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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 29, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
FOR THE NINE MONTHS ENDED JANUARY 29, 2003 COMMISSION FILE NUMBER 333-85064
H.J. HEINZ FINANCE COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 82-0382406
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 456-5700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes No X
__ __
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Third Quarter Ended
------------------------------------
January 29, 2003 January 30, 2002
FY 2003 FY 2002
---------------- -----------------
(Unaudited)
(in thousands)
Sales................................................... $798,229 $805,616
Cost of products sold................................... 506,186 512,070
-------- --------
Gross profit............................................ 292,043 293,546
Selling, general and administrative expenses............ 136,973 144,813
Royalty expense to related parties...................... 37,429 41,055
-------- --------
Operating income........................................ 117,641 107,678
Interest income......................................... 6,112 7,496
Interest expense........................................ 39,888 34,981
Dividends from related parties.......................... 31,482 30,799
Currency (loss)/gain.................................... (30,787) 7,628
Other expenses, net..................................... 44,311 2,577
-------- --------
Income from continuing operations before income taxes
and minority interest................................. 40,249 116,043
(Benefit)/provision for income taxes.................... (2,080) 21,540
-------- --------
Income from continuing operations before minority
interest.............................................. 42,329 94,503
Minority interest....................................... (45,201) (57,387)
-------- --------
(Loss)/income from continuing operations................ (2,872) 37,116
Loss from discontinued operations, net of tax........... (9,909) (8,485)
-------- --------
Net (loss)/income....................................... $(12,781) $ 28,631
======== ========
See notes to condensed consolidated financial statements.
2
H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
-----------------------------------
January 29, 2003 January 30, 2002
FY 2003 FY 2002
---------------- ----------------
(Unaudited)
(in thousands)
Sales.................................................... $2,309,321 $1,945,185
Cost of products sold.................................... 1,457,861 1,233,438
---------- ----------
Gross profit............................................. 851,460 711,747
Selling, general and administrative expenses............. 409,137 318,897
Royalty expense to related parties....................... 112,010 97,297
---------- ----------
Operating income......................................... 330,313 295,553
Interest income.......................................... 19,925 29,177
Interest expense......................................... 108,731 110,167
Dividends from related parties........................... 93,078 99,923
Currency (loss) / gain................................... (54,404) 6,290
Other expenses, net...................................... 54,809 10,127
---------- ----------
Income from continuing operations before income taxes and
minority interest...................................... 225,372 310,649
Provision for income taxes............................... 18,988 49,644
---------- ----------
Income from continuing operations before minority
interest............................................... 206,384 261,005
Minority interest........................................ (172,402) (175,111)
---------- ----------
Income from continuing operations........................ 33,982 85,894
Loss from discontinued operations, net of tax............ (23,313) (25,396)
---------- ----------
Net income............................................... $ 10,669 $ 60,498
========== ==========
See notes to condensed consolidated financial statements.
3
H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 29, 2003 May 1, 2002*
FY 2003 FY 2002
---------------- ------------
(Unaudited)
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 392,747 $ 6,464
Receivables, net......................................... 420,963 524,136
Due from related parties................................. 18,552 44,660
Short-term notes receivable from related parties......... 918,549 921,014
Inventories.............................................. 469,909 424,199
Prepaid expenses and other current assets................ 99,728 45,363
Current assets of discontinued operations................ -- 539,284
---------- ----------
Total current assets.................................. 2,320,448 2,505,120
Property, plant and equipment.............................. 1,136,738 1,131,818
Less accumulated depreciation.............................. 490,158 454,493
---------- ----------
Total property, plant and equipment, net.............. 646,580 677,325
Long-term notes receivable from related parties............ 35,000 35,000
Investments in related parties............................. 1,895,245 1,895,245
Intangible assets, net..................................... 1,268,700 1,267,032
Other non-current assets................................... 442,107 239,152
Non-current assets of discontinued operations.............. -- 865,575
---------- ----------
Total other non-current assets........................ 3,641,052 4,302,004
---------- ----------
Total assets.......................................... $6,608,080 $7,484,449
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt with related parties..................... $ 585,807 $ 132,164
Portion of long-term debt due within one year............ 251,560 451,350
Accounts payable......................................... 241,458 242,155
Accounts payable to related parties...................... 92,058 121,945
Accrued interest......................................... 71,218 79,442
Accrued marketing........................................ 60,353 37,047
Other accrued liabilities................................ 57,567 87,093
Current liabilities of discontinued operations........... -- 68,335
---------- ----------
Total current liabilities............................. 1,360,021 1,219,531
Long-term debt............................................. 3,903,295 3,935,925
Deferred income taxes...................................... 20,264 19,780
Other liabilities.......................................... 6,732 14,251
Non-current liabilities of discontinued operations......... -- 25,559
---------- ----------
Total long-term debt and other liabilities............ 3,930,291 3,995,515
Minority interest.......................................... 810,403 1,758,476
Mandatorily Redeemable Series A Preferred shares........... 325,000 325,000
Shareholders' equity:
Common stock............................................. 11 11
Additional capital....................................... 128,050 128,050
Retained earnings........................................ 53,529 58,035
Accumulated other comprehensive gain/(loss).............. 775 (169)
---------- ----------
Total shareholders' equity............................ 182,365 185,927
---------- ----------
Total liabilities and shareholders' equity............ $6,608,080 $7,484,449
========== ==========
- ---------------
* Summarized from audited Fiscal Year 2002 balance sheet.
See notes to condensed consolidated financial statements.
4
H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
------------------------------------
January 29, 2003 January 30, 2002
FY 2003 FY 2002
---------------- ----------------
(Unaudited)
(in thousands)
Cash Flows from Operating Activities:
Net income............................................ $ 10,669 $ 60,498
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation....................................... 56,160 48,260
Amortization....................................... 9,198 28,038
Deferred tax provision............................. 16,120 7,496
Minority interest.................................. 270,420 285,726
Currency loss/(gain)............................... 54,404 (6,290)
Other items, net................................... 9,402 9,619
Changes in current assets and liabilities,
excluding effects of acquisitions and
divestitures:
Receivables...................................... 203,106 (166,565)
Inventories...................................... (33,085) (546,445)
Due from/to related parties...................... 62,648 102,204
Prepaid expenses and other current assets........ (88,023) (102,225)
Accounts payable................................. 30,227 (59,866)
Accrued liabilities.............................. 7,096 (47,391)
Income taxes..................................... (16,311) (1,648)
---------- ----------
Cash provided by (used for) operating activities........ 592,031 (388,589)
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures.................................. (46,561) (51,888)
Acquisitions, net of cash acquired.................... -- (777,718)
Other items, net...................................... 5,046 (11,349)
---------- ----------
Cash used for investing activities................. (41,515) (840,955)
---------- ----------
Cash Flows from Financing Activities:
Payments on long-term debt............................ (401,214) (9,179)
Proceeds from long-term debt.......................... -- 751,059
Proceeds received from Heinz related to the spin-off,
net................................................ 1,062,143 --
(Payments)/proceeds from commercial paper, net........ (89,142) 1,122,963
Payments on short-term borrowings with related
parties, net....................................... (667,512) (852,832)
Distributions to Class A partners..................... (56,412) (96,835)
Dividends on preferred shares......................... (15,175) (10,622)
Proceeds from mandatorily redeemable Series A
preferred shares................................... -- 325,000
Other items, net...................................... 2,619 (548)
---------- ----------
Cash (used for) provided by financing activities... (164,693) 1,229,006
---------- ----------
Net increase/(decrease) in cash and cash equivalents.... 385,823 (538)
Cash and cash equivalents, beginning of period.......... 6,924 10,127
---------- ----------
Cash and cash equivalents, end of period................ $ 392,747 $ 9,589
========== ==========
Supplemental cash flow information:
Noncash activities:
Net assets spun-off................................ 1,134,873 --
========== ==========
See notes to condensed consolidated financial statements.
5
H.J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
On May 3, 2001, H.J. Heinz Company ("Heinz") reorganized its U.S. corporate
structure and established centers of excellence for the management of U.S.
trademarks and for U.S. treasury functions. As a result, all of the U.S.
treasury and business operations of Heinz's domestic operations ("the U.S.
Group") are now being conducted by H.J. Heinz Finance Company and its
wholly-owned subsidiaries, and H.J. Heinz Company, L.P. ("Heinz LP")
collectively referred to as "Heinz Finance" in the accompanying notes. H.J.
Heinz Finance Company has limited partnership interests in Heinz LP. As
part of the reorganization, substantially all assets and liabilities of the
U.S. Group, except for finished goods inventories, which were retained by
Heinz, were contributed to Heinz LP by Heinz. In addition, certain assets
and liabilities that related to the U.S. Group were assumed by Heinz
Finance during Fiscal 2002. H.J. Heinz Finance Company assumed primary
liability for approximately $2.9 billion of Heinz's outstanding senior
unsecured debt and accrued interest by becoming co-obligor with Heinz.
Heinz LP owns or leases the operating assets involved in manufacturing
throughout the United States which were contributed by Heinz and its
subsidiaries, together with other assets and liabilities, to Heinz LP and
manages the business. Heinz LP has two classes of limited partnership
interests, Class A and Class B, that are allocated varying income and cash
distributions in accordance with the Heinz LP agreement. H.J. Heinz Finance
Company, directly and through wholly-owned subsidiaries, owns the Class B
interests. Heinz, directly and through wholly-owned subsidiaries, owns the
Class A interests. Heinz Management Company, a wholly-owned subsidiary of
Heinz, is the managing General Partner of Heinz LP and employs the salaried
personnel of the U.S. Group. Under the partnership agreement, Heinz Finance
has the power to control the general partner through majority membership on
Heinz LP's management board. The minority interest amounts on the January
29, 2003 and May 1, 2002 balance sheets represent the Class A and General
Partner limited partnership interest in Heinz LP, and have been adjusted
for the minority partners' share of income and cash distributions.
The interim condensed consolidated financial statements of Heinz Finance
are unaudited. In the opinion of management, all adjustments which are of a
normal and recurring nature, necessary for a fair statement of the results
of operations of these interim periods have been included. The results for
the interim periods are not necessarily indicative of the results to be
expected for the full fiscal year due to the seasonal nature of the
business of Heinz Finance. Certain prior year amounts have been
reclassified in order to conform with the Fiscal 2003 presentation. These
statements should be read in conjunction with Heinz Finance's consolidated
and combined financial statements and related notes which appear in Heinz's
Form 10-K for the year ended May 1, 2002.
For all Heinz financial reporting and disclosure purposes, H.J. Heinz
Finance Company and its subsidiaries (including Heinz LP) are treated as
fully consolidated subsidiaries. All of the assets, liabilities, results of
operations and cash flows of these entities are included in the Heinz
consolidated financial statements. All of the intercompany transactions and
accounts are eliminated within the Heinz consolidated financial statements.
The preferred shares issued by Heinz Finance are shown as minority interest
in the Heinz consolidated financial statements.
6
(2) DISCONTINUED OPERATIONS AND SPIN-OFF
On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities, including its U.S. pet food and pet
snacks, U.S. tuna, U.S. retail private label soup and private label gravy,
College Inn broths and its U.S. infant feeding businesses, all of which
were owned by Heinz Finance, and distributed all of the shares of SKF Foods
common stock on a pro rata basis to its shareholders. Immediately
thereafter, SKF Foods merged with a wholly-owned subsidiary of Del Monte
Foods Company ("Del Monte") resulting in SKF Foods becoming a wholly-owned
subsidiary of Del Monte ("the Merger").
In accordance with generally accepted accounting principles, the operating
results and net assets related to these businesses spun off to Del Monte
have been treated as discontinued operations in Heinz Finance's
consolidated statements of income and condensed consolidated balance
sheets. The net assets of discontinued operations owned by Heinz Finance
were distributed to Heinz which reduced Heinz's Class A interest in Heinz
LP thus reducing Heinz Finance's minority interest balance on the condensed
consolidated balance sheet. In connection with this distribution, the terms
of the Heinz LP agreement were amended such that the Class B partners will
now receive an improved economic interest in the partnership by giving them
a higher priority with respect to distributions and an increased share in
residual income.
The discontinued operations generated sales of $248.7 million and $400.8
million and a net loss of $9.9 million (net of $6.1 million of a tax
benefit) and $8.5 million (net of $4.4 million of a tax benefit) for the
three months ended January 29, 2003 and January 30, 2002, respectively. The
discontinued operations generated sales of $1,052.6 million and $878.6
million and a net loss of $23.3 million (net of $13.8 million of a tax
benefit) and $25.4 million (net of $13.8 million of a tax benefit) for the
nine months ended January 29, 2003 and January 30, 2002, respectively.
Net assets related to discontinued operations of $1,311.0 million are
reported on the May 1, 2002 condensed consolidated balance sheet. These net
assets consist of the following:
May 1,
(in thousands) 2002
- -------------- ----------
Receivables................................................. $ 208,578
Inventories................................................. 286,068
Property, plant and equipment, net.......................... 177,611
Intangibles................................................. 659,558
Other....................................................... 73,044
----------
Total assets........................................... 1,404,859
----------
Accounts payable............................................ 14,217
Other accrued liabilities................................... 54,118
Other long-term liabilities................................. 25,559
----------
Total liabilities...................................... 93,894
----------
Net assets............................................. $1,310,965
==========
During the three and nine months ended January 29, 2003, Heinz Finance
recognized transaction related costs and costs related to the early
retirement of debt totaling $41.2 million pretax and $43.1 million pretax,
respectively. In addition, during the three months and nine months ended
January 29, 2003, Heinz Management Company recognized transaction related
costs and costs to reduce overhead of the remaining core businesses
totaling $7.5 million and $17.3 million pretax, respectively. These costs
were then charged to Heinz Finance through the management fee charged to
Heinz Finance by Heinz Management Company for all salaried employee costs.
7
(3) INVENTORIES
The composition of inventories at the balance sheet dates was as follows:
January 29, May 1,
(in thousands) 2003 2002
- -------------- ----------- --------
Finished goods and work-in-process........................ $324,948 $316,837
Packaging material and ingredients........................ 144,961 107,362
-------- --------
$469,909 $424,199
======== ========
(4) TAXES
The provision for income taxes consists of provisions for federal and state
income taxes. The low effective tax rate for Heinz Finance is a result of
Heinz Finance's nontaxable minority interest in Heinz LP. The effective tax
rate will fluctuate for Heinz Finance depending on the proportion of this
nontaxable minority interest to total Heinz Finance income before tax.
(5) RESTRUCTURING
In the fourth quarter of Fiscal 2001, Heinz announced a restructuring
initiative named "Streamline" which included an organizational
restructuring aimed at reducing overhead costs and the consolidation of
Heinz Finance's canned pet food production to Bloomsburg, Pennsylvania
(which resulted in ceasing canned pet food production at Heinz Finance's
Terminal Island, California facility).
During the first nine months of Fiscal 2003, Heinz Finance utilized $1.0
million of severance and exit cost accruals, principally related to its
overhead reduction plan. In addition, as a result of the Merger, a $3.4
million restructuring liability related to ceasing canned pet food
production at the Company's Terminal Island, California facility was
transferred to Del Monte in the third quarter of Fiscal 2003. Heinz
Finance's accrued restructuring cost balance related to Streamline was zero
as of January 29, 2003.
(6) RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective May 2, 2002, Heinz Finance adopted SFAS No. 142 "Goodwill and
Other Intangible Assets." Under this Standard, goodwill and intangibles
with indefinite useful lives are no longer amortized. This Standard also
requires, at a minimum, an annual assessment of the carrying value of
goodwill and intangibles with indefinite useful lives. The reassessment of
intangible assets, including the ongoing impact of amortization, and the
assignment of goodwill to reporting units was completed during the first
quarter of Fiscal 2003.
Heinz Finance completed its transitional goodwill impairment tests during
the second quarter of Fiscal 2003. No impairment issues were identified as
a result of completing these transitional impairment tests. Based upon
current and forecasted operating results, Heinz Finance does not anticipate
any goodwill impairment charges in the near term.
The effects of adopting the new standards on net income are as follows:
Net Income
-----------------------------------------------------
Third Quarter Nine Months
Ended Ended
------------------------- -------------------------
January 29, January 30, January 29, January 30,
(in thousands) 2003 2002 2003 2002
- -------------- ----------- ----------- ----------- -----------
Net (loss)/income................. $(12,781) $28,631 $ 10,669 $60,498
Add: Goodwill amortization, net of
tax and minority interest....... -- 266 -- 807
-------- ------- -------- -------
Net income excluding goodwill
amortization.................... $(12,781) $28,897 $ 10,669 $61,305
======== ======= ======== =======
8
Income from continuing operations for the quarter and nine months ended
January 30, 2002 would have been $37.2 million and $86.3 million,
respectively, and net income for Fiscal 2002 would have been $110.1 million
had the provisions of the new standards been applied as of May 3, 2001.
Changes in the carrying amount of goodwill for the nine months ended
January 29, 2003 by reportable segment are as follows:
Heinz
North U.S.
(in thousands) America Frozen Total
- -------------- -------- -------- ----------
Balance at May 1, 2002........................... $530,722 $470,381 $1,001,103
Purchase accounting
reclassifications.............................. 1,580 5,287 6,867
Other............................................ 1,190 11 1,201
-------- -------- ----------
Balance at January 29, 2003...................... $533,492 $475,679 $1,009,171
======== ======== ==========
Trademarks and other intangible assets at January 29, 2003 and May 1, 2002,
subject to amortization expense, are as follows:
January 29, 2003 May 1, 2002
---------------------------------- ----------------------------------
Accumulated Accumulated
(in thousands) Gross Amortization Net Gross Amortization Net
- -------------- -------- ------------ -------- -------- ------------ --------
Trademarks........... $ 39,103 $ (1,746) $ 37,357 $ 39,103 $ (835) $ 38,268
Licenses............. 208,186 (111,146) 97,040 208,186 (106,730) 101,456
Other................ 75,907 (41,900) 34,007 74,786 (39,681) 35,105
-------- --------- -------- -------- --------- --------
$323,196 $(154,792) $168,404 $322,075 $(147,246) $174,829
======== ========= ======== ======== ========= ========
Amortization expense for trademarks and other intangible assets subject to
amortization was $2.1 million and $7.5 million for the quarter and nine
months ended January 29, 2003, respectively. Based upon the amortizable
intangible assets recorded on the balance sheet at January 29, 2003,
amortization expense for each of the next five years is estimated to be
approximately $10.0 million.
Intangible assets not subject to amortization at January 29, 2003 and May
1, 2002, were $91.1 million and consisted solely of trademarks.
Effective May 2, 2002, Heinz Finance adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This statement provides
updated guidance concerning the recognition and measurement of an
impairment loss for certain types of long-lived assets, expands the scope
of a discontinued operation to include a component of an entity and
eliminates the current exemption to consolidation when control over a
subsidiary is likely to be temporary. The adoption of this new standard did
not have a material impact on Heinz Finance's financial position, results
of operations or cash flows for the quarter and nine months ended January
29, 2003.
In June 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. This Statement also establishes that fair value is
the objective for initial measurement of the liability. Heinz Finance will
apply the provisions of SFAS No. 146 to all exit or disposal activities
that are initiated after December 31, 2002.
9
(7) RECENTLY ISSUED ACCOUNTING STANDARDS
During the third quarter of Fiscal 2003, Heinz Finance adopted Financial
Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". FIN 45 elaborates
on the disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued, and it requires the recognition of a
liability at fair value by a guarantor at the inception of a guarantee. The
disclosure requirements of FIN 45 are effective as of January 29, 2003. The
initial recognition and measurement provisions of FIN 45 are effective on a
prospective basis for all guarantees issued or modified after December 31,
2002. Heinz Finance has not issued or modified any material guarantees
since December 31, 2002.
(8) RELATED PARTY TRANSACTIONS
Employee Costs
Certain of Heinz's general and administrative expenses are charged to Heinz
Finance. These costs primarily include a management charge of all salaried
employee costs from the Heinz Management Company. Total costs charged to
Heinz Finance for these services, including discontinued operations, were
$82.5 million and $87.8 million for the quarter ended January 29, 2003 and
January 30, 2002, respectively, and $250.7 million and $252.6 million for
the nine months ended January 29, 2003 and January 30, 2002, respectively.
These costs are recorded as cost of products sold and selling, general and
administrative ("SG&A") expense in the accompanying consolidated statements
of income.
Heinz charges Heinz Finance for its share of group health insurance costs
for eligible company employees based upon location-specific costs, overall
insurance costs and loss experience incurred during a calendar year. In
addition, various other insurance coverages are also provided to Heinz
Finance through Heinz's consolidated programs. Workers compensation, auto,
property, product liability and other insurance coverages are charged
directly based on Heinz Finance's loss experience. Amounts charged to Heinz
Finance for insurance costs, including discontinued operations, were $17.6
million and $13.1 million for the quarter ended January 29, 2003 and
January 30, 2002, respectively, and $53.9 million and $45.8 million for the
nine months ended January 29, 2003 and January 30, 2002, respectively, and
are recorded in SG&A expense in the accompanying consolidated statements of
income.
Pension costs and postretirement costs are also charged to Heinz Finance
based upon eligible employees participating in the plans.
Cash Management
Beginning in Fiscal 2002, Heinz Finance became the treasury center for cash
management and debt financing for all of Heinz's domestic operations. In
addition, in Fiscal 2003, Heinz Finance entered into a number of short-term
notes payable with foreign wholly-owned subsidiaries of Heinz, for a total
of $504.5 million as of January 29, 2003. These two events resulted in the
$332.7 million and $788.9 million of net short-term notes receivable with
related parties as of January 29, 2003 and May 1, 2002, respectively. An
average interest rate of 1.74% and 3.21% was charged on these notes
resulting in $2.1 million and $6.9 million of net interest income for the
quarter ended January 29, 2003 and January 30, 2002, respectively, and
$10.8 million and $27.5 million of net interest income for the nine months
ended January 29, 2003 and January 30, 2002, respectively.
Product Sales and Purchases
Heinz Finance sells and purchases products and services to and from other
Heinz affiliates. The result of related party transactions is the $18.6
million and $44.7 million balances due from related parties as of January
29, 2003 and May 1, 2002, respectively, and the $92.1 million and $121.9
million balances for accounts payable to related parties as of January 29,
2003 and May 1,
10
2002, respectively. Product sales to related parties were $14.8 million and
$10.1 million for the quarter ended January 29, 2003 and January 30, 2002,
respectively, and $34.8 million and $26.3 million in the nine months ended
January 29, 2003 and January 30, 2002, respectively, and purchases from
related parties were $5.6 million and $2.2 million for the quarter ended
January 29, 2003 and January 30, 2002, respectively, and $20.3 million and
$10.5 million in the nine months ended January 29, 2003 and January 30,
2002, respectively.
Other Related Party Items
In Fiscal 2002, Heinz Finance sold undivided interests in certain accounts
receivable to a fully consolidated subsidiary of Heinz, Receivables
Servicing Company ("RSC"). Heinz Finance sold $619.2 million of receivables
net of discount expense of $2.8 million for the year ended May 1, 2002, to
RSC. These sales were reflected as reductions of trade accounts receivable.
Heinz Finance's contract with RSC terminated in December 2001.
Heinz Finance held $1.9 billion of non-voting, 6.5% cumulative
non-participating preferred stock of PM Holding, Inc. ("PM Holding"), a
subsidiary of Heinz. Heinz Finance's preferred stock investment in PM
Holding was converted to a preferred stock investment in Heinz as a result
of the merger of PM Holding with and into Heinz during the third quarter of
Fiscal 2003. The dividends on the preferred stock amounted to $31.5 million
and $30.8 million for the quarter ended January 29, 2003 and January 30,
2002, respectively and $93.1 million and $99.9 million for the nine months
ended January 29, 2003, and January 30, 2002, respectively. This preferred
stock investment is recorded in the Investments in related parties balance
on the condensed consolidated balance sheets as of January 29, 2003 and May
1, 2002.
Heinz Finance paid royalties of $37.4 million and $41.1 million for the
quarter ended January 29, 2003 and January 30, 2002, respectively, and
$112.0 million and $97.3 million for the nine months ended January 29, 2003
and January 30, 2002, respectively, to Promark International, Inc. and
Promark Brands, Inc., indirect subsidiaries of Heinz, for the use of
certain trademarks.
The $35.0 million long-term note receivable from related parties recorded
on the accompanying condensed consolidated balance sheets as of January 29,
2003 and May 1, 2002, relates to a receivable from Heinz that was
contributed to Heinz Finance in exchange for common stock of Heinz Finance.
Heinz Finance received an administrative fee from Heinz for acting as the
agent in the sale of the retained inventory discussed in Note (1). This fee
was $0 for the quarter ended January 30, 2002 and $4.9 million for the nine
months ended January 30, 2002, which is recorded as income in SG&A expense
in the accompanying consolidated statement of income.
(9) SEGMENTS
The composition of segments and measure of segment profitability is
consistent with that used by Heinz Finance's management. The Heinz North
America segment now includes only those businesses that were retained by
Heinz Finance following the Del Monte transaction. Prior periods have been
restated to conform with the current presentation.
Descriptions of Heinz Finance's reportable segments are as follows:
- Heinz North America -- This segment manufactures, markets and sells
ketchup, condiments, sauces and pasta meals to the U.S. grocery and
foodservice channels.
- U.S. Frozen -- This segment manufactures, markets and sells frozen
potatoes, entrees, snacks and appetizers.
Heinz Finance's management evaluates performance based on several factors
including net sales and the use of capital resources; however, the primary
measurement focus is operating income. Intersegment sales are accounted for
at current market values. Items below the operating income
11
line of the consolidated statements of income are not presented by segment,
since they are excluded from the measure of segment profitability reviewed
by Heinz Finance's management.
The following table presents information about Heinz Finance's reportable
segments:
Net External Sales
-------------------------------------------------------------------------
Third Quarter Ended Nine Months Ended
----------------------------------- -----------------------------------
January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002
(in thousands) FY 2003 FY 2002 FY 2003 FY 2002
- -------------- ---------------- ---------------- ---------------- ----------------
Heinz North America....... $ 502,122 $ 493,112 $1,447,179 $1,234,141
U.S. Frozen............... 296,107 312,504 862,142 711,044
---------- ---------- ---------- ----------
Consolidated totals..... $ 798,229 $ 805,616 $2,309,321 $1,945,185
========== ========== ========== ==========
Intersegment Sales
-------------------------------------------------------------------------
Third Quarter Ended Nine Months Ended
----------------------------------- -----------------------------------
January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002
(in thousands) FY 2003 FY 2002 FY 2003 FY 2002
- -------------- ---------------- ---------------- ---------------- ----------------
Heinz North America....... $38 $ 44 $137 $155
U.S. Frozen............... 6 -- 23 17
--- ---- ---- ----
Consolidated totals..... $44 $ 44 $160 $172
=== ==== ==== ====
Operating Income (Loss)
-------------------------------------------------------------------------
Third Quarter Ended Nine Months Ended
----------------------------------- -----------------------------------
January 29, 2003 January 30, 2002 January 29, 2003 January 30, 2002
(in thousands) FY 2003 FY 2002 FY 2003 FY 2002
- -------------- ---------------- ---------------- ---------------- ----------------
Heinz North America....... $ 80,196 $ 69,230 $204,884 $193,255
U.S. Frozen............... 37,741 40,837 126,969 104,333
Non-Operating(a).......... (296) (2,389) (1,540) (2,035)
-------- -------- -------- --------
Consolidated totals..... $117,641 $107,678 $330,313 $295,553
======== ======== ======== ========
--------------------
(a) Includes charges not directly attributable to operating segments.
(10) COMPREHENSIVE INCOME
Third Quarter Ended Nine Months Ended
------------------------- -------------------------
January 29, January 30, January 29, January 30,
2003 2002 2003 2002
(in thousands) FY 2003 FY 2002 FY 2003 FY 2002
- -------------- ----------- ----------- ----------- -----------
Net (loss)/income........................... $(12,781) $28,631 $ 10,669 $60,498
Other comprehensive income:
Net deferred gains/(losses) on derivatives
from periodic revaluations.............. 12,416 (935) 30,227 51
Net deferred (gains) on derivatives
reclassified to earnings/spun off....... (14,409) (133) (29,283) (109)
-------- ------- -------- -------
Comprehensive (loss)/income................. $(14,774) $27,563 $ 11,613 $60,440
======== ======= ======== =======
(11) FINANCIAL INSTRUMENTS
Heinz Finance utilizes certain financial instruments to manage its
commodity price and interest rate exposures.
FOREIGN CURRENCY HEDGING: Heinz Finance may hedge specific foreign currency
cash flows associated with foreign-currency-denominated financial assets
and liabilities. These hedges are accounted for as cash flow hedges.
COMMODITY PRICE HEDGING: Heinz Finance uses commodity futures, swaps and
options in order to reduce price risk associated with anticipated purchases
of raw materials such as corn,
12
soybean oil and soybean meal. Commodity price risk arises due to factors
such as weather conditions, government regulations, economic climate and
other unforeseen circumstances. Hedges of anticipated commodity purchases
which meet the criteria for hedge accounting are designated as cash flow
hedges.
INTEREST RATE HEDGING: Heinz Finance uses interest rate swaps to manage
interest rate exposure. These derivatives are designated as cash flow
hedges or fair value hedges depending on the nature of the particular risk
being hedged.
HEDGE INEFFECTIVENESS: During the nine months ended January 29, 2003, hedge
ineffectiveness related to cash flow hedges was a net gain of $0.1 million
which is reported in the consolidated statements of income as other
expenses, net.
DEFERRED HEDGING GAINS AND LOSSES: As of January 29, 2003, Heinz Finance is
hedging forecasted transactions for periods not exceeding 12 months, and
expects $0.8 million of net deferred gain reported in accumulated other
comprehensive income to be reclassified to earnings within that time frame.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCONTINUED OPERATIONS
On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities, including its U.S. pet food and pet
snacks, U.S. tuna, U.S. retail private label soup and private label gravy,
College Inn broths and its U.S. infant feeding businesses, all of which were
owned by Heinz Finance, and distributed all of the shares of SKF Foods common
stock on a pro rata basis to its shareholders. Immediately thereafter, SKF Foods
merged with a wholly-owned subsidiary of Del Monte Foods Company ("Del Monte")
resulting in SKF Foods becoming a wholly-owned subsidiary of Del Monte ("the
Merger").
In connection with the Del Monte transaction, Heinz Finance received $1.06
billion in cash from Heinz. The cash was used to fund:
- The retirement of maturing long-term debt ($200 million);
- The early retirement of long-term debt ($240 million, which includes the
cost of early retirement);
- The retirement of long-term debt maturing shortly after the end of Heinz
Finance's fiscal third quarter ($250 million);
- The remaining cash was lent to Heinz for use in operations ($230
million).
The balance of the cash was invested pending further debt reduction
activities and the payment of additional transaction related expenses.
In accordance with generally accepted accounting principles, the operating
results and net assets related to these businesses spun off to Del Monte have
been included in discontinued operations in Heinz Finance's consolidated
statements of income and condensed consolidated balance sheets. The net assets
of discontinued operations owned by Heinz Finance were distributed to Heinz
which reduced Heinz's Class A interest in Heinz LP thus reducing Heinz Finance's
minority interest balance on the condensed consolidated balance sheet. In
connection with this distribution, the terms of the Heinz LP agreement were
amended such that the Class B partners will now receive an improved economic
interest in the partnership by giving them a higher priority with respect to
distributions and an increased share in residual income.
The discontinued operations generated sales of $248.7 million and $400.8
million and a net loss of $9.9 million (net of $6.1 million of a tax benefit)
and $8.5 million (net of $4.4 million of a tax benefit) for the three months
ended January 29, 2003 and January 30, 2002, respectively. The discontinued
13
operations generated sales of $1,052.6 million and $878.6 million and a net loss
of $23.3 million (net of $13.8 million of a tax benefit) and $25.4 million (net
of $13.8 million of a tax benefit) for the nine months ended January 29, 2003
and January 30, 2002, respectively.
STREAMLINE
In the fourth quarter of Fiscal 2001, Heinz announced a restructuring
initiative named "Streamline." This initiative included an organizational
restructuring aimed at reducing overhead costs and the consolidation of Heinz
Finance's canned pet food production to Bloomsburg, Pennsylvania (which resulted
in ceasing canned pet food production at the company's Terminal Island,
California facility).
RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective May 2, 2002, Heinz Finance adopted SFAS No. 142 "Goodwill and
Other Intangible Assets." Under this standard, goodwill and intangibles with
indefinite useful lives are no longer amortized. This standard also requires, at
a minimum, an annual assessment of the carrying value of goodwill and
intangibles with indefinite useful lives. The reassessment of intangible assets,
including the ongoing impact of amortization, was completed during the first
quarter of Fiscal 2003. Net income from continuing operations for the quarter
and nine months ended January 30, 2002 would have been $37.2 million and $86.3
million, respectively, had the provisions of the new standards been applied as
of May 3, 2001.
During the first half of Fiscal 2003, Heinz Finance completed its
transitional impairment review and no impairment issues were identified as a
result of completing this review.
Effective May 2, 2002, Heinz Finance adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This statement provides
updated guidance concerning the recognition and measurement of an impairment
loss for certain types of long-lived assets, expands the scope of a discontinued
operation to include a component of an entity and eliminates the current
exemption to consolidation when control over a subsidiary is likely to be
temporary. The adoption of this new standard did not have a material impact on
Heinz Finance's financial position, results of operations or cash flows.
In June 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. This Statement
also establishes that fair value is the objective for initial measurement of the
liability. Heinz Finance will apply the provisions of SFAS No. 146 to all
disposal activities that are initiated after December 31, 2002.
THREE MONTHS ENDED JANUARY 29, 2003 AND JANUARY 30, 2002
RESULTS OF CONTINUING OPERATIONS
For the three months ended January 29, 2003, sales decreased $7.4 million,
or 0.9%, to $798.2 million. Sales were favorably impacted by acquisitions
(1.3%.) The favorable impact of acquisitions is primarily related to prior year
acquisitions in the Heinz North America segment. Sales were also positively
impacted by favorable volumes of 0.6%. Pricing reduced sales 2.2% and
divestitures reduced sales 0.6%.
Gross profit decreased $1.5 million, or 0.5%, to $292.0 million; however
the gross profit margin increased slightly to 36.6% from 36.4%. Selling General
and Administrative ("SG&A") expenses decreased $7.8 million, or 5.4%, to $137.0
million and decreased as a percentage of sales to 17.2% from 18.0%. This
decrease is primarily related to reduced marketing spend in the North America
segment. Operating income increased $10.0 million, or 9.3%, to $117.6 million
and increased as a percentage of sales to 14.7% from 13.4% primarily related to
the reduction in marketing expense.
14
Net interest expense increased $6.3 million to $33.8 million, driven
primarily by increased short-term debt balances to related parties. During the
current period, there was a non-cash currency loss of $30.8 million compared to
a non-cash gain of $7.6 million in the prior period related to the marked-to-
market adjustment on Euro-denominated long-term debt. This debt represents a net
investment hedge at the Heinz level. Because Heinz Finance does not have foreign
assets, this market-to-market adjustment does not qualify for hedge accounting
treatment at Heinz Finance. Other expense increased $41.7 million to $44.3
million from $2.6 million last year. The increase is primarily attributable to
the $39.6 million pretax charge related to early retirement of debt. The
effective tax rate for the current quarter was (5.2)% compared to 18.6% last
year. This decrease in the effective tax rate is due primarily to the larger
proportion that current quarter nontaxable minority interest bears to total
Heinz Finance current quarter income before tax.
Net (loss)/income from continuing operations in the current quarter was
($2.9) million compared to $37.1 million last year.
OPERATING RESULTS BY BUSINESS SEGMENT
HEINZ NORTH AMERICA
Sales of the Heinz North America segment increased $9.0 million, or 1.8%.
Acquisitions, net of divestitures, increased sales by 2.3%, due to the prior
year acquisition of Royal American Foods frozen desserts. Lower pricing
decreased sales 1.3% primarily related to portion control. Sales volume
increased 0.9% due primarily to increases in retail ketchup partially offset by
decreases in foodservice ketchup.
Gross profit increased $2.2 million, or 1.2% to $187.6 million due
primarily to reduced amortization expense on intangible assets. Operating income
increased $11.0 million, or 15.8% to $80.2 million due primarily to the change
in gross profit and reduced marketing expense.
U.S. FROZEN
U.S. Frozen's sales decreased $16.4 million, or 5.2%. Sales volume
increased 0.1% due to the finished goods inventories which were retained by
Heinz and the significant increase in SmartOnes frozen entrees offset by a
reduction in appetizers and Boston Market HomeStyle side dishes and meals. Lower
pricing decreased sales 3.5%, primarily due to increased trade promotions
related to appetizers and Boston Market HomeStyle meals. Divestitures reduced
sales 1.9%.
Gross profit decreased $5.8 million or 5.3% primarily due to price
decreases offset by the effects of the inventories retained by Heinz and the
gross profit margin was consistent with prior year. Operating income decreased
$3.1 million, or 7.6%, to $37.7 million primarily due to the change in gross
profit and increased marketing expenses, partially offset by a significant
reduction in General and Administrative ("G&A") expenses due to realized
synergies related to prior year acquisitions.
NINE MONTHS ENDED JANUARY 29, 2003 AND JANUARY 30, 2002
RESULTS OF CONTINUING OPERATIONS
For the nine months ended January 29, 2003, sales increased $364.1 million,
or 18.7%, to $2.31 billion from $1.95 billion last year. Sales were favorably
impacted by acquisitions (6.2%) and volumes (13.3%). The volume increase
primarily is a result of the finished goods inventories which were not
contributed to Heinz Finance on May 3, 2001 ($286.4 million). Sales were
negatively impacted by pricing (0.3%) and divestitures (0.5%).
Gross profit increased $139.7 million, or 19.6%, to $851.5 million and the
gross profit margin increased slightly to 36.9% from 36.6%. This increase is due
to the finished goods inventories which
15
were retained by Heinz and the benefit of reduced amortization of intangible
assets of approximately $12.3 million. The increase in gross profit margin was
driven by the U.S. Frozen segment.
SG&A increased $90.2 million, or 28.3%, to $409.1 million and increased as
a percentage of sales to 17.7% from 16.4%. The increase is primarily due to the
finished goods inventories which were retained by Heinz as well as increased
Selling and Distribution ("S&D") and marketing spend across both segments and
increased G&A expenses in the Heinz North America segment.
Operating income increased $34.8 million, or 11.8%, to $330.3 million and
decreased as a percentage of sales to 14.3% from 15.2%.
Net interest expense increased $7.8 million to $88.8 million, driven
primarily by increased short-term debt balances to related parties partially
offset by lower interest rates over the past year and interest earned on cash
received from the Del Monte. During the current period, there was a non-cash
currency loss of $54.4 million compared to a non-cash gain of $6.3 million in
the prior year related to the marked-to-market adjustment on Euro-denominated
long-term debt. This debt represents a net investment hedge at the Heinz level.
Because Heinz Finance does not have foreign assets, this market-to-market
adjustment does not qualify for hedge accounting treatment at Heinz Finance.
Other expense increased $44.7 million to $54.8 million. The increase is
primarily attributable to the $39.6 million pretax charge related to early
retirement of debt. The effective tax rate for the nine months ended January 29,
2003 was 8.4% compared to 16.0% last year. This decrease in the effective tax
rate is due primarily to the larger proportion that nine month's nontaxable
minority interest bears to total Heinz Finance nine month's income before tax.
Net income for the current nine months was $34.0 million compared to $85.9
million last year.
HEINZ NORTH AMERICA
Sales of the Heinz North America segment increased $213.0 million, or
17.3%. Acquisitions increased sales 3.3%, due primarily to the prior year
acquisitions of Classico and Aunt Millie's pasta sauce, Mrs. Grass Recipe soups,
Wyler's bouillons and soups and Royal American Foods frozen desserts. Higher
pricing increased sales 0.4% due mainly to ketchup, portion control and frozen
soup. Sales volume increased 13.6% due primarily to the finished goods
inventories which were retained by Heinz and increases in foodservice ketchup
and specialty sauces partially offset by decreases primarily in frozen soup.
Gross profit increased $63.9 million, or 13.8%, to $527.5 million, however,
the gross profit margin decreased to 36.4% from 37.6%. The increase is due
primarily to the finished goods inventories which were retained by Heinz,
reduced amortization expense on intangible assets with indefinite lives and
acquisitions partially offset by unfavorable sales mix and increased
manufacturing costs. Operating income increased $11.6 million, or 6.0%, to
$204.9 million due primarily to the finished goods inventories retained by
Heinz, partially offset by increased marketing and higher S&D and G&A expenses.
U.S. FROZEN
U.S. Frozen's sales increased $151.1 million, or 21.3%. Acquisitions, net
of divestitures increased sales 9.8%, due primarily to the prior year
acquisitions of Delimex frozen Mexican foods, Anchor's Poppers retail frozen
appetizers and licensing rights to the T.G.I. Friday's brand of frozen snacks
and appetizers. Lower pricing decreased sales 1.4%, primarily due to Boston
Market HomeStyle meals and appetizers, partially offset by a reduction in trade
promotions primarily related to the launch of Hot Bites in the prior year. Sales
volume increased 12.9% primarily due to the finished goods inventories which
were retained by Heinz and SmartOnes frozen entrees partially offset by declines
in frozen potatoes and Boston Market HomeStyle side dishes and the
rationalization of Hot Bites.
Gross profit increased $75.7 million or 30.4% and the gross profit margin
increased to 37.7% from 35.0%. The increase in gross profit is primarily due to
finished goods inventories retained by Heinz,
16
acquisitions and reduced manufacturing costs, partially offset by lower pricing.
Operating income increased $22.6 million, or 21.7%, to $127.0 million due
primarily to the change in gross profit and reduced G&A expenses, partially
offset by increased marketing and S&D.
LIQUIDITY AND FINANCIAL POSITION
Cash provided by operating activities was $592.0 million compared to using
cash of $388.6 million last year. The increase is primarily due to decreased
trade receivables and the building of inventory levels in the first nine months
of Fiscal 2002 as a result of all finished goods inventories being retained by
Heinz on May 3, 2001.
Cash used for investing activities totaled $41.5 million compared to $841.0
million last year. Acquisitions in the prior period required $777.7 million, due
primarily to the purchase of Borden Food Corporation's pasta and dry bouillon
and soup business, Delimex Holdings, Inc. and Anchor Food Products branded
retail business which includes the retail licensing rights to the T.G.I.
Friday's brand of frozen snacks and appetizers. Capital expenditures in the
current nine months required $46.6 million compared to $51.9 million last year.
Cash used for financing activities totaled $164.7 million compared to cash
provided by financing activities of $1,229.0 million last year. Proceeds from
long-term debt were $751.1 million last year. Payments on long-term debt
required $401.2 million in the current nine months compared to $9.2 million last
year. Heinz Finance received $1,062.1 million of net proceeds from Heinz related
to the Del Monte transaction in the current period. Payments on commercial paper
were $89.1 million compared to proceeds received of $1,123.0 million in the
prior year. Payments on short-term borrowings with related parties required
$667.5 million compared to $852.8 million last year. In addition, $325.0 million
was provided during the prior year via the issuance of Preferred Stock. Dividend
payments to preferred shareholders totaled $15.2 million compared to $10.6
million for the same period last year. In addition, distributions to Class A
partners were $56.4 million in the current nine months and $96.8 million in the
prior year.
All of the debt of Heinz Finance is unconditionally guaranteed by Heinz and
is included on the consolidated balance sheet of Heinz.
On September 5, 2002, Heinz, Heinz Finance and a group of domestic and
international banks renewed an $800 million 364-day credit agreement. That
credit agreement and the $1.5 billion credit agreement that expires in September
2006 support Heinz Finance's and Heinz's commercial paper programs. As of
January 29, 2003 there was no commercial paper outstanding. As on May 1, 2002,
Heinz Finance had $89.1 million of commercial paper outstanding and classified
as long-term debt.
The impact of inflation on both Heinz Finance's financial position and
results of operations is not expected to adversely affect Fiscal 2003 results.
Heinz Finance's financial position continues to remain strong, enabling it to
meet all cash requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
During the third quarter of Fiscal 2003, Heinz Finance adopted Financial
Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 elaborates on the disclosures to
be made by a guarantor about its obligations under certain guarantees that it
has issued, and it requires the recognition of a liability at fair value by a
guarantor at the inception of a guarantee. The disclosure requirements of FIN 45
are effective as of January 29, 2003. The initial recognition and measurement
provisions of FIN 45 are effective on a prospective basis for all guarantees
issued or modified after December 31, 2002. Heinz Finance has not issued or
modified any material guarantees since December 31, 2002.
17
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 Heinz
Finance. Heinz Finance and its representatives may from time to time make
written or oral forward-looking statements, including statements contained in
Heinz Finance's filings with the Securities and Exchange Commission. These
forward-looking statements are based on management's views and assumptions of
future events and financial performance. The words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "should,"
"estimate," "project," "target," "goal" or similar expressions identify
"forward-looking statements" within the meaning of the Act.
In order to comply with the terms of the safe harbor, Heinz Finance notes
that a variety of factors could cause Heinz Finance's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in Heinz Finance's forward-looking statements. These
forward-looking statements are uncertain. The risks and uncertainties that may
affect operations and financial performance and other activities, some of which
may be beyond the control of Heinz Finance, 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 jurisdictions;
- Competitive product and pricing pressures and Heinz Finance's ability to
gain or maintain share of sales in the U.S. 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 and other factors on the cost of
producing, transporting and distributing Heinz Finance's products;
- Heinz Finance's ability to generate sufficient cash flows to support
capital expenditures, debt repayment and general operating activities;
- The inherent risks in the marketplace associated with new product or
packaging introductions, including uncertainties about trade and consumer
acceptance;
- Heinz Finance's ability to achieve sales and earnings forecasts, which
are based on assumptions about sales volume, product mix and other items;
- Heinz Finance's ability to integrate acquisitions and joint ventures into
its existing operations and the availability of new acquisition and joint
venture opportunities and the success of divestitures and other business
combinations;
- Heinz Finance's ability to achieve its cost savings objectives, including
any restructuring programs and its working capital initiative;
- Interest rate fluctuations and other capital market conditions;
- The effectiveness of Heinz Finance's advertising, marketing and
promotional programs;
- Weather conditions, which could impact demand for Heinz Finance's
products and the supply and cost of raw materials;
- The impact of e-commerce and e-procurement, supply chain efficiency and
cash flow initiatives;
- Heinz Finance's ability to maintain its profit margin in the face of a
consolidating retail environment;
- The impact of U.S. industry conditions, including the effect of the
economic downturn in the food industry and the foodservice business in
particular;
18
- Heinz Finance'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. Heinz Finance undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in Heinz Finance's market risk during
the nine months ended January 29, 2003.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Within 90 days before filing this report, an evaluation of the
effectiveness of the design and operation of Heinz Finance's disclosure controls
and procedures was carried out by Heinz Finance under the supervision and with
the participation of Heinz Finance's management, including the President and
Chief Financial and Accounting Officer. Based on that evaluation, the President
concluded that, as of the date of their evaluation, Heinz Finance's disclosure
controls and procedures have been designed and are functioning effectively to
provide reasonable assurance that the information required to be disclosed by
Heinz Finance in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Heinz Finance believes that a controls system, no
matter how well designed and operated, cannot provide absolute assurance that
the objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
(b) Changes in Internal Controls
Subsequent to the date of the most recent evaluation of Heinz Finance's
internal controls, there were no significant changes in Heinz Finance's internal
controls or in other factors that could significantly affect the internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
19
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nothing to report under this item.
ITEM 2. CHANGES IN SECURITIES
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Nothing to report under this item.
ITEM 5. OTHER INFORMATION
Nothing to report under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be furnished by Item 601 of Regulation S-K are
listed below and are filed as part hereof. Heinz Finance has omitted
certain exhibits in accordance with Item 601(b)(4)(iii)(A) of Regulation
S-K. Heinz Finance agrees to furnish such documents to the Commission upon
request. Documents not designated as being incorporated herein by reference
are filed herewith. The paragraph numbers correspond to the exhibit numbers
designated in Item 601 of Regulation S-K.
EXHIBIT INDEX
3(i) Heinz Finance's Certificate of Incorporation is
incorporated herein by reference to Exhibit 3.1 to Heinz
Finance's Registration Statement on Amendment No. 2
to Form S-4 (Reg. 333-85064).
3(ii) Heinz Finance's By-Laws are incorporated herein by
reference to Exhibit 3.2 to Heinz Finance's Registration
Statement on Amendment No. 2 to Form S-4 (Reg.
333-85064).
4. Except as set forth below, there are no instruments
with respect to long-term debt of Heinz Finance that involve
indebtedness or securities authorized thereunder
exceeding 10 percent of the total assets of Heinz
Finance on a consolidated basis. Heinz Finance
agrees to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of
Heinz Finance upon request of the Securities and
Exchange Commission.
(a) The Indenture between Heinz and Bank One, National
Association dated November 6, 2000, is incorporated herein
by reference to Exhibit 4 to Heinz's Quarterly Report
on Form 10-Q for the nine months ended January 31,
2001.
(i) The Supplement dated May 3, 2001 among Heinz,
Heinz Finance and Bank One, National Association to the
Indenture is incorporated herein by reference to
Exhibit 4(b)(i) of Heinz's Form 10-K for the
fiscal year ended May 2, 2001.
20
(ii) The second Supplement dated November 15, 2002
among Heinz, Heinz Finance and Bank One, National
Association to the Indenture.
10(a) Third Amended and Restated Partnership Agreement of
H.J. Heinz Company, L.P. is incorporated herein by reference
to Exhibit 10.6 of Heinz Finance's Registration
Statement on Amendment No. 2 to Form S-4 (Reg.
333-85064).
12. Computation of Ratios of Earnings to Fixed Charges.
99(a) Certification by the President Relating to a Periodic Report
Containing Financial Statements.
99(b) Certification by the Chief Financial and Accounting Officer Relating
to a Periodic Report Containing Financial Statements.
21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H.J. HEINZ FINANCE COMPANY
(Registrant)
Date: March 13, 2003
By: /s/ LEONARD A. CULLO
..........................................
Leonard A. Cullo
Director and President
By: /s/ ARTHUR WINKLEBLACK
..........................................
Arthur Winkleblack
Director, Vice President,
Chief Financial and Accounting
Officer
(Principal Financial Officer)
22
I, Leonard A. Cullo, Director and President of H.J. Heinz Finance Company
certify that:
1. I have reviewed this quarterly report on Form 10-Q of H.J. Heinz Finance
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant and its consolidated
subsidiaries is made known to such officers by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 13, 2003
By: /s/ LEONARD A. CULLO
------------------------------------
Name: Leonard A. Cullo
Title: Director and President
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I, Arthur Winkleblack, Director, Vice President, Chief Financial and
Accounting Officer of H.J. Heinz Finance Company certify that:
1. I have reviewed this quarterly report on Form 10-Q of H.J. Heinz Finance
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant and its consolidated
subsidiaries is made known to such officers by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 13, 2003
By: /s/ ARTHUR WINKLEBLACK
------------------------------------
Name: Arthur Winkleblack
Title: Director, Vice President,
Chief
Financial and Accounting
Officer
24