<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 28, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For the Three Months Ended July 28, 1999 Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0542520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Grant Street, Pittsburgh, 15219
Pennsylvania (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: 412-456-5700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such requirements for the past 90 days. Yes X No
The number of shares of the Registrant's Common Stock, par value $.25 per
share, outstanding as of August 25, 1999, was 358,377,601 shares.
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
H. J. HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 28, 1999 July 29, 1998
------------- -------------
FY 2000 FY 1999
(Unaudited)
(In Thousands, Except
per Share Amounts)
<S> <C> <C>
Sales............................................... $2,181,007 $2,228,230
Cost of products sold............................... 1,324,257 1,359,777
---------- ----------
Gross profit........................................ 856,750 868,453
Selling, general and administrative expenses........ 475,777 460,354
---------- ----------
Operating income.................................... 380,973 408,099
Interest income..................................... 5,285 7,585
Interest expense.................................... 62,592 64,043
Other (income)/expense, net......................... (4,373) 17,619
---------- ----------
Income before income taxes.......................... 328,039 334,022
Provision for income taxes.......................... 121,371 120,235
---------- ----------
Net income.......................................... $ 206,668 $ 213,787
========== ==========
Net income per share--diluted....................... $ 0.57 $ 0.58
========== ==========
Average common shares outstanding--diluted.......... 364,176 369,398
========== ==========
Net income per share--basic......................... $ 0.58 $ 0.59
========== ==========
Average common shares outstanding--basic............ 358,685 362,400
========== ==========
Cash dividends per share............................ $ 0.3425 $ 0.315
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
------------
2
<PAGE>
H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 28, 1999 April 28, 1999*
------------- ---------------
FY 2000 FY 1999
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................ $ 147,047 $ 115,982
Short-term investments, at cost which
approximates market............................. 4,442 7,139
Receivables, net................................. 1,057,490 1,163,915
Inventories...................................... 1,455,116 1,409,651
Prepaid expenses and other current assets........ 220,829 190,091
---------- ----------
Total current assets........................... 2,884,924 2,886,778
---------- ----------
Property, plant and equipment.................... 4,008,461 4,073,975
Less accumulated depreciation.................... 1,839,826 1,902,951
---------- ----------
Total property, plant and equipment, net....... 2,168,635 2,171,024
---------- ----------
Goodwill, net.................................... 1,747,542 1,781,466
Trademarks, net.................................. 507,196 511,608
Other intangibles, net........................... 167,826 177,290
Other non-current assets......................... 884,211 525,468
---------- ----------
Total other non-current assets................. 3,306,775 2,995,832
---------- ----------
Total assets................................... $8,360,334 $8,053,634
========== ==========
</TABLE>
*Summarized from audited fiscal year 1999 balance sheet.
See Notes to Condensed Consolidated Financial Statements.
------------
3
<PAGE>
H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 28, 1999 April 28, 1999*
------------- ---------------
FY 2000 FY 1999
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt.................................. $ 274,584 $ 290,841
Portion of long-term debt due within one year.... 571,165 613,366
Accounts payable................................. 811,763 945,488
Salaries and wages............................... 65,625 74,098
Accrued marketing................................ 199,305 182,024
Accrued restructuring costs...................... 127,253 147,786
Other accrued liabilities........................ 237,180 372,623
Income taxes..................................... 168,429 160,096
---------- ----------
Total current liabilities...................... 2,455,304 2,786,322
---------- ----------
Long-term debt................................... 2,740,184 2,472,206
Deferred income taxes............................ 312,395 310,799
Non-pension postretirement benefits.............. 207,199 208,102
Income taxes..................................... 376,778 --
Other liabilities................................ 441,975 473,201
---------- ----------
Total long-term debt and other liabilities..... 4,078,531 3,464,308
---------- ----------
Shareholders' Equity:
Capital stock.................................... 107,947 107,947
Additional capital............................... 280,303 277,652
Retained earnings................................ 4,463,617 4,379,742
---------- ----------
4,851,867 4,765,341
Less:
Treasury stock at cost (72,526,275 shares at
July 28, 1999 and 71,968,652 shares at April
28, 1999)..................................... 2,471,995 2,435,012
Unearned compensation relating to the ESOP...... 10,440 11,728
Accumulated other comprehensive income.......... 542,933 515,597
---------- ----------
Total shareholders' equity..................... 1,826,499 1,803,004
---------- ----------
Total liabilities and shareholders' equity..... $8,360,334 $8,053,634
========== ==========
</TABLE>
*Summarized from audited fiscal year 1999 balance sheet.
See Notes to Condensed Consolidated Financial Statements.
------------
4
<PAGE>
H. J. HEINZ COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 28, 1999 July 29, 1998
------------- -------------
FY 2000 FY 1999
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
Cash Provided by Operating Activities.............. $ 47,580 $ 75,280
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures............................. (69,475) (65,438)
Acquisitions, net of cash acquired............... (13,580) (160,297)
Purchases of short-term investments.............. (438,969) (175,073)
Sales and maturities of short-term investments... 441,647 175,096
Other items, net................................. 18,307 3,251
--------- ---------
Cash used for investing activities............. (62,070) (222,461)
--------- ---------
Cash Flows from Financing Activities:
Payments on long-term debt....................... (2,437) (40,975)
Proceeds from commercial paper and short-term
borrowings, net................................. 191,039 184,190
Proceeds from long-term debt..................... 1,168 254,808
Dividends........................................ (122,793) (113,997)
Purchases of treasury stock...................... (44,204) (134,011)
Exercise of stock options........................ 7,317 27,178
Other items, net................................. 10,979 16,568
--------- ---------
Cash provided by financing activities.......... 41,069 193,761
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents....................................... 4,486 (5,502)
--------- ---------
Net increase in cash and cash equivalents.......... 31,065 41,078
Cash and cash equivalents at beginning of year..... 115,982 96,300
--------- ---------
Cash and cash equivalents at end of period......... $ 147,047 $ 137,378
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
------------
5
<PAGE>
H. J. HEINZ COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The Management's Discussion and Analysis of Financial Condition and
Results of Operations which follows these notes contains additional
information on the results of operations and the financial position of the
company. Those comments should be read in conjunction with these notes.
The company's annual report on Form 10-K for the fiscal year ended April
28, 1999 includes additional information about the company, its
operations, and its financial position, and should be read in conjunction
with this quarterly report on Form 10-Q.
(2) The results for the interim periods are not necessarily indicative of the
results to be expected for the full fiscal year due to the seasonal nature
of the company's business. Certain prior year amounts have been
reclassified in order to conform with the Fiscal 2000 presentation.
(3) In the opinion of management, all adjustments, which are of a normal and
recurring nature, necessary for a fair statement of the results of
operations of these interim periods have been included.
(4) The composition of inventories at the balance sheet dates was as follows:
<TABLE>
<CAPTION>
July 28, 1999 April 28, 1999
------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Finished goods and work-in-process.............. $1,113,927 $1,064,015
Packaging material and ingredients.............. 341,189 345,636
---------- ----------
$1,455,116 $1,409,651
========== ==========
</TABLE>
(5) The provision for income taxes consists of provisions for federal, state,
U.S. possessions and foreign income taxes. The company operates in an
international environment with significant operations in various locations
outside the United States. Accordingly, the consolidated income tax rate
is a composite rate reflecting the earnings in the various locations and
the applicable tax rates.
During the first quarter of Fiscal 2000, the company reorganized certain
of its foreign operations and as a result incurred a foreign income tax
liability of $376.8 million, payable over five years. Because the company
increased the tax basis in amortizable assets, cash flow is expected to be
neutral over the next five years, with positive cash flow expected in each
of the following four years.
(6) Restructuring Charges
Operation Excel
In Fiscal 1999, the company announced a growth and restructuring
initiative named "Operation Excel." The major components of Operation
Excel include creating manufacturing centers of excellence, focusing the
product portfolio, realigning the company's management teams and investing
in growth initiatives. For more information regarding the background of
Operation Excel, please refer to the company's Annual Report to
Shareholders for the fiscal year ended April 28, 1999.
In the first quarter, as part of Operation Excel, the company recognized
additional restructuring and related costs of $34.6 million pretax ($0.07
per share). These costs were primarily related to
6
<PAGE>
implementation costs ($24.7 million) for consulting fees, employee training
and relocation costs, and equipment relocation costs associated with the
implementation of the Operation Excel Phase I projects approved in Fiscal
1999. Other costs recognized in the first quarter consisted of severance
costs ($7.1 million), asset writedowns ($2.6 million), and exit costs ($0.2
million). These costs related primarily to the closure of a chicken
processing facility in New Zealand and additional severance accruals
relating to the closure of the company's Ore-Ida head office in Boise,
Idaho.
During the first quarter, the company utilized $24.1 million of severance
and exit accruals, principally related to consolidating the company's U.S.
frozen food headquarters, consolidating certain European administrative
support functions and downsizing the Puerto Rico tuna processing facility.
Severance costs paid in the first quarter are primarily related to
involuntary termination payments made to affected employees as a direct
result of the restructuring program. Exit costs paid in the first quarter
consist primarily of costs incurred to shutdown factories and terminate
contracts.
The major components of the restructuring charges and implementation costs
and the accrual balances as of July 28, 1999 were as follows:
<TABLE>
<CAPTION>
Employee
Termination
Non-Cash and Accrued
Asset Severance Exit Implementation
(Dollars in millions) Write-Downs Costs Costs Costs Total
--------------------- ----------- ----------- ------- -------------- -------
<S> <C> <C> <C> <C> <C>
Initial charge--Fiscal
1999................... $ 294.9 $159.4 $45.3 $ 53.2 $ 552.8
Amounts utilized--Fiscal
1999................... (294.9) (67.3) (9.8) (53.2) (425.2)
------- ------ ----- ------ -------
Accrued restructuring
costs--April 28, 1999.. -- 92.1 35.5 -- 127.6
Restructuring charges
and implementation
costs--Fiscal 2000..... 2.6 7.1 0.2 24.7 34.6
Amounts utilized--Fiscal
2000................... (2.6) (20.1) (4.0) (24.7) (51.4)
------- ------ ----- ------ -------
Accrued restructuring
costs--July 28, 1999... $ -- $ 79.1 $31.7 $ -- $ 110.8
======= ====== ===== ====== =======
</TABLE>
In total, the company has approved the closure or exit of 17 factories or
businesses. To date four of these factories have been sold or closed. These
actions will impact approximately 5,500 employees with a net reduction in
the workforce of 4,000 after expansion of certain facilities. During Fiscal
1999, the company's workforce was reduced by approximately 200 employees.
In the first quarter, the workforce was reduced by an additional 1,600
employees. All of the remaining factory closures and employee terminations
are expected to take place within 12 months.
Project Millennia
During the fourth quarter of Fiscal 1997, the company announced a
reorganization and restructuring program named "Project Millennia." The
reorganization plan was designed to strengthen the company's core
businesses and improve profitability and global growth. Key initiatives
were focused on process changes and product line rationalizations. For more
information regarding the background of Project Millennia, please refer to
the company's Annual Report to Shareholders for the fiscal year ended April
28, 1999.
In the first quarter, the company utilized $3.7 million of severance and
exit cost accruals to facilitate the implementation of Project Millennia.
The utilization of the accruals related principally to the first quarter
closure of a tuna processing facility in Australia, severance payments in
Spain, and contractual lease commitments associated with the restructuring
of the U.S. Weight Watchers meeting system. During the first quarter the
company's workforce was reduced by 100 employees.
7
<PAGE>
The major components of the restructuring charges and implementation costs
and the accrual balances as of July 28, 1999 were as follows:
<TABLE>
<CAPTION>
Employee
Termination
Non-Cash and Accrued
Asset Severance Exit Implementation
(Dollars in millions) Write-Downs Costs Costs Costs Total
--------------------- ----------- ----------- ------- -------------- -----
<S> <C> <C> <C> <C> <C>
Accrued restructuring
costs--April 28, 1999.. $-- $ 2.7 $17.4 $-- $20.1
Amounts utilized--Fiscal
2000................... -- (2.3) (1.4) -- (3.7)
--- ----- ----- --- -----
Accrued restructuring
costs--July 28, 1999... $-- $ 0.4 $16.0 $-- $16.4
=== ===== ===== === =====
</TABLE>
As a result of the expected sale of the Weight Watchers weight control
business, the contractual lease commitments associated with the
restructuring of the U.S. Weight Watchers meeting system will be assumed
by the new owners, and all other spending will be completed by the end of
the second quarter.
(7) In the first quarter, the company completed the acquisition of Thermo-Pac
Inc. in the U.S., a leader in single-serve condiments.
(8) Segment Information
During Fiscal 1999, the company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
supersedes previously issued segment reporting disclosure rules and
requires the presentation of descriptive information about reportable
segments that is consistent with the way in which management operates the
company. SFAS No. 131 also requires disclosures about products and
services, geographic areas and major customers. Previously reported
segment and geographic information has been restated to conform with SFAS
No. 131 requirements.
The company's segments are primarily organized by geographical area. The
composition of segments and measure of segment profitability is consistent
with that used by the company's management. Descriptions of the company's
reportable segments are as follows:
North American Dry--This segment includes the company's North American
dry grocery and foodservice operations. This segment consists of Heinz
U.S.A., Heinz Pet Products, Star-Kist Seafood and Heinz Canada. This
segment's operations include products in all of the company's core
categories.
North American Frozen--This segment consists of Heinz Frozen Food
Company, which markets frozen potatoes, entrees, and appetizers.
Europe--This segment includes the company's operations in Europe and
sells products in all of the company's core categories.
Asia/Pacific--This segment includes the company's operations in New
Zealand, Australia, Japan, China, South Korea, Indonesia, Thailand and
India. This segment's operations include products in all of the
company's core categories.
Other Operating Entities--This segment includes the company's Weight
Watchers classroom business as well as the company's operations in
Africa, Venezuela and other areas which sell products in all of the
company's core categories.
The company's management evaluates performance based on several factors;
however, the primary measurement focus is operating income excluding
unusual costs and gains. Intersegment sales are accounted for at current
market values. Items below the operating income line of the Consolidated
Statements of Income are not presented by segment, since they are excluded
from the measure of segment profitability reviewed by the company's
management.
8
<PAGE>
The following table presents information about the company's reportable
segments.
<TABLE>
<CAPTION>
North North Other
American American Asia/ Operating Non- Consolidated
(Dollars in Thousands) Dry Frozen Europe Pacific Entities Operating(1) Totals
---------------------- -------- -------- -------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
July 28, 1999
Intersegment Sales...... $ 6,914 $ 2,964 $ 1,363 $ 455 $ 1,454 $(13,150) $ --
Net External Sales...... 966,123 212,412 551,509 285,829 165,134 -- 2,181,007
Operating Income........ 186,890 33,385 107,341 35,931 36,939 (19,513) 380,973
Operating Income,
Excluding Restructuring
Related and Non-
recurring Items (2).... 216,792 42,684 119,094 39,624 36,939 (19,513) 435,620
Three Months Ended
July 29, 1998
Intersegment Sales...... $ 6,423 $ 3,214 $ 1,058 $ -- $ 1,438 $(12,133) $ --
Net External Sales...... 980,985 219,246 582,308 237,710 207,981 -- 2,228,230
Operating Income........ 215,775 37,071 115,042 33,093 24,203 (17,085) 408,099
Operating Income,
Excluding Restructuring
Related
Items (3).............. 220,275 38,771 119,342 34,493 26,103 (15,985) 422,999
</TABLE>
--------
(1) Includes corporate overhead, intercompany eliminations and charges not
directly attributable to operating segments.
(2) Excludes restructuring and implementation costs of Operation Excel as
follows: North American Dry $9.9 million, North American Frozen $9.3
million, Europe $11.7 million, and Asia/Pacific $3.7 million. Also
excludes costs related to Ecuador in North American Dry $20.0 million.
(3) Excludes implementation costs for Project Millennia as follows: North
American Dry $4.5 million, North American Frozen $1.7 million, Europe
$4.3 million, Asia/Pacific $1.4 million, Other Operating $1.9 million
and Non-Operating $1.1 million.
A reconciliation of total segment operating income to total consolidated
income before income taxes is as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
(Dollars in Thousands) July 28, 1999 July 29, 1998
---------------------- ------------- -------------
<S> <C> <C>
Total Operating Income for Reportable Segments... $380,973 $408,099
Interest Income.................................. 5,285 7,585
Interest Expense................................. 62,592 64,043
Other (income)/expense, net...................... (4,373) 17,619
-------- --------
Consolidated Income Before Income Taxes.......... $328,039 $334,022
======== ========
</TABLE>
The company's revenues are generated via the sale of products in the
following categories:
<TABLE>
<CAPTION>
Soups,
Beans
Ketchup, and
Condiments Frozen Pasta Infant Pet
(Dollars in Thousands) and Sauces Foods Tuna Meals Foods Products Other Total
---------------------- ---------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter ended July
28, 1999............... $611,612 $301,080 $271,618 $233,767 $231,401 $294,337 $237,192 $2,181,007
First quarter ended July
29, 1998............... 542,288 309,020 293,349 227,018 251,729 321,824 283,002 2,228,230
-------- -------- -------- -------- -------- -------- -------- ----------
Total Increase
(Decrease)............. $ 69,324 $ (7,940) $(21,731) $ 6,749 $(20,328) $(27,487) $(45,810) $ (47,223)
======== ======== ======== ======== ======== ======== ======== ==========
</TABLE>
(9) The company's $2.30 billion credit agreement, which expires in September
2001, supports its domestic commercial paper program. At July 28, 1999, the
company had $1.68 billion of domestic commercial paper outstanding, all of
which has been classified as long-term debt due to the long-term nature of
the credit agreement. As of April 28, 1999, the company had $1.41 billion
of domestic commercial paper outstanding and classified as long-term debt.
9
<PAGE>
(10) On September 8, 1999, the company's Board of Directors raised the
quarterly dividend on the company's common stock to $0.36 3/4 per share
from $0.34 1/4 per share, for an indicated annual rate of $1.47 per
share. The dividend will be paid on October 10, 1999 to shareholders of
record at the close of business on September 21, 1999.
(11) The following table sets forth the computation of basic and diluted
earnings per share in accordance with the provisions of SFAS No. 128.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 28, 1999 July 29, 1998
------------- -------------
FY 2000 FY 1999
(In Thousands, Except
per Share Amounts)
<S> <C> <C>
Net income per share--basic:
Net income....................................... $206,668 $213,787
Preferred dividends.............................. 7 8
-------- --------
Net income applicable to common stock............ $206,661 $213,779
======== ========
Average common shares outstanding--basic......... 358,685 362,400
======== ========
Net income per share--basic...................... $ 0.58 $ 0.59
======== ========
Net income per share--diluted:
Net income....................................... $206,668 $213,787
======== ========
Average common shares outstanding................ 358,685 362,400
Effect of dilutive securities:
Convertible preferred stock.................... 234 253
Stock options.................................. 5,257 6,745
-------- --------
Average common shares outstanding--diluted....... 364,176 369,398
======== ========
Net income per share--diluted.................... $ 0.57 $ 0.58
======== ========
</TABLE>
(12) Comprehensive income for all periods presented consisted of net income,
foreign currency translation adjustments and the adjustment to the
minimum pension liability. The components of comprehensive income, net of
related tax, for the periods presented are as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 28, 1999 July 29, 1998
------------- -------------
FY 2000 FY 1999
(Thousands of Dollars)
<S> <C> <C>
Net income....................................... $206,668 $213,787
Other comprehensive income (loss):
Foreign currency translation adjustment........ (29,320) (61,309)
Minimum pension liability adjustment........... 1,984 1,103
-------- --------
Comprehensive income............................. $179,332 $153,581
======== ========
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
THREE MONTHS ENDED JULY 28, 1999 AND JULY 29, 1998
Operation Excel
In Fiscal 1999, the company announced a growth and restructuring initiative
named "Operation Excel." The major components of Operation Excel include
creating manufacturing centers of excellence, focusing the product portfolio,
realigning the company's management teams and investing in growth initiatives.
For more information regarding the background of Operation Excel, please refer
to the company's annual report on Form 10-K for the fiscal year ended April 28,
1999.
In the first quarter, as part of Operation Excel, the company recognized
additional restructuring and related costs of $34.6 million pretax ($0.07 per
share). [Note: All earnings per share amounts included in Management's
Discussion and Analysis are presented on an after-tax diluted basis.] These
costs were primarily related to implementation costs ($24.7 million) for
consulting fees, employee training and relocation costs, and equipment
relocation costs associated with the implementation of the Operation Excel
Phase I projects approved in Fiscal 1999. Other costs recognized in the first
quarter consisted of severance costs ($7.1 million), asset writedowns ($2.6
million), and exit costs ($0.2 million). These costs related primarily to the
closure of a chicken processing facility in New Zealand and additional
severance accruals relating to the closure of the company's Ore-Ida head office
in Boise, Idaho. See footnote 8 for a breakdown of Operation Excel
restructuring and implementation costs by segment.
During the first quarter, the company utilized $24.1 million of severance and
exit accruals, principally related to consolidating the company's U.S. frozen
food headquarters, consolidating certain European administrative support
functions and downsizing the Puerto Rico tuna processing facility. See footnote
6 for further information.
In total, the company has approved the closure or exit of 17 factories or
businesses. To date four of these factories have been sold or closed. These
actions will impact 5,500 employees with a net reduction in the workforce of
4,000 after expansion of certain facilities. During Fiscal 1999, the company's
workforce was reduced by approximately 200 employees. In the first quarter, the
workforce was reduced by an additional 1,600 employees. All of the remaining
factory closures and employee terminations are expected to take place within 12
months.
The expected pretax savings to be generated from Operation Excel initiatives
approved to-date will be $50 million in Fiscal 2000 and will grow to $100
million in Fiscal 2001 and $150 million per year, thereafter, with non-cash
savings of less than $15 million in any year. These savings will be generated
from raw material procurement savings, inbound freight savings, direct labor
savings, material yield savings, production efficiency savings, depreciation
savings and indirect overhead savings.
Future phases of Operation Excel will also be aimed at generating
manufacturing efficiencies, focusing the product portfolio, and realigning
management teams and will result in the recognition of additional restructuring
charges and implementation costs. Specific initiatives are in the development
stages and have not yet been approved by the company's Board of Directors.
These future initiatives currently envision the closure of at least three
additional factories, an additional net workforce reduction of 1,000 employees
and could result in restructuring charges and implementation costs of up to
$350 million, a portion of which will be recognized in future quarters of
Fiscal 2000.
Successful execution of all phases of Operation Excel will help the company
achieve the following targets over the next four years:
. $200 million in annual ongoing pretax savings upon full implementation
11
<PAGE>
. Volume growth of 3 to 4 percent per year
. Earnings per share growth of 10 to 12 percent per year
. Gross margins of 42%
. Return on invested capital of 40%
. $2.5 billion of free cash flow
Project Millennia
During the fourth quarter of Fiscal 1997, the company announced a
reorganization and restructuring program named "Project Millennia." The
reorganization plan was designed to strengthen the company's core businesses
and improve profitability and global growth. Key initiatives were focused on
process changes and product line rationalizations. For more information
regarding the background of Project Millennia, please refer to the company's
annual report on Form 10-K for the fiscal year ended April 28, 1999.
In the first quarter, the company utilized $3.7 million of severance and
exit cost accruals to facilitate the implementation of Project Millennia. The
utilization of the accruals related principally to the first quarter closure
of a tuna processing facility in Australia, severance payments in Spain and
contractual lease commitments associated with the restructuring of the U.S.
Weight Watchers meeting system. During the first quarter the company's
workforce was reduced by 100 employees. See footnote 6 for further
information.
As a result of the expected sale of the Weight Watchers weight control
business, the contractual lease commitments associated with the restructuring
of the U.S. Weight Watchers meeting system will be assumed by the new owners,
and all other spending will be completed by the end of the second quarter.
Results of Operations
For the three months ended July 28, 1999, sales decreased $47.2 million, or
2.1%, to $2.18 billion from $2.23 billion last year. Divestitures reduced
sales by $59.3 million, or 2.7%, unfavorable pricing reduced sales by $36.1
million, or 1.6%, the unfavorable impact of foreign exchange translation rates
reduced sales by $7.8 million, or 0.3%, and volume was down $6.3 million, or
0.3%. Acquisitions increased sales by $62.2 million, or 2.8%.
Sales in Europe decreased $30.8 million, or 5.3%. Unfavorable sales volume,
primarily in convenience meals and infant foods, contributed $30.0 million, or
5.1%, to the sales decrease. The unfavorable impact of foreign exchange
translation rates reduced sales by $19.3 million, or 3.3%, primarily due to
sales in the United Kingdom and Italy. In addition, pricing was unfavorable
$1.7 million, or 0.3%. These decreases were partially offset by acquisitions,
which increased sales by $20.1 million, or 3.4%, primarily due to the
acquisitions of the convenience meals business of Sonnen Bassermann in Germany
and Serv-A-Portion in Belgium.
The North American Dry segment's sales decreased $14.9 million, or 1.5%,
primarily due to unfavorable pricing of $20.9 million, or 2.1%. Price
decreases were noted in tuna and pet products. The unfavorable pricing in tuna
was in response to market pressures caused by a substantial decline in fish
costs. The company expects that the oversupply of tuna should correct itself
and tuna pricing will recover in the coming months. Volume was unfavorable
$1.4 million, or 0.1% as volume increases in ketchup, condiments and sauces
were offset by a volume decrease in pet products. Acquisitions, net of
divestitures, increased sales by $7.4 million, or 0.7%.
The North American Frozen segment's sales declined $6.8 million, or 3.1%.
Price decreases, primarily in frozen potatoes, contributed $7.1 million, or
3.2%, to the sales decrease. Divestitures, net of acquisitions, accounted for
$6.9 million, or 3.2%, of the decrease, primarily due to the exit of certain
12
<PAGE>
product lines, including the pocket sandwich business, as part of Operation
Excel. Volume contributed $7.2 million, or 3.3% to sales, led by Smart Ones,
which were up 27%, and Ore-Ida frozen potatoes, which were up 4.5%.
Sales in Asia/Pacific increased $48.1 million, or 20.2%, due to acquisitions
of $30.9 million, or 13.0%, primarily the Fiscal 1999 acquisition of ABC
Indonesia. In addition, sales of the Asia/Pacific segment benefited from the
favorable impact of foreign exchange translation rates of $14.8 million, or
6.2%, primarily in Japan and Australia. Favorable pricing of $1.2 million, or
0.5% and favorable volume of $1.2 million, or 0.5% also increased sales.
Sales of Other Operating entities decreased $42.8 million or 20.6%,
primarily due to the divestiture of the bakery products unit, $48.5 million,
or 23.3%. Unfavorable pricing of $7.7 million or 3.7%, primarily due to the
Weight Watchers classroom business, and the unfavorable impact of foreign
exchange translation rates of $3.3 million, or 1.6%, also negatively impacted
sales. Favorable volume of $16.7 million, or 8.0%, largely due to the Weight
Watchers classroom business partially offset these decreases.
The first quarter was negatively impacted by a number of special items which
net to $36.4 million pre-tax and $0.08 per share, which are summarized in the
table below. These items include implementation costs of $24.7 million pretax
($0.05 per share) related to Operation Excel. The company recorded an
additional restructuring charge for Operation Excel of $9.9 million pretax
($0.02 per share). In April of 1999, the company became aware of operational
and accounting irregularities in its Ecuador tuna processing facility and
expensed $10.0 million as an estimate of the losses. In the first quarter, the
company recognized an additional $20.0 million pretax ($0.05 per share) of
expenses related to this facility and does not anticipate significant further
losses. In addition, the company recognized, in Other income, a pretax gain of
$18.2 million ($0.03 per share) for the sale of an office building in the
United Kingdom. During last year's first quarter the company incurred costs of
$14.9 million pretax ($0.02 per share) related to the implementation of
Project Millennia, consisting of start-up costs, consulting fees, relocation
costs of employees and relocation of equipment.
The following tables provide a comparison of the company's reported results
and the results excluding special items for the periods ended July 28, 1999
and July 29, 1998.
<TABLE>
<CAPTION>
Three Months Ended July 28, 1999
--------------------------------------
(Dollars in Millions, except per share Gross Operating Net Per
amounts) Profit Income Income Share
- -------------------------------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C>
Reported results........................ $ 856.8 $ 381.0 $ 206.7 $ 0.57
Operation Excel restructuring......... 3.4 9.9 5.6 0.02
Operation Excel implementation costs.. 6.9 24.7 16.5 0.05
Ecuador expenses...................... 20.0 20.0 20.0 0.05
Gain on U.K. building sale............ -- -- (11.8) (0.03)
-------- -------- -------- --------
Results excluding special items......... $ 887.1 $ 435.6 $ 236.9 $ 0.65
======== ======== ======== ========
<CAPTION>
Three Months Ended July 29, 1998
--------------------------------------
(Dollars in Millions, except per share Gross Operating Net Per
amounts) Profit Income Income Share
- -------------------------------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C>
Reported results........................ $ 868.5 $ 408.1 $ 213.8 $ 0.58
Project Millennia costs............... 10.2 14.9 9.5 0.02
-------- -------- -------- --------
Results excluding special items......... $ 878.7 $ 423.0 $ 223.3 $ 0.60
======== ======== ======== ========
</TABLE>
(Note: Totals may not add due to rounding)
Gross profit decreased $11.7 million, or 1.3%, to $856.8 million from $868.5
million, and the gross profit margin increased to 39.3% from 39.0%. Excluding
the special items noted above, gross profit increased $8.5 million, or 1.0%,
to $887.1 million from $878.7 million, and the gross profit margin
13
<PAGE>
increased to 40.7% from 39.4%. The Asia/Pacific segment's gross profit
increased $20.1 million, or 23.7% due to increased sales, favorable exchange
and the acquisition of ABC Indonesia. Europe's gross profit increased $3.8
million or 1.6%, due primarily to a changing sales mix favoring higher margin
products. The North American Frozen segment's gross profit decreased $8.1
million, or 7.6%, due primarily to a decrease in sales driven by the
discontinuation of certain products as part of Operation Excel and price
reductions in frozen potatoes. Gross profit in the North American Dry segment
decreased $4.3 million, or 1.1%, due primarily to a decrease in the domestic
pet food business and price reductions in seafood, partially offset by solid
increases at Heinz U.S.A. and Canada. Other Operating entities' gross profit
decreased $2.7 million, or 3.5%, due primarily to the divestiture of the
bakery products business, partially offset by an increase at the Weight
Watchers classroom business.
Selling, general and administrative expenses ("SG&A") increased $15.4
million to $475.8 million from $460.4 million and increased as a percentage of
sales to 21.8% from 20.7%. Excluding the special items noted above, SG&A
decreased $4.2 million to $451.5 million from $455.7 million and increased as
a percentage of sales to 20.7% from 20.4%. Increased marketing expenses were
offset by lower general and administrative, and selling and distribution
expenses.
Operating income decreased $27.1 million, or 6.6%, to $381.0 million from
$408.1 million reported last year. Excluding the special items noted above,
operating income increased $12.6 million, or 3.0%, to $435.6 million from
$423.0 million. This increase was primarily due to the increase in gross
profit and a decrease in SG&A.
Asia/Pacific's operating income increased $2.8 million, or 8.6%, to $35.9
million from $33.1 million. Excluding restructuring related items in both
periods, operating income increased $5.1 million, or 14.9%, to $39.6 million
from $34.5 million. The increase is primarily attributable to the acquisition
of ABC Indonesia.
North American Frozen's operating income decreased $3.7 million, or 9.9%, to
$33.4 million from $37.1 million. Excluding restructuring related items in
both periods, operating income increased $3.9 million, or 10.1%, to $42.7
million from $38.8 million. This increase is primarily due to decreases in
general and administrative expenses and marketing expense.
The North American Dry's operating income decreased $28.9 million, or 13.4%,
to $186.9 million from $215.8 million. Excluding restructuring related items
in both periods and the Ecuador expenses in the current quarter, operating
income decreased $3.5 million, or 1.6%, to $216.8 million from $220.3 million.
The decrease is primarily due to the domestic pet food business, which is down
compared to last year's first quarter, but continues to show steady
improvement from last year's second half.
Europe's operating income decreased $7.7 million, or 6.7%, to $107.3 million
from $115.0 million. Excluding restructuring related items in both periods,
operating income decreased $0.2 million, or 0.2%, to $119.1 million from
$119.3 million.
Other Operating entities' operating income increased $12.7 million, or
52.6%, to $36.9 million from $24.2 million. Excluding restructuring related
items in last year's first quarter, operating income increased $10.8 million,
or 41.5%, to $36.9 million from $26.1 million. This increase is primarily due
to the continued strong performance of the Weight Watchers classroom business.
Other income and expenses totaled $52.9 million in the current quarter
compared to $74.1 million last year. The decrease is primarily attributable to
a gain on the sale of an office building in the United Kingdom, $18.2 million
pretax ($0.03 per share). Net interest expense remained relatively flat.
The effective tax rate for the first quarter of the current year was 37.0%
compared to 36.0% last year. Excluding the special items noted above, the
effective rate was 35.0%.
14
<PAGE>
Net income for the current quarter was $206.7 million compared to $213.8
million for the same quarter last year, and diluted earnings per share was
$0.57 compared to $0.58. Excluding the special items noted above, net income
increased $13.6 million, or 6.1%, to $236.9 million from $223.3 million, and
earnings per share increased to $0.65 from $0.60 last year.
Liquidity and Financial Position
Cash provided by operating activities totaled $47.6 million for the three
month period ended July 28, 1999 compared to $75.3 million in last year's
first quarter.
Cash used for investing activities totaled $62.1 million compared to $222.5
million used last year. Capital expenditures required $69.5 million in the
current quarter versus $65.4 million in last year's first quarter.
Acquisitions in the current period required $13.6 million, due primarily to
the purchase of Thermo-Pac, Inc. Acquisitions in the prior year's comparable
period required $160.3 million due to the purchases of the College Inn brand
of canned broths, the Eta brand of dressings and peanut butter in New Zealand
and the Vidalia O's frozen onion rings brand.
In the current quarter, financing activities provided $41.1 million compared
to providing $193.8 million in the same quarter last year. Proceeds from
commercial paper and short-term borrowings provided $191.0 million compared to
$184.2 million in the same period last year. Cash provided from stock options
exercised totaled $7.3 million compared to $27.2 million last year. Proceeds
from long-term debt totaled $1.2 million compared to $254.8 million in the
prior year's first quarter. Dividend payments totaled $122.8 million compared
to $114.0 million a year ago. Share repurchases totaled $44.2 million (0.9
million shares) versus $134.0 million (2.5 million shares) in the prior year's
first quarter.
In the first quarter, the cash requirements for Operation Excel were $84.9
million, consisting of capital expenditures ($36.1 million), severance and
exit costs ($24.1 million) and implementation costs ($24.7 million). The cash
requirements of Project Millennia in the current quarter were $8.2 million
consisting of capital expenditures ($4.5 million) and severance and exit costs
($3.7 million).
The company's $2.30 billion credit agreement, which expires in September
2001, supports its domestic commercial paper program. At July 28, 1999, the
company had $1.68 billion of domestic commercial paper outstanding, all of
which has been classified as long-term debt due to the long-term nature of the
credit agreement. As of April 28, 1999, the company had $1.41 billion of
domestic commercial paper outstanding and classified as long-term debt.
On September 8, 1999, the company's Board of Directors raised the quarterly
dividend on the company's common stock to $0.36 3/4 per share from $0.34 1/4
per share for an indicated annual rate of $1.47 per share. The dividend will
be paid on October 10, 1999 to shareholders of record at the close of business
on September 21, 1999.
The company's financial position remains strong, enabling it to meet cash
requirements for operations, capital expansion programs and dividends to
shareholders. The company expects to see strong second half performance with
solid double-digit earnings growth from its core businesses, fueled by savings
from Operation Excel and improvements in ketchup, potatoes, pet food and tuna.
Year 2000 Issue
The Year 2000 issue arises because many computer hardware and software
systems use only two digits rather than four digits to refer to a year.
Therefore, computers or other equipment with date sensitive programming may
not properly recognize a year that begins with "20." If not corrected, this
could cause system failures or miscalculations that could significantly
disrupt the company's business.
15
<PAGE>
Beginning in 1996, the company initiated a worldwide plan to address the
Year 2000 issues that could affect its operations. The company's Chief
Information Officer is in charge of the Year 2000 project. Each of the
company's business units and corporate headquarters have established Year 2000
teams. The project is called "Operation Ready," a name that helps focus the
organization on the overall challenge of being operationally ready to address
the expected consequences of the Year 2000 issue, including compliance by
third parties who have material relationships with the company, such as
vendors, customers and suppliers, and the development of contingency plans.
The company's progress is monitored by senior management and periodically
reported to the Audit Committee and Board of Directors.
The first phase of Operation Ready was to conduct a worldwide review to
identify and evaluate areas impacted by the Year 2000 issue. The review and
evaluation focused on both traditional computer information technology systems
("IT systems") and non-information systems such as manufacturing, process and
logistical systems which rely on embedded chips or similar devices ("non-IT
systems"). The assessment of the company's internal IT systems and non-IT
systems is complete.
The second phase of the company's Year 2000 readiness plan is remediation
which involves replacement, upgrading, modification and testing of affected
hardware, software and process systems. Management estimates that
approximately 80% of its core worldwide IT systems are Year 2000 ready. Of the
company's top ten affiliates, comprising 90% of the company's sales, eight
have completed the remediation of their critical IT systems, with the others
progressing on schedule to complete in October. Overall, half of the company's
affiliates are 100% complete. The remediation of non-IT systems is progressing
on schedule, and it is estimated that these efforts also will be substantially
complete by the end of September 1999.
The company's corporate audit department has dedicated efforts to evaluating
the company's Year 2000 preparedness. The corporate audit department, with the
assistance of outside consultants, completed on-site preparedness reviews at
the company's major affiliate locations and its corporate headquarters. These
reviews addressed IT system remediation efforts as well as contingency
planning and non-IT issues. The corporate audit department continues
monitoring progress with respect to earlier reviews.
It is currently estimated that the cost to make the company's IT systems and
non-IT systems Year 2000 operationally ready will be approximately $75
million. All of the costs are being funded through operating cash flow. These
estimated costs have not had nor are expected to have a material adverse
effect on the company's consolidated financial position, results of operations
or liquidity. The above amount includes costs for implementation of the
company's contingency plans described below.
A critical part of Operation Ready involves the investigation and assessment
of the Year 2000 preparedness of important suppliers, vendors, customers,
utilities and other third parties. The company's initial round of assessments
has been completed. Generally, these third parties have indicated that they
are progressing on schedule with their Year 2000 issues. The company is
continuing on-site interviews and face-to-face visits with the critical
suppliers, vendors and customers. These efforts will continue throughout the
year in order to minimize the risk that any significant adverse consequences
will result due to the failure of these third parties to be Year 2000 ready.
While the company has no reason to believe that its exposure to the risks of
the failure of it or third parties to be Year 2000 ready is any greater than
the exposure to such risks that affect its competitors generally, there can be
no assurance that the consequences of such failures would not have a material
adverse impact on the company's operations. Although the company does not
anticipate any major noncompliance issues, the company believes the most
likely worst case scenario would be the temporary disruption of its business
in certain locations in the event of noncompliance by the company or such
third parties, which could include temporary plant closings, delays in the
delivery and receipt of products and supplies, invoice and collection errors
and inventory obsolescence. The company
16
<PAGE>
believes that its Operation Ready contingency planning should significantly
reduce the adverse effect any such disruptions may have.
The company's headquarters and affiliate Year 2000 readiness teams are
working to allow the company to continue critical operations in the event
either the company or major key suppliers or customers fail to resolve their
respective Year 2000 issues in a timely manner. In addition, each major
function involving the company (purchasing, manufacturing, sales, etc.) has a
contingency planning team working on Year 2000 issues specific to that
function. The plans developed by the functional teams have been shared with
the affiliate teams, so that Year 2000 issues will be addressed from two
separate perspectives. Contingency plans include stockpiling raw and packaging
materials, increasing finished goods inventory levels, developing emergency
backup and recovery procedures, securing alternate suppliers, replacing
electronic applications with manual processes or other appropriate measures.
The company's second Operation Ready conference is scheduled for later in
September. This conference will focus on operational contingency planning and
millennium transition strategies and will provide Operation Ready affiliate
and functional/strike force executives an opportunity to review Year 2000
related issues in a common forum and to prepare an overall transition plan for
the company. The agenda includes issues such as demand planning, staffing,
production scheduling, communications, and highlights the critical 100 days
leading up to and spanning January 1, 2000.
The company has implemented an internal web site to disseminate Year 2000
related information, including policies, guidelines, tools, teams, plans and
progress reporting to affiliate Operation Ready teams throughout the world.
Standardized progress reporting has been implemented for all affiliates to
report their contingency planning and remediation status to the corporate
headquarters. Year 2000 status and issues have been key topics at global
management conferences. The company's Year 2000 readiness plan, including the
further development and refinement of contingency plans, is an ongoing process
and will continue to evolve and change as new information becomes available.
Euro Conversion
A single currency, the Euro, was introduced in Europe on January 1, 1999. Of
the fifteen member countries of the European Union, eleven adopted the Euro as
their legal currency on that date. Fixed conversion rates between the national
currencies of these eleven countries and the Euro were established on that
date. The national currencies are scheduled to remain legal tender as
denominations of the Euro during the transition period ending December 31,
2001. During this transition period, parties may settle transactions using
either the Euro or a participating country's national currency. At the current
time, the company does not believe that the conversion to the Euro will have a
material impact on its business or its financial condition.
Other Matters
On July 22, 1999, the company announced plans to sell its Weight Watchers
weight control business to a unit of Artal Luxembourg, S.A., a European
private investment firm. The company expects to close on the sale at the end
of September. The agreed sales price of $735 million is expected to result in
a pretax gain of approximately $500 million, which will be used to retire debt
and to fund $29 million in costs related to the unbudgeted national launch of
the new Boston Market Home Style Meals line in this fiscal year. The sale does
not include Weight Watchers core food businesses such as Weight Watchers Smart
Ones frozen meals, desserts and breakfast items, Weight Watchers from Heinz in
the United Kingdom and a broad range of other Weight Watchers branded foods in
Heinz's global core product categories.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the company's market risk during the
three months ended July 28, 1999. For additional information, refer to pages
35-36 of the company's Annual Report to Shareholders for the fiscal year ended
April 28, 1999.
17
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nothing to report under this item.
ITEM 2. CHANGES IN SECURITIES
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Nothing to report under this item.
ITEM 5. OTHER INFORMATION
See Notes 6 and 7 to the Condensed Consolidated Financial Statements in Part
I--Item 1 of this Quarterly Report on Form 10-Q and "Other Matters" in Part
I--Item 2 of this Quarterly Report on Form 10-Q.
This report contains certain forward-looking statements which are based on
management's current views and assumptions regarding future events and
financial performance. Reference should be made to the section "Forward-
Looking Statements" in Item 1 of the registrant's Annual Report on Form 10-K
for the fiscal year ended April 28, 1999 for a description of the important
factors that could cause actual results to differ materially from those
discussed herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be furnished by Item 601 of Regulation S-K are
listed below and are filed as part hereof. The Registrant has omitted
certain exhibits in accordance with Item 601(b)(4)(iii)(A) of Regulation S-
K. The Registrant agrees to furnish such documents to the Commission upon
request. Documents not designated as being incorporated herein by reference
are filed herewith. The paragraph numbers correspond to the exhibit numbers
designated in Item 601 of Regulation S-K.
3. The Company's By-Laws, as amended effective September 8, 1999.
12. Computation of Ratios of Earnings to Fixed Charges.
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended July 28,
1999.
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. J. HEINZ COMPANY
(Registrant)
Date: September 10, 1999 /s/ Paul F. Renne
By...................................
Paul F. Renne
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: September 10, 1999 /s/ Edward J. McMenamin
By...................................
Edward J. McMenamin
Vice President and Corporate
Controller
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT 3
BY-LAWS
of
H. J. HEINZ COMPANY
(Incorporated Under the Laws of Pennsylvania)
[LOGO OF HEINZ]
<TABLE>
<S> <C>
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,
April 8, 1998 (effective April 30, 1998)
and September 8, 1999
Amended by the Shareholders: September 9, 1987
</TABLE>
<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.
SECTION 6. Nominations and Business at Meetings. At any annual meeting of
shareholders, only persons who are nominated or business that is proposed in
accordance with the procedures set forth in this Section 6 shall be eligible for
election as Directors or considered for action by shareholders. Nominations of
persons for election to the Board of Directors of the Company may be made or
business proposed at a meeting of shareholders (i) by or at the direction of the
Board of Directors or (ii) by any shareholder of the Company entitled to vote at
the meeting who complies with the notice and other procedures set forth in this
Section 6. Such nominations or business proposals, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Company and such proposals must, under
applicable law, be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal office of the Company not less than 120 days nor more than 210 days in
advance of the date which is the anniversary of the date the Company's proxy
statement was released to shareholders in connection with the previous year's
annual meeting or if the date of the applicable annual meeting has been changed
by more than 30 days from the date contemplated at the time of the previous
year's proxy statement, not less than 90 days before the date of the applicable
annual meeting; provided, however, that in the event that less than 90 days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be received not later
than the close of business on the 15th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs.
Such shareholder's notice shall set forth (i) as to each person who such
shareholder proposes to nominate for election or reelection as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); (ii) as to any
other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the annual
meeting, the reasons for conducting such business at the annual meeting and any
material interest in such business of such person on whose behalf such proposal
is made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (a) the name
and address of such shareholder and beneficial owner, if any, (b) the class and
number of shares of the Company which are beneficially owned, (c) a description
of all arrangements or understandings between such shareholder and each proposed
nominee and any other person or persons (including their names) with respect to
any such nomination(s) or proposal(s) and (d) a representation that such
shareholder intends to appear in person or by proxy at the meeting to nominate
the person(s) named, or move the proposal identified, in its
2
<PAGE>
notice. The Company may require any proposed nominee to furnish such other
information as may reasonably be required by the Company to determine the
eligibility of such proposed nominee to serve as a director of the Company. No
person shall be eligible for election as a Director of the Company and no
business shall be conducted at the annual meeting of shareholders, other than
those made by or at the direction of the Board of Directors, unless nominated or
proposed in accordance with the procedures set forth in this Section 6. The
Chairman of the meeting may, if the facts warrant, determine and declare to the
meeting that a nomination or proposal was not made in accordance with the
provisions this Section 6 and, if he should so determine, he shall so declare to
the meeting and the defective nomination or proposal shall be disregarded./2/
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. Candidates for such election also may
be nominated by any shareholder entitled to vote at the meeting in accordance
with Article II-Section 6. If any nominee chosen by the Board shall be
unwilling or unable to serve as a director if elected, a substitute nominee
shall be designated by the Board, and announcement of such designation shall be
made at the meeting of the shareholders prior to the voting upon election of
directors./3/
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
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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, 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./4/
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
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Committee. The Executive Committee shall be composed of such number of members
of the 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./5/
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
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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.
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./6/
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./5/
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./5/
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./5/
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
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delegate his powers to the extent provided in any resolution of the Board.
Unless otherwise 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./7/
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./8/
ARTICLE VII - LIMITATION OF DIRECTOR LIABILITY/9/
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, 1987/9/
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 adoption of any Article of the Restated
Articles of Incorporation or any By-Law of the
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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 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
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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.
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
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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./10/
ARTICLE X - NON-APPLICABILITY OF PROVISIONS
OF PENNSYLVANIA ACT NO. 36 of 1990/11/
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 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
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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/12/
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 added by the Board of Directors on September 8, 1999.
/3/ Section amended by the Board of Directors on September 8, 1999.
/4/ Section amended by the Board of Directors on October 12, 1994.
/5/ 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).
/6/ Section amended by the Board of Directors on June 13, 1979, July 10, 1996
and April 8, 1998 (effective April 30, 1998).
/7/ Section amended by the Board of Directors on July 11, 1979.
/8/ Section amended by the Board of Directors on November 9, 1977.
/9/ Article added by the Shareholders on September 9, 1987.
/10/ Section added by the Board of Directors on September 9, 1987.
/11/ Article added by the Board of Directors on July 6, 1990.
/12/ Article amended by the Board of Directors on September 9, 1987.
14
<PAGE>
Exhibit 12
H. J. HEINZ COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Fiscal Years Ended
Ended -----------------------------------------------------
July 28, April 28, April 29, April 30, May 1, May 3,
1999 1999 1998 1997 1996 1995
------------ ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense*...... $ 63,085 $ 260,743 $ 260,401 $277,818 $ 279,368 $ 212,123
Capitalized interest... -- -- 1,542 2,688 1,007 414
Interest component of
rental expense........ 6,898 29,926 30,828 27,382 26,728 24,200
-------- ---------- ---------- -------- ---------- ----------
Total fixed charges.. $ 69,983 $ 290,669 $ 292,771 $307,888 $ 307,103 $ 236,737
-------- ---------- ---------- -------- ---------- ----------
Earnings:
Income before income
taxes................. $328,039 $ 835,131 $1,254,981 $479,064 $1,023,661 $ 938,007
Add: Interest
expense*.............. 63,085 260,743 260,401 277,818 279,368 212,123
Add: Interest
component of rental
expense............... 6,898 29,926 30,828 27,382 26,728 24,200
Add: Amortization of
capitalized interest.. 236 3,050 3,525 3,454 3,399 3,465
-------- ---------- ---------- -------- ---------- ----------
Earnings as adjusted. $398,258 $1,128,850 $1,549,735 $787,718 $1,333,156 $1,177,795
-------- ---------- ---------- -------- ---------- ----------
Ratio of earnings to
fixed charges......... 5.69 3.88 5.29 2.56 4.34 4.98
======== ========== ========== ======== ========== ==========
</TABLE>
- --------
* Interest expense includes amortization of debt expense and any discount or
premium relating to indebtedness.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JULY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-03-2000
<PERIOD-START> APR-29-1999
<PERIOD-END> JUL-28-1999
<EXCHANGE-RATE> 1
<CASH> 147,047
<SECURITIES> 4,442
<RECEIVABLES> 1,057,490
<ALLOWANCES> 0
<INVENTORY> 1,455,116
<CURRENT-ASSETS> 2,884,924
<PP&E> 4,008,461
<DEPRECIATION> 1,839,826
<TOTAL-ASSETS> 8,360,334
<CURRENT-LIABILITIES> 2,455,304
<BONDS> 2,740,184
0
173
<COMMON> 107,774
<OTHER-SE> 1,718,552
<TOTAL-LIABILITY-AND-EQUITY> 8,360,334
<SALES> 2,181,007
<TOTAL-REVENUES> 2,181,007
<CGS> 1,324,257
<TOTAL-COSTS> 1,324,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,592
<INCOME-PRETAX> 328,039
<INCOME-TAX> 121,371
<INCOME-CONTINUING> 206,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,668
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
</TABLE>
