ITEM 1. BUSINESS.
H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In 1905, it succeeded to the business of a partnership operating under the same name which had developed from a food business founded in 1869 at Sharpsburg, Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its subsidiaries (collectively, the "Company") manufacture and market an extensive line of processed food products throughout the world. The Company's principal products include ketchup, condiments and sauces, frozen food, pet food, soups, beans and pasta meals, tuna and other seafood products, infant food and other processed food products.
The Company's products are manufactured and packaged to provide safe, wholesome foods for consumers, foodservice and institutional customers. Many products are prepared from recipes developed in the Company's research laboratories and experimental kitchens. Ingredients are carefully selected, washed, trimmed, inspected and passed on to modern factory kitchens where they are processed, after which the finished product is filled automatically into containers of glass, metal, plastic, paper or fiberboard which are then closed, processed, labeled and cased for market. Finished products are processed by sterilization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking or extruding. Certain finished products and seasonal raw materials are aseptically packed into sterile containers after in-line sterilization.
The Company manufactures its products from a wide variety of raw foods. Pre-season contracts are made with farmers for a portion of raw materials such as tomatoes, cucumbers, potatoes, onions and some other fruits and vegetables. Dairy products, meat, sugar, spices, flour and certain other fruits and vegetables are generally purchased on the open market.
Tuna is obtained through spot and term contracts directly with tuna vessel owners or their cooperatives and by brokered transactions. In some instances, in order to ensure the continued availability of adequate supplies of tuna, the Company assists, directly or indirectly, in financing the acquisition and operation of fishing vessels. The provision of such assistance is not expected to affect materially the operations of the Company.
The Marine Mammal Protection Act of 1972, as amended (the "Act"), and regulations thereunder (the "Regulations") regulate the incidental taking of dolphin in the course of fishing for yellowfin tuna in the eastern tropical Pacific Ocean, where a portion of the Company's light-meat tuna is caught. In 1990, the Company voluntarily adopted a worldwide policy of refusal to purchase tuna caught in the eastern tropical Pacific Ocean through the intentional encirclement of dolphin by purse seine nets and reaffirmed its policy of not purchasing tuna caught anywhere using gill nets or drift nets. Also in 1990, the Dolphin Protection Consumer Information Act (the "Dolphin Information Act") was enacted which regulates the labeling of tuna products as "dolphin safe" and bans the importation of tuna caught using high seas drift nets. The Act was amended in 1992 to further regulate tuna fishing methods which involve marine mammals. Compliance with the Act, the Regulations, the Dolphin Information Act, and the Company's voluntary policy and the 1992 amendments has not had, and is not expected to have, a material adverse effect on the Company's operations. Congress passed the International Dolphin Conservation Program Act ("IDCPA") on August 15, 1997. It modified the regulation of the incidental taking of dolphins in the course of fishing for yellowfin tuna in the eastern tropical Pacific Ocean and revised the definition of "dolphin safe". Revision of the definition of "dolphin safe" and modification of the regulation of the incidental taking of dolphins in the course of fishing for yellowfin tuna in the eastern tropical Pacific Ocean have not had and are not expected to have a material adverse effect on the Company's operations.
In recent years, the supply of raw tuna has been variable causing a fluctuation in raw fish prices; however, such variation in supply has not affected materially, nor is it expected to affect materially, the Company's operations.
The following table lists the number of the Company's principal food processing factories and major trademarks by business segment:
The Company also owns or leases office space, warehouses, distribution centers and research and other facilities throughout the world. The Company's food processing plants and principal properties are in good condition and are satisfactory for the purposes for which they are being utilized.
The Company has participated in the development of certain of its food processing equipment, some of which is patented. The Company regards these patents as important but does not consider any one or group of them to be materially important to its business as a whole.
Although crops constituting some of the Company's raw food ingredients are harvested on a seasonal basis, most of the Company's products are produced throughout the year. Seasonal factors inherent in the business have always influenced the quarterly sales and net income of the Company. Consequently, comparisons between quarters have always been more meaningful when made between the same quarters of different years.
The products of the Company are sold under highly competitive conditions, with many large and small competitors. The Company regards its principal competition to be other manufacturers of processed foods, including branded, retail products, foodservice products and private label products, that compete with the Company for consumer preference, distribution, shelf space and merchandising support. Product quality and consumer value are important areas of competition.
The Company's products are sold through its own sales force and through independent brokers, agents and distributors to chain, wholesale, cooperative and independent grocery accounts, pharmacies, mass merchants, club stores, pet stores, foodservice distributors and institutions, including hotels, restaurants and certain government agencies. The Company is not dependent on any single customer or a few customers for a material part of its sales.
Compliance with the provisions of national, state and local environmental laws and regulations has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company's estimated capital expenditures for environmental control facilities for the remainder of fiscal year 2002 and the succeeding fiscal year are not material and will not materially affect either the earnings or competitive position of the Company.
The Company's factories are subject to inspections by various governmental agencies, and its products must comply with the applicable laws, including food and drug laws, of the jurisdictions in which they are manufactured and marketed.
The Company employed, on a full-time basis as of May 2, 2001, approximately 45,800 persons around the world.
Segment information is set forth on pages 66 through 68 in Note 14 to the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001. Such information is incorporated herein by reference.
Income from international operations is subject to fluctuation in currency values, export and import restrictions, foreign ownership restrictions, economic controls and other factors. From time to time exchange restrictions imposed by various countries have restricted the transfer of funds between countries and between the Company and its subsidiaries. To date, such exchange restrictions have not had a material adverse effect on the Company's operations.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to shareholders. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "target," "goal" or similar expressions identify "forward-looking statements" within the meaning of the Act.
In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. These forward-looking statements are uncertain. The risks and uncertainties that may affect operations and financial performance, some of which may be beyond the control of the Company, include the following:
- Changes in laws and regulations, including changes in food and drug laws, accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions;
- Competitive product and pricing pressures and the Company's ability to gain or maintain share of sales in the global market as a result of actions by competitors and others;
- Fluctuations in the cost and availability of raw materials and the ability to maintain favorable supplier arrangements and relationships;
- The impact of higher energy costs on the cost of producing, transporting and distributing the Company's products;
- The Company's ability to generate sufficient cash flows to support capital expenditures, share repurchase programs and general operating activities;
- The inherent risks in the marketplace associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance;
- The Company's ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume, product mix and other items;
- The Company's ability to integrate acquisitions and joint ventures into its existing operations and the availability of new acquisition and joint venture opportunities;
- The Company's ability to achieve its cost savings objectives, including any restructuring programs and its working capital initiative;
- The impact of unforeseen economic and political changes in international markets where the Company competes, such as currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors over which the Company has no control;
- Interest rate fluctuations and other capital market conditions;
- The effectiveness of the Company's advertising, marketing and promotional programs;
- Weather conditions, which could impact demand for Company products and the supply and cost of raw materials;
- The Company's ability to maintain its profit margin in the face of a consolidating retail environment; and
- The Company's ability to offset the reduction in volume and revenue resulting from participation in categories experiencing declining consumption rates.
The foregoing list of important factors is not exclusive. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performance and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 2.
ITEM 2. PROPERTIES.
See table in Item 1.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to a vote of security holders since the last annual meeting of shareholders on September 12, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive officers of H. J. Heinz Company indicating all positions and offices held by each such person and each such person's principal occupations or employment during the past five years. All the executive officers have been elected to serve until the next annual election of officers or until their successors are elected, or until their earlier resignation or removal. The annual election of officers is scheduled to occur on September 11, 2001.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information relating to the Company's common stock is set forth beginning on page 42 under the caption "Stock Market Information" and on page 68 in Note 15, "Quarterly Results (Unaudited)," of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001. Such information is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected consolidated financial data for the Company and its subsidiaries for each of the five fiscal years 1997 through 2001. All amounts are in thousands except per share data.
The 2001 results include restructuring and implementation costs of $298.8 million pretax ($0.66 per share) for the Streamline initiative, net restructuring and implementation costs of $288.5 million pretax ($0.52 per share) for Operation Excel, a benefit of $93.2 million ($0.27 per share) from tax planning and new tax legislation in Italy, a loss of $94.6 million pretax ($0.19 per share) on the sale of The All American Gourmet business, company acquisition costs of $18.5 million pretax ($0.03 per share), a loss of $5.6 million pretax ($0.01 per share) which represents the company's equity loss associated with The Hain Celestial Group's fourth quarter results which included charges for its merger with Celestial Seasonings and the after-tax impact of adopting SAB No. 101 and SFAS No. 133 of $16.9 million ($0.05 per share). See Notes 3 and 4 to the Consolidated Financial Statements beginning on page 52 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001.
The 2000 results include net restructuring and implementation costs of $392.7 million pretax ($0.74 per share) for Operation Excel, a pretax contribution of $30.0 million ($0.05 per share) to the H. J. Heinz Company Foundation, costs related to Ecuador of $20.0 million pretax ($0.05 per share), a gain of $464.6 million pretax ($0.72 per share) on the sale of the Weight Watchers classroom business and a gain of $18.2 million pretax ($0.03 per share) on the sale of an office building in the U.K. See Notes 3 and 4 to the Consolidated Financial Statements beginning on page 52 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001.
The 1999 results include restructuring and implementation costs of $552.8 million pretax ($1.11 per share) for Operation Excel and costs of $22.3 million pretax ($0.04 per share) related to
the implementation of Project Millennia, offset by the reversal of unutilized Project Millennia accruals for severance and exit costs of $25.7 million pretax ($0.04 per share) and a gain of $5.7 million pretax on the sale of the bakery products unit. See Notes 3 and 4 to the Consolidated Financial Statements beginning on page 53 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001.
The 1998 results include costs of $84.1 million pretax ($0.14 per share) related to the implementation of Project Millennia, offset by the gain on the sale of the Ore-Ida frozen foodservice business, $96.6 million pretax ($0.14 per share).
The 1997 results include a pretax charge for Project Millennia restructuring and implementation costs of $647.2 million ($1.09 per share). These charges were partially offset by gains recognized on the sale of the New Zealand ice cream business, $72.1 million pretax ($0.12 per share) and real estate in the United Kingdom, $13.2 million pretax ($0.02 per share).
Note: All earnings per share amounts are presented on an after-tax diluted basis unless otherwise noted.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This information is set forth in the Management's Discussion and Analysis section on pages 28 through 42 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001. Such information is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This information is set forth in the Management's Discussion and Analysis section on pages 41 through 42 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001. Such information is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Company and its subsidiaries as of May 2, 2001 and May 3, 2000 and the related Consolidated Statements of Income, Shareholders' Equity and Cash Flows for the fiscal years ended May 2, 2001, May 3, 2000 and April 28, 1999 together with the related Notes to Consolidated Financial Statements, on pages 43 through 70 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001, are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There is nothing to be reported under this item.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Directors of the Company is set forth under the captions "Election of Directors" and "Additional Information--Section 16 Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 11, 2001. Such information is incorporated herein by reference. Information relating to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I above.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 11, 2001. Such information is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the Company by certain beneficial owners and management is set forth under the caption "Security Ownership of Management" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 11, 2001. Such information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships with a beneficial shareholder and certain related transactions is set forth under the caption "Certain Business Relationships" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 11, 2001. Such information is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(b) During the last fiscal quarter of the period covered by this Report the Company filed a Current Report on Form 8-K dated March 8, 2001 relating to its financial results for the fourth quarter and year ended May 2, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 27, 2001.
H. J. HEINZ COMPANY (Registrant)
By: /s/ PAUL F. RENNE ......................................... PAUL F. RENNE Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on July 27, 2001.
William R. Johnson Director Nicholas F. Brady Director Mary C. Choksi Director Leonard S. Coleman, Jr. Director Edith E. Holiday Director Samuel C. Johnson Director Candace Kendle Director Donald R. Keough Director Dean R. O'Hare Director Paul F. Renne Director Thomas J. Usher Director David R. Williams Director James M. Zimmerman Director
By /s/ PAUL F. RENNE .................................... PAUL F. RENNE Director and Attorney-in-Fact
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders of H. J. Heinz Company:
Our audits of the consolidated financial statements referred to in our report dated June 14, 2001, except for footnote 18, for which the date is July 6, 2001, appearing in the 2001 Annual Report to Shareholders of H. J. Heinz Company and Subsidiaries (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania June 14, 2001
------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-51719, 33-32563, 33-42015, 33-55777, 33-62623, 333-13849, 333-87419 and 333-49728) of H. J. Heinz Company and Subsidiaries of our report dated June 14, 2001, except for footnote 18, for which the date is July 6, 2001, relating to the financial statements, which appears in the 2001 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated June 14, 2001 relating to the financial statement schedule, which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania July 26, 2001
SCHEDULE II H. J. HEINZ COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FISCAL YEARS ENDED MAY 2, 2001, MAY 3, 2000 AND APRIL 28, 1999 (THOUSANDS OF DOLLARS)
NOTES: (1) Principally reserves on assets sold, written-off or reclassified. (2) The net change in the valuation allowance for deferred tax assets was a decrease of $14.8 million. The decrease was due to reductions in the valuation allowance related to deferred tax assets for foreign tax credit carryforward ($11.0 million) and loss carryforwards ($11.9 million). The decrease was partially offset by an increase in the valuation allowance related to deferred tax assets for loss carryforwards ($8.1 million). See Note 5 to the Consolidated Financial Statements on pages 56 and 57 of the Company's Annual Report to Shareholders for the fiscal year ended May 2, 2001. (3) The net change in the valuation allowance for deferred tax assets was an increase of $34.3 million. The increase was due to increases in the valuation allowance related to additional deferred tax assets for foreign tax credit carryforward ($34.3 million) and loss carryforwards ($14.8 million). The increase was partially offset by decreases in the valuation allowance related to reduction in deferred tax assets for loss carryforwards ($14.8 million). See Note 5 to the Consolidated Financial Statements on pages 58 and 59 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 2000. (4) The net change in the valuation allowance for deferred tax assets was an increase of $19.8 million. The increase was due to a change in judgment about the realizability of deferred tax assets related to foreign tax credit carryforwards ($4.1 million) and the addition of deferred tax assets for loss carryforwards ($21.8 million). The increase was partially offset by decreases in the valuation allowance related to a reduction in deferred tax assets for loss carryforwards ($3.0 million) and foreign tax credit carryforwards ($3.1 million). See Note 5 to the Consolidated Financial Statements on pages 58 and 59 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 2000.
EXHIBIT INDEX