs in Fiscal 2000 were $374.0 million
compared to $373.9 million in Fiscal 1999. Excluding the Weight
Watchers classroom business in both periods, advertising costs
increased 9.3%.
Operating income increased $623.8 million, or 56.2%, to $1.73
billion from $1.11 billion in Fiscal 1999. Excluding the
special items identified above, operating income increased
$58.2 million, or 3.5%, to $1.71 billion from $1.65 billion in
Fiscal 1999. Removing the impact of the Weight Watchers
classroom business in both periods, operating income increased
6.6%. Domestic operations provided approximately 59% and 57% of
operating income in Fiscal 2000 and Fiscal 1999, respectively.
Excluding the special items in both years, domestic operations
provided approximately 54% and 55% of operating income in
Fiscal 2000 and Fiscal 1999, respectively.
The North American Grocery & Foodservice segment's operating
income decreased $22.5 million, or 3.1%, to $694.4 million from
$717.0 million in Fiscal 1999. Excluding the special items
noted above (see Note 14 to the Consolidated Financial
Statements), operating income increased $40.6 million, or 4.9%,
to $875.3 million from $834.6 million in Fiscal 1999. The
strong performance of Heinz U.S.A., improvements in Heinz
Canada and the pet food business and savings from Operation
Excel were partially offset by a significant decrease in the
selling price of tuna at Star-Kist.
(36)
<PAGE> 10
The North American Frozen segment's operating income
increased $71.8 million to $152.0 million from $80.2 million in
Fiscal 1999. Excluding the special items noted above (see Note
14 to the Consolidated Financial Statements), operating income
decreased $1.9 million, or 1.0%, to $181.5 million from $183.4
million in Fiscal 1999. This decrease is attributable to higher
marketing expenses as a result of the national campaign in
support of Boston Market and lower pricing on Ore-Ida frozen
potatoes, offset by a reduction in SG&A resulting from the
domestic consolidation of the frozen business as part of
Operation Excel.
Europe's operating income increased $118.0 million, or 47.9%,
to $364.2 million from $246.2 million. Excluding the special
items noted above (see Note 14 to the Consolidated Financial
Statements), operating income increased $35.1 million, or 7.5%,
to $502.3 million from $467.2 million in Fiscal 1999, due
primarily to a favorable profit mix, savings from Operation
Excel and the acquisitions of United Biscuit's European Frozen
and Chilled Division, Remedia Limited and Serv-A-Portion. The
unfavorable impact of foreign exchange translation rates
reduced Europe's operating income by approximately $26 million.
Asia/Pacific's operating income increased $34.3 million, or
38.2%, to $124.1 million from $89.8 million in Fiscal 1999.
Excluding the special items noted above (see Note 14 to the
Consolidated Financial Statements), operating income increased
$31.8 million, or 21.8%, to $177.5 million from $145.7 million
in Fiscal 1999. This increase is attributable to the
acquisition of ABC Sauces in Indonesia and solid performances
from Japan, India and the poultry business.
Other Operating Entities reported an increase in operating
income of $444.4 million to $540.2 million from $95.7 million
in Fiscal 1999. Excluding the special items noted above (see
Note 14 to the Consolidated Financial Statements), operating
income decreased $44.9 million, or 36.9%, to $77.0 million from
$122.0 million in Fiscal 1999. This decrease is primarily
attributable to the second quarter divestiture of the Weight
Watchers classroom business.
Other expenses, net totaled $269.4 million compared to $274.2
million in Fiscal 1999. The decrease is primarily due to a gain
on the sale of an office building in the U.K. of $18.2 million
pretax ($0.03 per share) partially offset by an increase in
interest expense resulting from higher average borrowings and
interest rates.
The effective tax rate for Fiscal 2000 was 39.2% compared to
43.2% in Fiscal 1999. The Fiscal 2000 effective tax rate was
unfavorably impacted by the excess of basis in assets for
financial reporting over the tax basis of assets included in
the Weight Watchers sale and by gains in higher taxed states
related to the sale. The Fiscal 2000 and 1999 effective tax
rates were unfavorably impacted by restructuring and
implementation costs expected to be realized in lower tax rate
jurisdictions and by nondeductible expenses related to the
restructuring. Excluding the special items identified in the
tables above, the effective tax rate for Fiscal 2000 was 35.0%
compared to 36.0% in Fiscal 1999.
Net income increased $416.2 million to $890.6 million from
$474.3 million in Fiscal 1999, and earnings per share increased
to $2.47 from $1.29. Excluding the special items noted above,
net income increased 4.9% to $925.3 million from $882.4
million, and earnings per share increased 7.1% to $2.57 from
$2.40 in Fiscal 1999. Removing the impact of the Weight
Watchers classroom business in both years, earnings per share
increased 9.6% and net income increased 7.1%.
The impact of fluctuating exchange rates for Fiscal 2000
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
(37)
<PAGE> 11
LIQUIDITY AND Return on average shareholders' equity ("ROE") was 32.2% in
FINANCIAL Fiscal 2001, 52.4% in Fiscal 2000 and 23.6% in Fiscal 1999.
POSITION Excluding the special items identified above, ROE was 60.4%
in Fiscal 2001, 54.4% in Fiscal 2000 and 43.9% in Fiscal 1999.
Pretax return on average invested capital ("ROIC") was 16.4% in
Fiscal 2001, 31.4% in Fiscal 2000 and 20.4% in Fiscal 1999.
Excluding the special items identified above, ROIC was 28.2% in
Fiscal 2001, 30.6% in Fiscal 2000 and 30.7% in Fiscal 1999.
Cash provided by operating activities decreased to $506.3
million in Fiscal 2001, compared to $543.1 million in Fiscal
2000 and $910.1 million in Fiscal 1999. The decrease in Fiscal
2001 versus Fiscal 2000 is primarily due to increased
expenditures on Streamline, Operation Excel and foreign income
taxes. During Fiscal 2001, the company paid approximately $221
million in foreign income taxes related to the Fiscal 2000
reorganization of its foreign operations. Because the company
realized an increase in tax basis of amortizable assets at the
same time, the company expects the reorganization will result
in aggregate net positive cash flow. These decreases were
partially offset by a reduction of inventory levels at certain
locations that increased during Fiscal 2000 in order to
facilitate the plant shutdowns and reconfigurations related to
Operation Excel.
Cash used for investing activities was $774.2 million in
Fiscal 2001 compared to $268.7 million in Fiscal 2000.
Acquisitions in the current year required $673.0 million versus
$394.4 million last year. Current year acquisitions included
CSM, IDF, Alden Merrell and other smaller acquisitions. Fiscal
2000 acquisitions included UB, Yoshida, Thermo-Pac, Inc.,
Remedia Limited in Israel and other smaller acquisitions. (See
Note 2 to the Consolidated Financial Statements.) Also during
the current year, the company exercised its preemptive right to
purchase additional equity in The Hain Celestial Group, Inc.,
formerly The Hain Food Group, Inc., to restore Heinz's
investment level to approximately 19.5% of the outstanding
stock of Hain, for $79.7 million. Last year, the company
invested $99.8 million in The Hain Celestial Group, Inc.
Divestitures provided $151.1 million, primarily from the sale
of The All American Gourmet business and can making assets. In
Fiscal 2000, divestitures provided $726.5 million, primarily
from the sale of the Weight Watchers classroom business.
Capital expenditures totaled $411.3 million compared to
$452.4 million last year. The decrease is attributable to a
reduction in Operation Excel related capital expenditures. This
year's capital expenditures were concentrated in North American
Grocery & Foodservice and Europe. Last year's capital
expenditures were concentrated across all major segments.
Proceeds from disposals of property, plant and equipment
increased to $257.0 million in Fiscal 2001 compared to $45.5
million in Fiscal 2000. The current year increase was primarily
due to the sale of equipment which was then utilized under
operating lease arrangements.
Purchases and sales/maturities of short-term investments
increased in Fiscal 2001. The company periodically sells a
portion of its short-term investment portfolio in order to
reduce its borrowings.
In Fiscal 2001, financing activities provided $283.1 million.
Financing activities required $259.2 million and $515.5 million
in Fiscals 2000 and 1999, respectively. Cash used for dividends
to shareholders increased $23.5 million to $537.3 million from
$513.8 million last year. Purchases of treasury stock totaled
$90.1 million (2.3 million shares) in Fiscal 2001, compared to
$511.5 million (12.8 million shares) in Fiscal 2000. Net funds
borrowed were $807.6 million in Fiscal 2001 compared to $739.1
million in Fiscal 2000. Cash provided from stock options
exercised totaled $93.9 million in Fiscal 2001 versus $20.0
million in Fiscal 2000.
(38)
<PAGE> 12
The average amount of short-term debt outstanding (excluding
domestic commercial paper) during Fiscal 2001, Fiscal 2000 and
Fiscal 1999 was $202.6 million, $315.5 million, and $453.9
million, respectively. Total short-term debt had a
weighted-average interest rate during Fiscal 2001 of 8.03% and
at year-end of 7.00%. The weighted-average interest rate on
short-term debt during Fiscal 2000 was 6.2% and at year-end was
6.5%.
Aggregate domestic commercial paper had a weighted-average
interest rate during Fiscal 2001 of 6.3% and at year-end of
4.9%. In Fiscal 2000, the weighted-average interest rate was
5.5% and the rate at year-end was 6.2%. Based upon the amount
of commercial paper outstanding at May 3, 2001, a variance of
1/8% in the related interest rate would cause annual interest
expense to change by approximately $1.7 million.
The company's $2.30 billion credit agreement, which expires
in September 2001, supports its commercial paper program. As of
May 2, 2001, $1.34 billion of domestic commercial paper is
classified as short-term debt due to the short-term nature of
the supporting credit agreement. The company is currently
negotiating the renewal of the credit agreement and expects
that it will be renewed by August 2001. As of May 3, 2000, the
company had $2.08 billion of domestic commercial paper
outstanding and classified as long-term debt.
On November 6, 2000, the company issued $1.0 billion of
remarketable securities due November 2020. The proceeds were
used to repay domestic commercial paper. The securities have a
coupon rate of 6.82% until November 15, 2001. The securities
are subject to mandatory tender by all holders to the
remarketing dealer on November 15, 2001 and each November 15
thereafter, and the interest rate will be reset on such dates.
The company received a premium from the remarketing dealer for
the right to require the mandatory tender of the securities.
The amortization of the premium results in an effective
interest rate of 5.82%. If the remarketing dealer does not
elect to exercise its right to a mandatory tender of the
securities or otherwise does not purchase all of the securities
on the remarketing date, then the company is required to
repurchase all of the securities on the remarketing date at
100% of the principal amount plus accrued interest. On June 11,
2001, the remarketing dealer gave the company notice that the
remarketing dealer will exercise its right to a mandatory
tender of the securities and will purchase all of the
securities on November 15, 2001. Accordingly, the remarketable
securities will remain outstanding until at least November 15,
2002 and are classified as long-term debt.
On April 10, 2001, the company issued Euro 450 million of
5.125% Guaranteed Notes due 2006. The proceeds were used for
general corporate purposes, including repaying borrowings that
were incurred in connection with the acquisition of CSM.
On September 12, 2000, the company's Board of Directors
raised the quarterly dividend on the company's common stock to
$0.3925 per share from $0.3675 per share, for an indicated
annual rate of $1.57 per share. The company paid $537.3 million
in dividends to both common and preferred shareholders, an
increase of $23.5 million, or 4.6%, over Fiscal 2000. The
dividend rate in effect at the end of each year resulted in a
payout ratio of 115.4% in Fiscal 2001, 59.5% in Fiscal 2000 and
106.2% in Fiscal 1999. Excluding the impact of special items in
all years, the payout ratio was 61.6% in Fiscal 2001, 57.2% in
Fiscal 2000 and 57.1% in Fiscal 1999.
In Fiscal 2001, the company repurchased 2.3 million shares of
common stock, or 0.7% of the amount outstanding at the
beginning of Fiscal 2001, at a cost of $90.1 million, compared
to the repurchase of 12.8 million shares at a cost of $511.5
million in Fiscal 2000. On June 9, 1999, the Board of Directors
authorized the repurchase of up to 20.0 million shares. As of
May 2, 2001, the company had repurchased 14.4 million shares of
this current 20.0 million share program. The company may
reissue repurchased shares upon the exercise of stock options,
conversions of preferred stock and for general corporate
purposes.
(39)
<PAGE> 13
In Fiscal 2001, the cash requirements of Streamline were
$31.7 million, consisting of spending for severance and exit
costs ($8.9 million), capital expenditures ($0.3 million) and
implementation costs ($22.6 million). The cash requirements of
Operation Excel were $537.4 million, consisting of spending for
severance and exit costs ($76.8 million), capital expenditures
($149.0 million) and implementation costs ($311.6 million). In
Fiscal 2000, the cash requirements of Operation Excel were
$479.4 million, consisting of spending for severance and exit
costs ($89.3 million), capital expenditures ($173.6 million)
and implementation costs ($216.5 million). In Fiscal 1999, the
cash requirements of Operation Excel were $75.6 million,
consisting of spending for severance and exit costs ($16.6
million), capital expenditures ($5.8 million) and
implementation costs ($53.2 million).
In Fiscal 2002, the company expects the cash requirements of
Streamline to be approximately $130 million, consisting of
severance and exit costs ($120 million of the $121.5 million
accrued as of May 2, 2001), capital expenditures ($5 million)
and implementation costs ($5 million). In Fiscal 2002, the
company expects the cash requirements of Operation Excel to be
approximately $19 million, consisting of spending for severance
and exit costs ($10 million of the $13.1 million accrued as of
May 2, 2001) and capital expenditures ($9 million). The company
is financing the cash requirements of these programs through
operations, proceeds from the sale of non-strategic assets and
with short-term and long-term borrowings. The cash requirements
of these programs have not had and are not expected to have a
material adverse impact on the company's liquidity or financial
position.
During 1995, the company participated in the formation of a
business ("the entity") which purchases a portion of the trade
receivables generated by the company. The company sells
receivables to Jameson, Inc., a wholly owned subsidiary, which
then sells undivided interests in the receivables to the
entity. Outside investors contributed $95.4 million in capital
to the entity. The company consolidates the entity, and the
capital contributed by outside investors is classified as
minority interest ("other long-term liabilities") on the
Consolidated Balance Sheets.
In September 2000, the FASB Emerging Issues Task Force (the
"EITF") issued new guidelines entitled "Accounting for
Consideration from a Vendor to a Retailer in Connection with
the Purchase or Promotion of the Vendor's Products," which
address the income statement classification of consideration
from a vendor to a retailer. These guidelines will be effective
for the company beginning in the fourth quarter of Fiscal 2002.
The implementation of these guidelines will require the company
to make reclassifications between SG&A and sales, the amounts
of which have not yet been determined.
In May 2000, the EITF issued new guidelines entitled
"Accounting for Certain Sales Incentives" which addresses the
recognition, measurement and income statement classification
for certain sales incentives (e.g., coupons). These guidelines
will be effective for the company beginning in the fourth
quarter of Fiscal 2002. The implementation of these guidelines
will require the company to make reclassifications between SG&A
and sales, the amounts of which have not yet been determined.
The impact of inflation on both the company's financial
position and results of operations is not expected to adversely
affect Fiscal 2002 results. The company's financial position
continues to remain strong, enabling it to meet cash
requirements for operations, capital expansion programs and
dividends to shareholders. The company's goal is to achieve
earnings per share of $2.70 to $2.80 for Fiscal 2002, at recent
foreign exchange rates. Stronger performance is expected in the
second half of the year resulting from the contribution of new
brands and Streamline and Operation Excel savings.
(40)
<PAGE> 14
MARKET RISK The following discussion about the company's risk-management
FACTORS activities includes "forward-looking" statements that involve
risk and uncertainties. Actual results could differ
materially from those projected in the forward-looking
statements.
The company is exposed to market risks from adverse changes
in foreign exchange rates, interest rates, commodity prices and
production costs (including energy). As a policy, the company
does not engage in speculative or leveraged transactions, nor
does the company hold or issue financial instruments for
trading purposes.
FOREIGN EXCHANGE RATE SENSITIVITY: The company's cash flow and
earnings are subject to fluctuations due to exchange rate
variation. Foreign currency risk exists by nature of the
company's global operations. The company manufactures and sells
its products in a number of locations around the world, and
hence foreign currency risk is diversified.
When appropriate, the company may attempt to limit its
exposure to changing foreign exchange rates through both
operational and financial market actions. These actions may
include entering into forward, option and swap contracts to
hedge existing exposures, firm commitments and anticipated
transactions. The instruments are used to reduce risk by
essentially creating offsetting currency exposures. As of May
2, 2001, the company held contracts for the purpose of hedging
certain intercompany cash flows with an aggregate notional
amount of approximately $440 million. In addition, the company
held separate contracts in order to hedge purchases of certain
raw materials and finished goods and for payments arising from
certain foreign currency denominated obligations totaling
approximately $305 million. The company also held contracts to
hedge anticipated sales denominated in foreign currencies of
$120 million. The company's contracts mature within one year of
the fiscal year-end. Contracts that meet certain qualifying
criteria are accounted for as foreign currency cash flow
hedges. Accordingly, the effective portion of gains and losses
is deferred as a component of other comprehensive loss and is
recognized in earnings at the time the hedged item affects
earnings. Any gains and losses due to hedge ineffectiveness or
related to contracts which do not qualify for hedge accounting
are recorded in other income and expense. At May 2, 2001,
unrealized gains and losses on outstanding foreign currency
contracts are not material. As of May 2, 2001, the potential
gain or loss in the fair value of the company's outstanding
foreign currency contracts, assuming a hypothetical 10%
fluctuation in the currencies of such contracts, would be
approximately $10 million. However, it should be noted that any
change in the value of the contracts, real or hypothetical,
would be significantly offset by an inverse change in the value
of the underlying hedged items. In addition, this hypothetical
calculation assumes that each exchange rate would change in the
same direction relative to the U.S. dollar.
Substantially all of the company's foreign affiliates'
financial instruments are denominated in their respective
functional currencies. Accordingly, exposure to exchange risk
on foreign currency financial instruments is not material. (See
Note 12 to the Consolidated Financial Statements.)
INTEREST RATE SENSITIVITY: The company is exposed to changes in
interest rates primarily as a result of its borrowing and
investing activities used to maintain liquidity and fund
business operations. The company continues to utilize
commercial paper to fund working capital requirements. The
company also borrows in different currencies from other sources
to meet the borrowing needs of its foreign affiliates. The
nature and amount of the company's long-term and short-term
debt can be expected to vary as a result of future business
requirements, market conditions and other factors. The company
may utilize interest rate swap agreements to manage interest
rate exposure.
(41)
<PAGE> 15
The following table summarizes the company's debt obligations
at May 2, 2001. The interest rates represent weighted-average
rates, with the period end rate used for the variable rate debt
obligations. The fair value of the debt obligations
approximated the recorded value as of May 2, 2001. (See Notes 6
and 12 to the Consolidated Financial Statements.)
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
----------------------------------------------------------------------------------------------------
(Dollars in thousands) 2002 2003 2004 2005 2006 Thereafter Total
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $ 306,984 $458,168 $1,541 $308,934 $400,199 $1,742,660 $3,218,486
Average interest rate 7.00% 6.20% 8.06% 5.25% 5.13% 6.00%
Variable rate $1,563,850 $ 72,288 $5,420 $ 5,934 $ 6,047 $ 13,662 $1,667,201
Average interest rate 6.42% 6.42% 8.77% 8.77% 8.79% 6.23%
=============================================================================================================================
</TABLE>
COMMODITY PRICE SENSITIVITY: The company is the purchaser of
certain commodities such as corn, wheat and soybean meal and
oil. The company generally purchases these commodities based
upon market prices that are established with the vendor as part
of the purchase process. The company enters into commodity
future or option contracts, as deemed appropriate, to reduce
the effect of price fluctuations on anticipated purchases. Such
contracts are accounted for as hedges, if they meet certain
qualifying criteria, with the effective portion of gains and
losses recognized as part of cost of products sold, and
generally have a term of less than one year. As of May 2, 2001,
unrealized gains and losses related to commodity contracts held
by the company were not material nor would they be given a
hypothetical 10% fluctuation in market prices. It should be
noted that any change in the value of the contracts, real or
hypothetical, would be significantly offset by an inverse
change in the value of the underlying hedged items. (See Note
12 to the Consolidated Financial Statements.)
STOCK MARKET H.J. Heinz Company common stock is traded principally on
INFORMATION The New York Stock Exchange and the Pacific Exchange, under
the symbol HNZ. The number of shareholders of record of the
company's common stock as of June 30, 2001 approximated 55,400.
The closing price of the common stock on the New York Stock
Exchange composite listing on May 2, 2001 was $39.28.
Stock price information for common stock by quarter follows:
Stock Price Range
-------------------------
High Low
============================================================
2001
First $45.50 $36.94
Second 43.13 35.44
Third 47.63 41.75
Fourth 45.09 37.72
------------------------------------------------------------
2000
First $54.00 $45.75
Second 48.31 41.88
Third 48.25 36.63
Fourth 39.94 30.81
============================================================
(42)
<PAGE> 16
CONSOLIDATED STATEMENTS OF INCOME
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Fiscal year ended May 2, 2001 May 3, 2000 April 28, 1999
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share
amounts) (52 Weeks) (53 Weeks) (52 Weeks)
==========================================================================================================
<S> <C> <C> <C>
Sales $9,430,422 $9,407,949 $9,299,610
Cost of products sold 5,883,618 5,788,525 5,944,867
- ----------------------------------------------------------------------------------------------------------
Gross profit 3,546,804 3,619,424 3,354,743
Selling, general and administrative
expenses 2,564,450 2,350,942 2,245,431
Gain on sale of Weight Watchers - 464,617 -
- ----------------------------------------------------------------------------------------------------------
Operating income 982,354 1,733,099 1,109,312
Interest income 22,692 25,330 25,082
Interest expense 332,957 269,748 258,813
Other (income)/expense, net (969) 25,005 40,450
- ----------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting changes 673,058 1,463,676 835,131
Provision for income taxes 178,140 573,123 360,790
- ----------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting changes 494,918 890,553 474,341
Cumulative effect of accounting changes (16,906) - -
- ----------------------------------------------------------------------------------------------------------
Net income $ 478,012 $ 890,553 $ 474,341
==========================================================================================================
PER COMMON SHARE AMOUNTS:
Income before cumulative effect of
accounting changes - diluted $ 1.41 $ 2.47 $ 1.29
Income before cumulative effect of
accounting changes - basic $ 1.42 $ 2.51 $ 1.31
Net income - diluted $ 1.36 $ 2.47 $ 1.29
Net income - basic $ 1.37 $ 2.51 $ 1.31
Cash dividends $ 1.545 $ 1.445 $ 1.3425
==========================================================================================================
Average common shares outstanding - diluted 351,041,321 360,095,455 367,830,419
Average common shares outstanding - basic 347,758,281 355,272,696 361,203,539
==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
(43)
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
H.J. Heinz Company and Subsidiaries
Assets (Dollars in thousands) May 2, 2001 May 3, 2000
=========================================================================
CURRENT ASSETS:
Cash and cash equivalents $ 138,849 $ 137,617
Short-term investments, at cost which
approximates market 5,371 16,512
Receivables (net of allowances:
2001 - $15,075 and 2000 - $18,697) 1,383,550 1,237,804
Inventories:
Finished goods and work-in-process 1,095,954 1,270,329
Packaging material and ingredients 312,007 329,577
- -------------------------------------------------------------------------
1,407,961 1,599,906
- -------------------------------------------------------------------------
Prepaid expenses 157,801 171,599
Other current assets 23,282 6,511
- -------------------------------------------------------------------------
Total current assets 3,116,814 3,169,949
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 54,774 45,959
Buildings and leasehold improvements 878,028 860,873
Equipment, furniture and other 2,947,978 3,440,915
- -------------------------------------------------------------------------
3,880,780 4,347,747
Less accumulated depreciation 1,712,400 1,988,994
- -------------------------------------------------------------------------
Total property, plant and equipment,
net 2,168,380 2,358,753
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
OTHER NON-CURRENT ASSETS:
Goodwill (net of amortization:
2001 - $334,907 and 2000 - $312,433) 2,077,451 1,609,672
Trademarks (net of amortization:
2001 - $118,254 and 2000 - $104,125) 567,692 674,279
Other intangibles (net of amortization:
2001 - $157,678 and 2000 - $147,343) 120,749 127,779
Other non-current assets 984,064 910,225
- -------------------------------------------------------------------------
Total other non-current assets 3,749,956 3,321,955
- -------------------------------------------------------------------------
Total assets $9,035,150 $8,850,657
=========================================================================
See Notes to Consolidated Financial Statements.
(44)
<PAGE> 18
Liabilities and Shareholders' Equity
(Dollars in thousands) May 2, 2001 May 3, 2000
=========================================================================
CURRENT LIABILITIES:
Short-term debt $1,555,869 $ 151,168
Portion of long-term debt due within
one year 314,965 25,407
Accounts payable 962,497 1,026,960
Salaries and wages 54,036 48,646
Accrued marketing 146,138 200,775
Accrued restructuring costs 134,550 125,704
Other accrued liabilities 388,582 358,738
Income taxes 98,460 188,672
- -------------------------------------------------------------------------
Total current liabilities 3,655,097 2,126,070
- -------------------------------------------------------------------------
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt 3,014,853 3,935,826
Deferred income taxes 253,690 271,831
Non-pension postretirement benefits 207,104 208,958
Other 530,679 712,116
- -------------------------------------------------------------------------
Total long-term debt and other
liabilities 4,006,326 5,128,731
- -------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Capital stock:
Third cumulative preferred, $1.70
first series, $10 par value 126 139
Common stock, 431,096,485 shares
issued, $0.25 par value 107,774 107,774
- -------------------------------------------------------------------------
107,900 107,913
Additional capital 331,633 304,318
Retained earnings 4,697,213 4,756,513
- -------------------------------------------------------------------------
5,136,746 5,168,744
Less:
Treasury shares, at cost (82,147,565
shares at May 2, 2001 and
83,653,233 shares at May 3, 2000) 2,922,630 2,920,471
Unearned compensation relating to the
ESOP 3,101 7,652
Accumulated other comprehensive loss 837,288 644,765
- -------------------------------------------------------------------------
Total shareholders' equity 1,373,727 1,595,856
Total liabilities and shareholders'
equity $9,035,150 $8,850,657
=========================================================================
(45)
<PAGE> 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Preferred Stock Common Stock
(Amounts in thousands, except per Comprehensive ---------------------------- ------------------------------
share amounts) Income Shares Dollars Shares Dollars
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at April 29, 1998 20 $ 199 431,096 $107,774
Comprehensive income - 1999:
Net income - 1999 $ 474,341
Other comprehensive income (loss), net of tax:
Minimum pension liability, net of $6,975 tax
benefit (11,880)
Unrealized translation adjustments (88,040)
---------
Comprehensive income $ 374,421
=========
Cash dividends: Preferred @ $1.70 per share
Common @ $1.3425 per share
Shares reacquired
Conversion of preferred into common stock (3) (26)
Stock options exercised, net of shares tendered
for payment
Unearned compensation relating to the ESOP
Other, net
- -------------------------------------------------------------------------------------------------------------------------------
Balance at April 28, 1999 17 173 431,096 107,774
Comprehensive income - 2000:
Net income - 2000 $ 890,553
Other comprehensive income (loss), net of tax:
Minimum pension liability, net of $10,894
tax expense 18,548
Unrealized translation adjustments (154,962)
Realized translation reclassification
adjustment 7,246
---------
Comprehensive income $ 761,385
=========
Cash dividends: Preferred @ $1.70 per share
Common @ $1.445 per share
Shares reacquired
Conversion of preferred into common stock (3) (34)
Stock options exercised, net of shares tendered
for payment
Unearned compensation relating to the ESOP
Other, net*
- -------------------------------------------------------------------------------------------------------------------------------
Balance at May 3, 2000 14 139 431,096 107,774
Comprehensive income - 2001:
Net income - 2001 $ 478,012
Other comprehensive income (loss), net of tax:
Minimum pension liability, net of $6,995 tax
benefit (11,909)
Unrealized translation adjustments (179,476)
Cumulative effect of change in accounting
for derivatives (64)
Net change in fair value of cash flow hedges (1,669)
Net hedging losses reclassified into
earnings 595
---------
Comprehensive income $ 285,489
=========
Cash dividends: Preferred @ $1.70 per share
Common @ $1.545 per share
Shares reacquired
Conversion of preferred into common stock (1) (13)
Stock options exercised, net of shares tendered
for payment
Unearned compensation relating to the ESOP
Other, net*
- -------------------------------------------------------------------------------------------------------------------------------
Balance at May 2, 2001 13 $ 126 431,096 $107,774
===============================================================================================================================
Authorized Shares - May 2, 2001 13 600,000
===============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
* Includes activity of the Global Stock Purchase Plan.
(46)
<PAGE> 20
<TABLE>
<CAPTION>
Unearned Accumulated
Treasury Stock Compensation Other Total
Additional Retained ------------------------------- Relating to Comprehensive Shareholders'
Capital Earnings Shares Dollars the ESOP Loss Equity
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$252,773 $4,390,248 (67,679) $(2,103,979) $(14,822) $(415,677) $2,216,516
474,341 474,341
(99,920) (99,920)
(30) (30)
(484,817) (484,817)
(7,464) (410,103) (410,103)
(846) 34 872 -
25,658+ 3,138 78,150 103,808
3,094 3,094
67 2 48 115
- -------------------------------------------------------------------------------------------------------------------------------
277,652 4,379,742 (71,969) (2,435,012) (11,728) (515,597) 1,803,004
890,553 890,553
(129,168) (129,168)
(26) (26)
(513,756) (513,756)
(12,766) (511,480) (511,480)
(1,136) 46 1,170 -
26,830+ 833 19,681 46,511
4,076 4,076
972 203 5,170 6,142
- -------------------------------------------------------------------------------------------------------------------------------
304,318 4,756,513 (83,653) (2,920,471) (7,652) (644,765) 1,595,856
478,012 478,012
(192,523) (192,523)
(22) (22)
(537,290) (537,290)
(2,325) (90,134) (90,134)
(446) 18 459 -
25,787+ 3,389 76,737 102,524
4,551 4,551
1,974 423 10,779 12,753
- -------------------------------------------------------------------------------------------------------------------------------
$331,633 $4,697,213 (82,148) $(2,922,630) $ (3,101) $(837,288)++ $1,373,727
===============================================================================================================================
===============================================================================================================================
</TABLE>
+Includes income tax benefit resulting from exercised stock options.
++Comprised of unrealized translation adjustment of $(806,380), minimum
pension liability of $(29,770) and deferred net losses on derivative
financial instruments $(1,138).
(47)
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Fiscal year ended May 2, 2001 May 3, 2000 April 28, 1999
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands) (52 Weeks) (53 Weeks) (52 Weeks)
==========================================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 478,012 $ 890,553 $ 474,341
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 213,968 219,255 207,852
Amortization 85,198 87,228 94,360
Deferred tax provision 67,468 28,331 23,564
Loss on sale of The All American Gourmet
business 94,600 - -
Gain on sale of Weight Watchers - (464,617) -
Gain on sale of bakery products unit - - (5,717)
Cumulative effect of changes in
accounting principle 16,906 - -
Benefit from tax planning and new tax
legislation in Italy (93,150) - -
Provision for restructuring 587,234 392,720 527,107
Other items, net (79,415) 48,905 (43,147)
Changes in current assets and
liabilities, excluding effects of
acquisitions and divestitures:
Receivables (119,433) (123,994) (88,742)
Inventories 209,428 (217,127) (115,743)
Prepaid expenses and other current
assets (11,017) (23,296) 2,604
Accounts payable (69,754) 111,976 3,410
Accrued liabilities (553,268) (372,999) (150,533)
Income taxes (320,432) (33,860) (19,220)
- ----------------------------------------------------------------------------------------------------------
Cash provided by operating activities 506,345 543,075 910,136
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (411,299) (452,444) (316,723)
Proceeds from disposals of property, plant
and equipment 257,049 45,472 33,229
Acquisitions, net of cash acquired (672,958) (394,418) (268,951)
Proceeds from divestitures 151,112 726,493 180,400
Purchases of short-term investments (1,484,201) (1,175,538) (915,596)
Sales and maturities of short-term
investments 1,493,091 1,119,809 883,945
Investment in The Hain Celestial Group,
Inc. (79,743) (99,764) -
Other items, net (27,210) (38,284) 13,167
- ----------------------------------------------------------------------------------------------------------
Cash used for investing activities (774,159) (268,674) (390,529)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,536,744 834,328 259,593
Payments on long-term debt (48,321) (627,498) (65,744)
(Payments on) proceeds from commercial
paper and short-term borrowings, net (680,858) 532,305 74,464
Dividends (537,312) (513,782) (484,847)
Purchase of treasury stock (90,134) (511,480) (410,103)
Exercise of stock options 93,901 20,027 77,158
Other items, net 9,077 6,937 33,989
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing
activities 283,097 (259,163) (515,490)
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (14,051) 6,397 15,565
- ----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,232 21,635 19,682
Cash and cash equivalents at beginning of
year 137,617 115,982 96,300
Cash and cash equivalents at end of year $ 138,849 $ 137,617 $ 115,982
==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
(48)
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
1. SIGNIFICANT FISCAL YEAR: H.J. Heinz Company (the "company") operates on
ACCOUNTING a 52- or 53-week fiscal year ending the Wednesday nearest
POLICIES April 30. However, certain foreign subsidiaries have earlier
closing dates to facilitate timely reporting. Fiscal years for
the financial statements included herein ended May 2, 2001,
May 3, 2000 and April 28, 1999.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of the company and its
subsidiaries. All intercompany accounts and transactions were
eliminated. Investments owned less than 50%, where significant
influence exists, are accounted for on an equity basis. Certain
prior-year amounts have been reclassified in order to conform
with the Fiscal 2001 presentation.
USE OF ESTIMATES: The preparation of financial statements, in
conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from these estimates.
TRANSLATION OF FOREIGN CURRENCIES: For all significant foreign
operations, the functional currency is the local currency.
Assets and liabilities of these operations are translated at
the exchange rate in effect at each year-end. Income statement
accounts are translated at the average rate of exchange
prevailing during the year. Translation adjustments arising
from the use of differing exchange rates from period to period
are included as a component of shareholders' equity. Gains and
losses from foreign currency transactions are included in net
income for the period.
CASH EQUIVALENTS: Cash equivalents are defined as highly
liquid investments with original maturities of 90 days or
less.
INVENTORIES: Inventories are stated at the lower of cost or
market. Cost is determined principally under the average cost
method.
PROPERTY, PLANT AND EQUIPMENT: Land, buildings and equipment
are recorded at cost. For financial reporting purposes,
depreciation is provided on the straight-line method over the
estimated useful lives of the assets. 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.
INTANGIBLES: Goodwill, trademarks and other intangibles arising
from acquisitions are being amortized on a straight- line basis
over periods ranging from three to 40 years. The company
regularly reviews the individual components of the balances by
evaluating the future cash flows of the businesses to determine
the recoverability of the assets and recognizes, on a current
basis, any diminution in value.
REVENUE RECOGNITION: The company recognizes revenue when
title, ownership and risk of loss pass to the customer. See
Recently Adopted Accounting Standards for additional
information.
(49)
<PAGE> 23
ADVERTISING EXPENSES: Advertising costs are generally
expensed in the year in which the advertising first takes
place.
INCOME TAXES: Deferred income taxes result primarily from
temporary differences between financial and tax reporting. If
it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance
is recognized.
The company has not provided for possible U.S. taxes on the
undistributed earnings of foreign subsidiaries that are
considered to be reinvested indefinitely. Calculation of the
unrecognized deferred tax liability for temporary differences
related to these earnings is not practicable. Where it is
contemplated that earnings will be remitted, credit for foreign
taxes already paid generally will offset applicable U.S. income
taxes. In cases where they will not offset U.S. income taxes,
appropriate provisions are included in the Consolidated
Statements of Income.
STOCK-BASED EMPLOYEE COMPENSATION PLANS: Stock-based
compensation is accounted for by using the intrinsic value-
based method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
FINANCIAL INSTRUMENTS: The company uses derivative financial
instruments for the purpose of hedging currency, price and
interest rate exposures which exist as part of ongoing business
operations. As a policy, the company does not engage in
speculative or leveraged transactions, nor does the company
hold or issue financial instruments for trading purposes. See
Recently Adopted Accounting Standards for additional
information.
The cash flows related to financial instruments are
classified in the Statements of Cash Flows in a manner
consistent with those of the transactions being hedged.
RECENTLY ADOPTED ACCOUNTING STANDARDS: On February 1, 2001,
the company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Financial
Instruments and Hedging Activities," and its related
amendment, Statement of Financial Accounting Standards No.
138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires that all derivative financial
instruments be recorded on the consolidated balance sheet at
their fair value as either assets or liabilities. Changes in
the fair value of derivatives are recorded each period in
earnings or accumulated other comprehensive loss, depending on
whether the derivative is designated and effective as part of a
hedge transaction and, if it is, the type of hedge transaction.
Gains and losses reported in accumulated other comprehensive
loss are included in earnings in the periods in which earnings
are affected by the hedged item. Such gains and losses are
reported by the company on the same line as the underlying
hedged item. Gains and losses which represent hedge
ineffectiveness are reported by the company as other income and
expense in the period of change.
Prior to the adoption of SFAS No. 133, the company accounted
for derivative financial instruments that qualified as hedges
by recording deferred gains or losses from such instruments as
assets or liabilities and recognizing them as part of the cost
basis of the underlying hedged transaction. Realized and
unrealized gains and losses from financial instruments that did
not qualify as hedges were recognized immediately in earnings
as other income and expense.
On February 1, 2001, the adoption of SFAS No. 133 resulted in
a cumulative effect of an accounting change that reduced net
income by $0.4 million and increased accumulated other
comprehensive loss by $0.1 million.
See Footnote 12 for additional information on the company's
hedging activities.
(50)
<PAGE> 24
In Fiscal 2001, the company changed its method of accounting
for revenue recognition in accordance with Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." Under the new accounting method, adopted
retroactive to May 4, 2000, Heinz recognizes revenue upon the
passage of title, ownership and risk of loss to the customer.
The cumulative effect of the change on prior years resulted in
a charge to income of $16.5 million (net of income taxes of
$10.2 million), which has been included in net income for the
year ended May 3, 2000. The change did not have a significant
effect on revenues or results of operations for the year ended
May 2, 2001. The pro forma amounts, assuming that the new
revenue recognition method had been applied retroactively to
prior periods, were not materially different from the amounts
shown in the Consolidated Statements of Income for the years
ended May 3, 2000 and April 28, 1999. Therefore, these amounts
have not been presented.
RECENTLY ISSUED ACCOUNTING STANDARDS: In May 2000, the FASB
Emerging Issues Task Force (the "EITF") issued new guidelines
entitled "Accounting for Certain Sales Incentives" which
address the recognition, measurement and income statement
classification for certain sales incentives (e.g., coupons).
These guidelines will be effective for the company beginning in
the fourth quarter of Fiscal 2002. The implementation of these
guidelines will require the company to make reclassifications
between selling, general and administrative expenses ("SG&A")
and sales, the amounts of which have not yet been determined.
In September 2000, the EITF issued new guidelines entitled
"Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's
Products," which address the income statement classification of
consideration from a vendor to a retailer. These guidelines
will be effective for the company beginning in the fourth
quarter of Fiscal 2002. The implementation of these guidelines
will require the company to make reclassifications between SG&A
and sales, the amounts of which have not yet been determined.
2. ACQUISITIONS All of the following acquisitions have been accounted for as
purchases and, accordingly, the respective purchase prices
have been allocated to the respective assets and liabilities
based upon their estimated fair values as of the acquisition
date. Operating results of businesses acquired have been
included in the Consolidated Statements of Income from the
respective acquisition dates forward. Pro forma results of the
company, assuming all of the following acquisitions had been
made at the beginning of each period presented, would not be
materially different from the results reported.
FISCAL 2001: The company acquired businesses for a total of
$678.4 million, including obligations to sellers of $5.5
million. The preliminary allocations of the purchase price
resulted in goodwill of $571.3 million and trademarks and other
intangible assets of $14.3 million, which are being amortized
on a straight-line basis over periods not exceeding 40 years.
The final allocation is subject to valuation and other studies
that have not been completed.
On February 28, 2001, the company completed the acquisition
of the CSM Food Division of CSM Nederland NV, one of the
leading food companies in the Benelux (Belgium, the
Netherlands, Luxembourg) region which includes the following
brands: Honig brand of soups, sauces and pasta meals; HAK brand
vegetables packed in glass; KDR (Koninklijke de Ruijter) brand
sport drinks and fortified juices; and KDR brand spreads and
sprinkles, which are traditional toppings for breakfast breads
and toasts.
(51)
<PAGE> 25
On March 1, 2001, the company acquired two privately held
U.S. foodservice companies: Cornucopia, Inc. of Irvine,
California, and Central Commissary, Inc. of Phoenix, Arizona.
Both companies make and market refrigerated and frozen
reciped food products. Also during Fiscal 2001, the company
completed the acquisitions of IDF Holdings, Inc., the parent
of International DiverseFoods Inc., a leading manufacturer of
customized dressings, sauces, mixes and condiments for
restaurant chains and foodservice distributors, and Alden
Merrell Corporation, a manufacturer of high-quality, premium-
priced frozen desserts for casual dining restaurants and
foodservice distributors. The company also made other smaller
acquisitions.
FISCAL 2000: The company acquired businesses for a total of
$404.9 million, including obligations to sellers of $10.4
million. The allocations of the purchase price resulted in
goodwill of $255.2 million and trademarks and other intangible
assets of $39.7 million, which are being amortized on a
straight-line basis over periods not exceeding 40 years.
On December 7, 1999, the company completed the acquisition of
United Biscuit's European Frozen and Chilled Division, one of
the leading frozen food businesses in the U.K. and Ireland,
which produces frozen desserts and vegetarian/meat- free
products, frozen pizzas, frozen value-added potato products and
fresh sandwiches. Also during Fiscal 2000, the company
completed the acquisition of Quality Chef Foods, a leading
manufacturer of frozen heat-and-serve soups, entrees and
sauces; Yoshida, a line of Asian sauces marketed in the U.S.;
Thermo Pac, Inc., a U.S. leader in single-serve condiments; and
obtained a 51% share of Remedia Limited, Israel's leading
company in infant nutrition. The company also made other
smaller acquisitions during the year.
FISCAL 1999: The company acquired businesses for a total of
$317.3 million, including obligations to sellers of $48.4
million. The allocations of the purchase price resulted in
goodwill of $99.7 million and trademarks and other intangible
assets of $215.0 million, which are being amortized on a
straight-line basis over periods not exceeding 40 years.
Acquisitions made during Fiscal 1999 include: the College Inn
brand of canned broths and ABC Sauces in Indonesia, a leading
provider of ketchup, sauces and condiments. The company also
made other smaller acquisitions during the year.
3. DIVESTITURES On February 9, 2001, the company announced it had sold The All
American Gourmet business and its Budget Gourmet and Budget
Gourmet Value Classics brands of frozen entrees for $55.0
million. The transaction resulted in a pretax loss of $94.6
million ($0.19 per share). The All American Gourmet business
contributed approximately $141.4 million in sales for Fiscal
2000. During Fiscal 2001, the company also made other smaller
divestitures.
On September 29, 1999, the company completed the sale of the
Weight Watchers classroom business for $735 million, which
included $25 million of preferred stock. The transaction
resulted in a pretax gain of $464.6 million ($0.72 per share).
The company used a portion of the proceeds to retain a 6%
equity interest in Weight Watchers International, Inc. The sale
did not include Weight Watchers Smart Ones frozen meals,
desserts and breakfast items, Weight Watchers from Heinz in the
U.K. and a broad range of other Weight Watchers branded foods
in Heinz's global core product categories. The Weight Watchers
classroom business contributed approximately $400 million in
sales for Fiscal 1999. During Fiscal 2000, the company also
made other smaller divestitures.
On October 2, 1998, the company completed the sale of its
bakery products unit for $178.0 million. The transaction
resulted in a pretax gain of $5.7 million, which was recorded
in SG&A.
Pro forma results of the company, assuming all of the above
divestitures had been made at the beginning of each period
presented, would not be materially different from the results
reported.
(52)
<PAGE> 26
4. RESTRUCTURING STREAMLINE
CHARGES In the fourth quarter of Fiscal 2001, the company announced a
restructuring initiative named "Streamline" which includes:
[ ] A worldwide organizational restructuring aimed at reducing
overhead costs;
[ ] The closure of the company's tuna operations in Puerto
Rico;
[ ] The consolidation of the company's North American canned
pet food production to Bloomsburg, Pennsylvania (which
results in ceasing canned pet food production at the
company's Terminal Island, California facility); and
[ ] The divestiture of the company's U.S. fleet of fishing
boats and related equipment.
Management estimates that these actions will impact
approximately 2,700 employees.
During Fiscal 2001, the company recognized restructuring
charges and implementation costs totaling $298.8 million pretax
($0.66 per share). Pretax charges of $192.5 million were
classified as cost of products sold and $106.2 million as SG&A.
The major components of the restructuring charge and
implementation costs and the remaining accrual balance as of
May 2, 2001 were as follows:
<TABLE>
<CAPTION>
Non-Cash Employee
Asset Termination and Accrued Implementation
(Dollars in millions) Write-Downs Severance Costs Exit Costs Costs Total
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Restructuring and implementation
costs - 2001 $ 110.5 $110.3 $55.4 $ 22.6 $ 298.8
Amounts utilized - 2001 (110.5) (39.5) (4.7) (22.6) (177.3)
- -----------------------------------------------------------------------------------------------------------------------------
Accrued restructuring costs - May 2,
2001 $ - $ 70.8 $50.7 $ - $ 121.5
=============================================================================================================================
</TABLE>
Non-cash asset write-downs consisted primarily of long-term
asset impairments that were recorded as a direct result of the
company's decision to exit its tuna facility in Puerto Rico,
consolidate its canned pet food operations and divest its U.S.
fleet of fishing boats. Non-cash asset write-downs totaled
$110.5 million and related to property, plant and equipment
($93.0 million) and current assets ($17.5 million). Long-term
asset write-downs were based on third-party appraisals,
contracted sales prices or management's estimate of salvage
value. The carrying value of these long-term assets was
approximately $5 million as of May 2, 2001. Current asset
write-downs included inventory and packaging material, prepaids
and other current assets and were determined based on
management's estimate of net realizable value.
Employee termination and severance costs are primarily
related to involuntary terminations and represent cash
termination payments to be paid to affected employees as a
direct result of the restructuring program. Non-cash pension
and postretirement benefit charges related to the approved
projects are also included as a component of total severance
costs ($35.3 million).
Exit costs are primarily contractual obligations incurred as
a result of the company's decision to exit these facilities.
Implementation costs were recognized as incurred in Fiscal
2001 ($22.6 million pretax) and consist of incremental costs
directly related to the implementation of the Streamline
initiative. These include idle facility costs, consulting fees
and asset relocation costs.
In Fiscal 2001, the company completed the closure of its tuna
operations in Puerto Rico, ceased production of canned pet food
in the company's Terminal Island, California facility and sold
its U.S. fleet of fishing boats and related equipment. In
addition, the company initiated its global overhead reduction
plan, primarily in North America. These actions resulted in a
net reduction of the company's workforce of approximately 1,700
employees.
(53)
<PAGE> 27
OPERATION EXCEL
In Fiscal 1999, the company announced a growth and
restructuring initiative named "Operation Excel." This
initiative was a multi-year, multi-faceted program which
established manufacturing centers of excellence, focused the
product portfolio, realigned the company's management teams and
invested in growth initiatives.
The company established manufacturing centers of excellence
which resulted in significant changes to its manufacturing
footprint. The company completed the following initiatives:
closed the Harlesden factory in London, England and focused the
Kitt Green factory in Wigan, England on canned beans, soups and
pasta production and focused the Elst factory in the
Netherlands on tomato ketchup and sauces; downsized the Puerto
Rico tuna processing facility and focused this facility on
lower volume/higher margin products; focused the Pittsburgh,
Pennsylvania factory on soup and baby food production and
shifted other production to existing facilities; consolidated
manufacturing capacity in the Asia/ Pacific region; closed the
Zabreh, Czech Republic factory and disposed of the Czech dairy
business and transferred the infant formula business to the
Kendal, England factory; downsized the Pocatello, Idaho factory
by shifting Bagel Bites production to the Ft. Myers, Florida
factory, and shifted certain Smart Ones entree production to
the Massillon, Ohio factory; closed the Redditch, England
factory and shifted production to the Telford, England factory
and the Turnhout factory in Belgium; closed the El Paso, Texas
pet treat facility and transferred production to the Topeka,
Kansas factory and to co-packers; and disposed of the
Bloomsburg, Pennsylvania frozen pasta factory.
As part of Operation Excel, the company focused its portfolio
of product lines on six core food categories: ketchup,
condiments and sauces; frozen foods; tuna; soup, beans and
pasta meals; infant foods; and pet products. A consequence of
this focus was the sale of the Weight Watchers classroom
business in Fiscal 2000. Seven other smaller businesses, which
had combined annual revenues of approximately $80 million, also
have been disposed.
Realigning the company's management teams provided processing
and product expertise across the regions of North America,
Europe and Asia/Pacific. Specifically, Operation Excel:
established a single U.S. frozen food headquarters, resulting
in the closure of the company's Ore-Ida head office in Boise,
Idaho; consolidated many European administrative support
functions; established a single North American Grocery &
Foodservice headquarters in Pittsburgh, Pennsylvania, resulting
in the relocation of the company's domestic seafood and pet
food headquarters from Newport, Kentucky; and established two
Asia/Pacific management teams with headquarters in Melbourne
and Singapore.
During Fiscal 2001, the company recognized restructuring
charges of $55.7 million pretax, or $0.10 per share. These
charges were primarily associated with exiting the company's
domestic can making operations, exiting a tuna processing
facility in Ecuador, and higher than originally expected
severance costs associated with creating the single North
American Grocery & Foodservice headquarters in Pittsburgh,
Pennsylvania. This charge was recorded in cost of products sold
($44.8 million) and SG&A ($10.8 million). This charge was
offset by the reversals of unutilized Operation Excel accruals
and asset write-downs of $78.8 million pretax, or $0.17 per
share. These reversals were recorded in cost of products sold
($46.3 million) and SG&A ($32.5 million) and were primarily the
result of lower than expected lease termination costs related
to exiting the company's fitness business, revisions in
estimates of fair values of assets which were disposed of as
part of Operation Excel, the company's decision not to exit
certain U.S. warehouses due to higher than expected volume
growth, and the company's decision not to transfer certain
European baby food production. Implementation costs of $311.6
million pretax, or $0.59 per share, were also recognized in
Fiscal 2001. These costs were classified as costs of products
sold ($146.4 million) and SG&A ($165.1 million).
(54)
<PAGE> 28
During Fiscal 2000, the company recognized restructuring
charges of $194.5 million pretax, or $0.37 per share. Pretax
charges of $107.7 million were classified as cost of products
sold and $86.8 million as SG&A. Also during Fiscal 2000, the
company recorded a reversal of $18.2 million pretax ($0.04 per
share) of Fiscal 1999 restructuring accruals and asset
write-downs, primarily for the closure of the West Chester,
Pennsylvania facility, which remains in operation as a result
of the sale of the Bloomsburg frozen pasta facility in Fiscal
2000. Implementation costs of $216.5 million pretax ($0.41 per
share) were classified as costs of products sold ($79.2
million) and SG&A ($137.3 million).
During Fiscal 1999, the company recognized restructuring
charges and implementation costs totaling $552.8 million pretax
($1.11 per share). Pretax charges of $396.4 million were
classified as cost of products sold and $156.4 million as SG&A.
Implementation costs were recognized as incurred and
consisted of incremental costs directly related to the
implementation of Operation Excel, including consulting fees,
employee training and relocation costs, unaccruable severance
costs associated with terminated employees, equipment
relocation costs and commissioning costs.
The major components of the restructuring charges and
implementation costs and the remaining accrual balances as of
May 2, 2001, May 3, 2000 and April 28, 1999 were as follows:
<TABLE>
<CAPTION>
Non-Cash Employee
Asset Termination and Accrued Implementation
(Dollars in millions) Write-Downs Severance Costs Exit Costs Costs Total
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Restructuring and implementation costs -
1999 $ 294.9 $159.4 $ 45.3 $ 53.2 $ 552.8
Amounts utilized - 1999 (294.9) (67.3) (9.8) (53.2) (425.2)
- -----------------------------------------------------------------------------------------------------------------------------
Accrued restructuring costs - April 28,
1999 - 92.1 35.5 - 127.6
Restructuring and implementation costs -
2000 78.1 85.8 30.5 216.5 410.9
Accrual reversal - 2000 (16.5) (1.3) (0.4) - (18.2)
Amounts utilized - 2000 (61.6) (86.3) (30.7) (216.5) (395.1)
- -----------------------------------------------------------------------------------------------------------------------------
Accrued restructuring costs - May 3, 2000 - 90.3 34.9 - 125.2
Restructuring and implementation costs -
2001 44.4 3.0 8.3 311.6 367.3
Accrual reversal - 2001 (32.2) (28.3) (18.3) - (78.8)
Amounts utilized - 2001 (12.2) (60.1) (16.7) (311.6) (400.6)
- -----------------------------------------------------------------------------------------------------------------------------
Accrued restructuring costs - May 2, 2001 $ - $ 4.9 $ 8.2 $ - $ 13.1
=============================================================================================================================
</TABLE>
Non-cash asset write-downs consisted primarily of long-term
asset impairments that were recorded as a direct result of the
company's decision to exit businesses or facilities. Net
non-cash asset write-downs totaled $12.2 million in Fiscal 2001
and related to property, plant and equipment ($5.6 million net
reversal of previous asset write-downs), goodwill and other
intangibles ($11.6 million net restructuring charge) and other
current assets ($6.3 million net restructuring charge). In
Fiscal 2000, net non-cash asset write-downs totaled $61.6
million and related to property, plant and equipment ($48.7
million) and current assets ($12.9 million). In Fiscal 1999,
non-cash asset write-downs totaled $294.9 million and consisted
of property, plant and equipment ($210.9 million), goodwill and
other intangibles ($49.6 million) and current assets ($34.5
million). Long-term asset write-downs were based on third-party
appraisals, contracted sales prices or management's estimate of
salvage value. The carrying value of these long-term assets was
approximately $5 million at May 2, 2001, $30 million
(55)
<PAGE> 29
at May 3, 2000 and $50 million at April 28, 1999. These assets
were sold or removed from service by the end of Fiscal 2001.
The results of operations, related to these assets, including
the effect of reduced depreciation were not material. Current
asset write- downs included inventory and packaging material,
prepaids and other current assets and were determined based on
management's estimate of net realizable value.
Severance charges are primarily related to involuntary
terminations and represent cash termination payments to be paid
to affected employees as a direct result of the restructuring
program. Non-cash pension and postretirement benefit charges
related to the projects are also included as a component of
total severance costs ($27.8 million and $60.5 million in
Fiscal 2000 and Fiscal 1999, respectively).
Exit costs are primarily related to contract and lease
termination costs ($42.7 million of the total $65.5 million net
exit costs).
The company has closed or exited all of the 21 factories or
businesses that were originally scheduled for closure or
divestiture. In addition, the company also exited its can
making operations and a tuna processing facility in Ecuador.
Management estimates that Operation Excel will impact
approximately 8,500 employees with a net reduction in the
workforce of approximately 7,100 after expansion of certain
facilities. The exit of the company's domestic can making
operations and its tuna processing facility in Ecuador resulted
in a reduction of the company's workforce of approximately
2,500 employees. During Fiscal 2001, Fiscal 2000 and Fiscal
1999, the company's workforce had a net reduction of
approximately 3,700 employees, 3,000 employees and 200
employees, respectively. The remaining employee reductions are
expected to take place within six months.
5. INCOME TAXES The following table summarizes the provision/(benefit) for
U.S. federal and U.S. possessions, state and foreign taxes on
income.
(Dollars in thousands) 2001 2000 1999
=======================================================================
Current:
U.S. federal and U.S.
possessions $ 79,430 $318,873 $110,490
State (15,699) 45,935 15,389
Foreign 46,941 179,984 211,347
- -----------------------------------------------------------------------
110,672 544,792 337,226
- -----------------------------------------------------------------------
Deferred:
U.S. federal and U.S.
possessions 28,591 71,602 66,944
State 3,279 (1,871) 2,441
Foreign 35,598 (41,400) (45,821)
- -----------------------------------------------------------------------
67,468 28,331 23,564
- -----------------------------------------------------------------------
Total tax provision $178,140 $573,123 $360,790
=======================================================================
The Fiscal 2001 effective tax rate was favorably impacted by
the recognition of a tax benefit of $93.2 million related to
new tax legislation enacted in Italy. The Fiscal 2000 effective
tax rate was unfavorably impacted by the excess of basis in
assets for financial reporting over tax basis of assets
included in the Weight Watchers sale and by gains in higher tax
rate states related to the sale. Tax expense related to the
pretax gain of $464.6 million was $204.9 million. The Fiscal
2001, 2000 and 1999 effective tax rates were unfavorably
impacted by restructuring and related costs expected to be
realized in lower tax rate jurisdictions and by nondeductible
expenses related to the restructurings. Tax benefit related to
the $587.2 million of Streamline and Operation Excel
restructuring and related costs for Fiscal 2001 was $174.0
million. Tax benefit related to the $392.7 million of Operation
Excel restructuring and related costs for Fiscal 2000 was
$125.3 million, and tax benefit related to the $552.8 million
of Operation Excel restructuring and related costs for Fiscal
1999 was
(56)
<PAGE> 30
$143.1 million. Tax expense resulting from allocating certain
tax benefits directly to additional capital was $12.5 million
in Fiscal 2001, immaterial in Fiscal 2000 and $26.6 million in
Fiscal 1999.
The components of income before income taxes consist of the
following:
(Dollars in thousands) 2001 2000 1999
=======================================================================
Domestic $116,126 $ 805,464 $427,089
Foreign 556,932 658,212 408,042
- -----------------------------------------------------------------------
$673,058 $1,463,676 $835,131
=======================================================================
The differences between the U.S. federal statutory tax rate
and the company's consolidated effective tax rate are as
follows:
2001 2000 1999
=======================================================================
U.S. federal statutory tax
rate 35.0% 35.0% 35.0%
Tax on income of foreign
subsidiaries (4.0) (1.0) 1.9
State income taxes (net of
federal benefit) (1.0) 1.9 1.5
Earnings repatriation 6.4 1.7 (0.3)
Foreign losses 2.0 1.4 3.8
Tax on income of U.S.
possessions subsidiaries 1.9 (1.4) 0.6
Tax law changes (13.7) (0.1) (0.6)
Other (0.1) 1.7 1.3
- -----------------------------------------------------------------------
Effective tax rate 26.5% 39.2% 43.2%
=======================================================================
The deferred tax (assets) and deferred tax liabilities recorded
on the balance sheets as of May 2, 2001 and May 3, 2000 are as
follows:
(Dollars in thousands) 2001 2000
=====================================================================
Depreciation/amortization $ 411,681 $ 416,453
Benefit plans 52,002 48,180
Other 54,232 63,626
- ---------------------------------------------------------------------
517,915 528,259
- ---------------------------------------------------------------------
Provision for estimated expenses (69,873) (105,375)
Operating loss carryforwards (39,547) (37,813)
Benefit plans (129,722) (115,007)
Tax credit carryforwards (33,889) (44,911)
Other (139,467) (131,086)
- ---------------------------------------------------------------------
(412,498) (434,192)
- ---------------------------------------------------------------------
Valuation allowance 60,298 75,109
- ---------------------------------------------------------------------
Net deferred tax liabilities $ 165,715 $ 169,176
=====================================================================
At the end of Fiscal 2001, net operating loss carryforwards
totaled $99.1 million. Of that amount, $32.7 million expire
through 2021; the other $66.4 million do not expire. Foreign
tax credit carryforwards total $33.9 million and expire through
2006.
The company's consolidated United States income tax returns
have been audited by the Internal Revenue Service for all years
through 1994.
Undistributed earnings of foreign subsidiaries considered to
be reinvested permanently amounted to $2.26 billion at May 2,
2001.
The Fiscal 2001 net change in valuation allowance for
deferred tax assets was a decrease of $14.8 million, due
principally to reduction in deferred tax asset related to
foreign tax credit carryforward.
(57)
<PAGE> 31
6. DEBT Short-term debt, excluding domestic commercial paper,
consisted of bank and other borrowings of $211.0 million and
$151.2 million as of May 2, 2001 and May 3, 2000,
respectively. Total short-term debt, excluding domestic
commercial paper, had a weighted-average interest rate during
Fiscal 2001 of 8.03% and at year-end of 7.0%. The weighted-
average interest rate on short-term debt during Fiscal 2000
was 6.2% and at year-end was 6.5%.
The company maintains a $2.30 billion credit agreement that
supports its commercial paper program. The credit agreement
expires in September 2001. In addition, the company had $779.0
million of foreign lines of credit available at year-end.
As of May 2, 2001 and May 3, 2000, the company had $1.34
billion and $2.08 billion, respectively, of domestic commercial
paper outstanding. Due to the short-term nature of the
supporting credit agreement, all of the outstanding domestic
commercial paper has been classified as short-term debt as of
May 2, 2001. The company is currently negotiating the renewal
of the credit agreement and expects that it will be renewed by
August 2001. As of May 3, 2000, all of the outstanding domestic
commercial paper was classified as long-term debt. Aggregate
domestic commercial paper had a weighted-average interest rate
during Fiscal 2001 of 6.3% and at year-end of 4.9%. In Fiscal
2000, the weighted-average rate was 5.5% and at year-end was
6.2%.
<TABLE>
<CAPTION>
Range of Maturity
Long-Term (Dollars in thousands) Interest (Fiscal Year) 2001 2000
============================================================================================================================
<S> <C> <C> <C> <C>
United States Dollars:
Commercial paper Variable 2002 $ - $2,084,175
Senior unsecured notes and debentures 6.00-6.88% 2003-2029 741,061 740,537
Eurodollar notes 5.75-7.00 2002-2003 549,185 548,463
Revenue bonds 3.39-7.70 2002-2027 12,392 14,892
Promissory notes 3.00-7.00 2002-2005 7,005 20,967
Remarketable securities 5.82 2021 1,005,970 -
Other 6.50-7.925 2002-2034 9,890 12,287
- ----------------------------------------------------------------------------------------------------------------------------
2,325,503 3,421,321
- ----------------------------------------------------------------------------------------------------------------------------
Foreign Currencies
(U.S. Dollar Equivalents):
Promissory notes:
Pound sterling 6.25-8.86% 2002-2030 211,087 235,388
Euro 5.00-5.13 2005-2006 667,678 268,674
Italian lire 3.90-6.53 2002-2008 1,136 1,422
Australian dollar 6.10 2001 - 6,152
New Zealand dollar 6.26-6.85 2002-2005 101,640 -
Other 4.00-17.15 2002-2022 22,774 28,276
- ----------------------------------------------------------------------------------------------------------------------------
1,004,315 539,912
- ----------------------------------------------------------------------------------------------------------------------------
Total long-term debt 3,329,818 3,961,233
Less portion due within one year 314,965 25,407
- ----------------------------------------------------------------------------------------------------------------------------
$3,014,853 $3,935,826
============================================================================================================================
</TABLE>
(58)
<PAGE> 32
The amount of long-term debt that matures in each of the four
years following 2002 is: $1,536.4 million in 2003, $7.0 million
in 2004, $314.9 million in 2005 and $406.2 million in 2006.
On April 10, 2001, the company issued Euro 450 million of
5.125% Guaranteed Notes due 2006. The proceeds were used for
general corporate purposes, including repaying borrowings that
were incurred in connection with the acquisition of the CSM
Food Division of CSM Nederland NV in February.
On November 6, 2000, the company issued $1.0 billion of
remarketable securities due November 2020. The proceeds were
used to repay domestic commercial paper. The securities have a
coupon rate of 6.82% until November 15, 2001. The securities
are subject to mandatory tender by all holders to the
remarketing dealer on November 15, 2001 and each November 15
thereafter, and the interest rate will be reset on such dates.
The company received a premium from the remarketing dealer for
the right to require the mandatory tender of the securities.
The amortization of the premium results in an effective
interest rate of 5.82%. If the remarketing dealer does not
elect to exercise its right to a mandatory tender of the
securities or otherwise does not purchase all of the securities
on a remarketing date, then the company is required to
repurchase all of the securities on the remarketing date at
100% of the principal amount plus accrued interest. On June 11,
2001, the remarketing dealer gave the company notice that the
remarketing dealer will exercise its right to a mandatory
tender of the securities and will purchase all of the
securities on November 15, 2001. Accordingly, the remarketable
securities will remain outstanding until at least November 15,
2002 and are classified as long-term debt.
On January 5, 2000, the company issued Euro 300 million of
5% Notes due 2005. The proceeds were used to repay domestic
commercial paper. On February 15, 2000, the company issued $300
million of 7.0% Notes due 2002. The proceeds were used to repay
domestic commercial paper. On February 18, 2000, the company
issued Pound 125 million of 6.25% Notes due 2030. The proceeds
were used for general corporate purposes, including repaying
commercial paper borrowings that were incurred in connection
with the acquisition of United Biscuit's European Frozen and
Chilled Division in December 1999.
7. SHAREHOLDERS' CAPITAL STOCK: The preferred stock outstanding is
EQUITY convertible at a rate of one share of preferred stock into
13.5 shares of common stock. The company can redeem the stock
at $28.50 per share.
As of May 2, 2001, there were authorized, but unissued,
2,200,000 shares of third cumulative preferred stock for which
the series had not been designated.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"): The company established
an ESOP in 1990 to replace in full or in part the company's
cash-matching contributions to the H.J. Heinz Company Employees
Retirement and Savings Plan, a 401(k) plan for salaried
employees. Matching contributions to the 401(k) plan are based
on a percentage of the participants' contributions, subject to
certain limitations.
(59)
<PAGE> 33
GLOBAL STOCK PURCHASE PLAN ("GSPP"): On September 8, 1999, the
stockholders authorized the GSPP which provides for the
purchase by employees of up to 3,000,000 shares of the
company's stock through payroll deductions. Employees who
choose to participate in the plan will receive an option to
acquire common stock at a discount. The purchase price per
share will be the lower of 85% of the fair market value of the
company's stock on the first or last day of a purchase period.
During Fiscal 2001, employees purchased 389,642 shares under
this plan.
UNFUNDED PENSION OBLIGATION: An adjustment for unfunded foreign
pension obligations in excess of unamortized prior service
costs was recorded, net of tax, as a reduction in shareholders'
equity.
8. SUPPLEMENTAL
CASH FLOWS
INFORMATION
(Dollars in thousands) 2001 2000 1999
===========================================================================
Cash Paid During
the Year For:
Interest $298,761 $273,506 $266,395
Income taxes 456,279 485,267 287,544
===========================================================================
Details of
Acquisitions:
Fair value of
assets $819,163 $563,376 $350,575
Liabilities* 136,358 166,699 80,055
- ---------------------------------------------------------------------------
Cash paid 682,805 396,677 270,520
Less cash acquired 9,847 2,259 1,569
- ---------------------------------------------------------------------------
Net cash paid for
acquisitions $672,958 $394,418 $268,951
===========================================================================
*Includes obligations to sellers of $5.5 million and $10.4 million in 2001 and
2000, respectively.
9. EMPLOYEES' Under the company's stock option plans, officers and other key
STOCK OPTION employees may be granted options to purchase shares of the
PLANS AND company's common stock. Generally, the option price on
MANAGEMENT outstanding options is equal to the fair market value of the
INCENTIVE PLANS stock at the date of grant. Options are generally exercisable
beginning from one to three years after date of grant and have
a maximum term of 10 years. Beginning 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 company has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the
company's stock option plans. If the company had elected to
recognize compensation cost
(60)
<PAGE> 34
based on the fair value of the options granted at grant date as
prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated
below:
Fiscal year ended May 2, 2001 May 3, 2000 April 28, 1999
- ------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts) (52 Weeks) (53 Weeks) (52 Weeks)
========================================================================
Pro forma net income $440,600 $862,698 $440,080
Pro forma diluted net
income per common share $ 1.26 $ 2.40 $ 1.20
Pro forma basic net income
per common share $ 1.27 $ 2.43 $ 1.22
========================================================================
The pro forma effect on net income for Fiscal 2001, Fiscal 2000
and Fiscal 1999 is not representative of the pro forma effect
on net income in future years because it does not take into
consideration pro forma compensation expense related to grants
made prior to 1996.
The weighted-average fair value of options granted was $8.46
per share in Fiscal 2001, $8.98 per share in Fiscal 2000 and
$11.34 per share in Fiscal 1999.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
2001 2000 1999
========================================================================
Dividend yield 3.8% 3.5% 2.5%
Volatility 23.5% 24.0% 22.0%
Risk-free interest rate 6.0% 6.1% 5.3%
Expected term (years) 6.5 5.0 4.9
========================================================================
Data regarding the company's stock option plans follows:
Weighted-Average
Exercise Price
Shares Per Share
=====================================================================
Shares under option April 29, 1998 25,600,775 $31.07
Options granted 8,979,200 53.07
Options exercised (3,138,445) 24.59
Options surrendered (924,300) 40.11
- ---------------------------------------------------------------------
Shares under option April 28, 1999 30,517,230 $37.94
Options granted 347,000 41.40
Options exercised (858,283) 24.81
Options surrendered (287,665) 44.70
- ---------------------------------------------------------------------
Shares under option May 3, 2000 29,718,282 $38.29
Options granted 4,806,600 37.19
Options exercised (3,395,874) 26.69
Options surrendered (887,663) 51.27
- ---------------------------------------------------------------------
Shares under option May 2, 2001 30,241,345 $39.04
=====================================================================
Options exercisable at:
April 28, 1999 13,507,295 $27.60
May 3, 2000 16,430,099 31.43
May 2, 2001 15,350,907 33.00
=====================================================================
(61)
<PAGE> 35
The following summarizes information about shares under option
in the respective exercise price ranges at May 2, 2001:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- ------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Range of Exercise Number Remaining Life Exercise Price Number Exercise Price
Price Per Share Outstanding (Years) Per Share Exercisable Per Share
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
$21.75-33.88 12,157,269 3.77 $27.15 11,066,279 $26.68
36.75-48.38 8,128,676 8.05 38.79 1,873,564 40.33
49.31-59.94 9,955,400 7.43 53.75 2,411,064 56.31
- -----------------------------------------------------------------------------------------------------------------------------------
30,241,345 6.13 39.04 15,350,907 33.00
===================================================================================================================================
</TABLE>
The shares authorized but not granted under the company's stock
option plans were 11,469,563 at May 2, 2001 and 393,000 at May
3, 2000. Common stock reserved for options totaled 41,710,908
at May 2, 2001 and 30,111,282 at May 3, 2000.
The company's management incentive plan covers officers and
other key employees. Participants may elect to be paid on a
current or deferred basis. The aggregate amount of all awards
may not exceed certain limits in any year. Compensation under
the management incentive plans was approximately $20 million in
Fiscal 2001, $44 million in Fiscal 2000 and $47 million in
Fiscal 1999.
10. RETIREMENT The company maintains retirement plans for the majority of
PLANS its employees. Current defined benefit plans are provided
primarily for domestic union and foreign employees. Defined
contribution plans are provided for the majority of its
domestic non-union hourly and salaried employees.
Total pension cost consisted of the following:
(Dollars in thousands) 2001 2000 1999
=======================================================================
Components of defined benefit
net periodic benefit cost:
Service cost $ 25,769 $ 27,352 $ 23,617
Interest cost 89,889 84,096 82,958
Expected return on assets (135,990) (121,735) (109,490)
Amortization of:
Net initial asset (2,637) (3,629) (3,632)
Prior service cost 9,616 8,067 8,026
Net actuarial loss/(gain) (729) 1,931 (3,752)
Loss due to curtailment,
settlement and special
termination benefits 29,146 27,908 60,485
- -----------------------------------------------------------------------
Net periodic benefit cost 15,064 23,990 58,212
Defined contribution plans
(excluding the ESOP) 21,846 20,558 23,980
- -----------------------------------------------------------------------
Total pension cost $ 36,910 $ 44,548 $ 82,192
=======================================================================
(62)
<PAGE> 36
The following table sets forth the funded status of the
company's principal defined benefit plans at May 2, 2001 and
May 3, 2000.
(Dollars in thousands) 2001 2000
======================================================================
Change in Benefit Obligation:
Benefit obligation at the
beginning of the year $1,457,410 $1,387,043
Service cost 25,769 27,352
Interest cost 89,889 84,096
Participants' contributions 8,010 6,895
Amendments 5,877 20,505
Actuarial gain (6,303) (34,023)
Curtailment gain (793) (939)
Settlement (7,548) (15,976)
Special termination benefits 21,651 19,234
Benefits paid (96,090) (86,013)
Acquisition 120,090 78,729
Exchange (68,549) (29,493)
- ----------------------------------------------------------------------
Benefit obligation at the end of the
year 1,549,413 1,457,410
- ----------------------------------------------------------------------
Change in Plan Assets:
Fair value of plan assets at the
beginning of the year 1,657,424 1,440,357
Actual return on plan assets (88,655) 207,616
Settlement (7,548) (15,976)
Employer contribution 33,448 38,632
Participants' contributions 8,010 6,895
Benefits paid (96,090) (86,013)
Acquisition 67,127 102,396
Exchange (77,545) (36,483)
- ----------------------------------------------------------------------
Fair value of plan assets at the end
of the year 1,496,171 1,657,424
- ----------------------------------------------------------------------
Funded status (53,242) 200,014
Unamortized prior service cost 68,935 85,795
Unamortized net actuarial loss/
(gain) 177,813 (35,529)
Unamortized net initial asset (4,396) (7,434)
- ----------------------------------------------------------------------
Net amount recognized 189,110 242,846
======================================================================
Amount recognized in the consolidated
balance sheet consists of:
Prepaid benefit cost 257,019 257,633
Accrued benefit liability (115,161) (46,537)
Intangible asset - 3,402
Accumulated other comprehensive
loss 47,252 28,348
- ----------------------------------------------------------------------
Net amount recognized $ 189,110 $ 242,846
======================================================================
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
$358.6 million, $305.3 million and $214.8 million,
respectively, as of May 2, 2001 and $263.4 million, $231.3
million and $184.8 million, respectively, as of May 3, 2000.
The weighted-average rates used for the years ended May 2,
2001, May 3, 2000 and April 28, 1999 in determining the net
pension costs and projected benefit obligations for defined
benefit plans were as follows:
2001 2000 1999
=======================================================================
Expected rate of return 9.3% 9.5% 9.5%
Discount rate 6.7% 6.8% 6.3%
Compensation increase rate 4.3% 4.6% 4.7%
=======================================================================
(63)
<PAGE> 37
11. POSTRETIRE- The company and certain of its subsidiaries provide health
MENT BENEFITS care and life insurance benefits for retired employees and
OTHER THAN their eligible dependents. Certain of the company's U.S. and
PENSIONS AND Canadian employees may become eligible for such benefits. The
OTHER company currently does not fund these benefit arrangements
POSTEMPLOYMENT and may modify plan provisions or terminate plans at its
BENEFITS discretion.
Net postretirement costs consisted of the following:
(Dollars in thousands) 2001 2000 1999
========================================================================
Components of defined benefit net periodic benefit cost:
Service cost $ 4,350 $ 3,903 $ 3,603
Interest cost 12,519 10,475 10,483
Amortization of:
Prior service cost (728) (655) (649)
Net actuarial gain (3,560) (3,144) (3,430)
Loss due to curtailment and
special termination benefits 951 1,536 3,732
- ------------------------------------------------------------------------
Net periodic benefit cost $13,532 $12,115 $13,739
========================================================================
The following table sets forth the combined status of the
company's postretirement benefit plans at May 2, 2001 and May
3, 2000.
(Dollars in thousands) 2001 2000
=======================================================================
Change in benefit obligation:
Benefit obligation at the beginning
of the year $ 169,550 $ 158,488
Service cost 4,350 3,903
Interest cost 12,519 10,475
Participants' contributions 1,390 889
Actuarial loss 13,127 6,644
Curtailment - (154)
Special termination benefits 951 1,389
Benefits paid (15,077) (11,864)
Exchange (554) (220)
- -----------------------------------------------------------------------
Benefit obligation at the end of the
year 186,256 169,550
- -----------------------------------------------------------------------
Funded status (186,256) (169,550)
Unamortized prior service cost (5,855) (6,583)
Unamortized net actuarial gain (25,989) (42,825)
- -----------------------------------------------------------------------
Net accrued benefit liability $(218,100) $(218,958)
=======================================================================
The weighted-average discount rate used in the calculation of
the accumulated postretirement benefit obligation and the net
postretirement benefit cost was 7.5% in 2001, 7.7% in 2000 and
6.9% in 1999. The assumed annual composite rate of increase in
the per capita cost of company-provided health care benefits
begins at 7.5% for 2002, gradually decreases to 5.0% by 2007,
and remains at that level thereafter. Assumed health care cost
trend rates have a significant effect on the amounts reported
for postretirement medical benefits. A one-percentage-point
change in assumed health care cost trend rates would have the
following effects:
1% Increase 1% Decrease
=======================================================================
Effect on total service and interest
cost components $ 1,944 $ (1,710)
Effect on postretirement benefit
obligation 17,771 (15,669)
=======================================================================
(64)
<PAGE> 38
12. FINANCIAL The company operates internationally, with manufacturing
INSTRUMENTS and sales facilities in various locations around the world,
and utilizes certain financial instruments to manage its
foreign currency, commodity price and interest rate exposures.
FOREIGN CURRENCY HEDGING: The company uses forward contracts
and currency swaps to mitigate its foreign currency exchange
rate exposure due to anticipated purchases of raw materials and
sales of finished goods, and future settlement of foreign
currency denominated assets and liabilities. Hedges of
anticipated transactions are designated as cash flow hedges,
and consequently, the effective portion of unrealized gains and
losses is deferred as a component of accumulated other
comprehensive loss and is recognized in earnings at the time
the hedged item affects earnings.
The company uses certain foreign currency debt instruments as
net investment hedges of foreign operations. As of May 2, 2001,
losses of $0.2 million, net of income taxes of $0.1 million,
which represented effective hedges of net investments, were
reported as a component of accumulated other comprehensive loss
within unrealized translation adjustment.
COMMODITY PRICE HEDGING: The company uses commodity futures and
options in order to reduce price risk associated with
anticipated purchases of raw materials such as corn, soybean
oil and soybean meal. Commodity price risk arises due to
factors such as weather conditions, government regulations,
economic climate and other unforeseen circumstances. Hedges of
anticipated commodity purchases which meet the criteria for
hedge accounting are designated as cash flow hedges. When using
a commodity option as a hedging instrument, the company
excludes the time value of the option from the assessment of
hedge effectiveness.
INTEREST RATE HEDGING: The company uses interest rate swaps to
manage interest rate exposure. These derivatives are designated
as cash flow hedges or fair value hedges depending on the
nature of the particular risk being hedged.
HEDGE INEFFECTIVENESS: During Fiscal 2001, hedge
ineffectiveness related to cash flow hedges was a net loss of
$0.6 million, which is reported in the consolidated statements
of income as other expense.
DEFERRED HEDGING GAINS AND LOSSES: As of May 2, 2001, the
company is hedging forecasted transactions for periods not
exceeding 12 months, and expects $0.3 million of net deferred
loss reported in accumulated other comprehensive loss to be
reclassified to earnings within that time frame. During Fiscal
2001, the net deferred losses reclassified to earnings because
the hedged transaction was no longer expected to occur were not
significant.
CONCENTRATIONS OF CREDIT RISK: Counterparties to currency
exchange and interest rate derivatives consist of large major
international financial institutions. The company continually
monitors its positions and the credit ratings of the
counterparties involved and, by policy, limits the amount of
credit exposure to any one party. While the company may be
exposed to potential losses due to the credit risk of non-
performance by these counterparties, losses are not
anticipated. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of
customers, generally short payment terms, and their dispersion
across geographic areas.
(65)
<PAGE> 39
13. NET INCOME The following table sets forth the computation of basic and
PER COMMON diluted earnings per share in accordance with the provisions
SHARE of SFAS No. 128.
Fiscal year ended May 2, 2001 May 3, 2000 April 28,1999
- ---------------------------------------------------------------------------
(Dollars in thousands, except
per share amounts) (52 Weeks) (53 Weeks) (52 Weeks)
===========================================================================
Income before cumulative effect
of accounting changes $494,918 $890,553 $474,341
Preferred dividends 22 26 30
- ---------------------------------------------------------------------------
Income applicable to common
stock before effect of
accounting changes $494,896 $890,527 $474,311
Cumulative effect of accounting
changes (16,906) - -
- ---------------------------------------------------------------------------
Net income applicable to common
stock $477,990 $890,527 $474,311
Average common shares
outstanding - basic 347,758 355,273 361,204
Effect of dilutive securities:
Convertible preferred stock 176 218 243
Stock options 3,107 4,604 6,383
- ---------------------------------------------------------------------------
Average common shares
outstanding - diluted 351,041 360,095 367,830
Income per share before
cumulative effect of
accounting changes - basic $ 1.42 $ 2.51 $ 1.31
Net income per share - basic 1.37 2.51 1.31
Income per share before
cumulative effect of
accounting changes - diluted 1.41 2.47 1.29
Net income per share - diluted 1.36 2.47 1.29
===========================================================================
Stock options outstanding of 11.5 million, 11.7 million and 6.0
million as of May 2, 2001, May 3, 2000 and April 28, 1999,
respectively, were not included in the above net income per
diluted share calculations because to do so would have been
antidilutive for the periods presented.
14. SEGMENT The company's segments are primarily organized by
INFORMATION geographical area. The composition of segments and measure of
segment profitability is consistent with that used by the
company's management. Descriptions of the company's
reportable segments are as follows:
[ ] NORTH AMERICAN GROCERY & FOODSERVICE - This segment
consists of Heinz U.S.A., Heinz Pet Products, Star-Kist
Seafood and Heinz Canada. This segment's operations include
products in all of the company's core categories.
[ ] NORTH AMERICAN FROZEN - This segment consists of Heinz
Frozen Food Company, which markets frozen potatoes,
entrees and appetizers.
[ ] EUROPE - This segment includes the company's operations in
Europe and sells products in all of the company's core
categories.
[ ] ASIA/PACIFIC - This segment includes the company's
operations in New Zealand, Australia, Japan, China,
South Korea, Indonesia, Thailand and India. This segment's
operations include products in all of the company's core
categories.
[ ] OTHER OPERATING ENTITIES - This segment includes the
company's Weight Watchers classroom business through
September 29, 1999, the date of divestiture, as well as
the company's operations in Africa, Venezuela and other
areas which sell products in all of the company's core
categories.
The company's management evaluates performance based on several
factors; however, the primary measurement focus is operating
income excluding unusual costs and gains. The accounting
policies used are the same as those described in Note 1,
"Significant Accounting Policies." Intersegment sales are
accounted for at current market values. Items below the
operating income line of the Consolidated Statements of Income
are not presented by segment, since they are excluded from the
measure of segment profitability reviewed by the company's
management.
(66)
<PAGE> 40
The following table presents information about the company's
reportable segments.
<TABLE>
<CAPTION>
Fiscal year ended May 2, 2001 May 3, 2000 April 28, 1999 May 2, 2001 May 3, 2000 April 28, 1999
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
================================================================================================================================
Net External Sales Intersegment Sales
---------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North American Grocery &
Foodservice $4,146,538 $4,124,060 $4,062,683 $ 38,198 $ 37,987 $ 32,144
North American Frozen 1,125,396 1,023,915 1,014,370 12,660 12,782 21,131
Europe 2,746,870 2,583,684 2,460,698 3,657 2,687 6,661
Asia/Pacific 1,087,330 1,196,049 1,011,764 3,376 2,853 13
Other Operating Entities 324,288 480,241 750,095 - 2,526 6,971
Non-Operating (a) - - - (57,891) (58,835) (66,920)
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated Totals $9,430,422 $9,407,949 $9,299,610 $ - $ - $ -
================================================================================================================================
Operating Income (Loss) Excluding Special
Operating Income (Loss) Items (b)
---------------------------------------------- ------------------------------------------
North American Grocery &
Foodservice $ 487,013 $ 694,449 $ 716,979 $ 876,205 $ 875,268 $ 834,629
North American Frozen 83,964 152,018 80,231 202,012 181,511 183,409
Europe 388,647 364,207 246,187 518,009 502,302 467,159
Asia/Pacific 96,123 124,125 89,830 147,599 177,454 145,654
Other Operating Entities 49,284 540,155 95,715 37,958 32,255 121,950
Non-Operating (a) (122,677) (141,855) (119,630) (99,060) (102,337) (99,792)
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated Totals $ 982,354 $1,733,099 $1,109,312 $1,682,723 $1,666,453 $1,653,009
================================================================================================================================
Depreciation and Amortization Expense Capital Expenditures (c)
---------------------------------------------- ------------------------------------------
North American Grocery &
Foodservice $ 127,123 $ 133,471 $ 121,363 $ 190,254 $ 171,295 $ 138,081
North American Frozen 37,589 36,480 39,773 20,768 79,575 35,293
Europe 90,106 81,802 85,408 140,780 127,595 100,569
Asia/Pacific 26,288 28,871 20,549 46,166 60,795 25,209
Other Operating Entities 8,117 13,066 23,278 4,716 8,495 12,757
Non-Operating (a) 9,943 12,793 11,841 8,615 4,689 4,814
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated Totals $ 299,166 $ 306,483 $ 302,212 $ 411,299 $ 452,444 $ 316,723
================================================================================================================================
Identifiable Assets
----------------------------------------------
North American Grocery &
Foodservice $3,775,052 $3,711,691 $3,418,096
North American Frozen 797,943 882,225 832,226
Europe 3,130,680 2,781,238 2,208,208
Asia/Pacific 912,515 1,085,491 998,685
Other Operating Entities 208,267 187,684 374,852
Non-Operating (d) 210,693 202,328 221,567
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated Totals $9,035,150 $8,850,657 $8,053,634
================================================================================================================================
</TABLE>
(a) Includes corporate overhead, intercompany eliminations and charges not
directly attributable to operating segments.
(b) FISCAL YEAR ENDED MAY 2, 2001: Excludes net restructuring and implementation
costs of Operation Excel as follows: North American Grocery & Foodservice
$157.0 million, North American Frozen $23.4 million, Europe $63.7 million,
Asia/Pacific $46.3 million, Other Operating Entities $(11.3) million and
Non-Operating $9.4 million. Excludes restructuring and implementation costs
of the Streamline initiative as follows: North American Grocery &
Foodservice $213.7 million, Europe $65.7 million, Asia/Pacific $5.2 million
and Non-Operating $14.2 million. Excludes the loss on the sale of The All
American Gourmet in North American Frozen of $94.6 million. Excludes
acquisition costs in North American Grocery & Foodservice $18.5 million.
FISCAL YEAR ENDED MAY 3, 2000: Excludes net restructuring and implementation
costs of Operation Excel as follows: North American Grocery & Foodservice
$160.8 million, North American Frozen $29.5 million, Europe $138.1 million,
Asia/Pacific $53.3 million, Other Operating Entities $1.5 million and Non-
Operating $9.5 million. Excludes costs related to Ecuador in North American
Grocery & Foodservice $20.0 million. Excludes the impact of the Weight
Watchers classroom business $44.7 million and the $464.6 million gain on the
sale of this business in Other Operating Entities. Excludes the Foundation
contribution in Non-Operating $30.0 million.
FISCAL YEAR ENDED APRIL 28, 1999: Excludes restructuring and implementation
costs of Operation Excel as follows: North American Grocery & Foodservice
$110.4 million, North American Frozen $116.9 million, Europe $225.1 million,
Asia/Pacific $52.9 million, Other Operating Entities $29.2 million and Non-
Operating $18.3 million. Excludes costs related to the implementation of
Project Millennia as follows: North American Grocery & Foodservice $7.2
million, North American Frozen $2.9 million, Europe $4.9 million,
Asia/Pacific $3.0 million, Other Operating Entities $2.8 million and
Non-Operating $1.5 million. Excludes the gain on the sale of the bakery
division in Other Operating Entities of $5.7 million. Excludes the reversal
of unutilized Project Millennia accruals for severance and exit costs in
North American Frozen and Europe of $16.6 million and $9.1 million,
respectively.
(c) Excludes property, plant and equipment obtained through acquisitions.
(d) Includes identifiable assets not directly attributable to operating
segments.
(67)
<PAGE> 41
The company's revenues are generated via the sale of products
in the following categories:
(Unaudited)
Fiscal year ended May 2, 2001 May 3, 2000 April 28, 1999
- ------------------------------------------------------------------------------
(Dollars in thousands) (52 Weeks) (53 Weeks) (52 Weeks)
==============================================================================
Ketchup, condiments and sauces $2,537,294 $2,439,109 $2,230,403
Frozen foods 1,961,267 1,561,488 1,399,111
Tuna 1,035,302 1,059,317 1,084,847
Soups, beans and pasta meals 1,220,348 1,197,466 1,117,328
Infant/nutritional foods 973,004 1,041,401 1,039,781
Pet products 1,151,011 1,237,671 1,287,356
Other 552,196 871,497 1,140,784
- ------------------------------------------------------------------------------
Total $9,430,422 $9,407,949 $9,299,610
==============================================================================
The company has significant sales and long-lived assets in the
following geographic areas. Sales are based on the location in
which the sale originated. Long-lived assets include property,
plant and equipment, goodwill, trademarks and other
intangibles, net of related depreciation and amortization.
<TABLE>
<CAPTION>
Net External Sales Long-Lived Assets
-------------------------------------------- -----------------------------------------
Fiscal year ended May 2, 2001 May 3, 2000 April 28, 1999 May 2, 2001 May 3, 2000 April 28, 1999
- ------------------------------------------------------------------------------
(Dollars in thousands) (52 Weeks) (53 Weeks) (52 Weeks)
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States $4,911,689 $4,848,125 $4,917,967 $2,508,105 $2,705,735 $2,856,315
United Kingdom 1,459,492 1,314,550 1,182,690 524,390 549,213 399,669
Other 3,059,241 3,245,274 3,198,953 1,901,777 1,515,535 1,385,404
- -------------------------------------------------------------------------------------------------------------------------
Total $9,430,422 $9,407,949 $9,299,610 $4,934,272 $4,770,483 $4,641,388
=========================================================================================================================
</TABLE>
15. QUARTERLY RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
2001
------------------------------------------------------------------------------------------------------
(Dollars in thousands, First Second Third Fourth Total
except per share amounts) (13 Weeks)* (13 Weeks) (13 Weeks) (13 Weeks) (52 Weeks)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Sales $2,171,511 $2,296,478 $2,269,642 $2,692,791 $9,430,422
Gross profit 898,935 913,352 884,136 850,381 3,546,804
Net income 187,980 190,033 270,520 (170,521) 478,012
Per Share Amounts:
Net income/(loss) - diluted $ 0.54 $ 0.54 $ 0.77 $ (0.49) $ 1.36
Net income/(loss) - basic 0.54 0.55 0.78 (0.49) 1.37
Cash dividends 0.3675 0.3925 0.3925 0.3925 1.545
</TABLE>
<TABLE>
<CAPTION>
2000
------------------------------------------------------------------------------------------------------
(Dollars in thousands, First Second Third Fourth Total
except per share amounts) (13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks) (53 Weeks)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Sales $2,181,007 $2,344,084 $2,294,637 $2,588,221 $9,407,949
Gross profit 856,750 912,440 902,750 947,484 3,619,424
Net income 206,668 415,498 171,112 97,275 890,553
Per Share Amounts:
Net income - diluted $ 0.57 $ 1.14 $ 0.47 $ 0.27 $ 2.47
Net income - basic 0.58 1.16 0.48 0.27 2.51
Cash dividends 0.3425 0.3675 0.3675 0.3675 1.445
====================================================================================================================================
</TABLE>
*The first quarter amounts have been restated for the effect of the change in
accounting for revenue recognition (see Note 1). Amounts originally reported
were as follows: Sales, $2.15 billion; Gross profit, $892.2 million; Net
income, $200.6 million; Net income per share - diluted, $0.57; Net income per
share - basic, $0.58. The amounts for the quarters ended November 1, 2000 and
January 31, 2001 were not significantly different from those originally
reported; therefore, these amounts have not been restated.
(68)
<PAGE> 42
The first quarter of Fiscal 2001 includes restructuring and
implementation costs related to Operation Excel of $0.11 per
share. The first quarter of Fiscal 2000 includes restructuring
and implementation costs related to Operation Excel of $0.07
per share, costs related to Ecuador of $0.05 per share, the
gain on the sale of an office building in the U.K. of $0.03 per
share and the impact of the Weight Watchers classroom business
of $0.03 per share.
The second quarter of Fiscal 2001 includes net restructuring
and implementation costs related to Operation Excel of $0.14
per share and the loss of $0.01 per share which represents the
company's equity loss associated with The Hain Celestial
Group's fourth quarter results which included charges for its
merger with Celestial Seasonings. The second quarter of Fiscal
2000 includes restructuring and implementation costs related to
Operation Excel of $0.17 per share, the impact of the Weight
Watchers classroom business of $0.02 per share and the gain on
the sale of the Weight Watchers classroom business of $0.72 per
share and a contribution to the H.J. Heinz Company Foundation
of $0.05 per share.
The third quarter of Fiscal 2001 includes restructuring and
implementation costs related to Operation Excel of $0.14 per
share and a benefit from tax planning and new tax legislation
in Italy of $0.27 per share. The third quarter of Fiscal 2000
includes restructuring and implementation costs related to
Operation Excel of $0.15 per share.
The fourth quarter of Fiscal 2001 includes net restructuring
and implementation costs related to Operation Excel of $0.14
per share, restructuring and implementation costs related to
the Streamline initiative of $0.66 per share, acquisition costs
of $0.03 per share and the loss on the sale of The All American
Gourmet business of $0.19 per share. The fourth quarter of
Fiscal 2000 includes net Operation Excel restructuring and
implementation costs of $0.36 per share.
16. COMMITMENTS LEGAL MATTERS: Certain suits and claims have been filed
AND against the company and have not been finally adjudicated.
CONTINGENCIES These suits and claims when finally concluded and determined,
in the opinion of management, based upon the information that
it presently possesses, will not have a material adverse effect
on the company's consolidated financial position, results of
operations or liquidity.
LEASE COMMITMENTS: Operating lease rentals for warehouse,
production and office facilities and equipment amounted to
approximately $91.1 million in 2001, $111.1 million in 2000 and
$99.5 million in 1999. Future lease payments for non-
cancellable operating leases as of May 2, 2001 totaled $142.9
million, (2002-$30.6 million, 2003-$29.0 million, 2004-$24.9
million, 2005-$21.5 million, 2006-$17.5 million and
thereafter-$19.4 million).
17. ADVERTISING Advertising costs for fiscal years 2001, 2000 and 1999 were
COSTS $404.4 million, $374.0 million and $373.9 million,
respectively.
(69)
<PAGE> 43
18. SUBSEQUENT On May 3, 2001, the company took steps to simplify its U.S.
EVENTS corporate structure and establish centers of excellence for
the management of U.S. trademarks and for U.S. treasury
functions. As a result of the realignment, all of the U.S.
business operations of the company will now be conducted by
H.J. Heinz Finance Company ("HFC"), a Delaware corporation,
and H.J. Heinz Company, L.P., a newly formed Delaware limited
partnership (Heinz LP). Heinz LP will own and operate
factories involved in manufacturing for the U.S. group.
On June 6, 2001, the company announced that it had signed an
agreement to acquire Borden Food Corporation's pasta sauce and
dry bouillon and soup businesses for $308 million. Under this
transaction, the company acquired such brands as Classico pasta
sauces, Aunt Millie's pasta sauce, Mrs. Grass Recipe soups and
Wyler's bouillons and soups plus Canadian favorites such as
Catelli, Gattuso and Bravo pasta sauce brands.
On July 6, 2001, HFC raised $325 million via the issuance of
Voting Cumulative Preferred Stock, Series A with a liquidation
preference of $100,000 per share. In addition, HFC issued $750
million of 6.625% Guaranteed Notes due July 15, 2011. The
proceeds were used for general corporate purposes, including
retiring commercial paper borrowings and financing acquisitions
and ongoing operations.
(70)
<PAGE> 44
RESPONSIBILITY STATEMENTS
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management of H.J. Heinz Company is responsible for the preparation of the
financial statements and other information included in this annual report. The
financial statements have been prepared in conformity with generally accepted
accounting principles, incorporating management's best estimates and judgments,
where applicable.
Management believes that the company's internal control systems provide
reasonable assurance that assets are safe-guarded, transactions are recorded and
reported appropriately, and policies are followed. The concept of reasonable
assurance recognizes that the cost of a control procedure should not exceed the
expected benefits. Management believes that its systems provide this appropriate
balance. An important element of the company's control systems is the ongoing
program to promote control consciousness throughout the organization.
Management's commitment to this program is emphasized through written policies
and procedures (including a code of conduct), an effective internal audit
function and a qualified financial staff.
The company engages independent public accountants who are responsible for
performing an independent audit of the financial statements. Their report, which
appears herein, is based on obtaining an understanding of the company's
accounting systems and procedures and testing them as they deem necessary.
The company's Audit Committee is composed entirely of outside directors. The
Audit Committee meets regularly, and when appropriate separately, with the
independent public accountants, the internal auditors and financial management
to review the work of each and to satisfy itself that each is discharging its
responsibilities properly. Both the independent public accountants and the
internal auditors have unrestricted access to the Audit Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
H.J. Heinz Company:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of H.J. Heinz Company
and its subsidiaries (the "Company") at May 2, 2001 and May 3, 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended May 2, 2001, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit 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.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 14, 2001, except for footnote 18,
for which the date is July 6, 2001
(71)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>j8930801ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE> 1
EXHIBIT 21
H.J. HEINZ COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Following are the subsidiaries of H.J. Heinz Company (the "Company"), other
than those which if considered in the aggregate as a single subsidiary would not
constitute a significant subsidiary, and the state or country in which each
subsidiary was incorporated or organized. The accounts of each of the listed
subsidiaries are a part of the Company's consolidated financial statements.
<TABLE>
<CAPTION>
SUBSIDIARY STATE OR COUNTRY
---------- ----------------
<S> <C>
Alimentos Heinz, C.A. ...................................... Venezuela
Alimentos Pilar S.A. ....................................... Argentina
AIAL S.r.l. (Arimpex Industrie Alimentari S.r.l.)........... Italy
Boulder, Inc. .............................................. State of Idaho
Ets. Paul Paulet............................................ France
Heinz Belgium S.A. ......................................... Belgium
Heinz Europe Ltd. .......................................... England
Heinz Frozen Food Company................................... State of Delaware
Heinz Iberica S.A. ......................................... Spain
Heinz India Private Ltd. ................................... India
Heinz Italia S.r.l. ........................................ Italy
Heinz Japan Ltd. ........................................... Japan
Heinz Polska Sp. Z.o.o. .................................... Poland
Heinz South Africa (Pty) Limited............................ South Africa
Heinz-UFE Ltd. ............................................. People's Republic of China
Heinz-Wattie Holdings Ltd. ................................. New Zealand
Heinz Win Chance Ltd. ...................................... Thailand
H.J. Heinz (Botswana Proprietary) Ltd. ..................... Botswana
H.J. Heinz B.V. ............................................ Netherlands
H.J. Heinz Company Australia Limited........................ Australia
H.J. Heinz Company of Canada Ltd............................ Canada
H.J. Heinz Company Limited.................................. England
H.J. Heinz Credit Company................................... State of Delaware
H.J. Heinz European Frozen & Chilled Foods, Ltd. ........... Ireland
Indian Ocean Tuna Ltd. ..................................... Seychelles
Industrias de Alimentacao, Lda. ............................ Portugal
Mareblu S.r.l. ............................................. Italy
Olivine Industries (Private) Limited........................ Zimbabwe
PM Holding Company.......................................... State of Delaware
Portion Pac, Inc. .......................................... State of Ohio
Pudliszki S.A. ............................................. Poland
PT Heinz ABC Indonesia...................................... Indonesia
Seoul-Heinz Ltd. ........................................... Republic of Korea
Star-Kist Foods, Inc. ...................................... State of California
Thompson & Hills Limited.................................... New Zealand
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>8
<FILENAME>j8930801ex24.txt
<DESCRIPTION>POWERS OF ATTORNEY OF THE COMPANY'S DIRECTORS
<TEXT>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William R. Johnson, Paul F. Renne and
Laura Stein, and each of them, such person's true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, for such person
and in such person's name, place and stead, in any and all capacities, to sign
H.J. Heinz Company's Annual Report on Form 10-K for the fiscal year ended May 2,
2001 and to sign any and all amendments to such Annual Report, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or such persons' or person's substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
This Power of Attorney has been signed below as of the 13th day of
July, 2001 by the following persons in the capacities indicated.
/s/ William R. Johnson Chairman of the Board of Directors,
- ------------------------------- President and Chief Executive Officer
William R. Johnson (Principal Executive Officer)
/s/ Nicholas F. Brady Director
- -------------------------------
Nicholas F. Brady
/s/ Mary C. Choksi Director
- -------------------------------
Mary C. Choksi
<PAGE> 2
/s/ Leonard S. Coleman, Jr. Director
- -------------------------------
Leonard S. Coleman, Jr.
/s/ Edith E. Holiday Director
- -------------------------------
Edith E. Holiday
/s/ Samuel C. Johnson Director
- -------------------------------
Samuel C. Johnson
/s/ Candace Kendle Director
- -------------------------------
Candace Kendle
/s/ Donald R. Keough Director
- -------------------------------
Donald R. Keough
/s/ Dean R. O'Hare Director
- -------------------------------
Dean R. O'Hare
/s/ Paul F. Renne Executive Vice President and Chief
- ------------------------------- Financial Officer and Director
Paul F. Renne (Principal Financial Officer)
/s/ Thomas J. Usher Director
- -------------------------------
Thomas J. Usher
/s/ David R. Williams Director
- -------------------------------
David R. Williams
/s/ James. M. Zimmerman Director
- -------------------------------
James M. Zimmerman
/s/ William J. Showalter Vice President - Corporate Controller
- ------------------------------- (Principal Accounting Officer)
William J. Showalter
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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