<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 29, 1998
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)
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<CAPTION>
PENNSYLVANIA 25-0542520
<S> <C>
(State of Incorporation) (I.R.S. Employer Identification No.)
600 GRANT STREET,
PITTSBURGH, PENNSYLVANIA 15219
(Address of principal (Zip Code)
executive offices)
412-456-5700
(Registrant's telephone number)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, par value $.25
per share New York Stock Exchange; Pacific Stock Exchange
Third Cumulative Preferred
Stock,
$1.70 First Series, par value
$10 per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 30, 1998 the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately
$19,292,688,181.
The number of shares of the Registrant's Common Stock, par value $.25 per
share, outstanding as of June 30, 1998, was 362,050,565 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal year
ended April 29, 1998 are incorporated into Part I, Items 1 and 3; Part II,
Items 5, 7, 7A and 8; and Part IV, Item 14.
Portions of Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated into Part III, Items 10, 11, 12 and 13.
<PAGE>
PART I
ITEM 1. BUSINESS.
H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In
1905, it succeeded to the business of a partnership operating under the same
name which had developed from a food business founded in 1869 at Sharpsburg,
Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its consolidated
subsidiaries (collectively, the "Company" or the "Registrant" unless the
context indicates otherwise) manufacture and market an extensive line of
processed food products throughout the world. The Company's products include
ketchup and sauces/condiments, pet food, tuna and other seafood products, baby
food, frozen potato products, soup (canned and frozen), lower-calorie products
(frozen entrees, frozen desserts, frozen breakfasts and other products),
beans, pasta, bakery products, full calorie frozen dinners and entrees,
chicken, vegetables and fruits (frozen and canned), frozen pizza and pizza
components, coated products, meats, edible oils, pickles, vinegar,
nutritional/performance drinks, margarine/shortening, juices and other
processed food products. The Company operates principally in one segment of
business--processed food products--which represents more than 90% of
consolidated sales. The Company also operates and franchises weight control
classes and operates other related programs and activities. The Company
intends to continue to engage principally in the business of manufacturing and
marketing processed food products and the ingredients for food products.
The Company's products are manufactured and packaged to provide safe,
stable, wholesome foods which are used directly by consumers and foodservice
and institutional customers. Many products are prepared from recipes developed
in the Company's research laboratories and experimental kitchens. Ingredients
are carefully selected, washed, trimmed, inspected and passed on to modern
factory kitchens where they are processed, after which the finished product is
filled automatically into containers of glass, metal, plastic, paper or
fiberboard which are then closed, processed, labeled and cased for market.
Finished products are processed by sterilization, homogenization, chilling,
freezing, pickling, drying, freeze drying, baking or extruding. Certain
finished products and seasonal raw materials are aseptically packed into
sterile containers after in-line sterilization.
The Company has three classes of similar products, each of which has
accounted for 10% or more of consolidated sales in one or more of the prior
three fiscal years listed below. The following table shows sales, as a
percentage of consolidated sales, for each of these classes of similar
products for each of the last three fiscal years.
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<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Ketchup, sauces and other condiments....................... 19% 18% 19%
Pet food................................................... 14 13 12
Tuna and other seafood products............................ 12 9 9
All other classes of products, none of which accounts
for 10% or more of consolidated sales..................... 55 60 60
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The Company manufactures its products from a wide variety of raw foods. Pre-
season contracts are made with farmers for a substantial portion of raw
materials such as tomatoes, cucumbers, potatoes, onions and some other fruits
and vegetables. Dairy products, meat, sugar, spices, flour and other fruits
and vegetables are generally purchased on the open market.
Tuna is obtained through spot and term contracts directly with tuna vessel
owners or their cooperatives and by brokered transactions. In some instances,
in order to insure the continued availability of adequate supplies of tuna,
the Company assists, directly or indirectly, in financing the acquisition and
operation of fishing vessels. The provision of such assistance is not expected
to affect materially the operations of the Company. The Company also engages
in the tuna fishing business through wholly and partially owned subsidiaries.
The Marine Mammal Protection Act of 1972, as amended (the "Act"), and
regulations thereunder (the "Regulations") regulate the incidental taking of
dolphin in the course of fishing for yellowfin tuna in the eastern tropical
Pacific Ocean, where a portion of the Company's light-meat tuna is caught. In
1990, the Company voluntarily adopted a worldwide policy of refusal to
purchase tuna caught in the eastern tropical Pacific Ocean through the
intentional encirclement of dolphin by purse seine nets and reaffirmed its
policy of not purchasing tuna caught anywhere using gill nets or drift nets.
Also in 1990, the Dolphin Protection Consumer Information Act (the "Dolphin
Information Act") was enacted which regulates the labeling of tuna products as
"dolphin
2
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safe" and bans the importation of tuna caught using high seas drift nets. The
Act was amended in 1992 to further regulate tuna fishing methods which involve
marine mammals. Compliance with the Act, the Regulations, the Dolphin
Information Act, and the Company's voluntary policy and the 1992 amendments
has not had, and is not expected to have, a material adverse effect on the
Company's operations. Congress passed the International Dolphin Conservation
Program Act ("IDCPA") on August 15, 1997, which if ratified by other nations,
will become effective on January 1, 1999. If the IDCPA becomes effective, it
may modify the regulation of the incidental taking of dolphins in the course
of fishing for yellowfin tuna in the eastern tropical Pacific Ocean and revise
the definition of "dolphin safe", depending on the results of a study to be
conducted between October 1, 1997 and March 1, 1999 on the effect of the
encirclement of dolphins in the course of purse seine fishing for yellowfin
tuna in the eastern tropical Pacific Ocean. Revision of the definition of
"dolphin safe" and modification of the regulation of the incidental taking of
dolphins in the course of fishing for yellowfin tuna in the eastern tropical
Pacific Ocean is not expected to have a material effect on the Company's
operations.
In recent years, the supply of raw tuna has been variable causing a
fluctuation in raw fish prices; however, such variation in supply has not
affected materially, nor is it expected to affect materially, the Company's
operations.
The Company has participated in the development of certain of its food
processing equipment, some of which is patented. The Company regards these
patents as important but does not consider any one or group of them to be
materially important to its business as a whole.
The Company's products are widely distributed around the world. Many of the
Company's products are marketed under the "Heinz" trademark, principally in
the United States, Canada, the United Kingdom, other western European
countries, central and eastern Europe, Australia, Venezuela, Japan, the
People's Republic of China, the Republic of Korea and Thailand. Other
important trademarks include "Star-Kist" for tuna products, "Ore-Ida" for
frozen retail potato products, "Bagel Bites" for pizza snack products,
"Moore's" for retail coated vegetables, "Rosetto" for frozen pasta products,
"Earth's Best" for baby food and "Dyna Bites" and "Cheese Bites" for retail
snack products, all of which are marketed in the United States. "9 Lives" and
"Pounce" are used for cat foods, "Kibbles N' Bits", "Ken-L-Ration", "Reward"
and "IVD" for dog food, "Jerky Treats", "Meaty Bone", "Snausages" and "Pup-
Peroni" for dog snacks, and "Nature's Recipe" for dog and cat foods, most of
which are marketed in the United States and Canada. "Amore" is used for cat
foods, "Kozy Kitten" for canned cat foods, "Cycle", "Gravy Train", "Skippy
Premium", "Recipe" and "Vets" for dog food, all of which are marketed in the
United States. "Chef Francisco" is used for frozen soups and "Omstead" is used
for frozen vegetables, frozen coated products and frozen fish products, both
of which are marketed in the United States and Canada. "Pablum" is used for
baby food products marketed in Canada. "Plasmon", "Nipiol" and "Dieterba" are
used for baby food products, "Teddy" and "Fattoria Scaldasole" for yogurt,
"Ortobuono" for pickled vegetables and fruit in syrup, "Mare D'Oro" for
seafood and "Mareblu" for tuna, "Mr. Foody" for table and kitchen sauces, "Bi-
Aglut", "Aproten", "Polial" and "Dialibra" for nutraceutical products, all of
which are mainly marketed in Italy. "Petit Navire" is used for tuna and
mackerel products, "Marie Elisabeth" for sardines and tuna and "Orlando" and
"Guloso" for tomato products, all of which are marketed in various European
countries. "John West" is used for tuna, salmon and other products in the
United Kingdom and other European countries. The "Frank Coopers" brand is used
for single-serve foodservice products in the United Kingdom. The "Pudliszki"
and "Kecskemet" trademarks are used for tomato based and other vegetable
products in Poland and the Czech Republic. The "Sunar" trademark is used for
infant feeding products in the Czech Republic. "Wattie's" is used for various
grocery products and frozen foods, "Tegel" for poultry products, "Chef" and
"Champ" for cat and dog foods and "Craig's" for jams and marmalades, all of
which are marketed in New Zealand, Australia and the Asia/Pacific region.
"Bruno" and "Winna" are used for petfood in New Zealand. "Hellaby", "Hamper",
"Tom Piper Imperial", "Pacific", "Crown", "Hellabys" and "Oak" are used for
canned meats in New Zealand, Australia and the Asia/Pacific region. "Farley's"
and "Farex" are used for baby food products marketed in Europe, Canada, India,
Australia and New Zealand. "Glucon D" and "Complan" are used for nutritional
drink mixes marketed in the United Kingdom and India and in the case of
"Complan" also Latin America and New Zealand. "Ganave" is used for pet food in
Argentina. "N/R Original Recipe" is used for dog and cat foods marketed in
various European countries and "Medi-Cal" is used for dog and cat foods in
Canada and Japan. "Techni-cal" is used for dog and cat foods in Canada,
certain European countries, Argentina, Chile, Hong Kong, Japan and South
Africa. "Weight Watchers" is used in numerous countries in conjunction with
owned and franchised weight control classes, programs, related activities and
certain food products. "Budget Gourmet" is used for frozen entrees. The
Company also markets certain products under other trademarks and brand names
and under private labels.
3
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Although crops constituting some of the Company's raw food ingredients are
harvested on a seasonal basis, most of the Company's products are produced
throughout the year. Seasonal factors inherent in the business have always
influenced the quarterly sales and net income of the Company. Consequently,
comparisons between quarters have always been more meaningful when made
between the same quarters of different years.
The products of the Company are sold under highly competitive conditions,
with many large and small competitors. The Company regards its principal
competition to be other manufacturers of processed foods, including branded,
retail products, foodservice products and private label products, that compete
with the Company for consumer preference, distribution, shelf space and
merchandising support. Product quality and consumer value are important areas
of competition. The Company's Weight Watchers International, Inc. subsidiary
also competes with a wide variety of weight control programs.
The Company's products are sold through its own sales force and through
independent brokers, agents and distributors to chain, wholesale, cooperative
and independent grocery accounts, pharmacies, mass merchants, club stores, pet
stores, foodservice distributors and institutions, including hotels,
restaurants and certain government agencies. The Company is not dependent on
any single customer or a few customers for a material part of its sales.
Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material effect upon the capital
expenditures, earnings or competitive position of the Company. The Company's
estimated capital expenditures for environmental control facilities for the
remainder of fiscal year 1999 and the succeeding fiscal year are not material
and will not materially affect either the earnings or competitive position of
the Company.
The Company's factories are subject to inspections by various governmental
agencies, and its products must comply with the applicable laws, including
food and drug laws, of the jurisdictions in which they are manufactured and
marketed.
The Company employed, on a full-time basis as of April 29, 1998,
approximately 40,500 persons around the world.
Financial segment information by major geographic area for the most recent
three fiscal years is set forth on page 34 of the Company's Annual Report to
Shareholders for the fiscal year ended April 29, 1998. Such information is
incorporated herein by reference.
Income from international operations is subject to fluctuation in currency
values, export and import restrictions, foreign ownership restrictions,
economic controls and other factors. From time to time exchange restrictions
imposed by various countries have restricted the transfer of funds between
countries and between the Company and its subsidiaries. To date, such exchange
restrictions have not had a material adverse effect on the Company's
international operations.
FORWARD-LOOKING STATEMENTS
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. The
Company desires to take advantage of the "safe harbor" provisions of the
Exchange Act with regard to oral and written forward-looking statements made
from time to time including, but not limited to, the forward-looking
statements contained in the Letter from the Chairman and the Letter from the
President and CEO (pages 2 to 7 of the Company's Annual Report to Shareholders
for the fiscal year ended April 29, 1998), Management's Discussion and
Analysis (pages 25 to 34 of the Company's Annual Report to Shareholders for
the fiscal year ended April 29, 1998) and statements set forth in this Annual
Report on Form 10-K and other 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
financial performance. The factors identified by the Company include, among
other things, the following: general economic and business conditions in the
domestic and global markets; actions of competitors, including competitive
pricing; changes in consumer preferences and spending patterns; changes in
social and demographic trends; changes in laws and regulations, including
changes in taxation and accounting standards; foreign economic conditions,
including currency exchange rate fluctuations; interest rate fluctuations; the
effects of changing prices for the raw materials used by the Company; and the
effectiveness of the Company's marketing, advertising and promotional
programs.
4
<PAGE>
ITEM 2. PROPERTIES.
The Company has 32 food processing plants in the United States and its
possessions, of which 26 are owned and six are leased, as well as 64 food
processing plants outside of the United States, of which 56 are owned and
eight are leased, including eight in New Zealand, eight in Canada, six in
South Africa, five in the United Kingdom, five in Australia, four in Italy,
three in Venezuela, two in Spain, two in Greece, two in Portugal, two in
Zimbabwe, and one in each of Argentina, Botswana, the Czech Republic, Ecuador,
France, Ghana, Hungary, India, Ireland, Japan, Netherlands, People's Republic
of China, Republic of Korea, Poland, Russia, Seychelles and Thailand. The
Company also leases two can-making factories in the United States and its
possessions. The Company and certain of its subsidiaries also own or lease
office space, warehouses, distribution centers and research and other
facilities. The Company's food processing plants and principal properties are
in good condition and are satisfactory for the purposes for which they are
being utilized.
ITEM 3. LEGAL PROCEEDINGS.
With respect to the antitrust litigation against the Company and its two
principal competitors in the United States baby food industry which was
previously reported in the Company's Annual Report on Form 10-K, see Note 15
to the Consolidated Financial Statements on page 56 of the Company's Annual
Report to Shareholders for the fiscal year ended April 29, 1998, which is
incorporated herein by reference. The Company continues to believe that all of
the suits and claims are without merit and is defending itself vigorously
against them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to a vote of security holders
since the last annual meeting of shareholders on September 10, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive
officers of the Company indicating all positions and offices with the Company
held by each such person and each such person's principal occupations or
employment during the past five years. All the executive officers have been
elected to serve until the next annual election of officers or until their
successors are elected, or until their earlier resignation or removal. The
annual election of officers is scheduled to occur on September 8, 1998.
<TABLE>
<CAPTION>
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 8, 1998) Employment During Past Five Years
---- ------------------ ---------------------------------
<C> <C> <S>
William R. Johnson 49 President and Chief Executive Officer of H. J.
Heinz Company since April 30, 1998; President and
Chief Operating Officer from June 12, 1996 until
April 29, 1998; Senior Vice President from
September 8, 1993 until June 12, 1996; President
and Chief Executive Officer of Star-Kist Foods,
Inc. from September 8, 1993 until June 12, 1996.
Daniel J. O'Neill 46 Executive Vice President of H. J. Heinz Company and
President and Chief Executive Officer of Star-Kist
Foods, Inc. from January 6, 1997; Vice President of
Campbell Soup Company from January 1994 to
January 5, 1997; Group Vice President of S. C.
Johnson & Son, Inc. from January 1990 to January
1994.
Paul F. Renne 55 Executive Vice President and Chief Financial
Officer of H. J. Heinz Company since June 11, 1997;
Senior Vice President--Finance and Chief Financial
Officer from September 13, 1996 to June 11, 1997;
Vice President--Treasurer from October 1, 1986 to
September 13, 1996.
</TABLE>
5
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<TABLE>
<CAPTION>
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 8, 1998) Employment During Past Five Years
---- ------------------ ---------------------------------
<C> <C> <S>
Malcolm Ritchie 44 Executive Vice President and President--Europe of
H. J. Heinz Company since May 1, 1998; Vice
President of European Grocery and Foodservice--H.
J. Heinz Company, Ltd. from May 1, 1997 to May 1,
1998; Managing Director of H. J. Heinz Company,
Ltd. from August 15, 1994 to May 1, 1997; Chief
Executive of Hillsdown European Ambient Foods
Group--Hillsdown Holdings plc from March 1993 to
July 1994.
William C. Springer 58 Executive Vice President of H. J. Heinz Company
since June 12, 1996 and in charge of Heinz U.S.A.,
Heinz Canada, Weight Watchers International and
Heinz Bakery Products; Senior Vice President from
September 8, 1993 until June 12, 1996; President--
Heinz North America from June 1992 until September
1993.
Richard H. Wamhoff 52 Executive Vice President--Global
Manufacturing/Supply Chain and Frozen Foods of H.
J. Heinz Company since May 1, 1998 and President
and Chief Executive Officer--Ore-Ida Foods, Inc.
from May 1, 1993.
David R. Williams 55 Executive Vice President of H. J. Heinz Company
since June 12, 1996 and in charge of Heinz
operations in Latin America, India, Pakistan,
southern Africa and the Pacific Rim; Executive Vice
President--Finance and Chief Financial Officer from
June 12, 1996 to September 13, 1996; Senior Vice
President--Finance and Chief Financial Officer from
August 1, 1992 until June 12, 1996.
Michael J. Bertasso 48 Senior Vice President--Strategy, Process and
Business Development of H. J. Heinz Company since
May 1, 1998; Executive Vice President--Star-Kist
Foods, Inc. from July 1, 1996 to May 1, 1998; Chief
Cost Officer--Star-Kist Foods, Inc. from May 1,
1995 to July 1, 1996; Vice President Purchasing &
Logistics--Star-Kist Foods, Inc. from November 1,
1988 to May 1, 1995.
Lawrence J. McCabe 63 Senior Vice President, General Counsel and
Secretary of H. J. Heinz Company since November 1,
1997; Senior Vice President--General Counsel from
June 12, 1991 to October 30, 1997.
D. Edward I. Smyth 48 Senior Vice President--Corporate and Government
Affairs of H. J. Heinz Company since May 1, 1998;
Vice President--Corporate Affairs from March 14,
1990 to May 1, 1998.
William C. Goode 57 Vice President and Chief Administrative Officer of
H. J. Heinz Company since May 1, 1998; Vice
President--Operations of Heinz Pet Products from
October 1, 1996 until April 30, 1997; Vice
President--Human Resources & Quality Systems of
Star-Kist Foods, Inc. from May 1, 1993 until
September 30, 1996.
</TABLE>
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information relating to the Company's common stock is set forth beginning on
page 33 under the caption "Stock Market Information" and on page 55 in Note
14, "Quarterly Results (Unaudited)," of the Company's Annual Report to
Shareholders for the fiscal year ended April 29, 1998. Such information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected consolidated financial data for the
Company and its subsidiaries for each of the five fiscal years 1994 through
1998. All amounts are in thousands except per share data. Prior years per
share amounts have been adjusted to reflect the three-for-two stock split,
which was effective October 3, 1995.
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<CAPTION>
Fiscal year ended
---------------------------------------------------------------
April 29, April 30, May 1, May 3, April 27,
1998 1997 1996 1995 1994
(52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales................... $9,209,284 $9,357,007 $9,112,265 $8,086,794 $7,046,738
Interest expense........ 258,616 274,746 277,411 210,585 149,243
Net income.............. 801,566 301,871 659,319 591,025 602,944
Net income per share--
diluted................ 2.15 0.81 1.75 1.58 1.56
Net income per share--
basic.................. 2.19 0.82 1.79 1.61 1.59
Short-term debt and
current portion
of long-term debt...... 339,626 1,163,442 1,082,169 1,074,291 439,701
Long-term debt,
exclusive of
current portion........ 2,768,277 2,283,993 2,281,659 2,326,785 1,727,002
Total assets............ 8,023,421 8,437,787 8,623,691 8,247,188 6,381,146
Cash dividends per
common share............ 1.23 1/2 1.13 1/2 1.03 1/2 0.94 0.86
</TABLE>
Results recorded in 1998 include non-recurring costs of $84.1 million pre-
tax ($0.14 per share) related to the implementation of Project Millennia,
offset by the gain on the sale of the Ore-Ida frozen foodservice business,
$96.6 million pretax ($0.14 per share). See Notes 3 and 4 to the Consolidated
Financial Statements beginning on page 43 of the Company's Annual Report to
Shareholders for the fiscal year ended April 29, 1998.
Results recorded in 1997 include a pretax charge for restructuring and
related costs of $647.2 million ($1.09 per share). See Note 4 to the
Consolidated Financial Statements beginning on page 43 of the Company's Annual
Report to Shareholders for the fiscal year ended April 29, 1998. These charges
were partially offset by gains recognized on the sale of the New Zealand ice
cream business, $72.1 million pretax ($0.12 per share) and real estate in the
United Kingdom, $13.2 million pretax ($0.02 per share). See Notes 3 and 14 to
the Consolidated Financial Statements beginning on pages 43 and 55,
respectively, of the Company's Annual Report to Shareholders for the fiscal
year ended April 29, 1998.
Results recorded in 1996 include gains related to the sale of the Weight
Watchers Magazine ($0.02 per share) and the sale of two regional dry pet food
product lines ($0.02 per share) and a charge for restructuring costs at
certain overseas affiliates ($0.01 per share).
During 1995, the Company invested approximately $1.2 billion in
acquisitions, the most significant of which was the North American pet food
businesses of The Quaker Oats Company.
Results recorded in 1994 include gains from the sale of the confectionery
business of Heinz Italy and the sale of Heinz U.S.A.'s Near East specialty
rice business.
Note: In the third quarter of Fiscal 1998, the Company adopted SFAS No. 128,
"Earnings Per Share." Previously reported earnings per share amounts have been
restated, as necessary, to conform to Statement No. 128 requirements. All
earnings per share amounts are presented on a diluted basis unless otherwise
noted. See Notes 1 and 13 to the Consolidated Financial Statements beginning
on pages 39 and 55, respectively, of the Company's Annual Report to
Shareholders for the fiscal year ended April 29, 1998.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is set forth in the Management's Discussion and Analysis
section on pages 25 through 34 of the Company's Annual Report to Shareholders
for the fiscal year ended April 29, 1998. Such information is incorporated
herein by reference.
Subsequent to the end of fiscal year 1998, on July 6, 1998, the Company
purchased from Nabisco Inc. the College Inn brand of canned broths. This
acquisition did not involve the purchase of any plants or equipment.
Also subsequent to the end of fiscal year 1998, on July 15, 1998, the
Company, under its current shelf registration statement, issued $250 million
of 6.375% debentures due 2028. The proceeds were used to repay domestic
commercial paper.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This information is set forth in the Management's Discussion and Analysis
section on pages 31 through 33 of the Company's Annual Report to Shareholders
for the fiscal year ended April 29, 1998. Such information is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Company and its subsidiaries as of
April 29, 1998 and April 30, 1997 and the related Consolidated Statements of
Income, Retained Earnings and Cash Flows for the fiscal years ended April 29,
1998, April 30, 1997 and May 1, 1996 together with the related Notes to
Consolidated Financial Statements, included in the Company's Annual Report to
Shareholders for the fiscal year ended April 29, 1998, are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to be reported under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Directors of the Company is set forth under the
captions "Information Regarding Nominees for Election of Directors" and
"Additional Information--Section 16 Beneficial Ownership Reporting Compliance"
in the Company's definitive Proxy Statement in connection with the Annual
Meeting of Shareholders to be held September 8, 1998. Such information is
incorporated herein by reference. Information relating to the executive
officers of the Company is set forth under the caption "Executive Officers of
the Registrant" in Part I above.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
caption "Executive Compensation" in the Company's definitive Proxy Statement
in connection with its Annual Meeting of Shareholders to be held September 8,
1998. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the Company by
certain beneficial owners and management is set forth under the caption
"Security Ownership of Management" in the Company's definitive Proxy Statement
in connection with its Annual Meeting of Shareholders to be held September 8,
1998. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships with a beneficial shareholder
and certain related transactions is set forth under the caption "Certain
Business Relationships and Agreements" in the Company's definitive Proxy
Statement in connection with its Annual Meeting of Shareholders to be held
September 8, 1998. Such information is incorporated herein by reference.
8
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements and report included in the Company's
Annual Report to Shareholders for the fiscal year ended April 29, 1998
are incorporated herein by reference:
Consolidated Balance Sheets as of April 29, 1998 and April 30, 1997
Consolidated Statements of Income for the fiscal years ended April
29, 1998, April 30, 1997 and May 1, 1996
Consolidated Statements of Retained Earnings for the fiscal years
ended April 29, 1998, April 30, 1997, and May 1, 1996
Consolidated Statements of Cash Flows for the fiscal years ended
April 29, 1998, April 30, 1997, and May 1, 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants of PricewaterhouseCoopers LLP
dated June 15, 1998 on the Company's consolidated financial
statements for the fiscal years ended April 29, 1998, April 30, 1997
and May 1, 1996
(2)The following report and schedule is filed herewith as a part hereof:
Report of Independent Accountants of PricewaterhouseCoopers LLP
dated June 15, 1998 on the Company's consolidated financial
statement schedule filed as a part hereof for the fiscal years ended
April 29, 1998, April 30, 1997 and May 1, 1996
Schedule II (Valuation and Qualifying Accounts and Reserves) for the
three fiscal years ended April 29, 1998, April 30, 1997, and May 1,
1996
All other schedules are omitted because they are not applicable or the
required information is included herein or is shown in the consolidated
financial statements or notes thereto incorporated herein by reference.
(3) Exhibits required to be filed by Item 601 of Regulation S-K are listed
below and are filed as a part hereof. Documents not designated as being
incorporated herein by reference are filed herewith. The paragraph
numbers correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
3(i) The Company's Articles of Amendment dated July 13, 1994, amending
and restating the Company's amended and restated Articles of
Incorporation in their entirety are incorporated herein by reference
to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective April 30, 1998.
4. Except as set forth below, there are no instruments with respect to
long-term debt of the Company that involve indebtedness or
securities authorized thereunder exceeding 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis.
The Company agrees to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of the Company upon
request of the Securities and Exchange Commission.
(a) The Indenture between the Company and The First National Bank of
Chicago dated as of July 15, 1992 is incorporated herein by
reference to Exhibit 4(a) to the Company's Registration
Statement on Form S-3 (Reg. No. 333-48017) and the supplements
to such Indenture are incorporated herein by reference to the
Company's Form 8-Ks dated October 29, 1992, January 27, 1993,
March 25, 1998 and July 16, 1998 relating to the Company's
$300,000,000 6 3/4% Notes due 1999, $200,000,000 6 7/8% Notes
due 2003, $300,000,000 6% Notes due 2008 and $250,000,000 6.375%
Debentures due 2028, respectively.
10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star-
Kist Foods, Inc. dated September 6, 1979 for premises located at
Terminal Island, California is incorporated herein by reference to
Exhibit 10(e) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 29, 1981.
9
<PAGE>
(b) Lease of Land in American Samoa, dated as of September 17, 1983, by
and between the American Samoa Government and Star-Kist Samoa, Inc.
is incorporated herein by reference to Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the fiscal year ended May
2, 1984.
(c) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz Company
and affiliated companies, as amended and restated in its
entirety effective December 6, 1995, is incorporated herein
by reference to Exhibit 10(c)(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 1, 1995
(ii) H. J. Heinz Company's 1984 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 2, 1990
(iii) H. J. Heinz Company's 1987 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 2, 1990
(iv) H. J. Heinz Company's 1990 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 3, 1990
(v) H. J. Heinz Company's 1994 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 5, 1994
(vi) H. J. Heinz Company Supplemental Executive Retirement Plan,
as amended, is incorporated herein by reference to Exhibit
10(c)(ix) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 28, 1993
(vii) H. J. Heinz Company Executive Deferred Compensation Plan is
incorporated herein by reference to Exhibit 10(c)(x) to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 27, 1994
(viii) H. J. Heinz Company Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the
Company's Proxy Statement dated August 5, 1994
(ix) H. J. Heinz Company Stock Compensation Plan for Non-Employee
Directors is incorporated herein by reference to Appendix A
to the Company's Proxy Statement dated August 3, 1995
(x) H. J. Heinz Company's 1996 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 2, 1996
(xi) Employment Agreement between H. J. Heinz Company and Daniel
J. O'Neill is incorporated herein by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the six
months ended October 29, 1997
(xii) Service Agreement between H. J. Heinz Company and Anthony J.
F. O'Reilly is incorporated herein by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the nine
months ended January 28, 1998
(xiii) H. J. Heinz Company Deferred Compensation Plan for Directors
13. Pages 25 through 57 of the H. J. Heinz Company Annual Report to
Shareholders for the fiscal year ended April 29, 1998, portions of
which are incorporated herein by reference. Those portions of the
Annual Report to Shareholders that are not incorporated herein by
reference shall not be deemed to be filed as a part of this Report.
21. Subsidiaries of the Registrant.
23. The following Exhibit is filed by incorporation by reference to Item
14(a)(2) of this Report:
(a) Consent of PricewaterhouseCoopers LLP.
24. Powers-of-attorney of the Company's directors.
27. Financial Data Schedule.
10
<PAGE>
99. H. J. Heinz Company Board of Directors' Guidelines on Political
Contributions.
Copies of the exhibits listed above will be furnished upon request to
holders or beneficial holders of any class of the Company's stock,
subject to payment in advance of the cost of reproducing the exhibits
requested.
(b) During the last fiscal quarter of the period covered by this Report the
Company filed a Current Report on Form 8-K dated March 25, 1998 relating
its $300,000,000 6% Notes due 2008.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on July 24, 1998.
H. J. HEINZ COMPANY
(Registrant)
/s/ Paul F. Renne
By......................................
PAUL F. RENNE
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on July 24, 1998.
Signature Capacity
--------- --------
/s/ William R. Johnson
............................. President and
WILLIAM R. JOHNSON Chief Executive Officer
(Principal Executive Officer)
/s/ Paul F. Renne Executive Vice President and
............................. Chief Financial Officer
PAUL F. RENNE (Principal Financial Officer)
/s/ Edward J. McMenamin Vice President-Corporate Controller
............................. (Principal Accounting Officer)
EDWARD J. MCMENAMIN
Anthony J. F. O'Reilly Director
William R. Johnson Director
Nicholas F. Brady Director
Candace K. Bryan Director
Richard M. Cyert Director
Edith E. Holiday Director
Samuel C. Johnson Director
Donald R. Keough Director /s/ Lawrence J. McCabe
Lawrence J. McCabe Director By............................................
Paul F. Renne Director LAWRENCE J. MCCABE
Herman J. Schmidt Director Director and Attorney-in-Fact
Eleanor B. Sheldon Director
William P. Snyder III Director
William C. Springer Director
S. Donald Wiley Director
David R. Williams Director
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders
H. J. Heinz Company:
Our report on the consolidated financial statements of H. J. Heinz Company
and Subsidiaries has been incorporated by reference in this Annual Report on
Form 10-K from the Company's Annual Report to Shareholders for the fiscal year
ended April 29, 1998 and appears on page 57 therein. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule listed in Item 14(a) of this Annual Report on
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Pittsburgh, PA
June 15, 1998
---------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of H. J. Heinz Company on Form S-3 (Registration No. 333-48017) and Form S-8
(Registration Nos. 2-51719, 2-45120, 33-00390, 33-19639, 33-32563, 33-42015,
33-55777, 33-62623, 333-13849) of our reports dated June 15, 1998 on our
audits of the consolidated financial statements and financial statement
schedule of H. J. Heinz Company and Subsidiaries as of April 29, 1998 and
April 30, 1997 and for the fiscal years ended April 29, 1998, April 30, 1997
and May 1, 1996 which reports are included or incorporated by reference in
this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Pittsburgh, PA
July 24, 1998
13
<PAGE>
SCHEDULE II
H. J. HEINZ COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED APRIL 29, 1998, APRIL 30, 1997 AND MAY 1, 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended April
29, 1998:
Reserves deducted in
the balance sheet
from
the assets to which
they apply:
Receivables......... $ 18,934 $ 4,934 $ -- $ 6,241(1) $ 17,627
======== ======= ====== ======= ========
Investments,
advances and other
assets.............. $ 4,767 $ -- $ -- $ 2,375 $ 2,392
======== ======= ====== ======= ========
Goodwill............ $259,019 $51,890 $ -- $13,041(1) $297,868
======== ======= ====== ======= ========
Trademarks.......... $ 57,186 $13,857 $ -- $ 3,252 $ 67,791
======== ======= ====== ======= ========
Other intangibles... $106,046 $14,788 $ -- $ 8,066(1) $112,768
======== ======= ====== ======= ========
Deferred tax assets
(2)................. $ 5,459 $16,755 $ -- $ 1,222 $ 20,992
======== ======= ====== ======= ========
Fiscal year ended April
30, 1997:
Reserves deducted in
the balance sheet
from the assets to
which they apply:
Receivables......... $ 17,298 $11,106 $ -- $ 9,470(1) $ 18,934
======== ======= ====== ======= ========
Investments,
advances and other
assets.............. $ 5,864 $ -- $ -- $ 1,097 $ 4,767
======== ======= ====== ======= ========
Goodwill............ $211,693 $50,955 $ -- $ 3,629(1) $259,019
======== ======= ====== ======= ========
Trademarks.......... $ 49,093 $12,102 $ -- $ 4,009 $ 57,186
======== ======= ====== ======= ========
Other intangibles... $ 92,793 $16,973 $ -- $ 3,720(1) $106,046
======== ======= ====== ======= ========
Deferred tax assets
(3)................. $ 35,594 $ 2,987 $ -- $33,122 $ 5,459
======== ======= ====== ======= ========
Fiscal year ended May 1,
1996:
Reserves deducted in
the balance sheet
from the assets to
which they apply:
Receivables......... $ 16,309 $ 7,254 $ -- $ 6,265(1) $ 17,298
======== ======= ====== ======= ========
Investments,
advances and other
assets.............. $ 7,466 $ -- $ -- $ 1,602 $ 5,864
======== ======= ====== ======= ========
Goodwill............ $163,793 $48,583 $ -- $ 683 $211,693
======== ======= ====== ======= ========
Trademarks.......... $ 34,712 $13,983 $ -- $ (398) $ 49,093
======== ======= ====== ======= ========
Other intangibles... $ 82,718 $16,536 $ -- $ 6,461(1) $ 92,793
======== ======= ====== ======= ========
Deferred tax assets
(4)................. $ 49,487 $ 3,195 $ -- $17,088 $ 35,594
======== ======= ====== ======= ========
</TABLE>
Notes:
(1) Principally reserves on assets sold, written-off or reclassified.
(2) The net change in the valuation allowance for deferred tax assets was an
increase of $15.5 million. The increase was due to increases in the
valuation allowance related to additional deferred tax assets for foreign
tax credit carryforwards ($9.5 million) and loss carryforwards ($7.2
million). The increase was partially offset by a decrease in the valuation
allowance related to the utilization of loss carryforwards ($1.2 million).
See Note 5 to the Consolidated Financial Statements on pages 44 and 45 of
the Company's Annual Report to Shareholders for the fiscal year ended
April 29, 1998.
(3) The net change in the valuation allowance for deferred tax assets was a
decrease of $30.1 million. The decrease was due to the utilization of tax
credit ($27.0 million) and loss ($5.0 million) carryforwards and
recognition of the realizability of certain other deferred tax assets in
future years ($1.1 million). An increase in the valuation allowance
primarily related to deferred tax assets for loss carryforwards ($2.7
million) partially offset the decrease. See Note 5 to the Consolidated
Financial Statements on pages 44 and 45 of the Company's Annual Report to
Shareholders for the fiscal year ended April 29, 1998.
(4) The net change in the valuation allowance for deferred tax assets was a
decrease of $13.9 million. The decrease was primarily due to the
utilization of loss carryforwards ($4.6 million) and recognition of the
realizability of certain other deferred tax assets in future years ($12.5
million). An increase in the valuation allowance related to the deferred
tax asset for foreign tax credit carryforwards ($1.7 million) and loss
carryforwards ($1.5 million) partially offset the decrease. See Note 5 to
the Consolidated Financial Statements on pages 44 and 45 of the Company's
Annual Report to Shareholders for the fiscal year ended April 29, 1998.
<PAGE>
EXHIBIT INDEX
Exhibits required to be filed by Item 601 of Regulation S-K are listed below
and are filed as a part hereof. Documents not designated as being incorporated
herein by reference are filed herewith. The paragraph numbers correspond to
the exhibit numbers designated in Item 601 of Regulation S-K.
EXHIBIT
3(i) The Company's Articles of Amendment dated July 13, 1994, amending
and restating the Company's amended and restated Articles of
Incorporation in their entirety are incorporated herein by reference
to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective April 30, 1998.
4. Except as set forth below, there are no instruments with respect to
long-term debt of the Company that involve indebtedness or
securities authorized thereunder exceeding 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis.
The Company agrees to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of the Company upon
request of the Securities and Exchange Commission.
(a) The Indenture between the Company and The First National Bank of
Chicago dated as of July 15, 1992 is incorporated herein by
reference to Exhibit 4(a) to the Company's Registration
Statement on Form S-3 (Reg. No. 333-48017) and the supplements
to such Indenture are incorporated herein by reference to the
Company's Form 8-Ks dated October 29, 1992, January 27, 1993,
March 25, 1998 and July 16, 1998 relating to the Company's
$300,000,000 6 3/4% Notes due 1999, $200,000,000 6 7/8% Notes
due 2003, $300,000,000 6% Notes due 2008 and $250,000,000 6.375%
Debentures due 2028, respectively.
10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star-
Kist Foods, Inc. dated September 6, 1979 for premises located at
Terminal Island, California is incorporated herein by reference to
Exhibit 10(e) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 29, 1981.
(b) Lease of Land in American Samoa, dated as of September 17, 1983, by
and between the American Samoa Government and Star-Kist Samoa, Inc.
is incorporated herein by reference to Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the fiscal year ended May
2, 1984.
(c) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz Company
and affiliated companies, as amended and restated in its
entirety effective December 6, 1995, is incorporated herein
by reference to Exhibit 10(c)(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 1, 1995
(ii) H. J. Heinz Company's 1984 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 2, 1990
(iii) H. J. Heinz Company's 1987 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 2, 1990
(iv) H. J. Heinz Company's 1990 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 3, 1990
(v) H. J. Heinz Company's 1994 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 5, 1994
<PAGE>
EXHIBIT
(vi) H. J. Heinz Company Supplemental Executive Retirement Plan,
as amended, is incorporated herein by reference to Exhibit
10(c)(ix) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 28, 1993
(vii) H. J. Heinz Company Executive Deferred Compensation Plan is
incorporated herein by reference to Exhibit 10(c)(x) to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 27, 1994
(viii) H. J. Heinz Company Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the
Company's Proxy Statement dated August 5, 1994
(ix) H. J. Heinz Company Stock Compensation Plan for Non-Employee
Directors is incorporated herein by reference to Appendix A
to the Company's Proxy Statement dated August 3, 1995
(x) H. J. Heinz Company's 1996 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 2, 1996
(xi) Employment Agreement between H. J. Heinz Company and Daniel
J. O'Neill is incorporated herein by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the six
months ended October 29, 1997
(xii) Service Agreement between H. J. Heinz Company and Anthony J.
F. O'Reilly is incorporated herein by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the nine
months ended January 28, 1998
(xiii) H. J. Heinz Company Deferred Compensation Plan for Directors
13. Pages 25 through 57 of the H. J. Heinz Company Annual Report to
Shareholders for the fiscal year ended April 29, 1998, portions of
which are incorporated herein by reference. Those portions of the
Annual Report to Shareholders that are not incorporated herein by
reference shall not be deemed to be filed as a part of this Report.
21. Subsidiaries of the Registrant.
23. The following Exhibit is filed by incorporation by reference to Item
14(a)(2) of this Report:
(a) Consent of PricewaterhouseCoopers LLP.
24. Powers-of-attorney of the Company's directors.
27. Financial Data Schedule.
99. H. J. Heinz Company Board of Directors' Guidelines on Political
Contributions.
<PAGE>
Exhibit 3(ii)
BY-LAWS
of
H. J. HEINZ COMPANY
(Incorporated Under the Laws of Pennsylvania)
HEINZ
LOGO
Approved by the Board of Directors: June 10, 1970
Adopted by the Shareholders: September 9, 1970
Amended by the Board of Directors: June 13, 1973, November 9, 1977,
June 13, 1979, July 11, 1979,
September 9, 1987, July 6, 1990,
October 12, 1994, July 10, 1996 and
April 8, 1998 (effective April 30, 1998)
Amended by the Shareholders: September 9, 1987
<PAGE>
BY-LAWS OF H. J. HEINZ COMPANY
ARTICLE I - IDENTIFICATION
SECTION 1. Principal Office. The principal office of the Company shall be
at such place in the Commonwealth of Pennsylvania as the Board of Directors
shall by resolution from time to time designate.
SECTION 2. Seal. The Company shall have a corporate seal in such form as
the Board of Directors shall by resolution from time to time prescribe.
SECTION 3. Fiscal Year. The fiscal year shall end on the Wednesday nearest
to April 30 of each year and begin on the following day.
ARTICLE II - SHAREHOLDERS' MEETING
SECTION 1. Place of Meetings. Meetings of the shareholders of the Company
shall be held at the principal office of the Company or at such other place
within or without the Commonwealth of Pennsylvania as may be fixed by the Board
of Directors.
SECTION 2. Annual Meeting. The annual meeting of the shareholders shall be
held on the second Wednesday in September each year at two o'clock p.m., or on
such other day or at such other time as may be fixed by the Board of Directors.
The shareholders at the annual meeting shall: (i) elect a Board of Directors;
(ii) elect independent certified public accountants to examine the annual
financial statements of the Company and to report on such examination to the
shareholders; and (iii) transact such other business as may properly be brought
before such meeting.
SECTION 3. Chairman of Meeting. All meetings of shareholders shall be
called to order and presided over by the Chairman of the Board or in his
absence, by the President, or in the absence of both, by the person designated
in writing by the Chairman or President./1/
SECTION 4. Determination of Record Dates. The Board of Directors shall fix
a time, not less than ten or more than seventy days, prior to the date of any
meeting of shareholders, as a record date for the determination of the
shareholders entitled to notice of and to vote on such meeting.
SECTION 5. Notice to Shareholders. Written notice of every meeting of the
shareholders shall be given by, or at the direction of, the person or persons
authorized to call the meeting, to each shareholder of record entitled to vote
at the meeting: (i) at least thirty days prior to the date fixed for the annual
meeting; (ii) at least ten days prior to the date fixed for any special meeting,
unless, in either case, a greater period of notice is required by law to be
given in advance of such particular meeting. Written notice shall be deemed to
be
<PAGE>
sufficient if given to the shareholder personally, or by sending a copy thereof
through the mail to his address appearing on the books of the Company, or
supplied by him to the Company for the purpose of notice. The notice required
by this By-Law shall specify the place, date and hour of the meeting, and in
case of a special meeting, the general nature of the business to be transacted.
ARTICLE III - DIRECTORS
SECTION 1. General Powers of Board of Directors. The business and affairs
of the Company shall be managed by its Board of Directors which is hereby
authorized and empowered to exercise all corporate powers of the Company.
SECTION 2. Qualification and Number. The Board of Directors shall have the
power to fix the number of directors and from time to time by proper resolution
to increase or decrease the number thereof without a vote of the shareholders
provided that the number so determined shall not be less than three.
SECTION 3. Election and Term. Except as provided in the Company's Restated
Articles of Incorporation as amended, the shareholders shall at each annual
meeting elect directors each of whom shall serve until the annual meeting of
shareholders next following his election and until his successor is elected and
shall qualify.
SECTION 4. Vacancies. Vacancies on the Board of Directors, including
vacancies from any increase in the number of directors, shall be filled by a
majority of the remaining members of the Board though less than a quorum, and
each person so elected shall be a director until his successor is elected by the
shareholders who may make such election at the next annual meeting of the
shareholders or at any special meeting to be called for that purpose and held
prior thereto.
SECTION 5. Nomination of Directors. Candidates for election to the Board
of Directors at an annual meeting of the shareholders shall be nominated at a
regular or special meeting of the Board held at least sixty days prior to such
annual meeting. Candidates for such election also may be nominated by notice in
writing setting forth the name and address of each candidate, signed by a
shareholder or shareholders and received by the Secretary of the Company at
least thirty days before such annual meeting. If any nominee shall be unwilling
or unable to serve as a director if elected, a substitute nominee shall be
designated by the Board or may be designated by the said shareholder or
shareholders, as the case may be, and announcement of such designation shall be
made at the meeting of the shareholders prior to the voting upon election of
directors.
SECTION 6. Organization Meeting of Board of Directors. The Board of
Directors shall without notice meet each year upon adjournment of the annual
meeting of the shareholders at the principal office of the Company, or at such
other time or place as shall be designated in a notice given to all nominees for
director, for the purposes of organization,
2
<PAGE>
fixing of times and places for regular meetings of the Board for the ensuing
year, election of officers and consideration of any other business that may
properly be brought before the meeting.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be fixed at the organization
meeting of the Board or as may be otherwise determined by the Board.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or the Secretary and
shall be called by the Secretary at the written request of any two directors./1/
SECTION 9. Notice of Regular and Special Meetings. No notice of a regular
meeting of the Board of Directors shall be necessary if the meeting is held at
the time and place fixed by the Board at its organization meeting or at the
immediately preceding Board meeting. Notice of any regular meeting to be held
at another time or place and of all special meetings of the Board, setting forth
the time and place of the meeting, and in the case of a special meeting the
purpose or purposes thereof, shall be given by letter or other writing deposited
in the United States mail not later than during the third day immediately
preceding the day for such meeting, or by telephone, telex, facsimile or other
oral, written or electronic means, received not later than during the day
immediately preceding the day for such meeting or such shorter period as the
person or persons calling such meeting may deem necessary or appropriate under
the circumstances./2/
SECTION 10. Quorum. A majority of the directors in office shall be
necessary to constitute a quorum for the transaction of business, and the acts
of the majority of the directors present at a meeting at which a quorum is
present shall be the acts of the Board of Directors. If at any meeting a quorum
shall not be present, the meeting may adjourn from time to time until a quorum
shall be present.
SECTION 11. Written Consent. Any action which may be taken at a meeting
of the Board of Directors or at a meeting of the executive or other committee as
hereinafter provided may be taken without a meeting, if a consent or consents in
writing setting forth the action so taken shall be signed by all the directors
or the members of the committee, as the case may be, and shall be filed with the
Secretary of the Company.
SECTION 12. Participation by Conference Telephone. One or more directors
may participate in a meeting of the Board of Directors or of a committee of the
Board as hereinafter provided for by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
SECTION 13. Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the whole Board, constitute, abolish or
reconstitute an Executive Committee. The Executive Committee shall be composed
of such number of members of the
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Board as the Board may determine, but in no event less than three, and shall
include the President. The other members of the Executive Committee shall be
appointed and may be removed by the Board. The President shall act as Chairman
of such Committee, and in his absence, the Committee shall select one of its
members to act as Chairman./3/
The Chairman of the Committee shall have power to vote on all questions.
The members of the Committee shall hold office until the first meeting of the
Board of Directors after the next succeeding annual meeting of the shareholders
and until their successors are appointed.
The Board of Directors shall fill any vacancy in the Executive Committee,
and it shall be its duty to keep the membership of such Committee full.
The Executive Committee shall keep proper minutes and records of its
proceedings, and all actions of the Executive Committee shall be reported to the
Board of Directors at its meeting next succeeding such actions, and when the
Board is not in session the Executive Committee shall have all powers and rights
of the Board unless limited by a resolution of the Board.
A quorum of the Executive Committee shall consist of three of its members.
All questions shall be decided by the vote of the majority of the members of
such Committee present.
SECTION 14. Other Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees, each
committee to consist of three or more directors.
SECTION 15. Compensation of Officers and Assistant Officers. Unless
otherwise determined by resolution adopted by the majority of the entire Board
of Directors, the Chief Executive Officer of the Company or such officer as he
may designate shall have the authority to determine, fix and change the
compensation of all officers and assistant officers of the Company elected or
appointed by the Board.
ARTICLE IV - OFFICERS
SECTION 1. Number and Election. The Board of Directors shall elect a
Chairman of the Board, a President, a Secretary and a Treasurer, and may elect
such other officers and assistant officers as the Board may deem appropriate./1/
SECTION 2. Term of Office. The term of office for all officers shall be
until the organization meeting of the Board of Directors following the next
annual meeting of shareholders or until their respective successors are elected
and shall qualify, but any officer may be removed from office, either with or
without cause, at any time by the affirmative vote of the majority of the
members of the Board then in office. A vacancy in any office arising from any
cause may be filled for the unexpired term by the Board.
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SECTION 3. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and of the Board of Directors at which he is
present. He may be a member of any of the committees of the Board./4/
SECTION 4. President. The President shall be the Chief Executive Officer
and shall have general supervision over the business and affairs of the Company.
He shall be a member of the Executive Committee and may be a member of the other
committees of the Board. In the absence of the Chairman, he shall have the
powers of the Chairman of the Board. In addition, he shall perform all duties as
may be assigned to him by the Board of Directors./3/
SECTION 5. Secretary. The Secretary shall attend meetings of the
shareholders, the Board of Directors and the Executive Committee, shall keep
minutes thereof in suitable books, and shall send out all notices of meetings as
required by law or by these By-Laws. He shall, in general, perform all duties
incident to the office of the Secretary and perform such other duties as may be
assigned to him by the Board, the Chairman of the Board or the President./1/
SECTION 6. Treasurer. The Treasurer shall have charge and custody of and
be responsible for all funds and deposit all sums in the name of the Company in
banks, trust companies or other depositories; he shall receive and give receipts
for money due and payable to the Company from any source whatsoever, and in
general shall perform all the duties incident to the office of the Treasurer and
such other duties as may be assigned to him by the Board of Directors, the
President or by any officer to whom the President has directed him to report./3/
SECTION 7. Other Officers. The powers and duties of other officers shall
be such as may, from time to time, be prescribed by the Board of Directors, the
Chairman of the Board or the President./1/
SECTION 8. Delegation of Duties of Officers. In case of the absence of
any officer of the Company or for any other reason that the Board of Directors
may deem sufficient, the Board, or in the absence of action by the Board, the
President, or in his absence, the Chairman of the Board, may delegate for the
time being the powers and duties of any officer to any other officer or to any
director./3/
ARTICLE V - EXECUTION OF WRITTEN INSTRUMENTS
The Board of Directors shall, from time to time, designate the officers,
employees or agents of the Company who shall have power in its name to sign and
endorse checks and other negotiable instruments, and to borrow money for the
Company and in its name to make notes or other evidence of indebtedness. Any
officer so designated by the Board may further delegate his powers to the extent
provided in any resolution of the Board. Unless otherwise
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authorized by the Board, all contracts, leases, deeds and deeds of trust,
mortgages, powers of attorney to transfer stock and all other documents
requiring the seal of the Company shall be executed for and on behalf of the
Company by the Chairman of the Board, the President or any Vice President, and
shall be attested by the Secretary or an Assistant Secretary./1/
ARTICLE VI - CERTIFICATES OF STOCK AND TRANSFERS OF STOCK
SECTION 1. Form of Share Certificates and Transfer. Share certificates
representing the capital stock of the Company shall be in such form as the Board
of Directors may from time to time determine. Each certificate shall be signed
by the Chairman of the Board, the President or one of the Vice Presidents or
other officer designated by the Board and shall be countersigned by the
Treasurer or an Assistant Treasurer and sealed with the seal of the Company. If
such certificates of stock are signed or countersigned by a corporate transfer
agent and a corporate registrar of the Company, such signature of the Chairman
of the Board, the President or other officer, and the countersignature of the
Treasurer or Assistant Treasurer, and such seal, or any of them, may be a
facsimile, engraved or printed./1/
SECTION 2. Transfer Agent and Registrar. The Board of Directors may
appoint an incorporated bank or trust company in the City of Pittsburgh and a
similar institution in the City of New York to act as transfer agents for the
Company's capital stock with such duties and powers as may be prescribed by the
Board in the resolutions appointing them; and an incorporated bank or trust
company in the City of Pittsburgh and a similar institution in the City of New
York to act as registrars of the Company's capital stock. A share certificate
of the Company shall not be valid or binding unless countersigned by a transfer
agent and registered before issue by a registrar.
SECTION 3. Registered Shareholders. The Company shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of Pennsylvania.
SECTION 4. Lost Certificate. Any person claiming a certificate of stock to
be lost or destroyed shall make an affidavit or affirmation of that fact and
advertise the same in such manner as the Board of Directors may require, and
shall, if the directors so require, give the Company a bond of indemnity, in
form and with one or more sureties satisfactory to the Board, whereupon a new
certificate may be issued of the same tenor and for the same number of shares as
the one alleged to be lost or destroyed./5/
SECTION 5. Determination of Shareholders Entitled to Dividends,
Distributions or Rights. The Board of Directors may fix a time not more than
fifty days prior to the date fixed for the payment of any dividend or
distribution or the date for the allotment of rights or the date when any change
or conversion or exchange of shares will be made or go into effect as a record
date for the determination of the shareholders entitled to receive payment of
any
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such dividend or distribution or to receive any such allotment or rights or
to exercise the rights in respect to any such change, conversion or exchange of
shares./6/
ARTICLE VII - LIMITATION OF DIRECTOR LIABILITY/7/
To the fullest extent that the laws of the Commonwealth of Pennsylvania, as
in effect on January 27, 1987 or as thereafter amended, permit elimination or
limitation of the liability of directors, no director of the Company shall be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, as a director. This Article shall not apply to any
action filed prior to January 27, 1987, nor to any breach of performance of duty
or any failure of performance of duty by any director occurring prior to January
27, 1987. The provisions of this Article shall be deemed to be a contract with
each director of the Company who serves as such at any time while such
provisions are in effect, and each such director shall be deemed to be serving
as such in reliance on the provisions of this Article. This Article shall not
be amended, altered or repealed without the affirmative vote of the holders of
at least 80% of the voting power (without consideration of the rights of any
class of stock to elect directors by a separate class) of the then outstanding
shares of Capital stock of the Company entitled to vote in an annual election of
directors, voting together and not as separate classes, unless such amendment,
alteration or repeal is first recommended and approved by a majority of the
entire Board of Directors in which case only a majority shareholder vote shall
be required. Such affirmative vote shall be required notwithstanding the fact
that no vote is required, or that a lesser percentage may be specified, by law
or in any agreement with any national securities exchange or otherwise. Any
amendment to, alternation, or repeal or adoption of this Article which has the
effect of increasing director liability shall operate prospectively only and
shall not have any effect with respect to any action taken, or any failure to
act, by a director prior thereto.
ARTICLE VIII - ADDITIONAL INDEMNIFICATION PROVISIONS APPLICABLE TO PROCEEDINGS
BASED ON ACTS OR OMISSIONS ON OR AFTER JANUARY 27, 1987/7/
SECTION 1. Right of Indemnification. Except as prohibited by law, every
director and officer of the Company shall be entitled as of right to be
indemnified by the Company against reasonable expenses and any liability paid or
incurred by such person in connection with any actual, threatened or completed
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the Company or
otherwise, in which he or she may be involved, as a party or otherwise, by
reason of such person being or having been a director or officer of the Company
or by reason of the fact that such person is or was serving at the request of
the Company as a director, officer, employee, fiduciary or other representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise (such claim, action, suit or proceeding hereinafter being
referred to as an "action"); provided, however, that no such right of
indemnification shall exist with respect to an action brought by a director or
officer against the Company other than a suit for indemnification as provided in
Section 3. Persons or classes of persons who are not directors or officers of
the Company may be similarly indemnified in respect of
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service to the Company or to another such enterprise at the request of the
Company to the extent the Board of Directors at any time denominates such person
or such class of persons as entitled to the benefits of this Article. As used
herein, "expenses" shall include fees and expenses of counsel selected by such
person; and "liability" shall include amounts of judgments, excise taxes, fines,
penalties, and amounts paid in settlement.
SECTION 2. Right to Advancement of Expenses. Indemnification under Section
1 shall include the right to have expenses incurred by such person in connection
with an action (other than an action brought by such person against the Company)
paid in advance by the Company prior to final disposition of such action,
subject to such conditions as may be prescribed by law or by a provision in the
Company's Related Articles of Incorporation, these By-Laws, agreement or
otherwise to reimburse the Company in certain events.
SECTION 3. Right of Claimant to Bring Suit. If a claim under Section 1 or
Section 2 of this Article is not paid in full by the Company within thirty days
after a written claim has been received by the Company, the claimant may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim, and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim. It shall be a
defense to any such action that the conduct of the claimant was such that under
Pennsylvania law the Company would be prohibited from indemnifying the claimant
for the amount claimed, but the burden of proving such defense shall be on the
Company. Neither the failure of the Company (including its Board of Directors,
independent legal counsel and its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the conduct of the claimant was not such
that indemnification would be prohibited by law, nor an actual determination by
the Company (including its Board of Directors, independent legal counsel or its
shareholders) that the conduct of the claimant was such that indemnification
would be prohibited by law, shall be a defense to the action or create a
presumption that the conduct of the claimant was such that indemnification would
be prohibited by law. The only defense to any such action to receive payment of
expenses in advance under Section 2 of this Article shall be failure to make an
undertaking to reimburse if such undertaking is required by law or by a
provision in the Company's Restated Articles of Incorporation, these By-Laws,
agreement or otherwise.
SECTION 4. Insurance and Funding. The Company may purchase and maintain
insurance to protect itself and any person eligible to be indemnified hereunder
against any liability or expense asserted or incurred by such person in
connection with any action, whether or not the Company would have the power to
indemnify such person against such liability or expense by law or under the
provisions of this Article. The Company may create a trust fund, grant a
security interest, cause a letter of credit to be issued or use other means
(whether or not similar to the foregoing) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
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SECTION 5. Non-Exclusivity, Nature and Extent of Rights. The rights of
indemnification and advancement of expenses provided for herein (i) shall not be
deemed exclusive of any other rights, whether now existing or hereafter created,
to which those seeking indemnification hereunder may be entitled under any
agreement, by-law or charter provision, vote of shareholders or directors or
otherwise, (ii) shall be deemed to create contractual rights in favor of persons
entitled to indemnification hereunder, (iii) shall continue as to persons who
have ceased to have the status pursuant to which they were entitled or were
denominated as entitled to indemnification hereunder and shall inure to the
benefit of the heirs and legal representatives of persons entitled to
indemnification and (iv) shall be applicable to actions, suits or proceedings
commenced after the adoption hereof, whether arising from acts or omissions
occurring before or after the adoption hereof.
SECTION 6. Effective Date. This Article shall apply to every action other
than an action filed prior to January 27, 1987, except that it shall not apply
to the extent that Pennsylvania law prohibits its application to any breach of
performance of duty or any failure of performance of duty by a claimant
occurring prior to January 27, 1987.
SECTION 7. Indemnification Agreement. The Company may enter into
agreements with any director, officer or employee of the Company, which
agreements may grant rights to any person eligible to be indemnified hereunder
or create obligations of the Company in furtherance of, different from, or in
addition to, but not in limitation of, those provided in this Article, without
shareholder approval of any such agreement. Without limitation of the
foregoing, the Company may obligate itself (i) to maintain insurance on behalf
of any person eligible to be indemnified hereunder against certain expenses and
liabilities and (ii) to contribute to expenses and liabilities incurred by such
person in accordance with the application of relevant equitable considerations
to the relative benefits to, and the relative fault of, the Company.
SECTION 8. Partial Indemnification. If any person is entitled under any
provision of this Article to indemnification by the Company of a portion, but
not all, of the expenses or liability resulting from an action, the Company
shall nevertheless indemnify such person for the portion thereof to which he is
entitled.
SECTION 9. Severability. If any provision of this Article shall be held to
be invalid, illegal or unenforceable for any reason (i) such provision shall be
invalid, illegal or unenforceable only to the extent of such prohibition and the
validity, legality and enforceability of the remaining provisions of this
Article shall not in any way be affected or impaired thereby, and (ii) to the
fullest extent possible, the remaining provisions of this Article shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
SECTION 10. Amendment, Alteration or Repeal. This Article may be amended,
altered or repealed at any time in the future by vote of the majority of the
entire Board of Directors without shareholder approval; provided that any
amendment, alteration or repeal, or
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adoption of any Article of the Restated Articles of Incorporation or any By-Law
of the Company, which has the effect of limiting the rights granted under this
Article, shall require the affirmative vote of the holders of at least 80% of
the voting power (without consideration of the rights of any class of stock to
elect directors by a separate class) of the then outstanding shares of capital
stock of the Company entitled to vote in an annual election of directors, voting
together and not as separate classes, unless such amendment, alteration or
repeal is first recommended and approved by a majority of the entire Board of
Directors in which case only a majority shareholder vote shall be required.
Such affirmative vote shall be required notwithstanding the fact that no vote is
required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise. Any amendment to,
alteration or repeal of this Article, or such other Article or other By-Law,
which has the effect of limiting the rights granted under this Article shall
operate prospectively only, and shall not limit in any way the indemnification
provided for herein with respect to any action taken, or failure to act,
occurring prior thereto.
ARTICLE IX - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. Indemnification for Actions, etc., Other Than By or In the Right
of the Company. The Company shall indemnify any person who was or is a party or
is threatened with being made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action, suit or proceeding by or in the right of
the Company) by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
SECTION 2. Indemnification for Actions, etc., By or In the Right of the
Company. The Company shall indemnify any person who was or is a party or is
threatened with being made a party to any threatened, pending or completed
action or suit by or in the right of the Company to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of
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the Company and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the court or body in or before which
such action, suit or proceeding was finally brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which the court of competent jurisdiction
shall deem proper.
SECTION 3. Determination of Right to Indemnification. To the extent that a
director or officer of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
(1) and (2) of this Article or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Any indemnification under Sections (1) or (2) of this Article (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of a director or officer
is proper in the circumstances because he has met the applicable standard of
conduct set forth in this Article. Such determination shall be made:
(a) By the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or
(b) If such a quorum is not obtainable, or, even if obtainable a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or
(c) By the shareholders.
SECTION 4. Payment of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized in the manner
provided in Section 3 of this Article upon receipt of an undertaking by or on
behalf of the director or officer, to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the Company as
authorized in this Article.
SECTION 5. Indemnification of Managerial and Retired Employees. Each
employee of the Company acting in a managerial capacity (and each retired
employee who is or was, after retirement, a party to an agreement under which he
is or was obligated to render services to the Company or such other entity)
shall be reimbursed and indemnified in the same manner and to the same extent as
provided in this Article for a director or officer in connection with any
proceeding in which he may be involved or to which he may be a party by reason
of his being or having been such employee or a party to any such agreement or by
reason of any action alleged to have been taken or omitted by him in any such
capacity.
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SECTION 6. Other Rights and Remedies. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 7. Insurance. To the extent permitted by law, the Board of
Directors may at its discretion from time to time purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Company would have power to indemnify him against such liability under the
provisions of this Article.
SECTION 8. Applicability. The indemnification and reimbursement provided
under this Article shall continue to be provided to all persons described herein
unless such persons have received the benefits of indemnification under Article
VIII of these By-Laws./8/
ARTICLE X - NON-APPLICABILITY OF PROVISIONS
OF PENNSYLVANIA ACT NO. 36 of 1990/9/
SECTION 1. Non-Applicability. The following provisions of Pennsylvania Act
No. 36 of 1990 shall not be applicable to the Company;
A. Subsections (d) through (f) of Section 511 of Title 15 of the
Pennsylvania Consolidated Statutes.
B. Subsections (e) through (g) of Section 1721 of Title 15 of the
Pennsylvania Consolidated Statutes.
C. Subchapter G of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes.
D. Subchapter H of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes.
SECTION 2. Expressed Intention. Nothing in the foregoing paragraphs of
Section 1 of this Article X (including, without limitation, paragraphs A and B
thereof) is intended to limit, or shall limit or be deemed to limit, the right,
power or discretion of the Board of Directors, or of any committee of the Board
of Directors, or of any individual director, in discharging the duties of their
respective positions, to consider to the extent, if any, they
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deem, appropriate: (i) the effects of any action or proposed action (or of any
omission to act) upon any or all groups affected by such action (or omission to
act), including effects upon shareholders, employees, suppliers, customers and
creditors of the Company and upon communities in which offices or other
establishments of the Company are located; (ii) the short-term and/or long-term
interests of the Company, including benefits that may accrue or be expected to
accrue to the Company from its long-term or intermediate plans and strategies
(and/or the long-term or intermediate plans and strategies of one or more of its
affiliates) and the effect thereon of any action or proposed action (including,
without limitation, any proposed acquisition, divestiture or other transaction),
and the possibility that such short-term and/or longer-term interests might be
served by the continued independence of the Company; (iii) the resources, intent
and conduct (past, stated and potential) of any person seeking to acquire
control of the Company or proposing any transaction with the Company; and (iv)
all other factors deemed pertinent by the Board of Directors or any such
committee or individual director.
ARTICLE XI - BY-LAWS SUBJECT TO PROVISIONS OF ARTICLES OF INCORPORATION
In case of any conflict between the provisions of these By-Laws and the
Company's Restated Articles of Incorporation as amended from time to time, the
provisions of the Articles of Incorporation shall control, and with respect to
any provisions required to be set forth in the By-Laws, the applicable
provisions of the Articles of Incorporation are and shall be incorporated herein
by reference and shall be deemed a part of these By-Laws.
ARTICLE XII - AMENDMENTS/10/
Except as otherwise provided in Articles VII and VIII, these By-Laws may be
altered, amended, added to or repealed by the Board of Directors at any meeting
of the Board duly convened with or without notice of that purpose, subject to
the power of the shareholders to change such action.
- --------------------
/1/ Section amended by the Board of Directors on June 13, 1973 and June 13,
1979.
/2/ Section amended by the Board of Directors on October 12, 1994.
/3/ Section amended by the Board of Directors on June 13, 1973, June 13, 1979,
July 10, 1996 and April 8, 1998 (effective April 30, 1998).
/4/ Section amended by the Board of Directors on June 13, 1979, July 10, 1996
and April 8, 1998 (effective April 30, 1998).
/5/ Section amended by the Board of Directors on July 11, 1979.
/6/ Section amended by the Board of Directors on November 9, 1977.
/7/ Article added by the Shareholders on September 9, 1987.
/8/ Section added by the Board of Directors on September 9, 1987.
/9/ Article added by the Board of Directors on July 6, 1990.
/10/ Article amended by the Board of Directors on September 9, 1987.
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Exhibit 10(c)(xiii)
DEFERRED COMPENSATION PLAN FOR DIRECTORS
----------------------------------------
Section 1. Effective Date. The effective date of the Plan is July 1, 1982.
- --------- --------------
Section 2. Eligibility. Any Director of H. J. Heinz Company (the "Company")
- --------- -----------
who is not an officer or employee of the Company or a subsidiary of the Company
is eligible to participate in the Plan.
Section 3. Deferred Compensation Account. There shall be established for each
- --------- -----------------------------
participant who so elects a deferred compensation account ("Account").
Section 4. Amount of Deferral. A participant may elect to defer receipt of all
- --------- ------------------
or a specified part of the compensation otherwise payable to the participant for
serving on the Board of Directors or committees of the Board of Directors of the
Company. Deferred compensation will be credited to the participant's Account on
the date such compensation would otherwise be payable.
Section 5. Time of Election of Deferral. An election to defer compensation
- --------- ----------------------------
shall be effective when made, as to any compensation not then earned. An
election shall continue until the Company is notified in writing that the
participant wishes to revoke such election with respect to compensation for
services rendered subsequent to such notification.
Section 6. Interest. The Company shall be obligated to pay interest on the
- --------- --------
amount of a participant's Account. Interest shall accrue on additions to an
Account as of the first day of the month following the month in which such
addition is made. Interest earned for a year shall be added to the Account on
the last day of the Company's fiscal year and shall thereafter be part of the
Account for all purposes of this Plan. The rate of interest in effect for a
fiscal year shall be equal to the prime rate at Mellon Bank, N.A., Pittsburgh,
Pennsylvania, on the last day of the preceding fiscal year.
Section 7. Manner of Electing Deferral. A participant shall elect to defer
- --------- ---------------------------
compensation by giving written notice to the Company on a form provided by the
Company prior to the time such compensation is earned. The notice shall include
(1) the amount to be deferred; (2) an election of either a lump sum payment or
the number of annual installments (not to exceed 20) for the payment of the
Account balance; and (3) the date of the lump sum payment or the first
installment payment.
Elections under this Section shall be irrevocable. Provided, however, that upon
proper showing of financial hardship, the Executive Committee of the Company's
Board of Directors may, in its sole discretion, reduce the payment period.
<PAGE>
Section 8. Payment of Account Balance. Payment of the participant's Account
- --------- --------------------------
shall be made (or shall begin, in the case of an installment payout) within 30
days of the date specified in the participant's deferral election.
If a participant elects an installment payout, each installment payment except
the last one shall be the amount determined by dividing the Account balance (not
including accrued but not credited interest) on the date installment payments
begin by the number of installments elected. The last payment shall be the
amount necessary to reduce the Account balance to zero (including accrued but
not credited interest).
If an Account balance exists on a participant's death, the amount plus interest
to the date of death shall be paid to the beneficiary last designated by the
participant or, if no beneficiary has been designated, such amount shall be paid
to the participant's estate.
Section 9. Participant's Rights Unsecured and Unfunded. The right of any
- --------- -------------------------------------------
participant to receive future payments under the provisions of this Plan shall
be an unsecured claim against the general assets of the Company. The amounts
credited to a participant under the Plan shall not be funded in any manner prior
to payment of such amounts becoming due.
Section 10. Statement of Account. Statements will be sent to each participant
- ---------- --------------------
during May of each year as to the value of his Account as of the end of the
preceding fiscal year.
Section 11. Assignability. The right to receive payments hereunder shall not
- ---------- -------------
be transferable or assignable by a participant nor subject to the claims of the
participant's creditors.
Section 12. Amendment. This Plan may at any time or from time to time be
- ---------- ---------
amended, modified or terminated by the Board of Directors or the Executive
Committee of the Board of Directors of the Company. No amendment, modification
or termination shall, without the consent of a participant, adversely affect
such participant under this Plan with respect to the then current balance of his
Account.
2
<PAGE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
H.J. Heinz Company and Subsidiaries
- ------------------------------------------------------------------------------
In Fiscal 1998, the H.J. Heinz Company made significant
progress on the implementation of Project Millennia, the
company's largest-ever reorganization plan announced in
the fourth quarter of Fiscal 1997. Project Millennia was
designed to strengthen the company's core businesses and
improve the company's profitability and global growth.
On June 30, 1997, the company completed the sale of its
Ore-Ida frozen foodservice business to McCain Foods
Limited. The transaction resulted in a pretax gain of
approximately $96.6 million ($0.14 per share), and was
recorded as an offset to selling, general and
administrative ("SG&A") expenses. (All earnings per share
amounts included in Management's Discussion and Analysis
are presented on a diluted basis.) Including this
divestiture, the company has announced the closure or sale
of 25 plants worldwide.
The results for Fiscal 1998 included non-recurring costs
related to the implementation of Project Millennia of
$84.1 million pretax ($0.14 per share). These non-
recurring costs consist primarily of relocation, training,
consulting and start-up costs.
In comparison, the financial results for Fiscal 1997
were also significantly impacted by Project Millennia.
Restructuring charges and related costs recorded in Fiscal
1997 for Project Millennia totaled $647.2 million pretax
($1.09 per share). Also during Fiscal 1997, the company
recognized gains on the sale of the New Zealand ice cream
business, $72.1 million pretax ($0.12 per share) and real
estate in the United Kingdom, $13.2 million pretax ($0.02
per share). As an integral part of Project Millennia, the
company implemented a program to eliminate inefficient
end-of-quarter trade promotion practices, which reduced
Fiscal 1997 earnings by an estimated $102.7 million pretax
($0.17 per share).
- ------------------------------------------------------------------------------
RESULTS OF 1998 versus 1997: Sales for 1998 decreased $147.7
OPERATIONS million, or 1.6%, to $9.21 billion from $9.36 billion in
1997. The sales decrease was primarily due to divestitures
which reduced sales by 6.6% for the year and the
unfavorable effect of foreign exchange translation rates
which reduced sales by 3.1%. Sales volume increased 3.1%.
In addition, acquisitions increased sales by 3.5% and
favorable pricing increased sales by 1.5%. Domestic
operations contributed approximately 53% of consolidated
sales in 1998, compared to approximately 55% in 1997.
Divestitures accounted for $617.0 million, or 6.6%, of
the sales decrease. This decrease is primarily
attributable to the divestitures of the Ore-Ida frozen
foodservice business in the first quarter of Fiscal 1998
and the New Zealand ice cream business in the fourth
quarter of Fiscal 1997. The unfavorable sales impact of
divestitures was partially offset by acquisitions, which
increased sales by $332.0 million, or 3.5%. During Fiscal
1998, the company acquired John West Foods Limited in
Europe and made other smaller acquisitions. Fiscal 1997
acquisitions impacting the year-to-year sales dollar
comparison include substantially all of the pet food
businesses of Martin Feed Mills Limited in Canada, the
canned beans and pasta business of Nestle Canada Inc. and
other smaller acquisitions, primarily in the Asia/Pacific
region.
25
<PAGE>
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Volume increased $286.8 million, or 3.1%, in 1998.
Domestically, strong volume increases were noted in Ore-
Ida retail frozen potatoes, soups and Heinz ketchup,
offset partially by a volume decrease in dog food. Foreign
volume increases were noted in seafood, infant food,
weight loss classroom activities, weight loss entrees and
bakery products.
Favorable pricing increased sales $136.4 million, or
1.5%, in 1998. Domestically, price increases were noted in
seafood, Heinz ketchup and infant food, offset partially
by a price decrease in frozen entrees.
Foreign currencies declined against the U.S. dollar,
decreasing sales $285.9 million, or 3.1%. This decrease
came primarily from sales in Italy and the Asia/Pacific
region, offset partially by sales in the United Kingdom.
In Fiscal 1998, the company implemented "price-based
costing" for The Budget Gourmet brand of frozen entrees.
This strategy has turned around the negative volume trends
noted in Fiscal 1997 with a volume increase in Fiscal
1998. In addition, the company has also refocused on the
"Smart Ones from Weight Watchers" line of frozen entrees,
resulting in a volume increase as well. Strong volume
increases were also experienced in the Weight Watchers
meeting business, which benefited from the implementation
of the Weight Watchers 1*2*3 Success(TM) Plan in the U.S.
Gross profit increased $526.2 million to $3.50 billion
from $2.97 billion, and the gross profit margin increased
to 38.0% from 31.8%. Excluding non-recurring items related
to Project Millennia in both years, gross profit increased
$169.3 million, or 5.0%, to $3.53 billion, or 38.4% of
sales, from $3.36 billion, or 36.0% of sales, last year.
The current year was unfavorably impacted by non-recurring
costs related to the implementation of Project Millennia
of $35.7 million. The prior year was unfavorably impacted
by Project Millennia restructuring and related costs of
$477.8 million, partially offset by gains on the sales of
the New Zealand ice cream business and real estate in the
United Kingdom of $85.3 million. The current year's gross
profit and gross profit margin were favorably impacted by
price increases and reduced trade allowances which
resulted from the discontinuance of inefficient end-of-
quarter trade promotions, cost savings resulting from
Project Millennia, a favorable product mix and the sale of
the lower margin Ore-Ida frozen foodservice business.
SG&A expenses decreased $237.9 million to $1.98 billion
from $2.22 billion and decreased as a percentage of sales
to 21.5% from 23.7%. Excluding non-recurring items related
to Project Millennia in both years, SG&A expenses
decreased $20.3 million to $2.03 billion from $2.05
billion and increased slightly as a percentage of sales to
22.0% from 21.9%. Fiscal 1998 was favorably impacted by
the gain on the sale of the Ore-Ida frozen foodservice
business of $96.6 million, offset partially by non-
recurring costs related to the implementation of Project
Millennia of $48.4 million. The prior year was unfavorably
impacted by $169.4 million of restructuring and related
costs. Excluding non-recurring items related to Project
Millennia in both years, increased marketing and general
and administrative expenses were offset by lower selling
and distribution expenses attributable to cost savings
resulting from Project Millennia.
Total marketing support (including trade and consumer
promotions and media) remained relatively constant on a
sales decrease of 1.6%. However, advertising costs to
support our key brands increased 13.8%. (See Note 16 to
the Consolidated Financial Statements.)
Operating income increased to $1.52 billion from $756.3
million reported last year. Excluding the non-recurring
items related to Project Millennia in both years,
operating income increased 14.4% to $1.51 billion from
$1.32 billion last year. This increase was primarily due
to the increase in gross
26
<PAGE>
- ------------------------------------------------------------------------------
profit, as SG&A expenses were relatively flat year-on-year.
Operating income in the current year was negatively impacted
by foreign exchange translation rates, primarily in Italy
and the Asia/Pacific region, which reduced operating income
by $45.5 million or 3.5%. In addition to the restructuring
and related costs, last year's operating income was
negatively impacted by the company's decision to eliminate
inefficient end-of-quarter trade promotion practices.
Domestic operations provided approximately 59% of operating
income in 1998 compared to approximately 23% of operating
income in 1997. Excluding the non-recurring items related to
Project Millennia in both years, domestic operations
provided 57% of operating income this year versus
approximately 53% of operating income last year.
Non-operating expenses totaled $265.3 million in 1998
compared to $277.2 million in 1997. Net interest expense
decreased $9.4 million, or 4.0%, to $226.0 million from
$235.4 million due mainly to lower average borrowings.
The effective tax rate was 36.1% in 1998 compared to
37.0% in 1997. The 1998 effective tax rate reflects the
benefits of recent tax legislation in Italy and the United
Kingdom. (See Note 5 to the Consolidated Financial
Statements.)
Net income increased $499.7 million to $801.6 million
from $301.9 million last year and earnings per share
increased to $2.15 from $0.81. Excluding the non-recurring
items related to Project Millennia in both years, net
income increased $143.5 million, or 21.8%, to $801.4
million in Fiscal 1998 from $657.9 million in Fiscal 1997
and earnings per share increased to $2.15 per share from
$1.76 per share.
The impact of fluctuating exchange rates for 1998
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
1997 versus 1996: Sales for 1997 increased $244.7 million,
or 2.7%, to $9.36 billion from $9.11 billion in 1996. The
sales increase was primarily due to acquisitions (net of
divestitures) and increased prices in a number of product
lines. Sales volume was reduced by the company's program
to eliminate inefficient end-of-quarter trade promotion
practices, primarily in North America. Domestic operations
contributed approximately 55% of consolidated sales in
1997, compared to approximately 57% in 1996.
Acquisitions (net of divestitures) contributed $225.5
million, or 2.5%, to the sales increase. Fiscal 1997
acquisitions impacting the year-to-year sales dollar
comparison included: Southern Country Foods Limited in
Australia, a producer of canned corned beef and meals;
substantially all of the pet food businesses of Martin
Feed Mills Limited in Canada, which produces and markets
cat and dog food throughout Canada; the canned beans and
pasta business of Nestle Canada Inc.; and other smaller
acquisitions.
Also contributing to the sales dollar increase were the
following 1996 acquisitions: Nature's Recipe Pet Food in
the U.S., which markets a brand of premium specialty pet
foods; Alimentos Pilar S.A. of Argentina, a producer of
pet and animal feed; Fattoria Scaldasole S.p.A. in Italy,
a processor of organic foods; Earth's Best, Inc. in the
U.S., which produces premium organic baby foods; Britwest
Ltd. in the United Kingdom, which markets single-serve
condiments, beverages and sauces in Britain and France;
the Craig's brand of jams and dressings in New Zealand;
Indian Ocean Tuna Ltd. in the Seychelles; and the Mareblu
brand of canned tuna in Italy. Sales were reduced by the
divestitures of the following non-strategic businesses: an
overseas mushroom business; Weight Watchers Magazine; two
regional dry
27
<PAGE>
- ------------------------------------------------------------------------------
pet food product lines; the New Zealand ice cream business;
and other smaller divestitures.
Worldwide prices increased $152.7 million, or 1.7%, in
1997. Domestic price increases occurred in Ore-Ida retail
frozen potatoes, single-serve condiments and pet food.
Overseas, prices increased in infant foods and soups.
Worldwide volume decreased $104.5 million, or 1.2%, in
1997. Sales volume was reduced by the company's program to
eliminate inefficient end-of-quarter trade promotion
practices as discussed above, primarily in North America.
Domestic sales volume decreased 3.4%, as volume declined
in Ore-Ida retail frozen potatoes, ketchup and infant
foods. Sales volume also declined in frozen entrees
(including weight control) due primarily to a very
competitive marketplace. Domestic sales volume increased
in foodservice frozen potatoes, bakery products,
condiments and pet food. Foreign sales volume increased
1.9%, driven by increased attendance overseas at the
Weight Watchers meeting business.
Overall, attendance was up in the Weight Watchers
meeting business due to a strong increase in attendance
overseas, offset partially by lower attendance in the U.S.
Foreign currencies declined against the U.S. dollar,
decreasing sales $29.0 million, or less than 1%. This
decrease came primarily from sales in Japan, Central
Europe and Zimbabwe, offset partially by sales in the
United Kingdom.
Gross profit decreased $365.0 million to $2.97 billion
in 1997 from $3.34 billion in 1996. The gross profit
margin decreased to 31.8% from 36.6%. Excluding the
effects of the 1997 restructuring charges and related
costs of $477.8 million, and the gains on the sale of the
New Zealand ice cream business and real estate in the
United Kingdom of $85.3 million, gross profit would have
increased $27.5 million to $3.36 billion, however, the
gross profit margin would have decreased to 36.0%. Fiscal
1997's adjusted gross profit margin of 36.0% was impacted
by the company's change in trade promotion practices and
higher commodity prices, offset partially by favorable
pricing.
SG&A expenses increased $166.3 million to $2.22 billion
from $2.05 billion and increased as a percentage of sales
to 23.7% from 22.5%. Excluding the effects of the 1997
restructuring charges and related costs of $169.4 million,
SG&A expenses would have remained flat at $2.05 billion
and would have decreased as a percentage of sales to
21.9%.
Total marketing support (including trade and consumer
promotions and media) increased 3.8% to $2.05 billion on a
sales increase of 2.7%.
Operating income decreased $531.3 million to $756.3
million from $1.29 billion. Excluding the effects of the
1997 restructuring charges and related costs, and gains
recognized on the sale of certain non-strategic assets,
operating income would have increased $30.6 million to
$1.32 billion. The increase in operating income, excluding
the impact of these non-recurring items, was primarily due
to the increase in gross profit as SG&A expenses were
relatively flat year-on-year. Domestic operations provided
approximately 23% of operating income in 1997 compared to
approximately 57% in 1996. Excluding the effects of the
1997 restructuring charges and related costs, and gains
recognized on the sale of certain non-strategic assets,
domestic operations would have provided approximately 53%
of operating income.
Non-operating expenses totaled $277.2 million in 1997
compared to $263.9 million in 1996. Net interest expense
increased 1.2% to $235.4 million from $232.6 million.
28
<PAGE>
- ------------------------------------------------------------------------------
The effective tax rate was 37.0% in 1997 and 35.6% in
1996. The lower effective tax rate in 1996 reflects the
recognition of operating losses overseas. (See Note 5 to
the Consolidated Financial Statements.)
Net income decreased $357.4 million to $301.9 million
from $659.3 million in Fiscal 1996 and earnings per share
decreased to $0.81 from $1.75. After-tax restructuring
charges and related costs, net of gains recognized on the
sale of certain non-strategic assets, totaled $356.0
million, or $0.95 per share. Excluding the impact of these
non-recurring items, net income would have decreased
slightly to $657.9 million and earnings per share would
have increased to $1.76. Earnings per share benefited
slightly from a reduction in the average number of shares
used for the calculation of earnings per share, which was
due primarily to the company's share repurchase program.
The impact of fluctuating exchange rates for 1997
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
- ------------------------------------------------------------------------------
LIQUIDITY AND Return on average shareholders' equity (ROE) was 34.4%
FINANCIAL POSITION in 1998, 11.7% in 1997 and 25.5% in 1996. Excluding non-
recurring items related to Project Millennia, ROE was
34.4% and 23.9% in 1998 and 1997, respectively. Pretax
return on average invested capital (ROIC) was 27.0% in
1998, 12.6% in 1997 and 21.8% in 1996. Excluding non-
recurring items related to Project Millennia, ROIC was
26.8% and 21.4% in 1998 and 1997, respectively.
Cash provided by operating activities increased to $1.07
billion in 1998, compared to $875.0 million in 1997 and
$737.1 million in 1996. Fiscal 1998 benefited from
increased earnings, while both Fiscal 1998 and 1997
benefited from the company's decision in the fourth
quarter of 1997 to eliminate inefficient end-of-quarter
trade promotion practices, which has resulted in improved
inventory turns and reduced working capital. In both
periods the increases were offset partially by
expenditures related to Project Millennia.
Cash provided by investing activities totaled $27.2
million in 1998, compared to requiring $386.3 million in
1997. Proceeds from divestitures totaled $494.7 million in
1998, primarily due to the sale of the Ore-Ida frozen
foodservice business, versus $165.6 million in 1997. (See
Note 3 to the Consolidated Financial Statements.) In 1998,
the company spent $142.1 million on acquisitions compared
to $208.4 million in 1997. (See Note 2 to the Consolidated
Financial Statements.)
Capital expenditures totaled $373.8 million in 1998 and
$377.5 million in 1997. Both years reflect expenditures
for productivity improvements and plant expansions,
principally at the company's Heinz Pet Products, Heinz
U.S.A., Wattie's, European Seafood, United Kingdom, Ore-
Ida, StarKist Seafood and Heinz Bakery Products
operations.
Purchases and sales/maturities of short-term investments
decreased in 1998. The company periodically sells a
portion of its short-term investment portfolio in order to
reduce its borrowings. In 1996, investments in tax
benefits provided $62.1 million, due mainly to the
company's sale of certain domestic investments.
Financing activities used $1.15 billion in 1998 compared
to $429.8 million in 1997. The company made net repayments
on indebtedness totaling $306.2 million in 1998 versus
borrowing funds totaling $82.0 million in 1997. Cash used
for dividends paid to shareholders increased by $35.6
million. Treasury stock purchases totaled $677.2 million
(13.6 million shares) in 1998 versus $277.0 million (7.9
million shares) in 1997. Stock options exercised provided
an additional $65.9 million in 1998 compared to 1997.
The average amount of short-term debt outstanding
(excluding the long-term portion of domestic commercial
paper) during 1998, 1997 and 1996 was $556.3 million,
$520.5 million and $1.52 billion, respectively. Total
short-term
29
<PAGE>
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debt had a weighted-average interest rate during 1998 of
6.5% and at year-end of 6.4%. The weighted-average interest
rate on short-term debt during 1997 was 7.6% and at year-end
was 6.1%.
Aggregate domestic commercial paper had a weighted-
average interest rate during 1998 and at year-end of 5.6%.
In 1997, the weighted-average rate was 5.4% and the rate
at year-end was 5.6%. Based upon the amount of commercial
paper recorded at April 29, 1998, a variance of 1/8% in
the related interest rate would cause annual interest
expense to change by approximately $1.8 million. In
February 1998, the company issued $250 million of 5.75%
five-year notes in the international capital markets. On
March 16, 1998, the company filed a shelf registration
statement with the Securities and Exchange Commission
pursuant to which the company may from time to time issue
debt securities of up to $750 million in the aggregate.
The first transaction under the shelf registration
statement was the issuance of $300 million of 6% ten-year
notes in March 1998. The proceeds from both the five-year
notes and the ten-year notes were used to repay domestic
commercial paper. (See Note 6 to the Consolidated
Financial Statements.)
The company's $2.30 billion credit agreement, which
expires in September 2001, supports its domestic
commercial paper program. As of April 29, 1998, $1.34
billion of domestic commercial paper is classified as
long-term debt due to the long-term nature of the
supporting credit agreement. At April 30, 1997, $1.35
billion of domestic commercial paper was outstanding and
classified as long-term debt.
On September 10, 1997, the company's Board of Directors
raised the quarterly dividend on the company's common
stock to $0.31 1/2 per share from $0.29 per
share, for an indicated annual rate of $1.26 per share.
The company paid $452.6 million in dividends to both
common and preferred shareholders, an increase of $35.6
million, or 8.5%, over 1997. The dividend rate in effect
at the end of each year resulted in a payout ratio of
58.6% in 1998, 143.2% in 1997 and 60.6% in 1996. Excluding
the impact of the non-recurring items related to Project
Millennia in 1998 and 1997, the payout ratio was 58.6% and
65.9%, respectively.
In 1998, the company repurchased 13.6 million shares of
treasury stock, or 3.7% of the amount outstanding at the
beginning of Fiscal 1998, at a cost of $677.2 million. As
of April 29, 1998, the company had repurchased 1.8 million
shares as part of the current 10.0 million share
repurchase program, which was authorized by the Board of
Directors on September 10, 1997. The previous 15.0 million
share repurchase program, which was authorized by the
Board of Directors on July 10, 1996, was completed in
March 1998. During 1997, 7.9 million shares were
repurchased at a cost of $277.0 million. The company may
reissue repurchased shares upon the exercise of stock
options, conversion of preferred stock and for general
corporate purposes.
In Fiscal 1998, the cash requirements for Project
Millennia totaled approximately $340 million consisting of
spending for severance and exit costs, capital
expenditures and non-recurring costs related to the
implementation of Project Millennia. In Fiscal 1999, the
company expects the cash requirements related to Project
Millennia to be approximately $150 million. The company is
financing the cash requirements of Project Millennia
through operations, proceeds from the sale of non-
strategic assets and with short- and long-term borrowings.
The remaining cash requirements of Project Millennia will
not have a significant impact on the company's liquidity
or financial position.
During 1995, the company participated in the formation
of a business (the "entity") which purchases a portion of
the trade receivables generated by the company. The
company sells receivables to Jameson, Inc., a wholly
30
<PAGE>
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owned subsidiary, which then sells undivided interests in
the receivables to the entity. Outside investors contributed
$95.4 million in capital to the entity. The company
consolidates the entity, and the capital contributed by
outside investors is classified as minority interest ("other
long-term liabilities") on the Consolidated Balance Sheets.
In June 1997, the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting comprehensive income
in financial statements and SFAS No. 131 expands certain
reporting and disclosure requirements for segments from
current standards. In February 1998, the FASB issued SFAS
No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit
plans. The company will adopt these statements in Fiscal
1999. The adoption of these statements will not have a
financial impact on the company.
In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards
for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. The statement requires that an entity
recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. The company is not required to
adopt the statement until Fiscal 2001. The company is
currently evaluating the effect that implementation of the
new standard will have on its results of operations and
financial position.
The impact of inflation on both the company's financial
position and results of operations has been minimal and is
not expected to adversely affect 1999 results.
The company's financial position continues to remain
strong, enabling it to meet cash requirements for
operations, capital expansion programs and dividends to
shareholders.
- ------------------------------------------------------------------------------
MARKET RISK The following discussion about the company's risk-
FACTORS management activities includes "forward-looking"
statements that involve risk and uncertainties. Actual
results could differ materially from those projected in
the forward-looking statements.
The company is exposed to market risks from adverse
changes in foreign exchange rates, interest rates and
commodity prices. As a policy, the company does not engage
in speculative or leveraged transactions, nor does the
company hold or issue financial instruments for trading
purposes.
Foreign Exchange Rate Sensitivity: The company's cash flow
and earnings are subject to fluctuations due to exchange
rate variation. Foreign currency risk exists by nature of
the company's global operations. The company manufactures
and sells its products in a number of locations around the
world, and hence foreign currency risk is well
diversified.
When appropriate, the company may attempt to limit its
exposure to changing foreign exchange rates through both
operational and financial market actions. These actions
may include entering into forward, option and swap
contracts to hedge existing exposures, firm commitments
and, potentially, anticipated transactions. The
instruments are used to reduce risk
31
<PAGE>
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by essentially creating offsetting currency exposures. As of
April 29, 1998, the company held contracts for the purpose
of hedging certain intercompany cash flows with an aggregate
notional amount of approximately $630 million. In addition,
the company also held separate contracts in order to hedge
purchases of certain raw materials and finished goods and
for payments arising from certain foreign currency
denominated obligations totaling approximately $280 million.
Most of the company's contracts mature within one year of
the fiscal year-end. The contracts that effectively meet the
risk reduction and correlation criteria, as measured on a
currency-by-currency basis are accounted for as hedges.
Accordingly, gains and losses are deferred in the cost basis
of the underlying transaction. In those circumstances when
it is not appropriate to account for the contracts as
hedges, any gains and losses from mark-to-market and
settlement are recorded in miscellaneous income and expense.
At April 29, 1998, unrealized gains and losses on
outstanding foreign currency contracts are not material. As
of April 29, 1998, the potential gain or loss in the fair
value of the company's outstanding foreign currency
contracts, assuming a hypothetical 10% fluctuation in the
currencies of such contracts, would be approximately $90
million. However, it should be noted that any change in the
value of the contracts, real or hypothetical, would be
significantly offset by an inverse change in the value of
the underlying hedged items. In addition, this hypothetical
calculation assumes that each exchange rate would change in
the same direction relative to the U.S. dollar.
Substantially all of the company's foreign affiliates'
financial instruments are denominated in their respective
functional currencies. Accordingly, exposure to exchange
risk on foreign currency financial instruments is not
material. (See Note 12 to the Consolidated Financial
Statements.)
Interest Rate Sensitivity: The company is exposed to
changes in interest rates primarily as a result of its
borrowing and investing activities used to maintain
liquidity and fund business operations. The company
continues to utilize commercial paper to fund working
capital requirements in the U.S. and Canada. The company
also borrows in different currencies from other sources to
meet the borrowing needs of its foreign affiliates. The
nature and amount of the company's long-term and short-
term debt can be expected to vary as a result of future
business requirements, market conditions and other
factors. The company may utilize interest rate swap
agreements to lower funding costs, to diversify sources of
funding or to alter interest rate exposure. There are no
interest rate swap agreements outstanding at April 29,
1998.
The following table summarizes the company's debt
obligations at April 29, 1998. The interest rates
represent weighted-average rates, with the period end rate
used for the variable rate debt obligations. The fair
value of the debt obligations approximated the recorded
value as of April 29, 1998. (See Notes 6 and 12 to the
Consolidated Financial Statements.)
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
--------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $ 34,519 $ 582,538 $ 18,513 $ 14,464 $ 457,190 $ 346,889 $ 1,454,113
Average interest rate 7.21% 7.01% 7.75% 9.53% 6.28% 6.42%
Variable rate $ 305,107 $ 3,687 - $ 1,340,824 - $ 7,432 $ 1,657,050
Average interest rate 6.40% 5.75% - 5.64% - 5.30%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
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Commodity Price Sensitivity: The company is the
purchaser of certain commodities such as corn, wheat and
soybean meal and oil. The company generally purchases
these commodities based upon market prices that are
established with the vendor as part of the purchase
process. In general, the company does not use significant
levels of commodity financial instruments to hedge
commodity prices due to a high correlation between the
commodity cost and the ultimate selling price of the
product. On occasion, the company may enter into commodity
future or option contracts, as deemed appropriate, to
reduce the effect of price fluctuations on some future
manufacturing requirements. Such contracts are accounted
for as hedges, with gains and losses recognized as part of
cost of products sold, and generally have a term of less
than one year. As of April 29, 1998, unrealized gains and
losses related to commodity contracts held by the company
were not material nor would they have been given a
hypothetical 10% fluctuation in market prices. It should
be noted that any change in the value of the contracts,
real or hypothetical, would be significantly offset by an
inverse change in the value of the underlying hedged
items. (See Note 12 to the Consolidated Financial
Statements.)
- ------------------------------------------------------------------------------
YEAR 2000 ISSUE The Year 2000 issue is the result of date-sensitive
computer programs using two digits rather than four to
define the applicable year. If not corrected, this could
result in system failures or miscalculations leading to
significant disruptions in a company's operations.
Beginning in 1996, the company initiated a worldwide
information technology review to identify areas impacted
by Year 2000 issues. Employees of the company, outside
experts and consultants have developed a plan to manage
and correct potential problems. As part of the plan, the
company has or will replace, upgrade, modify and test
existing computer hardware, software and process systems.
Additionally, a review of the company's suppliers and
customers is being made to ascertain that they will be
Year 2000 compliant. The company is proceeding against
time lines established in the plan which are designed to
bring its systems to the point that they will be
operationally effective prior to the Year 2000. While
there can be no assurance that the company and its
suppliers and customers will fully resolve all Year 2000
issues, neither the estimated cost to become Year 2000
operationally effective nor the outcome of the Year 2000
problem is expected to have a material impact on the
company's operations, liquidity or financial position.
- ------------------------------------------------------------------------------
STOCK MARKET H.J. Heinz Company common stock is traded principally on
INFORMATION the New York Stock Exchange and the Pacific Stock
Exchange, under the symbol HNZ. The number of shareholders
of record of the company's common stock as of June 26,
1998 approximated 64,497. The closing price of the common
stock on the New York Stock Exchange composite listing on
April 29, 1998 was $53 5/16.
Stock price information for common stock by quarter
follows:
<TABLE>
<CAPTION>
Stock Price Range
-------------------------------------------
High Low
- ------------------------------------------------------------------------------
<S> <C> <C>
1998
First $47 1/2 $41 1/4
Second 49 7/16 41 1/8
Third 56 11/16 45 1/2
Fourth 59 15/16 51 7/16
- ------------------------------------------------------------------------------
1997
First $34 $29 3/4
Second 36 1/8 31 1/4
Third 41 1/2 35 1/4
Fourth 44 7/8 38 1/8
- ------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
- ------------------------------------------------------------------------------
SEGMENT AND The company is engaged principally in one line of
GEOGRAPHIC DATA business--processed food products--which represents more
than 90% of consolidated sales. The following table
presents information about the company by geographic area.
There were no material amounts of sales or transfers among
geographic areas and no material amounts of United States
export sales.
<TABLE>
<CAPTION>
(Dollars in thousands) Domestic Foreign Worldwide North America Europe Asia/Pacific Other
- ------------------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Sales $4,873,710 $4,335,574 $9,209,284 $5,331,408 $2,453,180 $1,015,885 $408,811
Operating income 892,625 627,705 1,520,330 938,289 395,179 132,934 53,928
Operating income
excluding
restructuring
related items* 860,521 647,332 1,507,853 906,114 409,030 138,781 53,928
Identifiable assets 4,075,040 3,948,381 8,023,421 4,522,535 2,332,609 825,029 343,248
Capital expenditures+ 187,927 185,827 373,754 212,713 62,211 49,097 49,733
Depreciation and
amortization expense 168,076 145,546 313,622 186,602 81,906 30,475 14,639
- ------------------------------------------------------------------- -----------------------------------------------------------
1997
Sales $5,169,779 $4,187,228 $9,357,007 $5,586,730 $2,281,364 $1,129,788 $359,125
Operating income 174,280 581,991 756,271 208,585 320,347 166,552 60,787
Operating income
excluding
restructuring
related items++ 704,880 613,309 1,318,189 751,685 374,202 130,515 61,787
Identifiable assets 4,474,740 3,963,047 8,437,787 4,941,301 2,241,006 995,762 259,718
Capital expenditures+ 192,682 184,775 377,457 213,574 102,677 31,442 29,764
Depreciation and
amortization expense 203,587 136,903 340,490 221,249 81,932 29,944 7,365
1996
Sales $5,235,847 $3,876,418 $9,112,265 $5,598,286 $2,133,690 $1,085,747 $294,542
Operating income 739,807 547,765 1,287,572 801,090 336,481 114,239 35,762
Identifiable assets 4,801,790 3,821,901 8,623,691 5,099,632 2,289,919 978,292 255,848
Capital expenditures+ 185,874 148,913 334,787 195,517 65,485 40,294 33,491
Depreciation and
amortization expense 206,912 136,897 343,809 224,824 72,530 30,674 15,781
- ------------------------------------------------------------------- -----------------------------------------------------------
</TABLE>
*Excludes domestic and foreign charges for non-recurring costs related to the
implementation of Project Millennia of $64.5 million and $19.6 million,
respectively. Also excludes a domestic gain on the sale of the Ore-Ida
foodservice foods business of $96.6 million.
+Excludes property, plant and equipment acquired through acquisitions.
++Excludes domestic and foreign charges for restructuring and related costs of
$530.6 million and $116.6 million, respectively. Also excludes gains on the
sale of an ice cream business in New Zealand and real estate in the U.K. of
$72.1 million and $13.2 million, respectively.
34
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Year Ended APRIL 29, 1998 April 30, 1997 May 1, 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands,
except per share data) (52 WEEKS) (52 weeks) (52 weeks)
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF INCOME:
Sales $ 9,209,284 $ 9,357,007 $ 9,112,265
Cost of products sold 5,711,213 6,385,091 5,775,357
- ------------------------------------------------------------------------------
Gross profit 3,498,071 2,971,916 3,336,908
Selling, general and
administrative
expenses 1,977,741 2,215,645 2,049,336
- ------------------------------------------------------------------------------
Operating income 1,520,330 756,271 1,287,572
Interest income 32,655 39,359 44,824
Interest expense 258,616 274,746 277,411
Other expense, net 39,388 41,820 31,324
- ------------------------------------------------------------------------------
Income before income
taxes 1,254,981 479,064 1,023,661
Provision for income
taxes 453,415 177,193 364,342
Net income $ 801,566 $ 301,871 $ 659,319
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF RETAINED EARNINGS:
Amount at beginning of
year $ 4,041,285 $ 4,156,380 $ 3,878,988
Net income 801,566 301,871 659,319
Cash dividends:
Common stock 452,566 416,923 381,871
Preferred stock 37 43 56
Amount at end of year $ 4,390,248 $ 4,041,285 $ 4,156,380
- ------------------------------------------------------------------------------
PER COMMON SHARE
AMOUNTS:
Net income - diluted $ 2.15 $ 0.81 $ 1.75
Net income - basic $ 2.19 $ 0.82 $ 1.79
Cash dividends $ 1.23 1/2 $ 1.13 1/2 $ 1.03 1/2
- ------------------------------------------------------------------------------
Average common shares
outstanding - diluted 372,952,851 374,043,705 377,606,606
Average common shares
outstanding - basic 365,982,290 367,470,850 368,799,645
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE>
CONSOLIDATED BALANCE SHEETS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Assets (Dollars in thousands) APRIL 29, 1998 April 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 96,300 $ 156,986
Short-term investments, at cost
which approximates market 3,098 31,451
Receivables (net of allowances:
1998 - $17,627 and 1997 -
$18,934) 1,071,837 1,118,874
Inventories:
Finished goods and work-in-
process 988,322 1,040,104
Packaging material and
ingredients 340,521 392,407
- ------------------------------------------------------------------------------
1,328,843 1,432,511
- ------------------------------------------------------------------------------
Prepaid expenses 167,431 208,246
Other current assets 19,010 65,038
- ------------------------------------------------------------------------------
Total current assets 2,686,519 3,013,106
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 51,129 55,992
Buildings and leasehold
improvements 806,299 871,417
Equipment, furniture and other 3,210,695 3,453,189
- ------------------------------------------------------------------------------
4,068,123 4,380,598
Less accumulated depreciation 1,673,461 1,901,378
- ------------------------------------------------------------------------------
Total property, plant and
equipment, net 2,394,662 2,479,220
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OTHER NON-CURRENT ASSETS:
Goodwill (net of amortization:
1998 - $297,868 and 1997 -
$259,019) 1,764,574 1,803,552
Trademarks (net of
amortization: 1998 - $67,791
and 1997 - $57,186) 416,918 416,990
Other intangibles (net of
amortization: 1998 - $112,768
and 1997 - $106,046) 194,560 210,106
Other non-current assets 566,188 514,813
- ------------------------------------------------------------------------------
Total other non-current assets 2,942,240 2,945,461
- ------------------------------------------------------------------------------
Total assets $ 8,023,421 $ 8,437,787
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders'
Equity (Dollars in thousands) APRIL 29, 1998 April 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt $ 301,028 $ 589,893
Portion of long-term debt due
within one year 38,598 573,549
Accounts payable 978,365 865,154
Salaries and wages 66,473 64,836
Accrued marketing 163,405 164,354
Accrued restructuring costs 94,400 210,804
Other accrued liabilities 360,608 315,662
Income taxes 161,396 96,163
- ------------------------------------------------------------------------------
Total current liabilities 2,164,273 2,880,415
- ------------------------------------------------------------------------------
LONG-TERM DEBT AND OTHER
LIABILITIES:
Long-term debt 2,768,277 2,283,993
Deferred income taxes 291,161 265,409
Non-pension postretirement
benefits 209,642 211,500
Other 373,552 356,049
- ------------------------------------------------------------------------------
Total long-term debt and other
liabilities 3,642,632 3,116,951
- ------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Capital stock:
Third cumulative preferred,
$1.70 first series, $10 par
value 199 241
Common stock, 431,096,485
shares issued, $.25 par
value 107,774 107,774
- ------------------------------------------------------------------------------
107,973 108,015
Additional capital 252,773 175,811
Retained earnings 4,390,248 4,041,285
Cumulative translation
adjustments (391,148) (210,864)
- ------------------------------------------------------------------------------
4,359,846 4,114,247
Less:
Treasury shares, at cost
(67,678,632 shares at April
29, 1998 and 63,912,463
shares at April 30, 1997) 2,103,979 1,629,501
Unfunded pension obligation 24,529 26,962
Unearned compensation
relating to the ESOP 14,822 17,363
- ------------------------------------------------------------------------------
Total shareholders' equity 2,216,516 2,440,421
Total liabilities and
shareholders' equity $ 8,023,421 $ 8,437,787
- ------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Year Ended APRIL 29, 1998 April 30, 1997 May 1, 1996
- ------------------------------------------------------------------------------
(Dollars in thousands) (52 WEEKS) (52 weeks) (52 weeks)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 801,566 $ 301,871 $ 659,319
Adjustments to reconcile
net income to cash provided
by operating activities:
Depreciation 222,492 244,388 254,640
Amortization 91,130 96,102 89,169
Deferred tax provision
(benefit) 120,875 (33,450) 135,235
Gain on sale of Ore-Ida
frozen foodservice
business (96,563) - -
Gain on sale of New
Zealand ice cream
business and U.K. real
estate - (85,282) -
Provision for
restructuring - 647,200 -
Other items, net (126,805) (42,527) (82,198)
Changes in current assets
and liabilities,
excluding effects of
acquisitions and
divestitures:
Receivables (7,155) 74,445 (222,894)
Inventories 47,917 (5,329) (102,269)
Prepaid expenses and
other current assets 4,874 5,094 (14,361)
Accounts payable 54,345 18,003 126,596
Accrued liabilities (131,400) (182,555) (114,015)
Income taxes 84,468 (162,962) 7,866
- ------------------------------------------------------------------------------
Cash provided by operating
activities 1,065,744 874,998 737,088
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (373,754) (377,457) (334,787)
Acquisitions, net of cash
acquired (142,112) (208,383) (156,006)
Proceeds from divestitures 494,739 165,555 82,061
Purchases of short-term
investments (1,179,024) (1,223,884) (982,824)
Sales and maturities of
short-term investments 1,216,573 1,233,919 1,050,971
Investment in tax benefits - 139 62,081
Other items, net 10,740 23,798 (11,637)
- ------------------------------------------------------------------------------
Cash provided by (used for)
investing activities 27,162 (386,313) (290,141)
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from long-term
debt 555,017 47,483 4,860
Payments on long-term debt (572,905) (99,176) (46,791)
(Payments on) proceeds from
commercial paper and
short-term borrowings (288,346) 133,732 (39,745)
Dividends (452,603) (416,966) (381,927)
Purchase of treasury stock (677,193) (277,046) (155,200)
Exercise of stock options 200,972 135,082 95,853
Other items, net 88,457 47,131 52,149
- ------------------------------------------------------------------------------
Cash (used for) financing
activities (1,146,601) (429,760) (470,801)
- ------------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents (6,991) 7,997 (10,420)
- ------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (60,686) 66,922 (34,274)
Cash and cash equivalents
at beginning of year 156,986 90,064 124,338
Cash and cash equivalents
at end of year $ 96,300 $ 156,986 $ 90,064
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
- ------------------------------------------------------------------------------
1. SIGNIFICANT
ACCOUNTING Fiscal Year: H.J. Heinz Company (the "company") operates
POLICIES on a 52- or 53-week fiscal year ending the Wednesday
nearest April 30. However, certain foreign subsidiaries
have earlier closing dates to facilitate timely reporting.
Fiscal years for the financial statements included herein
ended April 29, 1998, April 30, 1997 and May 1, 1996.
Principles of Consolidation: The consolidated financial
statements include the accounts of the company and its
subsidiaries. All intercompany accounts and transactions
were eliminated. Certain prior-year amounts have been
reclassified in order to conform with the 1998
presentation.
Use of Estimates: The preparation of financial statements,
in conformity with generally accepted accounting
principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
Translation of Foreign Currencies: For all significant
foreign operations, the functional currency is the local
currency. Assets and liabilities of these operations are
translated at the exchange rate in effect at each year-
end. Income statement accounts are translated at the
average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing
exchange rates from period to period are included as a
component of shareholders' equity. Gains and losses from
foreign currency transactions are included in net income
for the period.
Cash Equivalents: Cash equivalents are defined as highly
liquid investments with original maturities of 90 days or
less.
Inventories: Inventories are stated at the lower of cost
or market. Cost is determined principally under the
average cost method.
Property, Plant and Equipment: Land, buildings and
equipment are recorded at cost. For financial reporting
purposes, depreciation is provided on the straight-line
method over the estimated useful lives of the assets.
Accelerated depreciation methods are generally used for
income tax purposes. Expenditures for new facilities and
improvements that substantially extend the capacity or
useful life of an asset are capitalized. Ordinary repairs
and maintenance are expensed as incurred. When property is
retired or otherwise disposed, the cost and related
depreciation are removed from the accounts and any related
gains or losses are included in income.
Intangibles: Goodwill, trademarks and other intangibles
arising from acquisitions are being amortized on a
straight-line basis over periods not exceeding 40 years.
The company regularly reviews the individual
39
<PAGE>
- ------------------------------------------------------------------------------
components of the balances by evaluating the future cash
flows of the businesses to determine the recoverability of
the assets and recognizes, on a current basis, any
diminution in value.
Long-Lived Assets: On May 2, 1996, the company adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The
implementation of this standard did not have a material
effect on results of operations or financial position.
Revenue Recognition: The company generally recognizes
revenue upon shipment of goods to customers or upon
performance of services. However, in certain overseas
countries, revenue is recognized upon receipt of the
product by the customer.
Advertising Expenses: Advertising costs are generally
expensed in the year in which the advertising first takes
place.
Income Taxes: Deferred income taxes result primarily from
temporary differences between financial and tax reporting.
If it is more likely than not that some portion or all of
a deferred tax asset will not be realized, a valuation
allowance is recognized.
The company has not provided for possible U.S. taxes on
the undistributed earnings of foreign subsidiaries that
are considered to be reinvested indefinitely. Calculation
of the unrecognized deferred tax liability for temporary
differences related to these earnings is not practicable.
Where it is contemplated that earnings will be remitted,
credit for foreign taxes already paid generally will
offset applicable U.S. income taxes. In cases where they
will not offset U.S. income taxes, appropriate provisions
are included in the Consolidated Statements of Income.
Stock-Based Employee Compensation Plans: Stock-based
compensation is accounted for by using the intrinsic
value-based method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees."
Financial Instruments: The company uses derivative
financial instruments for the purpose of hedging currency,
price and interest rate exposures which exist as part of
ongoing business operations. As a policy, the company does
not engage in speculative or leveraged transactions, nor
does the company hold or issue financial instruments for
trading purposes.
[_] Interest Rate Swap Agreements: The company may utilize
interest rate swap agreements to lower funding costs, to
diversify sources of funding or to alter interest rate
exposure. Amounts paid or received on interest rate swap
agreements are deferred and recognized as adjustments to
interest expense. Gains and losses realized upon the
settlement of such contracts are deferred and amortized to
interest expense over the remaining term of the debt
instrument or are recognized immediately if the underlying
instrument is settled.
[_] Foreign Currency Contracts: The company enters into
forward, option and swap contracts to hedge transactions
denominated in foreign currencies in order to reduce the
currency risk associated with fluctuating exchange rates.
Such contracts are used primarily to hedge certain
intercompany cash flows, purchases of certain raw
materials and finished goods and for payments
40
<PAGE>
- ------------------------------------------------------------------------------
arising from certain foreign currency denominated
obligations. Realized and unrealized gains and losses from
instruments qualifying as hedges are deferred as part of the
cost basis of the underlying transaction. Realized and
unrealized gains and losses from foreign currency contracts
used as economic hedges but not qualifying for hedge
accounting are recognized currently in miscellaneous income
and expense.
[_] Commodity Contracts: In connection with purchasing
certain commodities for future manufacturing requirements,
the company enters into commodities futures and option
contracts, as deemed appropriate, to reduce the effect of
price fluctuations. Such contracts are accounted for as
hedges, with gains and losses recognized as part of cost
of products sold, and generally have a term of less than
one year.
The cash flows related to the above financial instruments
are classified in the Statements of Cash Flows in a manner
consistent with those of the transactions being hedged.
Earnings Per Share: In the third quarter of Fiscal 1998,
the company adopted SFAS No. 128, "Earnings Per Share,"
which requires the disclosure of both diluted and basic
earnings per share. Previously reported earnings per share
amounts have been restated, as necessary, to conform to
Statement No. 128 requirements. All earnings per share
amounts are presented on a diluted basis unless otherwise
noted.
Business Segment Information: Information concerning
business segment and geographic data is in Management's
Discussion and Analysis.
Recently Issued Accounting Standards: In June 1997, the
FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting comprehensive income
in financial statements and SFAS No. 131 expands certain
reporting and disclosure requirements for segments from
current standards. In February 1998, the FASB issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit
plans. The company will adopt these statements in Fiscal
1999. The adoption of these statements will not have a
financial impact on the company.
In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards
for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. The statement requires that an entity
recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. The company is not required to
adopt the statement until Fiscal 2001. The company is
currently evaluating the effect that implementation of the
new standard will have on its results of operations and
financial position.
41
<PAGE>
- ------------------------------------------------------------------------------
2. ACQUISITIONS All of the following acquisitions have been accounted
for as purchases and, accordingly, the respective purchase
prices have been allocated to the respective assets and
liabilities based upon their estimated fair values as of
the acquisition date. Operating results of businesses
acquired have been included in the Consolidated Statements
of Income from the respective acquisition dates forward.
Fiscal 1998: The company acquired businesses for a total
of $142.1 million. The preliminary allocations of the
purchase price resulted in goodwill of $71.4 million and
trademarks and other intangible assets of $27.2 million,
which are being amortized on a straight-line basis over
periods not exceeding 40 years.
On June 30, 1997, the company acquired John West Foods
Limited from Unilever. John West Foods Limited is the
leading brand of canned tuna and fish in the United
Kingdom. Based in Liverpool, John West Foods Limited sells
its canned fish products throughout Continental Europe and
in a number of other international markets. (John West
operations in Australia, New Zealand and South Africa were
not included in the transaction.) During Fiscal 1998, the
company also made other acquisitions, primarily in the
Asia/Pacific region, Europe and South Africa.
Fiscal 1997: The company acquired businesses for a total
of $222.6 million, including notes to sellers of $14.2
million. The allocations of purchase price resulted in
goodwill of $144.9 million and trademarks and other
intangible assets of $26.9 million, which are being
amortized on a straight-line basis over periods not
exceeding 40 years.
On November 4, 1996, the company acquired the assets of
the canned beans and pasta business of Nestle Canada Inc.,
together with a two-year license to use the Libby's brand.
Under the agreement, the company also acquired the
trademarks Deep-Browned Beans, Alpha-Getti and Zoodles,
among others.
On September 23, 1996, the company acquired
substantially all of the pet food businesses of Martin
Feed Mills Limited of Elmira, Ontario. Martin produces and
markets cat and dog food throughout Canada and also
exports to Japan and Europe. Martin sells pet food under
the Techni-Cal brand and markets products under the Medi-
Cal label through veterinary offices and clinics.
On July 10, 1996, the company acquired Southern Country
Foods Limited in Australia, a producer of canned corned
beef and meals. During Fiscal 1997, the company also made
other smaller acquisitions.
Fiscal 1996: The company acquired businesses for a total
of $193.4 million, including notes to sellers of $37.4
million. The allocations of purchase price resulted in
goodwill of $128.1 million and trademarks and other
intangibles of $6.6 million, which are being amortized on
a straight-line basis over periods not exceeding 40 years.
On March 28, 1996, the company acquired the Nature's
Recipe business, which markets a brand of premium
specialty pet foods.
42
<PAGE>
- ------------------------------------------------------------------------------
On March 6, 1996, the company acquired Earth's Best,
Inc., which produces premium, organic baby foods and
complements the company's range of infant cereals, juices
and strained and junior foods.
The company acquired a majority interest in PMV/Zabreh,
a producer of infant formulas and dairy products located
in Zabreh, Moravia, Czech Republic.
The company increased its investment to 97% of
Kecskemeti Konzervgyar RT, which produces jarred baby
foods and canned vegetable products in Kecskemet, Hungary.
Other small acquisitions were also made during Fiscal
1996, including Fattoria Scaldasole S.p.A., which is a
processor of organic foods in Italy; Alimentos Pilar S.A.
of Argentina, a producer of pet and animal feed; the
Craig's brand of jams and dressings in New Zealand; the
Mareblu brand of canned tuna, which is sold exclusively in
Italy; a majority interest in Indian Ocean Tuna Ltd.,
located in the Seychelles; and Britwest Ltd., which
markets single-serve condiments, beverages and sauces in
Britain and France.
Pro forma results of the company, assuming all of the
above acquisitions had been made at the beginning of each
period presented, would not be materially different from
the results reported.
- ------------------------------------------------------------------------------
3. DIVESTITURES On June 30, 1997, the company completed the sale of its
Ore-Ida frozen foodservice foods business to McCain Foods
Limited of New Brunswick, Canada. The transaction resulted
in a pretax gain of approximately $96.6 million ($0.14 per
share), and was recorded as an offset to selling, general
and administrative expenses. The transaction included the
sale of the company's Ore-Ida appetizer, pasta and potato
foodservice business and five of the Ore-Ida plants that
manufacture the products. The Ore-Ida frozen foodservice
foods business contributed approximately $525 million in
net sales for Fiscal 1997.
In the fourth quarter of Fiscal 1997, the company sold
its New Zealand ice cream business to Peters & Brownes
Limited of Perth, Australia for approximately $150
million. The pretax gain on the divestiture totaled $72.1
million, or $0.12 per share.
Fiscal 1996 divestitures included: an overseas sweetener
business, the Weight Watchers Magazine and two regional
dry pet food product lines.
Pro forma results of the company, assuming all of the
above divestitures had been made at the beginning of each
period presented, would not be materially different from
the results reported.
- ------------------------------------------------------------------------------
4. RESTRUCTURING Charges related to the company's reorganization and
CHARGES restructuring program, Project Millennia, were recorded in
Fiscal 1997 and were recognized to reflect the closure or
divestiture of 25 facilities throughout the world, the net
reduction of the global workforce by approximately 2,500
(excluding the businesses or facilities to be sold), and
other initiatives involving the exit of certain
underperforming businesses and product lines.
Restructuring and related costs recorded in Fiscal 1997
totaled $647.2 million pretax or $1.09 per share. Pretax
charges of $477.8 million were classified as cost of
products sold and $169.4 million as selling, general and
administrative expenses.
The results for Fiscal 1998 included non-recurring costs
related to the implementation of Project Millennia of
$84.1 million pretax ($0.14 per share). Pretax charges of
$35.7 million were classified as cost of products sold and
$48.4 million as selling, general and administrative
expenses. These non-recurring costs consist primarily of
relocation, training, consulting and start-up costs.
43
<PAGE>
- ------------------------------------------------------------------------------
The major components of the Fiscal 1997 charges and the
remaining accrual balances as of April 29, 1998 and April
30, 1997 were as follows:
<TABLE>
<CAPTION>
Employee Non-Cash
Termination and Asset
(Dollars in millions) Severance Costs Exit Costs Write-downs Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial charge - 1997 $ 164.5 $ 158.4 $ 324.3 $ 647.2
Amounts utilized - 1997 (32.1)* (80.0) (324.3) (436.4)
- --------------------------------------------------------------------------------------------------------------------------------
Accrued restructuring costs -
April 30, 1997 132.4 78.4 - 210.8
Amounts utilized - 1998 (91.9) (24.5) - (116.4)
- --------------------------------------------------------------------------------------------------------------------------------
Accrued restructuring costs -
April 29, 1998 $ 40.5 $ 53.9 - $ 94.4
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes $18.9 million in non-cash charges resulting from termination benefit
programs.
Asset write-downs consisted primarily of fixed asset and
other long-term asset impairments that were recorded as a
direct result of the company's decision to exit businesses
or facilities ($206.8 million). Such assets were written
down based on management's estimate of fair value. Write-
downs were also recognized for estimated losses from
disposals of inventories, packaging materials and other
assets related to product line rationalizations and
process changes as a direct result of the company's
decision to exit businesses or facilities ($117.5
million).
- ------------------------------------------------------------------------------
5. INCOME TAXES The following table summarizes the provision/(benefit)
for U.S. federal and U.S. possessions, state and foreign
taxes on income.
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal and
U.S. possessions $ 214,866 $ 67,274 $ 106,848
State 17,667 6,458 11,475
Foreign 100,007 136,911 110,784
- ------------------------------------------------------------------------------
332,540 210,643 229,107
- ------------------------------------------------------------------------------
Deferred:
U.S. federal and
U.S. possessions 103,630 (38,988) 87,239
State 1,536 (10,763) 10,408
Foreign 15,709 16,301 37,588
- ------------------------------------------------------------------------------
120,875 (33,450) 135,235
- ------------------------------------------------------------------------------
Total tax
provision $ 453,415 $ 177,193 $ 364,342
- ------------------------------------------------------------------------------
</TABLE>
In 1998, reduced tax rates enacted in the United Kingdom
and Italy decreased the tax provision by $21.6 million,
representing the impact of the reduced tax rates on net
deferred taxes payable as of the dates of enactment. In
1996, the tax provision was reduced by $24.9 million due
to the recognition of foreign tax losses. In addition, tax
benefits resulting from adjustments to the beginning-of-
the-year valuation allowance, due to a change in
circumstances, to recognize the realizability of deferred
tax assets in future years totaled $12.5 million in 1996.
Tax expense resulting from allocating certain tax benefits
directly to additional capital totaled $77.7 million in
1998, $33.8 million in 1997 and $41.7 million in 1996.
44
<PAGE>
- ------------------------------------------------------------------------------
The components of income before income taxes consist of
the following:
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 742,665 $ (47,219) $ 500,034
Foreign 512,316 526,283 523,627
- ------------------------------------------------------------------------------
$ 1,254,981 $ 479,064 $ 1,023,661
- ------------------------------------------------------------------------------
</TABLE>
The differences between the U.S. federal statutory tax
rate and the company's consolidated effective tax rate are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal
statutory tax
rate 35.0% 35.0% 35.0%
Tax on income of
foreign
subsidiaries (0.7) 5.6 2.2
State income
taxes (net of
federal
benefit) 1.1 (0.2) 1.8
Tax credits 0.2 (2.1) (0.2)
Earnings
repatriation (0.2) 5.5 1.3
Recognition of
foreign tax
losses - (0.7) (2.4)
Tax on income of
U.S.
possessions
subsidiaries (1.3) (2.8) (1.7)
Other 2.0 (3.3) (0.4)
- ------------------------------------------------------------------------------
Effective tax
rate 36.1% 37.0% 35.6%
- ------------------------------------------------------------------------------
</TABLE>
The deferred tax (assets) and deferred tax liabilities
recorded on the balance sheets as of April 29, 1998 and
April 30, 1997 are as follows:
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Depreciation/
amortization $ 443,448 $ 448,327
Benefit plans 71,508 73,081
Other 100,676 87,223
- ------------------------------------------------------------------------------
615,632 608,631
- ------------------------------------------------------------------------------
Provision for
estimated expenses (106,325) (188,220)
Operating loss
carryforwards (50,317) (51,685)
Benefit plans (111,039) (100,327)
Promotions and
advertising (31,829) (12,877)
Other (119,771) (103,575)
- ------------------------------------------------------------------------------
(419,281) (456,684)
- ------------------------------------------------------------------------------
Valuation allowance 20,992 5,459
- ------------------------------------------------------------------------------
Net deferred tax
liabilities $ 217,343 $ 157,406
- ------------------------------------------------------------------------------
</TABLE>
At the end of 1998, net operating loss carryforwards
totaled $116.9 million. Of that amount, $69.7 million
expire through 2010; the other $47.2 million do not
expire. Foreign tax credit carryforwards total $13.4
million and expire through 2003.
The company's consolidated United States income tax
returns have been audited by the Internal Revenue Service
for all years through 1991.
Undistributed earnings of foreign subsidiaries
considered to be reinvested permanently amounted to $1.78
billion at April 29, 1998.
The 1998 net change in the valuation allowance for
deferred tax assets was an increase of $15.5 million.
45
<PAGE>
- ------------------------------------------------------------------------------
6. DEBT
<TABLE>
<CAPTION>
Short-Term (Dollars
in thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper
(foreign) $ 79,841 $ 97,008
Bank and other
borrowings 221,187 492,885
- ------------------------------------------------------------------------------
$ 301,028 $ 589,893
- ------------------------------------------------------------------------------
</TABLE>
Total short-term debt had a weighted-average interest
rate during 1998 of 6.5% and at year-end of 6.4%. The
weighted-average interest rate on short-term debt during
1997 was 7.6% and at year-end was 6.1%.
The company maintains a $2.30 billion credit agreement
that supports its domestic commercial paper program. The
credit agreement expires in September 2001. In addition,
the company had $832.8 million of other foreign lines of
credit available at year-end, principally for overdraft
protection.
As of April 29, 1998 and April 30, 1997, the company had
$1.34 billion and $1.35 billion, respectively, of domestic
commercial paper outstanding. Due to the long-term nature
of the amended credit agreement, all of the outstanding
domestic commercial paper has been classified as long-term
debt as of April 29, 1998 and April 30, 1997. Aggregate
domestic commercial paper had a weighted-average interest
rate during 1998 and at year-end of 5.6%. In 1997, the
weighted-average rate was 5.4% and the rate at year-end
was 5.6%.
<TABLE>
<CAPTION>
Long-Term (Dollars in Range of Maturity
thousands) Interest (Fiscal Year) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Dollars:
Commercial paper Variable 2002 $ 1,337,574 $ 1,346,779
Senior unsecured notes 6.00-6.88% 2000-2008 797,791 749,681
Eurodollar bonds 5.75-7.50 2000-2003 498,944 551,423
Revenue bonds 4.00-7.70 1999-2027 18,342 16,121
Promissory notes 4.00-10.00 1999-2005 47,157 49,220
Other 6.35 1999-2006 6,337 7,072
- -----------------------------------------------------------------------------------------------------------------------------------
2,706,145 2,720,296
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Currencies
(U.S. Dollar Equivalents):
Promissory notes:
Pounds sterling 8.85% 1999-2006 27,272 41,260
Italian lire 3.90-12.55 1999-2008 23,751 28,209
Australian dollar 5.21 1999-2002 19,066 28,323
Other 5.19-24.00 1999-2022 30,641 39,454
- -----------------------------------------------------------------------------------------------------------------------------------
100,730 137,246
- ----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt 2,806,875 2,857,542
Less portion due within one
year 38,598 573,549
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,768,277 $ 2,283,993
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of long-term debt that matures in each of the
four years succeeding 1999 is: $586.2 million in 2000,
$18.5 million in 2001, $1,355.3 million in 2002 and $457.2
million in 2003.
46
<PAGE>
- ------------------------------------------------------------------------------
In February 1998, the company issued $250 million of
5.75% five-year notes in the international capital
markets. On March 16, 1998, the company filed a shelf
registration statement with the Securities and Exchange
Commission pursuant to which the company may from time to
time issue debt securities of up to $750 million in the
aggregate. The first transaction under the shelf
registration statement was the issuance of $300 million of
6% ten-year notes in March 1998. The proceeds from both
the five-year notes and the ten-year notes were used to
repay domestic commercial paper.
- ------------------------------------------------------------------------------
7. SHAREHOLDERS' Capital Stock: The preferred stock outstanding is
EQUITY convertible at a rate of one share of preferred stock into
13.5 shares of common stock. The company can redeem the
stock at $28.50 per share.
On April 29, 1998, there were authorized, but unissued,
2,200,000 shares of third cumulative preferred stock for
which the series had not been designated.
Employee Stock Ownership Plan (ESOP): The company
established an ESOP in 1990 to replace in full or in part
the company's cash-matching contributions to the H.J.
Heinz Company Employees Retirement and Savings Plan, a 401
(k) plan for salaried employees. Matching contributions to
the 401(k) plan are based on a percentage of the
participants' contributions, subject to certain
limitations.
To finance the plan, the ESOP borrowed $50.0 million
directly from the company in 1990. The loan is in the form
of a 15-year variable-rate interest-bearing note (an
average of 5.6%, 5.6% and 5.5% for 1998, 1997 and 1996,
respectively) and is included in the company's
Consolidated Balance Sheets as unearned compensation. The
proceeds of the note were used to purchase 2,366,862
shares of treasury stock from the company at approximately
$21.13 per share.
The stock held by the ESOP is released for allocation to
the participants' accounts over the term of the loan as
company contributions to the ESOP are made. The company
contributions are reported as compensation and interest
expense. Compensation expense related to the ESOP for
1998, 1997 and 1996 was $0.2 million, $3.0 million and
$2.3 million, respectively. Interest expense was $0.9
million, $1.1 million and $1.5 million for 1998, 1997 and
1996, respectively. The company's contributions to the
ESOP and the dividends on the company stock held by the
ESOP are used to repay loan interest and principal.
The dividends on the company stock held by the ESOP were
$2.3 million, $2.3 million and $2.1 million in 1998, 1997
and 1996, respectively.
The ESOP shares outstanding at April 29, 1998 and April
30, 1997, respectively, were as follows: unallocated
593,095 and 711,725; committed-to-be-released 32,329 and
61,724; and allocated 1,124,475 and 1,156,236. Shares held
by the ESOP are considered outstanding for purposes of
calculating the company's net income per share.
47
<PAGE>
- ------------------------------------------------------------------------------
Cumulative Translation Adjustments: Changes in the
cumulative translation component of shareholders' equity
result principally from translation of financial
statements of foreign subsidiaries into U.S. dollars. The
reduction in shareholders' equity related to the
translation component increased $180.3 million in 1998,
increased $55.1 million in 1997 and decreased $1.4 million
in 1996. During 1997, a gain of $13.8 million was
transferred from the cumulative translation component of
shareholders' equity and included in the determination of
net income as a component of the $72.1 million gain
recognized as a result of the liquidation of the company's
investment in its New Zealand ice cream business. (See
Note 3 to the Consolidated Financial Statements.)
Unfunded Pension Obligation: An adjustment for unfunded
foreign pension obligations in excess of unamortized prior
service costs was recorded, net of tax, as a reduction in
shareholders' equity. (See Note 10 to the Consolidated
Financial Statements.)
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock
--------------- ------------------------------------------------------------------
Third, $1.70
First Series Additional
$10 Par Issued In Treasury Capital
- -----------------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands) Amount Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance May 3, 1995 $358 $107,774 431,096 $1,450,724 65,587 $121,291
Reacquired - - - 155,200 4,806 -
Conversion of preferred
into common stock (87) - - (2,674) (117) (2,587)
Stock options exercised,
net of shares tendered
for payment - - - (101,751) (7,747) 35,797*
Other, net - - - (633) (31) 101
- -----------------------------------------------------------------------------------------------------------------------------------
Balance May 1, 1996 $271 $107,774 431,096 $1,500,866 62,498 $154,602
Reacquired - - - 277,046 7,939 -
Conversion of preferred
into common stock (30) - - (963) (41) (932)
Stock options exercised,
net of shares tendered
for payment - - - (147,071) (6,466) 21,946*
Other, net - - - (377) (18) 195
- -----------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1997 $241 $107,774 431,096 $1,629,501 63,912 $175,811
Reacquired - - - 677,193 13,559 -
Conversion of preferred
into common stock (42) - - (1,364) (56) (1,322)
Stock options exercised,
net of shares tendered
for payment - - - (200,860) (9,717) 77,830*
Other, net - - - (491) (19) 454
- -----------------------------------------------------------------------------------------------------------------------------------
Balance April 29, 1998 $199 $107,774 431,096 $2,103,979 67,679 $252,773
- -----------------------------------------------------------------------------------------------------------------------------------
Authorized Shares--April
29, 1998 20 600,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes income tax benefit resulting from exercised stock options.
48
<PAGE>
- ------------------------------------------------------------------------------
8. SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Paid During
The Year For:
Interest $ 300,173 $ 310,146 $ 308,564
Income taxes 188,567 295,008 143,646
- ------------------------------------------------------------------------------
Details of
Acquisitions:
Fair value of
assets $ 200,406 $ 264,560 $ 269,907
Liabilities* 47,912 56,168 113,697
- ------------------------------------------------------------------------------
Cash paid 152,494 208,392 156,210
Less cash
acquired 10,382 9 204
- ------------------------------------------------------------------------------
Net cash paid for
acquisitions $ 142,112 $ 208,383 $ 156,006
- ------------------------------------------------------------------------------
</TABLE>
*Includes notes to sellers of $14.2 million and $37.4
million in 1997 and 1996, respectively.
- ------------------------------------------------------------------------------
9. EMPLOYEES' Under the company's stock option plans, officers and
STOCK OPTION PLANS other key employees may be granted options to purchase
AND MANAGEMENT shares of the company's common stock. The option price on
INCENTIVE PLANS all outstanding options is equal to the fair market value
of the stock at the date of grant. Generally, options are
exercisable beginning from one to three years after date
of grant and have a maximum term of 10 years. Beginning in
Fiscal 1998, in order to place greater emphasis on
creation of shareholder value, performance-accelerated
stock options were granted to certain key executives.
These options vest eight years after the grant date,
subject to acceleration if predetermined share price goals
are achieved.
The company has adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been
recognized for the company's stock option plans. If the
company had elected to recognize compensation cost based
on the fair value of the options granted at grant date as
prescribed by SFAS No. 123, net income and earnings per
share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
(Dollars in
thousands, except
per share data) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net
income $ 790,325 $ 295,605 $ 658,798
Pro forma diluted
net income per
common share $ 2.12 $ 0.79 $ 1.74
Pro forma basic
net income per
common share $ 2.16 $ 0.80 $ 1.79
- ------------------------------------------------------------------------------
</TABLE>
The pro forma effect on net income for 1998, 1997 and
1996 is not representative of the pro forma effect on net
income in future years because it does not take into
consideration pro forma compensation expense related to
grants made prior to 1996.
The weighted-average fair value of options granted was
$12.45 per share in 1998, $6.94 per share in 1997 and
$6.27 per share in 1996.
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 3.3% 3.3%
Volatility 20.0% 17.5% 17.8%
Risk-free
interest rate 5.8% 6.3% 6.0%
Expected term
(years) 5.5 5.5 5.5
- ------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
- ------------------------------------------------------------------------------
Data regarding the company's stock option plans follows:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise Price
Shares Per Share
- ----------------------------------------------------------------------------
<S> <C> <C>
Shares under option
May 3, 1995 42,170,931 $21.52
Options granted 2,154,100 32.11
Options exercised (11,713,653) 18.40
Options surrendered (115,500) 25.26
- ----------------------------------------------------------------------------
Shares under option
May 1, 1996 32,495,878 $ 23.33
Options granted 7,508,500 34.68
Options exercised (6,466,030) 20.92
Options surrendered (463,500) 25.87
- ----------------------------------------------------------------------------
Shares under option
April 30, 1997 33,074,848 $ 26.34
Options granted 2,990,000 53.76
Options exercised (10,283,073) 22.40
Options surrendered (181,000) 34.22
- ----------------------------------------------------------------------------
Shares under option
April 29, 1998 25,600,775 $ 31.07
- ----------------------------------------------------------------------------
Options exercisable
at:
May 1, 1996 12,252,228 $ 21.53
April 30, 1997 18,473,073 22.53
April 29, 1998 14,397,175 24.70
- ----------------------------------------------------------------------------
</TABLE>
The following summarizes information about shares under
option in the respective exercise price ranges at April
29, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------------------------
Range of Weighted- Weighted- Weighted-
Exercise Average Average Average
Price Number Remaining Life Exercise Price Number Exercise Price
Per Share Outstanding (Years) Per Share Exercisable Per Share
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.67-28.83 13,331,675 5.22 $ 23.86 13,301,675 $ 23.85
29.08-43.50 9,345,100 7.94 34.18 1,033,500 34.36
44.38-58.56 2,924,000 9.71 54.01 62,000 45.29
- -------------------------------------------------------------------------------------------------------------------
25,600,775 14,397,175
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The shares authorized but not granted under the
company's stock option plans were 8,507,235 at April 29,
1998 and 11,316,235 at April 30, 1997. Common stock
reserved for options totaled 34,108,010 at April 29, 1998
and 44,391,083 at April 30, 1997.
Effective June 12, 1996, the Board of Directors adopted
and the shareholders approved a new stock option plan
providing for the grant of up to 15.0 million shares of
common stock at any time over the next 10 years. In
general, the terms of the 1996 plan are similar to the
company's other stock option plans.
The company's management incentive plan covers officers
and other key employees. Participants may elect to be paid
on a current or deferred basis. The aggregate amount of
all awards may not exceed certain limits in any year.
Compensation under the management incentive plans was
approximately $46 million in 1998, $37 million in 1997 and
$37 million in 1996.
50
<PAGE>
- ------------------------------------------------------------------------------
10. RETIREMENT The company maintains retirement plans for the majority
PLANS of its employees. Current defined benefit plans are
provided primarily for domestic union and foreign
employees. Benefits are based on years of service and
compensation or stated amounts for each year of service.
Plan assets are primarily invested in equities and fixed-
income securities. The company's funding policy for
domestic defined benefit plans is to contribute annually
not less than the ERISA minimum funding standards nor more
than the maximum amount which can be deducted for federal
income tax purposes. Generally, foreign defined benefit
plans are funded in amounts sufficient to comply with
local regulations and ensure adequate funds to pay
benefits to retirees as they become due.
Effective in 1993, the company discontinued future
benefit accruals under the defined benefit plans for
domestic non-union hourly and salaried employees and
expanded its defined contribution plans for these same
employees.
The company maintains defined contribution plans for the
majority of its domestic non-union hourly and salaried
employees. Defined contribution benefits are provided
through company contributions that are a percentage of the
participant's pay based on age, with the contribution rate
increasing with age, and matching contributions based on a
percentage of the participant's contributions to the 401
(k) portion of the plan. (The company's matching
contributions for salaried employees are provided under
the ESOP. See Note 7 to the Consolidated Financial
Statements.) In addition, certain non-union hourly
employees receive supplemental contributions, which are
paid at the discretion of the company.
Total pension cost consisted of the following:
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined Benefit
Plans:
Benefits earned
during the
year $ 21,038 $ 15,583 $ 13,675
Interest cost
on projected
benefit
obligation 83,005 81,620 74,623
Actual return
on plan
assets (314,392) (149,513) (200,592)
Net
amortization
and deferral 211,279 64,499 117,461
- ------------------------------------------------------------------------------
930 12,189 5,167
Defined
contribution
plans
(excluding the
ESOP) 23,571 23,658 25,946
- ------------------------------------------------------------------------------
Total pension
cost $ 24,501 $ 35,847 $ 31,113
- ------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
The following table sets forth the combined funded
status of the company's principal defined benefit plans at
April 29, 1998 and April 30, 1997.
<TABLE>
<CAPTION>
Plans for Which Plans for Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Accumulated benefit obligation,
primarily vested $ 949,908 $ 814,721 $ 236,852 $ 193,114
Additional obligation for
projected compensation
increases 46,323 32,850 37,438 36,293
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 996,231 847,571 274,290 229,407
Plan assets, at fair value 1,261,015 1,079,148 183,065 149,868
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation less
than (in excess of) assets 264,784 231,577 (91,225) (79,539)
Unamortized prior service cost 81,442 81,879 2,180 5,067
Unamortized actuarial (gains)
losses, net (80,119) (70,324) 78,631 66,001
Unamortized net (assets) at date
of adoption (14,798) (18,479) (326) (828)
Additional minimum liability - - (43,048) (44,870)
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension costs $ 251,309 $ 224,653 $ (53,788) $ (54,169)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The adjustment for unfunded foreign pension obligations
in excess of the unamortized prior service costs was
recorded, net of tax, as a reduction in shareholders'
equity of $24.5 million and $27.0 million in 1998 and
1997, respectively. In 1998, the remaining portion of the
unfunded obligation was recorded as other long-term
assets and deferred taxes in the amounts of $4.1 million
and $14.4 million, respectively. In 1997, the remaining
portion of the unfunded obligation was recorded as other
long-term assets and deferred taxes in the amounts of $2.1
million and $15.8 million, respectively.
The weighted-average rates used for the years ended
April 29, 1998, April 30, 1997 and May 1, 1996 in
determining the net pension costs and projected benefit
obligations for defined benefit plans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected rate of
return on plan
assets 9.6% 9.6% 9.4%
Discount rate 6.9% 8.2% 8.4%
Compensation
increase rate 4.9% 5.2% 5.3%
- ------------------------------------------------------------------------------
</TABLE>
Assumptions for foreign defined benefit plans are
developed on a basis consistent with those for U.S. plans,
adjusted for prevailing economic conditions.
- ------------------------------------------------------------------------------
11. POSTRETIREMENT The company and certain of its subsidiaries provide
BENEFITS OTHER health care and life insurance benefits for retired
THAN PENSIONS employees and their eligible dependents. Certain of the
AND OTHER company's U.S. and Canadian employees may become eligible
POSTEMPLOYMENT for such benefits. In general, postretirement medical
BENEFITS coverage is provided for eligible non-union hourly and
salaried employees with at least 10 years of service
rendered after the age of 45 and certain eligible union
employees who retire with an immediate pension benefit.
Effective May 1, 1996, retired employees share in the cost
of the plan at a rate of 50%. The company currently does
not fund these benefit arrangements and may modify plan
provisions or terminate plans at its discretion.
52
<PAGE>
- ------------------------------------------------------------------------------
Net postretirement costs consisted of the following:
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Postretirement
benefits earned
during the year $ 3,339 $ 3,864 $ 2,736
Interest cost on
accumulated
postretirement
benefit
obligation 11,280 11,694 13,350
Net amortization
and deferral (8,212) (7,014) (6,583)
- ------------------------------------------------------------------------------
Net
postretirement
benefit costs $ 6,407 $ 8,544 $ 9,503
- ------------------------------------------------------------------------------
</TABLE>
The following table sets forth the combined status of
the company's postretirement benefit plans at April 29,
1998 and April 30, 1997.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in
thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated
postretirement
benefit obligation:
Retirees and
spouses $ 121,897 $ 104,300
Employees currently
eligible to
retire 14,853 14,790
Employees not yet
eligible to
retire 21,225 24,787
- ------------------------------------------------------------------------------
Total accumulated
postretirement
benefit obligation 157,975 143,877
Unamortized prior
service cost 6,418 15,346
Unrecognized net gain 53,849 62,277
- ------------------------------------------------------------------------------
Accrued
postretirement
benefit obligation 218,242 221,500
Current portion,
included in other
accrued liabilities 8,600 10,000
- ------------------------------------------------------------------------------
Non-pension
postretirement
benefits $ 209,642 $ 211,500
- ------------------------------------------------------------------------------
</TABLE>
The weighted-average discount rate used in the
calculation of the accumulated postretirement benefit
obligation and the net postretirement benefit cost was
6.9% in 1998, 8.0% in 1997 and 8.1% in 1996. The assumed
annual composite rate of increase in the per capita cost
of company-provided health care benefits begins at 8.3%
for 1998, gradually decreases to 4.4% by 2007, and remains
at that level thereafter. A 1% increase in these health
care cost trend rates would cause the accumulated
postretirement obligation to increase by $14.0 million,
and the aggregate of the service and interest components
of 1998 net postretirement benefit costs to increase by
$1.6 million.
53
<PAGE>
- ------------------------------------------------------------------------------
12. FINANCIAL Foreign Currency Contracts: As of April 29, 1998 and
INSTRUMENTS April 30, 1997, the company held currency swap contracts
with an aggregate notional amount of approximately $350
million and $400 million, respectively. As of April 29,
1998, these contracts have maturity dates extending from
1999 through 2002. The company also had separate contracts
to purchase certain foreign currencies as of April 29,
1998 and April 30, 1997 totaling approximately $560
million and $600 million, respectively, most of which
mature within one year of the respective fiscal year-end.
Net unrealized gains and losses associated with the
company's foreign currency contracts as of April 29, 1998
and April 30, 1997 were not material.
Commodity Contracts: As of April 29, 1998 and April 30,
1997, the notional values and unrealized gains or losses
related to commodity contracts held by the company were
not material.
Fair Value of Financial Instruments: The company's
significant financial instruments include cash and cash
equivalents, short- and long-term investments, short- and
long-term debt, currency exchange agreements and
guarantees.
In evaluating the fair value of significant financial
instruments, the company generally uses quoted market
prices of the same or similar instruments or calculates an
estimated fair value on a discounted cash flow basis using
the rates available for instruments with the same
remaining maturities. As of April 29, 1998 and April 30,
1997, the fair value of financial instruments held by the
company approximated the recorded value.
Concentrations of Credit Risk: Counterparties to currency
exchange and interest rate derivatives consist of large
major international financial institutions. The company
continually monitors its positions and the credit ratings
of the counterparties involved and, by policy, limits the
amount of credit exposure to any one party. While the
company may be exposed to potential losses due to the
credit risk of non-performance by these counterparties,
losses are not anticipated. Concentrations of credit risk
with respect to accounts receivable are limited due to the
large number of customers, generally short payment terms,
and their dispersion across geographic areas.
54
<PAGE>
- ------------------------------------------------------------------------------
13. NET INCOME In the third quarter of Fiscal 1998, the company adopted
PER COMMON SHARE SFAS No. 128, "Earnings Per Share," which requires the
disclosure of both diluted and basic earnings per share.
The following table sets forth the computation of basic
and diluted earnings per share in accordance with the
provisions of Statement No. 128. Previously reported
earnings per share amounts have been restated, as
necessary, to conform to Statement No. 128 requirements.
<TABLE>
<CAPTION>
Fiscal Year Ended
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands,
except per share
data) 1998 1997 1996
- ------------------------------------------------------------------------------
Net income per
share - basic:
Net income $ 801,566 $ 301,871 $ 659,319
Preferred
dividends 37 43 56
- ------------------------------------------------------------------------------
Net income
applicable to
common stock $ 801,529 $ 301,828 $ 659,263
Average common
shares
outstanding -
basic 365,982 367,471 368,800
Net income per
share - basic $ 2.19 $ 0.82 $ 1.79
Net income per
share -
diluted:
Net income $ 801,566 $ 301,871 $ 659,319
Average common
shares
outstanding 365,982 367,471 368,800
Effect of
dilutive
securities:
Convertible
preferred
stock 297 340 451
Stock options 6,674 6,233 8,356
- ------------------------------------------------------------------------------
Average common
shares
outstanding -
diluted 372,953 374,044 377,607
Net income per
share - diluted $ 2.15 $ 0.81 $ 1.75
- ------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
14. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $2,233,270 $2,264,082 $2,236,034 $2,475,898 $9,209,284
Gross profit 825,067 854,668 856,816 961,520 3,498,071
Net income 243,301 188,866 188,156 181,243 801,566
Per Share Amounts:
Net income - diluted $ 0.65 $ 0.51 $ 0.50 $ 0.49 $ 2.15
Net income - basic 0.66 0.52 0.51 0.50 2.19
Dividends 0.29 0.31 1/2 0.31 1/2 0.31 1/2 1.23 1/2
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997
-------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $2,208,760 $2,394,058 $2,307,538 $2,446,651 $9,357,007
Gross profit 795,639 847,504 848,289 480,484 2,971,916
Net income (loss) 179,530 177,520 174,387 (229,566) 301,871
Per Share Amounts:
Net income (loss) -
diluted $ 0.48 $ 0.47 $ 0.47 $ (0.62) $ 0.81
Net income (loss) - basic 0.49 0.48 0.47 (0.62) 0.82
Dividends 0.26 1/2 0.29 0.29 0.29 1.13 1/2
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
First-quarter 1998 results include a gain on the sale of
the company's Ore-Ida frozen foodservice foods business to
McCain Foods Limited ($0.14 per share). (See Note 3 to the
Consolidated Financial Statements.)
The implementation of Project Millennia resulted in non-
recurring costs of $0.02 per share in the first quarter,
$0.03 per share in the second quarter, $0.05 per share in
the third quarter and $0.04 per share in the fourth
quarter of Fiscal 1998.
Third-quarter 1997 results include restructuring and
related costs ($0.03 per share), partially offset by a
gain on the sale of real estate in the U.K. ($0.02 per
share).
Fourth-quarter 1997 results include restructuring and
related costs ($1.06 per share). (See Note 4 to the
Consolidated Financial Statements.) These charges were
partially offset by a gain on the sale of the New Zealand
ice cream business ($0.12 per share). (See Note 3 to the
Consolidated Financial Statements.)
- ------------------------------------------------------------------------------
15. COMMITMENTS Legal Matters: On December 31, 1992, a food wholesale
AND CONTINGENCIES distributor filed suit against the company and its
principal competitors in the U.S. baby food industry.
Subsequent to that date, several similar lawsuits were
filed in the same court and have been consolidated into a
class action suit. The complaints, each of which seeks an
injunction and unspecified treble money damages, allege a
conspiracy to fix, maintain and stabilize the prices of
baby food. Related suits have also been filed in Alabama
and California state courts, seeking to represent a class
of indirect purchasers of baby food in the respective
states. The court has granted summary judgment to the
defendants and entered an order dismissing the complaint
with prejudice. The plaintiffs have appealed. The company
believes all of the suits are without merit and will
defend itself vigorously against them. Certain other
claims have been filed against the company or its
subsidiaries and have not been finally adjudicated. The
above-mentioned suits and claims, when finally concluded
and determined, in the opinion of management, based upon
the information that it presently possesses, will not have
a material adverse effect on the company's consolidated
financial position, results of operations or liquidity.
Lease Commitments: Operating lease rentals for warehouse,
production and office facilities and equipment amounted to
approximately $98.3 million in 1998, $93.2 million in 1997
and $87.1 million in 1996. Future lease payments for non-
cancellable operating leases as of April 29, 1998 totaled
$253.6 million (1999-$51.4 million, 2000-$43.7 million,
2001-$39.1 million, 2002-$32.1 million, 2003-$23.3 million
and thereafter-$64.0 million).
- ------------------------------------------------------------------------------
16. ADVERTISING Advertising costs for fiscal years 1998, 1997 and 1996
COSTS were $363.1 million, $319.0 million and $334.0 million,
respectively.
56
<PAGE>
RESPONSIBILITY STATEMENTS
- ------------------------------------------------------------------------------
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management of H.J. Heinz Company is responsible for the preparation of the
financial statements and other information included in this annual report. The
financial statements have been prepared in conformity with generally accepted
accounting principles, incorporating management's best estimates and
judgments, where applicable.
Management believes that the company's internal control systems provide
reasonable assurance that assets are safeguarded, transactions are recorded
and reported appropriately, and policies are followed. The concept of
reasonable assurance recognizes that the cost of a control procedure should
not exceed the expected benefits. Management believes that its systems provide
this appropriate balance. An important element of the company's control
systems is the ongoing program to promote control consciousness throughout the
organization. Management's commitment to this program is emphasized through
written policies and procedures (including a code of conduct), an effective
internal audit function and a qualified financial staff.
The company engages independent public accountants who are responsible for
performing an independent audit of the financial statements. Their report,
which appears herein, is based on obtaining an understanding of the company's
accounting systems and procedures and testing them as they deem necessary.
The company's Audit Committee is composed entirely of outside directors. The
Audit Committee meets regularly, and when appropriate separately, with the
independent public accountants, the internal auditors and financial management
to review the work of each and to satisfy itself that each is discharging its
responsibilities properly. Both the independent public accountants and the
internal auditors have unrestricted access to the Audit Committee.
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of H.J. Heinz Company:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of H.J. Heinz
Company and Subsidiaries at April 29, 1998 and April 30, 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended April 29, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
600 Grant Street
Pittsburgh, PA
June 15, 1998
57
<PAGE>
EXHIBIT 21
H. J. HEINZ COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Following are the subsidiairies of H.J. Heinz Company (the "Company"), other
than those which if considered in the aggregate as a single subsidiary would
not constitute a significant subsidiary, and the state or country in which
each subsidiary was incorporated or organized. The accounts of each of the
listed subsidiaries are a part of the Company's consolidated financial
statements.
<TABLE>
<CAPTION>
Subsidiary State or Country
---------- ----------------
<S> <C>
Alimentos Heinz, C.A. Venezuela
Alimentos Pilar S.A. Argentina
AIAL S.r.l. (Arimpex Industrie Alimentari S.r.l.) Italy
The All American Gourmet Company State of Delaware
Cardio-Fitness Corporation State of Delaware
Custom Foods Limited Ireland
Earth's Best, Inc. State of Idaho
Ets. Paul Paulet France
Heinz Bakery Products, Inc. State of Delaware
Heinz Europe Ltd. England
Heinz Iberica S.A. Spain
Heinz India Private Ltd. India
Heinz Japan Ltd. Japan
Heinz Kecskemeti Konzervgyar RT. Hungary
Heinz Polska Sp. Z.o.o. Poland
Heinz South Africa (Pty) Limited South Africa
Heinz-UFE Ltd. People's Republic of China
Heinz-Wattie Holdings Ltd. New Zealand
Heinz Win Chance Ltd. Thailand
H.J. Heinz (Botswana Proprietary) Ltd. Botswana
H.J. Heinz B.V. Netherlands
H.J. Heinz Company Australia Limited Australia
H.J. Heinz Company of Canada Ltd. Canada
H.J. Heinz Company Limited England
H.J. Heinz Credit Company State of Delaware
Indian Ocean Tuna Ltd. Seychelles
Industrias de Alimentacao, Lda. Portugal
Mareblu S.r.L. Italy
Olivine Industries (Private) Limited Zimbabwe
Ore-Ida Foods, Inc. State of Delaware
Heinz-PMV a.s. Czech Republic
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Subsidiary State or Country
---------- ----------------
<S> <C>
PLADA S.p.A. (Plasmon Dietetic Alimentari S.p.A.) Italy
Portion Pac, Inc. State of Ohio
Pro Pastries Inc. Canada
Pudliszki S.A. Poland
Seoul-Heinz Ltd. Republic of Korea
Star-Kist Foods, Inc. State of California
Weight Watchers Gourmet Food Company State of Delaware
Weight Watchers International, Inc. Commonwealth of Virginia
</TABLE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William R. Johnson, Lawrence J. McCabe and Paul
F. Renne, and each of them, such person's true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in such person's name, place and stead, in any and all capacities, to sign H. J.
Heinz Company's Annual Report on Form 10-K for the fiscal year ended April 29,
1998, and to sign any and all amendments to such Annual Report, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or such persons' or person's substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
This Power of Attorney has been signed below as of the 8th day of July,
1998 by the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Anthony J. F. O'Reilly Chairman of the Board and Director
- -------------------------------
Anthony J. F. O'Reilly
/s/ William R. Johnson President and Chief Executive Officer
- ------------------------------- and Director (Principal Executive Officer)
William R. Johnson
/s/ Paul F. Renne Executive Vice President and Chief
- ------------------------------- Financial Officer and Director (Principal
Paul F. Renne Financial Officer)
/s/ Lawrence J. McCabe Senior Vice President, General
- ------------------------------- Counsel and Secretary and Director
Lawrence J. McCabe
<PAGE>
/s/ William P. Snyder III Director
- -------------------------------
William P. Snyder III
/s/ Herman J. Schmidt Director
- -------------------------------
Herman J. Schmidt
/s/ Eleanor B. Sheldon Director
- -------------------------------
Eleanor B. Sheldon
/s/ Richard M. Cyert Director
- -------------------------------
Richard M. Cyert
/s/ Samuel C. Johnson Director
- -------------------------------
Samuel C. Johnson
/s/ Donald R. Keough Director
- -------------------------------
Donald R. Keough
/s/ S. Donald Wiley Director
- -------------------------------
S. Donald Wiley
/s/ David R. Williams Director
- -------------------------------
David R. Williams
/s/ Nicholas F. Brady Director
- -------------------------------
Nicholas F. Brady
/s/ William C. Springer Director
- -------------------------------
William C. Springer
<PAGE>
/s/ Edith E. Holiday Director
- -------------------------------
Edith E. Holiday
/s/Candace K. Bryan Director
- -------------------------------
Candace K. Bryan
/s/ Edward J. McMenamin Vice President Corporate Controller
- ------------------------------- (Principal Accounting Officer)
Edward J. McMenamin
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-29-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> APR-29-1998
<EXCHANGE-RATE> 1
<CASH> 96,300
<SECURITIES> 3,098
<RECEIVABLES> 1,071,837
<ALLOWANCES> 17,627
<INVENTORY> 1,328,843
<CURRENT-ASSETS> 2,686,519
<PP&E> 4,068,123
<DEPRECIATION> 1,673,461
<TOTAL-ASSETS> 8,023,421
<CURRENT-LIABILITIES> 2,164,273
<BONDS> 2,768,277
0
199
<COMMON> 107,774
<OTHER-SE> 2,108,543
<TOTAL-LIABILITY-AND-EQUITY> 8,023,421
<SALES> 9,209,284
<TOTAL-REVENUES> 9,209,284
<CGS> 5,711,213
<TOTAL-COSTS> 5,711,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,616
<INCOME-PRETAX> 1,254,981
<INCOME-TAX> 453,415
<INCOME-CONTINUING> 801,566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 801,566
<EPS-PRIMARY> 2.19<F1>
<EPS-DILUTED> 2.15
<FN>
<F1>REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH SFAS NO. 128.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
H.J. Heinz Company
Board of Directors'
Guidelines on Political Contributions
No Company or subsidiary funds, facilities
or services shall be used for political
contributions of any kind in support of
or in opposition to:
. any political party or political committee,
. any candidate for office of any government
- state, federal or local, or
. any initiative, recall or referendum appear-
ing on the ballot for a special or general
election at any level of government relating
to a candidate or office holder. This prohibi-
tion is absolute and applies to all elections
or political candidates, campaigns or com-
mittees whether or not contributions might
be lawful under the laws of any particular
state or country wherein the Company or
a subsidiary operates; except that the
Company may;
. pay the costs of establishing, adminis-
tering and soliciting contributions to
political action committees established
under applicable law;
. contribute funds to non-profit organiza-
tions, provided such funds are not used
to influence election campaigns, and
such contribution has been pre-cleared
with the Chairman of the Public Issues
Committee; and
. contribute funds in equal amounts
to both the Republican National
Committee Non-Federal Account and
the Democratic National Committee
Non-Federal Account in a manner that
is not prohibited by the Federal Election
Campaign Act of 1971, as amended, or
the regulations of the Federal Election
Commission, provided the total amount
of such contributions is approved by the
Public Issues Committee.*
"Political contributions" include but are not
limited to subscriptions, membership in
associations or committees whose purpose
it is to support or oppose political parties or
committees, candidates for public office or
any initiative, recall or referendum, loans of
any sort, purchase of tickets for any event in
support of or in opposition to any political party
or committee, candidate for public office or
any initiative, recall or referendum, purchase of
advertising space or furnishing of any supplies
or performing services for or against any politi-
cal organization, committee candidate, public
official or any initiative, recall or referendum.
Nothing herein shall be construed to prohibit
individual officers or employees of the
Company or a subsidiary from contributing
their personal funds or their personal free time
to any political candidate or party, but under
no circumstances shall such officers or
employees be reimbursed for such contribu-
tions or be granted time off the job for such
activity; nor prohibit the Company or a
subsidiary from contributing funds to a non-
political organization that opposes or supports
a ballot, initiative or referendum (unrelated to a
specific candidate or office holder) that could,
in the opinion of management, adversely affect
the business of the Company.
Political Contributions
The Company made equal contributions
of $5,000 to each of the Republican and
Democratic National Committees' Non-Federal
Accounts since the publication of the 1997
H.J. Heinz Company annual report.
*Effective April 29, 1998, the Board of Directors of
the Company amended the Guidelines on Political
Contributions by deleting this subparagraph, and accordingly
eliminated the general authorization to contribute funds in
equal amounts to the Republican and Democratic National
Committees' Non-Federal Accounts.
