HEINZ H J CO - 10-Q Quarterly Report

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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 26, 2005

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 26, 2005 COMMISSION FILE NUMBER 1-3385

H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)

PENNSYLVANIA 25-0542520
(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 X No __

The number of shares of the Registrant's Common Stock, par value $0.25 per
share, outstanding as of January 31, 2005 was 350,060,868 shares.

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

H. J. HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

* Summarized from audited fiscal year 2004 balance sheet.

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

* Summarized from audited fiscal year 2004 balance sheet.

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Condensed Consolidated Financial Statements.

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H. J. HEINZ COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) BASIS OF PRESENTATION

The interim condensed consolidated financial statements of H. J. Heinz
Company, together with its subsidiaries (collectively referred to as the
"Company"), 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 interim periods are not necessarily
indicative of the results to be expected for the full fiscal year due to
the seasonal nature of the Company's business. Certain prior year amounts
have been reclassified in order to conform with the Fiscal 2005
presentation.

These statements should be read in conjunction with the Company's
consolidated financial statements and related notes, and management's
discussion and analysis of financial condition and results of operations
which appear in the Company's Annual Report on Form 10-K for the year ended
April 28, 2004.

(2) SPECIAL ITEMS

ASSET IMPAIRMENTS
The Company holds an equity investment in The Hain Celestial Group, Inc.
("Hain"), a rapid growth natural, specialty and snack food company. Hain
shares have been trading at less than 80% of Heinz's carrying value since
late January 2004. Due to the length of time and the amount that Hain stock
has traded below the Company's basis, the Company has determined that the
decline is other-than-temporary as defined by Accounting Principles Board
Opinion No. 18 and as a result, has recognized a $64.5 million non-cash
impairment charge during the third quarter of Fiscal 2005. The charge
reduced Heinz's carrying value in Hain to fair market value as of January
26, 2005, with no resulting impact on cash flows. Heinz currently owns
approximately six million shares of Hain stock at a new basis of $19.86 per
share as of January 26, 2005. In the future, should the market value of
Hain common stock decline and remain below current market value for a
substantial time, the Company may need to record additional writedowns of
its investment in Hain. The Company also recorded a $9.3 million non-cash
charge in the third quarter of Fiscal 2005 to recognize the impairment of a
cost-basis investment in a grocery industry sponsored e-commerce business
venture. There was no tax benefit associated with these impairment charges.

DISCONTINUED OPERATIONS
Net income from discontinued operations for the three and nine months ended
January 26, 2005 was $13.9 million and $15.6 million, respectively, and for
the nine months ended January 28, 2004 was $27.2 million, and reflects the
favorable settlement of tax liabilities related to the businesses spun-off
to Del Monte on December 20, 2002.

DIVESTITURES
During the first quarter of Fiscal 2004, the Company sold its bakery
business in Northern Europe for $57.9 million. The transaction resulted in
a pretax gain of $26.3 million ($13.3 million after tax), which was
recorded as a component of selling, general and administrative expenses
("SG&A").

REORGANIZATION COSTS
During the first quarter of Fiscal 2004, the Company recognized $5.5
million pretax ($3.4 million after tax) of reorganization costs. These
costs were recorded as a component of SG&A and

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were primarily due to employee termination and severance costs to reduce
overhead costs at its North American operations following the Fiscal 2003
spin-off transaction with Del Monte. Additionally, during the first quarter
of Fiscal 2004, the Company wrote down pizza crust assets in the United
Kingdom totaling $4.0 million pretax ($2.8 million after tax) which has
been included as a component of cost of products sold.

(3) INVENTORIES

The composition of inventories at the balance sheet dates was as follows:

(4) GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the nine months ended
January 26, 2005, by reportable segment, are as follows:

During the second quarter of Fiscal 2005 based on preliminary valuation
results, purchase accounting adjustments were recorded to reclassify
goodwill to trademarks and other intangibles related to the Fiscal 2004
acquisition of Unifine Richardson B.V., within the North American Consumer
Products segment. The Company expects to finalize the purchase price
allocation related to this acquisition in the fourth quarter of Fiscal
2005. In addition, during the third quarter of Fiscal 2005 the Company
acquired a controlling interest in Shanghai LongFong Foods, a maker of
frozen Chinese snacks and desserts. The Company expects to finalize the
purchase price allocation related to this acquisition in Fiscal 2006.

The above impairment, which was classified within cost of products sold,
was due to a deterioration of current and expected operating results of a
consolidated joint venture following a recall in Fiscal 2004. The Company
reached an agreement with third parties, the proceeds of which were offset
by the impairment and other damages incurred to date. 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.

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Trademarks and other intangible assets at January 26, 2005 and April 28,
2004, subject to amortization expense, are as follows:

Amortization expense for trademarks and other intangible assets subject to
amortization was $11.3 million and $11.6 million for the nine months ended
January 26, 2005 and January 28, 2004, respectively. Based upon the
amortizable intangible assets recorded on the balance sheet at January 26,
2005, annual amortization expense for each of the next five years is
estimated to be approximately $15 million.

Intangible assets not subject to amortization at January 26, 2005 and April
28, 2004 were $538.7 million and $505.5 million, respectively, and
consisted solely of trademarks.

(5) INCOME TAXES

The provision for income taxes consists of provisions for federal, state
and foreign income taxes. The Company operates in an international
environment with significant operations in various locations outside the
U.S. Accordingly, the consolidated income tax rate is a composite rate
reflecting the earnings in the various locations and the applicable tax
rates. The reduction in the effective tax rate is attributable to changes
to the capital structure in certain foreign subsidiaries, tax credits
resulting from tax planning associated with a change in certain foreign tax
legislation, and the settlement of tax audits, partially offset by
impairment charges for Hain and an e-commerce business venture for which no
tax benefit can currently be recorded.

The American Jobs Creation Act ("the AJCA") provides a deduction of 85% of
certain foreign earnings repatriation. The Company may elect to apply this
provision in either Fiscal 2005 or in Fiscal 2006. The Company does not
expect to be able to complete its evaluation of the effects of the
repatriation provisions until after Congress and the Treasury Department
enacts needed technical corrections and provides additional clarifying
language on key elements of the provision. The Company expects to complete
its evaluation within a reasonable period of time after these events occur.
The range of amounts that the Company is considering for repatriation under
this provision is between zero and $700 million. The related potential
range of income tax (assuming enactment of needed technical corrections) is
between zero and $40 million.

The AJCA provides a deduction calculated as a percentage of qualified
income from manufacturing in the United States. The percentage increases
from 3% to 9% over a 6 year period beginning with the Company's 2006 fiscal
year. In December 2004, the FASB issued a new staff position providing for
this deduction to be treated as a special deduction, as opposed to a tax
rate reduction, in accordance with SFAS No. 109. The benefit of this
deduction is not expected to have a material impact on the Company's
effective tax rate in Fiscal 2006.

(6) STOCK-BASED COMPENSATION PLANS

Stock-based compensation is accounted for by using the intrinsic
value-based method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees."

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The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the Company's stock option plans. If the
Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, income
and income per common share from continuing operations would have been as
follows:

The weighted-average fair value of options granted was $9.33 and $5.91 per
share in the nine months ended January 26, 2005 and January 28, 2004,
respectively.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

During the first nine months of Fiscal 2005, the Company granted 325,426
restricted stock units to employees. The fair value of restricted stock
units awarded to employees is recorded as unearned compensation and is
shown as a separate component of shareholders' equity. Unearned
compensation is amortized over the vesting period for the particular grant,
and is recognized as a component of general and administrative expenses.
The Company recognized amortization (net of forfeitures) related to
unearned compensation of $0.4 million and $4.3 million for the third
quarter ended January 26, 2005 and January 28, 2004, respectively, and $9.0
million and $10.5 million for the nine months ended January 26, 2005 and
January 28, 2004, respectively.

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(7) PENSIONS AND OTHER POST RETIREMENT BENEFITS

The components of net periodic benefit cost are as follows:

As of January 26, 2005, the Company has contributed $29.8 million to fund
its obligations under these plans. As previously disclosed, the Company
expects to make combined cash contributions of approximately $40 million in
Fiscal 2005.

(8) RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123(R),
"Share-Based Payment", which revises SFAS No. 123, "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees". This Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. This Statement requires an entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. That
cost will be recognized over the period during which an employee is

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required to provide service in exchange for the reward. The Company is
required to adopt this Statement in the second quarter of Fiscal 2006;
however, early adoption of this Statement is encouraged. The Company is
currently evaluating the timing and method of the adoption of this
Statement.

In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS
109-2, "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004." The
FSP provided guidance on the accounting and disclosures for the temporary
repatriation provision of the AJCA. The Company has adopted the disclosure
provisions of the FSP which apply to entities that have not yet completed
their evaluation of the repatriation provision, and will expand its
disclosures in accordance with the FSP upon completion of the final
evaluation.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". This Statement is meant to eliminate
any narrow differences existing between the FASB standards and the
standards issued by the International Accounting Standards Board by
clarifying that any abnormal idle facility expense, freight, handling costs
and spoilage be recognized as current-period charges. This Statement is
required to be adopted by the Company in the first quarter of Fiscal 2007;
however, early application is permitted. The Company does not expect the
adoption of this Statement to have a material impact on results of
operations, financial position or cash flows.

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("the Act") was signed into law. The Act
introduced a prescription drug benefit under Medicare (Medicare Part D) and
a federal subsidy to sponsors of retirement health care plans that provide
a benefit that is at least actuarially equivalent to Medicare Part D. In
accordance with FASB Staff Position 106-1, the Company elected to defer
recognizing the effects of the Act on the accounting for its retirement
health care plans in Fiscal 2004. In May 2004, the FASB issued Staff
Position 106-2 providing final guidance on the accounting for benefits
provided by the Act. Based on the preliminary regulations, management
believes that certain drug benefits offered under the postretirement health
care plans will qualify for the subsidy under Medicare Part D. Accordingly,
the Company adopted Staff Position 106-2 as of its second quarter reporting
period beginning July 29, 2004 and has performed a remeasurement of its
plan obligations as of that date. The reduction in the benefit obligation
of approximately $18.8 million has been reflected as an actuarial gain. The
total reduction in benefit cost for Fiscal 2005 is $2.3 million, comprised
of $0.9 million of interest cost, $0.1 million of service cost, and $1.4
million reduction in unrecognized loss amortization, recognized on a
pro-rata basis. In January 2005 final Medicare prescription drug rules were
issued. Although the Company is currently evaluating these regulations,
management believes the impact of the Act based upon the final rules will
not differ significantly from the impact recorded in the second quarter of
Fiscal 2005.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This statement affects the classification, measurement and disclosure
requirements of certain freestanding financial instruments including
mandatorily redeemable shares. SFAS No. 150 was effective for the Company
for the second quarter of Fiscal 2004. The adoption of SFAS No. 150
required the prospective classification of H.J. Heinz Finance Company's
$325 million of mandatorily redeemable preferred shares from minority
interest to long-term debt and the $5.1 million quarterly preferred
dividend from other expenses to interest expense beginning in the second
quarter ended October 29, 2003, with no resulting effect on the Company's
profitability.

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(9) SEGMENTS

The Company's reportable segments are primarily organized by geographical
area. The composition of segments and measure of segment profitability is
consistent with that used by the Company's management.

Descriptions of the Company's reportable segments are as follows:

North American 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 and includes our Canadian business.

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.

Europe--This segment includes the Company's operations in Europe and
sells products in all of the Company's core categories.

Asia/Pacific--This segment includes the Company's operations in New
Zealand, Australia, Japan, China, South Korea, Indonesia, Singapore, and
Thailand. This segment's operations include products in all of the
Company's core categories.

Other Operating Entities--This segment includes the Company's operations
in Africa, India, Latin America, the Middle East, and other areas that
sell products in all of the Company's core categories.

The Company's management evaluates performance of segments based on several
factors including net sales, operating income excluding special items, and
the use of capital resources. Intersegment revenues are accounted for at
current market values. Items below the operating income line of the
consolidated statements of income are not presented by segment, since they
are excluded from the measure of segment profitability reviewed by the
Company's management.

The following table presents information about the Company's reportable
segments:

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(a) Includes corporate overhead, intercompany eliminations and charges not
directly attributable to operating segments.

(b) Nine Months ended January 28, 2004--Excludes the gain on disposal of
the bakery business in Northern Europe and costs to reduce overhead of
the remaining businesses as follows: North American Consumer Products
$1.5 million, U.S. Foodservice $2.5 million, Europe $(24.8) million,
and Non-Operating $1.5 million.

The results for the nine months ended January 26, 2005 were impacted by a
$21.1 million charge for trade promotion spending for the Italian infant
nutrition business. The charge relates to an under-accrual in fiscal years
2001, 2002 and 2003. The amount of the charge that corresponds to each of
the fiscal years 2001, 2002 and 2003 is less than 1% of net income for each
of those years.

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The Company's revenues are generated via the sale of products in the
following categories:

(10) NET INCOME PER COMMON SHARE

The following are reconciliations of income to income applicable to common
stock and the number of common shares outstanding used to calculate basic
EPS to those shares used to calculate diluted EPS:

Stock options outstanding in the amounts of 16.1 million and 18.3 million
were not included in the computation of diluted earnings per share for the
nine months ended January 26, 2005 and January 28, 2004, respectively,
because inclusion of these options would be antidilutive.

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(11) COMPREHENSIVE INCOME

(12) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The Company operates internationally, with manufacturing and sales
facilities in various locations around the world, and utilizes certain
derivative financial instruments to manage its foreign currency, commodity
price, and interest rate exposures. There have been no material changes in
the Company's market risk during the nine months ended January 26, 2005.
For additional information, refer to pages 23-24 of the Company's Annual
Report on Form 10-K for the fiscal year ended April 28, 2004.

As of January 26, 2005, the Company is hedging forecasted transactions for
periods not exceeding two years. During the next 12 months, the Company
expects $1.7 million of net deferred losses reported in accumulated other
comprehensive loss to be reclassified to earnings. Hedge ineffectiveness
related to cash flow hedges, which is reported in current period earnings
as other income and expense, was not significant for the nine months ended
January 26, 2005 and January 28, 2004. Amounts reclassified to earnings
because the hedged transaction was no longer expected to occur were not
significant for the nine months ended January 26, 2005 and January 28,
2004.

The Company uses certain foreign currency debt instruments as net
investment hedges of foreign operations. Losses of $32.2 million (net of
income taxes of $18.9 million), which represented effective hedges of net
investments, were reported as a component of accumulated other
comprehensive loss within unrealized translation adjustment for the nine
months ended January 26, 2005.

The Company enters into certain derivative contracts in accordance with its
risk management strategy that do not meet the criteria for hedge
accounting. As of January 26, 2005, the Company maintained forward
contracts with a total notional amount of $205.4 million that

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do not qualify as hedges, but which have the impact of largely mitigating
volatility associated with earnings from foreign subsidiaries. These
forward contracts are accounted for on a full mark-to-market basis through
current earnings and mature during the fourth quarter of Fiscal 2005. Net
unrealized gains related to these contracts totaled $3.0 million at January
26, 2005.

(13) INVESTMENTS AND UNCONSOLIDATED SUBSIDIARIES

The consolidated financial statements include the accounts of the Company,
and entities in which the Company maintains a controlling financial
interest. Control is generally determined based on the majority ownership
of an entity's voting interests. In certain situations, control is based on
participation in the majority of an entity's economic risks and rewards.
Investments in certain companies over which the Company exerts significant
influence, but does not control the financial and operating decisions, are
accounted for as equity method investments. The Company has no material
investments in variable interest entities.

Zimbabwe remains in a period of economic uncertainty. Should the current
situation continue, the Company could experience disruptions and delays
associated with its Zimbabwe operations. As of the end of November 2002,
the Company deconsolidated its Zimbabwean operations and classified its
remaining net investment of approximately $110 million as a cost investment
included in other non-current assets on the consolidated balance sheets.
Although the Company's business continues to operate profitably and it is
able to source raw materials, the country's economic situation remains
uncertain and there are currently government restrictions on the
repatriation of earnings. The Company's ability to recover its investment
could become impaired if the economic and political conditions continue to
deteriorate.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SPECIAL ITEMS

ASSET IMPAIRMENTS

The Company holds an equity investment in The Hain Celestial Group, Inc.
("Hain"), a rapid growth natural, specialty and snack food company. Hain shares
have been trading at less than 80% of Heinz's carrying value since late January
2004. Due to the length of time and the amount that Hain stock has traded below
the Company's basis, the Company has determined that the decline is
other-than-temporary as defined by Accounting Principles Board Opinion No. 18
and as a result, has recognized a $64.5 million non-cash impairment charge
during the third quarter of Fiscal 2005. The charge reduced Heinz's carrying
value in Hain to fair market value as of January 26, 2005, with no resulting
impact on cash flows. Heinz currently owns approximately six million shares of
Hain stock at a new basis of $19.86 per share as of January 26, 2005. In the
future, should the market value of Hain common stock decline and remain below
current market value for a substantial time, the Company may need to record
additional writedowns of its investment in Hain. The Company also recorded a
$9.3 million non-cash charge in the third quarter of Fiscal 2005 to recognize
the impairment of a cost-basis investment in a grocery industry-sponsored
e-commerce business venture. There was no tax benefit associated with these
impairment charges.

DISCONTINUED OPERATIONS

Net income from discontinued operations for the three and nine months ended
January 26, 2005 was $13.9 million and $15.6 million, respectively, and for the
nine months ended January 28, 2004 was $27.2 million, and reflects the favorable
settlement of tax liabilities related to the businesses spun-off to Del Monte on
December 20, 2002.

DIVESTITURES

During the first quarter of Fiscal 2004, the Company sold its bakery
business in Northern Europe for $57.9 million. The transaction resulted in a
pretax gain of $26.3 million ($13.3 million after tax), which was recorded as a
component of selling, general and administrative expenses ("SG&A").

REORGANIZATION COSTS

During the first quarter of Fiscal 2004, the Company recognized $5.5
million pretax ($3.4 million after tax) of reorganization costs. These costs
were recorded as a component of SG&A and were primarily due to employee
termination and severance costs to reduce overhead costs at its North American
operations following the Fiscal 2003 spin-off transaction with Del Monte.
Additionally, during the first quarter of Fiscal 2004, the Company wrote down
pizza crust assets in the United Kingdom totaling $4.0 million pretax ($2.8
million after tax) which has been included as a component of cost of products
sold.

THREE MONTHS ENDED JANUARY 26, 2005 AND JANUARY 28, 2004

RESULTS OF CONTINUING OPERATIONS

Sales for the three months ended January 26, 2005 increased $164.0 million,
or 7.8%, to $2.26 billion. Sales were favorably impacted by volume increases
across the Company of 3.8% and exchange translation rates of 4.1%. The favorable
volume impact is due to strong increases in the North American Consumer Products
and U.S. Foodservice segments, as well as in our Australia and New Zealand
businesses and in the European seafood business. Pricing decreased sales by 0.4%
as improvements in the North American Consumer Products and U.S. Foodservice
segments

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were offset by declines in the Italian infant nutrition business related to its
recent restage activities, increased promotional spending in the Netherlands and
lower pricing in our Tegel poultry and Indonesian businesses. Acquisitions, net
of divestitures, increased sales by 0.4%.

Gross profit increased $40.7 million, or 5.2%, to $819.9 million. The gross
profit margin decreased to 36.3% from 37.2%. The decrease in the gross profit
margin is mainly due to increased commodity costs of approximately 1%, primarily
in the U.S. and U.K. businesses, lower pricing of 0.4%, and unfavorable supply
chain costs in the European seafood business. These decreases were partially
offset by margin improvements in the U.S. Foodservice segment. The 5.2% increase
in gross profit is primarily a result of higher volume and favorable exchange
translation rates.

SG&A increased $66.5 million, or 15.7%, to $490.3 million and increased as
a percentage of sales to 21.7% from 20.2%. The increase as a percentage of sales
is primarily due to increased General and Administrative expenses ("G&A") of
approximately 1.0% and higher fuel and trucking costs of approximately 0.4%. The
G&A expense increase is related primarily to increased employee-related costs
and professional fees for various projects across the Company, including
compliance work associated with Section 404 of the Sarbanes-Oxley Act, and
litigation costs in Europe. Operating income decreased $25.8 million, or 7.3%,
to $329.6 million.

Total marketing support (recorded as a reduction of revenue or as a
component of SG&A) increased $26.3 million, or 4.3%, to $643.1 million on a
sales increase of 7.8%. Marketing support recorded as a reduction of revenue,
typically deals and allowances, increased $25.7 million, or 4.7%, to $570.7
million. This increase is largely a result of foreign exchange translation rates
and costs of the restage of the Italian infant nutrition business, partially
offset by reduced trade promotion spending in the U.S. Consumer Products and
U.K. businesses. Marketing support recorded as a component of SG&A increased
$0.6 million, or 0.9%, to $72.4 million, driven by foreign exchange translation
rates offset by reduced consumer spending in the European segment.

Net interest expense increased $5.2 million, to $53.3 million largely due
to higher average interest rates in Fiscal 2005 offset by the benefits of lower
average net debt. Other expenses, net, decreased $3.4 million to $1.7 million.
The quarter was also unfavorably impacted by a $64.5 million non-cash impairment
charge related to Hain and a $9.3 million non-cash impairment charge related to
a grocery industry-sponsored cost-basis investment in an e-commerce business
venture, as discussed previously.

The effective tax rate for the current quarter was 31.0% compared to 33.1%
last year. The reduction in the effective tax rate is attributable to changes to
the capital structure in certain foreign subsidiaries, tax credits resulting
from tax planning associated with a change in certain foreign tax legislation,
and the settlement of tax audits, partially offset by impairment charges for
Hain and an e-commerce business venture for which no tax benefit can currently
be recorded.

Income from continuing operations for the third quarter of Fiscal 2005 was
$138.5 million compared to $202.2 million in the year earlier quarter, a
decrease of 31.5%, primarily due to the $73.8 million of asset impairments
discussed above and the decline in operating income, partially offset by the
impact of the reduced effective tax rate. Diluted earnings per share was $0.39
in the current year compared to $0.57 in the prior year, down 31.6%.

OPERATING RESULTS BY BUSINESS SEGMENT

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment increased $57.3
million, or 11.0%, to $579.0 million. Volume increased significantly, up 6.7%,
as a result of strong growth in frozen potatoes, reflecting the success of the
introduction of Ore-Ida Extra Crispy Potatoes and new microwavable Easy Fries,
and new distribution related to a co-packing agreement. Bagel Bites and TGI
Friday's frozen snacks also contributed to the significant volume increase
reflecting the
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success of new, more effective promotional programs. Pricing increased 2.8%
largely due to reduced trade promotion spending, primarily related to Heinz
ketchup, Bagel Bites and TGI Friday's frozen snacks, and reduced product
placement fees on Ore-Ida frozen potatoes. The prior year acquisition of the
Canadian business of Unifine Richardson B.V., which manufactures and sells salad
dressings, sauces, and dessert toppings, increased sales by 1.8%. Divestitures
reduced sales 1.4% due to the sale of Ethnic Gourmet Foods and Rosetto pasta to
Hain in the first quarter. Exchange translation rates increased sales 1.1%.

Gross profit increased $24.7 million, or 11.1%, to $247.7 million, and the
gross profit margin increased slightly to 42.8% from 42.7%, as increases in
sales volume and net pricing were partially offset by higher commodity and fuel
costs. Gross profit also benefited from favorable termination of a long-term
co-packing arrangement with a customer. Operating income increased $21.8
million, or 17.2%, to $148.4 million, due to the increase in gross profit
partially offset by increased pension and fuel costs.

U.S. FOODSERVICE

Sales of the U.S. Foodservice segment increased $21.0 million, or 5.9%, to
$374.8 million. Strong volume increased sales 4.5%, largely driven by our
Truesoups frozen soup business, increased sales of our custom recipe tomato
products, and improvements in single serve condiments and Heinz ketchup. Higher
pricing increased sales by 1.4%, as price increases were initiated, primarily on
Heinz ketchup and frozen soup, to offset fuel and commodity cost pressures.

Gross profit increased $14.3 million, or 14.0%, to $116.4 million, and the
gross profit margin increased to 31.1% from 28.9% primarily due to favorable
pricing and mix, partly offset by increased commodity and fuel costs. Operating
income decreased $0.3 million, or 0.5%, to $54.4 million, as the increase in
gross profit was offset by increased distribution, fuel and fixed selling costs.

EUROPE

Heinz Europe's sales increased $57.3 million, or 6.9%, to $884.8 million.
Favorable exchange translation rates increased sales by 7.9%. Volume increased
1.5% principally due to promotional timing on European seafood, increases in
Heinz ketchup resulting from the successful introduction of the Top Down bottle,
the successful restage of Heinz beans and growth in the Italian infant nutrition
business. These increases were partially offset by declines in sauces and jarred
vegetables in the Netherlands as a result of increased competition and pricing
pressure. Lower pricing decreased sales 2.2%, due to the restage of the Italian
infant nutrition business and increased promotional spending in the Netherlands.
Divestitures reduced sales 0.3%.

Gross profit decreased $6.8 million, or 2.1%, to $319.7 million, and the
gross profit margin decreased to 36.1% from 39.5%. The decrease in gross profit
margin is primarily due to lower pricing, increased commodity costs and
increased production costs in the European seafood business. Operating income
decreased $34.6 million, or 21.2%, to $128.5 million, due to the decline in
gross profit and increased G&A, primarily due to employee-related and litigation
costs and professional fees related to various projects across Europe.

ASIA/PACIFIC

Sales in Asia/Pacific increased $22.0 million, or 7.3%, to $323.9 million.
Volume increased sales 5.5%, reflecting strong volume in Australia, New Zealand
and China, largely due to new product introductions in tuna and frozen food.
These increases were partially offset by the discontinuation of an Indonesian
energy drink and continued declines in the Tegel poultry business in New
Zealand. Favorable exchange translation rates increased sales by 4.4%. Lower
pricing reduced sales 3.4%, primarily due to continuing market price pressures
on the Tegel poultry business in New Zealand as well as increased promotional
spending in our Australian and Indonesian businesses. The acquisition of a
controlling interest in Shanghai LongFong Foods, a maker of popular
20

frozen Chinese snacks and desserts, increased sales 3.4%; however, the
divestiture of a Korean oils and fats product line reduced sales 2.6%.

Gross profit increased $4.6 million, or 4.6%, to $103.7 million. The gross
profit margin decreased to 32.0% from 32.8%. The gross profit margin decline was
primarily a result of lower pricing and increased commodity costs. The 4.6%
increase in gross profit benefited from volume improvements and the favorable
impact of exchange translation rates in Australia and New Zealand. Operating
income decreased $1.4 million, or 4.2%, to $32.6 million, primarily due to the
decline in profitability in our Tegel poultry business.

OTHER OPERATING ENTITIES

Sales for Other Operating Entities increased $6.5 million, or 7.1%, to
$98.7 million. Volume decreased 0.7% due primarily to a discontinued pet food
business in Latin America, partially offset by strong sales in India which grew
13.6%. Lower pricing reduced sales by 0.2%. Sales were also favorably impacted
by 6.1% from the prior year acquisition of a frozen food business in South
Africa and by foreign exchange translation rates of 1.8%.

Gross profit increased $2.3 million, or 8.7%, to $28.2 million, due mainly
to the impact of the prior year acquisition in South Africa and cost
improvements in India. Operating income remained stable, as the increase in
gross profit was offset by lower profits in Israel.

Zimbabwe remains in a period of economic uncertainty. Should the current
situation continue, the Company could experience disruptions and delays
associated with its Zimbabwe operations. As of the end of November 2002, the
Company deconsolidated its Zimbabwean operations and classified its remaining
net investment of approximately $110 million as a cost investment included in
other non-current assets on the consolidated balance sheets. Although the
Company's business continues to operate profitably and it is able to source raw
materials, the country's economic situation remains uncertain and there are
currently government restrictions on the repatriation of earnings. The Company's
ability to recover its investment could become impaired if the economic and
political conditions continue to deteriorate.

NINE MONTHS ENDED JANUARY 26, 2005 AND JANUARY 28, 2004

RESULTS OF CONTINUING OPERATIONS

Sales for the nine months ended January 26, 2005 increased $380.6 million,
or 6.3%, to $6.46 billion. Sales were favorably impacted by volume growth of
2.1% and exchange translation rates of 4.2%. The favorable volume impact
reflects strong increases across much of the Company, most notably in the North
American Consumer Products and U.S. Foodservice segments. Lower pricing
decreased sales by 0.5%, principally due to a $21.1 million charge for trade
spending in the Italian infant nutrition business (as described in our Fiscal
2005 second quarter Form 10-Q and in Note No. 9, "Segments" in Item
1--"Financial Statements"), the restage of our Italian infant nutrition business
and market price pressures impacting Northern Europe and the Tegel poultry
business in New Zealand. The second quarter trade spending charge in the Italian
infant nutrition business relates to prior years and reflects an under-accrual
quantified as the Company was upgrading trade management processes and systems
in Italy. These price decreases were partially offset by increases in the North
American Consumer Products and U.S. Foodservice segments. Acquisitions, net of
divestitures, increased sales by 0.5%.

Gross profit increased $91.1 million, or 4.0%, to $2.36 billion; however,
the gross profit margin decreased to 36.5% from 37.3%. The decrease in the gross
profit margin is mainly due to increased commodity costs, lower pricing as
discussed above, and increased production costs in the European seafood
business. These declines were offset by increases in the U.S. Foodservice
segment as well as cost improvements in Northern Europe. The 4.0% increase in
gross profit is primarily a result of

21

higher volume and favorable exchange translation rates. Last year's gross profit
was unfavorably impacted by the write down of U.K. pizza crust assets totaling
$4.0 million.

SG&A increased $131.9 million, or 10.9%, to $1.35 billion, and increased as
a percentage of sales to 20.8% from 20.0%. The increase as a percentage of sales
is primarily due to the gain recorded on the sale of the Northern European
bakery business in the prior year, and higher fuel/distribution costs and
increased G&A expense in the current year. The G&A expense increase is primarily
a result of employee-related costs, including the cost of the new non-stock
option long-term incentive compensation program disclosed at the beginning of
the year, professional fees related to various projects across the Company,
including compliance work associated with Section 404 of the Sarbanes-Oxley Act,
and litigation costs in Europe. Last year's SG&A was unfavorably impacted by
reorganization costs totaling $5.5 million. Operating income decreased $40.8
million, or 3.9%, to $1.01 billion.

Total marketing support (recorded as a reduction of revenue or as a
component of SG&A) increased $72.4 million, or 4.2%, to $1.81 billion on a sales
increase of 6.3%. Marketing support recorded as a reduction of revenue,
typically deals and allowances, increased $77.5 million, or 5.1%, to $1.60
billion, which is largely a result of the foreign exchange translation rates,
the restage of the Italian infant nutrition business, and increased promotional
spending in European seafood, partially offset by reduced trade promotion
spending in the U.S. Consumer Products and U.K. businesses. Marketing support
recorded as a component of SG&A decreased $5.0 million, or 2.4%, to $205.7
million, primarily in the Europe segment where most marketing resources were
focused on increased trade promotion spending in order to improve retail price
points.

Net interest expense increased $6.3 million, to $150.6 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 and
higher interest rates during Fiscal 2005. These amounts were largely offset by
the benefits of lower average net debt. Other expenses, net, decreased $24.2
million, resulting primarily from the SFAS 150 reclassification and lower
currency losses. The year was also unfavorably impacted by a $64.5 million
non-cash impairment charge related to Hain and a $9.3 million non-cash
impairment charge related to a cost-basis investment in a grocery industry
sponsored e-commerce business venture, as discussed previously.

The effective tax rate for the current year was 31.7% compared to 33.6%
last year. The reduction in the effective tax rate is attributable to changes to
the capital structure in certain foreign subsidiaries, tax credits resulting
from tax planning associated with a change in certain foreign tax legislation,
and the settlement of tax audits, partially offset by impairment charges for
Hain and an e-commerce business venture for which no tax benefit can currently
be recorded.

Income from continuing operations for the first nine months of Fiscal 2005
was $530.6 million compared to $580.5 million in the year earlier period, a
decrease of 8.6%, again reflecting the $73.8 million of third quarter asset
impairments discussed above and the decline in operating income, partially
offset by the impact of the reduced effective tax rate. Diluted earnings per
share was $1.50 in the current year compared to $1.64 in the prior year, down
8.5%.

OPERATING RESULTS BY BUSINESS SEGMENT

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment increased $139.4
million, or 9.3%, to $1.63 billion. Sales volume increased 5.5% due to
significant growth in Ore-Ida frozen potatoes and SmartOnes frozen entrees,
aided by the introduction of Ore-Ida Extra Crispy Potatoes, new microwavable
Easy Fries, and several new "Truth About Carbs" frozen entrees. Strong
performance in Boston Market HomeStyle meals and in the frozen snack brands of
Delimex, Bagel Bites and TGI Friday's, as well as new distribution related to a
co-packing agreement also contributed to the

22

volume increase. Pricing increased sales 2.2% largely due to more efficient
trade spending and decreased product placement fees on SmartOnes frozen entrees
and Ore-Ida potatoes as well as increases related to Classico pasta sauces and
Heinz ketchup. Sales increased 2.2% due to the prior year acquisition of the
Canadian business of Unifine Richardson B.V. Divestitures reduced sales 1.4% due
to the sale of Ethnic Gourmet Food and Rosetto pasta to Hain in the first
quarter. Exchange translation rates increased sales 0.8%.

Gross profit increased $49.2 million, or 7.7%, to $691.2 million driven by
the increase in sales volume. The gross profit margin decreased to 42.3% from
43.0% due primarily to higher commodity costs and sales mix, partially offset by
higher net pricing. Gross profit also benefited from favorable determination of
a long-term co-packing arrangement with a customer. Operating income increased
$35.2 million, or 9.8%, to $394.4 million, due to the increase in volume and
gross profit, partially offset by higher selling and distribution costs,
reflecting the volume increase and higher fuel costs. Operating income for the
nine months ended January 28, 2004 was impacted by reorganization costs totaling
$1.5 million.

U.S. FOODSERVICE

Sales of the U.S. Foodservice segment increased $41.5 million, or 3.9%, to
$1.10 billion. Higher pricing increased sales by 1.8%, as price increases were
initiated on Heinz ketchup and frozen soup to offset fuel and commodity cost
pressures. Volume increased sales 1.4% due to stronger performance on Truesoups
frozen soup, growth in custom recipe tomato products, and growth in Heinz
ketchup. These increases were 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 in the first quarter of
Fiscal 2005. Acquisitions increased sales 0.7%, due to the prior year
acquisition of Truesoups LLC.

Gross profit increased $27.2 million, or 8.9%, to $333.0 million, and the
gross profit margin increased to 30.3% from 28.9%. The gross profit margin
increase was primarily due to favorable pricing, partly offset by increases in
commodity costs. Operating income increased $5.4 million, or 3.3%, to $166.7
million, reflecting the growth in gross profit, partially offset by increased
selling and distribution costs, some of which relates to the Portion Pac, Inc.
issues discussed above, and increased fuel and trucking costs. Operating income
for the nine months ended January 28, 2004, was impacted by reorganization costs
totaling $2.5 million.

EUROPE

Heinz Europe's sales increased $151.0 million, or 6.5%, to $2.49 billion.
Favorable exchange translation rates increased sales by 8.5%. Volume increased
1.0% principally due to increases in Heinz ketchup resulting from the successful
introduction of the Top Down bottle, increases in frozen desserts in the U.K due
to increased promotional activity and new customer distribution, and
improvements from the successful restage of the Italian infant nutrition
business, new products in U.K. frozen potatoes and increases in Heinz
ready-to-serve soups. These increases were offset by declines in Weight Watchers
frozen entrees reflecting softness in the overall category, lower market share
in jarred vegetables in Northern Europe and the discontinuation of frozen pizza
and Bagel Bites in the U.K. Lower pricing decreased sales 2.4%, primarily due to
the trade spending charge in the Italian infant nutrition business, increased
trade promotion spending in European seafood, the cost of the restage of the
Italian infant nutrition business, and lower prices in the Netherlands.
Divestitures reduced sales 0.5%.

Gross profit increased $0.7 million, or 0.1%, to $922.6 million, while the
gross profit margin decreased to 37.1% from 39.4%. The decrease in gross profit
margin is primarily related to increased commodity costs, particularly in the
European seafood and UK businesses, as well as lower pricing discussed above.
These decreases were partially offset by manufacturing improvements in the
Netherlands. Gross profit for the nine months ended January 28, 2004 was
impacted by the

23

write-down of the U.K. pizza crust assets totaling $4.0 million. Operating
income decreased $71.0 million, or 14.8%, to $408.1 million, largely due to the
gain recognized in the prior year on the sale of the Northern European bakery
business, the Italian trade spending charge related to prior years and increased
employee-related and litigation costs and professional fees from various
projects across Europe.

ASIA/PACIFIC

Sales in Asia/Pacific increased $36.3 million, or 3.9%, to $962.9 million.
Favorable exchange translation rates increased sales by 4.5%. Volume increased
sales 1.0%, chiefly due to new product introductions in the frozen foods,
convenience meals and tuna categories in the Australia and New Zealand
businesses. These were partially offset by the discontinuation of an Indonesian
energy drink, as well as declines in Tegel, China and Japan. Lower pricing
reduced sales 1.9% primarily due to market price pressures on Tegel poultry and
declines across the New Zealand business. The acquisition of a controlling
interest in Shanghai LongFong Foods increased sales 1.1%; however, the
divestiture of a Korean oils and fats product line reduced sales 0.9%.

Gross profit increased $5.6 million, or 1.8%, to $310.6 million. The gross
profit margin decreased to 32.3% from 32.9%. The decrease in gross profit margin
is primarily due to lower pricing and increased commodity costs, partially
offset by improved sales mix in Indonesia reflecting the aforementioned
discontinuance of an energy drink. Operating income decreased $4.3 million, or
3.8%, to $107.7 million, primarily due to the decline in profitability in our
Tegel poultry business, partially offset by improvements in Australia.

OTHER OPERATING ENTITIES

Sales for Other Operating Entities increased $12.4 million, or 4.6%, to
$280.3 million. Volume decreased 1.8% due primarily to lower sales in Israel,
following a product recall in the third quarter of Fiscal 2004, and discontinued
products in Latin America, partially offset by strong sales in ketchup and
beverages in India. Lower pricing reduced sales by 2.4%, mainly due to decreases
in Latin America as a result of market price pressures and price declines in
Israel resulting from the effects of the recall. The prior year acquisition of a
frozen food business in South Africa increased sales by 7.7%.

Gross profit increased $1.1 million, or 1.3%, to $86.9 million. Operating
income increased $2.7 million, primarily due to the acquisition in South Africa.

During the first quarter of Fiscal 2005, the Company reached an agreement
with third parties related to a recall in Fiscal 2004. The proceeds of the
agreement offset recall related damages incurred to date.

LIQUIDITY AND FINANCIAL POSITION

The following discussion of liquidity and financial position references the
business measures of operating free cash flow and net debt as defined below.
These measures are utilized by senior management and the board of directors to
gauge our business operating performance, and management believes these measures
provide clarity in understanding the trends of the business. Management, and
investors, can benefit from the use of the operating free cash flow measure as
it provides cash flow derived from product sales and the short-term application
of cash, including the effect of capital expenditures.

The limitation of operating free cash flow is that it adjusts for cash used
for capital expenditures that is no longer available to the Company for other
purposes. Management compensates for this limitation by using the GAAP operating
cash flow number as well. Operating free cash flow does not represent residual
cash flow available for discretionary expenditures and does not provide insight
to the entire scope of the historical cash inflows or outflows of our operations
that are

24

captured in the other cash flow measures reported in the statement of cash
flows. Net debt is an additional measure that is important to our liquidity and
financial condition.

The Company's primary measure of cash flow performance is operating free
cash flow (cash provided by operating activities less capital expenditures). The
following is the Company's calculation of operating free cash flow for the nine
months ended January 26, 2005 and January 28, 2004 (amounts in millions):

Cash provided by continuing operating activities was $506.1 million, a
decrease of $310.9 million from the prior year. The decrease in Fiscal 2005
versus Fiscal 2004 is primarily due to a planned tax pre-payment of $125 million
made in Europe during the third quarter and unfavorable working capital
movements, particularly accounts receivable and inventories. While we continue
to make progress in reducing our cash conversion cycle (8 days lower than a year
ago); as expected, the rate of improvement has lessened when compared to last
fiscal year. The Company expects operating free cash flow to be in the range of
$750 to $850 million for Fiscal Year 2005.

Cash used for investing activities totaled $125.1 million compared to
$119.9 million last year. Proceeds from divestitures provided $39.9 million in
the first nine months of Fiscal 2005 and related primarily to the sale of an oil
and fats product line in Korea, which was completed during the third quarter.
Acquisitions used $38.1 million in Fiscal 2005 primarily related to the
Company's purchase in the third quarter of a controlling interest in Shanghai
LongFong Foods, a maker of frozen Chinese snacks and desserts. In Fiscal 2004,
acquisitions, net of divestitures, used $14.9 million in cash. Capital
expenditures totaled $131.0 million (2.0% of sales) compared to $119.8 million
(2.0% of sales) last year.

Cash used for financing activities totaled $840.2 million compared to
$545.7 million last year. Long-term debt was reduced by $418.5 million during
the current period, compared to $74.0 million last year. Payments on short-term
debt were $24.1 million this year compared to $143.3 million in the prior year.
Cash used for the purchases of treasury stock, net of proceeds from option
exercises, was $109.7 million this year compared to $56.0 million in the prior
year, in line with the Company's plans of maintaining fully diluted shares at a
constant level. Dividend payments totaled $299.3 million, compared to $284.9
million for the same period last year, reflecting a 5.5% increase in the annual
dividend on common stock.

Net debt is defined as total debt, net of the value of interest rate swaps,
less cash and cash equivalents. The following is the Company's calculation of
net debt as of January 26, 2005 and January 28, 2004 (amounts in millions):

25

Overall, net debt decreased $136.8 million, or 3.5%, versus prior year.
Long-term debt decreased $339.3 million from the prior year primarily due to the
payoff of E300 million of bonds ($404.7 million) which matured on January 5,
2005; offset by increases in debt as a result of higher foreign exchange rates
and debt assumed through acquisitions. The Company anticipates that it will have
additional long-term debt reduction in the balance of Fiscal 2005 and Fiscal
2006, including the payoff of E417.9 million of bonds in April 2006.

The Company completed the remarketing of its $800 million remarketable
securities due 2020 on December 1, 2004. The Company's $2.0 billion Five-Year
Credit Agreement supports the Company's commercial paper borrowings and the
remarketable securities. As a result, these borrowings are classified as
long-term debt based upon the Company's ability to refinance these borrowings on
a long-term basis. The Company also maintains in excess of $500 million of other
credit facilities used primarily by the Company's foreign subsidiaries. These
resources, the Company's existing cash balance of more than $800 million, strong
operating cash flow and access to the capital market, if required, should enable
the Company to meet its cash requirements for operations, including capital
expansion programs, debt maturities, and dividends to shareholders.

In August 2004, the Company and H.J. Heinz Finance Company, a subsidiary of
the Company, amended their $600 million 364-Day Credit Agreement and their $1.5
billion Five-Year Credit Agreement by combining the agreements into a $2.0
billion Five-Year Credit Agreement, expiring August 2009. The Credit Agreement
supports the Company's commercial paper borrowings and the remarketable
securities. As a result, these borrowings are classified as long-term debt based
upon the Company's ability to refinance these borrowings on a long-term basis.

The impact of inflation on both the Company's financial position and the
results of operations is not expected to adversely affect Fiscal 2005 results.

The Company enters into certain derivative contracts in accordance with its
risk management strategy that do not meet the criteria for hedge accounting. As
of January 26, 2005, the Company maintained forward contracts with a total
notional amount of $205.4 million that do not qualify as hedges, but which have
the impact of largely mitigating volatility associated with earnings from
foreign subsidiaries. These forward contracts are accounted for on a full
mark-to-market basis through current earnings and mature during the fourth
quarter of Fiscal 2005. Net unrealized gains related to these contracts totaled
$3.0 million at January 26, 2005.

CONTRACTUAL OBLIGATIONS

The Company is obligated to make future payments under various contracts
such as debt agreements, lease arrangements and unconditional purchase
obligations. In addition, the Company has purchase obligations for materials,
supplies, services and property, plant and equipment as part of the ordinary
conduct of business. A few of these obligations are long-term and are based on
minimum purchase requirements. In the aggregate, such commitments are not at
prices in excess of current markets. Due to the proprietary nature of some of
the Company's materials and processes, certain supply contracts contain penalty
provisions for early terminations. The Company does not believe that a material
amount of penalties 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 nine months ended January
26, 2005. For additional information, refer to page 22 of the Company's Annual
Report on Form 10-K for the fiscal year ended April 28, 2004.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), "Share-Based Payment", which revises SFAS No. 123, "Accounting
for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees". This Statement focuses primarily on accounting for
transactions in which an entity
26

obtains employee services in share-based payment transactions. This Statement
requires an entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award. That cost will be recognized over the period during which an employee is
required to provide service in exchange for the reward. The Company is required
to adopt this Statement in the second quarter of Fiscal 2006; however, early
adoption of this Statement is encouraged. The Company is currently evaluating
the timing and method of the adoption of this Statement.

In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS
109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004." The FSP provided
guidance on the accounting and disclosures for the temporary repatriation
provision of the AJCA. The Company has adopted the disclosure provisions of the
FSP which apply to entities that have not yet completed their evaluation of the
repatriation provision, and will expand its disclosures in accordance with the
FSP upon completion of the final evaluation.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". This Statement is meant to eliminate any
narrow differences existing between the FASB standards and the standards issued
by the International Accounting Standards Board by clarifying that any abnormal
idle facility expense, freight, handling costs and spoilage be recognized as
current-period charges. This Statement is required to be adopted by the Company
in the first quarter of Fiscal 2007; however, early application is permitted.
The Company does not expect the adoption of this Statement to have a material
impact on results of operations, financial position or cash flows.

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("the Act") was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy
to sponsors of retirement health care plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. In accordance with FASB Staff
Position 106-1, the Company elected to defer recognizing the effects of the Act
on the accounting for its retirement health care plans in Fiscal 2004. In May
2004, the FASB issued Staff Position 106-2 providing final guidance on the
accounting for benefits provided by the Act. Based on the preliminary
regulations, management believes that certain drug benefits offered under the
postretirement health care plans will qualify for the subsidy under Medicare
Part D. Accordingly, the Company adopted Staff Position 106-2 as of its second
quarter reporting period beginning July 29, 2004 and has performed a
remeasurement of its plan obligations as of that date. The reduction in the
benefit obligation of approximately $18.8 million has been reflected as an
actuarial gain. The total reduction in benefit cost for Fiscal 2005 is $2.3
million, comprised of $0.9 million of interest cost, $0.1 million of service
cost, and $1.4 million reduction in unrecognized loss amortization, recognized
on a pro-rata basis. In January 2005, final Medicare prescription drug rules
were issued. Although the Company is currently evaluating these regulations,
management believes the impact of the Act based upon the final rules will not
differ significantly from the impact recorded in the second quarter of Fiscal
2005.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
statement affects the classification, measurement and disclosure requirements of
certain freestanding financial instruments including mandatorily redeemable
shares. SFAS No. 150 was effective for the Company for the second quarter of
Fiscal 2004. The adoption of SFAS No. 150 required the prospective
classification of H.J. Heinz Finance Company's $325 million of mandatorily
redeemable preferred shares from minority interest to long-term debt and the
$5.1 million quarterly preferred dividend from other expenses to interest
expense beginning in the second quarter ended October 29, 2003, with no
resulting effect on the Company's profitability.

27

DISCUSSION OF SIGNIFICANT ACCOUNTING ESTIMATES

In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results and require management's most difficult, subjective and complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.

Marketing Costs--Trade promotions are an important component of the sales
and marketing of the Company's products and are critical to the support of the
business. Trade promotion costs include amounts paid to encourage retailers to
offer temporary price reductions for the sale of the Company's products to
consumers, amounts paid to obtain favorable display positions in retailers'
stores, and amounts paid to customers for shelf space in retail stores. Accruals
for trade promotions are recorded primarily at the time of sale of product to
the customer based on an estimate of the expected levels of performance of the
trade promotion, which is dependent upon factors such as historical trends with
similar promotions, expectations regarding customer participation, and sales and
payment trends with similar previously offered programs. Our original estimated
costs of trade promotions 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 the Company. As a result, the ultimate
cost of a trade promotion program is dependent on the relative success of the
events and the actions and level of deductions taken by the Company's customers
for amounts they consider due to them. Final determination of the permissible
deductions may take extended periods of time and could have a significant impact
on the Company's results of operations depending on how actual results of the
programs compare to original estimates.

We offer coupons to consumers in the normal course of our business. Costs
associated with this activity, which we refer to as coupon redemption costs, are
accrued in the period in which the coupons are offered. The initial estimates
made for each coupon offering are based upon historical redemption experience
rates for similar products or coupon amounts. We perform subsequent estimates
that compare our actual redemption rates to the original estimates. We review
the assumptions used in the valuation of the estimates and determine an
appropriate accrual amount. Adjustments to our initial accrual may be required
if our actual redemption rates vary from our estimated redemption rates.

Inventories--Inventories are stated at the lower of cost or market value.
Cost is principally determined by the average cost method. The Company records
adjustments to the carrying value of inventory based upon its forecasted plans
to sell its inventories. The physical condition (e.g., age and quality) of the
inventories is also considered in establishing its valuation. These adjustments
are estimates, which could vary, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or
competitive conditions differ from our expectations.

Investments and Long-lived Assets and Property, Plant and
Equipment--Investments and long-lived assets are recorded at their respective
cost basis on the date of acquisition. Buildings, equipment and leasehold
improvements are depreciated on a straight-line basis over the estimated useful
life of such assets. The Company reviews investments and long-lived assets,
including intangibles with finite useful lives, and property, plant and
equipment, whenever circumstances

28

change such that the indicated recorded value of an asset may not be recoverable
or has suffered an other than temporary impairment. Factors that may affect
recoverability include changes in planned use of equipment or software, the
closing of facilities and changes in the underlying financial strength of
investments. The estimate of current value requires significant management
judgment and requires assumptions that can include: future volume trends,
revenue and expense growth rates and foreign exchange rates developed in
connection with the Company's internal projections and annual operating plans,
and in addition, external factors such as market value devaluation and inflation
which are developed in connection with the Company's longer-term strategic
planning. As each is management's best estimate on then available information,
resulting estimates may differ from actual cash flows.

Goodwill and Indefinite Lived Intangibles--Carrying values of goodwill and
intangible assets with indefinite lives are reviewed for impairment at least
annually, or when circumstances indicate that a possible impairment may exist,
in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets."
Indicators such as unexpected adverse economic factors, unanticipated
technological change or competitive activities, loss of key personnel, and acts
by governments and courts, may signal that an asset has become impaired. The
Company's measure of impairment is based on a discounted cash flow model that
requires significant judgment and requires assumptions about future volume
trends, revenue and expense growth rates and foreign exchange rates developed in
connection with the Company's internal projections and annual operating plans,
and in addition, external factors such as changes in macroeconomic trends and
cost of capital developed in connection with the Company's longer-term strategic
planning. Inherent in estimating future performance, in particular assumptions
regarding external factors such as capital markets, are uncertainties beyond the
Company's control. Management believes that because fair values of goodwill and
intangible assets with indefinite lives significantly exceed carrying value, it
is unlikely that a material impairment charge would be recognized.

Retirement Benefits--The Company sponsors pension and other retirement
plans in various forms covering substantially all employees who meet eligibility
requirements. Several statistical and other factors that attempt to anticipate
future events are used in calculating the expense and liability related to the
plans. These factors include assumptions about the discount rate, expected
return on plan assets, turnover rates and rate of future compensation increases
as determined by the Company, within certain guidelines. The discount rate
assumptions used to value pension and postretirement benefit obligations reflect
the rates available on high quality fixed income investments available (in each
country that the Company operates a benefit plan) as of the measurement date.
The weighted average discount rate used to measure the projected benefit
obligation for the year ending April 28, 2004 was 5.8%.

Over time, the expected rate of return on pension plan assets should
approximate the actual long-term returns. In developing the expected rate of
return, the Company considers actual real historic returns of asset classes, the
investment mix of plan assets, investment manager performance and projected
future returns of asset classes developed by respected consultants. The weighted
average expected rate of return on plan assets used to calculate annual expense
was 8.2% for the year ending April 28, 2004. For purposes of calculating Fiscal
2005 expense, the weighted average rate of return will remain at approximately
8.2%.

In addition, the Company's actuarial consultants also use subjective
factors such as withdrawal and mortality rates to estimate these factors. The
actuarial assumptions used by the Company may differ materially from actual
results due to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of pension expense
recorded by the Company.

29

SENSITIVITY OF ASSUMPTIONS

If we assumed a 100 basis point change in the following assumption, our
Fiscal 2004 projected benefit obligation and expense would increase (decrease)
by the following amounts (in millions):

Income Taxes--The Company computes its annual tax rate based on the
statutory tax rates and tax planning opportunities available to it in the
various jurisdictions in which it earns income. Significant judgment is required
in determining the Company's annual tax rate and in evaluating its tax
positions. The Company establishes reserves when it becomes probable that a tax
return position that it considers supportable may be challenged and that the
Company may not succeed in completely defending that challenge. The Company
adjusts these reserves in light of changing facts and circumstances, such as the
settlement of a tax audit. The Company's annual tax rate includes the impact of
reserve provisions and changes to reserves. While it is often difficult to
predict the final outcome or the timing of resolution of any particular tax
matter, the Company believes that its reserves reflect the probable outcome of
known tax contingencies. Favorable resolution would be recognized as a reduction
to the Company's tax rate in the period of resolution. The Company's tax
reserves are presented in the balance sheet principally within accrued income
taxes.

The Company records valuation allowances to reduce deferred tax assets to
the amount that is more likely than not to be realized. When assessing the need
for valuation allowances, the Company considers future taxable income and
ongoing prudent and feasible tax planning strategies. Should a change in
circumstances lead to a change in judgment about the realizability of deferred
tax assets in future years, the Company would adjust related valuation
allowances in the period that the change in circumstances occurs, along with a
corresponding increase or charge to income.

The American Jobs Creation Act ("the AJCA") provides a deduction of 85% of
certain foreign earnings repatriation. The Company may elect to apply this
provision in either Fiscal 2005 or in Fiscal 2006. The Company does not expect
to be able to complete its evaluation of the effects of the repatriation
provisions until after Congress and the Treasury Department enacts needed
technical corrections and provides additional clarifying language on key
elements of the provision. The Company expects to complete its evaluation within
a reasonable period of time after these events occur. The range of amounts that
the Company is considering for repatriation under this provision is between zero
and $700 million. The related potential range of income tax (assuming enactment
of needed technical corrections) is between zero and $40 million.

The AJCA provides a deduction calculated as a percentage of qualified
income from manufacturing in the United States. The percentage increases from 3%
to 9% over a 6 year period beginning with the Company's 2006 fiscal year. In
December 2004, the FASB issued a new staff position providing for this deduction
to be treated as a special deduction, as opposed to a tax rate reduction, in
accordance with SFAS No. 109. The benefit of this deduction is not expected to
have a material impact on the Company's effective tax rate in Fiscal 2006.

30

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, including
the Remedia related claims in Israel and rights against third parties,
international operations, particularly the performance of business in
hyperinflationary environments, changes in estimates in critical accounting
judgments and other laws and regulations, including tax laws, the success of tax
planning strategies, the possibility of increased pension expense and
contributions and other people-related costs, the possibility of investment
impairment, and other factors described in "Cautionary Statement Relevant to
Forward-Looking Information" in the Company's Form 10-K for the fiscal year
ended April 28, 2004, and the Company's 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. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by the securities
laws.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company's market risk during the
nine months ended January 26, 2005. For additional information, refer to pages
23-24 of the Company'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

The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures, as of the end of the period covered by this report, were designed
and are functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and
(ii) accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosure. The Company believes that no controls system can
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 the Company's internal control over financial reporting
occurred during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

31

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

Nothing to report under this item.

ITEM 5. OTHER INFORMATION

On January 12, 2005, the Board of Directors of the Company conducted its
annual review of compensation to be paid to the non-employee directors of the
Board of the Company, and approved the following fees to be paid to such
directors. These fees were developed with the assistance of an independent
consulting firm and were recommended to the Board by the Corporate Governance
Committee to reflect current best practices and simplification of the Board
compensation structure. These changes were effective January 1, 2005.

During calendar year 2005, each non-employee director will receive a
$60,000 annual retainer fee. The Chair of each of the Audit and Management
Development and Compensation Committees will receive a $15,000 retainer, and the
Chair of each of the Corporate Governance and Public Issues Committees will
receive a $10,000 retainer. Each non-employee director will receive a fee equal
to $1,500 for each meeting day attended. In addition to cash compensation, each
non-employee director will receive a grant of 2,500 restricted shares of Company
Common Stock on the date of the Company's Annual Meeting of Shareholders. On
January 14, 2004, the Board approved a guideline that each non-employee director
should own 10,000 shares of Company stock; each director is asked to comply with
this guideline by the fifth anniversary of his or her election to the Board.

Prior to these changes, the non-employee directors received an annual Board
retainer fee of $55,000 and an additional annual retainer of $6,000 for service
on a Board committee. The $6,000 annual committee retainer was eliminated and
the annual Board retainer was increased to $60,000, resulting in a net $1,000
reduction in annual compensation.

ITEM 6. EXHIBITS

Exhibits required to be furnished by Item 601 of Regulation S-K are listed
below. The Company may have omitted certain exhibits in accordance with Item
601(b)(4)(iii)(A) of Regulation S-K. The Company 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.

10(a)

(xxiii) Form of Stock Option Award and Agreement for U.S.
Employees

(xxiv) Form of Stock Option Award and Agreement for U.S.
Employees Based in the U.K. on International Assignment

32

(xxv) Form of Restricted Stock Unit Award and Agreement for U.S.
Employees

(xxvi) Form of Restricted Stock Unit Award and Agreement for
Non-U.S. Based Employees

(xxvii) Form of Five-Year Restricted Stock Unit Retention Award
and Agreement for U.S. Employees

(xxviii) Form of Five-Year Restricted Stock Unit Retention Award
and Agreement for Non-U.S. Based Employees

(xxix) Form of Three-Year Restricted Stock Unit Retention Award
and Agreement for U.S. Employees

(xxx) Form of Three-Year Restricted Stock Unit Retention Award
and Agreement for Non-U.S. Based Employees

(xxxi) Form of Performance Unit Award Agreement

12. Computation of Ratios of Earnings to Fixed Charges.

31(a). Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive
Officer.

31(b). Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
Officer.

32(a). Certification by the Chief Executive Officer Relating to a
Periodic Report Containing Financial Statements.

32(b). Certification by the Chief Financial Officer Relating to a
Periodic Report Containing Financial Statements.

33

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 COMPANY
(Registrant)

Date: February 28, 2005
By: /s/ ARTHUR B. WINKLEBLACK
..........................................

Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

Date: February 28, 2005
By: /s/ EDWARD J. MCMENAMIN
..........................................

Edward J. McMenamin
Senior Vice President--Finance
and Corporate Controller
(Principal Accounting Officer)

34

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.

10(a)

(xxiii) Form of Stock Option Award and Agreement for U.S.
Employees

(xxiv) Form of Stock Option Award and Agreement for U.S.
Employees Based in the U.K. on International Assignment

(xxv) Form of Restricted Stock Unit Award and Agreement for U.S.
Employees

(xxvi) Form of Restricted Stock Unit Award and Agreement for
Non-U.S. Based Employees

(xxvii) Form of Five-Year Restricted Stock Unit Retention Award
and Agreement for U.S. Employees

(xxviii) Form of Five-Year Restricted Stock Unit Retention Award
and Agreement for Non-U.S. Based Employees

(xxix) Form of Three-Year Restricted Stock Unit Retention Award
and Agreement for U.S. Employees

(xxx) Form of Three-Year Restricted Stock Unit Retention Award
and Agreement for Non-U.S. Based Employees

(xxxi) Form of Performance Unit Award Agreement

12. Computation of Ratios of Earnings to Fixed Charges.

31(a). Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive
Officer.

31(b). Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
Officer.

32(a). Certification by the Chief Executive Officer Relating to a
Periodic Report Containing Financial Statements.

32(b). Certification by the Chief Financial Officer Relating to a
Periodic Report Containing Financial Statements.