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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 OCTOBER 27, 2004
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 SIX MONTHS ENDED OCTOBER 27, 2004 COMMISSION FILE NUMBER 333-85064
H. J. HEINZ FINANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 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 X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
All of the outstanding shares of the registrant's common stock are owned by
H. J. Heinz Company.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Second Quarter Ended
-----------------------------------
October 27, 2004 October 29, 2003
FY 2005 FY 2004
---------------- ----------------
(Unaudited)
(In Thousands)
Sales....................................................... $865,275 $825,720
Cost of products sold....................................... 535,871 522,540
-------- --------
Gross profit................................................ 329,404 303,180
Selling, general and administrative expenses................ 152,822 134,601
Royalty expense to related parties.......................... 46,220 41,554
-------- --------
Operating income............................................ 130,362 127,025
Interest income............................................. 5,626 2,371
Interest expense............................................ 38,643 35,706
Dividends from related parties.............................. 30,798 30,798
Currency loss............................................... 20,466 9,864
Other income, net........................................... 881 519
-------- --------
Income before income taxes and minority interest............ 108,558 115,143
Provision for income taxes.................................. 13,310 13,359
-------- --------
Income before minority interest............................. 95,248 101,784
Minority interest........................................... (81,410) (81,901)
-------- --------
Net income.................................................. $ 13,838 $ 19,883
======== ========
See Notes to Condensed Consolidated Financial Statements.
------------------
2
H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
-----------------------------------
October 27, 2004 October 29, 2003
FY 2005 FY 2004
---------------- ----------------
(Unaudited)
(In Thousands)
Sales....................................................... $1,619,309 $1,541,590
Cost of products sold....................................... 1,011,379 976,137
---------- ----------
Gross profit................................................ 607,930 565,453
Selling, general and administrative expenses................ 282,729 260,005
Royalty expense to related parties.......................... 92,301 77,530
---------- ----------
Operating income............................................ 232,900 227,918
Interest income............................................. 8,664 3,771
Interest expense............................................ 72,570 67,301
Dividends from related parties.............................. 61,596 61,596
Currency loss............................................... 26,917 14,716
Other expenses, net......................................... 4,538 3,927
---------- ----------
Income before income taxes and minority interest............ 199,135 207,341
Provision for income taxes.................................. 30,311 27,740
---------- ----------
Income before minority interest............................. 168,824 179,601
Minority interest........................................... (130,109) (133,570)
---------- ----------
Net income.................................................. $ 38,715 $ 46,031
========== ==========
See Notes to Condensed Consolidated Financial Statements.
------------------
3
H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 27, 2004 April 28, 2004*
FY 2005 FY 2004
---------------- ---------------
(Unaudited)
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 587,332 $ 462,039
Receivables, net.......................................... 359,542 354,282
Due from related parties.................................. 24,562 19,706
Short-term notes receivable from related parties.......... 825,185 386,955
Inventories............................................... 534,118 377,463
Prepaid expenses and other current assets................. 50,967 39,617
---------- ----------
Total current assets................................... 2,381,706 1,640,062
Property, plant and equipment............................... 1,103,062 1,147,808
Less accumulated depreciation............................... (500,941) (521,084)
---------- ----------
Total property, plant and equipment, net............... 602,121 626,724
Other non-current assets:
Long-term notes receivable from related parties........... 35,000 35,000
Investments in related parties............................ 1,895,245 1,895,245
Goodwill.................................................. 1,027,853 1,025,028
Other intangible assets, net.............................. 272,688 279,560
Other non-current assets.................................. 436,476 352,002
---------- ----------
Total other non-current assets......................... 3,667,262 3,586,835
---------- ----------
Total assets........................................... $6,651,089 $5,853,621
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term debt with related parties...................... $ 688,141 $ 282,348
Portion of long-term debt due within one year............. 381,712 355,724
Accounts payable.......................................... 302,389 214,665
Accounts payable to related parties....................... 75,139 72,851
Accrued marketing......................................... 78,826 109,038
Accrued interest.......................................... 110,872 69,075
Other accrued liabilities................................. 34,626 35,309
---------- ----------
Total current liabilities.............................. 1,671,705 1,139,010
Long-term debt and other liabilities:
Long-term debt............................................ 3,887,473 3,795,269
Deferred income taxes..................................... 76,490 46,130
Other liabilities......................................... 3,254 14,668
---------- ----------
Total long-term debt and other liabilities............. 3,967,217 3,856,067
Minority interest........................................... 702,750 572,641
Shareholder's equity:
Common stock.............................................. 11 11
Additional capital........................................ 109,441 123,438
Retained earnings......................................... 199,254 160,539
Accumulated other comprehensive income.................... 711 1,915
---------- ----------
Total shareholder's equity............................. 309,417 285,903
---------- ----------
Total liabilities and shareholder's equity............. $6,651,089 $5,853,621
========== ==========
- ---------------
* Summarized from audited Fiscal Year 2004 balance sheet.
See Notes to Condensed Consolidated Financial Statements.
------------------
4
H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
-----------------------------------
October 27, 2004 October 29, 2003
FY 2005 FY 2004
---------------- ----------------
(Unaudited)
(In Thousands)
Cash Flows from Operating Activities:
Net income................................................ $ 38,715 $ 46,031
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 28,274 28,819
Amortization........................................... 5,323 5,938
Deferred tax benefit................................... (13,043) (4,666)
Minority interest...................................... 130,109 133,570
Currency loss.......................................... 26,917 14,716
Other items, net....................................... (1,409) (7,001)
Changes in current assets and liabilities, excluding
effects of acquisitions and divestitures:
Receivables.......................................... 17,855 92,423
Inventories.......................................... (162,276) (113,681)
Due from/to related parties.......................... 1,812 (22,328)
Prepaid expenses and other current assets............ 11,164 (20,101)
Accounts payable..................................... 88,052 7,025
Accrued liabilities.................................. 8,511 35,110
Income taxes......................................... 13,905 30,708
--------- ---------
Cash provided by operating activities..................... 193,909 226,563
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures...................................... (24,696) (19,232)
Acquisitions, net of cash acquired........................ (6,558) (61,298)
Proceeds from divestitures................................ 18,604 --
Other items, net.......................................... 1,693 2,837
--------- ---------
Cash used for investing activities..................... (10,957) (77,693)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from long-term debt with related parties......... -- 185,639
Payments on long-term debt................................ -- (8,058)
Payments on short-term debt with related parties, net..... (57,659) (261,524)
Dividends on preferred shares............................. -- (5,059)
--------- ---------
Cash used for financing activities..................... (57,659) (89,002)
--------- ---------
Net increase in cash and cash equivalents................... 125,293 59,868
Cash and cash equivalents, beginning of period.............. 462,039 194,266
--------- ---------
Cash and cash equivalents, end of period.................... $ 587,332 $ 254,134
========= =========
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
The domestic treasury and business operations of H. J. Heinz Company
("Heinz") are conducted by H. J. Heinz Finance Company and its wholly-owned
subsidiaries, and H. J. Heinz Company, L.P. ("Heinz LP"), which are
collectively referred to as "Heinz Finance" in the accompanying notes. H.
J. Heinz Finance Company has limited partnership interests in Heinz LP
equal to approximately 40% of the capital of Heinz LP.
Heinz LP owns or leases the operating assets involved in manufacturing
throughout the United States 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 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 Heinz's domestic operations. Under the partnership
agreement, H. J. Heinz Finance Company has the power to control the General
Partner through majority membership on Heinz LP's management board. The
minority interest amounts on the October 27, 2004 and April 28, 2004
balance sheets represent the Class A and General Partner's 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, except those which have been disclosed
elsewhere in this Quarterly Report on Form 10-Q, 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 2005
presentation. These statements should be read in conjunction with Heinz
Finance's consolidated financial statements and related notes, and
management's discussion and analysis of financial condition and results of
operations which appear in Heinz Finance's Annual Report on Form 10-K for
the year ended April 28, 2004.
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 reported in the Heinz
consolidated financial statements as long-term debt at October 27, 2004 and
April 28, 2004.
(2) REORGANIZATION COSTS
During the first quarter of Fiscal 2004, Heinz Finance recognized
reorganization costs of $4.0 million pretax, which were primarily due to
employee termination and severance costs following the Fiscal 2003 spin-off
transaction with Del Monte. Of this amount, $3.9 million was charged to
Heinz Finance by Heinz Management Company through a management fee for all
salaried employee costs. These costs were recognized as a component of
selling, general and administrative expenses ("SG&A"). Amounts included in
accounts payable to related parties and other accrued liabilities related
to these initiatives totaled $2.2 million and $4.0 million at October 27,
2004 and April 28, 2004, respectively.
6
(3) INVENTORIES
The composition of inventories at the balance sheet dates was as follows:
October 27, April 28,
(in thousands) 2004 2004
-------------- ----------- ---------
Finished goods and work-in-process.......................... $342,591 $265,107
Packaging material and ingredients.......................... 191,527 112,356
-------- --------
$534,118 $377,463
======== ========
(4) GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the six months ended October
27, 2004, by reportable segment, are as follows:
North
American
Consumer U.S.
(in thousands) Products Foodservice Total
-------------- -------- ----------- ----------
Balance at April 28, 2004........................... $845,484 $179,544 $1,025,028
Acquisition......................................... -- 6,558 6,558
Purchase accounting reclassifications............... -- (1,185) (1,185)
Disposal............................................ (2,548) -- (2,548)
-------- -------- ----------
Balance at October 27, 2004......................... $842,936 $184,917 $1,027,853
======== ======== ==========
The annual impairment tests are performed in the fourth quarter of each
fiscal year unless events suggest an impairment may have occurred in the
interim. No impairment charges were recognized during the six months ended
October 27, 2004.
Trademarks and other intangible assets at October 27, 2004 and April 28,
2004, subject to amortization expense, are as follows:
October 27, 2004 April 28, 2004
---------------------------------- ----------------------------------
Accumulated Accumulated
(in thousands) Gross Amortization Net Gross Amortization Net
-------------- -------- ------------ -------- -------- ------------ --------
Trademarks........... $ 36,403 $ (3,227) $ 33,176 $ 39,103 $ (3,268) $ 35,835
Licenses............. 208,186 (121,448) 86,738 208,186 (118,504) 89,682
Other................ 95,808 (46,134) 49,674 95,708 (44,802) 50,906
-------- --------- -------- -------- --------- --------
$340,397 $(170,809) $169,588 $342,997 $(166,574) $176,423
======== ========= ======== ======== ========= ========
Amortization expense for trademarks and other intangible assets subject to
amortization was $4.8 million and $4.3 million for the six months ended
October 27, 2004 and October 29, 2003, respectively. Based upon the
amortizable intangible assets recorded on the balance sheet at October 27,
2004, amortization expense for each of the next five years is estimated to
be approximately $10 million.
Intangible assets not subject to amortization at October 27, 2004 and April
28, 2004 were $103.1 million, and consisted solely of trademarks.
(5) TAXES
The provision for income taxes consists of provisions for federal and state
income taxes. The 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.
7
In the second quarter of Fiscal 2005, a $14 million prior period adjustment
was made to additional paid-in-capital and deferred tax accounts related to
an adjustment to the original net assets contributed to Heinz LP on May 3,
2001.
(6) RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This statement affects the classification, measurement and disclosure
requirements of certain freestanding financial instruments, including
mandatorily redeemable shares. SFAS No. 150 was effective for Heinz Finance
for the second quarter of Fiscal 2004. The adoption of SFAS No. 150
required the prospective classification of Heinz Finance Company's $325
million of mandatorily redeemable preferred shares to long-term debt and
the $5.1 million quarterly preferred dividend from retained earnings to
interest expense beginning in the second quarter ended October 29, 2003.
(7) RELATED PARTY TRANSACTIONS
Employee Costs
Certain of Heinz's general and administrative expenses are allocated 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 were $77.3 million and $62.1
million for the second quarter ended October 27, 2004 and October 29, 2003,
respectively, and $148.7 million and $125.6 million for the six months
ended October 27, 2004 and October 29, 2003, respectively. These costs are
recorded as cost of products sold or SG&A in the accompanying consolidated
statements of income depending on the nature of the cost. For the second
quarter and six months ended October 27, 2004, $13.9 million and $28.9
million, respectively, were recorded as cost of products sold and $63.3
million and $119.8 million, respectively, as SG&A. For the second quarter
and six months ended October 29, 2003, $10.7 million and $21.5 million,
respectively, were recorded as cost of products sold and $51.4 million and
$104.1 million, respectively, as SG&A.
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 corporate 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 were $15.1 million and $15.3 million for the
second quarter ended October 27, 2004 and October 29, 2003, respectively,
and $30.7 million and $33.5 million for the six months ended October 27,
2004 and October 29, 2003, respectively, and are recorded in SG&A 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 and are included
either in the management charge from Heinz Management Company discussed
above or are recorded directly on Heinz LP.
Cash Management
Heinz Finance represents the treasury center for cash management and debt
financing for all of Heinz's domestic operations. In addition, Heinz
Finance enters into a number of short-term notes with foreign wholly-owned
subsidiaries of Heinz. As a result of these cash management activities,
Heinz Finance had $137.0 million and $104.6 million of net short-term notes
receivable with related parties recorded on the condensed consolidated
balance sheets as of October 27, 2004 and April 28, 2004, respectively. In
addition, at October 27, 2004 and April 28, 2004, long-term notes
receivable from related parties includes $35.0 million related to a
receivable from Heinz, which is classified as long-term given its maturity
of May 2, 2007.
8
An average interest rate of 1.7% and 1.1% was earned on total notes
receivable from related parties resulting in $4.1 million and $1.4 million
of interest income for the second quarter ended October 27, 2004 and
October 29, 2003, respectively, and $5.7 million and $2.2 million of
interest income for the six months ended October 27, 2004 and October 29,
2003, respectively. In addition, an average interest rate of 1.6% and 1.9%
was charged on total notes payable to related parties resulting in $2.9
million and $1.6 million of interest expense for the second quarter ended
October 27, 2004 and October 29, 2003, respectively, and $4.2 million and
$2.2 million of interest expense for the six months ended October 27, 2004
and October 29, 2003, respectively.
Product Sales and Purchases
Heinz Finance sells and purchases products and services to and from other
Heinz affiliates. The results of related party transactions are the $24.6
million and $19.7 million balances due from related parties as of October
27, 2004 and April 28, 2004, respectively, and the $75.1 million and $72.9
million balances for accounts payable to related parties as of October 27,
2004 and April 28, 2004, respectively. Product sales to related parties
were $12.3 million for both the second quarter ended October 27, 2004 and
October 29, 2003, and $23.1 and $22.9 million for the six months ended
October 27, 2004 and October 29, 2003, respectively. Purchases from related
parties were $11.9 million and $8.4 million for the second quarter ended
October 27, 2004 and October 29, 2003, respectively, and $22.1 and $14.7
million for the six months ended October 27, 2004 and October 29, 2003,
respectively.
Other Related Party Items
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 $30.8 million
and $61.6 million for the second quarters and six months ended October 27,
2004 and October 29, 2003, respectively. This preferred stock investment is
recorded in the Investments in related parties balance on the condensed
consolidated balance sheets as of October 27, 2004 and April 28, 2004.
Heinz Finance paid royalties of $46.2 million and $41.6 million for the
second quarter ended October 27, 2004 and October 29, 2003, respectively,
and $92.3 million and $77.5 million for the six months ended October 27,
2004 and October 29, 2003, respectively, to Promark Brands, Inc., a direct
subsidiary of Heinz, for the use of certain trademarks.
During the second quarter of Fiscal 2005, a prior period adjustment was
recorded that unfavorably impacted minority interest expense by $3.3
million and net income by $2.0 million. The adjustment was a result of an
error in calculating the first quarter of Fiscal 2005 minority interest,
all of which is directly or indirectly owned by Heinz. This adjustment had
no impact on Heinz Finance's results of operations or cash flows for the
six months ended October 27, 2004.
(8) SEGMENTS
The composition of segments and measure of segment profitability is
consistent with that used by Heinz Finance's management.
Descriptions of Heinz Finance's reportable segments are as follows:
- North American Consumer Products--This segment manufactures, markets and
sells ketchup, condiments, sauces, pasta meals, and frozen potatoes,
entrees, snacks, and appetizers to the grocery channels in the United
States of America.
9
- U.S. Foodservice--This segment manufactures, markets and sells branded
and customized products to commercial and non-commercial food outlets and
distributors in the United States of America including ketchup,
condiments, sauces and frozen soups and desserts.
Heinz Finance's management evaluates performance based on several factors
including net sales, operating income and the use of capital resources.
Intersegment revenues are accounted for at current market values. Items
below the operating income line of the consolidated statements of income
are not presented by segment, since they are excluded from the measure of
segment profitability reviewed by Heinz Finance's management.
The following table presents information about Heinz Finance's reportable
segments:
Net External Sales Net External Sales
Second Quarter Ended Six Months Ended
----------------------------------- --------------------------------------
October 27, 2004 October 29, 2003 October 27, 2004 October 29, 2003
(in thousands) FY 2005 FY 2004 FY 2005 FY 2004
-------------- ---------------- ---------------- ---------------- -------------------
North American Consumer
Products................. $480,104 $450,727 $ 886,028 $ 831,842
U.S. Foodservice........... 385,171 $374,993 733,281 709,748
-------- -------- ---------- ----------
Consolidated totals...... $865,275 $825,720 $1,619,309 $1,541,590
======== ======== ========== ==========
Intersegment Revenues Intersegment Revenues
Second Quarter Ended Six Months Ended
----------------------------------- -----------------------------------
October 27, 2004 October 29, 2003 October 27, 2004 October 29, 2003
(in thousands) FY 2005 FY 2004 FY 2005 FY 2004
-------------- ---------------- ---------------- ---------------- ----------------
North American Consumer
Products............... $10,511 $10,660 $21,126 $21,320
U.S. Foodservice......... -- -- -- --
------- ------- ------- -------
Consolidated totals.... $10,511 $10,660 $21,126 $21,320
======= ======= ======= =======
Operating Income (Loss)(b) Operating Income (Loss)(b)
Second Quarter Ended Six Months Ended
----------------------------------- -----------------------------------
October 27, 2004 October 29, 2003 October 27, 2004 October 29, 2003
(in thousands) FY 2005 FY 2004 FY 2005 FY 2004
-------------- ---------------- ---------------- ---------------- ----------------
North American Consumer
Products................ $ 89,665 $ 84,147 $153,956 $149,805
U.S. Foodservice.......... 41,207 43,439 80,030 79,246
Non-Operating(a).......... (510) (561) (1,086) (1,133)
-------- -------- -------- --------
Consolidated totals..... $130,362 $127,025 $232,900 $227,918
======== ======== ======== ========
--------------------
(a) Includes charges not directly attributable to operating segments.
(b) Six Months ended October 29, 2003--Includes costs to reduce overhead of
the remaining businesses following the Fiscal 2003 spin-off transaction
with Del Monte. Total costs recorded by Heinz Finance, as well as
charged back to Heinz Finance by Heinz Management Company, were as
follows: North American Consumer Products $1.5 million and U.S.
Foodservice $2.5 million.
10
(9) COMPREHENSIVE INCOME
Second Quarter Ended Six Months Ended
------------------------- ------------------------------
October 27, October 29, October 27, October 29,
2004 2003 2004 2003
(in thousands) FY 2005 FY 2004 FY 2005 FY 2004
-------------- ----------- ----------- ----------- ----------------
Net income............................. $ 13,838 $ 19,883 $ 38,715 $46,031
Other comprehensive income:
Net deferred gains on derivatives
from periodic revaluations........ 21,284 12,237 22,583 7,042
Net deferred gains on derivatives
reclassified to earnings.......... (22,131) (13,007) (23,787) (6,378)
-------- -------- -------- -------
Comprehensive income................... $ 12,991 $ 19,113 $ 37,511 $46,695
======== ======== ======== =======
(10) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Heinz Finance utilizes certain derivative financial instruments to manage
its foreign currency, commodity price and interest rate exposures. There
have been no material changes in Heinz Finance's market risk during the six
months ended October 27, 2004. For additional information, refer to pages
16-18 of Heinz Finance's Annual Report on Form 10-K for the fiscal year
ended April 28, 2004.
As of October 27, 2004, Heinz Finance is hedging forecasted transactions
for periods not exceeding two years. During the next 12 months, Heinz
Finance expects $0.7 million of net deferred gain reported in accumulated
other comprehensive income to be reclassified to earnings. Hedge
ineffectiveness related to cash flow hedges, which is reported in current
period earnings as other expenses, net, was not significant for the six
months ended October 27, 2004 and October 29, 2003.
(11) INVESTMENTS AND UNCONSOLIDATED SUBSIDIARIES
The consolidated financial statements include the accounts of Heinz
Finance, and entities in which Heinz Finance maintains a controlling
financial interest. Control is generally determined based on the majority
ownership of an entity's voting interests. In certain situations, control
is based on participation in the majority of an entity's economic risks and
rewards. Investments in certain companies over which Heinz Finance exerts
significant influence, but does not control the financial and operating
decisions, are accounted for as equity method investments. Heinz Finance
has no investments in variable interest entities.
Heinz Finance holds an equity investment in The Hain Celestial Group, Inc.
("Hain"), a natural, specialty and snack food company. The total equity
investment in Hain as of October 27, 2004 was $185.5 million. Heinz Finance
currently owns approximately six million shares of Hain stock at an average
basis of approximately $30.00 per share as of October 27, 2004. Since late
January 2004, Hain shares have been trading at less than 80% of Heinz
Finance's carrying value. Heinz is assisting Hain with certain cost savings
programs that Hain is pursuing with the intention of improving its
shareholder value over the next 12 months. Absent a significant increase in
the share price of Hain, Heinz Finance believes it is likely to record a
charge to pretax earnings to write down its Hain investment in the third
quarter of Fiscal 2005. This charge would have no effect on cash flows.
(12) SUBSEQUENT EVENT
Heinz, Heinz Finance and the holders of the $800 million remarketable
securities due 2020 agreed to change the remarketing date from November 15
to December 1 beginning this year and to change the maturity date to
December 1, 2020 from November 15, 2020. These changes allow for the
remarketing to occur each year after the anticipated filing of the Heinz's
second quarter Form 10-Q. If the securities are not remarketed in any given
year, then Heinz and Heinz Finance are required to repurchase the principal
amount of securities plus interest.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REORGANIZATION COSTS
During the first quarter of Fiscal 2004, Heinz Finance recognized
reorganization costs of $4.0 million pretax, which were primarily due to
employee termination and severance costs following the Fiscal 2003 spin-off
transaction with Del Monte. Of this amount, $3.9 million was charged to Heinz
Finance by Heinz Management Company through a management fee for all salaried
employee costs. These costs were recognized as a component of selling, general
and administrative expenses ("SG&A").
THREE MONTHS ENDED OCTOBER 27, 2004 AND OCTOBER 29, 2003
RESULTS OF OPERATIONS
Sales for the three months ended October 27, 2004 increased $39.6 million,
or 4.8%, to $865.3 million. Pricing increased 3.0% as a result of more efficient
trade spending in the North American Consumer Products segment and price
increases initiated in the U.S. Foodservice segment to offset fuel and commodity
cost pressures. Sales volume increased 2.8% due primarily to strong increases in
the North American Consumer Products segment, driven by improvements in frozen
potatoes and Delimex snacks. Divestitures reduced sales 1.0% due to the sale of
Ethnic Gourmet frozen foods and Rosetto pasta to Hain in the first quarter.
Gross profit increased $26.2 million, or 8.6%, to $329.4 million, and the
gross profit margin increased to 38.1% from 36.7%. The gross profit margin
increase was primarily a result of favorable pricing, partially offset by
increases in commodity costs.
SG&A increased $18.2 million, or 13.5%, to $152.8 million, and increased as
a percentage of sales to 17.7% from 16.3%. This increase is due primarily to
increased fuel and transportation costs and increased marketing expense on
Ore-Ida potatoes. Operating income increased $3.3 million, or 2.6%, to $130.4
million, while operating income decreased as a percentage of sales to 15.1% from
15.4%, as a result of the changes noted above and increased royalty expense to
related parties.
Net interest expense decreased $0.3 million, to $33.0 million. This
decrease is a result of increased interest income resulting from increased cash
balances and short-term notes receivable from related parties partially offset
by higher long-term and short-term related party debt balances and higher
average interest rates in Fiscal 2005. Other income, net, increased $0.4
million, to $0.9 million. There was a non-cash currency loss of $20.5 million in
the current quarter compared to $9.9 million in the year-earlier quarter 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 operations, this marked-to-market adjustment does not qualify
for net investment hedge accounting treatment at Heinz Finance. The effective
tax rate for the current quarter was 12.3% compared to 11.6% last year. The
increase in the rate is primarily a result of higher state tax expense and the
impact of certain interest rate contracts that do not meet the criteria for
hedge accounting.
Net income for the second quarter of Fiscal 2005 was $13.8 million compared
to $19.9 million in the year-earlier quarter.
During the second quarter of Fiscal 2005, a prior period adjustment was
recorded that unfavorably impacted minority interest expense by $3.3 million and
net income by $2.0 million. The adjustment was a result of an error in
calculating the first quarter of Fiscal 2005 minority interest, all of which is
directly or indirectly owned by Heinz. This adjustment had no impact on Heinz
Finance's results of operations or cash flows for the six months ended October
27, 2004.
12
OPERATING RESULTS BY BUSINESS SEGMENT
NORTH AMERICAN CONSUMER PRODUCTS
Sales of the North American Consumer Products segment increased $29.4
million, or 6.5%, to $480.1 million. Sales volume increased 4.5% as a result of
significant growth in frozen potatoes, primarily in the Ore-Ida brand, due to
increased media spend and the introduction of Ore-Ida Extra Crispy Potatoes and
new microwavable Easy Fries. Also contributing to the volume increase were
increased sales of Delimex snacks. Pricing increased 3.9% largely due to more
efficient trade spending on SmartOnes frozen entrees, Ore-Ida potatoes and
Classico pasta sauces. Divestitures reduced sales 1.9% due to the sale of Ethnic
Gourmet frozen foods and Rosetto pasta to Hain in the first quarter.
Gross profit increased $19.1 million, or 9.9%, to $212.0 million, and the
gross profit margin increased to 44.2% from 42.8%, as increases in sales volume
and net pricing were partially offset by higher commodity costs. Operating
income increased $5.5 million, or 6.6%, to $89.7 million, due to the increase in
gross profit partially offset by increased pension and fuel costs, increased
marketing expense on Ore-Ida potatoes and increased royalty expense to related
parties resulting from increased sales and a change in the application of the
royalty rate.
U.S. FOODSERVICE
U.S. Foodservice's sales increased $10.2 million, or 2.7%, to $385.2
million. Higher pricing increased sales by 1.8%, as price increases were
initiated to offset fuel and commodity cost pressures. Favorable volume
increased sales 0.9% due to Escalon processed tomato products, Dianne's and
Alden Merrell frozen desserts, and ketchup sales to related parties partially
offset by a decline in single serve condiments.
Gross profit increased $7.1 million, or 6.4%, to $117.7 million, and the
gross profit margin increased to 30.5% from 29.5% primarily due to favorable
pricing partly offset by increased commodity costs. Operating income decreased
$2.2 million, or 5.1%, to $41.2 million as the growth in gross profit was more
than offset by increased fuel and transportation costs and increased royalty
expense to related parties resulting from increased sales and a change in the
application of the royalty rate.
SIX MONTHS ENDED OCTOBER 27, 2004 AND OCTOBER 29, 2003
RESULTS OF OPERATIONS
Sales for the six months ended October 27, 2004 increased $77.7 million, or
5.0%, to $1.62 billion. Sales volume increased 3.3% due primarily to strong
increases in the North American Consumer Products segment, driven by increases
in frozen potatoes and frozen entrees. Pricing increased 2.1% as a result of
more efficient trade spending in the North American Consumer Products segment
and price increases initiated in the U.S. Foodservice segment to offset fuel and
commodity cost pressures. Divestitures, net of acquisitions, reduced sales 0.4%.
Gross profit increased $42.5 million, or 7.5%, to $607.9 million, and the
gross profit margin increased to 37.5% from 36.7%. The gross profit margin
increase was primarily a result of favorable pricing, partially offset by
increases in commodity costs.
SG&A increased $22.7 million, or 8.7%, to $282.7 million, and increased as
a percentage of sales to 17.5% from 16.9%. This increase is primarily a result
of increased selling and distribution costs, driven by the sales volume increase
and higher fuel costs. Last year's SG&A was unfavorably impacted by
reorganization costs totaling $4.0 million. Operating income increased $5.0
million, or 2.2%, to $232.9 million, while operating income decreased as a
percentage of sales to 14.4% from 14.8%, as a result of the changes noted above
and increased royalty expense to related parties.
13
Net interest expense increased $0.4 million, to $63.9 million. Net interest
expense was unfavorably impacted by the adoption of SFAS No. 150 (see below for
further discussion) beginning in the second quarter of Fiscal 2004. The
unfavorable impact on net interest expense related to the adoption of SFAS No.
150 was largely offset by higher interest income resulting from increased cash
balances and short-term notes receivable from related parties. Other expense,
net, increased $0.6 million, to $4.5 million. There was a non-cash currency loss
of $26.9 million in the current period compared to $14.7 million in the
year-earlier 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 operations, this
marked-to-market adjustment does not qualify for net investment hedge accounting
treatment at Heinz Finance. The effective tax rate for the current period was
15.2% compared to 13.4% last year. Heinz Finance's effective tax rate fluctuates
depending on the proportion of its nontaxable minority interest in Heinz LP to
total Heinz Finance income before tax. In addition, the effective tax rate was
unfavorably impacted by the SFAS No. 150 change in accounting, increased state
tax expense and the impact of certain interest rate contracts that do not meet
the criteria for hedge accounting.
Net income for the first six months of Fiscal 2005 was $38.7 million
compared to $46.0 million in the year-earlier period.
OPERATING RESULTS BY BUSINESS SEGMENT
NORTH AMERICAN CONSUMER PRODUCTS
Sales of the North American Consumer Products segment increased $54.2
million, or 6.5%, to $886.0 million. Sales volume increased 6.0% due to
significant growth in Ore-Ida frozen potatoes and SmartOnes frozen entrees,
aided by the introduction of Ore-Ida Extra Crispy Potatoes, new microwaveable
Easy Fries, and several new "Truth About Carbs" frozen entrees. Strong
performance in Boston Market HomeStyle meals and Delimex snacks also contributed
to the volume increase. Pricing increased sales 2.2% largely due to more
efficient trade spending on SmartOnes frozen entrees and Ore-Ida potatoes as
well as increases related to Classico pasta sauces. Divestitures reduced sales
1.6% due to the sale of Ethnic Gourmet frozen foods and Rosetto pasta to Hain in
the first quarter.
Gross profit increased $26.8 million, or 7.5%, to $385.9 million, and the
gross profit margin increased to 43.6% from 43.2% driven by the increase in
sales volume and higher net pricing partially offset by unfavorable sales mix
and higher commodity costs. Operating income increased $4.2 million, or 2.8%, to
$154.0 million, due to the increase in gross profit partially offset by higher
selling and distribution costs, driven by the volume increase and higher fuel
costs, and increased royalty expense to related parties resulting from increased
sales and a change in the application of the royalty rate. Operating income for
the six months ended October 29, 2003 was impacted by reorganization costs
totaling $1.5 million.
U.S. FOODSERVICE
Sales of the U.S. Foodservice segment increased $23.5 million, or 3.3%, to
$733.3 million. Higher pricing increased sales by 2.0%, as price increases were
initiated to offset fuel and commodity cost pressures. Acquisitions increased
sales by 1.1%, due to the prior year acquisition of Truesoups LLC, a
manufacturer and marketer of premium frozen soups. Sales volume increased sales
0.2% as favorable volume in Escalon processed tomato products, Dianne's and
Alden Merrell frozen desserts, and ketchup sales to related parties was
partially offset by declines at Portion Pac Inc. resulting from the startup of a
new warehouse management system that temporarily impacted shipments of some
portion control products early in the first quarter of Fiscal 2005.
Gross profit increased $15.6 million, or 7.6%, to $222.5 million, and the
gross profit margin increased from 29.1% to 30.3%. These increases are primarily
due to favorable pricing, sales mix,
14
and the prior year acquisition of Truesoups LLC, partly offset by increases in
commodity costs. Operating income increased $0.8 million, or 1.0%, to $80.0
million, primarily due to growth in gross profit, partially offset by increased
selling and distribution costs, due to the issues discussed above regarding
Portion Pac Inc. and increased fuel and transportation costs, and increased
royalty expense to related parties resulting from increased sales and a change
in the application of the royalty rate. Operating income for the six months
ended October 29, 2003 was impacted by reorganization costs totaling $2.5
million.
LIQUIDITY AND FINANCIAL POSITION
Cash provided by operating activities was $193.9 million, a decrease of
$32.7 million from the prior year. The decrease in Fiscal 2005 versus Fiscal
2004 is primarily due to unfavorable working capital movements compared to the
last fiscal year, particularly accounts receivable and inventories, partially
offset by accounts payable.
Cash used for investing activities totaled $11.0 million compared to $77.7
million last year. Acquisitions used $6.6 million in cash in the first six
months of Fiscal 2005 compared to $61.3 million in same period of Fiscal 2004.
Capital expenditures totaled $24.7 million (1.5% of sales) compared to $19.2
million (1.2% of sales) last year. Proceeds from divestitures provided $18.6
million in the first six months of Fiscal 2005.
Cash used by financing activities totaled $57.7 million, compared to $89.0
million last year. Payments on short-term debt with related parties were $57.7
million this year, compared to $261.5 million last year. Proceeds from long-term
debt with related parties provided $185.6 million in the prior year. Payments on
long-term debt totaled $8.1 million in the prior year. Heinz Finance expects
that over $350 million of long-term debt maturing in Fiscal 2005 will be
retired. Dividend payments to preferred shareholders recorded in retained
earnings on the balance sheet totaled $5.1 million in the prior year. These
payments are included as a component of cash flows from operating activities
beginning in the second quarter ended October 29, 2003, as a result of the
adoption of SFAS No. 150 (see below for further discussion).
Heinz, Heinz Finance and the holders of the $800 million remarketable
securities due 2020 agreed to change the remarketing date from November 15 to
December 1 beginning this year and to change the maturity date to December 1,
2020 from November 15, 2020. These changes allow for the remarketing to occur
each year after the anticipated filing of the Heinz's second quarter Form 10-Q.
If the securities are not remarketed in any given year, then Heinz and Heinz
Finance are required to repurchase the principal amount of securities plus
interest.
In August 2004, Heinz and Heinz Finance amended their $600 million 364-Day
Credit Agreement and their $1.5 billion Five-Year Credit Agreement by combining
the agreements into a $2.0 billion Five-Year Credit Agreement, expiring August
2009. The Credit Agreement supports Heinz and Heinz Finance's commercial paper
borrowings and the remarketable securities. As a result, these borrowings are
classified as long-term debt based upon Heinz Finance's ability to refinance
these borrowings on a long-term basis. These resources together with Heinz
Finance's existing cash balance of over $500 million, its anticipated strong
operating cash flow and access to the capital market, if required, should enable
Heinz Finance to meet its cash requirements for operations, including capital
expansion programs, debt maturities, and dividends to shareholders.
The impact of inflation on both Heinz Finance's financial position and
results of operations is not expected to adversely affect Fiscal 2005 results.
Heinz Finance holds an equity investment in The Hain Celestial Group, Inc.
("Hain"), a natural, specialty and snack food company. The total equity
investment in Hain as of October 27, 2004 was $185.5 million. Heinz Finance
currently owns approximately six million shares of Hain stock at an average
basis of approximately $30.00 per share as of October 27, 2004. Since late
January 2004, Hain shares have been trading at less than 80% of Heinz Finance's
carrying value.
15
Heinz is assisting Hain with certain cost savings programs that Hain is pursuing
with the intention of improving its shareholder value over the next 12 months.
Absent a significant increase in the share price of Hain, Heinz Finance believes
it is likely to record a charge to pretax earnings to write down its Hain
investment in the third quarter of Fiscal 2005. This charge would have no effect
on cash flows.
In the second quarter of Fiscal 2005, a $14 million prior period adjustment
was made to additional paid-in-capital and deferred tax accounts related to an
adjustment to the original net assets contributed to Heinz LP on May 3, 2001.
CONTRACTUAL OBLIGATIONS
Heinz Finance is obligated to make future payments under various contracts
such as debt agreements, lease agreements and unconditional purchase
obligations. In addition, Heinz Finance has purchase obligations for materials,
supplies, services and property, plant and equipment as part of the ordinary
conduct of business. A few of these obligations are long-term and are based on
minimum purchase requirements. In the aggregate, such commitments are not at
prices in excess of current markets. Due to the proprietary nature of some of
Heinz Finance's materials and processes, certain supply contracts contain
penalty provisions for early terminations. Heinz Finance does not believe that a
material amount of penalties are reasonably likely to be incurred under these
contracts based upon historical experience and current expectations. There have
been no material changes to contractual obligations during the six months ended
October 27, 2004. For additional information, refer to pages 15-16 of Heinz
Finance's Annual Report on Form 10-K for the fiscal year ended April 28, 2004.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
statement affects the classification, measurement and disclosure requirements of
certain freestanding financial instruments, including mandatorily redeemable
shares. SFAS No. 150 was effective for Heinz Finance for the second quarter of
Fiscal 2004. The adoption of SFAS No. 150 required the prospective
classification of Heinz Finance Company's $325 million of mandatorily redeemable
preferred shares to long-term debt and the $5.1 million quarterly preferred
dividend from retained earnings to interest expense beginning in the second
quarter ended October 29, 2003.
DISCUSSION OF SIGNIFICANT ACCOUNTING ESTIMATES
In the ordinary course of business, Heinz Finance has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. Heinz Finance believes that the following discussion
addresses Heinz Finance's most critical accounting policies, which are those
that are most important to the portrayal of Heinz Finance's financial condition
and results and require management's most difficult, subjective and complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Marketing Costs--Trade promotions are an important component of the sales
and marketing of Heinz Finance's products and are critical to the support of the
business. Trade promotion costs include amounts paid to encourage retailers to
offer temporary price reductions for the sale of Heinz Finance's products to
consumers, amounts paid to obtain favorable display positions in retailers'
stores, and amounts paid to customers for shelf space in retail stores. Accruals
for trade promotions are recorded primarily at the time of sale of product to
the customer based on an estimate of the expected levels of performance of the
trade promotion, which is dependent upon
16
factors such as historical trends with similar promotions, expectations
regarding customer participation, and sales and payment trends with similar
previously offered programs. Our original estimated costs of trade promotions
are reasonably likely to change in the future as a result of changes in trends
with regard to customer participation, particularly for new programs and for
programs related to the introduction of new products. We perform monthly and
quarterly evaluations of our outstanding trade promotions; making adjustments,
where appropriate, to reflect changes in our estimates. Settlement of these
liabilities typically occurs in subsequent periods primarily through an
authorized process for deductions taken by a customer from amounts otherwise due
to Heinz Finance. As a result, the ultimate cost of a trade promotion program is
dependent on the relative success of the events and the actions and level of
deductions taken by Heinz Finance's customers for amounts they consider due to
them. Final determination of the permissible deductions may take extended
periods of time and could have a significant impact on Heinz Finance's results
of operations depending on how actual results of the programs compare to
original estimates.
We offer coupons to consumers in the normal course of our business. Costs
associated with this activity, which we refer to as coupon redemption costs, are
accrued in the period in which the coupons are offered. The initial estimates
made for each coupon offering are based upon historical redemption experience
rates for similar products or coupon amounts. We perform subsequent estimates
that compare our actual redemption rates to the original estimates. We review
the assumptions used in the valuation of the estimates and determine an
appropriate accrual amount. Adjustments to our initial accrual may be required
if our actual redemption rates vary from our estimated redemption rates.
Inventories--Inventories are stated at the lower of cost or market value.
Cost is principally determined by the average cost method. Heinz Finance records
adjustments to the carrying value of inventory based upon its forecasted plans
to sell its inventories. The physical condition (e.g., age and quality) of the
inventories is also considered in establishing its valuation. These adjustments
are estimates, which could vary, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or
competitive conditions differ from our expectations.
Investments and Long-lived Assets and Property, Plant and
Equipment--Investments and long-lived assets are recorded at their respective
cost basis on the date of acquisition. Buildings, equipment and leasehold
improvements are depreciated on a straight-line basis over the estimated useful
life of such assets. Heinz Finance reviews investments and long-lived assets,
including intangibles with finite useful lives, and property, plant and
equipment, whenever circumstances change such that the indicated recorded value
of an asset may not be recoverable or has suffered an other than temporary
impairment. Factors that may affect recoverability include changes in planned
use of equipment or software, the closing of facilities and changes in the
underlying financial strength of investments. The estimate of current value
requires significant management judgment and requires assumptions that can
include: future volume trends and revenue and expense growth rates developed in
connection with Heinz Finance's internal projections and annual operating plans,
and in addition, external factors such as market value devaluation and inflation
which are developed in connection with Heinz Finance's longer- term strategic
planning. As each is management's best estimate on then available information,
resulting estimates may differ from actual cash flows.
Goodwill and Indefinite Lived Intangibles--Carrying values of goodwill and
intangible assets with indefinite lives are reviewed for impairment at least
annually, or when circumstances indicate that a possible impairment may exist,
in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets."
Indicators such as unexpected adverse economic factors, unanticipated
technological change or competitive activities, loss of key personnel, and acts
by governments and courts, may signal that an asset has become impaired. Heinz
Finance's measure of impairment is based on a discounted cash flow model that
requires significant judgment and requires assumptions about
17
future volume trends and revenue and expense growth rates developed in
connection with Heinz Finance's internal projections and annual operating plans,
and in addition, external factors such as changes in macroeconomic trends and
cost of capital developed in connection with Heinz Finance's longer-term
strategic planning. Inherent in estimating future performance, in particular
assumptions regarding external factors such as capital markets, are
uncertainties beyond Heinz Finance's control. Management believes that because
fair values of goodwill and intangible assets with indefinite lives
significantly exceed carrying value, it is unlikely that a material impairment
charge would be recognized.
Income Taxes--Heinz Finance accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes". Judgment is required in determining
Heinz Finance's provision for income taxes. In the ordinary course of Heinz
Finance's business, there are some transactions for which the ultimate tax
outcome is uncertain. Heinz Finance adjusts its income tax provision in the
period it is probable that actual results will differ from its estimates. Tax
law and rate changes are reflected in the income tax provision in the period in
which such changes are enacted.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
Statements about future growth, profitability, costs, expectations, plans,
or objectives included in this report, including the management's discussion and
analysis, the financial statements and footnotes, are forward-looking statements
based on management's estimates, assumptions, and projections. These
forward-looking statements are subject to risks, uncertainties, and other
important factors that could cause actual results to differ materially from
those expressed or implied in this report and the financial statements and
footnotes. These include, but are not limited to, sales, earnings, and volume
growth, general economic, political, and industry conditions, competitors'
actions, which affect, among other things, customer preferences and the pricing
of products, production, energy and raw material costs, product recalls, the
ability to maintain favorable supplier relationships, achieving cost savings
programs and gross margins, currency valuations and interest rate fluctuations,
success of acquisitions, joint ventures, and divestitures, new product and
packaging innovations, product mix, the effectiveness of advertising, marketing,
and promotional programs, supply chain efficiency and cash flow initiatives, the
impact of e-commerce and e-procurement, risks inherent in litigation, changes in
estimates in critical accounting judgments and other laws and regulations,
including tax laws, the possibility of increased pension expense and other
people-related costs, the possibility of investment impairment, and other
factors described in "Cautionary Statement Relevant to Forward-Looking
Information" in Heinz Finance's Form 10-K for the fiscal year ended April 28,
2004 and subsequent filings with the Securities and Exchange Commission. The
forward-looking statements are and will be based on management's then current
views and assumptions regarding future events 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, except as required by the securities laws.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in Heinz Finance's market risk during
the six months ended October 27, 2004. For additional information, refer to
pages 16-18 of Heinz Finance's Annual Report on Form 10-K for the fiscal year
ended April 28, 2004.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Heinz Finance's management, with the participation of Heinz Finance's
President and Chief Financial Officer, evaluated the effectiveness of Heinz
Finance's disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the President and Chief
18
Financial Officer concluded that Heinz Finance's disclosure controls and
procedures, as of the end of the period covered by this report, were designed
and are functioning effectively to provide reasonable assurance that the
information required to be disclosed by 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 Control over Financial Reporting
No change in Heinz Finance's internal control over financial reporting
occurred during Heinz Finance's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, Heinz Finance's internal
control over financial reporting.
19
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nothing to report under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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
The Annual Meeting of Heinz Finance occurred on September 10, 2004 in
Pittsburgh, Pennsylvania. The directors of Heinz Finance were elected as
follows:
Name Cast For Cast Against Abstain
- ---- -------- ------------ -------
Leonard A. Cullo, Jr.*................................ 12,295 0 50
Laura Stein*.......................................... 12,295 0 50
Arthur Winkleblack*................................... 12,295 0 50
Andrew L. Stidd**..................................... 1,735 60 50
- ---------------
* Messrs. Cullo and Winkleblack and Ms. Stein are elected by the combined vote
of the holders of Heinz Finance's common stock and Series A Preferred Stock.
** Mr. Stidd is elected solely by the holders of Heinz Finance's Series A
Preferred Stock.
ITEM 5. OTHER INFORMATION
Nothing to report under this Item.
ITEM 6. EXHIBITS
(a) Exhibits required to be furnished by Item 601 of Regulation S-K are
listed below. Heinz Finance may have 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 set forth
herewith. The paragraph numbers correspond to the exhibit numbers
designated in Item 601 of Regulation S-K.
12. Computation of Ratios of Earnings to Fixed Charges.
31(a). Rule 13a-14(a)/15d-14(a) Certification by the President.
31(b). Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
Officer.
32(a). Certification by the President Relating to a Periodic Report
Containing Financial Statements.
32(b). Certification by the Chief Financial Officer Relating to a
Periodic Report Containing Financial Statements.
20
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: December 13, 2004
By: /s/ LEONARD A. CULLO, JR.
..........................................
Leonard A. Cullo, Jr.
Director and President
Date: December 13, 2004
By: /s/ ARTHUR B. WINKLEBLACK
..........................................
Arthur B. Winkleblack
Director, Vice President, and
Chief Financial Officer
(Principal Financial Officer)
21
EXHIBIT INDEX
DESCRIPTION OF EXHIBIT
Exhibits required to be furnished by Item 601 of Regulation S-K are listed
below. Documents not designated as being incorporated herein by reference are
furnished herewith. The paragraph numbers correspond to the exhibit numbers
designated in Item 601 of Regulation S-K.
12. Computation of Ratios of Earnings to Fixed Charges.
31(a). Rule 13a-14(a)/15d-14(a) Certification by the President.
31(b). Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
Officer.
32(a). Certification by the President Relating to a Periodic Report
Containing Financial Statements.
32(b). Certification by the Chief Financial Officer Relating to a
Periodic Report Containing Financial Statements.