HEINZ HJ FINANCE CO - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended April 30, 2003

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 333-85064

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

PENNSYLVANIA 82-0382406
(State of Incorporation) (I.R.S. Employer Identification No.)

600 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219
(Address of principal executive offices) (Zip Code)

412-456-5700
(Registrant's telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None.

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes _ No X

All of the outstanding shares of the registrant's common stock are owned by
H. J. Heinz Company.

DOCUMENTS INCORPORATED BY REFERENCE

None

PART I

ITEM 1. BUSINESS.

GENERAL

H. J. Heinz Finance Company has been a direct or indirect subsidiary of
H.J. Heinz Company ("Heinz") since 1983. H. J. Heinz Finance Company and its
subsidiaries, collectively referred to as "Heinz Finance," had no significant
operating history until Heinz completed a corporate reorganization in the United
States on May 3, 2001. The reorganization was designed to simplify Heinz's U.S.
corporate structure, consolidate operations and establish centers of excellence
for the management of the U.S. trademarks and for U.S. treasury functions. As a
result of the reorganization, all of the U.S. business operations that had
historically been conducted by Heinz through its Heinz USA division and eight
subsidiary corporations are now conducted by Heinz Finance.

Since May 3, 2001, we have been engaged in the business of acquiring,
holding and financing equity and debt investments in subsidiaries that own and
operate Heinz's historical U.S. businesses, which manufacture, market,
distribute and sell food in the United States. Our most significant asset is our
ownership interests in H. J. Heinz Company, L.P. ("Heinz LP"), a Delaware
limited partnership formed on October 9, 2000. Heinz LP has two classes of
limited partnership interests. Heinz directly owns the Class A interests in
Heinz LP. H. J. Heinz Finance Company, directly and through wholly-owned
subsidiaries, owns the Class B interests in Heinz LP. Heinz Management Company
("HMC") is the managing general partner of Heinz LP and employs its salaried
personnel. Heinz LP reimburses HMC for all its management costs.

DESCRIPTION OF THE BUSINESS

We conduct our food business through two segments, Heinz North America and
U.S. Frozen. Segment information is set forth in this report on pages 43 through
45 in Note 15, "Segment Data" in Item 8 -- "Financial Statements and
Supplementary Data."

PRODUCTS AND MARKETS

Our products are manufactured and packaged to provide safe, wholesome foods
for consumers, foodservice and institutional customers. Many products are
prepared from recipes developed in our 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. Although crops constituting some
of our raw food ingredients are harvested on a seasonal basis, most of our
products are produced throughout the year.

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The primary brands and products marketed and sold by us include, by
segment, the following:

Heinz North America....................... Heinz tomato ketchup, mustard and sauces
Heinz Easy Squeeze! and E-Z Squirt ketchup
Classico pasta sauce
Chef Francisco and Quality Chef soups
Yoshida sauces
Bell'Orto and Bella Rosa tomato products
Jack Daniels* sauces
Wyler's bouillon and soups
Dianne's desserts
U.S. Frozen............................... Ore-Ida potato products
Bagel Bites snacks
Boston Market* HomeStyle meals
Smart Ones meals
Rosetto frozen pasta
Weight Watchers*
Domani frozen pasta
Hot Bites snacks
Poppers appetizers
T.G.I. Friday's* appetizers
Delimex snacks

- ---------------

* Used under license from unrelated parties.

TRADEMARKS, PATENTS AND LICENSES

We own or license the trademarks used in connection with our products from
related and unrelated parties. Our most significant trademarks are "Heinz",
"Smart Ones" and "Ore-Ida" which we license from a related party. The trademarks
that we license from unrelated parties are under long-term contracts and are
important to our business although are individually immaterial.

We have participated in the development of certain food processing
equipment, some of which is patented. We regard these patents as important but
do not consider any one or group of them to be materially important to our
business as a whole.

COMPETITION

Our products are sold under highly competitive conditions, with many large
and small competitors. We regard our principal competition to be other
manufacturers of processed foods, including branded, retail products,
foodservice products and private label products, that compete with us for
consumer preference, distribution, shelf space and merchandising support. We
compete primarily on the basis of product quality, brand recognition, brand
loyalty and consumer value.

CUSTOMERS

Our products are sold through our own sales force and through independent
brokers, agents and distributors to chain, wholesale, cooperative and
independent grocery accounts, pharmacies, mass merchants, club stores,
foodservice distributors and institutions, including hotels, restaurants and
certain government agencies.

Our retail sales force consists of approximately 170 employees and seven
teams that are dedicated to our key customers. We use two national brokers in
connection with our retail sales efforts. In addition, we have a dedicated
direct sales force for most of our large foodservice customers and service
smaller ones through distributors.

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For Fiscal 2003, one customer, Wal-Mart Stores, Inc., represented more than
10% of our sales. We closely monitor the credit risk associated with our
customers and to date have never experienced significant losses.

PROPERTIES

We operate the following factories, distribution centers and other
properties involved in manufacturing our products:

We also own or lease office space, warehouses, distribution centers and
research and other facilities. Our food processing plants and principal
properties are in good condition and are satisfactory for the purposes for which
they are being utilized.

EMPLOYEES

On a full-time basis, as of December 21, 2002, approximately 9,900 people
were employed as part of our business.

REGULATORY

Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material effect upon our capital
expenditures, earnings or competitive position. Our estimated capital
expenditures for environmental control facilities for the remainder of Fiscal
2004 and the succeeding fiscal year are not material and are not expected to
materially affect either our earnings or competitive position.

Our factories are subject to inspections by various governmental agencies,
including the United States Department of Agriculture and the Occupational
Safety and Health Administration, and our products must comply with all the
applicable laws, including food and drug laws, such as the Federal Food and
Cosmetic Act of 1938, as amended, and the Federal Fair Packaging or Labeling Act
of 1966, as amended, of the jurisdictions in which they are manufactured and
marketed.

LEGAL PROCEEDINGS

Certain suits and claims have been filed against Heinz Finance and have not
been finally adjudicated. These suits and claims when finally concluded and
determined, in the opinion of management, based upon the information that it
presently possesses, will not have a material adverse effect on Heinz Finance's
consolidated and combined financial position, results of operations or
liquidity.

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 Heinz
Finance. Heinz Finance and its representatives may from time to time make
written or oral forward-looking statements, including statements contained in
Heinz Finance's filings with the Securities and Exchange Commission. These
forward-looking statements are based on management's views and assumptions of
future events and financial performance. The words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "should,"
"estimate," "project," "target," "goal," "outlook" or similar expressions
identify "forward-looking statements" within the meaning of the Act.

In order to comply with the terms of the safe harbor, Heinz Finance notes
that a variety of factors could cause Heinz Finance's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in Heinz Finance's forward-looking statements. These
forward-looking statements are uncertain. The risks and uncertainties that may
affect operations and

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financial performance and other activities, some of which may be beyond the
control of Heinz Finance, 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;

- Competitive product and pricing pressures and Heinz Finance's ability to
gain or maintain share of sales 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 and other factors affecting the cost of
producing, transporting and distributing Heinz Finance's products;

- Heinz Finance's ability to generate sufficient cash flows to support
capital expenditures, debt repayment and general operating activities;

- The inherent risks in the marketplace associated with new product or
packaging introductions, including uncertainties about trade and consumer
acceptance;

- Heinz Finance's ability to achieve sales and earnings forecasts, which
are based on assumptions about sales volume, product mix and other items;

- Heinz Finance's ability to integrate acquisitions and joint ventures into
its existing operations and the availability of new acquisition and joint
venture opportunities and the success of divestitures and other business
combinations;

- Heinz Finance's ability to achieve its cost savings objectives, including
any restructuring programs, SKU rationalization programs and its working
capital initiatives;

- The possibility of increased pension expense and contributions resulting
from continued decline in stock market returns;

- Changes in estimates in critical accounting judgements;

- Interest rate fluctuations and other capital market conditions;

- The effectiveness of Heinz Finance's advertising, marketing and
promotional programs;

- Weather conditions, which could impact demand for Heinz Finance's
products and the supply and cost of raw materials;

- The impact of e-commerce and e-procurement, supply chain efficiency and
cash flow initiatives;

- Heinz Finance's ability to maintain its profit margin in the face of a
consolidating retail environment;

- The impact of U.S. industry conditions, including the effect of the
economic downturn in the food industry and the foodservice business in
particular; and

- Heinz Finance'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. Heinz Finance undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

ITEM 2. PROPERTIES.

See table in Item 1.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Heinz Finance did not submit any matters to a vote of security holders
during the fourth quarter of Fiscal 2003.

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DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our Board of Directors is composed of four members, one of whom is an
Independent Director. An "Independent Director" is a director who is not a
current officer or employee of Heinz Finance, Heinz or any affiliate of Heinz or
of any other person or persons that, in the, aggregate, own or owns more than
50% of the outstanding common stock of Heinz Finance and who is elected by
holders of Heinz Finance's outstanding Series A Preferred Shares and the holders
of any Heinz Finance stock expressly being designated by us as being at parity
with the Series A Preferred Shares, "Parity Securities," with like voting
rights, collectively, the "Voting Parity Securities." Andrew L. Stidd, the
initial and current Independent Director, was named in the Certificate of
Designation for the Series A Preferred Shares.

Our directors will serve until resignation or removal. There is no current
intention to alter the number of directors comprising the Board of Directors,
and our Bylaws provide that the Board of Directors may not comprise more than
nine members.

Our directors and executive officers are:

Each director, other than the Independent Director, is an officer or
employee of Heinz or an affiliate of Heinz.

COMPENSATION OF DIRECTORS

We pay fees to our Independent Director for his service as a director. The
Independent Director (and any subsequent additional Independent Director) is
entitled to receive annual compensation of $3,500 plus reimbursement of expenses
for attendance at each meeting of the Board of Directors. We do not pay fees to
directors who are not Independent Directors.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

All of the outstanding common shares of Heinz Finance are owned by Heinz.

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents selected consolidated and combined financial
data for Heinz Finance and its predecessor, which consisted of Heinz's U.S.
business operations, the ("U.S. Group"), for each of the five fiscal years 1999
through 2003. All amounts are in thousands.

Fiscal Year Ended
-----------------------------------------------------------------
April 30, May 1, May 2, May 3, April 28,
2003 2002 2001 2000 1999
(52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)(2)
---------- ---------- ---------- ---------- -------------

Sales(1)(2).......... $3,162,335 $2,833,517 $2,806,020 $2,526,238 $4,687,123
Interest
expense(2)......... 146,492 142,920 20,712 5,027 6,266
Income from
continuing
operations before
cumulative effect
of accounting
changes(2)......... 54,209 109,421 277,271 331,350 432,757
Short-term debt with
related parties and
current portion of
long-term debt..... 84,454 583,514 29,833 2,998 51,384
Long-term debt,
exclusive of
current
portion(3)......... 3,981,145 3,935,925 23,932 33,071 25,594
Preferred stock...... 325,000 325,000 -- -- --
Total assets......... 5,565,685 7,484,449 5,601,491 5,068,456 4,588,108

(1) Sales for 2003, 2002, 2001 and 2000 reflect the adoption of the new
Emerging Issues Task Force ("EITF") guidelines relating to the
classification of consideration from a vendor to a purchaser of a
vendor's products, including both customers and consumers. Sales for
1999 have not been adjusted to reflect the new EITF reclassification as
it is impracticable to do so.

(2) Amounts for 2003, 2002, 2001, and 2000 exclude the operating results
related to the businesses spun off to Del Monte which have been treated
as discontinued operations. See Item 7 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
discussion of the Del Monte Foods Company ("Del Monte") transaction.
These amounts for 1999 have not been adjusted to reflect discontinued
operations as it is impracticable to do so.

(3) Long-term debt, exclusive of current portion, includes $294.8 million
and $23.6 million of hedge accounting adjustments associated with
interest rate swaps at April 30, 2003 and May 1, 2002, respectively.
There were no interest rate swaps at May 2, 2001, May 3, 2000 and April
28, 1999.

Fiscal 2003 results from continuing operations include costs related to the
Del Monte transaction and costs to reduce overhead of the remaining businesses
totaling $89.5 million pretax, of which $34.2 million pretax was charged to
Heinz Finance by Heinz Management Company. These include employee termination
and severance costs, legal and other professional service costs and costs
related to the early extinguishment of debt.

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Fiscal 2002 results from continuing operations include a net restructuring
benefit of $1.1 million pretax related to the Streamline initiative.

Fiscal 2001 results from continuing operations include restructuring and
implementation costs of $15.3 million pretax relating to the Streamline
initiative and net restructuring and implementation costs of $37.1 million
pretax for Operation Excel. Results also include a loss of $94.6 million pretax
on the sale of The All American Gourmet business and acquisition costs of $18.5
million pretax.

Fiscal 2000 results from continuing operations include net restructuring
and implementation costs of $67.4 million pretax for Operation Excel.

Fiscal 1999 results include net restructuring and implementation costs of
$156.1 million pretax for Operation Excel and costs of $9.4 million pretax
related to the implementation of Project Millennia, offset by the reversal of
unutilized Project Millennia accruals for severance and exit costs of $16.6
million pretax.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with the audited
consolidated and combined financial statements and the notes to our audited
consolidated and combined financial statements included elsewhere in this Form
10-K.

OVERVIEW

REORGANIZATION

On the first day of Fiscal 2002 (May 3, 2001), Heinz reorganized the
structure of its U.S. business. The reorganization of our operations, treasury
and trademark activities is summarized below.

- Operations. All of the U.S. treasury and business operations, formerly
conducted through eight subsidiaries and a division of Heinz were
consolidated into Heinz LP. Heinz Management Company, a wholly-owned
subsidiary of Heinz, is the general partner of Heinz LP and holds a 1%
interest. The limited partner interests in Heinz LP consist of "Class A"
and "Class B" interests. Heinz owns all of the Class A interests. H.J.
Heinz Finance Company owns all of the Class B interests.

- Treasury. U.S. cash management and treasury activities were transferred
to Heinz Finance. On the day of the reorganization, Heinz Finance assumed
all of the then outstanding term debt obligations of Heinz in the amount
of $2.57 billion and $258 million of the commercial paper obligations of
Heinz. Since the reorganization, Heinz Finance has issued term debt and
commercial paper in its own name. All of the debt of Heinz Finance is
unconditionally guaranteed by Heinz.

On July 6, 2001, Heinz Finance issued $325 million of preferred stock to
outside investors. The preferred shares are entitled to elect 25% of the
directors of Heinz Finance and, if declared, are entitled to receive
dividends at a rate of 6.226% per annum.

- Trademarks. Substantially all of the trademarks used in the U.S.
businesses (including "Heinz," "Ore-Ida" and "Smart Ones"), are owned by
Promark Brands, Inc., an indirect subsidiary of Heinz, and are licensed
to us.

FINANCIAL STATEMENT PRESENTATION

For all Heinz financial reporting and disclosure purposes, Heinz Finance
and its subsidiaries (including Heinz LP) are treated as fully consolidated
subsidiaries. All of the assets, liabilities, results of operations and cash
flows of these entities are included in the Heinz consolidated financial

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statements. All intercompany transactions and accounts are eliminated within the
Heinz consolidated financial statements. The preferred shares issued by Heinz
Finance are shown as minority interest in the Heinz consolidated financial
statements.

Heinz Finance's consolidated financial statements include the assets and
liabilities, results of operations and cash flows of Heinz LP, as under the
partnership agreement, Heinz Finance has the power to control the general
partner through majority membership on Heinz LP's management board and all other
subsidiaries of Heinz Finance. In the Heinz Finance consolidated statements, the
general partner and Class A interests in Heinz LP, that are held by Heinz, are
reflected as minority interest.

The financial statements and the related management's discussion and
analysis of financial condition and results of operations included herein for
periods ending on or before May 2, 2001 related to the U.S. businesses that were
contributed to Heinz Finance on May 3, 2001. Results of these periods have been
prepared using "carve-out" and "push-down" accounting methods. With respect to
periods ending on or before May 2, 2001, the corporations and businesses
described above are referred to as the "U.S. Group."

Substantially all assets and liabilities of the U.S. Group which are
included in the Fiscal 2001 "carve out" balance sheet, except finished goods
inventories of approximately $407 million, which were retained by Heinz, were
contributed to Heinz Finance. These retained inventories resulted in increased
sales in Fiscal 2003 when compared to Fiscal 2002 and reduced sales in Fiscal
2002 when compared to Fiscal 2001. The sales and operating results related to
the retained inventories were recorded on the consolidated financial statements
of Heinz.

SPECIAL ITEMS

DISCONTINUED OPERATIONS

On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities, including our U.S. pet food and pet
snacks, U.S. tuna, U.S. retail private label soup and private label gravy,
College Inn broths and our U.S. infant feeding businesses, and distributed all
of the shares of SKF Foods common stock on a pro rata basis to its shareholders.
Immediately thereafter, SKF Foods merged with a wholly-owned subsidiary of Del
Monte resulting in SKF Foods becoming a wholly-owned subsidiary of Del Monte
("the Merger").

In accordance with accounting principles generally accepted in the United
States of America, the operating results and net assets related to these
businesses spun off to Del Monte have been included in discontinued operations
in Heinz Finance's consolidated and combined statements of income and
consolidated balance sheets. Discontinued operations for the fiscal year ended
April 30, 2003, represents the operating results for eight months. The net
assets of discontinued operations owned by Heinz Finance were distributed to
Heinz which reduced Heinz's Class A interest in Heinz LP thus reducing Heinz
Finance's minority interest balance on the consolidated balance sheet. In
connection with this distribution, the terms of the Heinz LP agreement were
amended such that the Class B partner will now receive an improved economic
interest in the partnership by giving it a higher priority with respect to
distributions and an increased share in residual income.

The discontinued operations generated sales of $1,052.6 million, $1,357.7
million and $1,744.4 million and a net loss of $23.3 million (net of $13.8
million of a tax benefit), a net loss of $35.7 million (net of $19.6 million of
a tax benefit) and net income of $33.2 million (net of $38.5 million of a tax
provision) for Fiscal 2003, 2002 and 2001, respectively.

DEL MONTE AND OTHER REORGANIZATION COSTS

In Fiscal 2003, Del Monte transaction costs and costs to reduce overhead of
the remaining business totaled $55.3 million pretax. In addition, during Fiscal
2003, Heinz Management Company recognized Del Monte transaction costs and costs
to reduce overhead of the remaining business totaling $34.2 million pretax.
These costs were then charged to Heinz Finance through the manage-

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ment fee charged to Heinz Finance by Heinz Management Company for all salaried
employee costs. These total charges of $89.5 million pretax were comprised of
$39.6 million related to the early retirement of debt, $24.4 million in employee
termination and severance costs, $14.7 million for legal, professional and other
related costs, and $10.8 million in non-cash asset write-downs. Of this amount,
$6.0 million was included in cost of products sold, $44.0 million in selling,
general and administrative expense ("SG&A"), and $39.6 million in other
expenses, net. To date, management estimates that these actions have impacted
approximately 200 employees, excluding those who were transferred to Del Monte.

STREAMLINE

In the fourth quarter of Fiscal 2001, Heinz announced a restructuring
initiative named "Streamline". This initiative included an organizational
restructuring aimed at reducing overhead costs and was completed in the first
half of Fiscal 2003.

During Fiscal 2003, Heinz Finance utilized $1.0 million of severance and
exit cost accruals, principally related to its overhead reduction plan. In
addition, as a result of the spin-off of SKF Foods, a $3.4 million restructuring
liability related to ceasing canned pet food production at Heinz Finance's
Terminal Island, California facility was transferred to Del Monte.

In the fourth quarter of Fiscal 2002, Heinz Finance recorded a benefit of
$1.1 million pretax, which was classified as SG&A, to reflect revisions in
original cost estimates. In addition, Heinz Management Company, a wholly-owned
subsidiary of Heinz, assumed a portion of Heinz Finance's restructuring
liability as a result of the realignment that occurred on May 3, 2001.

During Fiscal 2001, Heinz Finance recognized restructuring charges and
implementation costs totaling $15.3 million pretax, which primarily include
severance costs and were classified as SG&A. Implementation costs were
recognized as incurred in Fiscal 2001 ($0.6 million pretax) and consist of
incremental costs directly related to the implementation of the Streamline
initiative. The Streamline initiative resulted in a net reduction of Heinz
Finance's workforce of approximately 200 employees.

OPERATION EXCEL

In Fiscal 1999, Heinz announced a growth and restructuring initiative named
"Operation Excel." This initiative was a multi-year, multi-faceted program that
established manufacturing centers of excellence, focused the product portfolio,
realigned Heinz Finance's management teams and invested in growth initiatives.
Heinz Finance substantially completed Operation Excel in Fiscal 2002.

During Fiscal 2002, Heinz Management Company, a wholly-owned subsidiary of
Heinz, assumed a portion of the Heinz Finance's restructuring liability as a
result of the realignment that occurred on May 3, 2001.

During Fiscal 2001, Heinz Finance recognized restructuring charges of $1.7
million pretax in cost of products sold. This charge was offset by the reversals
of unutilized Operation Excel accruals and asset write-downs of $16.7 million
pretax. These reversals were recorded in cost of products sold ($4.1 million)
and SG&A ($12.6 million) and were primarily the result of revisions in estimates
of fair values of assets which were disposed of as part of Operation Excel.
Implementation costs of $52.1 million pretax were also recognized in Fiscal
2001. These costs were classified as cost of products sold ($21.6 million) and
SG&A ($30.5 million). Operation Excel resulted in a net reduction of the Heinz
Finance's workforce of approximately 1,400 employees.

RECENTLY ISSUED ACCOUNTING STANDARDS

In Fiscal 2001, Heinz Finance changed its method of accounting for revenue
recognition in accordance with Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." Under this new accounting method,
adopted retroactive to May 4, 2000, Heinz recognizes revenue upon the passage of
title, ownership and risk of loss to the customer. The
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cumulative effect of the change in prior years resulted in a charge to income in
Fiscal 2001 of $3.2 million (net of income taxes of $1.9 million). The change
did not have a significant effect on revenues or results of operations for the
fiscal year ended May 2, 2001.

Effective May 2, 2002, Heinz Finance adopted Statement of Financial
Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets."
Under this standard, goodwill and intangibles with indefinite useful lives are
no longer amortized. This standard also requires, at a minimum, an annual
assessment of the carrying value of goodwill and intangibles with indefinite
useful lives. The reassessment of intangible assets, including the ongoing
impact of amortization, was completed during the first quarter of Fiscal 2003.
Net income from continuing operations for Fiscal 2002 and 2001 would have been
$110.1 million and $288.1 million, respectively, had the provisions of the new
standards been applied as of May 4, 2000.

During the first half of Fiscal 2003, Heinz Finance completed its
transitional impairment review of goodwill and indefinite lived intangibles and
no impairment issues were identified as a result of completing this review.
Based upon current and forecasted operating results, Heinz Finance does not
anticipate any goodwill impairment charges in the near term.

Effective May 2, 2002, Heinz Finance adopted SFAS No. 144 "Accounting for
Impairment or Disposal of Long-lived Assets." This statement provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets, expands the scope of a discontinued
operation to include a component of an entity and eliminates the current
exemption to consolidation when control over a subsidiary is likely to be
temporary. The adoption of this new standard did not have a material impact on
Heinz Finance's financial position, results of operations or cash flows for the
fiscal year ended April 30, 2003.

During Fiscal 2003, Heinz Finance adopted SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities. This Statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. This
Statement also establishes that fair value is the objective for the initial
measurement of the liability.

During Fiscal 2003, Heinz Finance adopted Financial Accounting Standards
Board ("FASB") Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a
guarantor about its obligations under certain guarantees that it has issued, and
it requires the recognition of a liability at fair value by a guarantor at the
inception of a guarantee. The initial recognition and measurement provisions of
FIN 45 are effective on a prospective basis for all guarantees issued or
modified after December 31, 2002. Heinz Finance has not issued or modified any
material guarantees since December 31, 2002.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
statement affects the classification, measurement and disclosure requirements of
certain freestanding financial instruments, including manditorily redeemable
shares. SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective for Heinz Finance for
the second quarter of Fiscal 2004. The adoption of SFAS No. 150 will require the
reclassification of Heinz Finance's $325 million of manditorily redeemable
preferred shares to the liabilities section of the consolidated balance sheet
and the $20.2 million annual preferred dividend from retained earnings on the
consolidated balance sheet to interest expense on the consolidated statement of
income.

RESULTS OF CONTINUING OPERATIONS -- 2003 VERSUS 2002

Sales for Fiscal 2003 increased $328.8 million, or 11.6%, to $3.16 billion.
Sales were favorably impacted by acquisitions of 4.3%, pricing of 0.2% and
volumes of 7.9%. The volume increase is primarily due to the finished goods
inventories which were not contributed to Heinz Finance on May

12

3, 2001 (10.1%), partially offset by volume declines in the U.S. Frozen segment
related to Boston Market HomeStyle side dishes, Ore-Ida Funky Fries and Hot
Bites. Divestitures reduced sales by 0.7%.

Gross profit increased $97.9 million, or 9.4%, to $1.14 billion; however,
the gross profit margin decreased to 36.1% from 36.8%. The margin decrease was
primarily due to unfavorable sales mix and increased manufacturing costs. The
overall dollar increase in gross profit is due to the finished goods inventories
which were retained by Heinz, acquisitions, and the benefit of reduced
amortization of intangible assets. Fiscal 2003 gross profit was also unfavorably
impacted by $6.0 million for costs related to the Del Monte transaction and to
reduce overhead of the remaining business.

SG&A increased $146.2 million, or 32%, to $603.0 million, and increased as
a percentage of sales to 19.1% from 16.1%. This increase is primarily due to the
finished goods inventories which were retained by Heinz, costs related to the
Del Monte transaction and to reduce overhead of the remaining business of $44.0
million and increased marketing spend across both segments.

Total marketing support (recorded either as a reduction of revenue or as a
component of SG&A) increased $137.6 million, or 21.1%, to $789.8 million on a
sales increase of 11.6%.

Operating income decreased $68.6 million, or 15.3%, to $379.3 million and
decreased as a percentage of sales to 12.0% from 15.8%. This decrease is
primarily driven by costs related to the Del Monte transaction and to reduce
overhead of the remaining business of $50.0 million and the U.S. Frozen segment,
partially offset by the increase in sales discussed above.

Net interest expense increased $15.5 million to $122.8, driven primarily by
reduced interest income related to short-term notes receivable balances from
related parties partially offset by lower interest rates and lower average debt
over the past year. During Fiscal 2003, there was a non-cash currency loss of
$65.0 million compared to $3.8 million in Fiscal 2002 related to the
marked-to-market adjustment on Euro-denominated long-term debt. This debt
represents a net investment hedge at the Heinz level. Because Heinz Finance does
not have foreign assets, this marked-to-market adjustment does not qualify for
hedge accounting treatment at Heinz Finance. Other expenses, net, increased
$52.2 million to $57.1 million. The increase is primarily attributable to the
$39.6 million pretax charge related to early retirement of debt. The effective
tax rate for Fiscal 2003 was 10.9% compared to 14.2% in Fiscal 2002. Heinz
Finance's effective tax rate fluctuates depending on the proportion of its non
taxable minority interest in Heinz LP to total Heinz Finance income before tax.
Net income from continuing operations for Fiscal 2003 was $54.2 million compared
to $109.4 million in Fiscal 2002.

OPERATING RESULTS BY BUSINESS SEGMENT

HEINZ NORTH AMERICA

Sales of the Heinz North America segment increased $229.9 million, or
13.0%, to $2.00 billion. Acquisitions increased sales 2.3%, due primarily to the
Fiscal 2002 acquisitions of Classico and Aunt Millie's pasta sauce, Mrs. Grass
Recipe soups, Wyler's bouillons and soups and Dianne's frozen desserts. Higher
pricing increased sales 1.4% due mainly to retail ketchup, Jack Daniel's
marinades and grilling sauces and frozen soup. Sales volume increased 9.2% due
primarily to the finished goods inventories which were retained by Heinz and
increases in foodservice ketchup, specialty sauces and Dianne's frozen desserts
partially offset by decreases primarily in Heinz retail ketchup and vinegar.

Gross profit increased $66.0 million, or 10.1% to $721.4 million; however,
the gross profit margin decreased to 36.1% from 37.1% due primarily to
unfavorable sales mix and increased manufacturing costs, partially offset by
increases due to the finished goods inventories which were retained by Heinz,
reduced amortization expense on intangible assets with indefinite lives,
acquisitions and favorable pricing. Fiscal 2003 gross profit was also
unfavorably impacted by $6.0 million for costs related to the Del Monte
transaction and to reduce overhead of the remaining business. Operating income
decreased $43.4 million, or 15.2 % to $241.6 million due primarily to $50.0
million in costs related to the Del Monte transaction and to reduce overhead of
the remaining business, higher Selling & Distribution
13

("S&D") and General & Administrative ("G&A") expenses, and increased marketing
primarily behind Heinz Easy Squeeze! ketchup, Classico pasta sauce and the
foodservice ketchup "Insist on Heinz" campaign, partially offset by increases
due to the finished goods inventories retained by Heinz.

U.S. FROZEN

U.S. Frozen's sales increased $98.9 million, or 9.3%, to $1.16 billion.
Acquisitions, net of divestitures increased sales 5.6%, due primarily to the
Fiscal 2002 acquisitions of Delimex frozen Mexican foods, Anchor's Poppers
retail frozen appetizers and licensing rights to the T.G.I. Friday's brand of
frozen snacks and appetizers. Lower pricing decreased sales 2.1%, primarily due
to Boston Market HomeStyle meals and appetizers and SmartOnes frozen entrees,
partially offset by a reduction in trade promotions related to the launch of Hot
Bites in the prior year and in Ore-Ida frozen potatoes. Sales volume increased
5.8% primarily due to the finished goods inventories which were retained by
Heinz and SmartOnes frozen entrees, partially offset by declines in Boston
Market HomeStyle side dishes, Ore-Ida Funky Fries, and Hot Bites.

Gross profit increased $31.7 million or 8.1%, to $421.5 million; however,
the gross profit margin decreased to 36.2% from 36.6%. The increase in gross
profit is primarily due to finished goods inventories retained by Heinz and
acquisitions, partially offset by lower pricing, unfavorable sales mix,
increased trade promotions and costs to exit the Ore-Ida Funky Fries and Hot
Bites product lines. Operating income decreased $25.6 million, or 15.5%, to
$139.9 million due primarily to increased consumer marketing on SmartOnes frozen
entrees and Ore-Ida frozen potatoes and increased S&D partially offset by the
change in gross profit, reduced G&A expenses and the impact of the finished
goods inventories retained by Heinz.

RESULTS OF CONTINUING OPERATIONS -- 2002 VERSUS 2001

Sales for Fiscal 2002 increased $27.5 million, or 1.0%, to $2.83 billion.
Acquisitions increased sales by 18.3%. Offsetting this were decreases from lower
pricing of 2.7%, divestitures of 3.5%, and volume decreases of 11.1%. The
majority of the volume decrease (10.2%) is a result of the finished goods
inventories which were not contributed to Heinz Finance.

The favorable impact of acquisitions is primarily related to Classico and
Aunt Millie's pasta sauce, Mrs. Grass Recipe soups and Wyler's bouillons and
soups in the North America segment and Delimex frozen Mexican foods, Anchor's
Poppers retail frozen appetizers and licensing rights to the T.G.I. Friday's
brand of frozen snacks and appetizers in the U.S. Frozen segment.

Gross profit decreased $22.1 million, or 2.1%, to $1.04 billion, and the
gross profit margin decreased to 36.8% from 38.0%. Gross profit across both of
our segments was unfavorably impacted as a result of the retention of finished
goods inventories by Heinz, partially offset by the impact of acquisitions.
Fiscal 2001 operating income was also unfavorably impacted by Operation Excel
net restructuring and implementation costs of $19.2 million.

SG&A decreased $84.7 million, or 15.6%, to $456.8 million, and decreased as
a percentage of sales to 16.1% from 19.3%. This decrease is primarily
attributable to the finished goods inventories which were retained by Heinz
partially offset by acquisitions and increased S&D costs. Fiscal 2001 SG&A was
also impacted by $146.4 million due to net restructuring and implementation
costs related to Project Streamline and Operation Excel, acquisition costs and
the loss related to the sale of The All American Gourmet business.

Operating income increased $8.3 million, or 1.9%, to $447.8 million, and
increased slightly as a percentage of sales to 15.8% from 15.7% due primarily to
acquisitions, partially offset by the retention of finished good inventories by
Heinz. Fiscal 2001 operating income was also unfavorably impacted by $165.6
million for net restructuring and implementation costs related to Project
Streamline and Operation Excel, acquisition costs and the loss related to the
sale of The All American Gourmet business.

14

Interest expense increased $122.2 million to $142.9 million, due primarily
to the assumption of approximately $2.9 billion of Heinz's outstanding U.S. debt
by Heinz Finance on May 3, 2001 as well as increased borrowings partially offset
by lower interest rates. Interest income decreased $7.7 million to $35.7
million, due primarily to the exchange of related party notes receivable for
$1.9 billion of non-voting 6.5% cumulative participating preferred stock of PM
Holding during the fourth quarter of Fiscal 2001. This decrease was offset by an
increase due to Heinz Finance's new short-term notes receivables with related
parties in Fiscal 2002. Other expenses, net decreased $9.4 million to $8.6
million, primarily related to a reduction in accounts receivable factoring
discount expense partially offset by increased amortization of debt issuance
costs.

The effective tax rate for Fiscal 2002 was 14.2% compared to 37.6% in
Fiscal 2001. This decrease is primarily the result of Heinz Finance's nontaxable
minority interest in Heinz LP in Fiscal 2002.

Income from continuing operations decreased $167.9 million to $109.4
million. The majority of this decrease is due to the minority interest in Heinz
LP. In Fiscal 2001, the Company changed its method of accounting for revenue
recognition in accordance with SAB No. 101, "Revenue Recognition in Financial
Statements". The cumulative effect of adopting SAB No. 101 was $3.2 million in
Fiscal 2001.

HEINZ NORTH AMERICA

Sales of the Heinz North America segment decreased $68.4 million, or 3.7%,
to $1.77 billion. Acquisitions, net of divestitures, increased sales 12.8%.
Lower pricing decreased sales 3.6%, primarily related to increased marketing
spend across all major brands and to foodservice ketchup. Sales volume decreased
13.0%, primarily due to the finished goods inventories which were not
contributed to Heinz Finance as well as decreases in the foodservice business
and Heinz steak sauces, partially offset by volume increases in grilling sauces.

Gross profit decreased $73.2 million, or 10.1% to $655.4 million, due
primarily to inventories retained by Heinz, lower pricing and a decrease in the
foodservice business partially offset by the favorable impact of acquisitions.
Fiscal 2001 gross profit was also unfavorably impacted by $2.8 million related
to Operation Excel net restructuring and implementation costs. Operating income
decreased $132.8 million, or 31.8%, to $285.1 million, due primarily to the
decrease in gross profit driven by the foodservice business and higher S&D
costs, partially offset by the favorable impact of acquisitions. Fiscal 2001
operating income was also unfavorably impacted by $47.6 million by net
restructuring and implementation costs related to Operation Excel and Project
Streamline and by acquisition costs.

U.S. FROZEN

U.S. Frozen's sales increased $95.9 million, or 9.9%, to $1.07 billion.
Acquisitions increased sales 26.5%. Sales volume decreased 7.7% due primarily to
the finished goods inventories which were not contributed to Heinz Finance as
well as decreases in Ore-Ida frozen potatoes, partially offset by volume
increases in SmartOnes frozen entrees, Boston Market HomeStyle Meals and Bagel
Bites snacks. Lower pricing decreased sales 1.0%, primarily due to increased
marketing spend across all major brands and lower pricing in Boston Market
HomeStyle Meals, partially offset by higher pricing of SmartOnes frozen entrees
and frozen potatoes. Divestitures reduced sales by 7.9% due to the divestiture
of Budget Gourmet.

Gross profit increased $52.4 million, or 15.5%, to $389.8 million, due
primarily to acquisitions, partially offset by retained inventories by Heinz.
Fiscal 2001 gross profit was unfavorably impacted by $16.3 million for Operation
Excel net restructuring and implementation costs. Operating income increased
$142.2 million to $165.5 million as the favorable impact of acquisitions was
partially offset by the impact of retained inventories, lower pricing, increased
S&D costs and the divestiture of Budget Gourmet. Fiscal 2001 operating income
was also unfavorably impacted by $117.9 million for Operation

15

Excel net restructuring and implementation costs and the loss on the sale of The
All American Gourmet.

LIQUIDITY AND FINANCIAL POSITION

The following discussion of cash flows includes cash flows from
discontinued operations.

CASH FLOWS FROM OPERATING ACTIVITIES

Cash provided by operating activities increased to $734.8 million in Fiscal
2003, compared to cash required of $32.9 million in Fiscal 2002. The increase is
primarily due to improved working capital performance in accounts receivable and
inventory, as well as the building of inventory levels in Fiscal 2002 as a
result of all finished goods inventories being retained by Heinz on May 3, 2001.

CASH FLOWS FROM INVESTING ACTIVITIES

Cash used for investing activities was $55.2 million in Fiscal 2003
compared to $874.8 million in Fiscal 2002. Acquisitions in Fiscal 2002 required
$809.4 million, due primarily to the purchase of Borden Food Corporation's pasta
and dry bouillon and soup business, Delimex Holdings, Inc. and Anchor Food
Products branded retail business and licensing rights to the T.G.I. Friday's
brand of frozen snacks and appetizers. Capital expenditures totaled $59.6
million compared to $77.2 million in Fiscal 2002. Proceeds from disposals of
property, plant and equipment were $5.4 million in Fiscal 2003 compared to $3.3
million in Fiscal 2002.

CASH FLOWS FROM FINANCING ACTIVITIES

In Fiscal 2003, cash used for financing activities was $492.2 million
compared to providing $904.5 million in Fiscal 2002. There were no proceeds from
long-term debt in Fiscal 2003 compared to $1.99 billion in Fiscal 2002. Payments
on long-term debt required $651.1 million in Fiscal 2003 compared to $309.9
million in Fiscal 2002. Heinz Finance received $1,062.1 million of net proceeds
from Heinz related to the Del Monte transaction in Fiscal 2003. Payments on
commercial paper were $89.1 million compared to $168.9 million in Fiscal 2002.
Payments on short-term borrowings with related parties required $384.3 million
compared to $788.8 million in Fiscal 2002. In addition, $325.0 million was
provided during Fiscal 2002 via the issuance of preferred stock which is
discussed below. Dividend payments to preferred shareholders totaled $20.2
million compared to $15.7 million for Fiscal 2002. In addition, distributions to
minority partners were $412.9 million in the Fiscal 2003 and $108.9 million in
Fiscal 2002.

OTHER FINANCIAL AND LIQUIDITY MATTERS

Return on average shareholders' equity was 28.3% in Fiscal 2003, 4.5% in
Fiscal 2002 and 6.2% in Fiscal 2001. Pretax return on average invested capital
was 8.5% in Fiscal 2003, 12.1% in Fiscal 2002 and 9.4% in Fiscal 2001.

As noted above, during Fiscal 2003, Heinz Finance focused on improving the
efficiency of its working capital. The working capital improvements, reduced
capital expenditures and the proceeds from the Del Monte transaction allowed
Heinz Finance to reduce net debt (total debt net of interest rate swaps, less
cash and cash equivalents) by approximately $900 million to $3.6 billion in
Fiscal 2003 from $4.5 billion in Fiscal 2002. A portion of the Del Monte
proceeds was used to retire $650 million of long-term debt. Additional net debt
reductions are anticipated in Fiscal 2004.

In Fiscal 2002, Heinz Finance issued $325 million of 6.226% Voting
Cumulative Preferred Stock. The preferred stock is required to be redeemed in
July 2008. Also during Fiscal 2002, Heinz Finance privately placed $750 million
of 6.625% Notes due July 2011, $700 million of 6.00% Notes due March 2012 and
$550 million of 6.75% Notes due March 2032. All of these notes are guaranteed by
Heinz and they were exchanged in March 2003 for new notes, which were
substantially identical in all respects, except for being registered under the
Securities Act of 1933. The proceeds from the issuance of the preferred stock
and the notes were used to retire commercial paper borrowings and for other
general corporate purposes.

16

In September 2001, Heinz and Heinz Finance entered into a 364-Day Credit
Agreement, which was renewed in September 2002, and a Five-Year Credit
Agreement, expiring in September 2006. The 364-day agreement permits Heinz and
Heinz Finance to borrow up to $800 million. The five-year agreement permits
Heinz and Heinz Finance to borrow up to $1.5 billion. These agreements support
Heinz's and Heinz Finance's commercial paper borrowings and the remarketable
securities. As a result, these borrowings are classified as long-term debt based
upon Heinz's and Heinz Finance's ability to refinance these borrowings on a
long-term basis.

As of April 30, 2003, Heinz Finance had $800 million of remarketable
securities due November 2020. The securities are subject to an annual
remarketing on each November 15, and the interest rate will be reset on such
dates. If the securities are not remarketed, then Heinz Finance is required to
repurchase all of the securities on the remarketing date at 100% of the
principal amount plus accrued interest. On November 15, 2002, the securities
were remarketed at an effective yield to Heinz Finance of 6.56%. In January
2003, $200 million of the remarketable securities were retired with proceeds
from the Del Monte transaction as described above.

All of Heinz Finance's debt is guaranteed by Heinz. At April 30, 2003,
Heinz's long-term debt ratings were "A" at Standard & Poor's and Fitch and "A3"
at Moody's and Heinz's short-term debt ratings were "A1" at Standard & Poor's,
"F-1" at Fitch and "P2" at Moody's.

Since the beginning of Fiscal 2002, Heinz Finance has significantly
increased the proportion of long-term debt to total debt such that at April 30,
2003 long-term debt represented 97.8% of total debt as compared to a ratio of
87.0% at May 1, 2002. Through the use of interest rate swaps, Heinz Finance has
converted $2.55 billion of fixed rate debt to floating rates in order to
maintain our desired mix of fixed and floating rate debt, while continuing to
maintain long-term financing. The nature and amount of Heinz's long-term and
short-term debt as well as the proportionate amount of fixed-rate and
floating-rate debt can be expected to vary as a result of future business
requirements, market conditions and other factors.

In Fiscal 2003, the cash requirements of the Del Monte transaction and
costs to reduce overhead of the remaining businesses were approximately $35
million. Fiscal 2004 cash requirements related to these items are expected to be
approximately $14 million. In Fiscal 2003, the cash requirements of Streamline
were $1.0 million, relating to severance and exit costs.

COMMITMENTS AND CONTINGENCIES

Heinz Finance is obligated to make future payments under various contracts
such as debt agreements, lease agreements and unconditional purchase
obligations. The following table represents the significant contractual cash
obligations of Heinz Finance as of April 30, 2003.

- ---------------

* Includes the purchase option related to certain warehouses and equipment
currently utilized under synthetic leases.

Heinz Finance has purchase commitments for materials, supplies, services
and property, plant and equipment as part of the ordinary conduct of business. A
few of these commitments are long-term and are based on minimum purchase
requirements. In the aggregate, such commitments are not at prices in excess of
current markets. Due to the proprietary nature of some of Heinz Finance's
materials and processes, certain supply contracts contain penalty provisions for
early terminations.

17

Heinz Finance does not believe that a material amount of penalties is reasonably
likely to be incurred under these contracts based upon historical experience and
current expectations.

Heinz Finance does not have material financial guarantees or other
contractual commitments that are reasonably likely to adversely affect
liquidity. See Note 7 of the consolidated and combined financial statements for
disclosure of all significant related party items.

MARKET RISK FACTORS

Heinz Finance is exposed to market risks from adverse changes in interest
rates, commodity prices and production costs. As a policy, Heinz Finance does
not engage in speculative or leveraged transactions, nor does Heinz Finance hold
or issue financial instruments for trading purposes.

INTEREST RATE SENSITIVITY

Heinz Finance is exposed to changes in interest rates primarily as a result
of its borrowing and investing activities used to maintain liquidity and fund
business operations. The nature and amount of Heinz Finance's long-term and
short-term debt can be expected to vary as a result of future business
requirements, market conditions and other factors. Heinz Finance's net debt
obligations totaled $3.6 billion and $4.5 billion at April 30, 2003 and May 1,
2002, respectively. Heinz Finance's debt obligations are summarized in Note 9 to
the consolidated and combined financial statements.

In order to manage interest rate exposure, Heinz Finance utilizes certain
interest rate swaps under its fair value hedging strategy in order to convert
fixed-rate debt to floating. Accordingly, changes in the fair value of these
derivatives, along with changes in the fair value of the hedged debt obligations
that are attributable to the hedged risk are recognized in current period
earnings. Based on the amount of fixed-rate debt converted to floating as of
April 30, 2003, a variance of 1/8% in the related interest rate would cause
annual interest expense related to this debt to change by approximately $3.2
million. The following table presents additional information related to interest
rate contracts designated as fair value hedges by Heinz Finance:

At April 30, 2003, Heinz Finance also maintained interest rate swaps with a
total notional amount of $400 million that do not meet the criteria for hedge
accounting but effectively mitigate interest rate exposures. These swaps mature
within 12 months and are accounted for on a full mark-to-market basis through
current earnings. Net unrealized gains related to these swaps totaled $2.1
million at April 30, 2003.

COMMODITY PRICE SENSITIVITY

Heinz Finance is the purchaser of certain commodities such as corn, soybean
oil and soybean meal. Heinz Finance generally purchases these commodities based
upon market prices that are established with the vendor as part of the purchase
process. Heinz Finance may enter into commodity futures, swaps and option
contracts to reduce the effect of price fluctuations on forecasted purchases.
Heinz Finance held commodity contracts to hedge certain forecasted purchases
with a notional amount of $21 million and $30 million at April 30, 2003 and May
1, 2002, respectively. Such contracts generally have a term of less than one
year, and are accounted for as cash flow hedges if they meet certain qualifying
criteria. Accordingly, the effective portion of gains and losses is deferred as
a component of other comprehensive gain/loss and is recognized as part of cost
of products sold at the

18

time the hedged item affects earnings. Any gains and losses due to hedge
ineffectiveness or related to contracts which do not qualify for hedge
accounting are recorded in current period earnings in other expenses, net. Net
unrealized losses related to commodity contracts held by Heinz Finance were not
material at April 30, 2003 or May 1, 2002.

FOREIGN EXCHANGE RATE SENSITIVITY

Heinz Finance's cash flow and earnings are subject to fluctuations due to
exchange rate variation. Foreign currency risk exists due to Heinz Finance's
foreign currency denominated borrowings. Heinz Finance had Euro denominated
borrowings totaling $335.6 million and $272.1 million at April 30, 2003 and May
1, 2002, respectively. These debt obligations are due in January 2005. Losses of
$65.4 million and $3.8 million due to exchange rate variation were reported in
other expenses, net for the years ended April 30, 2003 and May 1, 2002,
respectively. These Euro denominated notes are designated as net investment
hedges of foreign operations at the Heinz level. Because Heinz Finance does not
have foreign operations, the changes in value due to exchange rate variation
does not qualify for hedge accounting treatment at Heinz Finance.

EFFECT OF HYPOTHETICAL 10% FLUCTUATION IN MARKET PRICES

As of April 30, 2003, the potential gain or loss in the fair value of Heinz
Finance's outstanding interest rate contracts, commodity contracts and foreign
currency denominated borrowings, assuming a hypothetical 10% fluctuation in swap
rates, market prices and currency rates, respectively, would be approximately:

In relation to interest rate contracts and commodity contracts, it should be
noted that any change in the fair value of the contracts, real or hypothetical,
would be significantly offset by an inverse change in the value of the
underlying hedged items.

INFLATION

In general, costs are affected by inflation and the effects of inflation
may be experienced by Heinz Finance in future periods. Management believes,
however, that such effect have not been material to us during the past three
years.

The impact of inflation on both Heinz Finance's financial position and
results of operations is not expected to adversely affect Fiscal 2004 results.
Heinz Finance's financial position continues to remain strong, enabling it to
meet cash requirements for operations.

DISCUSSION OF SIGNIFICANT ACCOUNTING ESTIMATES

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

19

MARKETING COSTS

Trade promotions are an important component of the sales and marketing of
Heinz Finance's products, and are critical to the support of its business. Trade
promotion costs include amounts paid to encourage retailers to offer temporary
price reductions for the sale of Heinz Finance's products to consumers, amounts
paid to obtain favorable display positions in retailers' stores, and amounts
paid to customers for shelf space in retail stores. Accruals for trade
promotions are recorded primarily at the time of sale of product to the customer
based on expected levels of performance. Settlement of these liabilities
typically occurs in subsequent periods primarily through an authorized process
for deductions taken by a customer from amounts otherwise due to Heinz Finance.
As a result, the ultimate cost of a trade promotion program is dependent on the
relative success of the events and the actions and level of deductions taken by
Heinz Finance's customers for amounts they consider due to them. Final
determination of the permissible deductions may take extended periods of time.

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

Land, buildings and equipment are recorded at cost and are depreciated on a
straight-line method over the estimated useful lives of such assets. Changes in
circumstances such as technological advances, changes to our business model or
changes in our capital strategy could result in the actual useful lives
differing from our estimates. In those cases where we determine that the useful
life of buildings and equipment should be shortened, we would depreciate the net
book value in excess of the salvage value over its revised remaining useful
life, thereby increasing depreciation expense. Factors such as changes in the
planned use of fixtures or software or closing of facilities could result in
shortened useful lives.

LONG-LIVED ASSETS

Long-lived assets including fixed assets and intangible assets with finite
useful lives are evaluated periodically by Heinz Finance for impairment whenever
events or changes in circumstances indicate that the carrying amount of any such
asset may not be recoverable. If the sum of the undiscounted cash flows is less
than the carrying value, Heinz Finance recognizes an impairment loss, measured
as the amount by which the carrying value exceeds the fair value of the asset.
The estimate of cash flow requires significant management judgment and requires,
among other things, certain assumptions about future volume, revenue and expense
growth rates, foreign exchange rates, devaluation and inflation, and as such may
differ from actual cash flows.

GOODWILL AND INDEFINITE LIVED INTANGIBLES

Carrying values of goodwill and intangible assets with indefinite lives are
reviewed periodically for possible impairment in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets". Heinz Finance's impairment review is
based on a discounted cash flow approach that requires significant management
judgments similar to those noted above for long-lived assets, and to the
selection of an appropriate discount rate. Impairment occurs when the carrying
value of the reporting unit exceeds the discounted present value of the cash
flows for that reporting unit. An impairment charge is recorded for the
difference between the carrying value and the net present value of estimated
future cash flows, which represents the estimated fair value of the asset. Heinz
Finance uses its judgment in assessing whether assets may have become impaired
between annual valuations. Indica-

20

tors such as unexpected adverse economic factors, unanticipated technological
change or competitive activities, loss of key personnel, acts by governments and
courts, may signal that an asset has become impaired.

INCOME TAXES

Heinz Finance accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Judgment is required in determining Heinz
Finance's provision for income taxes. In the ordinary course of Heinz Finance's
business, there are some transactions for which the ultimate tax outcome is
uncertain. Heinz Finance adjusts its income tax provision in the period it is
probable that actual results will differ from its estimates. Tax law and rate
changes are reflected in the income tax provision in the period in which such
changes are enacted.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

This information is set forth in this report in Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 18 through 19.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

TABLE OF CONTENTS

Report of Independent Auditors.............................. 23
Consolidated and Combined Statements of Income.............. 24
Consolidated Balance Sheets................................. 25
Consolidated Statements of Shareholders' Equity............. 26
Consolidated and Combined Statements of Cash Flows.......... 27
Notes to Consolidated and Combined Financial Statements..... 28

22

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
H. J. Heinz Finance Company

In our opinion, the accompanying consolidated balance sheets and the
related consolidated and combined statements of income, shareholders' equity,
and cash flows present fairly, in all material respects, the financial position
of H. J. Heinz Finance Company ("the Company") and its subsidiaries at April 30,
2003 and May 1, 2002, and the results of their operations and their cash flows
for each of the three years in the period ended April 30, 2003 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 3 to the consolidated and combined financial
statements, the Company changed its method of accounting for goodwill and other
intangible assets in conformity with Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets" which was adopted as of May 2,
2002.

PRICEWATERHOUSECOOPERS LLP
Pittsburgh, Pennsylvania
July 1, 2003

23

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

The accompanying notes are an integral part of these financial statements.
24

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

The accompanying notes are an integral part of these financial statements.
25

H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of these financial statements.
26

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

The accompanying notes are an integral part of these financial statements.
27

H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

On May 3, 2001, H. J. Heinz Company ("Heinz") reorganized its U.S.
corporate structure and established centers of excellence for the management of
U.S. trademarks and for U.S. treasury functions. As a result, all of the U.S.
treasury and business operations of Heinz's domestic operations ("the U.S.
Group") are now being conducted by H. J. Heinz Finance Company and its
wholly-owned subsidiaries, and H. J. Heinz Company, L.P. ("Heinz LP")
collectively referred to as "Heinz Finance" in the accompanying notes. H. J.
Heinz Finance Company has limited partnership interests in Heinz LP. As part of
the reorganization, substantially all assets and liabilities of the U.S. Group,
except for finished goods inventories, which were retained by Heinz, were
contributed to Heinz LP by Heinz. In addition, certain assets and liabilities
that related to the U.S. Group were assumed by Heinz Finance during Fiscal 2002
and 2003. H. J. Heinz Finance Company also assumed primary liability for
approximately $2.9 billion of Heinz's outstanding senior unsecured debt and
accrued interest by becoming co-obligor with Heinz.

Heinz LP owns or leases the operating assets involved in manufacturing
throughout the United States which were contributed by Heinz and its
subsidiaries, together with other assets and liabilities, to Heinz LP and
manages the business. Heinz LP has two classes of limited partnership interests,
Class A and Class B, that are allocated varying income and cash distributions in
accordance with the Heinz LP agreement. H. J. Heinz Finance Company, directly
and through wholly-owned subsidiaries, owns the Class B interests. Heinz
directly owns the Class A interests. Heinz Management Company, a wholly-owned
subsidiary of Heinz, is the managing General Partner of Heinz LP and employs the
salaried personnel of the U.S. Group. Under the partnership agreement, Heinz
Finance has the power to control the general partner through majority membership
on Heinz LP's management board. The minority interest amounts on the April 30,
2003 and May 1, 2002 balance sheets represent the Class A and General Partner
limited partnership interest in Heinz LP, and have been adjusted for the
minority partners' share of income and cash distributions.

For all Heinz financial reporting and disclosure purposes, H. J. Heinz
Finance Company and its subsidiaries (including Heinz LP) are treated as fully
consolidated subsidiaries. All of the assets, liabilities, results of operations
and cash flows of these entities are included in the Heinz consolidated
financial statements. All of the intercompany transactions and accounts are
eliminated within the Heinz consolidated financial statements. The preferred
shares issued by Heinz Finance are shown as minority interest in the Heinz
consolidated financial statements.

The preparation of the May 2, 2001 combined financial statements include
the use of "carve out" and "push down" accounting procedures wherein assets,
liabilities and expenses historically recorded or incurred at the parent company
level or an affiliate of Heinz, which related to or were incurred on behalf of
the U.S. Group, have been identified and allocated or pushed down as appropriate
to reflect results of the U.S. Group for the periods presented. See Note (7),
for a further discussion regarding the allocation of Heinz parent company costs.

2. SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

Heinz Finance operates on a 52- or 53-week fiscal year ending the Wednesday
nearest April 30. Fiscal years for the financial statements included herein
ended April 30, 2003, May 1, 2002 and May 2, 2001.

28

H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

PRINCIPLES OF CONSOLIDATION AND COMBINATION

The consolidated and combined financial statements include the accounts of
Heinz Finance. All intercompany accounts and transactions have been eliminated.
Investments owned less than 50%, where significant influence exists, are
accounted for on an equity basis. Certain prior-year amounts have been
reclassified in order to conform with Fiscal 2003 presentation. The accounting
policies of Heinz Finance and the U.S. Group are the same.

USE OF ESTIMATES

The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

CASH EQUIVALENTS

Cash equivalents are defined as highly liquid investments with original
maturities of 90 days or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
principally under the average cost method.

PROPERTY, PLANT AND EQUIPMENT

Land, buildings and equipment are recorded at cost. For financial reporting
purposes, depreciation is provided on the straight-line method over the
estimated useful lives of the assets. Accelerated depreciation methods are
generally used for income tax purposes. Expenditures for new facilities and
improvements that substantially extend the capacity or useful life of an asset
are capitalized. Ordinary repairs and maintenance are expensed as incurred. When
property is retired or otherwise disposed, the cost and related depreciation are
removed from the accounts and any related gains or losses are included in
income. Property, plant and equipment are reviewed periodically for possible
impairment. Heinz Finance's impairment review is based on an undiscounted cash
flow analysis at the lowest level for which identifiable cash flows exist.
Impairment occurs when the carrying value of the asset exceeds its future
undiscounted cash flows. When an impairment is indicated, the asset is written
down to its fair value.

INTANGIBLES

Intangible assets with finite useful lives are amortized on a straight-line
basis over the estimated periods benefited, and are reviewed periodically for
possible impairment, similar to property, plant and equipment. Goodwill and
intangible assets with indefinite useful lives are not amortized. Prior to 2002,
goodwill and intangible assets with indefinite useful lives were amortized over
periods not exceeding 40 years. The carrying values of goodwill and other
intangible assets with indefinite useful lives are tested at least annually for
impairment.

29

H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

PARENT COMPANY'S INVESTMENT

Heinz's investment for Fiscal 2001 represents the original investment by
Heinz plus accumulated net income, less dividends, capital contributions,
certain intercompany accounts and current federal and state income taxes
payable.

REVENUE RECOGNITION

Heinz Finance recognizes revenue when title, ownership and risk of loss
pass to the customer.

ADVERTISING EXPENSES

Advertising costs are expensed in the year in which the advertising first
takes place.

INCOME TAXES

Until July 6, 2001, Heinz Finance joined with Heinz in the filing of a
consolidated U.S. income tax return and state income tax returns. After July 6,
2001, H. J. Heinz Finance Company began filing its own consolidated U.S. income
tax return. U.S. tax expense for all periods prior to July 7, 2001, and state
tax expense for all years includes the effect of certain tax sharing agreements
Heinz Finance has with Heinz regarding these consolidated filings. Specifically,
Heinz charged (refunded) Heinz Finance at the U.S. statutory rate for its actual
taxable income (loss). In addition, Heinz charges Heinz Finance for its share of
consolidated state tax expense based on Heinz Finance's share of the state
allocation factors.

Deferred income taxes result primarily from temporary differences between
financial and tax reporting. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized.

FINANCIAL INSTRUMENTS

Heinz Finance's financial instruments consist primarily of cash and cash
equivalents, short-term and long-term notes receivable from related parties,
short-term debt with related parties, long-term debt, swaps, commodity futures,
and option contracts. The carrying values for Heinz Finance's financial
instruments approximate fair value with the exception at times of long-term
debt. As of April 30, 2003 and May 1, 2002, the fair value of debt obligations
approximated the recorded value. As a policy, Heinz Finance does not engage in
speculative or leveraged transactions, nor does Heinz Finance hold or issue
financial instruments for trading purposes.

Heinz Finance uses derivative financial instruments for the purpose of
hedging price and interest rate exposures, which exist as part of ongoing
business operations. Heinz Finance carries derivative instruments on the balance
sheet at fair value, determined by reference to quoted market prices. Interest
rate swaps designated as fair value hedges are presented as a component of other
non-current assets. All other derivatives are included in receivables or
accounts payable, based on the instrument's fair value. The accounting for
changes in the fair value of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, the
reason for holding it. The cash flows related to derivative instruments are
classified in the consolidated and combined statements of cash flows within
operating activities as a component of other items, net.

3. RECENTLY ISSUED ACCOUNTING STANDARDS

In Fiscal 2001, Heinz Finance changed its method of accounting for revenue
recognition in accordance with Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." Under the new accounting method,
adopted retroactive to May 4, 2000, Heinz Finance

30

H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

recognizes revenue upon the passage of title, ownership and risk of loss to the
customer. The cumulative effect of the change on prior years resulted in a
charge to income in Fiscal 2001 of $3.2 million (net of income taxes of $1.9
million). The change did not have a significant effect on revenue or results of
operations for the year ended May 2, 2001.

Effective May 2, 2002, Heinz Finance adopted SFAS No. 142 "Goodwill and
Other Intangible Assets." Under this Standard, goodwill and intangibles with
indefinite useful lives are no longer amortized. This Standard also requires, at
a minimum, an annual assessment of the carrying value of goodwill and
intangibles with indefinite useful lives. The reassessment of intangible assets,
including the ongoing impact of amortization, and the assignment of goodwill to
reporting units was completed during the first quarter of Fiscal 2003.

Heinz Finance completed its transitional goodwill impairment tests during
the second quarter of Fiscal 2003. No impairment issues were identified as a
result of completing these transitional impairment tests.

The effects of adopting the new standards on net income are as follows:

Income from continuing operations for Fiscal 2002 and 2001 would have been
$110.1 million and $288.1 million, respectively, had the provisions of the new
standards been applied as of May 4, 2000.

Changes in the carrying amount of goodwill for the fiscal year ended April
30, 2003 by reportable segment are as follows:

Trademarks and other intangible assets at April 30, 2003 and May 1, 2002,
subject to amortization expense, are as follows:

31

H. J. HEINZ FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Amortization expense for trademarks and other intangible assets subject to
amortization was $9.6 million for Fiscal 2003. Based upon the amortizable
intangible assets recorded on the balance sheet at April 30, 2003, amortization
expense for each of the next five years is estimated to be approximately $10.0
million.

Intangible assets not subject to amortization at April 30, 2003 and May 1,
2002, were $91.1 million and consisted solely of trademarks.

Effective May 2, 2002, Heinz Finance adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets, expands the scope of a discontinued
operation to include a component of an entity and eliminates the current
exemption to consolidation when control over a subsidiary is likely to be
temporary. The adoption of this new standard did not have a material impact on
Heinz Finance's financial position, results of operations or cash flows for the
fiscal year ended April 30, 2003.

During Fiscal 2003, Heinz Finance adopted SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities. This Statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. This
Statement also establishes that fair value is the objective for initial
measurement of the liability.

During Fiscal 2003, Heinz Finance adopted Financial Accounting Standards
Board ("FASB") Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by a
guarantor about its obligations under certain guarantees that it has issued, and
it requires the recognition of a liability at fair value by a guarantor at the
inception of a guarantee. The disclosure requirements of FIN 45 were effective
as of January 29, 2003. The initial recognition and measurement provisions of
FIN 45 are effective on a prospective basis for all guarantees issued or
modified after December 31, 2002. Heinz Finance has not issued or modified any
material guarantees since December 31, 2002.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement affects the classification, measurement and disclosure requirements of
certain freestanding financial instruments, including mandatorily redeemable
shares. SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective for Heinz Finance for
the second quarter of Fiscal 2004. The adoption of SFAS No. 150 will require the
reclassification of Heinz Finance's $325 million of mandatorily redeemable
preferred shares to the liabilities section of the consolidated balance sheet
and the $20.2 million annual preferred dividend from retained earnings on the
consolidated balance sheet to interest expense on the consolidated statement of
income.

4. DISCONTINUED OPERATIONS AND SPIN-OFF

On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities,